What happened

Shares of Inphi Corp. (NYSE:IPHI) dropped on Wednesday following a mixed first-quarter report and a subsequent analyst downgrade. The company's revenue declined sharply and came in just short of analyst expectations. The stock was down about 9.5% at 2:45 p.m. EDT.

So what

Inphi reported first-quarter revenue of $60.1 million, down 35.7% year over year and about $1.1 million below the average analyst estimate. The company blamed lower demand for linear transimpedance amplifier and linear driver products for the decline in revenue. Non-GAAP earnings per share came in at a loss of $0.05, down from a profit of $0.44 in the prior-year period and in line with analyst expectations.

A slumping chart with downward arrow and stock prices.

Image source: Getty Images.

Inphi President and CEO Ford Tamer believes that the worst may be over for the company, reiterating what he said in the fourth-quarter report in February: "We believe Q1 represented the bottom of a down cycle driven by inventory buildups in China long-haul and metro markets."

At least one analyst cooled a bit on the stock following the first-quarter report. Needham knocked Inphi stock down to "buy" from a previous rating of "strong buy." Its new price target of $35 per share is just 11% above the closing price on Tuesday.

Now what

Inphi expects to produce between $67.3 million and $71.3 million of revenue during the second quarter, along with non-GAAP earnings per share (EPS) between $0.12 and $0.14. While those ranges represent sequential improvements, both are down considerably from the second quarter of last year. At the midpoint, second-quarter revenue will decline by 17.9% year over year, while non-GAAP EPS will tumble 62.9%.

While Inphi's second quarter will be stronger than its first quarter, a return to year-over-year growth may still be a few quarters away.