Thanks Don,
Sooo...I guess some of the Anals are singing my tune also??
"Wit SoundView analyst Scott Randall disagrees. "On the margin, PMC has greater exposure at the edge, while AMC has greater exposure in the core [of the networks]," he wrote in a report on Monday. "Ultimately, the growth rates for these areas need to track each other." Meaning Applied Micro, as resilient as it has been, could be headed for a similar bloodbath.
"Is PMC seeing something before everyone else sees it? That's the question," says Kaufman Brothers analyst Alvin Kressler. "Clearly, the company had a breakdown that wasn't quite as virulent for anyone else."
But Randall thinks PMC-Sierra's problem is still essentially one of macroeconomics. Nearly every other segment of the networking sector has felt pangs, too. John Chambers, the chief executive officer of PMC-Sierra's biggest customer, Cisco, has twice this month made comments warning that the first half wouldn't be as strong for the sector as analysts had forecast and that the company was "absolutely" being affected by the slowdown in
telecom-infrastructure spending. Rival Nortel Networks Corp. {NT, News, Boards
52-Week Stock-Performance of PMC-Sierra Inc.
} has already laid off about 200 people from its research staff to cope with the easing in demand. Troubled networking company Lucent Technologies Inc. {LU, News, Boards}, meanwhile, has launched a full-scale restructuring that will involve about 12,000 layoffs and $1 billion in savings.
It is no coincidence that both Chambers and PMC-Sierra CEO Bob Bailey have cautioned investors about their lack of "visibility" about when spending will pick up. Neither has seen this kind of softening before, and neither has a crystal ball. Cisco alone accounts for about 30% of PMC-Sierra's revenue, with Nortel Networks and Lucent Technologies claiming about another 30%, a risky concentration but not out of the ordinary in the industry. All three networking giants reportedly have a heavy backlog of PMC-Sierra chips, but they are also reporting over-inventory across the board. Analysts have cited PMC-Sierra rival Broadcom, for instance, as a company likely to see a slowdown in orders from Cisco, in particular.
"Last quarter, two-thirds of Broadcom's growth came from one customer, 3Com {COMS, News, Boards}. But it didn't see growth from Cisco, its biggest customer, and there's a reason for that," Billy says. Cisco's inventory of raw materials, according to Billy, soared to $631 million in October from $145 million in July, which should serve as a warning sign for the rest of the industry. "When you strip out acquisitions, Cisco is predicting a double-digit decline in revenue this quarter from the last. That tells me something," he adds.
Does it tell him to sell his Applied Micro shares while he still has the chance? Billy won't go that far.
Randall, meanwhile, thinks it is a good time to buy PMC-Sierra shares, which he upgraded to "strong buy" from "buy" on Monday, with a 12-month price target of 140. But even by Randall's relatively optimistic forecasts, the shares still trade at about 40 times expected 2002 earnings -- 74 times his reduced forecasts for this year of $1 a share.
PMC-Sierra isn't cheap, yet. Other communications chip makers may just have further to fall. |
