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Why PMC-Sierra Dropped Friday

By Brian D. Pacampara, CFA - Jul 24, 2015 at 12:25PM

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Is this meaningful? Or just another movement?

What: Shares of semiconductor and software technologist PMC-Sierra (NASDAQ: PMCS) sank as much as 13.8% today after its quarterly results disappointed Wall Street.

So what: The stock has slumped sharply in recent months on signs of sluggish demand, and today's Q2 results -- a net loss of $8.6 million on a revenue decline of 1.6% -- only reinforce that disconcerting trend. In fact, gross margins during the quarter slipped about 70 basis points from the year-ago period, suggesting that PMC's competitive landscape, particularly in its carrier and storage end markets, is far more intense than Mr. Market had expected.

Now what: Management said it would be cutting roughly 200 jobs in an attempt reduce spending across the company by about 14%. "2015 has started weaker than expected in the carrier and storage end markets," said PMC President and CEO Greg Lang. "Given the tepid growth environment, we are taking immediate action to reduce spending and accelerate our return to target model profitability." When you couple today's double-digit price plunge with management's reorganization efforts -- expected to result in annual savings of $40 million -- and still-attractive growth prospects in markets like storage and mobile, it might be a good time to bet on that turnaround.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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