MagnaChip Semiconductor Corporation
), a designer and manufacturer of analog and mixed-signal
semiconductor products based in Korea, has announced an amendment
of its historical financial statements. These follow the findings
of the audit committee of its board of directors that revealed
incorrect recognition of revenues from certain transactions.
Preliminary findings of an ongoing internal review, conducted
by outside professional advisors at the Audit Committee's
request, exposed faulty recognition of revenue in the company's
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MagnaChip's revenue recognition methodology was declared
erroneous, as it recognized revenues when products were shipped
to a distributor, instead of recognizing when the distributor
shipped the products to the end customer. The adaptation of the
new methodology will have a retroactive effect, entailing the
restatement of financial statements for the first three quarters
of 2013 and for the years ending 2012 and 2011. The company
anticipates that the primary effect of the restatement will be on
revenues of prior periods, while cash and debt balances are
likely to remain unchanged.
The faux pas has spurred a comprehensive evaluation of the
company's disclosure controls and procedures as well as internal
controls over financial reporting, with the management finding
one or more material weaknesses and concluding the controls as
inadequate. In order to supervise the restatement, accounting
policy change and evaluation of internal controls associated with
the Audit Committee, MagnaChip has appointed Jonathan W. Kim as
the company's new chief accounting officer, with the Chief
Financial Officer Margaret Sakai no longer serving on the post.
Several law firms including Wohl & Fruchter LLP, Pomerantz
LLP and Wites & Kapetan, P.A. are investigating potential
securities fraud claims on behalf of investors with reference to
possible violations of federal securities laws by MagnaChip. The
company is even facing allegations of having issued materially
misleading business information to the investing public.
MagnaChip's announcement concerning repeal of its fourth-quarter
guidance and delay in issuance of full-year results came after
market close yesterday, triggering a plummet in share price by
$2.14 per share or 15% in after-market trading hours, to $12.19
per share on Mar 11.
MagnaChip currently holds a Zacks Rank #3 (Hold). Investors
interested in the semiconductor industry may consider
better-ranked stocks like
NXP Semiconductors NV
). While NXP sports a Zacks Rank #1 (Strong Buy), Montage
Technology and Supertex carry a Zacks Rank #2 (Buy) each.