The following is part of an article from IndividualInvestor:
At Cisco, the year-over-year inventory increases have accelerated significantly over the past five quarters. In the second (June) quarter of 1998, inventory increased 42% from the prior year, but has steadily increased to 80% in this year's second quarter. Lucent has gone from flat inventory growth to 74% in the June quarter. Over that same time frame, inventory days have increased by about 20% at Cisco and by more than 35% at Lucent.
This trend would be most troublesome for PMC-Sierra, which derived over 12% of revenue from both Lucent and Cisco in the second quarter. Although, cash flow decelerated somewhat in the second quarter (indicating possible lengthening sales cycles), management was extremely bullish on the conference call giving guidance for improved sequential revenue growth. Inventory days also dropped during the second quarter for PMC.
Although this does not indicate that there are potential difficulties ahead, management's guidance and inventory days do not necessarily correlate with inventory problems at its two most significant quarters. The feedback we receive indicates that PMC is on track to have another strong quarter. The high multiple on the stock, however, leaves little room for disappointment and helps explain today's sharp pullback. PMC fell $10.38, or 10.4%, to $89.50.
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individualinvestor.com
Regards,
Mason |
