| To: Big Bucks who wrote (9249) | 3/29/2004 8:03:34 AM |
| From: Proud_Infidel | Read Replies (2) of 24134 |
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CY is no longer a friend of AMAT shareholders......
Cypress Engages in Risky Business
By Troy Wolverton
TheStreet.com Staff Reporter
3/29/2004 7:26 AM EST
Cypress Semiconductor (CY:NYSE - commentary - research) and its CEO T.J. Rodgers have long been controversial. Revelations the firm owns a stake in two hedge funds raise yet another red flag in Cypress' checkered history.
The chipmaker revealed its unusual investment in a footnote buried within its annual report, filed earlier this month. Notably, Cypress only revealed its investment -- ongoing since at least 2002 -- because gains in one of the hedge funds amounted to a material portion of Cypress' 2003 pretax income.
Adding to the drama, one of Cypress' hedge fund investments held short positions in five semiconductor equipment makers, including Applied Materials (AMAT:Nasdaq - commentary - research) and Novellus Systems (NVLS:Nasdaq - commentary - research).
The revelations raise questions about what Cypress is doing with shareholders' cash and the transparency of its investments, said Todd Fernandez, a senior research associate at San Francisco-based Glass Lewis.
"Those are shareholder funds. They should either be reinvested in the business or dividended back to shareholders," Fernandez said.
Others were even more critical. Gary Lutin, an investment banker and shareholder rights advocate, likened Cypress' investments in the hedge funds to the company using shareholder funds to make a bet at the race track.
"That is not what people contribute capital to a corporation for," Lutin said.
Cypress spokesman Joe McCarthy declined to respond to the criticism or answer specific questions about the company's hedge fund investments.
"Like any company, we make certain investments. This one was approved by our board of directors," McCarthy said.
Cypress' board has approved some controversial practices in the past, and these investments will be news to most investors. Aside from those in the company's most recent annual report, no other mentions of "hedge fund" or "limited liability partnership" or "Digital Century Capital" -- the name of one of the funds -- turned up in a search of the chipmaker's regulatory filings going back to 1986.
According to the annual report, Cypress has been invested in the funds since at least 2002. But the company did not specify when it originally invested in the funds, how much it originally invested, or whether it has added to or subtracted from its original investment.
To be sure, Cypress' current stake in the two funds amounts to a small fraction of its total assets.
As of Dec. 31, Cypress owned 9.5% of Digital Century Capital fund and 13.2% of another, according to the company's annual report. The total stake in the two funds was worth $4.8 million, or less than 1% of Cypress' total assets; at year-end, Cypress held about $183.71 million in cash and $14.91 million in short-term investments.
"The partnerships are not significant to Cypress' operations and effectively represent investments primarily in equity securities by Cypress," the company said in its annual report.
But Cypress' investment in one of the two hedge funds was significant to its pretax income last year, forcing the company to disclose the investment.
In 2003, Cypress posted a pretax loss of $2.51 million and a total net loss of $5.3 million, or 4 cents per share. Meanwhile, Digital Century recorded net income of $11.59 million, of which Cypress' share was $1.5 million, according to Cypress' annual report. That amounted to about a penny a share before taxes for Cypress.
Cypress Pushes the Edge, Again
A corporate investment in a hedge fund -- at least one that is publicly acknowledged -- is unusual, said Walt Nightingale, a general partner of Nightingale & Farber, a Seattle-based hedge fund. Wealthy individuals are more typical investors in hedge funds, which are notoriously risky because, unlike most mutual funds, they are able to short stocks. |
