Broadcom Corp. finally dropped word on its options awards, but did anyone care?
The Irvine chipmaker said a little more than a week ago that it probably was going to take a $750 million hit to reflect costs associated with the timing of some of its stock option grants.
Some Broadcom option grants awarded from 2000 to 2002 were improperly backdated, the chipmaker’s audit committee said in a preliminary finding.
That could affect financial statements for 2000 through 2005 and the first quarter of 2006, Broadcom said.
Some of the options given to employees never were exercised because Broadcom’s shares fell below the grant price during the tech downturn, the company said.
That nearly all of the options are worthless likely calmed investors. But let’s be frank here. $750 million is a big chunk of change. The company’s net profits for the past two years don’t even reach $700 million.
When I first heard the news, my first thought was: How much more could this drag down a stock that’s already been battered during the past few months?
But on July 14, when the company said it could take the big hit to income, I was surprised to see Broadcom shares were trading higher. The company’s shares ended the day about 1%. Not a big move for Broadcom, but it did happen on a down day for the stock exchanges.
“Maybe there was some anticipation for these expenses” already priced into the stock, said Krishna Shankar, an analyst with JMP Securities.
Then the floor fell out from under Broadcom.
On Thursday, Broadcom came out with initial sales figures for the second quarter, which came in shy of expectations. Then the company warned of lower sales for the current quarter.
That sent Broadcom’s shares down in afterhours with more bleeding Friday morning. The chipmaker’s stock now is off about 50% from its spring highs with a market value of about $12.8 billion as of last week.
There still are bright spots, according to Shankar.
The company is making chips for some fast-growing markets, including cable modems, set-top boxes, consumer gadgets and networking chips, he said.
For others, the sales warning just adds to concerns about the restatement.
Standard & Poor’s analyst Thomas Smith downgraded the stock from “buy” to “hold,” the day of the stock options announcement.
“This expense still negates the equivalent of several years worth of shareholder profits,” Smith wrote in a report.
Meanwhile, the company didn’t say when it will report full second-quarter financial results because of the options inquiry. Smith said that “reduces our visibility into operations.”
The Latest Is In
MSC.Software Corp. finally is up-to-date on its financial reporting.
The company’s first quarter report showed some softness in revenue and some strength in earnings for the computer-aided engineering software maker.
The Santa Ana-based company said net income rose to $3.5 million in the quarter, compared to $560,000 a year earlier.
MSC said it boosted net income by cutting operating expenses by more than 10%, including general spending and research and development investment.
The company’s first-quarter revenue of $67.4 million was up about 1.4% from a year earlier.
This isn’t near the pace of 2005 when the company posted revenue growth of 11% from the year-ago period.
But the company said there were some one-time issues that weren’t part of a long-term problem.
One of the biggest issues is out of MSC’s control: foreign currency fluctuations. Without the effect of currency moves, MSC said its sales would have risen 5.6% to $72.2 million in the quarter.
MSC also said it was impacted by bad timing on signing some large contracts in Europe.
Earlier this year, MSC filed restated financial statements for 2002 and most of 2003. It also finally issued income statements for all of 2003 and 2004.
In June, the company filed its 2005 results with regulators.
In the past few years, MSC has delayed filing reports with the Securities and Exchange Commission as it grappled with accounting difficulties. The company switched accounting firms and restated some results.
Along the way, MSC lost its listing on the New York Stock Exchange and moved to the Pink Sheets.
Loves Europe
Europe might be lukewarm for some companies, but not FileNet Corp.
The Costa Mesa-based document management software company recently was featured in a TheStreet.com article. The angle: FileNet shows software makers how to thrive in Europe, despite complaints from others.
“I haven’t seen any reports or gotten any input from our team indicating weakness in Europe,” said Lee Roberts, chief executive of FileNet, in the story that was posted earlier this month. “In fact, our European business is growing faster than our U.S. business.”
In the first quarter, the company posted sales growth of just 1% in the U.S. while the Europe, Middle East and Africa business (of which Europe is a huge contributor) was up 23% compared to a year earlier.
FileNet reported first-quarter adjusted income of $10.1 million for the quarter, up 19% from the year-ago period.
Analysts were expecting adjusted earnings of $8.9 million. FileNet’s revenue of $108.9 million was 9% higher than a year earlier. Analysts were looking for $105.9 million.
But the company’s forecast for second-quarter adjusted income is $9.8 million, below estimates of $10.6 million.
We’ll find out how the company did on Wednesday, when FileNet reports its results.
