Why PMC-Sierra Shares Crashed

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 chip maker PMC-Sierra (Nasdaq: PMCS  ) were down as much as 15% today after the company reported second-quarter results after hours yesterday.

So what: While revenue topped estimates and the company's adjusted $0.09 EPS actually beat analyst expectations by a penny, its third-quarter guidance had investors running for the hills. CEO Greg Lange predicted revenue for the coming quarter of $130 million to $138 million, below this quarter's $137.8 million and well under the Street's view of $148.9 million.

Now what: Coming into earnings season, several tech companies had signaled weaker-than-expected earnings, so PMC-Sierra's revised guidance shouldn't come as a huge surprise. Management cited a "challenging macro environment" as a source of headwinds in its release. I'd keep an eye on Cisco's (Nasdaq: CSCO  ) upcoming earnings release and outlook since it's one of PMC-Sierra's biggest customers and a heavyweight in the industry. Considering the overall weakness in the tech sector, analyst estimates of a 12% drop in revenue this year, and the downgrades starting to come in, I'd wait for positive signs from Cisco or another tech titan before jumping in with PMC-Sierra. Things could get worse before they get better.

Want to stay connected with PMC-Sierra? Add it to My Watchlist here.

Fool contributor Jeremy Bowman holds no positions in the companies in this article. The Motley Fool owns shares of Cisco Systems. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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