Is there light at the end of the tunnel for Santa Ana software maker MSC.Software Corp.?
It’s hard to tell.
A year ago MSC launched an internal investigation of its accounting practices. Now the industrial design software maker has learned that the Securities and Exchange Commission is looking into its financial reporting.
MSC said two weeks ago that the SEC had subpoenaed “certain documents” related to the company’s yearlong internal investigation of its past financial results.
“The company believes the investigation relates to the previously disclosed independent review directed by the company’s audit committee and completed in January 2005,” MSC said in a statement.
The subpoena marks the first time the SEC has been formally involved in the MSC investigation.
“It’s simply a request for documents,” said company spokesman Todd Evans. “It’s a long list.”
The SEC’s formal investigation is another episode in the MSC saga, which began a year ago when the company said it was reviewing its financial statements after shareholders complained that an executive’s severance package wasn’t disclosed.
Then the review was expanded to include what the company counts as revenue. The company hasn’t filed financial results with the SEC for a year, pending the outcome of the investigation.
“We’re making progress on that,” said Evans, who noted that the SEC investigation wouldn’t have any bearing on the company being able to file its financial reports.
MSC plans to restate earnings results for the past three and a half years. The company’s shares have been delisted from the New York Stock Exchange because of the investigation.
The end of its accounting review could bring more activity for MSC. Last year hedge fund ValueAct Partners LP offered to buy MSC for $275 million to take the company private. The software maker declined the offer.
ValueAct and MSC then struck a deal in which ValueAct agreed not to pursue acquiring the company while the accounting review is under way. Only after MSC is current in its financial filings can ValueAct make another offer for the company, according to the deal.
Earlier this year Frank Perna retired as MSC’s chairman and chief executive. William Weyand, former chief of Structural Dynamics Research Corp., another industrial design software maker, was named as Perna’s replacement.
Beach Break
So much for the beach.
Laguna Beach-based tech gear broker Arbitech LLC is moving from its South County digs to the Irvine Spectrum.
Chief Operating Officer Josh McCarter said he hopes the move is finished by mid-August.
Arbitech finds tech resellers with an excess product, buys it and sells it for less than what a big distributor would charge. The company’s Web site boasts it can sell 11% cheaper than Santa Ana-based Ingram Micro Inc., the world’s largest tech products distributor.
An earlier item in this column about Arbitech noted that the company’s margins were about 5%. Josh McCarter, the company’s chief operating officer said that the company’s margins are higher,about 12%.
Arbitech puts a twist on the distribution of computer products. It uses arbitrage, a trading technique where a trader makes a profit from a buy in one market and a sale in another market.
Arbitrage long has been used in currency markets where traders buy and sell at favorable price differences. Pavia said he noticed that in computer products, resellers often have too much inventory that isn’t returnable.
At the same time, other resellers need the product but can’t get favorable pricing from the big distributors. Arbitech was founded by Torin Pavia, a 32-year-old entrepreneur who started the company as a school project at the University of Southern California’s Marshall School of Business.
Cost-Trimming
Conexant Systems Inc. seems to be making some progress in its effort to make the company profitable.
The Newport Beach chipmaker reported sales of $170 million in the quarter ended March 31, down 30% from a year ago. But the company said its operating loss narrowed by more than half, to $61 million.
Conexant has been trying to push excess inventory out of its distribution system,something that has hamstrung it for the past year.
“Our only disappointment during the quarter was that the timely completion of our two-quarter inventory reduction initiative required a number of out-of-the-ordinary channel actions,” said Chief Executive Dwight Decker. “These included selectively placing higher-cost products into more price-sensitive applications, and special pricing for certain customers on selected slower moving products.”
Conexant’s second phase of its rebound plan includes growing revenue, completing cost reductions and being profitable before the end of the calendar year.
Another glimmer of improvement: Conexant said it expects to see its sales for the June quarter to rise 12% to $190 million. Analysts had been expecting sales of $180 million for the quarter.
