The opinion of the court was delivered by: KELLY
This is a securities fraud class action brought on behalf of all persons who purchased the common stock of Tseng Labs, Inc. ("TLI") during the period of October 29, 1992 through May 21, 1993 (the "Class Period"). In their Consolidated Amended Complaint, Plaintiffs allege that TLI and certain of its officers and directors artificially inflated the price of TLI's stock by making false and misleading statements during the Class Period in violation of Section 10(b) of the Securities and Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78(j), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Presently before the Court is Defendants' Motion for Summary Judgment. For the reasons that follow, Defendants' motion will be granted.
Defendant TLI is a designer and supplier of semiconductor chips used to enhance the graphic quality of computer monitors. In late 1989, TLI introduced the ET4000 Super VGA chip (the "ET4000") which was marketed as an inexpensive, high-performance video chip. Sales of the ET4000 represented approximately 87 percent and 98 percent of TLI's revenues in 1991 and 1992 respectively. On September 21, 1992, TLI announced a new chip, the ET4000/W32 graphics accelerator ("W32"), which was designed to improve the performance of the computer operating system known as "Windows."
On October 29, 1992 (the first day of the Class Period) TLI issued a press release stating that it had achieved record earnings for the third quarter of 1992. TLI attributed these earnings to the continued dominance of its ET4000 chip and spoke about new orders ("design wins") for the ET4000 with two major computer manufacturers. TLI also announced that meaningful sales of the W32 were expected for the first quarter of 1993. On February 1, 1993, another press release was issued announcing that TLI had commenced "volume shipments" of the W32. Defendant Jack Tseng, President of TLI, stated in the release that TLI looked forward to "significant shipments" of the W32 beginning in the first quarter of 1993. Defendant John J. Gibbons ("Gibbons"), Vice-Chairman of TLI, also made statements regarding TLI's expectations for the W32. In an interview with Reuters news service on March 9, 1993, Gibbons was quoted as saying he "expected [TLI] to ship 1.2 million to 1.7 million of the new [W32] chips in the second quarter of 1993."
On May 19, 1993, representatives from IBM informed Gibbons that IBM was experiencing problems in their manufacturing facilities which would require a reduction in its need for the W32 until IBM's problems were resolved. Defendants then undertook a review to determine whether the delay by IBM would have a significant impact on TLI's second quarter earnings. Defendants also reviewed the status of W32 orders with other customers. Defendants concluded that there would be fewer orders and sales for the W32 in the second quarter than had previously been expected. Consequently, after the close of the stock market on May 21, 1993 TLI announced that its second quarter earnings would be "moderately below" the $ .22 per share it had reported in the first quarter. This press release went on to say that the reduction in expected earnings was a result of delays being experienced by certain major computer developers and board manufacturers whose new systems used the W32. It was further noted that revenues from sales of the W32 in the second quarter of 1993 would not be sufficient to offset the anticipated decline in revenues from the older ET4000.
On the first trading day after the May 21, 1993 announcement, TLI's stock opened at $ 12.875 per share which was $ 1.875 per share lower than the closing price of the previous trading day.
On the same day, the first class action against TLI was filed.
Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper "if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party has the initial burden of informing the court of the basis for its motion and identifying those portions of the record that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). The non-moving party cannot rest on the pleadings, but rather that party must go beyond the pleadings and present "specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). If the court, in viewing all reasonable inferences in favor of the non-moving party, determines that there is no genuine issue of material fact, then summary judgment is proper. Celotex, 477 U.S. at 322; Wisniewski v. Johns-Manville Corp., 812 F.2d 81, 83 (3d Cir. 1987).
In order to establish a claim under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder,
a plaintiff must prove that the defendant (1) made misstatements or omissions of material fact; (2) with scienter; (3) in connection with the purchase or sale of securities; (4) upon which plaintiffs relied;
and (5) that the plaintiff's reliance was the proximate cause of their injury. Kline v. First W. Gov't Sec., Inc., 24 F.3d 480, 487 (3d Cir. 1994), citing In re Phillips Petroleum Sec. Litig., 881 F.2d 1236, 1244 (3d Cir. 1989).
A. Defendants' Statements Concerning The ET4000
The first statement Plaintiffs cite is contained in a press release dated February 10, 1993 in which TLI announced its financial results for 1992. In this release, TLI reported that the ET4000 had gained further market share and that the company was "particularly pleased that although the ET4000 is a relatively mature product in the marketplace, unit shipments of this product in the fourth quarter more than doubled the prior year's fourth quarter." (Ex. 47 of Pls.' Mem.). The release also stated that the "backlog for the ET4000 remains strong going into 1993 as well." Id. Along these same lines, TLI's Form 10-K, which was filed with the Securities and Exchange Commission on March ...