ATI was sued two weeks ago because of false and misleading statements. The complaint charges ATI and certain of its officers and directors with violations of the Securities Exchange Act of 1934. As a result of this ATI's stock traded at inflated levels, allowing ATI's top officers and directors to sell or otherwise dispose of more than $54 million worth of their own shares at artificially inflated prices.
Here's a look at some facts from the complaint which were known by ATI but concealed from the investing public during the class period which started on October 7, 2004 and ended on June 23, 2005:
a) the Company was selling desktop and notebook products with lower and lower profit margins;
(b) ATI's gross margins were being weakened by high sales of its IGP products, which have profit margins well below the corporate average;
(c) the Company was earning lower-than-anticipated yields on certain products due to operational issues in its own packaging and test areas of its manufacturing process;
(d) the Company was experiencing production/design/yield issues with its R520 chip; (e) the Company was losing market share to arch-rivals Nvidia Corp. and Intel Corp.; and
(f) despite defendants' previous statements to the contrary, a fire at one of the Company's primary suppliers in Taiwan was preventing the Company from receiving necessary supplies.
The complaint further alleges that on or around June 6, 2005, ATI warned that its revenue for the third quarter 2005 would fall well below its previously announced forecast. Thereafter, when the Company issued its actual third quarter 2005 financial results on June 23, 2005, reporting a quarterly loss of $445,000 in the third quarter 2005 compared to a profit of $48.6 million in the third quarter 2004 and further reducing fourth quarter 2005 revenue expectations by $20-$50 million, the Company's stock price fell another 8% to its lowest point since July 2003 on extremely high volume.