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Technology Stocks : The New QLogic (ANCR)
QLGC 16.070.0%Aug 24 5:00 PM EST
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To: THOMAS GOODRICH who wrote (18840)10/27/1998 10:35:00 PM
From: Greg Hull  Read Replies (2) of 29386
 
Tom,

<<ANCR short interest is higher than I would have estimated at this price level. Do you suppose folks are holding out for a return to the low $1's?>>

I don't think the increased short position Kerry reported should be interpreted as a negative impression of Ancor's future, nor even that there is an expectation that prices will fall significantly from here. Instead, I believe it could be traced to the price spikes caused by the Boeing announcement, and more importantly, the INRANGE announcement.

We believe that the preferred shareholders are restricted from converting more than 15% of their original holding each month. However, we do not believe that they are restricted from selling more than 15% per month. One possible explanation is that the Tail Wind fund, for example, was selling to beat the band in late September when the return was enormous. While they can convert into only 350K (or so) common shares each month, they might have chosen to sell 700-1000K shares.

They do not make any money by converting, only by selling. They are allowed to sell short as much as they wish (loosely), and take maximum advantage of the attractive returns. They can then convert enough shares in the next month or two (Oct and Nov) to cover their short position.

I think that if the Boeing and INRANGE announcements had not happened we would not have seen the big increase in the short position. What isn't clear to me is what would we like better: no increase in the short position or a big jump?

Greg
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