PMC-Sierra to fall short of estimates

The communications chipmaker warns it will miss revenue and earnings expectations for the first quarter because of weak demand and canceled orders.

Margaret Kane Former Staff writer, CNET News
Margaret is a former news editor for CNET News, based in the Boston bureau.
Margaret Kane
3 min read
Communications chip company PMC-Sierra warned Monday that it will miss revenue and earnings expectations for the first quarter because of weak demand and canceled orders.

The Campbell, Calif.-based company also plans to lay off 230 employees, about 13 percent of its total work force of 1,740. It will also shutter several design centers and properties, resulting in an unspecified one-time charge for the first quarter.

PMC-Sierra makes high-end semiconductors for telecommunications and optical networking. Top customers include Cisco Systems and Nortel Networks.

Some of PMC-Sierra's customers have been suffering as well. Cisco recently missed estimates and laid off workers, citing the economic slowdown.

PMC-Sierra now expects to see revenues between $118 million and $120 million for the March quarter, with pro forma earnings of 2 cents to 3 cents per share, excluding charges.

A survey of analysts by First Call predicted earnings of 12 cents per share, on revenues of $159.71 million. It earned 17 cents per share on sales of $103 million in the year-ago quarter. The company will formally announce results on April 19.

The reductions and restructuring will cut expenses $80 million to $82 million per quarter starting in the second quarter. CEO Bob Bailey said the company would also eliminate some product lines, although he did not specify which ones.

Faced with a steep drop in demand from its customers, the company chose to cut back on the inventory it was shipping, rather than stuff the channel and prop up revenues, Bailey said in a conference call.

"We could have shoved products down people's throat, but we decided to take the hit now," he said. "Inventory is a problem throughout the supply chain. At this revenue level we are flushing inventory out of the system."

In some cases, the company was able to eliminate pricing discounts to customers who weren't able to meet the volume requirements, he noted.

PMC-Sierra isn't alone--Conexant Systems warned Monday that second-quarter revenues would be down as much as 40 percent, and said it would let go 1,500 people, about 20 percent of its work force. Conexant, citing the same demand shortfall affecting the communications sector, said it would likely post a pro forma loss between 35 cents and 40 cents per share, with revenues of around $246 million.

Analysts were not surprised by PMC-Sierra's warning. Goldman Sachs analyst Nathaniel Cohn lowered estimates for the company Monday morning, as part of an overall reduction to the communication integrated circuit sector.

Cohn dropped 2001 revenue expectations from $717.1 million to $612 million, and cut earnings estimates for the year from 70 cents to 43 cents per share.

"This implies a year-over-year revenue decline of 12 percent and a year-over-year earnings decline of 58 percent. For the June quarter we are now expecting a 10 percent sequential decline with a modest 2 percent sequential growth in September," Cohn wrote in a research note. "Although we continue to believe in the longer-term fundamentals, business conditions remain soft and the visibility continues, in our opinion, to remain limited."

And last week, Robertson Stephens analyst Arun Veerappan dropped his rating from "buy" to "long-term attractive," citing weak demand.