Good News Hides Woes at Spreadtrum, LDK 展讯通信和江西赛维释放利好掩盖问题
Cellphone chipmaker Spreadtrum (Nasdaq: SPRD) and solar panel maker LDK (NYSE: LDK) are both using good news as a smokescreen to draw attention away from bigger bad news, with the former announcing a new dividend and the latter a minor victory in a business dispute. In both cases, each company is grappling with much bigger problems that have caused their share prices to sag as investors lose interest in their tarnished growth stories. In LDK’s case the situation is much worse, with the company essentially being supported by the government as it teeters on the brink of insolvency.
Let’s start with Spreadtrum, which previously looked like a good bet due to its savvy international management team and smart focus on low-end smartphone chips. The company has just announced its seventh quarterly dividend, equating to a miniscule 0.6 percent return based on its latest share price. (company announcement)
The return would have been even smaller just 2 months ago, since Spreadtrum’s stock price has declined steadily over that period and is now down 30 percent since the end of October. News of the dividend did little to help matters, with Spreadtrum shares rising a scant 0.8 percent in Thursday trade.
This rare bit of good news appears to be a red herring aimed at drawing attention away from the fact that Spreadtrum’s big gamble on a homegrown Chinese technology called TD-SCDMA isn’t gaining much traction. The disappointing progress is probably due to a number of factors, including lackluster promotion of the standard by the technology’s main user, China Mobile (HKEx: 941; NYSE: CHL), and growing competition in the space from other chipmakers like Taiwan’s Mediatek (Taipei: 2454) and US-based Marvell Technology (Nasdaq: MRVL). (previous post)
As a result of the disappointing progress, Spreadtrum last month reported its profit fell sharply in the third quarter and revenue was nearly flat, as it spent heavily on R&D without reaping big hoped-for returns on its TD-SCDMA initiative. It’s still too early to say if the TD-SCDMA gamble will be a total failure, especially since China Mobile has shown recent signs of becoming more aggressive in promoting the technology. But even if that part of the business picks up, Spreadtrum is unlikely to achieve many of the big gains from TD-SCDMA that many investors had previously hoped for.
Meantime, LDK is throwing another red herring into the market with its announcement that an arbitrator has ruled in its favor in a breach-of-contract dispute with solar panel maker Canadian Solar (Nasdaq: CSIQ). (company announcement) As a result of the judgment, Canadian Solar will have to pay LDK about 250 million yuan, or about $40 million.
But of course anyone who has followed LDK knows the company is struggling under billions of dollars in debt, and continues to post huge quarterly losses due to a sector-wide downturn and its own poor management. The company announced earlier this week that it has retained Citigroup (NYSE: C) to help renegotiate terms of some of its debt, much of which is likely to lose most or all of its value as the company bargains with Beijing for a government-led bailout package. Against that backdrop, this $40 million judgment in its favor looks more like a joke than real news, and is unlikely to convince anyone about better prospects for LDK in the near future.
Bottom line: Upbeat news bits from Spreadtrum and LDK are red herrings designed to deflect attention away from the companies’ bigger and more serious long-term problems.
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