Semiconductor supplier gets whacked by ERP installation

Von Marc L.

A troubled ERP installation at a jointly owned foreign subsidiary has left semiconductor automation products maker Asyst Technologies Inc. facing potential delisting from the stock market, while forcing it to restate earnings and spend up to US$2 million for damage control.

The ERP-related issues came to light last month when Fremont, Calif.-based Asyst announced less-than-stellar second-quarter results. Without offering specifics, company spokesman John Swenson said the poor quarterly figures were largely the result of a bungled ERP data conversion at Japan-based Asyst Shinko Inc.

Asyst owns 51 percent of ASI; Shinko Electric Co., also based in Japan, owns 49 percent. At ASI, the flawed upgrade affected the company"s accounting processes and prevented it from closing its books to meet quarterly reporting deadlines. "It led basically to the inability to close the books for September," he said.

As a result, Asyst had to revise up its first-quarter net loss by US$1.4 million. And because it was late in filing a required 10-Q form for the second quarter with the U.S. Securities and Exchange Commission, Asyst had to appear before the Nasdaq Listing Qualifications Panel on Dec. 15. Although no action has yet been taken by Nasdaq, "the matter remains open," according to a company statement.

Asyst has its own ERP system, which has performed without trouble, but ASI functions as an independent company and has to report its own finances, Swenson said. In the past, ASI relied on a third party to provide IT services; then it installed an ERP system from a vendor Swenson declined to name.

That implementation, which was apparently still under way as the company"s second quarter ended last Sept. 25, led to the reporting delays. Part of ASI"s problem had to do with the complex nature of its work on behalf of semiconductor customers. Its contract projects can involve many individual work orders, said Swenson, and after the ERP data conversion, the worth of some of these orders was reset to zero in the new financial application. "The conversion process was not managed well," he said.

In the earnings call on Dec. 21, Asyst Chief Financial Officer Robert Nikl attributed the specific causes to errors in table mapping and inaccurate posting from the company"s subledgers.

So severe were the problems that Asyst had to send a team to Japan that included its own finance personnel, as well as troubleshooters from the ERP vendor. Working "shoulder to shoulder" for seven weeks with the ASI staff, the turnaround team "had to retrace and rebuild the financial records for the quarter," said Swenson.

During the turnaround process, Asyst also found that due to "material accounting errors" at ASI, its own first-quarter numbers were untrustworthy, requiring a restatement. For instance, ASI had understated the cost of the products it had sold, leading to a revision of its net loss to $2.3 million, up from $900,000. Nikl said this change stemmed from how the company reported costs -- such as freight expenses -- that were not related to a specific project. He also said the ERP system would help address the underlying issues that caused these errors.

The full costs of resolving the ERP and financial reporting issues, including legal fees, could be as high as $2 million, the company said.

"We believe the ERP issues have been addressed, and we"ll be able to do our financial reports in a timely manner," Swenson said. The second-quarter 10-Q form has been filed, and the company believes it"s now in compliance with Nasdaq"s listing requirements.

Analyst Joshua Greenbaum at Berkeley, Calif.-based Enterprise Applications Consulting suggested that the fact this was a Japanese implementation might have contributed to the problem. Japan"s companies have been orders of magnitude slower than their American or European counterparts in adopting ERP systems.