We recently reiterated our ‘Neutral’ rating on Applied Micro Circuits Corporation(AMCC: 10.74 0.00 0.00%) in view of the company’s continued performance.Smartphone growth continues to be strong, having recorded a 30% growth in 2009 and creating an upsurge in subscription to data plans for carriers. Although capital spending on new equipment has been flat, the carriers have consistently focused on upgrading their existing infrastructure to ensure that they can continue to grow their subscriber base and increase top line.
The carrier transition has driven demand in three major equipment segments – core optical switches, core routers, and metro edge aggregation routers.
Applied Micro’s leadership position in the broader communications markets, driven by its leading Transport products, should position the company to benefit from the acceleration in the adoption of IP or Ethernet traffic in carrier networks. The company is also diversifying into the storage and embedded markets.
The top line has shown steady improvement in the last four quarters after hitting a trough in the fall of 2008 due to the economic crisis.
In January 2010, Applied Micro took further steps to reduce costs and align its global operations to achieve greater efficiencies. The company moved some of its functions offshore, which will allow it to be much closer to its third party subcontract manufacturers. This in turn should reduce costs and eliminate the delays inherent in working in different time zones. As a result, the company eliminated or relocated 63 positions.
Going forward, Applied Micro expects revenues to grow 4%–4.5% sequentially in the first quarter of fiscal 2011. However, supply chain lead times have lengthened and the company is now stocked with backlog that it will not be able to ship in the customer’s requested time frame. The company also expects customers to have tight inventory levels.
Gross margin is forecasted at 62.5%, plus or minus 0.5 basis points. This is down from 63.5% recorded in the previous quarter due to product and customer mix, and lower IT revenues. Excluding restructuring items and stock-based compensation expense, Applied Micro projects net income per share at 9 cents per share.| Analysts' Targets | |
| Oppenheimer & Co. Inc. | $13 |
| Outperform | |
| Wednesday, April 28, 2010 | |
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