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Applied Micro falls on cautious forecast, downgrade

Applied Micro Circuits (Nasdaq: AMCC) took a hit on Tuesday, a day after the company reiterated its outlook for the next two quarters, but said that it was "on alert" for further order cancellations.

Goldman Sachs cut the stock to "market outperformer" from the brokerage's "recommended list." Shares of the communications chipmaker were off more than 12 percent, or $7.88, to $56.50 in early trading. The company makes high-bandwidth integrated circuits used to control the flow of voice and data transmissions across fiber-optic networks.

After market close Monday, the San Diego, Calif.-based company reaffirmed its outlook for its March and June quarters, noting that its bookings remained "robust" in its fiscal fourth quarter, which ends March 31. However, the company added that that it had seen "some push-outs and cancellations in the past week".

"If these cancellations are merely a blip and not a trend at AMCC, we expect to meet or beat expectations," said CEO Dave Rickey in the release. "However, given concerns that abound in our end markets, we are on alert."

Analysts raised warnings flags on the Applied Micro's short-term outlook, but remained positive longer term.

Goldman Sachs analyst Nathaniel Cohen said that while Applied Micro remained a core holding within the sector, changes in business momentum would likely cause some near-term pressure on the stock.

One key concern for Cohen was the slowdown in booking in the company's newer product lines, which had been growing at a rapid clip. The analyst also said that the shares were still at a lofty valuation compared to competitors TransSwitch (Nasdaq: TXCC) and Vitesse (Nasdaq: VTSS) and that it was increasingly unlikely that Applied Micro's earnings multiples could sustain such pricing, given current uncertainties.

At Merrill Lynch, the company was reiterated "market perform" by analyst Mark J. Lipacis. The analyst said that the order pushouts and cancellations were at more than one or two customers, but that it was neither broad-based, nor across the board.

In a research note, Lipacis said that he expected the news to have an effect across the communications chip sector, as Applied Micro is the second marquee company to admit to changes in order patterns, on the heels of PMC-Sierra's recent warning. That company's stock was down $3.19 to $66.56 in the session.

Analyst Charlie Glavin at Credit Suisse First Boston adopted a "wait and see" approach, while maintaining a "strong buy" on Applied Micro's stock.

"We would not be aggressive buyers on any semiconductor name until the Cisco release tonight and, if possible, wait on the sidelines until the current wave of sell-side conferences are completed to let the dust settle," Glavin wrote in his research note.