SiliconBeat

Things are not shaping up for a Happy New Year at California Micro Devices, the Milipitas chip maker whose second largest shareholder sent it a letter New Years Eve calling for the company to pay out more than half the cash in its coffers to its shareholders in a special dividend and to “immediately engage an investment bank and begin a sale process” of itself.

In his letter to Cal Micro’s board Wednesday, Dialectic Capital Management’s John Fichthorn wrote of how the investor’s “frustration with management’s inability to perform culminated” on Dec. 10 when Cal Micro announced “dramatically lower financial performance” for its fiscal 2009 second quarter ended Dec. 31, saying it now expected sales of between $9.5 to $11 million, down from its previous guidance of between $12 and $15 million.

Dialectic’s “disappointment was highlighted” by Cal Micro’s forecast for “negative operating cash flow of between $3.4 million and $3.8 million.

Cal Micro is certainly not alone among chip makers who have been dramatically lowering their forecasts over the last two months in the face of a sharp economic downturn. As a matter of fact, we can’t think of a chip maker that hasn’t.

While Fichtorn says that while he won’t dispute that the current macro-economic environment is difficult, he goes on to remind the board that “we have repeatedly expressed our concerns about” Cal Micro’s operating expenses. “Blaming the global economy for a slowdown is convenient,” he writes, “but it does not explain the losses reported over the last two years.” Cal Micro’s share price fell to their lowest prices since the early 90’s, losing 60 percent last year to close at $1.86.

“While shareholders have suffered, insiders have been well rewarded,” begins a paragraph that ends with this admonition: “Based on the company’s results, issuing options this year at these prices would be wrong.”