Zoran Collapses: Much Ado About Nothing?

| About: Zoran Corporation (ZRAN)

On Tuesday, Zoran Corp. (Nasdaq: ZRAN) fell 28% to $14. Why did it fall so sharply? The claim is that this was a result of the disappointment with the guidance it published for the current quarter. I have repeatedly said that this craziness of companies publishing forecasts is one of the stupidest ideas ever conceived by Wall Street. Mike, my speculative friend from Philadelphia, begs to differ.

According to him, the frenetic movement in stocks, resulting from the failure to meet analysts’ forecast and management’s guidance provides him, as a speculator, with a fertile and fantastic playing field. Mike only hangs on to a stock for two days if he finds himself “stuck” with it. The man lives and thrives on extreme upheavals and he has often told me that he has been making ever increasing amounts of money since online trading began. “I’ve already learned how the day-trader gangs work and I use this to my advantage,” he claims.

So it may well be that Wall Street is promoting the practice of issuing guidance in order to generate deals, since without speculators, commissions would sink to a historical low. My assumption is that in lowering its quarterly forecast, Zoran aims to err on the side of caution. Therefore, it could turn out to be wrong and beat its own guidance, just as it did in the previous quarter.

On Tuesday, analysts were furious with the company, which by their consensus should be posting sales of $138 million for the current quarter (ending September 30), while the company says that sales will be between $130 million and $134 million.

Supposing that the company is wrong and the analysts are right, then Tuesday’s fall represented a fantastic buying opportunity. Some of the reasons for Zoran’s sharp fall are connected to the joint inquiry by the US Securities and Exchange Commission and the US Department of Justice over its options backdating. Zoran is on the black list, therefore the reports published on Tuesday are not final and are subject to changes relating to the recalculation of the options.

It could well be that some investors were willing to stay in the stock as long as long the problem was limited to the options, but have now been given an impetus to quit following the disappointment with the guidance.

If we look at this mess more closely, it will become apparent that despite the forecasts made by analysts or management, Zoran has so far been doing well on Main Street and the problems lie on Wall Street. This is nothing new for all those who have been following Zoran, which is one of the most volatile of the tech stocks. Just look at what has happened to Zoran since its slump in 2002 - a real yo yo. Almost four years on, the falls and gains in Zoran can be summed up in four words - much ado about nothing.

Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.