PMC-Sierra Inc. ( PMCS ) reported
adjusted first quarter 2013 earnings of 3 cents per share, missing
the Zacks Consensus Estimate of 5 cents. The adjusted earnings per
share exclude one-time items but include stock-based compensation
PMC-Sierra reported revenues of $125.2 million in the first
quarter, down 3.2% sequentially and 5.2% from the year-ago period.
Reported revenues were toward the lower end of management's
expected range of $123.0 million to $132.0 million due to economic
softness and weakness in carrier spending, partially offset by
strength in the Optical market segment.
The company's book-to-bill ratio was greater than 1 for the
second consecutive quarter, indicating improving demand.
Revenues by Market Segment
Since the second quarter of 2011, PMC-Sierra has been reporting
its revenues under three market segments - Storage, Optical and
The Storage segment generated 68% of first
quarter revenues, down from 70% in the fourth 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 decreased 6% sequentially due to lackluster demand
in the traditional IT space. The company expects the Adaptec RAID
adapters or Series 7 product line introduced in the last quarter to
see strong interest from large data center customers. Management
stated that design wins and these new products should help the
company to continue its market share dominance.
The Optical segment generated 20% of sales, up
from 14% in the prior quarter. Segment revenues were up 32%
sequentially, driven by double-digit growth in Optical Transport
Network (OTN) revenues and Passive Optical Network (PON) revenues
returning to normal levels. PON is used by carriers worldwide to
facilitate higher speed service to residences and enterprises. The
OTN strength primarily came from China as it leads the world in OTN
The Mobilesegment accounted
for 13% of sales, down from 16% in the prior-year quarter. Segment
revenues were down 22% sequentially due to weak carrier spending by
two of its largest carriers in North America.
Reported gross margin for the quarter was 70.2%, up 120 basis
points (bps) from 69.0% in the comparable year-ago quarter driven
by a favorable product mix.
PMC-Sierra reported operating expenses of $83.0 million, down
5.8% from $88.0 million incurred in the year-ago quarter. As a
percentage of sales, research and development expenses decreased
from the year-ago quarter whereas selling, general and
administrative costs increased. The net result was a GAAP operating
margin of (3.4%) compared with (7.2%) in the year-ago quarter.
On a fully diluted GAAP basis, PMC-Sierra recorded a net loss of
$6.8 million or a loss of 3 cents per share compared with a loss of
$67.4 million or 29 cents per share in the year-ago quarter.
On a non-GAAP basis, PMC-Sierra generated adjusted net profit of
$6.0 million compared with $7.4 million in the year-ago quarter.
Pro forma earnings per share came in at 3 cents, flat year over
Balance Sheet & Cash Flow
PMC-Sierra exited the first quarter with cash, cash equivalents
and short-term investments of approximately $106.9 million versus
$181.4 million in the prior quarter. Trade receivables were $57.3
million, down from $62.1 million in the prior quarter.
Cash flow from operations was $14.4 million versus $11.9 million
in the year-ago quarter. Capex was $4.6 million versus $9.1 million
in the year-ago quarter.
For the second quarter of 2013, PMC-Sierra expects total revenue
in the range of $126.5-$134.0 million, up 1% to 7% sequentially.
Management expects the storage segment to be up sequentially,
driven by large data center customers.
PMC-Sierra, Inc. engages in design, development, marketing and
support of semiconductor solutions by integrating mixed-signal,
software and systems expertise through its network in North
America, Europe and Asia. The company's first quarter earnings
missed the Zacks Consensus Estimate by 2 cents on weak
The storage and mobile segments performed poorly in the last
quarter but we are encouraged by the improvement in the optical
segment, introduction of several major products, and new design
wins during the quarter. Hence, we expect fast recovery in the
coming quarters. The company also provided modest second quarter
guidance, indicating some signs of stabilization.
However, lack of visibility and macro uncertainty may keep the
share price range bound in the near term.
Over the long term, PMC-Sierra is well positioned for growth and
is gaining share in its key served markets namely server/storage,
wireless infrastructure and optical communications. We expect LTE
build out in China, cloud and data center build outs, and storage
demand to increase substantially, each of which will act as a solid
catalyst for the company through 2013.
Currently, PMC-Sierra has a Zacks Rank #3 (Hold). Investors can
also consider some other stocks with positive Zacks Rankand
Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method ).
Applied Materials, Inc. ( AMAT ), Earnings ESP
of +7.69% and Zacks Rank #1 (Strong Buy)
Fiserv Inc. (FISV) , with an ESP of +3.03% and a Zacks Rank #2
Amazon.com. (AMZN) , with an ESP of +60.0% and a Zacks Rank #3
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