Sybase paid the price for admitting to accounting irregularities when its stock price plunged on Thursday morning as Wall Street analysts cut their ratings on the troubled database company.
The Emmeryville, California-based software supplier was scheduled to announce lower than expected full year results on Wednesday. But the announcement was postponed following the discovery of improper revenue recognition by Sybase?s Japanese management team.
The company now intends to announce its results next Wednesday, but will have to restate its previously published figures for the first three quarters of 1997 as well as taking a heavier then anticipated loss for the fourth quarter.
Wall Street reacted badly to the announcement in morning trading on Thursday as Sybase stock collapsed 26.4% to hit a low of 7-1/8.
The situation was made worse when two Wall Street analysts changed their recommendations on the company. Robert M. Cohen & Co downgraded its rating from strong buy to short term hold, while Goldman Sachs software market watcher Rick Sherlund cut his full year expectations from a profit of $0.15 to a loss of $0.65 per share. Sherlund predicts a fourth quarter loss of $0.23 a share.
Meanwhile the propects of class action law suits being filed when the results are released next week grew when Delaware law firm Morris and Morris solicited investors for information about Sybase.
Among investors, opinion was divided. One shareholder was convinced by Sybase chief executive Mitchell Kertzman?s insistence that this was a local problem caused by the Japanese management?s flouting of internal Sybase procedure and not endemic of a wider problem.
?If other areas were experiencing the same procedure problems, the audit [by Ernst and Young] would have picked them up as well,? he predicted. ?I am also confident that Sybase management would look for any other similar situations before making the announcement.?
But others were more sceptical about how tight a grip the current Sybase management team had on the situation. One raged: ?In any company with an effective set of internal controls. these ?anomalies? would have been discovered and corrected within the normal quarterly close cycle. To have to wait for the external auditors to uncover the problem is both an embarassment and an indictment of the company?s business practices.
?I don?t view this as the action of a few well organised conspirators,? he continued. ?It is a failure of the internal control system. In th first case, firing the responsible individials will solve the problem; in the latter case top management is to blame an the solution is more traumatic.?
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