When the stock of a quality company dips on a day when the rest of the market is buoyant, it's easy to get suspicious. Marvell Technology (NASDAQ:MRVL) saw its shares slide 6% lower yesterday on no news ... and then the press release hit after the market had closed.
What was the news? Were the company's chips in the Sony (NYSE:SNE) PSP starting to spew out unauthorized cheat codes? Were its chips in disc-based Apple (NASDAQ:AAPL) iPods limiting music fans to storing just Milli Vanilli tracks?
No. It turns out that Marvell was simply buying UTStarcom's (NASDAQ:UTSI) semiconductor design business. But that couldn't be the cause for the day's dip, either. Marvell was paying only $24 million for the acquisition, a sum that would go up to $40 million if certain incentives were met. That was no reason for Marvell to shed $1 billion in market value.
Here's where it becomes important to remember that no company operates in a vacuum. Were there any material news events coming out of the various specialty areas that Marvell toils away in? Yes.Seagate (NYSE:STX) was buying Maxtor (NYSE:MXO) in a $1.9 billion deal. Sector consolidation in the hard-drive space may not seem like an evil at first, but it's a factor for a hard-drive chipmaker like Marvell. Fewer potential drive makers translates into more buying power for Marvell's shorter customer list.
So now we can see why Marvell investors would be concerned about the deal. But does it seem overdone that Marvell's shares should surrender more than half of the value of the deal between Seagate and Maxtor? I certainly think so.
Marvell was one of the picks featured in my "7 Stocks to Buy in 2006" article. Even with yesterday's dip, the stock is still trading 25% higher than when it was singled out back in September. The growth story may be dinged, but it's certainly not totaled. Keep watching the situation, since continued weakness may lead to an attractive entry point.
That is, of course, assuming that your video iPod isn't suddenly loaded up with old Milli Vanilli videos.
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Longtime Fool contributor Rick Munarriz knows that Marvell just can't get into the comic book business, even if it loses the last letter in its name. He does not own shares in any of the companies in this story. The Fool has a disclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
