ANALYST WATCH: New disclosures not worth the effort

4 min read

Xilinx and Altera both did investors a great disservice this week by complying with some new SEC regulations. As if investors didn't have enough information to sort through, these guys are now giving monthly sales updates.

This Regulation FD (for Fair Disclosure) requires that companies evenly disseminate any information that could move the price of its stock. The guidelines are designed so individual investors have the access to company data that traders and analysts enjoy.

Yeah, that's just what this hypersensitive market needs.

With all due respect to the all the fledgling online traders looking for every conceivable edge, this is clearly a case where a little information can be dangerous.

Altera (Nasdaq: ALTR) shares fell 21 percent Wednesday after its Web site reported that specialty semiconductor sales rose 15 percent from July, the first month of the third quarter, but were slightly below management expectations.

Xilinx (Nasdaq: XLNX) did the same thing after the bell Wednesday, but it forecast that it's on track for sequential quarterly sales growth of at least 12 percent.

After falling with Altera Wednesday, Xilinx shares made a slight comeback Thursday.

Lies, damn lies and statistics

Let's hope this new concept of posting monthly updates on Web sites dies a quick death.

The proliferation of financial news sites and online trading has already distorted the way the market moves. When tech stocks are hot, any type of meaningless news release can result in a 20 percent or 30 percent jump in the stock price on absolutely nothing.

On the other side, as we've seen in the past four or five months, when the market turns sour, every bit of negative information sends perfectly good stocks into a tailspin.

We've got thousands of companies reporting earnings every quarter as it is. By adding this new monthly information, investors will be reacting and overreacting like never before.

Those who say there's no such thing as too much information should consider what the next logical step will be.

Why stop at every month when you could update your sales information every week? Or every day.

Just have the sales managers punch in their daily totals, margins and customers on to the corporate site every night. Then we'll have the full disclosure the SEC says we need.

While we're at it, let's get a complete run down on the daily expenditures, employee salaries and the daily phone and electric bills. And just how much did the company spend Friday to wheel in the pizzas and soft drinks?

I want to know everything before I buy or sell a stock. Don't tease me with monthly sales reports.

From a company's perspective, this new policy puts them in the awkward position of divulging information that may or may not be useful to competitors.

And, this information is all but obsolete by the time the link's live. Sales close and evaporate by the hour. What good is information about what happened six or seven weeks ago?

But pressure from the SEC and the attorneys bringing frivolous shareholder lawsuits has forced them to put on this charade.

The only good thing about the Xilinx and Altera compliance is that analysts are now compelled to comment on this latest "news" much like they would after a quarterly earnings report.

White is black, black is white

But just how good is this information?

In Altera's case, Morgan Stanley Dean Witter and W.R. Hambrecht cut the stock to "outperform" and "market perform" ratings, respectively, from "strong buys."

Merill Lynch analyst Chris Danely said in a research note that he believes the slowdown for Altera is part of a broader shift away from mainstream products that the company's systems components have been designed into.

The reaction to Xilinx was even more curious.

It's predicting at least a 12 percent improvement from $437.2 million in its second quarter, which was up 83 percent from the second quarter of 1999.

However, that didn't impress Jim Liang, an analyst at W.R. Hambrecht.

Liang cut his 12-month price target to $75 a share from $90 and downgraded the stock from a "buy" rating to "neutral."

"Based on what we see as a potential inventory correction occurring in the March 2001 quarter for PLD chip companies," he said in a research note.

Meanwhile, Merrill Lynch's Danely added Xilinx to something his firm calls its "Focus 1 list," reiterated his "buy" recommendation and his 12-month price target of $115 a share.

J.P. Morgan cut Xilinx to a "market perform" rating from a "buy" but Robertson Stephens' Eric Rothdeutsch reiterated his "strong buy" recommendation and a price target of $120 a share.

"This subtle revision from 12 percent sequential to at least 12 percent sequential revenue growth in our minds is indicative of the comfort level the company has with the current business environment," Rothdeutsch said in a research note. "We urge investors not to ignore the strength of the company’s new product cycle."

As you can see, if the analysts can't agree on what these new "disclosure" postings mean, how the hell can the average investor extract anything meaningful from them?

"Hey, Joe, I see Xilinx is expecting at least 12 percent growth this quarter instead of just 12 percent growth. I better get on E*Trade before anyone else visits the site."


The only logical conclusion I can draw from this new "policy" is that the SEC wants to stimulate trading volume by giving investors more "information" to trade on while simultaneously forcing Wall Street analysts to react to it.

This is the SEC's idea of protecting the poor, uniformed investors from being swindled.