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Semiconductor chipmaker Marvell Technologies Group Ltd. (MRVL - Snapshot Report) has been hit hard by an untoward decision announced by a federal jury, whereby the company has been ordered to pay a hefty amount of $1.17 billion as damages. The decision held Marvell guilty after the jury found the company infringing two patented technologies of Carnegie Mellon University. The technologies were being used by Marvell for making chips that are used in hard disk drives (HDDs).

Founded in 1900, Pittsburgh-based Carnegie Mellon University serves as a private research institute. The University conducts extensive researches in various areas starting from computing to the arts to the environment to biotechnology.

The patented technologies of CMU have helped Marvell to deliver high performing chips, which in turn would help HDDs to read data from high speed magnetic disks, accurately. According to the jurors, Marvell sold billions of chips incorporating the infringed technologies. They also mentioned that the damage amount could triple as Marvell’s infringing act was found to be willful.

During the trial, Marvell defended its case by stating that the company did not use the University’s patented technologies and that the patents were invalid. However, the company officials remained unavailable for comment after the verdict was announced. The case was filed before the U.S. District Court for the Western District of Pennsylvania in March 2009.

Following the news, Marvell shares plunged 10.3% in the day’s trade with another 2.97% fall in the after-hours. No doubt the shares will remain pressured till the final hearing scheduled in May 2013.

Marvell has been through tough times for the past few quarters. Macro-economic slowdown and a lackluster PC market are badly affecting its chip demand, resulting in weak revenue as well as earnings growth.

But Marvell maintained its share buyback and dividend payout to value shareholder loyalty. This is affecting both cash balance and cash from operations adversely.

Given the current situation, it seems obvious that such a huge damage amount will further jeopardize the chipmaker’s upcoming quarters.

We are also concerned about stiff competition from major semiconductor players, such as Intel Corp. (INTC - Analyst Report), Texas Instruments Inc. (TXN - Analyst Report) and LSI Corp. .

Currently, Marvell Technology has a Zacks #4 Rank (Sell).

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