The Upshot: Applied Micro Uses CNBC for Earnings Warning

The thing about Regulation FD ("Fair Disclosure") is that it can do so much to help, and yet it also does so little.

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That may not be what communications-chip company Applied Micro Circuits (AMCC) wants to hear.

The company made a bet Thursday that investors would just happen to be watching -- hmmm... or not watching? -- CNBC when it told the network that fiscal fourth-quarter revenue would come in at $125 million to $135 million. That's down 6% to 13% from the most recent quarter and 22% to 28% less than First Call/Thomson Financial indicated.

That's what's known as material information, just the kind of scoop covered by the Securities and Exchange Commission's Reg FD, and required to be disseminated through "broad public access."

The SEC, an agency spokesman said, "makes it fairly clear that the disclosure requirement for the issuer kicks in only under certain circumstances -- when certain people in the company talk to securities companies. The press and a couple of other categories, like ratings agencies, are excluded from the covered populations."

In reality, life under Reg FD has often meant a triple play of a press release, conference call and Webcast for earnings announcements and, these days, the all-too-common earnings warning. Applied Micro just decided to be, er, different.

"We actually just had a feature story scheduled with CNBC. We decided to use that as a forum to revise our guidance," Dave Rickey, president, CEO and chairman of Applied Micro later said.

And revise he did. On Feb. 5, prior to speaking at a conference, Rickey had put out a press release saying that the company was seeing orders cancelled and pushed back. Unsure if it was a blip or a trend, the company said it stuck by its guidance for the fourth fiscal quarter to grow up to 20%.

But, as we've all heard by now, February fell apart. Applied Micro's biggest customer, Nortel (NT), last week said the year isn't looking so hot either. The company's stock hit the skids.

Reason enough for an AMCC press release last week or early this week? Nope.

Thursday Rickey decided to use a feature initially due to run on Friday night to disclose these new numbers. A piece of the feature, he said, was excerpted and CNBC ran it during the midafternoon with a big old "exclusive" across the top.

The Nasdaq stock market, seemingly confused by the comments, halted trading in the stock, which had started a downward slide, at about 1:31 p.m. EST. When trading began again an hour later, the stock continued downward but then, oddly enough, began rising, ran into positive territory and closed at $29.56, up $2.81, or 10%.

That swing likely came from early confusion about the news, followed by enthusiasm for the fact that Rickey was drawing a line in the sand. Revenue, he said in an interview, will not, cannot fall below $125 million.

The decision to tell all to CNBC wasn't made without consulting legal counsel, Rickey said. And, he said, Reuters and some other publications had picked up the story off the television afterwards anyway.

OK, fine. Next time, though, Rickey may want to reconsider an old-fashioned press release to give a fair shake to investors who can't get tuned in.

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