PMC-Sierra Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of networking-chip designer PMC-Sierra (Nasdaq: PMCS  ) fell more than 13% on tremendously heavy volume in intraday trading action.

So what: PMC's fourth quarter beat analyst expectations any way you look at it, but the coming quarter looks weak with falling sales where the Street wanted a continued rise. Management motivated the cautious guidance with "current levels of demand" and order patterns.

Now what: Management says that the storage-chip segment should recover quickly as large new customers NetApp (Nasdaq: NTAP  ) and IBM (NYSE: IBM  ) get up to speed with their PMC orders. That leaves networking to explain the dour outlook, which most likely translates into weak orders from Cisco Systems (Nasdaq: CSCO  ) and Alcatel-Lucent (NYSE: ALU  ) , who make up the majority of that division's revenue. Look for earnings reports out of those companies to either confirm or counteract PMC's predictions.

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