Opinion ID: 740651
Heading Depth: 3
Heading Rank: 2

Heading: Undisclosed Adverse Facts

Text: 21 Appellants also point to volumes of documents in an effort to demonstrate that while Appellees made these optimistic predictions about Cypress's future it knew that storm clouds were gathering over Cypress. (Pl.Br. at 21). Appellants contend that Cypress's failure to disclose these adverse facts rendered its optimistic projections materially misleading. However, a corporation need not detail every corporate event, current or prospective, which has or might have some effect upon the accuracy of an earnings forecast. Marx v. Computer Sciences Corp., 507 F.2d 485, 491 (9th Cir.1974). Rather, a corporation must only disclose those adverse facts which tend[ ] to seriously undermine the accuracy of the statement. Apple Computer Sec. Litig., 886 F.2d at 1113. 22 In the instant action, Appellees have identified three factors which caused the fourth quarter revenue and earnings shortfalls and one factor which caused the first quarter earnings shortfall which Appellants allege caused their injuries. Appellees claim that problems in the test area, marketing's failure to obtain forecasted orders and product line slips caused Cypress's fourth quarter shortfalls, while price erosion in the market for a Cypress product called SRAM caused Cypress's first quarter shortfalls. (ER 280:268; SR 280: Rodgers Decl. pp 53-59; 65; SR 287/1: 524614-620). Appellants have put forth no contradictory evidence suggesting other causes contributed to the shortfalls. As such, we accept these causes as the reasons why Cypress failed to meet its internal projections. None of the allegedly omitted adverse facts relates to these causes. Therefore, none of these adverse facts tended to seriously undermine the accuracy of Cypress's projections. 23 For example, Appellants allege that Appellees failed to disclose that Cypress's relationship with one of its largest customers, Sun Microsystems, was deteriorating. They point to several documents suggesting such. However, the record indisputably establishes that Cypress either met or exceeded its forecasted sales to Sun during the class period. (SR 286/6: 165748; 287/4: 165923). Therefore, even if Cypress's relationship with Sun was deteriorating during the class period, this deterioration did not affect revenues or profits from sales to Sun and did not contribute to Cypress's financial shortfalls in the quarters in issue. Appellants also maintain that this deteriorating relationship caused Cypress to lose its market for a chip it was developing during the class period, the Pinnacle. However, Cypress did not project any revenues from Pinnacle during the class period. (SR 280: Ross Decl. p 26; 350: Rodgers Dep. at 408). As such, even if the deteriorating relationship had caused Cypress to lose a market for Pinnacle, that loss could not have contributed to Cypress's shortfalls during the class period. Accordingly, any undisclosed adverse facts about Cypress's relationship with Sun could not have seriously undermined the accuracy of Cypress's internal forecasts for the class period. Therefore, although Appellants' evidence may create a genuine issue about Cypress's relationship with Sun, that dispute is not material and does not preclude summary judgment. 24 Appellants also point to documents allegedly detailing delivery, manufacturing and production problems. However, the record demonstrates that these alleged problems did not contribute to Cypress's shortfalls. For example, Appellants point to several documents which they claim establish that Cypress had poor yields on products and that Cypress was unable to improve yields quickly enough to compensate for falling prices. (Pl.Br. at 15). However, Cypress's Director of Manufacturing Mark Allen testified that while poor yields would affect manufacturing costs, actual yields were within one percent of the forecasted yields in the fourth quarter. (SR 350: Allen Dep. at 260). Thus, any problem with Cypress's yields did not cause manufacturing costs to exceed the forecasted costs and, accordingly, did not contribute to revenue or profit shortfalls. Appellants offer no evidence to contradict this testimony. 25 Likewise, Appellants contend that several documents suggest that Cypress was aware of test problems which contributed to the fourth quarter shortfalls. (Pl.Br. at 15-16). While Cypress identified twelve separate test problems which contributed to its fourth quarter miss, (SR 287: 524663-64; SR 280: Allen Decl. pp 40-41; SR 280: Rodgers Decl. p 55), Allen and Rodgers testified that Cypress did not expect these problems. (SR 280: Allen Decl. p 41; SR 280: Rodgers Decl. p 54). Appellants' documents do not contradict this testimony. Appellants point to a November 25, 1991 memorandum from Allen to Rodgers alerting Rodgers that the number of units awaiting test is increasing from 600,000 units to 1 million because of a bottleneck at burn-in on 64 and 256K's, (ER 318:278), and a draft of an October 29, 1991 memorandum from Steve Alexander to Heber Clement, then test manager, alerting him that inventory of 7C310s, 7C322As and 7C322Bs available for test had increased at various stages of the test process over the past weeks. (ER 318:272-73). However, neither of these problems was one of the twelve problems Cypress identified, and the record establishes neither contributed to the shortfall. For example, Allen testified that Cypress fixed these problems and that they did not affect fourth and first quarter performance. (SR 350: Allen Dep. at 483). The documents themselves also indicate that Cypress corrected these problems shortly after the authors drafted the memoranda. (See, e.g., ER 318:278 (stating that Allen had diverted all the sockets from Cypress's subcontractor to the test division to alleviate the bottleneck); see also SR 350: Allen Dep. at 482-83). 26 Appellants also claim that Cypress failed to disclose its poor record for delivering customer orders on time and that this poor record undermined the accuracy of Cypress's forecasts because it hurt Cypress's relationships with its customers and caused Cypress to lose significant revenue. (Pl.Br. at 16-17). The record establishes that during the quarters at issue, Cypress reported that it delivered products to customers on time more than 90 percent of the time, (SR 285/8:97615), that Cypress's customers reported that they received deliveries on time between 75 and 78 percent of the time, (ER 318:334), and that Cypress's delivery performance was improving. (ER 318:332). However, Appellants cite to several memoranda detailing lines down situations at Cypress's customers as proof that Cypress's poor on-time delivery performance caused Cypress to lose significant revenues. Unfortunately for Appellants, none of these memoranda actually show that Cypress lost revenues during the quarters at issue as a result of these alleged delivery problems. For example, Appellants rely on a March 9, 1992 memorandum detailing past delivery problems with a European military customer and stating that if Cypress does not deliver a pending order a $1 million opportunity may be lost. (ER 318:161-62). However, it does not state that Cypress lost the opportunity or the pending sale, and Rodgers's handwritten note at the bottom of the memorandum requests that a Cypress vice president remedy the situation. (Id.) That Cypress vice president responded to Rodgers's request stating th he did remedy the problem. (SR 318:90). Likewise, an August 18, 1991 memorandum to Rodgers states that Cypress is at risk of losing its number one vendor status with another customer because of poor delivery performance between January 1, 1991 and June 30, 1991. (ER 318:286-87). However, it does not discuss delivery problems during the quarters at issue, nor does it state that Cypress did lose its number one vendor status or any revenues from sales to this customer at anytime--let alone during the quarters at issue. The other documents upon which Appellants rely suffer from similar failings. (See, e.g., ER 318:316-18; ER 318:301; ER 318:346-52; ER 318:50). Accordingly, any alleged delivery problems did not contribute to the fourth and first quarter shortfalls. Therefore, these problems would not tend to undermine the accuracy of Cypress's forecasts. 27 Finally, Appellants contend that Cypress's use of pull-ins undermined the accuracy of their forecasts and that, therefore, Cypress's failure to disclose its reliance on this practice was materially misleading. Appellants contend that pulling in orders in one quarter undermined the integrity of the forecast for the next quarter because Cypress based its forecasts on backlog. (Pl.Br. at 18). However, Appellants put forth no evidence to establish that quarter forecasts incorporated orders which had been pulled into the preceding quarter, and Ross Technologies President Roger Ross testified that Cypress always took pull-ins into account in preparing a forecast. (SR 350: Ross Dep. at 85). Moreover, Appellants put forth no evidence that using pull-ins was inherently fraudulent or deceptive, and the record demonstrates that pulling in orders is a common practice in the semiconductor industry. (SR 350: Lamond Dep. at 43, 44). 28 Appellants also contend that pull-ins undermined the accuracy of Cypress's forecasts because they made future sales more dependent on new customers. (Pl.Br. at 18). However, Appellants put forth no evidence that Cypress failed to make the required sales to new customers, and the record reflects that even though Cypress pulled in orders in the fourth quarter, Cypress started the first quarter with a higher percentage of its forecasted orders booked than it had in three years. (SR 280: Rodgers Decl. p 83(c)). Thus, despite its use of pull-ins in the preceding quarter, Cypress actually required less new sales to meet its first quarter forecast than it had in the past. Therefore, even drawing all reasonable inferences in favor of the Appellants, as we must on summary judgment, the record demonstrates no issue as to whether Appellees failed to disclose any adverse facts which would have undermined the accuracy of their optimistic statements. While the record may reflect some evidentiary disputes about whether certain problems existed at Cypress, the record reflects no dispute over whether these problems contributed to the complained-about shortfalls. Thus, summary judgment is appropriate.