Why Spreadtrum Shares Sank

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 electronics chip maker Spreadtrum Communications (Nasdaq: SPRD  ) plunged 12% today after its quarterly results and guidance missed Wall Street expectations.

So what: Spreadtrum shares have surged over past several months on strong smartphone shipments, but today's third-quarter profit miss -- EPS of $0.44 versus the consensus of $0.46 -- coupled with light fourth-quarter revenue guidance is triggering concerns over peaking demand. The company's operating margins even fell to 13.4% from 21.4% in the year-ago period, suggesting that competition in the space is also heating up.

Now what: Management now sees fourth-quarter revenue of $189 million to $196 million, versus Wall Street's view of $194.7 million. "In Q4, we anticipate continuing increases in R&D spendings as we bring new products to market and expand our portfolio to new technologies," CFO Shannon Gao said in a statement. "In the short term, we expect that our operating margin will remain stable." Of course, with the stock still up about 50% from its 52-week lows, I'd wait for even more of a pullback before buying into that bullishness.

Interested in more info on Spreadtrum? Add it to your watchlist.


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