. . . Altera's main complaint about Mr. LaFountain's analysis relates to how he views the company's share buybacks, he said. Altera uses such buybacks, as many companies do, to offset the share increases that result when stock options are issued to compensate executives and lower-level employees. In Mr. LaFountain's opinion, those repurchases are not in the shareholders' interests and are the equivalent of using stockholder money to buy shares at high prices and issue them to executives and employees at much lower prices.

For example, from 1999 to 2004, Altera issued 29.5 million shares through option grants at an average price of $6.94 a share. During the same period, Altera bought back 54 million shares at an average price of $23.97 each.

"When Altera has made over the last five years $2.44 a share and its tangible book value goes up only 61 cents, that means 75 percent of the earnings have disappeared," Mr. LaFountain said. By contrast, over the last five years, Xilinx, an Altera competitor, earned $2.88 a share and recorded a $3.91 jump in book value.

At Altera, Mr. LaFountain said, "while money was coming into the tank from the income statement, it was being siphoned off by share repurchases to cover options grants by and large." Altera has said in comments to analysts that the stock repurchases are its preferred method for returning cash to shareholders. . . .

The resulting press and blog commentary on this issue resulted in a "we goofed" statement issued yesterday afternoon by Altera’s chief financial officer, Nathan Sarkisian, which read in part:

In March, I informed Mr. A.A. (Tad) LaFountain, III, semiconductor securities analyst at Wells Fargo Securities, that I, our CEO, and our investor relations staff would no longer continue dialogue with him. I took this action because, in my view, we were having unproductive conversations on a topic for which we had irreconcilable differences. Consequently, on July 26, Mr. LaFountain chose to drop Altera coverage. Regrettably, as a result of our action and the ensuing press coverage, some have concluded that our intention was to manipulate opinion. In retrospect, our decision to disengage was in error, and I apologize to Mr. LaFountain, our investors, and the investment community.

We have never discontinued relations or challenged an analyst because of a rating. The core of our differences with Mr. LaFountain is our share repurchase program which he asserts has destroyed shareholder value. We implemented our share repurchase program in 1996, and at that time our market capitalization was $1.2 billion. The program has since returned $1.5 billion in cash to shareholders - more than their starting investment, and today the company is valued at $8.1 billion. We remain firmly committed to our share repurchase program . . .

Congratulations to Altera for at least having the good sense to realize how utterly asinine they appeared, and for correcting the problem.

Addressing the criticism directly, as Altera did in their release and will hopefully continue to do, is a much more appropriate way to deal with this issue than shooting the messenger.

In my book, when a company attempts to embarrass an analyst or singles them out in a disparaging way, that company becomes automatically guilty as charged. My experience, generally, has been that the naysayer is either right on or very close to being correct in their criticism. The truth is so painful that the company just can’t stand to hear it.

Think about it for just a second: when you have a debate with someone who engages you, what happens? Sometimes that exchange results in one mind or the other being swayed; other times both parties modify their position. Even when neither side moves an inch, both sides understand the other’s position and the depth of conviction behind that viewpoint much more clearly.

On the other hand, have you ever had an interchange with someone that simply refuses to communicate?

It reminds me of a recent incident with my four year old son. The other day, when arguing with his older sister, he got frustrated with what she was telling him. My daughter, a confident second grader, was using perfect logic to explain, and she was right, based on what I could see.

Frustrated, he finally just stuck his fingers in his ears and started screaming. It was a four year olds’ way of saying: "I don’t know the answer, so I’m done with you."

When Altera’s Sarkisian cut off LaFountain, he was screaming with his fingers in his ears, just like my four year old son.

This incident should serve as a lesson for publicly traded companies. Deal with the criticism directly. The critics may have a point. Even if they don’t, you’ll earn a lot more respect from the investment community because you were willing to address the issue directly.