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Strategies & Market Trends : Dave Gore's Trades That Make Sense -- Ignore unavailable to you. Want to Upgrade?

To: Dave Gore who wrote (6756)	5/6/2002 9:08:42 PM
From: Locksmith	Respond to of 16631

excerpts from an article by Aaron Elstein of The Wall Street Journal Online, 5/6/02....6:06PM NEW YORK (Dow Jones)..Shares of ESS Technology Inc (ESST) fell Monday for the second consecutive trading day after an accounting-watchdog group said the company could be boosting its earning by shifting research-and-development expenses to a company it recently spun off. ESS Technology's chief executive called the report "totally incorrect" and "misleading." The report, issued Friday by the Center for Financial Research and Analysis, said the research firm was "concerned about the potential" for ESS Technology to "boost" its earning by shifting expenses to a group called Vialta Inc., which makes consumer electronics such as DVD players.... Shares in ESS Technology rose sharply recently as the Fremont, Calif. company twice raised financial guidance in the first quarter and reported stronger-than-expected results for the period. The company said the sharp rise in sales and earnings was due to stronger-than-anticipated sales of DVD chips. But in the past few weeks, the company's stock has started to lose steam, amid investor concerns about a possible slowdown in DVD shipments... CFRA is a Rockville, Md. research firm run by Howard Schilit, a former accounting professor who has issued reports highlighting problems at such companies as MicroStrategy and Sunbeam before they became widely acknowledged. Schilit's reports are frequently read by short-sellers.... In its report, CFRA said ESS Technology could be using Vialta as a means of shifting research-and-development costs... ESS Technology's chief executive, Robert Blair, said he was "very upset" with the report, which he called "totally misleading" and "false." "Vialta does no R&D for ESS Technology, and ESS Technology does no R&D for Vialta," he said. "The companies are separate." Blair said he believes the report was written in concert with short-sellers. Schilit didn't return a call seeking comment. The issue of research-and-development expenses at Vialta is important, some critics of ESS Technology contend, because ESS Technology's R&D costs are lower than many of its competitors. ESS Technology said in its annual report that R&D were 10.3% of net revenues last year, and 9.2% in 2000. At Zoran Corp., a Santa Clara, Calif., maker of chips of DVD players, R&D expenses were 21% of revenues last year, and 23.4% in 2000... Blair said ESS Technology's levels of R&D spending are appropriate for the company... Write to Aaron Elstein at aaron.elstein@wsj.com