in re: applied micro circuits securities litigation 01-cv...
TRANSCRIPT
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FILED1 BARRACK, RODOS & BACINE
STEPHEN R. BASSER (121590) JUN 22 MATTHEW P . MONTGOMERY ( 180196)BENJAMIN GALDSTON (211114)
3 402 West Broadway, Suite 850San Diego , CA 9210 1
4 Telephone : (619) 230 -0800 DEPUTY 'Facsimile : (619) 230-1874
5BARRACK, RODOS & BACINE
6 LEONARD BARRACKGERALD J . RODOS
7 SARA J. BIDEN3300 Two Commerce Square
8 2001 Market StreetPhiladelphia , PA 19103
9 Telephone : (215) 963-0600Facsimile : (215) 963-0838
10Lead Counsel for Lead Plaintiff Florida State Board
11 of Administration and the Clas s
12 [Additional Counsel appear on signature page . ]
13 UNITED STATES DISTRICT COURT
14 SOUTHERN DISTRICT OF CALIFORNIA
15 In re APPLIED MICRO CIRCUITS CORP . ) Lead Case No . : 01-CV-0649-K AJB)SECURITIES LITIGATION )16 ) CLASS ACTION
17 This Document Relates To : ) DEMAND FOR JURY TRIAL
18 ALL ACTIONS . )
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21 LEAD PLAINTIFF'S FIRST AMENDED CONSOLIDATE DCLASS ACTION COMPLAINT
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28 ORIGINALLEAD PLTFS I ST AM CONS CLASS ACTION CPT
Lead Case No . : 01-CV-0649- K (AJB)
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This is a securities fraud action arising from the conduct of Applied Micro Circuits
Corporation ("AMCC" or the "Company"), and ce rtain of its top officers and directors between
November 13, 2000 and February 5, 2001 (the "Class Period ") . Lead Plaintiff Flo rida State
Board of Administration ("FSBA"), by its attorneys, alleges the following upon knowledge,
with respect to its own acts, and upon other facts obtained from or confirmed by a reliable and
I extensive investigation , which included , inter alia : a review and analysis of AMCC's public I
I filings with the Securities and Exchange Commission (the "SEC") ; analysis of securities analys t
reports about AMCC ; analysis of press releases issued by AMCC and certain of the Individual
Defendants ; analysis of media interviews and reports about AMCC ; discussions with numerous
former AMCC employees; review of data and information published or provided by experts
concerning the semiconductor and telecommunications industry; review of Semiconductor
Industry Association data; review and analysis of or personal interviews with non-parties ,
including representatives of AMCC's competitors, customers , and its primary distributor
concerning their knowledge about industry events, or AMCC in particular ; and consultations
with forensic expert consultants in accounting and secu rities valuation .
INTRODUCTIO N
1 . Lead Plaintiff, FSBA , an institutional investor, brings this securities class action
on behalf of all persons and entities who, during the period November 13, 2000 through
February 5, 2001, purchased Applied Micro Circuits Corporation common stock or call options
or sold AMCC put options (collectively "AMCC Securities") . Lead Plaintiff brings this action
against AMCC and the individually named defendants - all top officers of the Company - for
their violations of the federal securities laws .
2. AMCC designs, develops, manufactures and markets integrated circuit products
- also called "semiconductors" - that enable the transport of voice and data over fiber opti c
I networks. AMCC sells these components to other companies , including major customers such
as Cisco Systems, Inc ., ("Cisco"), Lucent Technologies ("Lucent") and Nortel Networks
("Nortel") and its primary distributor, Insight Electronics, upon whom it depended, at all times
material, for its growth and success .
1 LEAD PLTFS 1ST AM CONS CLASS ACTION CPTLead Case No . : 01-CV-0649-K (AJB)
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3 . From 1999 through early 2000, the United States economy experienced
I substantial and rapid growth in the Internet and telecommunications sectors . During this period,
many Internet-related companies that were developing leading-edge products were able to
attract significant investment capital by launching Initial Public Offerings ("IPO's"), adding
many millions of dollars to their corporate coffers that they spent on Internet and other
telecommunications -related products . AMCC enjoyed significant business growth and
momentum as a result of the robust and rapid growth of the Internet and telecommunications
sectors and consequent significant spending by network service providers in 1999 through earl y
2000 .
4 . Meanwhile, beginning in 1999 and extending throughout 2000, the Internet and
telecommunications industry was also expe ri encing numerous corporate mergers and
acquisitions creating a vi rtual "acquire or die" competitive environment . While AMCC was
relatively small - especially compared to the likes of Nortel, Lucent and Cisco and many of it s
I competitors seeking to enlarge their market share - it was not defenseless in the face of such
an acquisition feeding frenzy as long as its common stock was selling at a sufficiently high price
that it could be used as a vehicle to acquire other firms (and their products) and thereby remain
competitive. In an effort to enhance its competitive position by acquiring much needed desig n
talent and thus survive in a highly competitive environment , AMCC consummated several
acquisitions, including a merger consummated on October 25, 2000 with MMC Networks
("MMC") in a transaction valued at approximately $4 .5 billion - purportedly the largest in the
integrated circuits communication, ("IC-Comm") industry history - using over 58 millio n
shares of AMCC's common stock as currency to consummate these deals .
5 . Yet, by the time AMCC consummated its merger with MMC on October 25,
2000, numerous dark clouds had already gathered on AMCC's horizon, ushering in a ver y
significant decline of business for the Company that would have a serious and adverse impac t
upon AMCC's revenues and earnings for its 4Q F'01 (ending March 31, 2001) . Network service
provider capital expenditures ("CAPex") had peaked by mid-2000 and had slowed significantly
thereafter. In addition, the Internet and telecommunications industry had experienced a rise i n
LEAD PLTFS 1ST AM CONS CLASS ACTION CPTLead Case No . : 01-CV-0649-K (AJB)
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the cost of capital - with cost of incremental new capital greatly exceeding what were
becoming single digit returns . This created a particularly troubling dilemma for network servic e
providers, many of whom were cash flow negative and desperately needed to raise new cas h
just to stay in business . Access to capital and demand for product needed to further develop the
Internet and telecommunications infrastructure had become severely constricted . By Fall 2000,
the philosophies of AMCC's Internet and telecommunications product customers and end-users
had been so impacted by these negative trends and diminishing CAPex that the industr y
business model had changed from "build it and they will come" to one of "build it when it wil l
generate profit . "
6 . Also, by the consummation of its merger with MMC on October 25, 2000,
AMCC's customers were reeling from the combined effects of a massive build-up of inventory
- the stockpiling of $4 billion of excess inventory during 2000 in response to manufacturing
supply constraints - and the severe decline in end-user demand fueled by declining CAPex .
This combination was a recipe for disaster and was inflicting problems upon major customer s
who were already in the throes of executing a major inventory correction . During October
2000, both Lucent and Nortel announced that its customers were suffering from macro-
economic problems, putting the quality of past and future revenues into question . Lucent's
management reported significant problems, including a basic lack of customer demand. Norte]
announced that it was also suffering from a decline in expected orders and that stockpile d
inventory was now being worked off.
7 . These announcements by AMCC's major customers caused AMCC's shares to
fall more than 25% and had a similar negative impact on other fiber optic companies . News
worsened when, on October 28, 2000, Cisco (10% of AMCC's revenues and approximately 45%
of MMC's) disclosed that it had increased its loss reserves by $275 million, sending AMCC's
shares down another 10%, as one analyst observed that the shortage of cash needed to buy new
equipment had caused the optical boom to peak and that an entire industry, "whose plans were
predicated on unstinting demand," now confronted uncertainty .
3 LEAD PLTFS 1ST AM CONS CLASS ACTION CPT
Lead Case No. : O1-CV-0649-K (AJB)
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8. By the time AMCC consummated its merger with MMC, its share price ha d
fallen from the merger exchange price of $94.28 per share as of August 25, 2000 to $74 per
share on October 25, 2000, (adjusted for 2 for 1 stock split effective October 16, 2000) . Any
continued downward spiral of AMCC's stock price would create significant problems for th e
Company and its management. This threatened AMCC's ability to effectively compete in its
competitive environment by a ttracting and retaining highly-valued and much -needed
engineering design talent ; the Company 's game plan of making further acquisitions using its
stock as currency in order to survive in an "acquire or die" and increasingly competitive
environment ; and the value of its stock-based compensation schemes used to entice them to joi n
AMCC; and each defendant 's own personal net worth and economic horizons .
9 . By mid-November 2000, AMCC's customers' major inventory correction was in
full swing and defendants knew it . Hence, faced with the fact that the news in the Internet and
telecommunications industry sector was continuing to depress AMCC's stock price, the
Individual Defendants launched into a vigorous campaign designed to buoy and inflate the price
of AMCC's shares by leading the market to believe that, despite an inventory correction in the
industry fueled by significantly declining CAPex and problems of its customers, AMCC was
unaffected by these problems and that AMCC's business was going strong, growing rapidly and
indeed, was "ballistic in a positive way . "
10. In an effort to overcome announcements by Nortel, Cisco and Lucent and general
market fears and thus both reverse the resulting downward spiral and artificially inflate AMCC's
stock price, defendants issued a series of positive statements about AMCC between November
13, 2000 and February 5, 2001 which they knew to be false, deceptive and misleading and di d
not correct earlier positive statements made as recently as November 7, 2000 . To that end,
defendants represented or misled the market to believe that AMCC's semiconductor IC-Comm
business was "robust ," enjoying "strong demand" and "strong bookings ," that AMCC's
business was growing "very rapidly," that the "explosive demand for bandwidth that's going on
right now will continue for the foreseeable future," characterizing such bandwidth demand as
"insatiable " and that AMCC was "riding all of these favorable mega-trends." In the face of a
4 LEAD PLTFS I ST AM CONS CLASS ACTION CPT
Lead Case No . : 01-CV-0649-K (AJB)
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publicly-reported decline in revenues at Nortel - AMCC's largest customer - defendants
comforted the market, stating that shareholders should not be worried about it "at all," that
AMCC was growing 'faster than the market as a whole," was able to "outpace the growth,"
and was enjoying "robust growth and higher margins ." Defendants later assured the market
that AMCC had "not been prone to inventory whipsaws," and that the "company has not seen
significant order push -outs or cancellations." And beyond the many numerous statements that
AMCC's then existing business was doing very well and not being impacted by the industry
slowdown and major inventory correction caused by a $4 billion inventory buildup and
stockpiling earlier in 2000, defendants also represented that AMCC expected to report fiscal
2001 (ending March 31, 2001) results of $0 .53 EPS.
11 . Their continuous deception of the market was patent and egregious. On January
16-17, 2001, while professing that they regularly scoured and "scrubbed" AMCC's bookings,
backlog and "turns business," and regularly checked customers' channel inventory, defendants
again reassured a nervous market that the inventory correction in its industry was not affecting
or negatively impacting AMCC . Defendants represented that AMCC' s "communications
business continues to grow impressively. " Defendant Rickey boasted "so far, the sluggish
growth analysts have predicted hasn 't appeared. . . our business is booming . . . I'm not seeing
a slowdown " adding "I'm having a hard time getting all the products I need to satisfy
demand. " In fact, defendants upped the ante on "guidance," assuring the market of continued
sequential growth of close to 20% for the March 200-1 quarter and assuring investors that the
Company was "convinced" that it would maintain sequential growth and stable margins
through 2001 . Even as late as the week of January 29, 2001, during road show presentations
with analysts, defendants bullishly proclaimed that negative rumors about AMCC were not
true, persistently maintaining that the Company was not experiencing any sign ificant order
decline, push -outs or cancellations.
12 . Meanwhile, unbeknownst to investors, by the beginning of the Class Period, and
especially between January 16, 2001 and February 5, 2001, AMCC was experiencing sustaine d
and significant order reductions, cancellations, and indefinite push-outs due to a majo r
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I I inventory correction by its largest and most important customers, such as Nortel, Cisco and
Lucent. Numerous major customers had reduced their orders by approximately 50% an d
cancelled tens of millions of dollars of existing orders . AMCC's primary distributor , Insight
Electronics , had already warned of and effected a 20% to 25% reduction of orders from AMCC
I I of AMCC products - a development that adversely impacted the Company . Demand fo r
AMCC's products was declining tremendously as its primary optical network customers wer e
forced by declining CAPex to cancel and postpone virtually all new projects . Meaningful new
orders virtually disappeared by the middle of November and AMCC's backlog began to
evaporate as the ever-worsening tidal wave brought about by the major inventory correctio n
struck . AMCC noticeably reduced the pace of its production in the wake of a serious busines s
decline. And, despite the importance of attracting and retaining talented design engineers t o
1 maintain its competitiveness and stay ahead of the product curve, by late November 2000, it s
once torrid pace of hiring design engineers and product manufacturing personnel (i.e., non-
executive personnel) came to a virtual grinding halt .
13 . Internal knowledge that the industry slowdown and resulting major inventory
correction and lack of demand was plaguing AMCC was widespread and reached the highest
levels . Faced with mounting internal concerns, in mid-November 2000, CEO and Presiden t
defendant David M. Rickey gathered an "all hands " assembly of AMCC employees who
peppered him with questions about what Rickey acknowledged was a significant slowdown of
business , demand and production resulting from the industry major inventory correction that
had "hit" AMCC . Large and continuing order cancellations and reductions throughout the Class
Period sent AMCC into a virtual state of pandemonium causing high level AMCC executives ,
including Rickey and numerous other defendants, to hold one emergency meeting after another
to discuss - oftimes vehemently the alarming order cancellations .
14. On Saturday November 25, 2000, Rickey engaged in an informal phon e
I conversation with a former experi enced engineer , colleague and personal acquaintance, in
I which Rickey acknowledged that several of AMCC's key customers had cancelled or reduce d
I orders . Rickey stated that Nortel and Lucent had already informed AMCC of significant order I
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reductions, emphasizing that Nortel first advised AMCC of such order cuts in September 2000
and that the Company was expecting further order cuts and cancellations from its key customers
which would imperil its ability to meet revenue goals and was consequently necessitating what
he termed a freeze on hiring . And while defendants were publicly continuing to lead investors
to believe that AMCC's business was still going "ballistic in a positive way," with "robus t
growth" and apparent invulnerability to the major inventory correction fueled by reduce d
CAPex that was adversely affecting others, Rickey privately and personally acknowledged that
AMCC was experiencing "really had business . "
15 . Then suddenly, on February 5, 2001, no longer able to hide the truth -just a
few hours after defendants completed their collective sale of over $100 million of their AMC C
stock on unsuspecting investors - AMCC shocked the market, revealing that it was , in fact,
suffering from signi ficant order push-outs and cancellations .
16. In the weeks following AMCC's February 5, 2001 disclosure , AMCC was forced
to admit that it was negatively impacted by a major inventory correction resulting from a
stockpiling of inventory by its customers during 2000 and significantly declining capital
expenditures by network service providers , while conceding that the Company 's earnings
forecasts had been too aggressive and that AMCC had not been spared from the economic
problems affecting its major customers . The market reaction to AMCC's February 5, 200 1
adverse announcement was swift and dramatic as the Company 's stock, which had once been as
high as $88 .25 per share during the Class Period, fell from $64 .375 at the close of trading on
that day to as low as $55 .0625 by the close of trading on February 6, 2001, upon huge volume
of over 34 million shares - one of the largest in AMCC 'S history - and declining thereafter t o
as low as $17 on July 18, 2001, as a stunned market reacted to the news about AMCC's true
business condition and demise . Instead of a business that was "ballistic," AMCC's business had
been devastated by events and actions by its customers and primary distributor that were known
to defendants from the very beginning of the Class Period - the same events that they actively
concealed from and led the market to believe were not occurring at AMCC . Instead of a
sequential revenue increase of nearly 20% for 4Q F'01 as the Company had assured, AMC C
7 LEAD PLTFS 1ST AM CONS CLASS ACTION CPT
Lead Case No . : O1-CV-0649-K (AJB)
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suffered a massive revenue shortfall of almost $60 million, representing a sequential decrease
of 19%. Later, in addition to reporting worsening financial results for IQ F'02 (ending June 30 ,
2001) the Company would write down approximately $3 .3 billion of goodwill associated mostly
with the MMC merger and announce a significant reduction in workforce . And Rickey, who ,
according to a New York Times article dated April 1, 2001, had once brashly challenged
inventors by daring them not to own AMCC stock, was forced to admit in a six word speech at
the Optical Fiber Conference in late March 2001 that AMCC was "sucking wind . "
17. But while investors suffered untold losses, including their retirement savings ,
I defendants' scheme was a fabulous success and proved the old adage that if you repeat a li e
often enough, people will believe it . The cumulative effect of the intensity and frequency of
defendants' many false, positive statements had slowed the downward spiral of AMCC's stock,
stabilized it, and triggered its ascent . From November 13, 2000, until November 15, 2000,
AMCC's stock price climbed from $62 5/8 per share to $71 per share, and thereafter climbed as
high as $87 1/8 per share by the close of trading on January 24, 2001, as defendants continued
their onslaught of false positive statements to overcome any negative industry news and comfort
a skittish market that AMCC was uniquely positioned and was not adversely impacted by the
market slowdown and major inventory correction .
18. The numerous false statements artificially inflated the price of AMCC shares
long enough to allow the defendants to reap a substantial profit by collectively selling
significant amounts of their stock shortly before they could no longer conceal the truth fro m
investors. Taking advantage of internal non-public knowledge of adverse events already
impacting AMCC, which they failed to disclose despite an affirmative duty to do so, the
defendants sold over 1 million shares of AMCC common stock for proceeds totaling over $100
million - especially between January 18, 2001 through February 5, 2001, and in one instance
just hours before AMCC's surprising disclosure .
19. The fact that the inflation in AMCC's stock price was the result of AMCC's man y
I false and misleading statements, rather than general market factors, is depicted by the followin g
graphs on the following pages :
8 LEAD PLTFS I ST AM CONS CLASS ACTION CPTLead Case No . : O1-CV-0649 - K (AJB)
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AMCC & Comparative IndexesNovember 13 . 2000 = 100%
160%
140%
120%
100%
60%
40%
20%
0% K
\4v 1 140 4'a ate`'
4°C3AP 41P c ova a
---•- AMCC - NASDAQ Composite Index - SP Semiconductor Index
APPLIED MICRO CIRCUITS CORP (AMCC )
250,000 C3aw Period
225,00 0
200,000
175 .000
150,000
125,000
100,000
75,000
50.000
35.000
a1005/2000 12 )711000 0112312001 03A7 J2001 04/1911001 06101/2001 071162001
11 115/1000 121291/1000 02!13!2001 0312512001 05/1012001 06J22r 01
$90
$80
$70
$60
li$50
X4 0
$30
$20
$1 0
$ 0
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JURISDICTION AND VENUE
20 . The claims alleged herein arise under §§ 10(b) and 20 (a) of the Securities
Exchange Act of 1934 (the "Exchange Act"), 5 U.S .C. §§78j (b) and 78t(a), and Rule 10b-5, 1 7
C.F .R. §240 . 10b-5 promulgated thereunder .
21 . This Court has jurisdiction over the subject matter of this action pursuant to §27
of the Exchange Act, 15 U .S .C. §78aa, and 28 U .S.C. §1331 .
22. Venue is proper in this District pursuant to §27 of the Exch ange Act and 28
U.S .C . § 1391 (b) and (c) . The defendants transact business in this District , and many of the acts
and transactions constituting the violations of law alleged herein, including the dissemination o f
materially false and misleading statements to the investing public, occurred in this District . In
addition, defendants made no objection to the consolidation of this action in this District .
23 . In connection with the acts, transactions and conduct alleged herein, defendants,
directly and indirectly, used the means and instrumentalities of interstate commerce, including
the United States mails and interstate telephone communications and the facilities of nationa l
securities exchange and markets .
THE PARTIE S
I Plaintiff
24. Lead Plaintiff, FSBA, is the constitutional entity that effects investments for an d
on behalf of some 15 trust funds, the largest of which is the Florida Retirement System Trust
Fund -- the pension and retirement fund for Florida State employees . This fund has more than
170,000 retirees and approximately 600,000 active members . As set forth in Exhibit A,
attached hereto , FSBA purchased 462,900 shares of AMCC stock throughout the Class Pe riod
and was damaged thereby .
25. By order dated November 2, 2001, FSBA was appointed by the Court to serve as
Lead Plaintiff in the foregoing-captioned consolidated class action, pursuant to 15 U .S .C . §78u-
4(a)(3)(B)(I) of the Private Securities Litigation Reform Act of 1995 ("Reform Act" or
"PSLRA") .
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26 . The consolidated non-lead party plaintiffs are Congregation Givath Shoul,
Calvin Harris, Daniel Kucera, Fairland Management Corporate Pension Plan, Tracy Reed,
Gordon Graef, and Jon Kregal . Each of the consolidated non-lead party plaintiffs purchased
AMCC Securities during the Class Period, as more fully set forth on Exhibit B hereto, and was
damaged thereby.
1 Defendants
27. Defendant AMCC designs, develops, manufactures and markets high-
performance, high-bandwidth integrated circuit components for the world's optical networks .
During the Class Period, AMCC had approximately 298 million shares of its common stock
outstanding, which shares traded in an efficient market on the NASDAQ National Market
System .
28. The following defendants are referred to hereafter as the Individual Defendants :
(a) David M. Rickey ("Rickey") - President, Chief Executive Officer and
Chairman of the Board of the Company .
(b) William E. Bendush ("Bendush") - Chief Financial Officer of the Company .
(c) Thomas L. Tullie ("Tullie") - Vice President of Sales of the Company .
(d) Brent E. Little ("Little") ---- Vice President of Marketing of the Company .
(e) Douglas Spreng ("Spreng") - CEO and President of MMC and a Member of
AMCC's Board of Directors .
29. Each of the Individual Defendants possessed material adverse non-disclosed
information about AMCC during the Class Period .
30. As more fully alleged in Counts II and IV below, in addition to the Individual
Defendants, a number of other top AMCC executives took advantage of the false or misleading
statements and their knowledge of material non-disclosed adverse information set forth in this
complaint by selling millions of dollars of their AMCC stock at artificially inflated prices in
violation of their duty to "abstain or disclose ." These individuals are :
(a) Vincent DeMaioribus ("DeMaioribus") ---- Vice President of Manufacturing of
the Company.
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• sStephen M. Smith ("Smith") - Vice President of Business Development of th e
Roger A. Smullen, Sr. ("Smullen") - Vice Chairman of the Company .
Greg Winner ("Winner") - Vice President of Engineering of the Company .
Ram Sudireddy ("Sudireddy") - Vice President of Digital Products of th e
Candace Kilburn ("Kilburn") -- Vice President of Human Resources of th e
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31 . The individuals named in the foregoing paragraph, subparts (a)-(f), ar e
collectively referred to as the Insider Trading Defendants and are sued herein as alleged in
Counts II and IV below for violating their duty under § 10(b) to "abstain or disclose" when
selling their AMCC common stock and for violating §20(A) of the Exchange Act of 1934,
respectively .
32 . Each defendant is liable for : (i) making false statements ; or (ii) failing to
disclose adverse facts and trends known to him about AMCC while selling AMCC stock ; or (iii)
participating in a fraudulent scheme . The fraudulent scheme and course of business that
operated as a fraud or deceit upon purchasers of AMCC Securities was a success as it : (i)
deceived the investing public about AMCC's prospects in business ; (ii) artificially inflated the
price of AMCC stock and publicly-traded options permitting the defendants to sell at artificially
inflated prices over 1,000,000 shares of their AMCC stock for over $100 million ; and (iii)
caused plaintiff and other members of the Class to purchase AMCC stock or options at inflate d
prices .
33 . The Individual Defendants are liable for the false statements pleaded herein at
¶161-91, as those statements were each "group-published " information for which they are
responsible . The Individual Defendants , by reason of their stock ownership and position with
AMCC as its top officers and directors , were controlling persons of AMCC. The Individual
Defendants are liable under §20(a) of the Exchange Act.
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BACKGROUND TO THE CLASS PERIO D
AMCC's Products and Customer s
34. The "telecommunications sector" is comprised of many interdependent
companies . These companies build and maintain telecommunications infrastructure by laying
cable underground and under oceans, providing telecommunication services, manufacturing
end-user products, and marketing services, hardware and software to businesses and consumers .
Voice, data and video are transmitted through telecommunications networks using wire, cable, I
fiber optic, wireless, or satellite mechanisms .
35 . The Internet is a collection of telecommunications networks , each owned an d
I maintained by various carriers . The largest, known as "back-bone providers," includ e
WorldCom, Verizon, Sp rint , and Cable & Wireless . The United States government maintained I
the Internet during its first 25 years : it financed network research and even paid companies to
build custom equipment to construct and maintain the networks . By 1990, the Internet was a
commercial enterprise and its operation was transferred to private carriers making it more
widely available to the public . The Internet is just one segment of telecommunications, along
with voice, fax, data and video communications .
36. AMCC produces hardware components, which are used in constructin g
telecommunications networks. AMCC designs, develops, manufactures and markets high-
performance, high-bandwidth silicon Integrated Circuit ("IC") products, also called
"semiconductors," that enable voice and data transport over fiber optic networks .
37. Telecommunications equipment technology has become very sophisticated .
Voice, data, and other information is communicated in tremendous volumes among
conventional "twisted wire," fiber optic cable, wireless, and satellite networks . AMCC's
products are primarily used in fiber optic cable networks . Fiber optic cable permits high-speed
voice and data transmission across vast distances using "wavelengths," or beams of light,
carried along cable made of spun glass or plastic . Innovations in the way these beams of light
are compressed, modulated, and bundled in "packets" have greatly improved the ability of fiber
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1 optic networks to carry increasing transmission volume at ever-greater speeds . The capacity at
2 which a network can accommodate transmission volume is known as "bandwidth . "
3 38. The telecommunications marketplace has also evolved dramatically. In 1996,
4 adoption of Senate Bill 652 widely deregulated telecommunications services and promoted
5 increased competition by allowing telephone companies to enter cable markets and local
6 carriers to enter long-distance markets . During this time, many companies competed to install
7 endless miles of fiber-optic cable throughout the world ; the "back-bone" for high-bandwidth
8 communication called "broadband ." AMCC's customers have been responsible for constructing
9 this back-bone.
10 39. AMCC relies heavily and is dependent for its success on sales to a few large
11 customers ; Cisco, Lucent, Nortel, Alcatel and a distributor, Insight Electronics . AMCC's largest
12 customer is Nortel, which, during the Class Period, reportedly accounted for approximately 20%
13 of the Company's revenues . Cisco accounted for approximately 10% of AMCC's consolidated
14 revenues during the Class Period and almost 45% of MMC's stand alone revenue .] During the
15 Class Period, Insight Electronics served as AMCC's primary distributor and accounted for 13%
16 of AMCC's net revenues in FY 1999 (ending March 31, 1999), 17% in FY 2000 (ending March
17 31, 2000) and 19% in FY 2001 (ending March 31, 2001) .
18 40. AMCC has been one of the more aggressive chip companies in the fiber optics
19 sector, and its business is highly dependent on the success of the Internet and
20 telecommunications sectors .
21 The Rise and Fall of the Internet and TelecommunicationsSectors Ushering in AMCC' s Decline
2241 . From 1999 through early 2000, the Internet and telecommunications sectors of
23the United States economy experienced substantial and rapid growth and many Internet-related
24companies were able to attract significant investment capital from IPO's of their stock. These
25IPO's provided the issuers with millions of dollars which could be spent on Internet and other
26telecommunications-related products such as those sold by Nortel, Cisco and Lucent .
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42 . But by mid-2000, capital expenditures by network service providers had peake d
and were beginning to slow significantly . With increasing competition, the combination of too
much supply and too many players created irrational pricing, as evidenced by falling prices in
the spot market for bandwidth . Adding to the industry's burden was a rise in the cost of capital
- with cost of incremental new capital greatly exceeding what were becoming single digit
returns . This dual capital restriction caused a particularly troubling dilemma for networ k
service providers, many of whom were cash flow negative and desperately needed to raise new
cash to stay in business .
43 . Meanwhile, AMCC successfully deflected market concern about its prospects by
I disseminating one positive statement after another . When investors became skittish over a
Nortel warning in early June 2000 of lower than expected sales, defendant CFO Bendush
comforted investors, assuring them that AMCC's upcoming fiscal first quarter results would not
be hurt : "This quarter is going to be another outstanding quarter for us ." "[W]e're very
comfortable with the estimates that are out there for us ." Indeed, Bendush reiterated AMCC' s
estimates , saying that sales to Nortel would grow by "10%, plus or minus " for the quarter .
Bendush added that AMCC's overall sales growth was on track despite the No rtel downturn,
that its dependence on Norte] was decreasing, and that the Nortel downturn was a short-term
issue involving Nortel product transitions, while expressing his expectation that Nortel-related
sales growth would be back in the mid-teens by AMCC's fiscal second quarter (ende d
September 30, 2000) .
44. In July 2000, AMCC reported net revenues for the IQ F'01 (ended June 30 ,
2000) of $74.2 million, an increase of 310% over 1Q F'00 . Commenting on the results,
defendant Rickey, President and CEO, stated : "We've experienced phenomenal revenue growth
in the June quarter, and for the first time ever, we've achieved a 40% pro forma operating
margin and $100 million in quarterly bookings . "
45 . During 1999 and 2000, the Internet and telecommunications sectors also
experienced numerous corporate mergers and acquisitions, as firms in various industry "tiers"
gobbled up smaller companies to acquire new products and engineering design talent in a
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virtual "acquire or die" competitive environment . Though AMCC was relatively small --
especially when compared to Nortel, Lucent and Cisco and competitors seeking to enlarge thei r
11market share - it was not defenseless. As long as its common stock was selling at a
sufficiently high price, AMCC could use its stock to acquire other firms (and their products and
engineering talent) and thereby remain competitive and survive . Thus, AMCC joined in this
merger frenzy . From approximately March 1999 through October 25, 2000, AMCC used
approximately 58 million shares of its stock as currency to acquire Cimaron Communications
Corp. (March 1999, 12 million AMCC shares) ; YuniNetworks, Inc . (June 2000, over 4 million
AMCC shares); SiLUTIA, Inc . (September 2000, 566,834 AMCC shares), and MMC Networks,
Inc. (October 2000, 41,392,404 AMCC shares) .
46. AMCC's most significant acquisition was MMC. On August 27, 2000, AMC C
announced the signing of a definitive agreement to acquire MMC Networks for approximately
$4 .5 billion, based on AMCC's August 25, 2000 closing stock price of $94 .281 per share
(adjusting for a 2 for I AMCC stock split effective October 16, 2000). AMCC used its stock
both as consideration for the merger and as a compensation incentive to retain MMC
employees, especially design engineers . The MMC acquisition, which was touted by Rickey as
a "powerful merger" creating "tremendous synergy," purportedly inflated AMCC's reported
total assets to $5 .6 billion.
47. Shortly thereafter, in an interview with the Wall Street Transcript reported
September 22, 2000, CFO Bendush identified AMCC's customers as including "large OEMs
such as Cisco, Lucent and Norte], and emerging companies such as Sycamore and Juniper ."
When asked about the two or three reasons he would give for potential long-term investors to
buy stock in AMCC, Bendush responded :
I would say there are really three industry megatrends that play in our favor .The first is the insatiable demand for bandwidth , which we believe, willcontinue for some time . All the projections I have seen indicate that we're justat the start of that curve. Secondly, the optical network is the predominant waythat this demand is going to be addressed, and that's exactly the market weserve. The third megatrend is the OEM outsourcing trend . However fast aninvestor believes the optical market is apt to grow, there's an additiona l
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multiplier effect on top of that , due to the outsourcing trend . AMCC stands tobenefit from all three of these trends . 2
48 . In October 2000, AMCC reported net revenues for 2Q F'01 (ending September
30, 2000) of $97.0 million , an increase of 156% over the same period of fiscal 2000 .
Commenting on the results, defendant Rickey said ,
This has been a very strong quarter for AMCC as our communications revenuecontinues to grow rapidly, due in large part to the increasing demand for ourOC-48 and OG192 standard products . In addition, our bookings continuedvery strong . . . driven by a 1 .5 book-to-bill in our communications products .
49. An earnings update regarding MMC Networks disseminated to the investment
community on October 19, 2000 by KBRO Kaufman Brothers, LP, Institutional Research ,
reported that MMC's last quarter as a stand-alone company was a "good one" with both
revenues and EPS better than expected and sales to Cisco constituting 54% of MMC's total sale s
in the quarter ending September 30, 2000 . The report repeated information provided by
defendant Spreng in MMC's last analyst conference call before the merger : "The Company
pointed out that this level of business with Cisco is back to historical levels ." It was further
reported that "The Company stated that they are continuing to build inventory to help meet
customer demand and consequently inventory turns of 3 .1 times were down sequentially and
YoY," (year over year) .
50. Meanwhile, by October 2000, AMCC's customers were already suffering fro m
the convergence of their massive stockpiling of inventories during 2000 (in response to
manufacturing supply restraints), and severely declining capital expenditures by network service
providers and associated declining demand, a recipe for disaster .
51 . For example, on October 10, 2000, in a press release and follow-up conferenc e
calls with analysts, Lucent disclosed problems in its optical networking business . Lucent
management reported that these problems went beyond manufacturing difficulties and included
a basic lack of customer demand for the products Lucent was now selling . Revealing that its
accounts receivables were materially overstated due to the macro-economic problems suffered
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I by its customers, Lucent disclosed that its optical business had actually declined 5% for the I
I quarter.
52 . Similarly, Nortel announced it was also suffering from a decline in expected
orders . In a conference call with analysts on October 24, 2000, Nortel disclosed a significant
revenue shortfall which it attributed in part to a delay in orders from customers who opted to
draw down inventories of equipment they had already purchased. Nortel's announcement
revealed what Lucent had already warned of - that its customers were suffering from macro-
economic problems which put the quality of Nortel's past and future revenue into question and
caused Nortel's DSO's (i .e ., days sales outstanding) to rise from 81 days to 92 days .
53 . Nortel's announcement, which parroted Lucent 's revelations , raised questions
about AMCC and caused AMCC shares to decline more than 25% . The announcement had a
similar negative impact on other fiber optic companies .
54. On October 25, 2000, amid reported market trends that were putt ing significant
downward pressure on all stocks in AMCC's industry sector, including AMCC stock, MMC's
shareholders voted to approve its merger and exchange their stock for AMCC stock . By then,
the agreed upon exchange rate as set by AMCC' s stock p rice as of August 25, 2000 ($94.2812
per share , as adjusted ), was already higher than the price at which AMCC stock was trading on
October 25 , 2000 - $74 per share . The downward spiral in AMCC 's stock price was a matter
of grave conce rn, since it severely reduced AMCC's market capitalization and created additional
problems for AMCC . It threatened AMCC' s ability to attract and retain much-needed
engineering design professionals ; its strategy to use its stock as currency in acquisitions (and
thereby survive in an increasingly competitive environment) ; and the value of its stock-based
compensation schemes .
55. Moreover, by the time the AMCC-MMC merger was approved, the Internet and
telecommunications sector contraction constricted access to capital and demand for products
used to maintain and further develop what had been a rapidly expanding and growing Internet
and telecommunications infrastructure . Decreased network service provider capital
expenditures had become an increasing concern since early 2000 and by Fall 2000, the industry
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business model had changed from "build it and they will come" to "build it when it will generate
profit ."
56 . Defendants were determined to counter this bad news by claiming that there wa s
I no negative effect on the Company . In an interview on CNBC, a summary of which was
I reported on Netcog .com on October 25, 2000, defendant Rickey attempted to disabuse the I
I market of any notion that Nortel's or Lucent's problems would spill over into AMCC and
instead led investors to believe that AMCC 's business was booming . Rickey vehemently
denied that there would be a slowdown in fiber optic network capital spending in the next
year , dismissing any suggestion of such a slowdown as "crazy. " Rickey asserted that because
AMCC had diversified its revenue base, Rickey did not see a downturn at Nortel having a major
impact on AMCC in the next quarter. Rickey assured investors that he did not feel AMCC was
significantly exposed to Nortel, adding : "All this hullabaloo in the last 24 hours is a gross
overreaction to a fantastic market." Continuing to guide the market to expect that AMCC
would report 20% sequential growth , Rickey maintained that bookings for the December
quarter were very strong. Summing up, Rickey ended the interview stating "Business is
ballistic in a positive way . "
57. Industry news worsened . On October 28, 2000, Cisco disclosed that it had
I increased its loss reserves by $275 million . The reserve increase covered optical network
inventory valuation and the quality of Cisco's customer receivables . Cisco's disclosure put
additional pressure on AMCC shares, sending them down 10% .
58. On November 7, 2000, defendant Rickey made a presentation to analysts and
I investors at the AeA Classic Financial conference in San Diego, California . In his presentation
Rickey stated :
Our business is robust, and we don't see any of the scary signs that the stockmarket would lead you to think are happening . From quarter to quarter, wecontinue to see strong bookings , with no significant push-outs or cancellations. . . . We're either in denial or we understand our business . We're feeling prettycomfortable with the way things are right now .
59 . In a Company press release disseminated over the PR Newswire on November 7 ,
12000, defendant Rickey, commenting on the outlook for the third fiscal quarter, said : "We are
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on track . Our demand continues to be strong to this day, and our backlog has increased . I
Driving the demand are new platforms, particularly at 10 gigabits . Our biggest near-term
challenge continues to be securing enough supply to meet this strong demand. "
60. The positive statements alleged in ¶147, 48, 56, 58 and 59 above, remained alive
and uncorrected during the Class Period . And despite numerous warnings and data received by
defendants indicating that demand for AMCC product was grinding to a halt and that AMC C
was already receiving significant order cancellations and reductions greatly impe ri ling 4Q'01
and 1Q'02 revenues , from November 13, 2000 through February 5, 2001, defendants issued a
series of additional statements that repeatedly denied that AMCC's business was suffe ring or
that it would suffer any material adverse effects of the massive inventory correction in it s
industry .
FALSE STATEMENTS DURING THE CLASS PERIOD
61 . By mid-November 2000, and no later than the beginning of the Class Period,
November 13, 2000, defendants were aware of adverse, non-disclosed information fro m
AMCC's p rimary customers, and its dist ributor Insight Electronics , and were on notice that a
massive inventory correction by them was underway that would adversely impact AMCC's 4 Q
F'01 (ending March 31 , 2001) and 1Q F'02 (ending June 30 , 2001) sales and revenues . Despite
this knowledge , defendants embarked upon a scheme to inflate the price of AMCC shares by
publicly dismissing any notion of any mate rial order push-outs , cancellations , delays, or decline
in demand; by falsely portraying AMCC as still experiencing " ballistic" and continuing success
and growth; by stating that its receivables and backlog were sound and its product deman d
strong ; and by offering "guidance " to the market that AMCC would expe rience a strong 4Q
F'O1 . Defendants' scheme - building investor perception that AMCC had been and would
continue to remain invulnerable through FY 2001 (ending March 31, 2001) to the reported
industry slowdown and inventory correction - was a success, artificially inflating and restoring
AMCC's share value and conferring significantly higher profits upon defendants who proceeded
with the sale of over $100 million of their AMCC stock during the Class Period befor e
disclosing the truth . A summary of defendants' numerous false and misleading statement s
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which are the subject of this Complaint and alleged at length at $T62 to 91 below, is appended
I hereto as Exhibit C .
Defendants Repeatedly Lied to the Market in Investor Conferences,Interviews and Company Press Releases, that AMCC' s Business
Was Robust and Gave Guidance of $53 EPS for FY 200 1
62. On November 13, 2000 in an interview with the Wall Street Transcript defendan t
I Bendush stated :
We believe that the explosive demand for bandwidth that's going on right nowwill continue for the foreseeable future. Further, the optical network is the waythat that demand is being served , and that's exactly where we're focused . Third,there is an outsourcing trend going on among our customers . For time-to-market reasons , our customers are buying more standard products fromcompanies like AMCC . . . .
Bendush also stated that AMCC was "growing very rapidly" Noting that AMCC "made a I
number of acquisitions of smaller engineering companies just to bring additional R& D
capability into AMCC ," Bendush said :
I expect that we will continue [to] make these types of acquisitions . . . .the marketis becoming more competitive . It seems everybody wants a piece of thecommunications IC business . I expect you'll see continued consolidation andemergence of a few very strong competitors .
Commenting on the merger with MMC, Bendush remarked, "we have acquired a very strong
team, and I think they will make a big contribution to AMCC." And he cited as one of a
number of reasons for long-term investors to buy stock in AMCC, the "insatiable demand for
bandwidth" and the fact that AMCC was "riding all of these favorable mega-trends . "
63 . These positive statements inflated AMCC's stock price from $61 1/2 at the clos e
of trading on Friday, November 10, 2000, to $71 per share at the close of trading on November
15, 2000. But when AMCC's stock price fell again on November 16, 2000, the campaign to re-
inflate AMCC's stock price intensified as defendants continued their efforts to assure and
convince the market that industry troubles were not negatively affecting AMCC and that, in
fact, its business was uniquely positioned and truly going "ballistic in a positive way . "
64. In an interview with Bendush conducted by Stock Traders Daily reported over
the PR Newswire on November 17, 2000, Bendush verified that AMCC was comfo rtable with
its guidance offered in a recent conference call for a 20 % sequential growth rate for AMCC's
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3Q F'01 and continued to assure the financial community that orders continued to be strong, du e
I in part to the 10 gigabit business . Bendush represented that AMCC's backlog actually increased
I from the end of 2Q F'01 . In reference to recent negative comments by Merrill Lynch warning
of an industry inventory correction and lower earnings, Bendush noted that the warning was
based on news that had been available for weeks and even months, effectively dismissing it a s
not affecting AMCC.
65. Continuing the steady drum beat of positive statements to the market, on
November 30, 2000, defendants Bendush and Spreng appeared at the Credit Suisse First Bosto n
Technology Conference in San Francisco . In a formal presentation and in "break -out" sessions,
they told the assembled analysts, money and portfolio managers, institutional investors, brokers
and stock traders that because the Company had not seen a change in lead times throughou t
the year and was mostly ramping newer products , it had not been prone to inventory whipsaws .
Defendant Spreng stated that the Company had not seen significant order push-outs or
cancellations and led the assembly to believe that the biggest issue for AMCC was supply
constraints . Bendush reiterated guidance of 20% sequential revenue growth for AMCC's 3Q
F'01 (ending December 31, 2000) stating that demand is in line with expectations with linear
bookings in the quarter . Bendush and Spreng also told the assembled audience that th e
Company expected to report fiscal 2001 results of $0.53 EPS and that AMCC was ramping
more standard products and enjoying higher margins .
66. AMCC disseminated a press release on December 11, 2000 to the financial
community announcing the introduction of the Hudson, the industry's first 10 Gbps silicon
device architected to support both the evolving G .709 digital wrapper standard and traditional
SONET/SDH infrastructures . Defendant Little, Vice President of Marketing for AMC C
proclaimed: "The digital wrapper is the next important step for large optical networks as it
incorporates the best features of SONET/SDH while removing some of the rigid overhea d
structure that makes SONET/SDH sub-optimal for an IP-centric, intelligent optical network . "
Defendant Prentiss , AMCC's Director of Marketing for telecom products , proclaimed : "We are
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seeing unprecedented demand for Hudson across a large customer base due mainly to the
device's flexible architecture . . . . "
67. This barrage of positive, albeit false, statements ended a skid in AMCC's stoc k
price and triggered what would be a steady price rise , from $48 7/16 per share on November 30 ,
2000, to as high as $74 1/2 per share by the close of trading on December 11, 2000 . The steady
campaign to comfo rt investors and buoy or inflate AMCC 's stock price continued .
68. On or about December 18, 2000, defendant Rickey was interviewed by John
Henry of the StreetSide Investor's Executive's Corner . During the interview, defendant Rickey
was asked the following question :
Nortel Networks , which accounted for approximately 20% of AMCC's revenueslast quarter, has recently announced that their optical revenues have declined ona sequential basis . What kind of impact will these declines have on futurerevenues for AMCC, and is this something that should worry shareholders ?
Rickey responded :
I don 't think that shareholders should be worried about this at all . The reasonis that in the March quarter, or about nine months ago, Nortel was 43% of ourrevenue, which is fairly high risk because it was such a highly concentratedrevenue in one customer . But, what happened is that we started seeing a slow-down from Nortel last March, which the world only heard about one or twomonths ago . So, we were probably a leading indicator . Nortel went from being43% of revenue in the March quarter to only 20% in the September quarter . So,I think that AMCC has already gone through that kind of sequential declinewith Nortel that the rest of the world is now concerned about with Norte l.But, even in that period where Norte] revenues declined, AMCC had the twostrongest quarters of sequential growth in history because we have dozens ofother customers turning on. So, we absorb the blows from Nortel and almosttransparently to investors . Nortel is still the leader in the optical network, and avery important future customer of ours. We have many designs with Nortel thathave not even turned into revenue . So, Nortel will grow for us againsignificantly in the future, but there are so many other customers alsogrowing that it has reduced the risk of dependency on Nortel tremendouslyover the last six months.
69. During his December 18, 2000 interview with StreetSide Investor's Executive's
Corner, defendant Rickey further stated that :
(a) "[T]he optical market that we serve is growing between 25 and 40 percenta year, depending on whom you ask . That means that the number ofboxes being deployed by Lucent, Cisco, Nortel, and those guys aregrowing 25 to 40 percent per year;" and
(b) "[M]ore and more of the content in any given box is now AMCC chips,where it used to be Lucent's or Nortel's or Cisco's . So, you've got theoptical market growing 25 to 40 percent, but at the same time you've got
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our customer outsourcing their silicon design to us . So, that is why weare growing so much faster than the market as a whole . It is because ofthis tendency now to outsource the silicon design, and that is going togo on probably for another five years or more. This means that for awhile, I will be able to outpace the growth of our market because I amessentially taking share of chips. "
70. Meanwhile, on December 21, 2000, the Financial Times reported:
In a rare move, Merrill Lynch yesterday slapped a downgrade on Cisco, the UStechnology company with the highest market value . . . .
Michael Ching, analyst at Merrill Lynch, downgraded Cisco from "buy" to"accumulate" because of persistent concerns over "service provider capitalspending and emerging fears over a slowdown in corporate IT spending ."
He also cited an earnings warning by Cisco rival Foundry Networks late onTuesday as indicating that capital spending issues are hurting sales of high-endnetwork equipment, which represent about 20 percent of Cisco's sales .
71 . On December 22, 2000, the Financial Times reported:
Lucent Technologies, the world's bigger telecommunications equipment maker,capped the recent bout of bad news from the technology and telecommsindustries by issuing its fourth profits warning of the year .
The US Company, which had begun 2000 as one of the stars of the global bullmarket in technology stocks, also conceded for the first time that it had beenchasing over-ambitious growth targets .
In its warning, Lucent said revenues would fall by 20 per cent in the currentquarter, resulting in a loss from continuing operations of 25-30 cents a share . Itblamed a slowdown in demand for its equipment in North America.
72. Demonstrating the success of their campaign to mislead investors, despite th e
December 21-22, 2000 reports in the Financial Times, the positive statements disseminated b y
AMCC continued to buoy and inflate its share p rice as it climbed to a closing high of $77 7/1 6
on December 28, 2000 .
73. The positive representations and forecasts made by defendants about AMCC as
more fully alleged above in ¶162 to 69 were false, deceptive and misleading in that defendants
knowingly or with deliberate recklessness misrepresented or failed to disclose the followin g
facts and events already negatively impacting AMCC :
(a) AMCC's existing business and prospects were already declining owingto the combination of significantly reduced capital expenditures(CAPex) by network se rv ice providers and a massive inventory build-up
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by its own customers, especially Nortel, Lucent and Cisco, upon whichcustomers AMCC was utterly dependent for its success ;
(b) AMCC was not experiencing "strong demand" or "robust growth" andits growth in 3Q F'Ol was illusory and merely the short-lived benefit of amassive inventory build-up by customers who were stockpilinginventory in 2000, which in the face of declining demand, required asignificant inventory correction through the first half of 2001 ;
(c) AMCC had received significant order cancellations and push-outs fromits largest and most important customers, including Nortel, Cisco,Lucent and Alcatel and its primary distributor, Insight Electronics,which collectively accounted for a very significant percentage of itssales and upon which it was utterly dependent for attaining its EPS"guidance" ;
(d) Demand for AMCC products was declining as many of AMCC'scustomers were experiencing weakening demand themselves ;
(e) AMCC's customers' "visibility" was not good, which, in turn, meant thatAMCC's "visibility" into 4Q F'O 1 and IQ F02 was also poor;
(f) Because of market industry conditions necessitating a major inventorycorrection through the first half of 2001 and which was already in fullswing in November 2000, AMCC would not and could not generateenough sales or shipments to attain the Company's projected revenuesand earnings for 4Q F'O1 and FY 2001 (ending March 31, 2001) ;
(g) MMC received large order cancellations and push-outs in the October-December, 2000 quarter from Cisco and suffered a significant decline inorders from Cisco that would negatively impact 4Q F'01 and IQ F02sales and revenue ;
(h) MMC's products were wo rth considerably less than what AMCC hadrepo rted , a goodwill valuation associated with AMCC's acquisition ofMMC was vastly overstated by AMCC and the true value of MMC'sbusiness was not $4.5 billion but, instead, was wo rth and should havebeen valued at approximately $3 .1 billion less than AMCC representedor reported; and
(i) There was no reasonable basis for the Company's projections ofrevenues and earnings for 4Q F'O1 or FY 2001 .
74. The foregoing allegations of ¶73(a)-(i) are supported by and based upon data and
information that is reliable and which has been secured through an extensive investigation using24
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a variety of sources. The facts and source of information upon which plaintiffs rely, includin g
these establishing defendants ' scienter, are more fully alleged in ¶¶l 13-172 below.
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During January 16-17, 2001 Statements in AMCC's Press Releases,Conference Calls and Interviews, Shortly Before They Collectively Sell
Their AMCC Stock, Defendants Announced 3Q F'01 Results and Misled theMarket to Believe AMCC Was Not Being Victimized by the Industry's
Major Inventory Correction or Decline in Deman d
75 . On January 16, 2001, AMCC reported 3Q F01 results in a press release entitled
"Applied Micro Circuits Corporation Reports Third Quarter Fiscal 2001 Financial Results ;
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Record Revenues of $143 .3 Million; Pro Forma Earnings Per Share $0 .16." The press release
stated in part :
Net revenues for the third quarter of fiscal 2001 were $143 .3 million, anincrease of 213% over the $45 .8 million reported in the same period of fiscal2000. Pro forma net income for the third quarter of fiscal 2001 was $48 .1million or $0.16 per share, compared with pro forma net income of $12 .1million or $0 .05 per share for the third quarter of fiscal 2000, representingincreases of 297% and 220%, respectively .
Sequentially, net revenues for the third quarter of fiscal 2001 increased 48%over the $97.0 million reported in the previous quarter . Pro forma net incomefor the third quarter of fiscal 2001 increased 35% over the $35 .7 million, or$0.13 per share, reported in the previous quarter.
On October 25, 2000, AMCC completed the acquisition of MMC Networks,Inc. for a purchase price of approximately $4.5 billion . The consolidatedoperating results reflect MMC Networks' results of operations subsequent to thedate of the acquisition .
Net revenues for the nine months ended December 31, 2000 were $314.5million, up 173% over the $115 .3 million for the nine months ended December31, 1999. Pro forma net income for the nine months ended December 31, 2000was $111 .7 million or $0 .40 per share compared with pro forma net income of$28 .0 million or $0 .12 per share for the nine months ended December 31, 1999,representing increases of 299% and 233% respectively .
Commenting on the quarter's results , defendant Rickey failed to disclose the fact that AMCC
was presently in the throes of a significant business slowdown as a consequence of the majo r
inventory correction by its customers and, in fact, represented just the opposite, stating :
Our communication business continues to grow impressively , posting 37%sequential growth for the AMCC base business and 34% on a pro formacombined basis, with MMC Networks included for a full quarter . This strengthis being driven by our newer offerings, particularly 10-gigabit and framer layerproducts. In addition, our communication book-to-bill continues very strong at1 .33 for the quarter .
76. Induced to believe that all was well at AMCC, on January 16, 2001, Investor's
Business Daily reported :
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[S]o far, the sluggish growth analysts have predicted hasn't appeared on[AMCC] CEO David Rickey's radar screen . "Optical has been a bad word thesepast few months . There are all these negative perceptions going on," Rickeysaid. "But our business is booming . I'm waiting for that slowdown that they'reall saying is going to hammer me ." . . . "I'm not seeing a slowdown , but I'm notpresuming I'm immune," Rickey said. "I'm having a hard time getting all theproducts I need to satisfy demand, but we're getting through those supplyconstraints . "
77. Again, on January 16, 2001, subsequent to the release of 3Q F'01 results, AMC C
held an extended conference call for analysts, money and po rtfolio managers , institutional
investors , and large AMCC shareholders to discuss its 3Q 2001 results , business and prospects .
On the call for AMCC were defendants Rickey, Bendush, Tullie , Little and Spreng . Bendush
commenced the conference call discussions by recapping AMCC's financial performance for its
third quarter. Defendant Tullie gave a presentation discussing the quarter 's revenue detail and
bookings . Defendant Spreng repo rted on the operations of AMC . Defendant Little gave a
presentation regarding issues and data on the health of AMCC' s business followed by an
extensive presentation by Rickey cove ring operating highlights and the Company's outlook .
The defendants ' presentation was collective, orchestrated and scripted. Each spoke as part of a
group and on behalf of AMCC. Highlighting the statements made by the defendants during the
conference call, investors were informed that :
• AMCC was forecasting sequential growth in the upper teens,approaching 20% for the 4Q F'01 (ending March 31, 2001) .
• For quarters beyond 4Q, AMCC gave guidance of sequential revenuegrowth in the 10% to 15% range .
• AMCC's assets were $5 .6 billion including the large increase in the pastquarter in intangible assets value as a result of the MMC merger .
• An increase of 10 days in DSO's from the prior quarter was notattributed to financial problems, slow demand, order push-outs, orcancellations but instead was attributed to the acquisition of MMC andsupply challenges .
• OC-192 or 10 gig-a-bit per second revenues continued their strong ramp .
• AMCC's rapid communications revenue growth was broad-based and itenjoyed a strong standard products revenue ramp across a broad base ofcustomers .
• AMCC's overall communications book-to -bill was a "very robust" 1 .33 .
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• AMCC's deal funnel is by far the largest and of the highest quality interms of customers and strategic platforms that AMCC has ever seen .
• MMC's merger with AMCC was going extremely well .
• "AMCC is enjoying a very robust growth opportunity" in its opticalmarkets and the Company continues to take market share .
• Looking into the calendar year 2001, AMCC saw a continued strongmarket opportunity .
• AMCC enjoyed continued margin improvement .
• Demand remains strong without any tangible evidence that overalldemand run rate is going to slow down .
• "Owing to its unique position" and "having so many growth factors" inits favor and its "relatively small reliance on any single factor" AMCCwas "very bullish" on its future outlook .
78. Defendants were fully aware of how critical and material order push-outs ,
cancellations, sales slowdowns, decreased capital expenditures, and massive inventor y
corrections were to the success of AMCC and to the investment community . Thus, defendants '
I statements during their presentations were each designed to comfort a skittish market an d
overcome any negative news . To that end, defendants made every effort to neutralize an y
potential negative reaction to adverse events that impacted the Company in 3Q F'01 . For
example, speaking about MMC Networks' revenues for the full December 2000 quarter ,
defendant Spreng commented that MMC "just met" its guidance "because shipments to Cisco
Arrowpoint were down from what we expected when we entered the quarter, due to an
inventory build-up in the previous quarter ." But Spreng deflected any concern that Cisco's
inventory work down would adversely impact AMCC's guidance for 4Q F'O1 (ending March 31 ,
2001) and beyond, by adding : "This situation will probably impact MMC's growth rate in the
near term as we work off the excess and this impact has been factored into the AMCC outloo k
that Dave will discuss shortly ." Spreng represented that MMC had successfully managed the
traditional Cisco business well, monitoring point of sale reports weekly throughout the quarter
and shipping less to distributors than end point of sales . Spreng assured investors that MMC
entered the quarter "believing that there is little to no excess MMC inventory in that supply
chain." And defendant Spreng further informed investors that, with MMC's shipments to Norte l
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• 0
1 up 30% sequentially, business to Nortel "came back nicely from an inventory adjustment in the
2 prior quarter . "
3 79. In that same call , Rickey boasted that AMCC had "power d right through"
4 several challenges in 3Q F'01 (ending December 31, 2000), including peripheral softness from
5 several customers, most notably MMC's Cisco business, adding that "revenue from other
6 ramping customers more than offset that weakness ." Rickey re-emphasized in the call that
7 AMCC was not being negatively impacted by the general inventory correction that was
8 resulting in order slow downs and softening demand, stating :
9 Next, I'd like to discuss our outlook. There has been much discussion andconcern expressed over the past quarter regarding inventory levels an customer
10 capital spending and the economy in general . We are also worried about all o fthose same factors, as well as continued short-term supply issues . W would be
II foolish and arrogant to believe we are somehow immune to these concerns .However, as you saw from our result of this past quarter . . . our bo kings, . . .
12 remained strong . I have no tangible evidence that our overall demand runrate is going to slow down , except for the obvious macroeconomic concerns and
13 my own ever-present paranoia . While we have seen a few individual customersshowing some weakness, we have seen other customer ramps swamp this
14 minority. . . . As I scoured AMCC for other risk factors, the one I w rry aboutmost is the "turns business"; that is, our forecast for revenue whit is yet to
15 be booked and shipped in the quarter. We have a great track record on turnsbusiness historically and we have spent the last couple of weeks scr bbing the
16 turns forecast like never before. However, it remains possible chat turnsbusiness could fail to materialize to our forecast . We can neither precisely
17 forecast nor control the order patterns of our customers . . . . I am estimatingsequential growth in the upper teens, perhaps approaching 20% th 's quarter
18 . . ..For quarters beyond March , I recommend the usual conservativeapproach of sequential revenue growth in the 10% to 15% r nge . . . .In
19 summary, I am concerned about all the continued macroeconomic signs ofslowing which we have yet to see impact AMCC. However, I believ that our
20 expanding product portfolio and the factors that Brent discussed earliershould allow us to continue to be a growth leader in our space .
2180 . During the January 16, 2001 conference call, Analyst D ew Pett inquired
22directly whether AMCC had taken a "very close look at customer inventories" of AMCC
23components and, "if so, what your feeling is about the outlook and there I a talking across all
24product categories ." Defendant Rickey responded by assuring everyone t at AMCC 's sales
25force was "scrubbing " all of its forecasts because of their paranoia and In light of market
26sensitivity . Defendant Tullie chimed in, confirming that the Company w "scrubbing" its
27bookings and turns business and that the Company had gone to its sub ontractors to ask
28
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them, specifically as to AMCC business whether they had more or less inventory than they
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had in the past adding :
"and pretty much across the board at our key subcontractors they have notstockpiled inventory, they are at levels that they traditionally are at with ourproduct line. Even though they maybe have more inventory on othercomponents through the channel from other suppliers. But as far as ourbusiness, they said there has been no change in terms of the inventory positionas has been in previous quarters. "
Elaborating, defendant Tullie said :
So we've also gone through hundreds of line items. One line item by one lineitem and gone through and challenged every single entry. . . . This quarter wehave been that much more harsh in our judgment of what has been put in theforecast. . . . we . probably think there is some upside left not a whole lot ofdownside unless thingsjust vanish. . . . there is scrubbing of the backlog and ofthe forecast. . . . We've seen . . . cancellations here and there that I would Icharacterize as being very modest compared to the number of customersordering a substantial amount of inventory. So at the end of the day, it lookslike there is probably less downsize than normal because of the rigor that wehave put into the scrubbing of the forecast.
Later, Rickey comforted investors and market professionals stating : "[We] don't think
that there is an across -the-board stockpiling of inventory because we've done a reasonably
good job of juggling customer needs ." He emphasized that AMCC had "scrubbed hundreds
of line items over a period of weeks with every one of the sales guys. "
81 . On January 17, 2001, after the close of the market, defendant Rickey appeare d
on national TV on CNBC and discussed the Company's December 2000 quarter results an d
I future. During that interview, the following exchange took place :
Interviewer : [TJhe quarter, of course, looks fabulous. I mean you can't arguewith triple digit gains. But your customers, the market you're selling into, ishaving a rough time right now . I mean Lucent, Cisco, Nortel and people likethat are experiencing something of a slowdown . Doesn 't that have to work itsway down to your part of the food chain sooner or later ?
Rickey: [W]e did a good analysis. My marketing guys looked at thefactors that are driving our growth. First of all, we have a great deal ofcustomer diversification . . . . There are four factors that are diving our growth .Because we have been asked how can you be growing so fast when the opticalmarket is slowing down ? And, so we . . . answer in the form of four factors .Number one is while the capex are slowing down, the optical core is growingabout four times faster in terms of the annual growth than capex in general andwe serve the optical core . Second of all, we are selling higher speed chips. Somuch like Intel, . . .we do the same thing only we sell chips that run manygigabits per second . We are able to charge more money for that . The third oneis that we are getting more content . So through our acquisitions, we nowoffer more and more of the chips that go into any given box at any given speed .
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And finally, we are taking market share largely from our customers who usedto do these designs . . . . So the good news for everyone is we have got fourfactors driving our growth , so any one factor alone does not have a huge impacton our growth rate positively or negatively .
82 . In sum , AMCC and the Individual Defendants, speaking individually and
collectively on AMCC's behalf, deceived the market . Despite their existing knowledge of
material order push-outs, cancellations and declines and great internal concern that AMCC's
business was "really bad," - which was also known by the Insider Trading Defendants - the
defendants' statements during the January 16, 2001 conference call, CNBC interview and
related press releases all pointed to solid growth, strong demand, and a unique position that had
rendered AMCC protected from the general market downturn without any evidence, despite
significant "scrubbing" and internal investigation, that AMCC was suffering any material or
significant order cancellations, push-outs or declining demand, or that any such events were on
its horizon that would negatively impact 4Q F'Ol or IQ F'02 (ending June 30, 2002) .
Defendants Fooled Market Analysts Who Enthusiastically EndorsedAMCC with Highly Favorable Ratings and Thereby Successfully Squelche d
Rumors of Significant Problems on the Eve of ConsummatingInsider Sales for Over $100 Million
83 . As a direct result of the comfort and assurances in AMCC's false and misleading
statements on January 16 and 17, 2001, deceived market analysts enthusiastically recommended
the purchase of AMCC stock . In a report disseminated to the financial community on January
17, 2001, analyst David M . Wong of UBS Warburg rated AMCC a "Strong Buy," highlighting
the following key information which he received from defendants' various statements in the
January 16, 2001 conference call :
• AMCC achieved 26% sequential revenue growth in the December 2000quarter and guided to close to 20% sequential growth again in the March2001 quarter.
• Bookings momentum is very strong .
• Strong bookings and large backlog make for high visibility goingforward .
• With $133 million of backlog shippable in the next three months,AMCC has nearly 80% of the March quarter booked and is guiding to"high teens" to 20% sequential growth .
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1 • MMC had very good growth of 21 % sequential revenue growth .
2 • While it was expected that OC-192 revenues would more than double inthe December quarter, AMCC was slightly constrained by lumpiness in
3 supply of silicon germanium wafers from IBM for OC-192 physica llayer chips. This problem will be largely relieved by IBM qualifying
4 alternative package houses for some of its chips and because AMCC isalso in the process of qualifying Kyocera as a second source package r
5 thus helping AMCC grow its framer business in the March 2001 quarter .
6 • AMCC's expectation of "high teens" to 20% sequential revenue growthin the March quarter allows for the MMC division to grow slower than
7 the rest of AMCC.
8 Wong further remarked, based upon defendants' statements : "Investor expectations of business
9 strength are high ."
10 84. A report disseminated to the financial community on January 17, 2001 by the
11 securities firm Credit Suisse First Boston, written by industry analyst Charles Glavin, also rated
12 AMCC a "Strong Buy," and, based on the very positive statements by AMCC and the
13 Individual Defendants in the January 16, 2001 press release and conference call, highlighted the
14 following :
15 Management upped the ante on guidance, raising 4QF2001 (March) to expectQ/Q sales growth in the high-teens to 20% . We raise our model for next quarter
16 to 18% (from 13.6%), on healthy book-to-bill of 1 .33 .
17 Analyst Glavin further stated:
18 In addition, management indicated that AMCC's future growth, in spite of allthe recent concerns regarding carrier capex spending and telecom equipment
19 deployments slowdowns, should continue, upping next quarter's guidance tohigh teens to 20% sequential revenue growth (we were previously modeling
20 13%).
21 Misled by the aforesaid information disseminated by AMCC and the Individual Defendants,
22 Glavin dismissed any concern with respect to the Cisco slowdown or its impact on AMCC
23 stating :
24 Cisco was AMCC's only other 10%+ customer. However, we estimate thatCisco revenues declined sequentially $500,000 or so . Cisco has traditionally
25 been a 45% customer to MMC (on multiple platforms including Arrowpoint ,several Layer 3 Switches) and a minor customer (-3%) to AMCC (largely based
26 off of the Cerent and Monterey Networks platforms) . The company noted thatMMC's Cisco business grew 12% quarter-over-quarter as demand in the layer 3
27 switches made up for weaker than anticipated Arrowpoint orders . Notably,however, this means that AMCC's internal revenue with Cisco was down from
28 about $3-4 million in September to $1-2 million in December . We believe thi swas likely Cerent/Monterey-related business, with the decline due to a stronge r
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September quarter followed by supply issues in the December quarter . Webelieve that these issues have been resolved setting the stage for renewedgrowth in the March quarter.
85. Analyst Drew Peck of SG Cowen Securities Inc. was equally fooled b y
defendants. In a report disseminated to the financial community on January 17, 2001, he rated
AMCC a "Buy (2)," entitling his report "AMCC. Exceptional CQ4 & 2001 Outlook." Based
upon and repeating defendants' representations he heard during the January 16, 2001 conference
call, Peck reported that "Inventory checks in all customer channels and a largely
undiminished level of Q/Q bookings convinces the company that it can maintain sequential
growth and stable margins through 2001 ." Peck further noted that "[m]anagement believes
there are four key factors that have driven continued growth, despite concerns about
communications spending by major service providers" and with regard to his bottom-line
summary and analysis, concluded based on the information provided by AMCC and its
management that :
AMCC has emerged as the dominant supplier of high-speed silicon solutions foroptical networks . . . . In almost any scenario, however, we would expectsubstantial outperformance relative to the rest of the semiconductor group,including most other telecom names . On that basis, we continue to rate AMCC aBuy (2) .
86. In a January 17, 2001 article appearing on Interactive Investor from ZD Wire ,
information supplied by management in the January 16, 2001 conference call was disseminated
as follows :
In a Tuesday afternoon conference call, Applied Micro CEO Dave Rickey toldanalysts to expect fourth quarter growth in the high teens, and maybe near 20percent, from the $150 million in third quarter revenue generated by thecombined Applied Micro and recently-acquired MMC Networks .
That implies sales approaching $180 million for the March quarter . Analystswere predicting revenue of $146 .7 million, according to First Call .
Our demand has remained strong, Rickey told analysts . I have no tangibleevidence that our overall demand run rate is going to slow down except theobvious macroeconomic concerns and my own ever present paranoia .
87 . Yet another analyst , Cody G . Acree with Frost Securities , Inc., Investment
Bankers, rendered a research note on January 17, 2001, also rating AMCC a "Strong Buy ." His
report , entitled "AMCC Turns in a Consistently Solid Quarter and a Surprisingly Upbea t
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Outlook; Raising Earnings Forecast and Reiterating STRONG BUY Rating," included the
2 following information and guidance disseminated by AMCC management during th e
conference call :
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After scrutinizing its backlog and evaluating channel inventory,AMCC set positive guidance for sequential growth approaching 20%and maintaining 10% to 15% sequential growth in the out quarters .
AMCC reported extremely positive results with a solid indication as tothe continuing health of the overall optical networking market . AMCCnot only exceeded our earnings forecast, but also gave highlyencouraging comments concerning its backlog, bookings, inventoriesand end optical demand .
While many companies are hedging their forecasts and lowering theirguidance, AMCC continues to impress with a solidly optimistic outlook.We believe the company 's view is even more significant whenconsidering that this perspective follows an extensive evaluation of thehealth and validity of the company's current backlog and customerdemand.
Since AMCC's initial difficulties several months ago with Nortel's . . .inventory correction , the firm has been aggressively "scrubbing" itsbacklog to identify weaker orders, and working with customers anddistributors to ascertain the true level of component inventory withinthe channel. During the conference call, AMCC stated that its effortsresulted in a determination that there has been no appreciableincrease in OEM, module manufacturer, or distributor inventory andthat the current backlog represents orders that have a high probabilityof completion .
• We are even more encouraged by the company's positive outlook giventhat it is based on a more stringent evaluation of the current environmentthan what is typical .
• Based on its findings, AMCC forecasts that March revenue shouldincrease sequentially in the high teens to the 20% range from thecombined AMCC/MMC Networks quarterly revenue base of $150million, not the $143.3 million reported. Going forward, the companymaintained its sequential growth rate forecast of between 10% and15%, which is consistent with previous guidance .
• With AMCC being a key vendor to the majo rity of the opticalnetworking market, we believe the company's inventory checks , backlogevaluation and confidence in customer demand is a highly encouragingharbinger for the health of the broader indust ry .
• MMC's sales to Cisco were down on a sequential basis, as Ciscoexperienced an inventory correction in its enterprise market, but isexpected to return to growth during the March period .
• In summation, AMCC turned in a consistently solid quarter and gave asurprisingly upbeat outlook . The company took significant strides toallay the concerns of a substantial slowdown in demand or a buildup
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of inventories within the optical market . AMCC continues to be amongthe best executing companies in arguably the highest long-term growthmarket of the technology sector . . . .we encourage investors to use AMCCas an investment vehicle to participate in this environment .
88. The Company's January 16 and 17, 2001 statements and announcements had an
immediate, material and positive effect on the price of AMCC common stock, which rose
14.2% from $70 .375 on January 16, 2001 to S80.375, on January 17, 2001 .
89. The next day, in a January 18, 2001 article appearing in The San Diego Union-
Tribune, defendant Rickey reiterated AMCC's positive outlook for growth, stating: "I
understand there's a lot of concern about the economy . . . . But we have multiple growth factor s
playing in our favor, so we think we'll power right through this ." On January 18, 2001, the
price of AMCC common stock rose an additional 5% closing at $84 .375, its highest closing
price in three months, and again on January 19, 2001 at $86 1/2, and once again to its highest
closing price during the Class Pe riod of $87 1/8 per share on January 24, 2001 .
90 . On January 26, 2001, AMCC stock dipped 2 .4% on rumors of order
cancellations after JAGNotes.com repo rted that Juniper Networks - a significant customer of
AMCC - had cancelled orders for AMCC's chips . When con fronted with that news, an
AMCC "spokesman" declined to comment on individual customers, while stating that the
Company is not seeing any "abnormal" order cancellations.
91 . Defendants continued to deliberately mislead and conceal material advers e
information from the market, in addition to having failed to disclose their knowledge of
materially adverse information. The defendants invited analysts, including an analyst from
A .G. Edwards, to meet and travel with them from January 29, 2001 through February 1, 2001 ,
in a road show designed, in part, to dispel so-called "rumors" about AMCC's customers'
cancellations and push-outs of material orders. Following these meetings, and repeating
information provided to him by AMCC management (including Rickey and Bendush) while he
spent a "few days on the road with management of AMCC" during the week of January 29,
2001, analyst T. Peter Andrew of A.G. Edwards stated the following in a report disseminated to
the financial community on February 2, 2001, just one trading day before the Class Period
ended and while defendants' stock sales were still continuing :
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We were able to spend a few days on the road with management of AMCC thisweek . . . the Company spent a lot of time dispelling the rumor of the day aswell as explaining why AMCC continues to forge ahead without feeling thenegative impacts that are hitting many others suppliers to the networkingmarket .
First, AMCC spent a lot of time putting out rumors from various sources (thatare likely shorting the shares) regarding everything from AMCC customerscanceling or pushing back orders, AMCC cutting back on orders from theirwafer fabrication partners and finally AMCC's parts causing problems in otherssystems . The bottom line - these rumors are not true . The one caveat is thatin every quarter there are order cancellations, push outs andlor push ups butwe believe that AMCC has not seen any material change in order patternsthat would affect their prior guidance .
The most often asked questions had to do with how AMCC has been able toavoid the recent inventory adjustment by contract manufacturers , distributorsand OEM's along with why the issues at PMC Sierra will not also hit AMCC.The quick and dirty answer to both questions is that:
• AMCC has been capacity-constrained themselves for so long that it isnot likely that anyone has been able to build inventories of their parts ,
• AMCC plays more at the core of carrier networks than at the edge wheremany service providers (i .e. CLECs) have been having problems withDSLAMs and remote access concentrators ,
• AMCC plays at higher speeds (OC-48 and above),
• AMCC has a broader customer base ; and finally
• 50+% of AMCC's revenues are from products announced over the pastseven years versus 1 I% for PMC.
In the past, their biggest concern has been getting enough capacity fromsuppliers . Today however the concerns about end -user demand and the scenarioif a number of customers all of a sudden cancel orders (note all events beyondtheir control) have now moved up on their worry list . The management team iscontinually scrubbing their order backlog and checking with their customers,contract manufacturers and distributors to try and keep as close an eye aspossible on where things stand from week to week and so far they have notbeen able to find anything that would change their guidance going forward.We reiterate the fact that they have not seen any material changes is not froma lack of looking for them .
So bottom line, given the sectors of the market which their products addresscombined with the vigilance the company maintains with their customers,AMCC continues to perform on track and is very well positioned to avoid
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• S
1 many of the common issues that are impacting many others in the networkingspace .
292 . Meanwhile, as more fully discussed below, from January 18, 2001 through their
3January 29-February 1, 2001 road trip dispelling rumors which would ultimately prove to be
4true, and continuing to February 5, 2001, just a few hours before the close of the Class Period,
5the Individual Defendants and several other top officers of AMCC including the Insider Trading
6Defendants, taking advantage of their knowledge of non-public material adverse information,
7collectively sold over 1 million shares of AMCC Securities at prices that were higher than the
8average trading price of AMCC stock during the Class or at the advent of the Class Period and
9which were artificially inflated by these false statements and omissions, for total proceeds of
10over $100 million, far more than what they would have reaped had the truth been timely
11disclosed .
1293. The positive representations and forecasts made about AMCC as more fully
13alleged above in ¶175 to 91 were false, deceptive and misleading . As more fully alleged at
14¶¶113-172 below, respecting defendants' scienter, defendants knowingly or with deliberate
15recklessness failed to disclose the following facts and events already negatively impacting
16AMCC:
17(a) AMCC's business and prospects were already declining owing to the
18 combination of significantly reduced capital expenditures by networkservice providers and a massive inventory build-up by its own
19 customers, especially Nortel, Lucent and Cisco, upon which AMCC wasutterly dependent for its success ;
20(b) AMCC had not experienced truly "strong demand" or "robust growth"
21 and had merely enjoyed a short-lived benefit of a massive inventorybuild-up - stockpiling - by customers during 2000, despite declining
22 demand, and which, in turn, required a significant inventory correctionthrough the first half of 2001 ;
23(c) AMCC was experiencing a significant reduction in customer demand
24 and orders for products to be shipped in 1Q F'01 and 2Q F'01 as aconsequence of a major semiconductor industry inventory correction
25 that commenced 3Q F'01 and which was intensifying through 1Q F'01,particularly with respect to inventory levels at its major customers,
26 Nortel, Cisco and Lucent ;
27 (d) AMCC was receiving notification of significant order cancellations andpush-outs by its largest and most important customers, including Nortel,
28 Cisco, Lucent and Alcatel and its primary distributor, Insigh tElectronics, which collectively accounted for a very significan t
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percentage of its sales and upon which it was utterly dependent for itssuccess and attainment of EPS "guidance" ;
(e) Demand for AMCC products was declining as many of AMCC'scustomers were experiencing weakening demand themselves ;
(f) AMCC's customers' "visibility" was not good, and AMCD knew this,which, in turn, meant that AMCC's "visibility" into 4Q F'01 and 1Q F'02was poor ;
(g) Because of market industry conditions necessitating a major inventorycorrection through the first half of 2001 which was already underway inNovember 2000, AMCC would not and could not generate enough salesor shipments to attain the Company's projected revenues and earningsfor 4Q F'O1, FY 2001 and 1Q F'02 (ending June 30, 2001) ;
(h) MMC was experiencing large order cancellations and push-outs fromCisco in the October-December, 2000 quarter and a significant declinein orders from Cisco that would negatively impact 4Q F'01 and 1Q F'02sales and revenue ;
(i) MMC's products were worth considerably less than what AMCCreported. The goodwill valuation associated with AMCC's acquisitionof MMC was vastly overstated by AMCC . The true value of MMC'sbusiness was not $4 .5 billion but, instead, was worth and should havebeen valued at approximately $3 .1 billion less than AMCC representedor reported ; and
(j) There was no reasonable basis for the Company's projections ofrevenues and earnings for 4Q F'01, FY 2001 and 1Q F'02 .
94. The foregoing allegations of ¶93(a)-(j) are supported by and based upon data and
information that is reliable and which has been secured by an extensive investigation and from
numerous independent sources. All facts upon which plaintiff rely as a consequence of their
investigation and supporting the foregoing, including allegations of defendants' scienter, are set
forth in the section entitled Basis of Allegations and Scienter at ¶¶113-172 below .
The Truth Emerges Albeit Untimely and OnlyAfter Defendants' Insider Sellin g
95 . On February 5, 2001 , after the close of the market and on the heels of their
collective insider selling - some of which occurred just hours earlier ---- the truth about
AMCC's dete riorating financial condition and that AMCC in fact had been adversely impacted
by the declining capital expenditures and bloated inventories of its customers and end-users
began to be revealed to investors . Though hardly a full and complete disclosure , the Company
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1 admitted in a surprise press release that AMCC was experiencing order cancellations and
2 postponements. The press release stated :
3 Over the course of the next few weeks, Applied MicroCircuits Corporation willbe participating in several financial conferences and anticipates being asked
4 questions regarding the current state of its business . In accordance withRegulations FD, the company issued the following statement to update all
5 investors on its outlook for the fourth fiscal quarter ending March 31st, 2001 .
6
7 [O]n existing orders we have . . . seen some push-outs and cancellations in the pastweek. If these cancellations are merely a blip and not a trend at AMCC, w e
8 expect to meet or beat expectations. However, given concerns that abound in ourend markets, we are on alert.
996. The Company's February 5, 2001 announcement had an immediate effect on a
10shocked market, which reacted swiftly, causing the price of AMCC common stock to tumble
11more than 14% from $64 .375 to $55 .06, on February 6, 2001, on huge volume of over 34
12million shares .
1397. But even after the February 5, 2001 disclosure and in the face of a rapidly
14declining stock price and analyst downgrades, defendants continued to act aggressively bullish
15and with complete disregard for the truth . At a Robertson Stephens Technology 2001
16conference in San Francisco on Tuesday, February 13, 2001, CFO Bendush boasted that "we
17will grow faster than the market." Speaking at a growth stock conference held in Dana Point,
18California, on or about February 14, 2001, CFO Bendush proclaimed that the company's growth
19was on track despite a slowdown in telecommunications capital spending : "Undoubtedly we are
20in the midst of an inventory correction . . . the long-term fundamentals are very, very strong ."
21Although just a week earlier Nortel warned of lower-than-expected revenues, Bendush did not
22lower AMCC's guidance for 4Q F'01 (ending March 30, 2001) or for its first quarter ending
23June 30, 2002, nor was there any change or modification to AMCC's re-affirmation of earnings
24estimates for 4Q F'01 or 1Q F'02 .
2598 . In its report on Form 10-Q filed with the SEC on or about February 14, 2001,
26and signed by CFO Bendush, the Company reported its financial results for its 3Q F'01 ending
27December 31, 2000. In its Form 10-Q, AMCC still failed to disclose that its 4Q F'01 or 1Q F'02
28revenue and earnings guidance could not be attained because of large order cancellations, push-
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1 outs and delays and a severe lack of demand. Instead, defendants continued to conceal the
2 whole truth from investors, giving only very general boilerplate warnings, stating that the
3 market price of its common stock could be subject to significant fluctuations "due to general
4 economic and market conditions . . . in the semiconductor, telecommunications, data
5 communications or high-speed computing markets," and further warning of possibl e
6 "revenue shortfalls for a variety of reasons, including : a reduction, re-schedulingor cancellation of customer orders ; sudden decrease in end customer demand
7 caused by a general slow down in the communications system industry ;customers stock piling inventory causing a reduction in their order patterns as
8 they work through the excess inventory ."
9 These "warnings" were materially misleading as these adverse events had already existed
10 throughout the Class Period and were negatively impacting AMCC .
11 99. Then, on February 28, 2001, CNBC broadcasted to the market a previously taped
12 interview with CEO Rickey. In that taped interview, Rickey finally admitted that the Company
13 expected revenues in the fourth quarter (ending March 30, 2001) to fall between $125 million to
14 $135 million, far lower than AMCC's previous guidance . And Rickey acknowledged a
15 significant slowdown in turns business and new orders . These disclosures were long overdue .
16 Nonetheless, according to T . Peter Andrew of A .G. Edwards, it was AMCC's expectation and
17 plan that the taped CNBC program would not run until Friday, March 2, 2001 so AMCC could
18 release a note on Thursday, March 1, 2001, after the close of the market, notifying people to
19 watch the taped CNBC program in which they were going to talk about lowered guidance and
20 then segue into AMCC strengths and why they believed AMCC would emerge from the morass .
21 Fortunately, given the importance of the information, CNBC decided to disclose the information
22 during lunch on February 28, 2001 .
23 100. As time passed, a more complete picture of the truth about what had been
24 adversely impacting its Company during the Class Period was revealed. On March 2, 2001,
25 CEO Rickey spoke with On 24 . Speaking about the interview he had given on February 28,
26 2001 on CNBC, Rickey stated :
27 You know, we were going to do an interview with CNBC that was scheduled acouple of weeks ago just as a feature story. And then when we did the interview
28 we thought, you know, we're not comfortable doing a TV interview without ,you know, kind of updating our guidance so that people aren't misled by our
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1 excitement and our bullishness about the market . So we decided to read astatement . Then CNBC decided to run with it right then which we didn't feel
2 was necessary. So, we didn't mean for it to come out doing the close, youknow, during the trading day . But . . . but, it did .
3Rickey revealed that AMCC had received order cancellations at the end of January and
4admitted to a lack of new orders across the board , in effect admitting, at a minimum, that
5insider sales that took place while AMCC management was busily squelching such rumors
6during the week long road trip from January 29, 2001 through February 1, 2001 were in
7violation of the law. He acknowledged that there was a "major inventory correction going on
8with our customers and their customers " and that AMCC was in a "funk" as "we wait for these
9guys to dig out from their inventory that they probably over-built in calendar 2000, in
10retrospect," adding : "I know we have not hit bottom yet because customers are still trying to
11push back on inventory that they're obliged to take . So, I don't think we've seen the bottom."
12Returning to the bloated inventories that had been a critical problem for AMCC, Rickey stated :
13"I just think the supply chain is full of product that people may have gotten ahead of
14themselves last year building inventory and now we're going to have to work it off . . . [w]e don't
15think that we're going to stay down in the mud for long ."
16101 . Later, at an Optical Fiber Conference in late March 2001, CEO Rickey
17uncharacteristically confined his formal speech, scheduled for 5 minutes, to just six words : We
18are sucking wind . Any questions?"
19102. On Apri 11, 2001, the New York Times reported :
20David Rickey had done it before, and he was about to do it again .
21'You know, Maria, I am very bullish about the company," Mr . Rickey,
22 the chief executive of Applied Micro Circuits, told Maria Bartiromo, the CNBCanchor, during an interview on March 2 . The company had recently warned that
23 its earnings would fall short of its projections, and its stock had fallen 67percent in six weeks. But when Ms . Bartiromo reminded Mr. Rickey of a dare
24 he made to investors a year earlier, he quickly made it a second time .
25 "1 dare you not to own my stock," he said . "I'm kind of a gutsy guy, andI have a lot of confidence in what we're doing . "
26What Mr. Rickey did not say was that he had already come close to
27 accepting his own dare. Between July 2000, when Applied Micro Circuits'stock was trading at $100, and March 2, when it was trading at $29, Mr . Rickey
28 had sold 800,000 shares in the company, or more than 90 percent of his stake .
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1 Since 1999, he had sold more than 99 percent of his stock, making $170 million
in the process, according to Securities and Exchange Commission filings .2
In an inversion of the notion that corporate managers should align their3 interests with shareholders', Mr . Rickey and many technology executives
unloaded many shares during 2000 - as other investors were taking a beating4 - and thus became some of the year's most lavishly rewarded managers .
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6 Perhaps most worrisome, management experts say, he has exercised tensof thousands of options that did not expire for another eight or nine years an d
7 then immediately sold the shares he acquired . In general, finance theory holdsthat people should hold onto options for most of their 10-year terms, because
8 stocks tend to rise over long periods.
9 All along, Mr. Rickey continued to offer brash predictions . After othertechnology manufacturers warned of earnings shortfalls late last year, stocks for
10 the entire sector fell, and Mr . Rickey complained that Applied Micro Circuit swas being unfairly tarnished . "There are all these negative perceptions going
11 on, but our business is booming," he said in the Jan . 16 issue of InvestorsBusiness Daily . Two days later, he sold 167,000 shares of his company's stock .
12By last month, Mr . Rickey was no longer so confident. During the
13 CNBC interview, he conceded that the company's earnings forecast had beentoo optimistic and that the slow economy was hurting revenue .
14103. The April New York Times article had an immediate material effect on the price
15of AMCC common stock, which, on April 2, 2001, plunged more than 14%, from $16 .50 to
16$14.11 and to $11 .313 per share on April 4, 2001 .
17104. On April 24, 2001, after the close of trading, AMCC reported its financial results
18for the fourth quarter of fiscal year 2001 (ended March 31, 2001) . Instead of the sequential
19growth in revenues of the high teens to 20% that the Company had initially promised, or even
20just the $125-$135 million in revenue that on March 1, 2001 Rickey said the Company
21expected, AMCC reported $121 .1 million in revenues . This represented a sequential decrease
22in revenues of approximately 15% to 19% (15% from the $143 .3 million or 19% from the $150
23million on a pro forma basis with the newly acquired MMC Networks) . The Company reported
24net income of $ .09 per share, a decrease of approximately 41% from the $48 .1 million, or $0 .16
25per share, reported in the prior quarter . AMCC reported net income of $ .48 per share for the
26year ended March 31, 2001 . Indeed, including charges stemming from acquisitions, stock
27compensation and options and amortization, the Company posted a loss of $ .65 per share in its
28fourth quarter .
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105. In a conference call with the financial community after earnings were reported,
Rickey stated that orders continued to be "anemic" and that the Company expected revenues of
just $70 to $85 million in the upcoming quarter (compared to the $106 million expected b y
I analysts) and earnings of break-even to $ .02 per share (compared to analyst consensus estimate s
of $ .07 per share) .
106. Then, in a letter to "stockholders and friends" included in the Company's Annua l
Report for fiscal year 2001, disseminated on or about April 20, 2001, Rickey acknowledge d
lower "service provider capital expenditures (CAPex)" had "resulted in excess inventory at
the network capacity level" and that this adjustment in spending patterns was the result of
service providers moving from a "build it and they will come" to a "build it when it will
generate profit" business model . Of course, lower service provider capital expenditures -
CAPex - and the adjustment in spending patterns and its convergence with bloated inventories
had been a negative trend impacting AMCC's customers, and in turn AMCC, from before the
beginning of the Class Period .
107. AMCC business continued to decline, signifying the depth and severity of the
inventory correction and further evincing the fact that the Company had been adversely
impacted within the Class Period given acknowledged lead times respecting orders and
shipments. On July 18, 2001, AMCC reported its financial results for its first fiscal quarte r
ended June 30, 2001 . For 1Q FY 2002, AMCC announced net revenue of $41 .2 million and a I
pro forma net loss of $13 .6 million, or $0.05 per share. In the Company's July 18 press release,
defendant Rickey stated :
Business conditions for AMCC's major customers remained weak during theJune quarter. The results we have announced today, although in line with ourmost recent forecast, reflect the severity of the downturn in the communicationequipment market.
108. On July 18, 2001, AMCC dropped another bombshell announcing that it
recorded a charge of $3.1 billion to write-down the value of goodwill associated with th e
Company 's purchase acquisitions and that it took a charge for excess and obsolete inventory
of approximately $15.9 million - charges that were excluded from its pro forma operating
results. AMCC later reduced its workforce 5% beginning July 2001 . By the close of trading on
43 LEAD PLTFS 1ST AM CONS CLASS ACTION CPTLead Case No . : 01-CV- 0649-K (AJB)
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July 18, 2001, AMCC shares traded at $17 - a spectacular drop in an extremely short period of
time from its Class Period high of $88 .25 per share and an equally spectacular reversal of
fortune for a business that defendants consistently portrayed as enjoying "ballistic" growth,
which, due to its purported unique position had rendered it unaffected by the market conditions
that were engulfing and negatively impacting the entire industry . In truth, all of these negative
trends and factors had been in place when defendants made their false statements and
unrealistically optimistic projections during the Class Period .
109 . On August 5, 2001, the Los Angeles Times reported :
Semiconductor maker Applied Micro Circuits Corp . of San Diego posted a $436million net loss last year, but Chief Executive David M . Rickey took home a31% raise in cash pay - $415,000 in salary and a $500,000 bonus . Exercisingstock options made him the Southland's second-highest-paid executive in termsof total direct compensation, with a total pay package worth $59 .5 million .
110. On October 18, 2001, AMCC reported its financial results for its second fisca l
quarter ended September 30, 2001 . For 2Q FY 2002, AMCC announced net revenue of $41 . 3
million and a pro forma net loss of $12 .8 million, or $(0 .04) per share.
111 . On October 29, 2001, the San Diego Business Journal reported :
Its revenues are down 57 percent from the same quarter a year ago, but DaveRickey, CEO for San Diego-based Applied MicroCircuits Corp ., said thebusiness has stabilized and has reached the bottom .
Well, let's hope so . For its second quarter ended Sept . 30, it lost $96 million onrevenues of $41 .3 million, compared to a net profit of $23 .6 million on revenuesof $97 million in the like period last year .
The latest net loss differs from the pro forma quarterly loss of $12 .8 million, or4 cents per share, excludes such items as goodwill impairment charges,restructuring costs, amortization of purchased intangibles and a slew of otherspecial charges public companies such as AMCC are using to avoid discussingthe real loss it must report to the SEC using generally accepted accountingprinciples, or GAAP .
Looking at GAAP results isn't pretty. Because of more than $3 .3 billion inspecial charges the company took in its first quarter, its cumulative six-monthnet loss is now in excess of $3 .4 billion, or $11 .49 per share . That loss has cutthe company's shareholders' equity to less than half of what it was a year ago,decreasing the equity to about $2 billion, compared to $5 .4 billion it had in
September 2000 .
44 LEAD PLTFS 1ST AM CONS CLASS ACTION CPT
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112 . As of January 21, 2002, AMCC common stock was trading at approximately
$10.41 per share, 87% less than the average p rice at which the Individual Defendants sold their
I shares .
BASIS OF ALLEGATIONS AND SCIENTE R
113 . As alleged herein, in addition to causing the Company to issue materially false,
deceptive and misleading press releases during the Class Period, each of the Individual
Defendants took additional affirmative steps (e.g., participating in interviews and conferenc e
calls with media and the investment community ), to falsely reassure the market that AMCCs
business was not being negatively impacted by the contraction of the Inte rn et and
telecommunications sectors .
114. The fact that AMCC was suffering a significant business downtu rn arising from
I massive order cancellations, push-outs and declines from key customers and its primar y
distributor, as a result of the major inventory correction taking place in the telecommunications
industry, was well known throughout the Class Period within the Company and to the
defendants, as confirmed by reliable independent sources . This knowledge was inconsistent
with the public pronouncements of defendants .
115 . That the statements made by AMCC and the Individual Defendants were
materially false, deceptive and made with the requisite scienter is supported by and based upon
data and information that is reliable and which has been secured by an extensive investigatio n
uncovering a variety of reliable and knowledgeable ex-employee sources . The facts upon which
plaintiffs rely and which support the foregoing are discussed below .
A Major Inventory Correction by AMCC' s Customers Was in Full Swingby the Beginning of the Class Period , Causing Significant Order Cancellations ,
Push-Outs and Decline, Severely Imperiling AMCC Sales and Revenues
116. Prior to the beginning of the Class Period, AMCC' s customers started to
undertake a major correction of their massive stockpile of inventory . The inventory stockpiling
which had been engaged in during 2000 by AMCC's customers to avoid component sho rtages
converged in the second half of 2000 with a dramatic decline in end-user demand due to a
severe decline in network service provider capital expenditures necessitating, in turn, the majo r
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inventory correction which was in full swing by mid-November 2000 and was expected t o
continue through the first half of 2001 .
117 . By the beginning of the Class Period - and over two months before defendants'
February 5 , 2001 disclosure - AMCC was already being adversely impacted by this major
inventory correction and the defendants knew it . AMCC's direct customers such as No rtel ,
Lucent, Cisco , and others had stockpiled approximately $4 billion of excess inventory , which
had to be worked down through the first half of 2001 . The need for such a major inventory
correction was an important issue that was a critical focus of the Company and which
reverberated through AMCC , panicking its top level management as news of push-outs ,
cancellations and declining orders from both customer and distributor sectors hit home .
Throughout November and December 2000 , according to Stasyi Ann Barth, a former AMCC
Buyer employed at all times material throughout the Class Period in AMCC 's Purchasing
Department, AMCC was receiving "massive" order cancellations from its customers and new
orders of AMCC's product rapidly diminished . As examples, according to Barth, during the
first week of November, 2000, Marconi Telecommunications cancelled approximately $50
million of orders for AMCC product, sending shock waves throughout the Company . Shortly
thereafter, in the middle of November, 2000, AMCC customer Nortel Networks abruptly
cancelled about $45 million of orders for AMCC product, creating "hysteria" among the
Company's executives . Then, in early December 2000 , AMCC customer Cisco Systems
cancelled between $25 to $30 million in outstanding AMCC product orders . By late 2000 and
into early 2001, Barth personally observed that AMCC's product inventory was growing
extensively as a consequence of order cancellations and delays through November and
December 2000. In contrast, AMCC's "work in progress" and raw materials orders declined .
118. Barth worked closely on an ongoing daily basis with AMCC Senior Buyer
Nancy Ryman, AMCC Buyer Marsha Allen, AMCC Procurement Manager Karen Evanoff and
AMCC Production Control Coordinator Janice Kruest in order to collaboratively revie w
AMCC's updated sales/order status , raw materials inventories and outstanding raw mate rials
purchases for the purpose of effectuating the necessary manufactu ring production schedule
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L J
1 updates/modifications. This required her to have up to the minute sales-order information to
2 ensure the necessary matching of supply and demand so that raw materials purchases were
3 properly in place . Barth closely monitored AMCC's new product orders and the status of
4 existing orders and demand . Barth was also trained as an AMCC SAP IT System expert and
5 was personally responsible for compiling for input into that electronic data storage system of
6 "real time" reporting information regarding sales orders, product order shipments, raw material
7 orders and inventory status . Barth had "open access" to AMCC's internal "live-feed" SAP IT
8 System which was updated with sales/order information by AMCC's sales staff on a daily basis .
9 119. The fact that AMCC was suffering a serious business slowdown and significant
10 order declines, cancellations and push-outs as a consequence of the major inventory correction
11 and contraction in the telecommunications industry is also confirmed by ex-AMCC Direct'
12 Buyer, Sharon Hagberg who was employed with the Company from early September 2000 until
13 she voluntarily resigned on November 29, 2000 . Hagberg was being trained to assume the
14 important forecasting information and coordination functions of Senior Buyer Nancy Ryman
15 who was planning to leave AMCC at the end of January/February 2, 2001 . As a natural
16 consequence of her job title, position and training, Hagberg was allowed to and did access
17 AMCC's electronically stored SAP IT System information and data associated with forecasting
18 and customer orders and thereby gain knowledge of any declines, push-outs or cancellations
19 respecting customer orders . According to Hagberg, by the time she left AMCC at the end of
20 November 2000, its SAP order quantification/sales forecast data system reflected "drastic"
21 order cancellations/reductions and forecast decreases by almost all of AMCC 's major
22 customers, specifically including, but not limited to, Lucent, Nortel and AlcateL
23 120. Additionally Hagberg learned through AMCC's SAP "real time" system of
24 electronic data reporting that AMCC had received significant order delays that pushed most
25 order shipment dates well into 2001 and far beyond the March 2001 quarter . Based on her
26 personal review of the electronically stored data and her ability to "easily" discern which
27 customers had cancelled/delayed and/or reduced AMCC product orders, because individual part
28 numbers were specified or identified with the associated customers and AMCC's forecaste d
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0 •1 product purchases were broken down by individual customer's product part numbers, Hagberg
2 learned that, by the beginning of the Class Period, Lucent, Norte[ and Alcatel had each
3 reduced or cancelled respective outstanding AMCC product orders, at that time, in the range
4 of approximately 50% and "slashed" their forecastedpurchases to a "small fraction" of what
5 they had been previously . And, by the end of November, when Hagberg left AMCC, the
6 Company's SAP system was also reporting that AMCC had about $50 million in stockpiled
7 excess inventory sitting around in its warehouse.
8 121 . Former AMCC Buyer Kathy Sullivan also confirms, based on her personal
9 review of internal AMCC electronically stored data pursuant to and in connection with her job
10 duties and from which she acquired direct knowledge, that, at least by the beginning of the
11 Class Period, AMCC was suffering significant order push-outs, declines and cancellations
12 across the board from its major customers and primary distributor. Hired on February 5, 2001
13 to replace longstanding AMCC Senior Buyer Nancy Ryman (a void still left by the departure of
14 Hagberg at the end of November, 2000) Sullivan's positions enabled her to glean relevant
15 information about the Company's status over many months prior to her hire . Sullivan was
16 reposed with responsibility for ascertaining and becoming intimately familiar with the level and
17 status of AMCC customer product orders and internal forecasting in the proper performance of
18 her job. Immediately after being hired on February 5, 2000, Sullivan was assigned to work on a
19 number of internal AMCC projects, including preparing a report delineating raw material
20 purchasing costs for AMCC in 2000 and the first half of 2001 . In addition, as part of her regular
21 job duties and position, and pursuant to AMCC's ongoing custom and practice, Sullivan was
22 responsible for compiling a Supply and Demand Analysis Report which was regularly
23 distributed to defendant Tullie, AMCC Procurement Manager Karen Evanoff and various
24 AMCC executives and which incorporated information about "placed ' AMCC customer order
25 information, in detail, which was extracted from AMCC's SAP system of "real time" reporting
26 and which was updated on a regular basis by AMCC sales staff.
27 122. As a consequence of her job functions, Sullivan was required to and did become
28 familiar with AMCC's historic raw materials purchasing, quantity/cost information and historic
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orders and was able to asce rtain this histo ric information from her review of AMCC' s
electronically stored information and data which could be accessed electronically through
AMCC's SAP IT system and "real time " report ing . Her review of such data and her regular
conversations with Procurement Manager Evanoff, confirms that by late 2000, the affects of the
I telecommunications industry slowdown had already severely impacted customer produc t
orders to AMCC, the Company's backlog and its sales/revenue forecast . AMCC's customers
were significantly reducing forecasts and delaying tens of millions of dollars of AMCC
product orders . New orders of AMCC product had virtually "disappeared" and after
November 2000 , the Company was relying heavily on working through its backlog, which was
quickly diminishing from that time and through January 2001 . Additionally, in late 2000,
Evanoff told her that AMCC's primary distributor, Insight Electronics -- complaining of
slowing demand and stockpiles of AMCC's inventory that it could not sell through, and holding
approximately $20 to $25 million of unneeded AMCC components which it had amassed
had drastically cut previously placed orders to AMCC and "stopped" placing any new orders
of AMCC product.
123. Indeed, in addition to the troubling news respecting customer order cancellations,
including, but not limited to, those of Nortel, Cisco, Lucent, Alcatel and Marconi as allege d
above, AMCC had been expe riencing push-outs, cancellations and declining orders from its
primary distributor Insight Electronics . Insight was a major dist ributor of AMCC products and
regularly maintained formal and informal communications, on a daily basis , with AMCC
regional sales managers and sales staff . These communications included the exchange of
information relating to orders, backlog, product needs, forecasting, pricing terms, delivery
schedules and shipping . Although Insight's business was going "gangbusters" through most of
1999 and into the first half of 2000, it began to experience a marked slowdown and a "drasti c
reduction" in demand for specialty semi-conductor products in August and September 2000 .
This decline was so bad that it "was painfully obvious that the bubble had burst " as nearly all
end-user customers were cutting the size of orders, canceling pending purchase orders and/o r
pushing out product requirements to future dates . Insight's business was hard hit because of
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its great reliance on the semi-conductor suppliers . As a consequence, Insight Electronics end-
users' demand for products from all of Insight suppliers - including AMCC - began to drop
precipitously beginning in August 2000 and never recovered until at least May 2001 . Demand
for AMCC's products "really started to fall off' from at least mid-September 2000 and Insight's
orders to AMCC for AMCC's products fell by approximately 20-25% from September 2000
until at least May 2001. Cisco -- a very important client of Insight ---- "cut a lot of orders"
from Insight in September, October, November 2000 and gave notice of its intention to cancel
and/or postpone orders in mid August or early September. This significant decline in Cisco
orders, in turn, had a significant and adverse direct impact on Insight's ordering volumes
from AMCC and caused those volumes to decline drastically .
124. The allegations of foregoing ¶123 are confirmed by Lisa Kelly, a former Inside
Sales Representative employed by Insight from early March 1999 until May 2001, who ha d
access to and possessed personal knowledge of material information as a consequence of that
employment with regard to Insight's relationships and dealings with its supplier AMCC and its
major customer Cisco Systems . This former Inside Sales Representative for Insight fu rther
confirms acquiring knowledge of the fact that Insight reduced its orders of AMCC product and
made those order cuts of product from its supplier - AMCC --- prior to and throughout the
Class Period, as a consequence of attendance at regularly scheduled sales meetings at Insight,
commencing in mid-September 2000 until May 2001 .
125. Joshua Berning, a former Inside Sales Representative for Insight Electronics
throughout the Class Period, further corroborates that, because Insight experienced a significant
slowdown in business in the second half of 2000, in turn, Insight's vendors and suppliers -
including AMCC - also suffered a significant drop in sales of their product to Insight and that
Insight significantly reduced orders to AMCC of AMCC product .
126 . That AMCC was well aware during 3Q F'O1 that a major inventory correction by
its customers and primary distributor was already adversely impacting AMCC and woul d
continue to seriously imperil 4Q F'01 sales and revenue is further confirmed by the experience
of its direct competitor, PMC-Sierra, which occupied much of the same product space ,
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especially with regard to OC-12 and OC-48 products , which comprised a significant percentage
of AMCC's revenues, and which competed with AMCC for many of the customers in the
industry, particularly Cisco and Lucent .
127. According to PMC-Sierra Chairman, President and CEO Robert Bailey , and as I
confirmed by its CFO John Sullivan, PMC-Sierra saw indications of a significant slowdown in
the second half of the December quarter as PMC-Sierra received reductions in its 1Q 2001
bookings (ending March 31, 2001) due to cancellations and re-scheduling by customers and a
book-to-bill ratio significantly declining below 1 . Acknowledging a severe inventory
correction and slumping orders which came to a "screeching halt" in the second half of the
December quarter , PMC Sierra's management also reported that its largest customers, Lucent
and Cisco, had previously cancelled or delayed orders for the upcoming March 2001 quarter ----
a further indication and confirmation that there were "lead times" associated with order push-
outs, cancellations and ordering practices given by such large industry customers . OEM's were
canceling their orders across the board because their own carrier customers were not ready to
make big buying commitments in 2001 .
The Adverse Impact Upon AMCC of the Major IndustryCorrection is Further Evidenced by a Significant Slowdown in It s
Manufacturing and Production Activities
128 . The health and robustness of AMCC's business could also be measured by a
I review of its product manufacturing and production and materials procurement activities .
AMCC's pace of production directly flowed as a consequence of the extent and strength of
customer orders . There was close cooperation between the sales and marketing side of AMCC's
business, which received and generated orders from customers, and the manufactu ring and
production side of the business . The manufacturing, production and supply chain management
side of AMCC kept abreast of orders and sales forecasts in order to assess customer needs and
logistics so that AMCC could manufacture enough product to fill orders and hence, order
approp riate quantities of mate rials from its own suppliers that were needed to timely
manufacture finished goods for shipment. A drop off in customer orders and resulting sale s
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forecasts on one hand would, in turn, cause an eventual decline in production-related activitie s
on the other .
129. According to Mark Hatfield, - a former AMCC Chemical Technician employed I
from October 1999 through December 2000, who has direct knowledge of AMCC's fabrication
activities in its manufacturing and production facility in San Diego (Oberlin Drive) - prior t o
October 2000, there was never a lack of work among AMCC's production and engineering
employees . Indeed , AMCC was operating multiple shifts and production operations were
running 24 hours a day, seven days a week.
130. But this robust pace and volume of manufacturing and production changed
significantly during the final three months of his employment . Based on his employment
experience and personal first-hand observations through December 2000, Hatfield confirms that
AMCC's manufacturing and production significantly slowed down commencing in Octobe r
2000. According to Hat field , although AMCC "had really grown" before the last three months
of his tenure , the pace of manufactu ring had diminished and there was a discernable differenc e
compared to the way it had been early in his employment . There simply was no longer a "rush"
to get products produced, tested and shipped .
131 . This marked slowdown is also confirmed by Linda Gueco . According to Gueco,
based on her personal observations at AMCC's production facilities stemming from her position
as a wafer fabrication machine operator through February 2001, and her experience working in
AMCC's production department for over 14 years, she witnessed first-hand by late October
2000 through December 2000, that AMCC's production dropped off "very dramatically" and
learned from personal attendance at numerous staff meetings that this drop off was due to
"major" order cutbacks and declining demand . As a consequence of such "major" order
cutbacks and declining demand, she observed that the manufacturing/production volume
within AMCC's production facilities decreased approximately two-thirds from pre-late
October levels.
132. Gueco confirms that the slowdown in production was directly resulting from
order declines, cancellations and push-outs . During a late October 2000 weekly staff meeting
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within AMCC's fabrication division, and in response to major concerns about AMCC's reduced
production/volume, Gueco witnessed AMCC's Production Manager, Robert Lima, admitting
to the fabrication staff that AMCC s reduced production volumes was due to large order
cancellations and/or order "push-outs" and delays that were associated with the downturn of
the telecommunications market. Lima stated that because of the softening of the macro
economic environment within the telecommunications industry, customers, including Lucent
Technologies, Alcatel and OEM Ericsson, had cancelled "huge" amounts of AMCC's
product orders which totaled "many, many millions" of dollars. According to Gueco, in
November 2000, it was discussed within the weekly staff meetings that because of financial
difficulties, Cisco Systems was significantly reducing the size of its outstanding AMCC product
orders . Gueco also observed in discussions during 2000 "November-December" staff meetings
that more customers, including Nortel, Ciena Corporation, Hitachi and JDS Uniphase, had
stopped placing new product orders . During November 2000 staff meetings, AMCC's
Production Manager Lima, stated that "most" of AMCC's customers were revising and
reducing the forecasting purchasing information previously submitted or otherwise provided
to the Company, further admitting to the staff that the forecast reductions were "significant . "
Gueco further observed that AMCC's production volume continued to decline through the time
that she took a leave of absence from AMCC in February 2001 .
133 . Gueco further attended several late 2000 (December) and early 2001 staf f
meetings until her departure in February 2001 in which it was discussed that because of Nortel' s
financial troubles associated with the downturn of the telecommunications industry, Nortel was I
continuing to cancel, or delay, its remaining AMCC product orders through early 2001.
134. According to Timothy Maple , a former MMC/AMCC Electronics Engineering
Technician at the Chelmsford, Massachusetts facility who began working at MMC in September
2000 and continuing through its acquisition by AMCC, leaving AMCC in February 2001, the
pace and flow of work noticeably changed in "late 2000" when he visually noticed that the
available work diminished and that he had stopped building new projects . Maple further
noticed that there was no demand for product and that there was a "hold" on virtuall y
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everything, with no demand for networking products . Things slowed down so considerably at
the Chelmsford, Massachusetts facility, that instead of working on projects, Maple was basicall y
spending all his time rearranging inventory on shelves . As a consequence, he left the Company .
135 . Roger Lindquist, a former AMCC Process Engineer who was employed in it s
manufacturing/production facilities from mid-1999 until July 2001, personally observed that by
early January 2001 AMCC's fabrication facilities weekly production volume had fallen to
approximately 1/10th of what it had previously been as though "somebody turned off the
faucet." By the middle of January 2001, and because AMCC's product orders had "dried up "
so considerably, leaving "no work" for the fabrication machine operators, 60 of the Company' s
Oberlin Drive, San Diego facility machine operators, which represented approximately 2/3rds of
AMCC's machine operation staff, were transferred to the Company's test facility located on a
different floor. In early January 2001, Lindquist was informed by several close colleagues at
AMCC, that at the beginning of January 2001, AMCC's primary customers, including Nortel,
Cisco and Lucent, had cut their respective outstanding unfinished AMCC orders
approximately 80% across the board and had significantly delayed shipment/receipt of
remaining outstanding AMCC product orders . Lindquist further learned through
conversations with plant manager Lima and discussions with AMCC co-employees, that the few
remaining products AMCC continued to manufacture in mid to late January were simply going
straight to AMCC's invento ry and that at that point in time there was no product at all being
shipped to or accepted by AMCC's customers . And by March 2001 , Lindquist personally
observed that AMCC had amassed "thousands and thousands " of boxes of returned merchandise
from Nortel , Cisco and Lucent and that there were thousands of boxes stockpiled within th e
Test Facility that he learned were actually products that AMCC had manufactured in 2000 but
did not ship because of order cancellations that occurred in early January 2001 .
136. A former AMCC Chemical Technician, Gordon Chan, who was employed wit h
AMCC at all times material to the Class Period until he left the Company at the end of th e
December 2000 quarter confirms, based on his direct eyewitness observations , that AMCC' s
manufacturing and production had noticeably declined and that this slowdown had becom e
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especially evident since November 2000 and thereafter. And according to Chan, by mid
November 2000, he personally observed that the Company appeared to have ceased hiring
additional non-executive level personnel, including engineers, unlike the pre-December 2000
quarter environment of very frequent hirings.
Relevant Inventory Detail Within AMCC's 3Q F'01 Financial ResultsDisclosed After the End of the Class Period Further Evidencing Declinin g
Growth and Demand in the December 2000 Quarte r
137. Detail included in AMCC's financials for its fiscal year 2001, reported after the
close of the Class Period, further confirms that defendants had actual knowledge of and were
aware that a massive inventory build up in 2000, particularly among AMCC's major customers,
and the severely declining rate of CAPex by Internet and telecommunications network service
providers, necessitated a major inventory correction that had already imperiled 4Q F'01 sales .
Indeed, this relevant detail itself strongly evinces that AMCC management actually took
responsive action in the December 2000 quarter in reaction to declining orders, push-outs
and cancellations .
138. When defendants announced their very positive 3Q F'01 (ending December 31 ,
2000) financial results on January 16, 2001 and spoke about them glowingly in their conference
calls with the financial community, they placed considerable emphasis on the fact that AMCC
had shown strong growth and momentum in the December quarter, while explaining away and
dismissing any signs of problems that one could link to the fact that days sales outstanding
("DSO's") increased 10 days from 45 in the September quarter to 55 days . By the time of
AMCC's January 16, 2001 press release and conference call, its books had already been closed
for the December 2000 quarter. Unbeknownst to investors, AMCC's internal financial results
already contained important detail that raised serious "red flags" to management and very strong
evidence of the fact that AMCC had observed and determined that AMCC was experiencing a
period of materially declining demand and order cancellations and that management was
already slowing production. As revealed after defendants completed their massive, clustered
insider selling, and as AMCC's Form 10-Q for 3Q F'01 (ending December 31, 2001), filed with
the SEC on or about February 14, 2001, confirms :
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1 (a) During 3Q F'01 (October-December 31, 2000), AMCC's "work in progress" as a
2 percentage of total inventory declined significantly from 65% to 33%, demonstrating that
3 management had already made a decision within that quarter to slow down the pace of
4 manufacturing ; and
5 (b) Raw materials as a percentage of total inventory had declined materially as well,
6 from 14% in the September 30, 2000 quarter to 11% in the October-December 31, 2000 quarter
7 (and eroding even further to just 6% in the January 1-March 31, 2001 quarter), signifying that
8 AMCC management had decided to slow down or reduce the acquisition of raw materials or not
9 fully replenish those incorporated into finished goods, confirming and supporting the fact that
10 internally, AMCC had known within the December 2000 quarter that it was already suffering
11 the adverse impact of the major inventory correction by its customers and significant decline
12 in CAPex by end-users and that this condition would persist through the March 2001 quarter .
13 139. The foregoing allegations of 1138(a)-(b) are supported by an independent
14 Certified Public Accountant who has examined AMCC's inventory detail, as discussed above .
15 Rickey Acknowledges "Really Bad Business" in aNovember 25, 2000 Phone Cal l
16140. Knowledge of these adverse events reached the highest levels of AMCC, as
17confirmed by defendant Rickey . Acutely troubled by the Company's reversal of fortune in the
18wake of this major inventory correction, Rickey privately acknowledged, in a personal and non-
19public conversation on the telephone on Saturday, November 25, 2000 with former AMCC
20engineer Dennis Zulkowski, AMCC's true situation causing grave concern within the Company,
21as follows :
22• With a tone of genuine concern about the Company' s business prospects,
23 Rickey expressed a lack of confidence in AMCC's ability to attain
24 forecasted revenues because "several" key customers had been
canceling or reducing the size of existing orders .
25• Specifically, Rickey identified Nortel Networks and Lucent
26 Technologies as two key customers that had informed AMCC of order
reductions .27
28 • Significant order reductions by those companies imperiled AMCC's
attaining revenue goals .
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• Rickey further disclosed that he was expecting further severe cuts in
orders from its key customers, as well as order reductions and purchase
order cancellations .
Importantly, Rickey disclosed that the Company was experiencing"really bad business" and was not hiring while confessing that theCompany was looking for ways to counter lost business and minimize itsimpact on overall performance, including possibly pulling sales from theMarch quarter (ending March 31, 2001) into the December quarter(ending December 31, 2000) so that AMCC could make its Decemberquarter numbers .
141 . The allegations of the foregoing ¶140 are confirmed by Dennis Zulkowski, a
former AMCC Manufacturing Engineer with approximately 12 years expe rience ( from
November 1987 to November 1999), and are based on his first-hand personal and direct
knowledge of Rickey's telephonic statements . Zulkowski maintained personal contact with
defendant Rickey, his former AMCC colleague and several other former AMCC colleagues and
held several informal discussions with AMCC officers or employees between September and
late November 2000, including defendants Winner and Kilburn and test engineer David Pham .
Zulkowski called Rickey at his home on Saturday, November 25, 2000 and the two of them
spoke at length. According to Zulkowski, based on the aforesaid statements made by Rickey in
this phone call, his separate discussion in late 2000 with AMCC test engineer, Pham, (who
stated that business from Nortel was declining, with order cuts and cancellation of purchase
orders commencing late September 2000), and his separate discussion with AMCC Director of
Human Resources and defendant Nancy Kilburn in the September-November 2000 time frame,
Rickey and AMCC senior officers knew "at least a quarter in advance" that March 2001
business and revenues would fall off sharply .
Rickey Convenes an "All Hands" Meeting in Mid-November 2000 to AddressSignificant Problems Resulting from the Major Inventory Correctio n
142. Widespread corporate knowledge of the fact that AMCC was being adversely
impacted by the massive inventory correction and that, contrary to Rickey's many positive
public pronouncements, the Company was mired in a significant business turndown by the
advent of the Class Period and through February 5, 2001, is confirmed by the fact that, within "a
few weeks" after Halloween, - approximately mid November 2000 - CEO Rickey convene d
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an "all hands" meting of AMCC employees at the Company in order to address wide-spread
employee concerns and quell panic . According to Stasyi Ann Barth, who personally attended
this November 2000 all-hands meeting hosted by Rickey, CEO Rickey was openly questioned
about the softening of the telecommunications industry and, specifically, about the fact that
AMCC was experiencing significant order cancellations/cutbacks and declines . In the course of
this meeting, which was fed via video into several conference rooms at the AMCC
headquarters, Rickey admitted that, indeed, AMCC was in a slump and that "everyone was
being hit," acknowledging that AMCC had not been immune to the downturn and resultantly,
was receiving order cancellations and cut-backs from key customers. Rickey also
acknowledged that the Company would possibly need to scale down the size of a new
laboratory/fabrication facility noting that the new facility may not "be as big." According to
Barth, this all-hands meeting was convened at Rickey's direction because AMCC was
experiencing "significant" and abnormal customer order declines, push-outs and cancellations .
143 . And according to former AMCC Automation Engineer, Stephen Turner, who
personally attended this internal AMCC November 2000 all-hands meeting, the discussion had
a "much darker tone" to it than prior meetings and was marked by a general sense of concern
among nearly all employees . Based on his personal experience working as a Process
Automation Engineer from July 1997 until 2001, Turner was aware by approximately late
October 2000 and recalls that it was apparent that AMCC was experiencing a significant
downturn in business . According to Turner, numerous comments were being made by his peers
confirming that many of AMCC's customers were canceling and pushing out orders, and Rickey
was required to respond to numerous questions from concerned employees at the November
2000 meeting about slowing demand and slowing production activities . Like Barth, ex-
AMCC employee Turner confirms that Rickey acknowledged the fact that AMCC was
sufferingfrom a business downturn , having received key customer order cancellations, with
slowing demand and slowing production .
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• s1 Numerous Emergency Meetings Among Top Executives and
Defendants Amid Great Panic Caused by Adverse Events2
144. The many and massive order cancellations by key customers and AMCC's3
primary distributor, Insight Electronics, were causing pandemonium within AMCC's executive4
ranks. For example, upon learning the news in early November 2000, that Marconi had5
cancelled $50 million in AMCC product orders, Nancy Ryman, AMCC's Senior Buyer,6
defendant Smith, Vice President of Operations/Controller, defendant DeMaioribus, Vice7
President of Manufacturing, and AMCC's Director of Inventory Control quickly convened a8
meeting in the conference room at AMCC's headquarters next to CEO Rickey's office9
whereupon they began "screaming" about AMCC's rapidly deteriorating product order/sales10
status. According to ex-employee Barth, who heard these conversations and personally11
eyewitnessed them, Rickey joined the meeting, in person, and was observed "yelling" at the12
attendees about the approximately $50 million Marconi cancellation and AMCC's seriously13
compromised condition at which time she was promptly "shooed" out of the room .14
145 . In yet another example of great panic over word of significant adverse events at15
the highest levels of AMCC, in mid-November, 2000, and on the heels of having learned that16
AMCC customer Nortel had abruptly cancelled approximately $45 million in AMCC product17
orders, Barth observed "hysteria" among the Company's executives . Barth received a phone call18
from Rickey's Assistant, who demanded to speak with Barth's supervisor Karen Evanoff19
immediately as Rickey had ordered Evanoff to his office . Evanoff hastily proceeded to Rickey's20
office. Several hours later, Evanoff came back to her desk sobbing, thereupon confiding to21
Barth about the "stress" she was under and the "chewing out" that she was receiving regularly22
from Rickey over the receipt by AMCC of massive order cancellations and cut-backs . Then,23
again in mid-November, in further response to the Nortel order cancellation news, according to24
Barth, Rickey called an emergency meeting with DeMaioribus, Smith, Tullie, Little, Evanoff,25
Nancy Ryman and AMCC's Director of Inventory Control in the conference room next to26
Rickey's office on the second floor of the Sequence Drive facility . Barth personally witnessed27
portions of this meeting and specifically heard Rickey "yelling" at the meeting attendees about28
AMCC's "unacceptable numbers" and the Nortel order cancellations . Indeed, throughout the
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months of November and December 2000, Barth recalls emergency meetings being called b y
Rickey or Smith approximately three times a week that took place in either Evanoffs, Tullie's o r
Smith's office, or in the conference room next to Rickey's office. Rickey (sometimes by speaker
phone), DeMaioribus, Smith, Tullie, Little, Evanoff, Ryman and AMCC's Director of Inventory
Control were consistently in attendance during these meetings and the subject matter discusse d
was always a recent large AMCC order cancellation and problems associated with AMCC's lack
of new product orders , lack of end-user dem and, the disappearing backlog and mounting excess
inventories .
146. In late November 2000, Barth provided a sales report to defendant Smith . As an
AMCC Vice President, Smith needed to "sign off ' on this report which , based on Barth' s
personal review and observation, detailed the fact that AMCC was in the process of losing "tens
of millions of dollars" of sales revenue as a consequence of order reductions, cancellations, and
push-outs. But when Barth handed this report to Smith and he reviewed it in her presence, he
promptly became extremely agitated, angered, and refused to sign it . Instead, in Barth's
presence, Smith immediately called Tullie and Senior Vice President of Marketing, Little into
his office. Once they arrived, Barth witnessed the three of them heatedly discussing the
"unacceptable" numbers that the report contained - adverse numbers that she too observed had
clearly demonstrated that the Company was losing massive amounts of business and in a seriou s
state of decline .
By the Second Half of 2000 , AMCC Already Believed that Its Customers HadInsufficient End-User Demand Regarding AMCC Component s
147 . The enormous turndown in AMCC's business was certainly not unexpected .
According to AMCC's Director of Inventory Control at all times material and until July 2001 ,
who was personally involved with and responsible for AMCC supply chain management
activities, which necessitated checking AMCC's customer "channels," the Company was already
experiencing cancellation of orders, especially in the lower speed OC-12 and OC-48 products in
the "latter half of the year" (the second half of 2000) . Given typical lead times, thes e
cancellations clearly imperiled 4Q F'01 sales and revenues . In an effort to maintain an adequate
supply of raw materials and components and timely production, AMCC regularl y
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communicated with its customers to ascertain order levels and requirements and to further
I ascertain the progress and status of "pull throughs " at customer to end-user levels so that AMC C
I could determine the true nature of its customers ' "visibility" (i .e., end- user demand) . According
to this former Director of Inventory Control, from the second half of 2000 and through the Clas s
Period , he expressed concern to AMCC's top-level management , about a lack of customers '
I "visibility" - a term used to describe, and associated with, demand . By the second half of
1 2000, AMCC did not believe that customers had good "visibility," or that they had enough' :
demand to "sell through" the product they had ordered. For example, according to this former
Director of Inventory Control, AMCC stopped believing that Nortel had adequate end-user
demand for AMCC's products, particularly because Nortel had been building inventory, (not
because of demand, but because of stockpiling) and because AMCC observed that Nortel's "pull
throughs" simply were not keeping pace with inventory levels . This source declined to provide
any further information . He was employed as AMCC's Director of Inventory Control for a
I significant period of time before, during and after the Class Period, attended high leve l
management meetings (con firmed , for example by Barth - see ¶¶144 and 145 above), was
responsible with others for AMCC's supply chain m anagement, which included asce rtaining
customer needs and invento ry levels , visibility , and the "pull-through" of AMCC product at the
end-user level and held regular and frequent communications with co-employees and
management about such issues .
AMCC Admits Knowledge of Bookings and Order Status Via Continuous"Scrubbing" and Channel Checking and Also Utilizes a SAP IT System of
"Real Time " Data Reportin g
148. And beyond these various independent sources, the Rickey November 25, 200 0
phone call, the November 2000 all-hands meeting and the many "emergency meetings" and
spontaneous meetings reacting to massive order cancellations involving high-level corporate
officers of the Company, including Rickey, Tullie, Little, Smith, DeMaioribus and others,
AMCC has itself pointedly admitted via various interviews with AMCC officers and Individual
Defendants as more fully alleged in ¶¶78-80 and 147 above, that AMCC regularly deployed the
following routine practices in order to monitor actual and potential customer orders, push-out s
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and cancellations, demand for product at customer and end-user tiers and associated inventor
y levels, both at AMCC and its customer base - especially in light of questions about the
negative indust ry trends and events that might threaten AMCC throughout 2000 and 2001 :
• AMCC "scrubbed" its bookings and "turn s" ;
• Customers were regularly called in order to asce rtain their inventorylevels and requirements ;
• "Channel checking" was constantly undertaken providing AMCC with"visibility " respecting product demand ;
• AMCC management engaged in a "line-by-line " analysis in order to gainsufficient knowledge to access the reliability of their forecasts ; and
• With respect to Cisco , upon whom MMC depended for approximately45-50% of its revenues - a very significant percentage - MMC'sofficers closely monitored that major customer .
149. Several sources including ex-AMCC employees Sullivan , Hagberg, Barth and
former AMCC Production Control Planner Craig Baker confirm that AMCC maintained a SAP
IT system including "real time" reporting . According to Sullivan, AMCC maintained it s
components/raw materials order placement, sales/product orders, sales forecast, manufacturing
information, inventory tracking and product shipments/return information within this interna l
SAP IT system of electronic data storage and reporting . Sullivan further confirms that "all o f
the executives " at AMCC had unrestricted access to the SAP information. As a consequence of
AMCC's "real time" SAP IT report ing systems , which could be accessed by each of the
defendants at will, every defendant had at his or her fingertips electronically stored updated and
historical information regarding all customers orders, volume, status and amounts, the pace o f
order declines, push-outs or cancellations, sales forecasts and inventory status . According to
Baker, SAP software was also used to track production and wafer fabrication operations .
Everyone in AMCC's Production Department had access to the SAP tracking information,
including defendant DeMaioribus, who had immediate access .
150 . The fact that AMCC continuously scrubbed its bookings and kept a close eye on
the status of customer orders and end-user demand and that its executives kept themselves full y
abreast of all critical issues or facts fundamental to the operation of the Company is further
confirmed by numerous sources with first hand personal knowledge of the reporting "custom
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and practice" of AMCC over many years. According to ex-employee Eileen F . Sheehan,
defendant Little's Executive Assistant at all times material, and based on her direct observations
and experience with AMCC senior officers, defendant Little and his senior managers
maintained a "constant pulse" on the activities of the Company and kept themselves informed
about all internal events and activities at AMCC . According to Sheehan and a former pre-Class
Period AMCC Field Application Engineer, Wesley Stalcup, it was the custom and practice of
AMCC senior management to be absolutely meticulous about the accuracy and timeliness of
substantive reports. AMCC was an information-driven organization, as further confirmed and
corroborated by Stalcup, Sheehan and George Amundson, a former AMCC Regional Sales
Manager with approximately 16 years of employment experience with AMCC until May 2000,
who gained extensive knowledge of its custom and practice of reporting systems .
151 . According to Amundson, AMCC senior officers kept themselves fully aware o f
the Company's financial performance and business condition at all times while he was
employed there over many years. Regional Sales Managers held weekly meetings with key
customers on a rotating schedule and would meet with other customers approximately every 2
to 3 weeks . Typically, defendants Rickey, Little and Smullen spent 4 to 5 days per quarter
visiting important customers in every region of the country and held substantive discussions
with them including specific inquiries about the customers' business, prospects and/or plans
going forth. Regional Managers participated in a "Monday morning conference call" with other
Regional Managers and defendants Tullie and Little which usually lasted 30 to 45 minutes .
Additionally, AMCC held quarterly Operations and Performance Review meetings in San
Diego . These were critical meetings held at the Company's headquarters in its large conference
room that started at 7:30 a.m. and went "late into the night" every day for an entire week .
Defendants' Rickey, Tullie, Smullen and Little attended every Operations and Performance
Review meeting and actively participated in nearly every discussion and presentation .
According to Sheehan, based on her personal observations, including those throughout the Class
Period, AMCC senior managers knew on an "up to the minutes basis" of challenges impacting
the Company's performance or ability to meet established expectations and what was going o n
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I I at all times . Based on as many years of employment experience and association with AMCC
from 1985 through May 2000, and his familiarity with the Company's custom and practice
relating to reporting and dissemination of critical information relating to important issues and
events, ex-AMCC Regional Sales Manager Amundson confirms that every member of AMCC
senior management would be immediately aware of customer order cancellations or push-outs
and that any weakness and demand for the customers' key products would be a "big red flag" to
senior management .
The Major Inventory Correction Amid Severely Declining End-User DemandCannot Be Disputed and is Effectively Admitted by AMCC
152. Defendants were hands-on day-to-day managers of AMCC , responsible fo r
keeping themselves informed regarding critical issues or events and core, fundamental facts
regarding the Company. The major inventory correction arising from severely declining
product demand impacting AMCC's industry was the most important and critical issue facing
the Company at the time . Indeed, the inventory correction was observed by one analyst as the
virtual "mantra" of every investor conference call . Defendants obviously knew about this
adverse event, discussed it as the preceding paragraphs demonstrate, but failed to disclose that it
had been and would continue to adversely impact AMCC through the Class Period .
153 . As previously alleged in ¶¶100 and 106, AMCC and defendant Rickey i n
particular, have acknowledged after the Class Period that the Company's significant decline and
4Q F'01 (ending March 31, 2001) revenue shortfall was the product of a major correction of an
inventory build-up that took place "last year" (i.e., 2000) fueled by significantly diminished
network service provider capital spending ("CAPex") and resulting declining demand .
154. Irrespective of those admissions, numerous industry analysts and Semiconducto r
Industry Association data confirm the fact that a sustained and major inventory correction had
commenced in the December 2000 quarter and through the first half of 2001 . According to
information provided by semiconductor industry analyst, Drew Peck, SG Cowen & Co ., by the
December 2000 quarter the telecommunications Internet sector was already in the throes of a
broad based inventory correction resulting from massive stock piling by distributors and
customers due to a rampant fear of product shortages . This massive inventory build-up was not
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as a consequence of, nor did it truly reflect, end-market consumption and, thus, the I
I stockpiling led to excess inventory levels in the second half of 2000. According to
I semiconductor industry analyst, Joseph Osha of Merrill Lynch, combined inventories at
equipment OEM's by mid-November was as much as 40% higher than historic norms .
155. According to semiconductor industry analyst, Charles Glavin, of Credit Suisse
First Boston, inventories had reached such an excess level by the December quarter (in the
aggregate) at semiconductor companies, contract manufacturers and distributors that it woul d
take until at least the end ofthe second quarter 2001 to burn them off.
156. That end-user demand was weakening, thus leaving OEM's with excess
inventory in the wake of their intentional stockpiling, is confirmed by information provided b y
the Semiconductor Industry Association, which has reported that year over year, semiconducto r
sales growth was only 24% in October 2000, the lowest growth level since October 1999 . And,
according to semiconductor industry analyst, Charles Glavin of Credit Suisse First Boston,
worldwide sales were down 3% from the September 2000 quarter to the December 2000 quarte r
- the worse decline since 1986 and 1987 . Semiconductor Industry Association data confirms
that in the December 2000 quarter, demand had declined as end demand weakened to the point
of virtually disappearing, with the semiconductor industry experiencing a severe imbalance
between supply and demand .
157. That a major inventory correction was already in full swing at and around the
beginning of the Class Period is also confirmed by information provided by semiconducto r
industry analyst, Arun Verappan who states that inventory at OEM's "started to correct midway
through the December quarter of calendar 2000 as most communications OEM's began to feel a
slowing pace of demand." Indeed, according to semiconductor industry analyst, Arnad Chandra
of Lehman Brothers, in a report dated February 16, 2001, the "big three" - Nortel, Lucent and
Cisco - needed to purge about an aggregate of $4 billion in inventory that they had built in
2000 to offset component supply problems .
158. Weakening demand resulting from slower CAPex spending by carriers is further
confirmed by a review of OEM's days of inventory . According to semiconductor industry
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1 analyst, Arun Verappan, OEM days of inventory went from an industry average of 74 (1Q
2 2000) to 75 (2Q 2000) to 82 (3Q 2000) and then --- ostensibly as a result of the effectuation of a
3 major inventory correction - to 77 (4Q 2000) . These averages are very high. The
4 performances of Nortel, Lucent and Cisco were particularly problematic and well exceeded the
5 industry average, as noted below :
6 1Q 2000 2Q 2000 3Q 2000 4Q 2000
7 Lucent 82 91 91 138
8 Nortel 89 68 90 82
9 Cisco 46 54 75 89
10 TelLabs 63 65 82 86
11 Average 74 75 82 77
12AMCC's Massive Write- Down of Goodwill in the Amount of $3.1
13 Billion in Close Proximity to the MMC $4 .5 Billion AcquisitionDemonstrates that Defendants Knew During the Class Perio d
14 that MMC Was Greatly Overvalued and Its Business Failing
15 159. When the deterioration of the Internet and telecommunications sector evolved .
16 from a severe contraction to a genuine collapse in mid-to late-2000, and certainly by October
17 25, 2000, when AMCC consummated its acquisition of MMC for a reported $4 .5 billion using
18 AMCC's stock as currency, defendants were faced with a critical problem . In short, given the
19 enormity of the goodwill write down, AMCC had grossly overpaid to acquire MMC . Rather
20 than simply acknowledge that the collapse of the Internet and telecommunications sectors by the
21 advent of the Class Period had already deflated the value of MMC well below what AMCC
22 paid, or report a realistic amount of goodwill as an intangible asset, AMCC management valued
23 the acquisition at $4 .5 billion and represented to the market on January 16, 2001 that AMCC's
24 assets were $5 .6 billion, including the intangible asset value as a result of the MMC merger. By
25 failing to report a realistic number associated with goodwill as an intangible asset , AMCC was
26 able to artificially inflate its total assets to over $5 .6 billion, creating the false impression that it
27 was now a real powerhouse in the IC communications industry that was enjoying significant
28 growth and increasing financial strength and stature . AMCC also delayed taking any write-off
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for any amount within fiscal year 2001 associated with or occasioned by the fact that it had
significantly overpaid billions of dollars for MMC, thus avoiding any negative impact that any
such write-down would have on its reported financial results either during the Class Period o r
within FY 2001 .
160. The overvaluation of MMC was e gregious . Shortly after the close of FY 2001 ,
on or about July 18, 2001, AMCC announced that it had decided to write-off approximatel y
$3 .3 billion at one time in 1Q F'02 (ending June 30, 2001) . The proximity of the consummation
of the merger to the write-down of virtually all of the goodwill associated with MM C
constitutes very strong evidence that management knew or should have known during the Class
Period that AMCC had grossly overpaid for MMC. As an independent accountant expert
("CPA") has confirmed, it is simply not possible that all of the damage or impairment to
AMCC's acquired assets could have occurred in the space of a single quarter .
161 . The write-down of $3 .3 billion in goodwill is an indicator of a serious
dete rioration in the business of MMC - and, in turn, AMCC - which could not and did no t
happen in a single quarter and which had to have occurred during and through the Class Period .
Hence, AMCC's representations of over $5 billion in total assets, representations with respect to
the strength of the merger and the combined Company and AMCC's public position that the
industry meltdown did not impact AMCC until the last week of the Class Period, are belied by
the massive write-down of goodwill reducing in a short time period AMCC's total assets by
over 60% .
Additional Facts Supporting a Strong Inference of Sciente r
162 . Defendants had strong motives to engage in the fraudulent scheme and/or
artificially inflate the price of AMCC shares and the opportunity to do so by reason of their
high-level positions and ability to disseminate false information to the market, providing
additional indicia of and supporting a strong inference of scienter .
163 . There were acute , Company-specific motives and strategies behind the scheme
to artificially inflate the price of AMCC common stock and options via the dissemination of a
series of false and misleading statements during the Class Period .
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1 164. First, even before the advent of the Class Period, AMCC found itself in an
2 increasingly acquisitive Internet and telecommunications industry environment, with larger and
3 stronger firms swallowing up smaller companies with already existing product lines, in the hope
4 of substantially strengthening their competitive position . AMCC's ability to remain competitive
5 through the acquisition of other companies with developed, existing product lines that would
6 enable AMCC to remain with or otherwise stay ahead of the product curve was critical to the
7 success of the Company . AMCC was highly dependent upon the use of its common stock as
8 currency to accomplish any such acquisition .
9 165. As reported on December 1, 2000 in Electronic Business, while AMCC lacked
10 the size of behemoths such as Lucent Technologies, it was hardly defenseless in the face of a
11 frenzied acquisition environment because soaring stock prices gave AMCC "the currency to
12 participate as equals in what has become a virtual feeding frenzy of mergers and acquisitions ."
13 And with the pace of acquisitions accelerating, PMC-Sierra's CEO Bailey - AMCC's
14 significant competitor -- disclosed his expectation that the number of major communications
15 chip players would steadily dwindle adding :
16 It's a land grab right now. But in the next two years the dust will have settled . . .and the winners - the two or three new Intels of the Internet - are going to
17 present themselves . The territory will have been staked out, and it will beextremely difficult for anybody to shift the market share in any significant way .
18166. AMCC did not want to lose out in that "land grab ." Beyond a concern regarding
19dilution, the reality for AMCC was that without a very high stock price trading at an
20extraordinarily high PIE ratio, it simply would not be able to afford major and significant
21acquisitions going forward and the fate of its business would be at the mercy of numerous and
22more formidable companies already competing in its space, or others who were intending to
23enter it with new products.
24167. AMCC clearly intended to make more acquisitions of other companies using its
25stock as currency and was fully cognizant of the competitiveness in the market . Noting that
26AMCC "made a number of acquisitions of smaller engineering companies just to bring
27additional R&D capability into AMCC," Bendush stated in an interview disseminated via the
28Wall Street Transcript on November 13, 2000 :
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1 I expect that we will continue to make these types of acquisitions . . . the marketis becoming more competitive . It seems everybody wants a piece of the
2 communications IC business . I expect you'll see continued consolidation andexpense of a few very strong competitors .
3168. In essence, maintaining AMCC's inflated stock price was the ticket to
4accomplishing the acquisition strategy it began deploying in 2000 . Indeed, as recently as
5October 25, 2000, AMCC used its corporate stock to acquire MMC - reportedly the largest IC-
6Comm industry merger in history, valued at $4 .5 billion. The higher the price of AMCC's
7stock, the less dilutive the stock-based acquisition . Additionally, the artificial inflation of
8AMCC's common stock also substantially benefited AMCC in that it enabled it to induce
9agreement to such stock-based mergers and acquisitions by offering far more enticing stock
10compensation packages and benefits to the officers and employees of the target acquired
11company and thus retain them .
12169. Second, finding, hiring and retaining talented design engineers for AMCC was
13no simple task . As Bob Bailey, CEO of PMC-Sierra explained in discussions with the
14periodical Electronic Business and writings in its commentary in FY 2000, a "number one
15priority" is "retaining and recruiting" the best people as the future success depends on keeping
16chip designers happy and productive . Defendants clearly understood this acute need and its
17importance to its future success . When AMCC acquired MMC, part of the shares distributed to
18MMC were actually earmarked to go to MMC's employees (engineers and software
1 920 programmers) because they were considered a major asset for AMCC as well as the products
21 that they were developing, further underscoring the critical importance of keeping top
engineering designing talent, respecting which there was an acute shortage in the industry, by22
using AMCC stock as currency .23
170 . In a similar vein, an AMCC press release disseminated to the market on24
September 18, 2000 announcing the creation of a new design center located in Bedford, New25
Hampshire, commented : "The tremendous talent that AMCC has attracted to launch this26
design group enables as to make significant progress in the areas of gigabit ethernet and 1027
gigabit ethernet IC development ." In AMCC's world, attracting and retaining talented design28
engineers in a fiercely competitive employment market basically boils down to the ability to
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1 offer them more and more attractive compensation packages fueled by valuable stock options
2 and related compensation .
3 171. AMCC recognized the importance of attracting technical talent or at least
4 retaining its current stable of talent despite a hiring freeze . During an interview with Street
5 Investor's Executive Corner, on December 18, 2000, defendant Rickey further confirmed
6 AMCC's plans for more acquisitions and underscored the importance of attracting technical
7 talent stating :
8 So, we invested in Atiq because we believe that Atiq is a magnet for technicaltalent in Silicon Valley, and many people in many startups go to him for
9 guidance, mentoring, and money . So, we were happy to invest money into RazaFoundries because we think that it is a great investment with one of the most
10 visionary talented technical people on Earth. It was a no-brainer decision. Weare already seeing companies . We invest in companies through Atiq. These
11 companies are very talented and related to us . They are either companies thatwe may want to acquire or they are complementary companies who can sell our
12 products with theirs together . We actually acquired a company already that wa sin Atiq's stable - a company called YuniNetworks . You get access to all this
13 talent working with Atiq.
14 172. Virginie Bobillier, a former AMCC financial analyst from February 1998
15 through June 2000, confirms that AMCC's corporate strategy was to acquire new companies in
16 order to "buy new brains. "
17 APPLICABILITY OF PRESUMPTION OF RELIANCE :FRAUD-ON-THE-MARKET DOCTRINE
18173. Plaintiffs will rely, in part, upon the presumption of reliance established by the
19fraud-on-the-market doctrine that :
20(a) Defendants made public misrepresentations or failed to disclose material
21 facts during the Class Period ;
22 (b) the omissions and misrepresentations were material ;
23 (c) the securities of the Company traded in an open and efficient market ;
24 (d) the misrepresentations and omissions alleged would tend to induce areasonable investor to misjudge the value and prospects of the
25 Company's securities; and
26 (e) plaintiffs and members of the Class traded in AMCC Securities betweenthe time the defendants failed to disclose or misrepresented material
27 facts and the time the true facts were disclosed, without knowledge ofthe omitted or misrepresented facts .
28
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174. At all relevant times , the market for AMCC common stock and options was an
I efficient market for the following reasons, among others :
(a) AMCC common stock met the requirements for listing , and was listedand actively traded , on the NASDAQ Exchange , a highly efficientmarket ;
(b) As a regulated issuer, AMCC filed periodic reports with the SEC ;
(c) AMCC regularly issued press releases which were carried by nationaland international newswires . Each of these releases was publiclyavailable and entered the public marketplace; and
(d) AMCC regularly issued oral statements to the financial media andinvestment community including interviews which were publiclyavailable and entered the public market place .
175. All purchasers of AMCC common stock and call options (and sellers of AMCC
put options) during the Class Period suffered similar injury through their trades in AMC C
Securities at artificially inflated or distorted prices and a presumption of reliance applies .
176. The foregoing alleged false and deceptive statements rendered by the defendants ~
during the Class Period credibly entered the market with such frequency and intensity that they
succeeded , as they were intended to, in ove rtaking and e ffectively neutralizing any information
in the market that would have informed investors that AMCC's customers' bloated invento ry '
levels were having and would continue to have a direct and adverse impact on AMCC's
revenues by reason of declining product demand or order push -outs or cancellations . Indeed,
although defendants were continuously faced with inqui ries by market professionals and the
media seeking guidance of this critical trend impacting its indust ry sector , their statements
caused the market to believe that AMCC was not being adversely affected by those industry
trends and was and would continue to experience great demand and robust growth going
forward because of its unique situation . Investors place great reliance upon management repo rts
and representations. The fact that defendants' frequent false statements credibly entered the
market and successfully ove rtook and neutralized any disclosure of adverse information in the
market is demonstrated by the fact that AMCC's false statements buoyed or inflated its stock
price . When AMCC first made its February 5, 2001 acknowledgment - however incomplete
- that it was expe riencing order push -outs and cancellations clearly as a result of bloate d
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inventories in the face of virtually non-existent demand due to significantly declining network
service provider capital expenditures, the market was truly surprised and shocked, as registered
by the immediate and precipitous decline of AMCC's stock price from $64 .375 at the close of
trading on February 5, 2001 (just before the announcement) to as low as $55 .06 on the next
trading day on February 6, 2001, on AMCC historic record trading volume of over 34 million
shares, continuing to decline thereafter as defendants revealed a more complete and truthful
picture as inquiries by market professionals intensified .
NO STATUTORY SAFE HARBOR
177. The statutory safe harbor provided for forward - looking statements under ce rtain
I circumstances does not apply to any of the false statements pleaded in this complaint . Certain
I of the specific statements pleaded herein, including, among others, oral statements made i n
conference calls with analysts and investors, were not adequately or properly identified as
"forward-looking statements" when made . To the extent there were any forward-looking
statements, there were no meaningful and adequate cautionary statements identifying important
factors that could cause actual results to differ materially from those in the purportedly forward-
looking statements . Alternatively, to the extent that the statutory safe harbor does apply to any
forward-looking statement pleaded herein, defendants are liable for those false forward-looking
statements because at the time each of those forward-looking statements was made, the
particular speaker knew that the particular forward-looking statements was false and/or the
forward-looking statement was authorized and/or approved by an executive officer of AMCC
who knew that those statements were false when made .
178. To the extent that defendants' written statements regarding the Company's
expected revenues, earnings, earnings per share and growth, are deemed to be forward-lookin g
statements , those statements are actionable for the following reasons :
(a) such statements were material to investors ;
(b) the statements were not accompanied by meaningful and adequatecautionary statements identifying important factors that could causeactual results to differ materially from those in the purportedly forward-looking statements . Rather, defendants merely advised investors that theCompany's results could differ based upon general risks anduncertainties . Such statements themselves were materially false and
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1 misleading for failing to disclose the concrete present facts and risks setforth above; and
2(c) at the time the statements were made, they were made by and/or with the
3 approval of senior AMCC executives, including the individualDefendants, among others, who knew that the particular statements were
4 materially false and misleading for the reasons set forth above.
5 179. In addition, defendants' oral statements during the Class Period regarding
6 expected growth in revenues and earnings for FY 2001 and 4Q F'O1 and especially their oral
7 statements in media interviews as alleged in 1J62, 63, 68, 69, 81 and 90, are not protected by
8 the safe harbor provision of the PSLRA because :
9 (a) such statements were material to investors;
10 (b) such statements were not accompanied by an adequate caution thatactual results could differ materially from those projected ;
11(c) defendants failed to adequately identify readily available written
12 documents containing adequate and meaningful information aboutfactors which could cause actual results to differ materially from those
13 projected; and
14 (d) defendants had actual knowledge that such statements were falsebecause in light of the then-existing market conditions, the projected
15 results for 4Q F'O1, FY 2001 and FY 2001 could not or would be nearlyimpossible to achieve .
16CLASS ACTION ALLEGATIONS
17180. Lead Plaintiff brings this action as a class action pursuant to Federal Rules of
18Civil Procedure 23(a) and (b)(3) . The Class is defined as all persons and entities who, during
19the Class Period, purchased AMCC common stock or call options or sold AMCC put options,
20and who suffered damages thereby (the "Class"), including, but not limited to, all those persons
21who traded in AMCC Securities on the NASDAQ Exchange . Excluded from the Class are all
22the defendants, members of their families, any entity in which any defendant has a controlling
23interest or is a parent or subsidiary of or is controlled by the Company, and the officers,
24directors, affiliates, legal representatives, heirs, predecessors, successors or assigns of any of the
25defendants .
26181 . The members of the Class are so numerous that joinder of all members is
27impracticable . While the exact number of Class members is unknown to Lead Plaintiff at this
28time and can be ascertained only through appropriate discovery, Lead Plaintiff believes there
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are, at a minimum, thousands of members of the Class who purchased AMCC common stock
during the Class Period . As of December 31, 2000, the Company had almost 300 million share s
of common stock outstanding.
182 . Common questions of law and fact exist as to all members of the Class an d
predominate over any questions affecting solely individual members of the Class . Among the
questions of law and fact common to the Class are :
(a) whether the federal securities laws were violated by defendants' acts asalleged herein ;
(b) whether AMCC issued false and misleading statements during the ClassPeriod;
(c) whether the Individual Defendants caused AMCC to issue false andmisleading statements during the Class Period ;
(d) whether defendants acted knowingly or with deliberate recklessness inissuing false and misleading statements ;
(e) whether the market prices of AMCC common stock and options duringthe Class Period were artificially inflated or distorted because ofdefendants' conduct complained of herein ; and
(f) whether the members of the Class have sustained damages and, if so,what is the proper measure of damages .
183 . Lead Plaintiffs claims are typical of the claims of the members of the Class, as
Lead Plaintiff and members of the Class sustained damages arising out of defendants' wrongful
conduct in violation of the federal securities laws as complained of herein .
184 . Lead Plaintiff will fairly and adequately protect the interests of the members of
the Class and has retained counsel competent and experienced in class actions and securities
litigation . Lead Plaintiff has no interests antagonistic to or in conflict with those of the Class .
185 . A class action is superior to other available methods for the fair and efficient
adjudication of the controversy since joinder of all members of the Class is impracticable .
Furthermore, because the damages suffered by the individual Class members may be relatively
small, the expense and burden of individual litigation makes it impracticable for the Class
members individually to redress the wrongs done to them . There will be no difficulty in th e
management of this action as a class action .
74 LEAD PLTFS I ST AM CONS CLASS ACTION CPTLead Case No . : 0I-CV-0649-K (AJB)
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•
1 CLAIMS FOR RELIEF
2 COUNTI
3 (Against AMCC and All Individual Defendants for Violations o fSection 10(b) and Rule 10b-5 Promulgated Thereunder)
4186. Plaintiffs repeat and reallege each and every allegation contained in the
5foregoing paragraphs as if fully set forth herein .
6187. This Count is asserted against AMCC and the Individual Defendants arising from
7their false, deceptive and misleading statements and fraudulent scheme and against all the
8Individual Defendants for their failure to disclose non-public, adverse, material information
9when they sold AMCC stock during the Class Period, in violation of their duty to "abstain or
10disclose" and is based upon §10(b) of the Exchange Act, 15 U .S.C. §78j(b) and Rule lOb-5
11promulgated, thereunder .
12188 . During the Class Period, the Individual Defendants, singly and in concert,
13directly engaged in a common plan, scheme, and unlawful course of conduct, pursuant to which
14they knowingly or with deliberate recklessness engaged in acts , transactions, practices and
15courses of business which operated as a fraud and deceit upon plaintiffs and the other members
16of the Class; made various deceptive and untrue statements of material facts and omitted to state .
17material facts necessary in order to make the statements made, in light of the circumstances
18under which they were made, not misleading ; and employed devices, schemes and artifices to
19defraud in connection with the purchase and sale of securities . The purpose and effect of said
20scheme, plan, and unlawful course of conduct were, among other things, to : (a) conceal the
21adverse facts concerning the Company's operations, particularly with respect to its financial
22condition and prospects ; (b) artificially inflate or distort and maintain the market price of
23AMCC Securities ; and (c) cause plaintiffs and the other members of the Class to trade in
24AMCC Securities at inflated or distorted prices .
25189 . During the Class Period, the Individual Defendants, pursuant to said plan,
26scheme, and unlawful course of conduct, knowingly and/or with deliberate recklessness,
27participated directly or indirectly in the preparation and issuance of deceptive and materially
28false and misleading statements to the investing public as identified above .
75 LEAD PLTFS 1ST AM CONS CLASS ACTION CPTLead Case No . : O1-CV-0649-K (AJB)
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190. The Individual Defendants, by virtue of their positions at the Company, ha d
1 actual knowledge of the materially false and misleading statements and material omission s
alleged herein and intended thereby to deceive plaintiffs and the other members of the Class, or,
in the alternative, the Individual Defendants acted with deliberate reckless disregard for the
truth in that they failed or refused to ascertain and disclose such facts as would reveal th e
I materially false and misleading nature of the statements made, although such facts were readil y
I available to defendants. Said acts and omissions of defendants were committed knowingly o r
with deliberate reckless disregard for the truth and defendants knew or deliberately an d
recklessly disregarded that material facts were being misrepresented or omitted as describe d
above .
191 . Throughout the Class Period, AMCC acted through the Individual Defendants ,
whom it portrayed and represented to analysts , the financial press, and the public as its valid
representatives . The willfulness , motive, knowledge and deliberate recklessness of the
Individual Defendants is therefore imputed to AMCC , which is primarily liable for the
secu rities law violations of the Individual Defend ants while acting in their official capacities as
Company representatives , or, in the alte rnative, which is liable for the acts of the Individual
Defendants under the doct rines of agency and respondeat superior.
192 . The Individual Defendants are liable both directly and indirectly for the wrongs
complained of herein . Because of their positions of control and authority, the Individual
Defendants were able to and did, directly or indirectly , control the content of the statements of
the Company . As officers and directors of a publicly-held company, the Individual Defendants
had a duty to disseminate timely, accurate , and truthful information with respect to the
Company's businesses , operations, future financial condition and future prospects . As a result
of dissemination of the aforementioned false and misleading repo rts, releases and public
statements , the market price of AMCC Securities was artificially inflated or disto rted
throughout the Class Period . In ignorance of the adverse facts concerning AMCC's business
and financial condition which were concealed by defend an ts , plaintiffs and other members of
the Class traded in AMCC Securities at artificially inflated or disto rted prices and relied upon
76 LEAD PLTFS 1ST AM CONS CLASS ACTION CPTLead Case No . : 01-CV-0649-K (AJB)
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the price of the stock, the integrity of the market for the stock and/or upon statements
disseminated by defendants ; and were damaged thereby .
193 . During the Class Pe riod, AMCC Securities were traded on the NASDAQ
Exchange, an active and efficient market . Plaintiffs and the other members of the Class, relyin g
on the materially false and misleading statements described herein, which the defendants made,
issued or caused to be disseminated, or relying upon the integrity of the market, traded in
AMCC Securities at prices artificially inflated or distorted by defendants' wrongful conduct .
Had plaintiffs and the other members of the Class known the truth, they would not have trade d
in AMCC Securities or would not have traded in AMCC Securities at the inflated or disto rted
prices that were paid . At the time of the purchases by plainti ffs and the Class, the true value of
AMCC stock was substantially lower than the p rices paid by plaintiffs and the other members o f
the Class . The market price of AMCC's common stock declined sharply upon public disclosure
of the facts alleged in this complaint .
194. By reason of the conduct alleged herein, AMCC and the Individual Defendant s
knowingly or with deliberate recklessness, directly or indirectly, violated §10(b) of the
Exchange Act and Rule lOb-5 promulgated thereunder, causing plaintiffs and the Class
damages .
195 . Each of the Individual Defendants also violated §10(b) of the Exchange Act by
selling their AMCC stock despite their prior knowledge of non-public, undisclosed, Company-
specific and material adverse events and facts, in violation of their duty to "abstain or disclose . "
196 . The Individual Defendants sold AMCC common stock as noted in the chart
below :
David M. Rickey
Date Shares Price Proceeds
01/18/2001 167,000 $80 .1250 $13,380,875 .0002/01/2001 40,644 $70.2103 $2,853,627.43
77 LEAD PLTFS ISTAM CONS CLASS ACTION CPTLead Case No . : 01-CV-0649-K (AJB)
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William E. Bendush
Date Shares Price Proceeds
01/18/2001 80,000 $ 80 .000 $6,400,000 .00
Thomas L. Tullie
Date Shares Price Proceeds
01/18/2001 200,000 $80 .1250 $16,025,000 .0002/01/2001 50,000 $70.2188 $3,510,940.00
Brent E . Little
Date Shares Price Proceeds
01/18/2001 50,000 $81 .0000 $4,050,000.00
Douglas C . Spreng
Date Shares Price Proceeds
01/19/2001 100,000 $86.650 $8,665,000.00
197 . At a minimum, and without prejudice to the foregoing, AMCC's effective
admission on February 5, 2001 and Rickey's later acknowledgment that the Company
experienced order push-outs and cancellations at the end of January 2001, establishes that the
insider trades by defendants Rickey and Tullie during that time period, as identified in ¶196
above, were in violation of the federal securities laws "abstain or disclose" duty and actionable
under § 10(b) .
COUNT II
(Against the Insider Trading Defendants for Violation of §10b andRule 10-b5 Promulgated Thereunder Arising from TheirFailure to Perform Their Duty to "Abstain or Disclose" )
198 . Plaintiffs repeat and reallege each and every allegation contained in the
foregoing ¶¶1-185, inclusive, as if fully set forth herein .
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0 •
1 199. This Count is asserted against the Insider Trading Defendants for their failure to
2 disclose non-public, adverse, material information when they sold AMCC stock during the
3 Class Period, in violation of their duty to "abstain or disclose" and is based upon §10(b) of the
4 Exchange Act, 15 U .S .C. §78j(b) and Rule I Ob-5 promulgated thereunder .
5 200. Each of the Insider Trading Defendants violated § l Ob-5 promulgated thereunder,
6 by selling their AMCC stock despite their prior knowledge of non-public, undisclosed,
7 Company specific and material adverse events and facts in violation of their time honored duty
8 to "abstain or disclose." The Insider Trading Defendants' sales of AMCC stock are identified in
9 the chart below .
10 Vincent DeMaioribus
11 Date Shares Price Proceeds
12 01/18/2001 55,286 $80.000 $4,422,880.0001/23/2001 2,216 $82 .5276 $182,881 .26
13 01/26/2001 450 $75.6558 $34,045.13
14Candace H. Kilburn
1 5
16Date Shares Price Proceeds
11/28/2000 20,000 $44.3188 $886,375.0017 01/18/2001 10,000 $81 .9600 $819,600.00
1801/22/2001 30,000 $83 .5000 $2,505,000.00
19 Stephen M. Smith
20 Date Shares Price Proceeds
21 01/26/2001 20,000 $73 .9125 $1,478,250.00
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23 Roger A. Smullen
24 Date Shares Price Proceeds
25 12/18/2000 76,336 $65.5000 $5,000,008 .0001/18/2001 200,000 580.1250 $16,025,000 .00
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. 0
1 Ramakrisha R. Sudireddy
2 Date Shares Price Proceeds
3 11/30/2000 60,000 $48 .3021 $2,898,126 .0012/18/2000 30,535 565 .5000 $2,000,042 .5 0
4 01/22/2001 40,000 $81 .9375 $3,277,500.005 02/05/2001 10,000 $62 .9688 $629,688.00
6 Gregory A. Winner
7 Date Shares Price Proceeds
8 01/18/2001 80,000 $81 .7500 $6,540,000.009 01/24/2001 45,000 $86.1111 $3,875,000.00
10 201 . The defendants were able to reap substantial profits by selling their AMCC
11 shares at prices that were substantially higher than those at which they would have traded had
12 defendants fulfilled their duty to abstain from trading until after the truth about AMCC's
13 business condition and prospects was fully, timely and adequately disclosed . As a consequence,
14 plaintiffs and Class members have been substantially damaged .
15 COUNT III
16 (Against All Individual Defendants for Violations17 of Section 20(a) of the Exchange Act)
18 202. Plaintiffs repeat and reallege each and every allegation contained in the
19 foregoing paragraphs as if fully set forth herein .
20 203. During the Class Period, the Individual Defendants participated in the operation
21 and management of the Company, and conducted and participated, directly and indirectly, in the
22 conduct of AMCC' s business affairs and directed those affairs. By virtue of the Individual
23 Defendants' high-level and senior positions, they knew the adverse non-public information
24 about AMCC's sales , services, financial conditions, and future prospects, or deliberately and
25 recklessly disregarded such adverse facts .
26 204. As directors and officers of a publicly-owned company, the individual
27 Defendants had a duty to disseminate accurate and truthful information with respect of AMCC's
28 financial condition and prospects, and to promptly correct any public statements issued by
AMCC which had become materially false or misleading.
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205. Because of their positions of control and authority as senior officers and director s
`of AMCC, the Individual Defend ants had the power and autho rity , and exercised the same, t o
con trol the contents of the various oral and written reports and press releases which AMCC
I disseminated in the marketplace during the Class Period concerning the Company 's sales ,
product demand, revenues, financial condition, and future prospects. Therefore, each was a
"con trolling person" of AMCC within the meaning of §20(a) of the Exchange Act .
206. By reason of the above conduct, the defendants are liable pursuant to §20(a) o f
the Exchange Act .
COUNT IV
(Against Defendants Rickey, Little, Bendush, Tullie, Spreng,DeMaioribus, Smith, Smullen, Johnson, Winner, Sudireddy and Kilburn ,
for Violations of Section 20A of the Exchange Act )
207. FSBA repeats and realleges each of the allegations set forth in the foregoing
paragraphs, as if fully set forth herein. This claim is asserted against defendants Rickey, Little ,
I Bendush, Tullie, Spreng, DeMaioribus, Smith, Smullen, Johnson, Winner, Sudireddy, and
Kilburn (collectively "the §20A Defendants") for violations of Section 20A of the Exchange
Act, 15 U .S.C. §78t-1, by Lead Plaintiff Florida State Board of Administration and the other
plaintiffs on behalf of all persons who purchased AMCC common stock contemporaneously
with the sale of AMCC common stock by them and who were damaged thereby.
208. During the Class Period, the §20A Defend ants occupied positions within AMCC
that made them privy to confidential information concerning AMCC, as well as AMCC's
operations, finances, financial condition and future business prospects, including, but not
limited to, the materially false and misleading financial statements disseminated to the investing
public. Notwithstanding their duty to refrain from trading in AMCC common stock unless they
disclosed the foregoing material adverse facts, and in violation of their fiduciary duties to FSBA
and other Class members, during the Class Period, these §20A Defendants sold their AMCC
common stock for over $100 million contemporaneously with FSBA's, the other plaintiffs' and
other Class Members' purchases of AMCC common stock, as detailed in Exhibits A and B
attached hereto .
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209. The §20A Defendants sold their shares of AMCC common stock, as alleged
I I above, at market prices artificially inflated by the nondisclosures and misrepresentations o f
I material adverse facts in the public statements released during the Class Period .
210. The §20A Defendants knew that they were in possession of mate ri al adverse
information that was not known to the investing public, including FSBA, the other plaintiffs and
other members of the Class . Before selling their stock to the public, they were obligated t o
disclose the information to FSBA, the other plaintiffs and other members of the Class .
211 . By reason of the foregoing, the §20A Defendants, directly and indirectly, by use
of the means of instrumentalities of interstate commerce, electronic communications mailing ,
and the facilities of a national securities exchange, employed devices, schemes, and artifices to
defraud, and engaged in acts and transactions and a course of business which operated as a fraud
or deceit upon members of the investing public who purchased AMCC common stock
contemporaneously with the sale of such stock by the §20A Defendants .
212. This action was commenced within five years after the sales by the §20 A
Defendants while in possession of material, non-public information .
213 . As a result of the foregoing , FSBA, the other plaintiffs and the other members o f
the Class who purchased AMCC common stock contemporaneously with the sales of AMCC
common stock by the §20A Defendants have suffered substantial damages that are approp riately
measured by the amount of profits gained or losses not incurred by reason of the §20A
Defendants' stock sales .
WHEREFORE, Lead Plaintiff on its own behalf and on behalf of the other plaintiffs an d
the Class prays for judgment against defendants as follows :
A. Declaring this action to be a proper class action under Rule 23 of the Federa l
Rules of Civil Procedure;
B . Awarding compensatory damages in favor of plaintiffs and the other members of
the Class against all defendants, jointly and severally, for the damages sustained by plaintiffs
and the Class as a result of the acts and transactions alleged herein, together with interest
thereon;
82 LEAD PLTFS ISTAM CONS CLASS ACTION CPTLead Case No . : 01-CV-0649-K (AJB)
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C . Awarding plaintiffs the fees and expenses incurred in this action, including
reasonable allowance of fees for plaintiffs' attorneys and experts, and other costs ;
D. Awarding Lead Plaintiff and other members of the Class equitable/injunctive ; or
E. Other and further relief as this Court may deem just and proper under the
I circumstances .
JURY TRIAL DEMAND
Lead Plaintiff demands a jury trial of all issues so triable .
DATED : June 21, 2002 Respectfully submitted ,
BARRACK, RODOS & BACINESTEPHEN R. BASSERMAT EW P . MONTGOMERYBENJAMIN GALDSTO N
STEPHEN R. BASSER
402 West Broadway, Suite 85 0San Diego, CA 92101
BARRACK, RODOS & BACINELEONARD BARRACKGERALD J . RODOSSARA J. BIDEN3300 Two Commerce Square2001 Market StreetPhiladelphia, PA 1910 3
Lead Counsel for Lead Plaintiff Florida StateBoard of Administration and the Class
BERNSTEIN LIEBHARD & LIFSHITZMICHAEL S . EGAN2050 Center Avenue, Suite 200Fort Lee, NJ 07024
BULL & LIFSHITZ, LLPJOSHUA M. LIFSHITZ18 East 41st StreetNew York, NY 1001 7
THE DESMOND LAW FIRMLEO W. DESMOND2161 Palm Beach Lake Blvd ., Suite 204West Palm Beach, FL 3340 9
83 LEAD PLTFS I ST AM CONS CLASS ACTION CPTLead Case No . : 01-CV-0649-K (AJB)
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S
1 DREIER, BARITZ & FEDERMANWILLIAM B . FEDERMAN
2 120 N. Robinson, Suite 272 0Oklahoma City, OK 73102
3GLANCY & BINKOW, LLP
4 LIONEL Z . GLANCY1801 Avenue of the Stars, Suite 31 1
5 Los Angeles , CA 90067
6 LAW OFFICES OF CHARLES J . PIVENCHARLES J . PIVEN
7 World Trade Center Baltimor e401 East Pratt Street , Suite 2525
8 Baltimore , MD 21202
9 RABIN & PECKEL LLPBRIAN P . MURRAY
10 272 Madison Avenue, 34th FloorNew York, NY 10016-110 1
11STULL, STULL & BRODY
12 MICHAEL D. BRAUN10940 Wilshire Blvd., Suite 230 0
13 Los Angeles , CA 90024
14 WECHSLER HARWOOD HALEBIAN& FEFFER, LL P
15 ROBERT I . HARWOOD488 Madison Avenue, 8th Floo r
16 New York, NY 1002 2
17 WEISS & YOURMANKEVIN J. YOURMAN
18 10940 Wilshire Blvd ., 24th FloorLos Angeles , CA 90024
19WOLF HALDENSTEIN ADLER FREEMAN
20 & HERZ, LLPFRANCIS M . GREGOREK
21 BETSY C. MANIFOLDSymphony Towers
22 750 B Street , Suite 2770San Diego , CA 92101
23LAW OFFICES OF ALFRED G . YATES, JR .
24 ALFRED G. YATES, JR .519 Allegheny Building
25 429 Forbes AvenuePittsburgh, PA 1521 9
26Counsel for Plaintiffs
27
28
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0•
Exhibit A
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APPLIED MICRO CIRCUITS CORPORATIONClass Period: November 13, 2000 to February 5, 200 1
Florida State Board of Administratio n
DATE SHARES PRICE/SH
11/14/00 7,200 66.704811/15/00 5,613 71 .000011/15/00 7,500 71 .056311/16/00 17,487 64.228011/20/00 .45Z200 54.022411/22/00 30,800 53 .000011/22/00 19Z200 53 .000011/27/00 10,600 . 56 .388 811/28/00 100,000 49.454911/28/00 4,100 53 .687511/29/00 50,000 48 .250012/01/00 5,500 53 .747712/05/00 3 MO 57 .562512/05/00 2,500 57.562512/12/00 38,400 75 .016312/20/00 8,200 56.1000
12/26/00s 9,300 64.875 012/29/00 24,900 78 .099401/02/01 65,000 73.615401/26/01 6,000 72 .196201/26/01 100 76.062501/29/01 1,700 77 .033 1
EXHIBIT A, a
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Exhibit B
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0 •
CONSOLIDATED PLAINTIFFS
APPLIED MICRO CIRCUITS CORPORATIO N
Class Period : November 13, 2000 to February 5, 2001
NT F NAMEBOUGHT
PLAI IFDATE SHARES PRIC E
Congregation Givath Shoul 12/28/00 300 77 .5630
Fairland Management
i P lP02/02/01 1,000 80.250 0
a nCorporate ens on
01/26/01 100 75.060 0
Greet, Gordon 02/01/01 150 69 .940 0
02102/01 100 66 .130 0
Harris, Calvin 01/19/01 500 86 .6900
12!06100 800 Calls 3 .000 0
01103/01 800 Calls 1 .000 0
01/05/01 800 Calls 1 .000 0
Kregal , Jon 01/16/01 800 Calls 1 .000 0
01/18/01 800 Calls 0 .438 0
01/25/01 800 Calls 8.500 0
01/31101 500 76.000 0
Kucera , Daniel 12/01/00 500 54 .3750
TracyReed ,11/29/00 75 48 .733 3
EXHIBIT B t P1 • I
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Fxhibit C
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0 0
Table of Materially False and Misleading Class Period Statement s
• 11/13/00 Wall Street Transcript interview of Bendush :
"We believe that the explosive demand for bandwidth that's going on right now willcontinue for the foreseeable future ." . . . .AMCC . . . "growing very rapidly " . . . "insa tiabledemand for bandwidth" . . . AMCC . . . "riding all of these favorable mega-trends . "
• 11/17/00 PR Newswire report of interview of Bendush :
AMCC comfortable with its guidance offered in a recent conference call for a 20%sequential growth rate for AMCC's 3Q F'01 . Orders continue to be strong .
• 11/30/00 Credit Suisse First Boston Conference in San Francisco ,presentations by Bendushand Spreng :
The Company has not seen a change in lead times throughout the year and was mostlyramping newer products ; it has not been prone to inventory whipsaws; Company hasnot seen significant order push-outs or cancellations ; reiterated guidance of 20%sequential revenue growth for AMCC's 3Q F'01 (ending December 31, 2000) . TheCompany expected to report fiscal 2001 results of $0.53 EPS; AMCC ramping morestandardproducts and enjoying higher margins .
• 12/11/00 AMCC Press Release , AMCC' s Director of Marketing for telecom products :
"We are seeing unprecedented demand for Hudson across a large customer base duemainly to the device's flexible architecture . . . . "
• 12/18/00 StreetSide Investor's Executive Corner interview of Rickey :
Question regarding Nortel's optical revenue declines : What kind of impact will thesedeclines have on future revenues for AMCC, and is this something that should worryshareholders? Rickey answer: "I don't think that shareholders should be worriedabout this at all . . . . we are growing so much faster than the market as a whole. "
1/16/01 Press Release AMCC reporting 3Q F'01 results, entitled "Applied Micro CircuitsCorporation Reports Third Quarter Fiscal 2001 Financial Results ; Record Revenues of$143.3 Million; Pro Forma Earnings Per Share $0 .16," quoting Rickey :
"Our communication business continues to grow impressively, . . .strength . . . book-to-bill continued very strong. "
• 1116101 Investor' s Business Daily report quoting Rickey :
"[S]o far, the sluggish growth analysts have predicted hasn't appeared . . . our business isbooming . I'm waiting for that slowdown, that they're all saying is going to hammer me ."
. . . "I'm not seeing a slowdown , but I'm not presuming I'm immune," . . . "I'm having ahard time getting all the products I need to satisfy demand, but we're getting throughthose supply constraints ."
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• 1/16/01 extended AMCC quarterly conference call involving Rickey, Bendush, Tullie, Littleand Spreng .
A AMCC forecasting sequential growth in the upper teens, approaching 20% forthe 4Q F'O1 (ending March 31, 2001) .
> For quarters beyond 4Q, AMCC guidance of sequential revenue growth in the10% to 15% range .
➢ AMCC's overall communications book-to-bill was a "very robust" 1 .33 .
➢ AMCC's deal funnel is by far the largest and of the highest quality in terms ofcustomers and strategic platforms that AMCC has ever seen .
➢ "AMCC is enjoying a very robust growth opportunity" in its optical markets andthe Company continues to take market share .
➢ Demand remains strong without any tangible evidence that overall demandrun rate is going to slow down .
➢ "Owing to its unique position" and "having so many growth factors" in its favorand its "relatively small reliance on any single factor" AMCC "very bullish" onits future outlook .
> Referring to Cisco, Spreng assured investors that MMC entered the quarter"believing that there is little or no excess MMC inventory in that supply chain . "
➢ Rickey boasted that AMCC had "powered right through" several challenges in3Q F'01 . "There has been much discussion and concern expressed over the pastquarter regarding inventory levels and customer capital spending and theeconomy in general . . . . our bookings, . . . remain strong . I have no tangibleevidence that our overall demand run rate is going to slow down . . . . I amestimating sequential growth in the upper teens, perhaps approaching 20%this quarter . . . .In summary, I am concerned about all the continuedmacroeconomic signs of slowing which we have yet to see impact AMCC.However, I believe that our expanding product portfolio and the factors thatBrent discussed earlier should allow us to continue to be a growth leader in ourspace .
➢ Defendant Tullie, confirmed that the Company was "scrubbing " its bookingsand turns business and that the Company had gone to its subcontractors toask them , specifically as to AMCC business whether they had more or lessinventory than they had in the past adding : "and pretty much across theboard at our key subcontractors they have not stockpiled inventory, they are atlevels that they traditionally are at with our product line . . . . But as far as ourbusiness, they said there has been no change in terms of the inventoryposition as has been in previous quarters. . . . So we've also gone throughhundreds of line items. One line item by one line item and gone through andchallenged every single entry. . . . This quarter we have been that much moreharsh in our judgment of what has been put in the forecast . . . there isscrubbing of the backlog and of the forecast. . . . So at the end of the day, itlooks like there is probably less downsize than normal because of the rigorthat we have put into the scrubbing of the forecast . "
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➢ "[W]e don't think that there is an across-the-board stockpiling of inventorybecause we've done a reasonably good job of juggling customer needs." . . .AMCC had "scrubbed hundreds of line items over a period of weeks withevery one of the sales guys . "
• 1/16/01 CNBC interview on national TV with Rickey :
Interviewer : [T]he quarter, of course, looks fabulous . I mean you can't argue with tripledigit gains . But your customers, the market you're selling into, is having a rough timeright now. I mean Lucent, Cisco, Nortel and people like that are experiencingsomething of a slowdown . Doesn 't that have to work its way down to your part of thefood chain sooner or later ?
Rickey: [W]e did a good analysis . My marketing guys looked at the factors that aredriving our growth . First of all, we have a great deal of customerdiversification . . . . There are four factors that are diving our growth . Because we havebeen asked how can you be growing so fast when the optical market is slowing down?And, so we . . . answer in the form of four factors . Number one is while the capex areslowing down, the optical core is growing about four times faster in terms of the annualgrowth than capex in general and we serve the optical core . Second of all, we are sellinghigher speed chips. So much like Intel, . . .we do the same thing only we sell chips thatrun many gigabits per second . We are able to charge more money for that . The thirdone is that we are getting more content . So through our acquisitions, we now offer moreand more of the chips that go into any given box at any given speed . And finally, we aretaking market share largely from our customers who used to do these designs . . . . So thegood news for everyone is we have got four factors driving our growth , so any onefactor alone does not have a huge impact on our growth rate positively or negatively.
• 1/17/01 report by analyst - Wong, UBS Warburg, highlighting and repeating keyinformation from the January 16, 2001 AMCC conference call :
Booking momentum is very strong , . , strong bookings and large backlog make for highvisibility going forward . . . AMCC guiding to "high teens" to 20% sequential growth .
• 1/17/01 report by analyst Charles Glavin Credit Suisse First Boston highlighting andrepeating statements by AMCC and the Individual Defendants in the January 16, 2001 pressrelease and conference call :
Management upped the ante on guidance, raising 4QF2001 (March) to expect Q/Qsales growth in the high-teens to 20% . . . . management indicated that AMCC's futuregrowth, in spite of all the recent concerns regarding carrier capex spending and telcomequipment deployments slowdowns, should continue .
1/17/01 report by analyst Drew Peck, SG Cowen Securities , repeating conference callstatements:
Inventory checks in all customer channels and a largely undiminished level of Q/Qbookings convinces the company that it can maintain sequential growth and stablemargins through 2001 .
• 1/17/01 Interactive Investor article :
In a Tuesday afternoon conference call, Applied Micro CEO Dave Rickey told analyststo expect fourth quarter growth in the high teens, and maybe near 20 percent, from th e
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$150 million in third quarter revenue generated by the combined Applied Micro andrecently-acquired MMC Networks . . . "Our demand has remained strong, Rickey toldanalysts . I have no tangible evidence that our overall demand run rate is going toslow down except the obvious macroeconomic concerns and my own ever presentparanoia. "
• 1117101 analyst Cody G. Acree, Frost Securities, Inc. research note :
AMCC reported extremely positive results with a solid indication as to the continuinghealth of the overall optical networking market . AMCC not only exceeded ourearnings forecast, but also gave highly encouraging comments concerning its backlog,bookings, inventories and end optical demand . During the conference call, AMCCstated that its efforts resulted in a determination that there has been no appreciableincrease in OEM, module manufacturer, or distributor inventory and that the currentbacklog represents orders that have a high probability of completion . . . . The companytook significant strides to allay the concerns of a substantial slowdown in demand or abuildup of inventories within the optical market.
• 1118101 San Diego Union-Tribune article quoting Rickey :
"I understand there's a lot of concern about the economy . . . . But we have multiplegrowth factors playing in our favor, so we think we'll power right through this ."
• 1/26/01 JAG Notes .com report of rumored order cancellations by Juniper Networks . Whenconfronted with that news, an AMCC spokesman stated that the company is not seeing anyabnormal order cancellations .
• 2/2/01 report by analyst T. Peter Andrew of A.G. Edwards regarding AMCC roadshowduring week of January 29, 2001 :
We were able to spend a few days on the road with management of AMCC this week . . .the Company spent a lot of time dispelling the rumor of the day as well as explainingwhy AMCC continues to forge ahead without feeling the negative impacts that arehitting many others suppliers to the networking market . . . . First, AMCC spent a lot oftime putting out rumors from various sources (that are likely shorting the shares)regarding everything from AMCC customers cancelling or pushing back orders, AMCCcutting back on orders from their wafer fabrication partners and finally AMCC's partscausing problems in others systems . The bottom line - these rumors are not true .The one caveat is that in every quarter there are order cancellations , push outs and/orpush ups but we believe that AMCC has not seen any material change in orderpatterns that would affect their prior guidance . . . . The most often asked questions hadto do with how AMCC has been able to avoid the recent inventory adjustment bycontract manufacturers, distributors and OEM's along with why the issues at PMC Sierrawill not also hit AMCC . . . . management team is continually scrubbing their orderbacklog and checking with their customers, contract manufacturers and distributors totry and keep as close an eye as possible on where things stand from week to week and sofar they have not been able to find anything that would change their guidance goingforward . We reiterate the fact that they have not seen any material changes is not from alack of looking for them . . . . AMCC continues to perform on track and is very wellpositioned to avoid many of the common issues that are impacting many others in thenetworking space .
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CERTIFICATE OF SERVIC E
In re APPLIED MICRO CIRCUITS CORP . SECURITIES LITIGATIONLead Case No . : 01-CV-0649-K (AJB )
I, the undersigned, declare as follows :
That I am employed in the County of San Diego, State of California ; I am over the age
of eighteen years, and not a party to or interest in the within action ; my business address is 402
West Broadway, Suite 850, San Diego, California 92101, and that on June 21, 2002, 1 served
the within:
LEAD PLAINTIFF'S FIRST AMENDED CONSOLIDATED CLASS
ACTION COMPLAINT
by depositing a true copy thereof in a United States mailbox at San Diego, California in a sealed
envelope with postage thereon fully prepaid and addressed to the parties listed on the attached
Service List .
That there is a regular communication by mail between the place of mailing and the
place so addressed .
I declare under penalty of perjury that the foregoing is true and correct . Executed this
21st day of June, 2002, at San Diego, California .
LEAD PLTFS 1ST AM CONS CLASS ACTION CPT
Lead Case No . : 01-CV-0649-K (AJB)
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• iService Lis t
AMCC - COUNSEL FOR PLAINTIFFS
Page : 1
Matthew P . Montgomery, Esquire
Barrack, Rodos & Bacine
402 West Broadway, Suite 850
San Diego, CA 92101Telephone : (619)230-0800Fax: (619)230-1874
Sara J . Biden, Esquire
Barrack, Rodos & Bacine
3300 Two Commerce Square2001 Market Street
Philadelphia , PA 19103Telephone: (215)963-0600Fax: (215)963-0838
Leonard Barrack, Esquire
Barrack, Rodos & Bacin e
3300 Two Commerce Square2001 Market Street
Philadelphia, PA 19103
Telephone : (215)963-0600Fax: (215)963-0838
Gerald J. Rodos, Esquire
Barrack, Rodos & Bacin e
3300 Two Commerce Square2001 Market Street
Philadelphia, PA 19103Telephone : (215)963-0600Fax: (215)963-083 8
Benjamin Galdston, Esquire
Barrack, Rodos & Bacin e
402 West Broadway, Suite 850
San Diego, CA 92101Telephone : (619)230-0800Fax: (619)230-1874
Stephen R. Basser, Esquire
Barrack, Rodos & Bacin e
402 West Broadway, Suite 850
San Diego, CA 92101Telephone : (619)230-0800Fax: (619)230-1874
* Michael S . Egan, Esquire
Bernstein Liebhard & Lifshit z
2050 Center Ave ., Ste 200
Fort Lee, NJ 07024
Telephone : (201)592-3201Fax : (201)592-6450
* Joshua M. Lifshitz, Esquire
Bull & Lifshitz, LLP
18 East 41st Street
New York, NY 10017Telephone : (212)213-6222Fax : (212)213-9405
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Service Lis tAMCC - COUNSEL FOR PLAINTIFFS
Page :
Steven Eugene Cauley, Esquire Lionel Z . Glancy, Esquire
Cauley, Geller, Bowman & Coates, LLP Glancy & Binkow, LL P
P.O . Box 25438 1801 Avenue of the Stars, Suite 31 1
Little Rock, AR 72221-5438
Telephone : (501)312-8500Fax : (501)312-8505
Leo W . Desmond , Esquire
Desmond Law Firm, The
2161 Palm Beach Lake Blvd., Suite 204
West Palm Beach, FL 33409
Telephone : (561)712-8000Fax: (561)712-8002
* William B . Federman, Esquire
Dreier, Baritz & Federman
120 N. Robinson, Suite 2720
Oklahoma City, OK 73102
Telephone : (405)235-1560Fax: (405)239-211 2
Jeffrey R. Krinsk, Esquire
Finkelstein & Krinsk, LL P
501 West Broadway, Suite 1250
San Diego, CA 92101Telephone : (619)238-1333Fax : (619)238-5425
Los Angeles, CA 90067Telephone : (310)201-9150Fax : (310)201-9160
Marc S. Hemel, Esquire
Henzel, Law Offices of Marc S .
273 Montgomery Avenue, Suite 202
Bala Cynwyd, PA 19004-2808Telephone : (610)660-8000Fax: (610)660-8080
Helen J . Hodges, Esquire
2
Milberg Weiss Bershad Hynes & Lerach LLP
401 B Street , Suite 1700
San Diego , CA 92101-3356Telephone: (619)231-1058Fax: (619)231-7423
Charles J . Piven, Esquire
Piven, P .A., Law Offices of Charles J .
World Trade Center Baltimor e401 East Pratt Street, Suite 2525
Baltimore, MD 21202Telephone : (410)332-0030Fax: (410)685-1300
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Service Lis tAMCC - COUNSEL FOR PLAINTIFFS
Page : 3
* Brian P . Murray, Esquire
Rabin & Peckel LLP
* Francis M. Gregorek, Esquire
Wolf Haldenstein Adler Freeman & Herz, LLP
275 Madison Avenue, 34th Floor
New York, NY 10016-1101
Telephone : (212)682-1818Fax : (212)682-1892
* Michael D. Braun, Esquire
Stull, Stull & Brody
10940 Wilshire Blvd., Suite 2300
Los Angeles, CA 90024
Telephone : (310)209-2468Fax : (310)209-2087
Robert I . Harwood, Esquire
Wechsler Harwood Halebian & Feffer, LLP
488 Madison Avenue, 8th Floor
New York, NY 10022
Telephone : (212)935-7400Fax: (212)753-3630
* Kevin J. Yourman, Esquire
Weiss & Yourman
10940 Wilshire Blvd., 24th Floor
Los Angeles, CA 90024
Telephone : (310)208-2800Fax: (310)209-2348
Symphony Towers750 B Street, Suite 2770
San Diego, CA 92101Telephone : (619)239-4599Fax: (619)234-4599
Betsy C. Manifold, Esquire
Wolf Haldenstein Adler Freeman & Herz, LLP
Symphony Towers750 B Street, Suite 2770
San Diego, CA 92101
Telephone : (619)239-4599Fax: (619)234-4599
Alfred G. Yates, Jr., Esquire
Yates, Law Offices of Alfred G ., Jr .
519 Allegheny Building429 Forbes Avenue
Pittsburgh, PA 15219Telephone : (412)391-5164Fax: (412)471-103 3
* DENOTES SERVICE VIA FEDERAL EXPRESS
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0 0
Service ListAMCC - COUNSEL FOR DEFENDANTS
Page : 1
* William E . Grauer, Esquire
Cooley Godward LLP
4401 Eastgate Mal l
San Diego, CA 92121-1909Telephone : (858)550-6000Fax: (858)550-6420
Ursula R. Kubal, Esquire
Cooley Godward LLP
4401 Eastgate Mall
San Diego , CA 92121-1909Telephone: (858)550-6000Fax: (858)550-6420
Meghan O . Spieker, Esquire
Cooley Godward LLP
4401 Eastgate Mall
San Diego , CA 92121-1909Telephone : (858)550-6000Fax: (858)550-6420
Mary Kathryn Kelley, Esquire
Cooley Godward LL P
4401 Eastgate Mal l
San Diego, CA 92121-1909
Telephone : (858)550-6000Fax : (858)550-6420
* -DENOTES SERVICE VIA FEDERAL EXPRESS