PMC-Sierra (PMCS) Beats Q1 Earnings, Revenues Gain Y/Y - Analyst Blog
PMC-Sierra Inc. PMCS reported adjusted first-quarter 2015 earnings of 8 cents per share that beat the Zacks Consensus Estimate by a penny. The adjusted earnings exclude one-time items but include stock-based compensation expense.
Revenues
PMC-Sierra reported revenues of $133.1 million, down 2.8% sequentially but up 5.2% year over year. Reported were within management’s guidance of $129–$137 million. The year-over-year increase was driven by strong adoption of 12-gig SAS products and growth in flash and Optical Transport Network (OTN) revenues.
Revenues by Market Segment
The Storage segment generated 73% of first-quarter revenues, up from 72% in the fourth quarter. Its products include controllers based on Fiber Channel, Serial Attached SCSI and Serial ATA used for developing external and server-attached storage systems.
The segment increased 11% year over year to $96.5 million. The increase was driven by strong demand for 12-gig SAS as well as across large data centers.
Going forward, the company expects the Flash controllers, Adaptec 12-gig SAS/RAID adapters to continue to witness strong interest from large data center customers. Management remains confident that the industry’s continued shift toward 12-gig SAS will increase the company’s market share by at least 10% over the next 18 to 24 months.
The Carrier segment generated 17% of sales, down from 18% in the prior quarter. Segment revenues increased year over year to $36.6 million. Mobile revenues were $14 million, while OTN revenues were $22.6 million. OTN revenues were down sequentially but up 7% year over year.
With the ramp up of the new DIGI-based platforms and some new bids in the North American and European markets, the company expects to increase its market share in the OTN business.
The Mobile segment accounted for 10% of sales, same as in the prior quarter. The segment revenues remained flat sequentially but declined year over year due to a decrease in mobile backhaul products.
Operating Results
Reported gross margin was 70%, down 30 basis points (bps) sequentially as well as year over year. The decrease was due to lower revenues and an unfavorable product mix.
PMC-Sierra reported operating expenses of $78.9 million, down 0.7% from $79.5 million incurred in the year-ago quarter. As a percentage of sales, research & development as well as selling, general & administrative expenses decreased from the year-ago quarter. The net result was a GAAP operating margin of 3.6% versus (2.3%) in the year-ago quarter.
Net Income
Pmc-Sierra Inc. - Earnings Surprise | FindTheCompany
On a GAAP basis, PMC-Sierra recorded a net income of $4.7 million or earnings of 2 cents per share compared with a net loss of $4.2 million or a loss of 2 cents per share in the year-ago quarter.
On a non-GAAP basis, the company generated adjusted net profit of $13.6 million compared with $16.5 million in the last quarter. Pro-forma earnings per share came in at 8 cents versus 9 cents in the last quarter.
Balance Sheet & Cash Flow
PMC-Sierra exited the quarter with cash, cash equivalents and short-term investments of approximately $110.1 million versus $158.5 million in the prior quarter. Trade receivables were $62.2 million, up from $55.4 million in the last quarter.
Cash flow from operations was $8.0 million versus $29.1 million in the previous quarter. Capex was $4.4 million versus $4.5 million in the earlier quarter.
In the reported quarter, the company authorized a new share repurchase program worth up to $75 million of its common stock bringing the total to $102 million.
Guidance
For the second quarter of 2015, PMC-Sierra expects total revenue in the range of $128–$138 million (+/-4%), up 5% from the year-ago quarter.
On a non-GAAP basis, the company expects gross margins in the range of 70–71%; operating expenses in the $70.0–$72.0 million range; tax provision within $1.2–$1.6 million and earnings per share of 11 cents, assuming a share count of 202 million. The Zacks Consensus Estimate for earnings is pegged at 9 cents.
Our Take
PMC-Sierra is engaged in design, development, marketing and support of semiconductor solutions by integrating mixed-signal, software and systems expertise in North America, Europe and Asia. The company reported a decent quarter with the top line exceeding our expectations.
Though mobile revenues remained weak, we are encouraged by the improvement in the storage segment, introduction of several major products and design wins, transition from 6-gig SAS to 12-gig SAS connectivity and the densification of hyperscale data centers.
Over the long term, PMC-Sierra is well positioned to grow and gain market share in server/storage, wireless infrastructure and optical communications. We expect the LTE build-out in China, cloud and data center build-outs and storage demand to increase substantially and act as solid catalysts through 2015.
Currently, PMC-Sierra has a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include Broadcom Corp. BRCM, Nitto Denko Corp. NDEKY and DSP Group Inc. DSPG. While Broadcom sports a Zacks Rank #1 (Strong Buy), DSP and Nitto have a Zacks Rank #2 (Buy).
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