PMC-Sierra Beats, Guides Cautiously - Analyst Blog
July 31 2012 - 9:15AM
Zacks
PMC-Sierra Inc.
(PMCS) has adjusted second quarter 2012 earnings of 10 cents per
share, beating the Zacks Consensus Estimate of 5 cents on improved
revenue, lower-than-expected expenses, favorable foreign currency
movements and a lower share count.
The adjusted earnings per share exclude one-time items, but include
stock-based compensation expense.
Revenue
PMC-Sierra reported revenue of $137.8 million in the second
quarter, up 4.3% sequentially but down 19.4% from the year-ago
period. The result was on the lower end of management’s expected
range of $136 million to 144.0 million. However, revenue was
slightly above the Zacks Consensus Estimate of $137.0 million,
driven by strength in the Optical end market segment.
Revenue by Market Segment
Starting from the second quarter of 2011, PMC-Sierra reports its
revenue in three market segments — Storage, Optical and Mobile
networks.
The Storage segment generated 62% of second
quarter revenue, down from 66% in the first quarter. Its products
include controllers based on Fiber Channel, Serial Attached SCSI,
and Serial ATA that enable the development of external and
server-attached storage systems.
The segment declined 2% sequentially due to a slower-than-expected
ramp of Romley. Management stated that design wins and various new
products released in the quarter should help the company to
continue its market share dominance.
The Optical market segment generated 23% of sales,
up from 20% in the prior quarter. The segment’s revenue increased
22% sequentially driven by one-time projects in China, Russia,
Africa and an OTN build.
The Mobile market segment accounted for 15% of
sales, up from 14% in the prior quarter. The segment revenue was up
9.0% sequentially, driven by improved base station shipments in
Japan and Europe and improved mobile backhaul router shipments in
China and North America.
Operating Results
Reported gross margin for the quarter was 70.0%, up 80 basis points
(bps) from 69.2% in the comparable year-ago quarter driven by a
favorable product mix.
PMC-Sierra reported operating expenses of $97.6 million, which were
0.8% higher than the year-ago quarter of $96.8 million. Research
and development and selling, general and administrative costs, were
both up as a percentage of sales from the year-ago quarters. The
net result was an operating margin of (0.8%), compared to 12.6% in
the year-ago quarter.
Net Income
On a fully diluted GAAP basis, PMC-Sierra recorded a net income of
$26.5 million (12 cents per share) compared to $16.7 million (7
cents per share) in the year-ago quarter.
PMC-Sierra generated adjusted net profit of $23.2 million compared
to $32.2 million in the comparable quarter last year. The fully
diluted pro forma earnings per share came in at 10 cents, compared
to 14 cents in the year-ago quarter.
Balance Sheet & Cash Flow
PMC-Sierra exited the second quarter with cash, cash equivalents
and short-term investments of approximately $169.5 million, down
from $291.1 million in the prior quarter. Trade receivables were
$65.6 million, up from $62.8 million in the prior quarter.
Cash flow from operations was over $8.1 million, down from $11.9
million in the previous quarter.
During the quarter, PMC-Sierra announced that it has entered into
an accelerated stock buyback agreement to repurchase an aggregate
of $160 million of its common stock. The company will acquire these
common shares as part of its $275 million stock repurchase program
announced on March 13, 2012.
Guidance
For the third quarter of 2012, PMC-Sierra expects total revenue in
the range of $130–$138 million, flat-to-down 6% sequentially.
Management expects the Storage segment to improve in the third
quarter, while Optical and Mobile segments to remain flat
sequentially.
Non GAAP gross margins are expected in the range of 70–71% and
operating expenses at $75 million.
Our Take
PMC-Sierra delivered a decent second quarter, with both revenue and
earnings beating the Zacks Consensus Estimates. We are encouraged
by the strong growth in the Optical segment, introduction of
several major products, new design wins during the quarter, and
hence expect fast recovery in the coming quarters.
However, the company announced a conservative third quarter
guidance due to continued uncertainty in end market demand.
Over the long term, PMC-Sierra is well positioned for growth and is
gaining share in its key served markets of server/storage, wireless
infrastructure and optical communications. Through 2012, we expect
cloud and data center build-outs, and storage demand to increase
substantially, each of which will act as a solid catalyst for the
company.
The company faces stiff competition, particularly from
Marvell Technology Group Ltd. (MRVL) and
Broadcom Corp. (BRCM).
Currently, PMC-Sierra has a Zacks #3 Rank, implying a short-term
Hold recommendation.
BROADCOM CORP-A (BRCM): Free Stock Analysis Report
MARVELL TECH GP (MRVL): Free Stock Analysis Report
PMC-SIERRA INC (PMCS): Free Stock Analysis Report
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