PMCS ( $17-$15) Eps -$1.75 Cap=$2.75Bil Posts Narrower-Than Expected 3Q Loss
By Stuart Weinberg
Of DOW JONES NEWSWIRES
(This report was originally published late Thursday.)
TORONTO (Dow Jones)--PMC-Sierra Inc. (PMCS) reported a slightly
narrower-than-expected third-quarter pro forma loss and suggested that its
customers' overstocked inventories are returning to more normal levels.
However, the communications chip maker also provided fourth-quarter revenue
guidance below the Thomson Financial/First Call mean estimate.
PMC-Sierra Chief Financial Officer John Sullivan said on a conference call
Thursday that new orders and lead times in the third quarter "weren't
strong." As a result, he said, the company sees fourth-quarter revenue of
$45 million to $55 million. The Thompson Financial mean fourth-quarter
estimate is for revenue of $64.74 million.
Sullivan didn't provide an earnings estimate for the fourth quarter. He did
say that gross margins are expected to be slightly lower than the 60.4%
recorded in the third quarter.
While the economic climate remains harsh, Sullivan said there are signs that
customer inventories - which had become extremely bloated this year due to
an abrupt drop in end market demand triggered by the slowdown - are coming
down.
Sullivan said that one contract manufacturer holding $5.7 million worth of
excess PMC inventory indicated that original equipment manufacturers have
ordered $6.9 million worth of PMC parts in the fourth quarter.
In addition, the end market customer with the largest amount of PMC-Sierra
parts is expected to start ordering some parts that had been overstocked,
Sullivan said. However, the customer still has significant inventory of
other parts, he added.
For the third quarter, which ended Sept. 30, PMC-Sierra reported a pro forma
loss of $26.8 million or 16 cents a share compared to $13.4 million or 8
cents a year earlier. The Thomson Financial mean estimate had been for a
loss of 18 cents a share.
Pro forma net excludes $1.6 million in deferred stock and $6 million of
goodwill. Including these items, PMC-Sierra lost $34.5 million in the
quarter, or 20 cents a share, compared to $34.6 million or 21 cents a year
earlier.
Revenue in the quarter fell to $61.6 million from $198.2 million a year
earlier. The company had forecast revenue in the range of $62 million to $65
million.
PMC-Sierra Inc. (PMCS) said bookings in the third quarter were slow and its
customers' research and development spending fell sharply. In addition,
prospects for original equipment manufacturer start-ups continued to decline
during the quarter.
As a result, PMC-Sierra plans to cut expenses and focus its efforts on major
customers. The company plans to cut its work force by about 350. At the end
of the third quarter, the Santa Clara, Calif. company's headcount stood at
1,475.
The restructuring goal is designed to lower expenses to make breaking even
achievable sometime in 2002 and to bring the company back to "model
profitability" in 2003, said PMC-Sierra chairman, president and chief
executive Robert Bailey during the call.
Bailey said the market continues to be dominated by customer inventory
concerns. Customers are attempting to operate on 30 days of backlog, "which
is extremely difficult to pull off," Bailey said, particularly, given that
there are reports of spot shortages of some components emerging.
Bailey said customers are projecting the introduction of systems that will
contain newer PMC-Sierra products in the fourth quarter. "These facts give
me cause for optimism that PMC will soon experience revenue growth," he
said.
As the inventory glut eases, Bailey said he expects revenue from the
company's top three customers, Cisco Systems Inc. (CSCO), Lucent
Technologies Inc. (LU) and Nortel Networks Corp. (NT) to increase.
The three companies represented 50% of PMC-Sierra's revenue in 2000, he
said, but through the first nine months of this year represent 39%.
PMC-Sierra's revenue has dropped 73% in about the same time.
"Meanwhile, we have multiple chips designed into the majority of the
mainstream systems generating much of those revenues for those customers,
which leads me to believe we're in an unsustainable revenue undershoot
period due to the inventory burn," Bailey said.
Despite the large reduction in its customers research and development
spending, PMC-Sierra's 610 design wins in the third quarter were only
slightly below the 620 win recorded in the second quarter, Bailey said,
adding that he feels better about the prospects of the company than at any
time during the past year.
-Stuart Weinberg, Dow Jones Newswires; 416-306-2026;
stuart.weinberg@dowjones.com
(END) DOW JONES NEWS 10-19-01
08:16 AM
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