Tuesday, April 27, 2010

Cavium Networks (CAVM) - Another Good Quarter, with Raises Guidance; Still Pricey

I seem to be writing the same commentary in almost all these earning report reviews.  A company which beat lowly analyst estimates, raised guidance, but still an expensive valuation.  All I do is change the name of the company and stock symbol.  Today we have Cavium Networks (CAVM) which I have been keeping an eye on for the past 6 months or so.  [Dec 18, 2010: Cavium Networks Raises Guidance, Breaks Out of 4 Month Range] [Jan 29, 2010: Cavium Networks Continues to Show Strong Growth]

Cavium Networks is a leading provider of highly integrated semiconductor products that enable intelligent processing in networking, communications, storage, wireless and video applications. Cavium Networks offers a broad portfolio of integrated, software compatible processors ranging in performance from 10 Mbps to 40 Gbps that enable secure, intelligent functionality in enterprise, data-center, broadband/consumer and access & service provider equipment. 

Estimates for full year 2010 have increased from 44 cents to 58 cents over the past 90 days.  With today's guide up for next quarter that number should be in the low to mid 60s now. But considering the stock is now near $30, it is still a 50x-ish type of forward multiple.  (record broken alert)

A look at the impressive growth of late (full report here):
  • Chipmaker Cavium Networks Inc (CAVM) posted better-than-expected quarterly results on strong bookings at its chip and software business, and forecast second-quarter results above market expectations.
  • The company, which makes processors for networking and communications equipment makers, forecast second-quarter earnings of 18 cents to 20 cents a share, excluding items, on revenue of $48 million to $50 million.  Analysts were looking for earnings of 13 cents a share, excluding items, on revenue of $43.2 million.
  • Cavium Networks expects gross margins of 63 percent to 64 percent in the second quarter. Gross margins were 59.6 percent in the first quarter.
  • "Enterprises seem to be finally loosening their purse strings and spending on enterprise infrastructure upgrades, which they had postponed," Chief Executive Syed Ali said on a conference call with analysts.
  • The company recorded a strong sequential growth of 25 percent in the enterprise and service provider market, which was 69 percent of first-quarter sales.  The company, whose customers include Cisco Systems Inc (CSCO) ,  Juniper Networks Inc (JNPR) and Alcatel Lucent , said it expects continued strength in the enterprise and service provider market.  Sales at top customer Cisco formed 27 percent of total revenue and grew 20 percent to $11.1 million on a sequential basis.
  • For the first quarter, Cavium posted a loss of $3.1 million, or 7 cents a share, compared with a loss of $6.5 million, or 16 cents a share, a year ago.  Excluding items, the company earned 14 cents a share.
  • Revenue more than doubled to $41.6 million.  (last year $20.4 million) Analysts were expecting earnings of 11 cents a share, excluding items, on revenue of $40.7 million.
  • Jefferies & Co. analyst Adam Benjamin told clients in a note Tuesday that Cavium is poised for "significant" revenue growth over the next few years, driven by the company's backlog of successful chip designs.

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