Delay in Revenue Recognition Causes Drop in Stock

http://www.reuters.com/article/idUSTRE62322R20100304?type=globalMarketsNews

Summary
This article is about Ciena, a telecommunications network equipment maker, whose stock dropped 7% on Thursday, March 4th, because delayed revenue recognition caused the posting of a "wider-than-expected loss". The article quotes the company saying that it is expected because of some technical problems in revenue recognition that made expectations to not be met. The company expects that the stock will go back up soon. Although the company has not make an estimate in the upcoming quarter, they believe that it will be higher because the revenue in the previous quarter will now carry over. The article then talks about the company's decision to buy a unit of Nortel Networks Corps and wraps it up displaying the numbers of the drop in the stock price.

Connection
This article relates to chapter 4 in that it talks about how the delayed recognition of revenue can affect a company. A small delay that made the first quarter less successful quickly made the stock price drop 7%. This shows the important of revenue recognition as many shareholders and potential shareholders are looking at your quarterly results. The delay that caused the lower-than-expected results made the shareholders to react quickly. Even though the revenue will carry on to the next quarter, the average shareholder will miss that fact without sufficient research. This simply shows the important of proper revenue recognition.

Reflection
I think that even though the stock price was affected, there will be no lasting effect by this delay. Because it will simply carry on to the second quarter and make its revenue slightly more bloated than what it is, which makes up for the loss in quarter 1. Then, they will probably see a rise back in their stock. They probably don't even have to wait that long because a mere 7% drop in the stock price can be quickly adjusted and possibly even change by the very next day. However, bigger and further errors in the future in revenue recognition may shake off the faith of some of its shareholders and may be questioned for its reliability.