Overall, during the past week, corporate insiders traded a number of technology sector stocks, including large purchases by corporate executives in Triquint Semiconductors (TQNT) and Telestone Technologies (TSTC), and multiple insider sales in Seagate Technology (STX) and Microchip Technology Inc. (MCHP). This report, part of our weekly coverage of insider trades by sector (based on last week’s SEC Forms 3, 4, and 5 filings), summarizes last week’s major insider filings in the technology sector (for a general discussion on how to interpret insider trades, please look at the end of this article):
Sprint Nextel Corp. (S): Sprint offers wireless and wireline communications products and services to individual consumers, businesses, government subscribers, and resellers in the United States, Puerto Rico, and the U.S. Virgin Islands. Insiders currently hold 19.0 million shares or 0.7% of outstanding shares. On Wednesday last week, CEO Daniel Hesse purchased 100,000 shares at $2.82 per share, increasing his holdings to 3.69 million shares. Mr. Hesse’s purchase, the first by an insider in almost two years, is a strong vote of confidence in Sprint given the recent negative news flow and pessimism that have battered the company and cut its share price in half since June. Investor concerns have centered on its poor operating performance, concerns over the cash flow impacts of the iPhone launch, and the bungling of its relationship with its wireless broadband subsidiary Clearwire Corp. (CLWR). Overall, Sprint insiders bought company 100,000 shares and sold 87,441 shares in the last twelve months.
Seagate Technology (STX): STX manufactures hard disk drives for the enterprise, desktop, mobile computing, and consumer electronics markets. Insiders currently hold 28.3 million shares or 6.3% of outstanding shares, and last week three corporate insiders sold a total of 938,787 shares (at $16.9 million), only 150,000 of which were “automatic sales” under 10b5-1 plans. The sellers included CEO Stephen Luczo (707,500 shares), EVP and CTO Robert Whitmore (92,454 shares) and EVP of Sales & Marketing William Mosley (138,833 shares), and most of the shares sold resulted from the exercise of options. Overall, during the last twelve months, insiders sold a total of 2.67 million shares, and bought none during that period. The strong acceleration in insider selling this past week (selling 0.94 million shares in just one week) is telling given that STX shares have been on a tear recently, doubling in the last few weeks, and may portend that management does not have much confidence that the recent run-up in the stock is sustainable.
Triquint Semiconductor (TQNT): TQNT manufactures a broad range of high-performance RF, analog and mixed-signal ICs that are incorporated into a variety of communications products, including cellular phones and pagers, fiber optic telecommunications equipment, satellite communications systems, high performance data networking products and aerospace applications. Insiders currently hold 1.2 million shares or 0.8% of outstanding shares. During the last week, Directors Rhines Walden and Scott Gibson bought 15,500 and 2,000 shares respectively, increasing their company holdings to 95,000 and 20,943 shares respectively. This is significant because it is the first insider purchase in over two years, during which period insiders have sold almost two million shares. Furthermore, it is a strong vote of confidence in the company by insiders, given that it comes after the stock has been hammered recently, down by two-thirds from the February highs.
Microsoft Corp. (MSFT): MSFT is the world’s leading software company. It develops operating systems, business software, and other applications for servers, PCs, and intelligent devices. MSFT's online efforts include the MSN network of Internet products and services and alliances with companies involved with broadband access and various forms of digital interactivity. Insiders currently hold 2.15 billion shares or 25.5% of outstanding shares. On Tuesday last week, the President of Windows Division Steven Sinofsky exercised options and sold (regular sale) the resulting 305,550 shares. This sale comes shortly after Mr.Sinofsky reported selling a similar 305,550 shares that we reviewed in our earlier summary two weeks ago of insider filings in the technology sector. While insiders sold 113.3 million shares of MSFT in the last twelve months, almost 90 million of those sales were by founder Bill Gates under a 10b5-1 plan, probably to fund his charitable operations worldwide. Mr. Sinofsky’s sale of 611,100 shares in the last three weeks is significant because it is only one of two large sales by a MSFT insider, other than Mr. Gates, in the last twelve months.
Microchip Technology Inc. (MCHP): MCHP manufactures microcontrollers, application-specific standard products, and related mixed-signal and memory products for the consumer, automotive, office automation, communications and industrial markets. Insiders currently hold 0.24 million shares or 0.13% of outstanding shares, and during the last week, six insiders exercised their options and sold the resulting 142,911 shares. This included Chairman and CEO Steve Sanghi (76,396 shares), VP Richard Simoncic (45,993 shares), EVP & COO Ganesh Moorthy (10,000 shares), VP Mitchell Little (5,658 shares), VP Stephen Drehobl (4,402 shares) and CFO James Bjornholt (42 shares), with more than 90% of the shares sold being regular sales (not part of any 10b5-1 plans). The 142,911 shares sold by insiders last week is significant as only an additional 924 shares were sold during the prior twelve weeks of the last three months, and overall insiders sold 655,780 shares during the last 12 months (buying 200 shares).
Universal Display Corp. (PANL): PANL is a designer of organic light emitting diode devices for flat panel displays used in the consumer electronics market. Insiders currently hold 2.78 million shares or 6.1% of outstanding shares. On Monday last week, hedge fund Discovery Capital Management, headed by Tiger Cub (of Julian Robertson fame) Robert Citrone, also 10% beneficial of the company, filed that they added another 150,000 shares to their holdings on top of the 300,000 that we reported they bought last week in our summary of the prior week’s insider filings in the technology sector. At last filing for the June quarter, Discovery held 3.06 million shares of PANL, so the 450,000 shares added in the last two weeks are a significant addition and a sign of confidence in PANL’s outlook going forward from this institutional insider. Overall, insiders bought 450,000 shares in PANL during the last three months (all by Discovery), and they sold 202,343 shares during that period.
Tibco Software (TIBX): TIBX provides business application and database integration, process automation, management and optimization software. Insiders currently hold 6.9 million shares or 4.1% of outstanding shares, and during the last week CEO Vivek Ranadive exercised options and sold (regular sell) the resulting 1.73 million shares, and ended the week with 5.2 million shares. This is a huge sell in terms of both Mr. Ranadive’s holdings in the company, and in terms of the overall insider ownership. Furthermore, during the past year, insiders sold a total of 2.85 million shares (buying none), making the current 1.73 million share sale a large one even in terms of historical trends of insider buying and selling.
Telestone Technologies (TSTC): TSTC is a Chinese provider of wireless local-access network 2G, 3G and potentially 4G technologies and solutions. Insiders currently hold 4.0 million shares or 38.2% of outstanding shares. During the last week, CEO Han Daqing filed that he bought 73,902 shares (in early October), increasing his holdings to 3.4 million shares. This is a large purchase by an insider, and over the last six months, CEO Daqing has bought 173,902 shares; no other insider has reported buying or selling company shares during the last year.
Qlik Technologies Inc. (QLIK): QLIK develops business intelligence software and related applications allowing enterprises to analyze data. The Company’s flagship product, QlikView delivers enterprise-class analytics and search with the simplicity and ease of use of office productivity software. Insiders currently hold 2.1 million shares or 2.6% of outstanding shares. Last week, Director Erel Margalit reported selling 1.0 million shares on behalf of Jerusalem Venture Partners, almost their entire stake in QLIK, and ended the week with only 8,100 shares. Overall, insiders sold 1.4 million shares during the last three months, and they bought none during that period.
Ubiquiti Networks Inc. (UBNT): UBNT offers a portfolio of wireless networking products and solutions to network operators and service provider worldwide, including standalone and integrated radios, directional and sector antennas, and network management tools. Insiders currently hold 58.8 million shares or 65.5% of outstanding shares. Last week, Summit Partners Private Equity Fund, 10% beneficial owner of the company, sold 1.06 million shares, ending the week with 20.1 million shares. Overall, insiders sold 16.5 million shares during the last three months, and they bought none during that period.
General Discussion on Insider Trading
The reports in this series identify last week’s insider trades of noteworthy significance by sector or industry group, either by virtue of their timing, their size, the number of insiders buying or selling, based on who is buying or selling, or by the trend of their buys and sales over the long-term. The rest of the series by sector and by week can be accessed from our author page.
What is Insider Trading?: Insider trading as defined here (and by the SEC) includes not just corporate insiders such as company executives and key employees, but also directors and large shareholders that have access to non-public information. Large shareholders are defined by the SEC for this purpose are those that having beneficial ownership of ten percent of more of the firm’s equity securities (including institutional investors). Also, in the U.S., “insiders” are not just limited to corporate officials and major shareholders, but also when a corporate insider “tips” a friend about material non-public information, the duty the corporate insider owes the company is now imputed to the friend who is now in violation of a duty to the company if he or she trades on the basis of that information. The U.S. is generally viewed as having the strictest laws against illegal insider trading, and makes the most serious efforts to enforce them.
While most insider trading is legal, the term is commonly used to refer to the illegal kind when a corporate insider trades based on material non-public information that can have an effect on the company’s share price. By law, insiders are prohibited from trading based on nonpublic information, but most believe that such trading does occur around the edges. The thinking goes that corporate insiders, because of their access, have the most up-to-date information on the health of their companies and the industries they operate in. Investors, as a result, can benefit from the timely knowledge of insider transactions. In fact, one University of Michigan study found that when executives bought shares in their own companies, the stocks tended to outperform the total market by 8.9% over the next 12 months. Conversely, when they sold shares, the stock underperformed by 5.4%.
Timeliness of Information: Like in the 13-D and 13-G filings for Institutions, the SEC Forms 3 and 4 on insider filings are extremely timely, and hence of greater significance, as they must be reported within two business days of the trade.
Insider Buying More Informative than Selling: As a rule, insider buys are more informative than sells. This is because insiders sell often, and they sell for a variety of reasons that may be completely unrelated to the health of the company, including, for example, to diversity their holdings or to pay for an upcoming personal expense. In contrast, insider buying is relatively uncommon, and since they have an exclusive window into their own company’s performance, it is reasonable to presume that they probably have good reasons based on information at their disposal when they are risking their own assets to buy company stock.
Regular and Automatic Trades: Insider trades maybe regular trades, or they may be automatic trades made under SEC Rule 10b5-1. It is generally believed that regular insider share purchases and sales carry more predictive value as they are made voluntarily by the insiders. Conversely, trades made under SEC Rule 10b5-1, called “Automatic Buys” and “Automatic Sells”, are part of a pre-determined plan or contract, and it is assumed that the plan was created before the insider had any privileged non-public information. Generally, almost all automatic trades are sells, not buys.
Furthermore, even automated trades made under 10b5-1 have some informative or predictive value due to loopholes in the rule that, for example, allow the insider to cancel the trading plan without any penalty or legal liability. So, the insider could set up a 10b5-1 trading plan before they have inside information (for example, from a quarterly report and guidance) while retaining the option to later cancel the plan based on the inside information. So, in effect, the execution of an automated trade also carries some predictive value as insiders retain the option under the existing rules to cancel their trades without penalty or legal liability.
Disclosure: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.
I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.