Quest Software Inc. may be on the road to recovery.
The Aliso Viejo-based maker of software to monitor the performance of databases and other programs is second only to Broadcom Inc. among local companies caught up in the stock options backdating scandal.
The ordeal has held up several things.
One of them is Quest’s earnings, which will have to be restated to correct backdated options granted from 1998 to 2002, the company said.
Quest expects to take a $150 million charge in the restatements. A release date hasn’t been set.
You just know Quest wants to put this past itself soon.
Another holdup has been the cloud hanging over Quest’s executive ranks.
Last November, former chief financial officer M. Brinkley Morse resigned rather than be interviewed by a special board committee reviewing option grants. Morse had been with Quest since 2001 and handled the company’s investment and acquisition strategy since 2005.
The committee poked around elsewhere in the executive suite but found no malfeasance. More than $1.5 million in options were repriced to eliminate “actual and potential benefits” to executives, including Chief Executive Vincent “Vinny” Smith.
But the committee didn’t recommend any action beyond that.
Quest continues to work with the Securities and Exchange Commission on an informal inquiry and with Nasdaq to get back in compliance with financial reports, which it didn’t file for much of last year.
“We see this as a positive development for the company given that the current management structure will be staying intact, most notably (Vinny) Smith, who has been instrumental in the company’s success to date,” Banc of America Securities analyst Kirk Materne wrote in a research report.
Materne reiterated a “buy” rating on the company’s shares.
“Quest’s announcement gives us further confidence that the stock option overhang on the shares should continue to subside, while we continue to believe the fundamentals of the business remain intact,” he wrote.
Mark Murphy, a research analyst with the San Francisco office of First Albany Capital Inc., also said there is good news coming out of Quest.
But he’s a little more guarded, starting coverage of the company with a “neutral” rating.
“We’re coming through this period where we still don’t know how the business did in Q3 or Q4 and we don’t have full financials for Q2, either,” Murphy said.
Earnings for the third quarter could be weak and stronger in the fourth, he said.
After the restatement, Murphy thinks Quest will focus on growing the business.
The fading options issue also heightens the company’s prospect of being bought, he said.
Quest long has been a rumored target of Oracle Corp., Microsoft Corp. and IBM Corp.
“It’s probably harder to sell a franchise that has an unknown liability attached to it,” Murphy said. “I think when that’s cleared up, it’s easier for the buyer.”
Broadcom’s DVD Middle
It’s award season in Hollywood. So it’s apropos that Irvine’s Broadcom would announce its co-starring role in an award-winning production.
The major film studios are fighting it out over next-generation DVD formats. Some have lined up behind HD-DVD, others behind Blu-ray.
Proponents on each side can argue why theirs is clearer, has better capacity and the like.
While the battle rages, consumers are left with confusion and ambivalence about plopping down big bucks for a video player that may become obsolete.
Remember Betamax? It lost out to VHS in a format war decades ago.
The studios, which have invested heavily in each format, would like to avoid losing with no end in site for the DVD battle.
Enter Broadcom, which teamed up with LG Electronics Inc. to create a dual-format DVD player.
It won the Best in Show award at the International Consumer Electronics Show earlier this month in Las Vegas.
“It removes the uncertainty for the consumer about which format to buy,” said Don Shulsinger, vice president of business development for Broadcom’s consumer electronics group. “The studios are putting out lots of interesting titles, and I think the key thing holding the market back is the fact that there is this war going on.”
A combination of Broadcom’s chips and LG’s software is used to interpret data from the different formats and translate to the screen.
Shulsinger sees it as the real solution to the battle, though Warner Bros. has started shipping DVDs with HD-DVD on one side of the disc and Blu-ray on the other.
“It’s an interesting marketing trick on Warner’s part,” Shulsinger said.
But Warner Bros. is only one studio. Sony Corp., heavily invested in Blu-ray, isn’t likely to put “Spider-Man” out on a rival format.
“One of the formats will die, or universal (players) will catch on, which is what I think will happen,” Shulsinger said.
LG’s “Super Multi Blue Player” is slowly making its way to market.
“We believe it will be a major player for Broadcom,” Shulsinger said.
