Chip industry plays major role in options megadisaster
The Semiconductor Reporter
May 25, 2006
NEW YORK -- The high-tech industry this week looks like a cancer patient that is undergoing a CAT scan prior to what will likely be a long and painful surgery to remove options backdating tumors lurking throughout its body.
Of 39 U.S. companies that The Semiconductor Reporter has been able to identify as coming under scrutiny for options practices in various public reports (see table below), fully 34, or 87% of them, are in the high-tech industry. Four of the other five are in the health-care industry. Note this is not a list that claims to be comprehensive, nor are the disclosures likely to be at an end.
Many of these companies have only been identified as being "at risk," worthy of further scrutiny. But of the 39, 22 are under investigation by the Securities and Exchange Commission or federal courts. Some have announced internal investigations, and some, having been identified in reports as having some number of suspicious-looking grants, are facing shareholder lawsuits, even though they believe their hands are clean.
Of the 39 companies, a total of 15, or 39% of them, are in the semiconductor industry, including three suppliers of semiconductor manufacturing equipment, 11 chip suppliers, and semiconductor intellectual property developer Rambus Inc. Within this group of 15, seven so far have been publicly reported to be under investigation by either the SEC or a federal court, or both.
Broadcom, Lam Research, Linear Technology, Maxim Integrated Products, Novellus, and Zoran have all issued statements saying that they believe no options backdating took place at their companies. Several, however, are nonetheless facing shareholder suits triggered by identification of these companies as being at risk in the options scandal.
Lam Research made the statement proactively, it said, merely in response to investor inquiries, which goes to show how nervous investors are about the situation.
Two of the 15, Marvell and Rambus, have remained silent on the subject so far.
As with any case that potentially involves criminal behavior, it will take a long time to sort out who the guilty parties are -- and not all of that information will be made public even when all the suits are settled. And over that long period, many of these companies will incur significant expenses, including legal fees, settlement charges, accounting costs for restating historical financial reporting, costs associated with being delisted from stock exchanges, and costs associated with personnel changes.
Being involved with an options probe is guaranteed to be a massive distraction to company managers, especially those in the direct line of fire, who tend to be at or near the top of the ladder. The for-cause terminations of three executives at Vitesse, including the CEO and the CFO, may be only the beginning of the bloodletting in the chip industry. Such events can potentially have significant consequences for the performance of a company in terms of product execution, sales, and other measures.
It's no wonder the stock prices of many of the companies facing external investigations have dropped in response to recent disclosures.
Last week there seemed only an isolated handful of companies facing options issues, but the list grew much longer this week. It is now clear that this is the biggest scandal to hit the industry in some time, second only to the DRAM price-fixing mess in recent history. It might well end up doing even more damage to the industry, and it appears destined to be in the limelight for some time to come.
Affiliated Computer Services Federal court investigation
Altera Investigations by SEC, court
American Tower Investigations by SEC, court
Analog Devices Investigations by SEC, court
B/E Aerospace Named in WSJ article
Boston Communications Group Named in WSJ article
Broadcom Identified in CFRA report
Brocade Communications Identified in CFRA report
Brooks Automation Investigations by SEC, court
Caremark RX Investigations by SEC, court
CNET Networks SEC investigation, CFRA
Comverse Technology Federal court investigation
Delta Petroleum Identified in CFRA report
F5 Networks Investigations by SEC, court
Jabil Circuit SEC investigation
Juniper Networks Federal court investigation
KLA-Tencor Federal court investigation
Linear Tech Identified in M-L report
Marvell Tech Identified in M-L report
Maxim Integrated Products Identified in M-L report
McAfee Internal probe
Meade Instruments Named in WSJ article
Medarex SEC investigation
Mercury Interactive SEC investigation
Novellus Identified in M-L report
Nyfix Identified in CFRA report
Openwave SEC investigation
Power Integrations Investigations by SEC, court
Quest Software Internal probe
Rambus Identified in CFRA report
Renal Care Group Named in WSJ article
RSA Security SEC investigation
SafeNet Investigations by SEC, court
Semtech SEC investigation
Sycamore Networks SEC investigation
Trident Microsystems Named in WSJ article
UnitedHealth Group Investigations by SEC, court
Vitesse Semi Investigations by SEC, court
Zoran Identified in CFRA report
CFRA = Center for Financial Research and Analysis
M-L = Merrill Lynch
WSJ = Wall Street Journal |
