Despite the fact that Cisco Systems Inc. (CSCO) actually reported revenues in line with street expectations last week, the network giant guided fiscal first quarter 2014 below the consensus of $12.45 billion. Management was cautious in guidance even after a the book-to-bill ratio was over 1. Given Cisco’s tempered outlook, more cautious tone and heightened expectations throughout the supply chain (with valuations to match), the technology analysts at Oppenheimer look for semiconductor and component suppliers aligned with Cisco to trade lower. Here are the names that investors need to keep a close eye on.
Cavium Inc. (CAVM) generates 18% of their revenue from their association with Cisco. While the company had solid earnings and beat analysts estimates, the coming quarters could prove more difficult. The Thomson/First Call price target is $39.50.
Applied Micro Circuits Corp. (AMCC) also has a high single digit exposure to Cisco Systems. Applied Micro’s product portfolio and continued efforts to provide maximum consumer satisfaction have augmented its market position. The integrated offload engines and advanced PacketPro architecture offer quality service and security and performance to its customers. The consensus price target for the stock stands at $13.
Broadcom Corp. (BRCM) has single digit exposure to Cisco, and may be able to temper lower orders with an upswing in orders for chips for smartphones. The company's once-strong mobile/wireless business grew 7%. Ordinarily this would have been considered a solid performance. In this case it fell short of Street expectations by almost 10%. The consensus price target for the stock is $35, and investors are paid a 1.7% dividend.
Freescale Semiconductor Ltd. (FSL) also has a less than 10% exposure in sales to Cisco. With a large percentage of sales, totaling close to 30% to the growing automotive sector, Freescale may be able to dodge lower orders for its digital networking chips. The consensus price target for the stock is $19.
LSI Corp. (LSI) supplies Cisco with application specific integrated circuits (ASIC) for a variety of high-end gear, and also indirectly sells into its Scientific Atlanta division by supplying chips for disk drives that end up in DVRs. The consensus price objective for the stock is $9. Investors are paid a 1.7% dividend.
Marvell Technology Group Ltd. (MRVL) sells Cisco switch and system controllers and also sells indirectly through other vendors to Scientific Atlanta, the set top box maker. The consensus price target is put at $12. Investors are paid a 1.8% dividend.
Mindspeed Technologies Inc. (MSPD) provides voice over internet protocol (VOIP) infrastructure and some telecom chips, which account for about 10% of sales. This could disrupt earnings at a micro cap tech company. The consensus price target for the stock is $3.75.
STMicroelectronics NV (STM) supplies most set-top box chips for Scientific Atlanta, and also sells chips for disk drives that end up in DVRs; but still has less than a 10% exposure. The consensus target for the stock is $11. Investors do receive an outstanding 4.0% dividend from the company.
Texas Instruments Inc. (TXN) also supplies VOIP chips to Cisco, but their sales to the company amount to a very small percentage which is not expected to hurt overall performance. The consensus price target for the venerable tech company is $38. Shareholders are paid a 2.9% dividend.
Xilinx Inc. (XLNX) was recently raised to an overweight rating at Morgan Stanley (MS) and should be able to contain any earnings degradation as a result from lowered orders from Cisco. The consensus price target for the stock stands at $47, and investors are paid a 2.2% dividend.
Cisco was relatively more cautious than in recent quarters and indicated increasingly mixed trends with strength in U.S. enterprise and headwinds in service providers in Europe and China. Through the mixed commentary, a focus on scalable data centers and an ongoing shift to intelligent networking, cloud infrastructure and mobility remain medium and long-term positives for the company. The sell-off in Cisco and any of its vendors may provide investors with very attractive entry points for future gains.
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