Broadcom Corp.’s stock picked a strange time to post a rebound.
The Irvine chipmaker’s shares are up around 25% in just the past month,beating out some rivals and exceeding Nasdaq. That came after months of decline that wiped away more than $10 billion in market value.
The company is weighed down by a look into stock options backdating. The review has delayed the filing of Broadcom’s most recent quarterly report with the Securities and Exchange Commission. That delay has landed it (and other companies) in hot water with Nasdaq, which has sent Broadcom a delisting warning.
The company has taken up an internal probe of the backdating issue. Already, Broadcom has said the cost to earnings could be upward of $750 million.
Meanwhile, investors still don’t have a complete second-quarter report. A press release featured only sales numbers and the balance sheet. No one knows what the quarter’s earnings are,and won’t until the investigation into stock option backdating wraps up.
And then there’s concern about sales growth, which cooled in the second quarter after several red-hot quarters. And, oh yeah, the company has some big legal battles, including one with Qualcomm Inc.
Yet on the day Broadcom said it would delay its filing (Aug. 11), Ross Seymore, an analyst with Deutsche Bank, reiterated his firm’s “buy rating” on the stock. Broadcom still has great products that will squeeze the competition, he said.
“We continue to view the company as one of the most compelling product-cycle driven secular market share takers in the semiconductor sector,” Seymore wrote.
Seymore said he also expected an announcement the week of Aug. 21 on the litigation with Qualcomm at the International Trade Commission. We’ve since learned the case has been delayed.
Rick Whittington, an analyst with Caris & Co. in New York, upgraded the stock to “buy” from “above average” on Aug. 9.
There are concerns about options accounting, the lack of an earnings report and inventory buildups, Whittington said. But there are opportunities, too.
Broadcom should ride high off of Cisco Systems Inc.’s increased “order and backlog momentum,” as well as solid notebook computer demand and robust server sales, he said.
Caris is probably the most active of Broadcom analysts, having reduced its rating just a few weeks before in July, according to Briefing.com Inc. of Chicago.
Gateway Rebound?
A change-minded Gateway Inc. investor group saw its thunder stolen last week by eMachines founder Lap Shun “John” Hui, who offered $450 million to buy the computer maker’s retail business.
But the investor group, led by Cayman Islands-based Harbinger Capital Partners Master Fund I Ltd., which is affiliated with Birmingham, Ala.-based Harbert Management Corp., has started to ask for changes of its own at Gateway.
The group has a 10.2% Gateway stake, as of last week.
In an SEC filing, Harbinger said it sent a letter to Rick Snyder, Gateway’s chairman and interim chief executive, offering “assistance in their efforts to enhance shareholder value.”
The letter said: “We believe that the firm’s brand equity, heritage of innovation, and retail channel strength, position the firm to be a leader in the evolution toward design-driven, user-friendly, media facile PCs.”
The fund also trumpeted its own experience in saying it can help Gateway get someone good at the top.
“We believe our backgrounds with consumer brands as founders, CEOs and strategic investors can add horsepower to your current efforts to recruit the best possible leadership,” the letter said.
What’s interesting in this letter is what it doesn’t say. It doesn’t mention Gateway’s professional or direct sales units, the laggards at the company.
Those are the areas that Snyder’s predecessor, Wayne Inouye, caught criticism for not doing enough to fix. They’re a continued source of flak today.
FileNet’s Filing
FileNet Corp. has got a lot of ink the past few weeks,and deservedly so.
But even with all that coverage, the business software maker is making sure its employees know all the details early on about its planned acquisition by IBM Corp.
In an Aug. 16 SEC filing, the company released a copy of a document it gave to employees on Aug. 14. The document included more than,get this,100 questions and answers.
The questions ranged from whether e-mail addresses will change (yes, they will) to whether FileNet will continue to support Hewlett-Packard Co.’s operating system (it does).
One other note: The past several days, the question has been whether a bidding war for FileNet is in the offing. That’s because IBM gave a small premium (less than 1%) to FileNet shareholders in its $1.6 billion offer compared to the prior day’s stock closing price.
That bidding war seems less of likely now. The stock price has drifted closer to IBM’s offering price, $35, meaning investors aren’t betting on it anymore. Initially, the stock was up to more than $36 after the announcement.
The resulting organization,FileNet and IBM’s related software unit,will have more than 3,000 employees.
