What: Shares of Magnachip Semiconductor Corp. (NYSE:MX) fell more than 12% early Wednesday, then recovered to close down around 2.8% after the company announced "non-reliance on previously issued financial statements."
So what: Specifically, MagnaChip says its audit committee determined it will need to restate its financial statements for the the first, second, and third quarters of 2013 and 2012, and for the years ending 2012 and 2011. To explain the flub, MagnaChip stated revenue on certain transactions was incorrectly recognized when products were shipped to a distributor. Instead, revenue should have been recognized when the distributor shipped product to the customer.
Separately, MagnaChip announced it has appointed Jonathan W. Kim as its new chief accounting officer, effective immediately.
Now what: The update comes more than six weeks after MagnaChip postponed its fourth quarter earnings release and conference call -- both were previously scheduled for Jan. 28. The stock has already fallen more than 20% since then, which likely explains why it was able to recoup its early losses as today's trading wore on.
Investors can also take at least some comfort knowing the restatement isn't expected to change previously reported cash and debt balances as of the end of each period in question. It will, however, extend the time required going forward for revenue recognition from certain transactions with MagnaChip's distributors. Meanwhile, revenue generated from MagnaChip's non-distributor customers will not be affected.
Though the stock might look cheap trading around 0.6 times sales and 5.6 times this year's expected earnings, I'm still not particularly compelled to buy in today. Rather, before making any long-term investing decisions, I'm perfectly happy waiting until the dust settles, then digging in after MagnaChip's restatements are complete.
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