MagnaChip to Restate 10Qs & 10Ks, Delays Q4 Results - Analyst Blog

MagnaChip Semiconductor Corporation MX, 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 financial statements.

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 NXPI, MaxLinear, Inc. MXL and Supertex Inc. SUPX. While NXP sports a Zacks Rank #1 (Strong Buy), Montage Technology and Supertex carry a Zacks Rank #2 (Buy) each.