***half OT***
think i owe you a PM myself, ray.
holidaze? you said it, my man. and i like it.
if you'll indulge me, i'll soon be taking a lengthy respite from SI. off to pusan & tokyo on bidnez this week -- with a couple-day layover, kinda close to your hill, to visit the 'rents (read: puddle city, aka the battle in seattle!). but frankly, the real R&R starts the day after xmas. speaking of fisticuffs, can you say thrilla in manila? or hong kong fuey?
i'm hoping 16 days in phili and HK will do my body right. (gonna try and get a little scuba in too.)
on my return, perhaps i'll be rejuvenated to jaw about some real issues. we'll sink our teeth into fiber, the OSI model, George "Jeston" Gilder, NAS -vs- SAN (SNASie?) and the leftovers.
and you can rib me about Po.
fwiw, another one of my homeboyz on SI just got hooked up by the cable guy. i think my 'hood needs to exit the medieval times.
wavplace.com
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BUSINESS
Applied Micro proves not all stock options programs out of control
DON BAUDER
12/03/1999
The San Diego Union-Tribune
"I don't feel undernourished by the company," said David M. Rickey, president and chief executive officer of Applied Micro Circuits Corp., maker of integrated circuit products for the telecom industry.
But Rickey has a right to feel that way, said Graef Crystal of Crystalreport.com, the newsletter on corporate compensation, with dual headquarters in San Diego and Santa Rosa.
Crystal, who is extremely critical of runaway stock options at high-tech companies, believes that San Diego-based Applied Micro is a paragon of virtue in an industry reeking of greed.
First, Applied Micro's stock has performed spectacularly. The person investing $100 in Applied Micro when it went public in late 1997 would have made about 28 times more than the person who put $100 in the Standard & Poor's 500 then, Crystal said.
Despite this, CEO Rickey has a modest pay package.
"Here is a guy whose base salary is only $315,000 and who got a bonus of $110,000," Crystal said.
Rickey got no stock options in 1997 and 1999, "and a mere 146,666 in 1998," Crystal said
"He has only 80,000 option shares that he hasn't exercised," he said.
Excluding options, Rickey has 592,278 shares, worth $53.4 million at yesterday's close of $90.25, up $4.13, so he is no pauper. But his annual stock options "are numbers that in Silicon Valley would be on a per-month basis," Crystal said.
"Maybe San Diego companies have been in the sun too long and are unclear of the concept that you're supposed to ask for 2- to 3- million shares a year," he said.
Rickey says his own salary and options grants are based on what other companies Applied Micro's size are paying.
"But we don't let it run away," Rickey says.
The company prefers to err on the low side.
Attracting talent is, of course, a major consideration.
"In Silicon Valley, people feel they have to give away a lot of stock options to retain key engineering people," Rickey said. "Our philosophy is, the way to attract and retain engineers is to have great technology and superb financial performance."
The company has a stock options program for employees, "but we try to inspire them to stay, not try to bribe them to keep them from leaving," Rickey said.
Thus, Applied Micro is relying more on capital gains in the stock than shelling out a large number of options. It helps that the company makes components used in optical transmission equipment, key to the build-out of Internet transmission infrastructure.
"The most exciting growth driver for the company is the Internet," said Mark J. Lipacis of Merrill Lynch.
Lipacis expects the company to ship 40 new communications products next year, up 100 percent. He has a long-term buy rating on the stock.
Noting that Applied Micro "hit the jackpot" in its latest quarter, Bud Leedom of San Diego Stock Report said Wall Street analysts are looking for the stock to hit $100.
"We won't stand in the way," Leedom said.
On the other hand ...
Another company based in the Southern California sun is displaying as much greed as Silicon Valley, Crystal said. Costa Mesa-based Emulex Corp., which sells network enhancement products, does something that Applied Micro refuses to do: reprice stock options.
And in repricing its options after its stock descended, Emulex managed to locate almost the exact bottom, Crystal said.
The stock had languished around $3 a share for 10 years before shooting above $14 in mid-1995. Then it sagged back down to $3, and on July 6, 1998, the company authorized a repricing of all stock options, except for the chief executive.
Then the stock began to climb -- and climb, and climb, and climb. Yesterday it closed at $159.06, up $3.50 -- a one-day climb that exceeded the $3 repricing level of mid-1998.
"Conspiracy theorists are likely to wonder aloud whether the Emulex board, with its insider knowledge, knew that the company's stock price had nowhere to go but up and simply capitalized on that knowledge," Crystal said.
Emulex's chief financial officer Michael J. Rockenbach said: "The average option price was $16, and they were repriced down to $6, and then a two-for-one split brought it to $3."
"So it would have been a split-adjusted rise of $8 to $159, not $3 to $159," so the difference is not so dramatic, Rockenbach said.
However, $16 to $6 was a pretty significant repricing, in my judgment.
"It was done for retention of employees," Rockenbach said.
Said Crystal: "Was this repricing necessary?"
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Don Bauder's e-mail address is don.bauder@uniontrib.com |
