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PMC-Sierra shares down on weak 3Q outlook

NEW YORK (AP) -- Shares of PMC-Sierra Inc., which makes chips for communications equipment, fell Tuesday after it provided a third-quarter forecast below market expectations.

THE SPARK: Late Monday, the Sunnyvale, Calif., company reported second-quarter earnings slightly above expectations, but said demand looked set to return to first-quarter levels in the current quarter.

PMC-Sierra said it expects earnings of 9 cents per share, excluding items, in the third quarter. That was below the average of analysts polled by FactSet, who were expecting 13 cents per share.

The company expects revenue of $130 million to $138 million, below its previous forecast and that of analysts, who were on average expecting $149 million.

THE ANALYSIS: Analyst Kevin Cassidy at Stifel Nicolaus cut his forecast as far out as the end of next year, but said management is controlling costs well in the downturn, and said the company is positioned well when demand for chips for storage and communications applications return.

Jefferies analysts cut their rating on the stock to "Hold" from "Buy," and trimmed their price target to $6.50 from $8. They cited the company's announcement that its chief financial officer will leave in November, as well as weak revenue growth, for the downgrade.

Wunderlich Securities analysts William Harrison and Blake Harper also downgraded the stock, to "Hold," from "Buy," and cut their price target to $6.50 from $8. They said they expect recently introduced products to help drive revenue growth in 2013 and 2014, but said near-term challenges and the CFO's departure made them cautious for now.

SHARE ACTION: PMC-Sierra shares fell 64 cents, or 10.7 percent, to $5.34 in afternoon trading. The shares are close to their 52-week low of $4.91, hit in December.