Tuesday, October 26, 2010

Atheros Communications (ATHR) with Solid Report, but Guidance Soft

Atheros Communications (ATHR) continues to post some astounding numbers that the market is not rewarding; I can only assume there must be a large slowdown ahead as the backwards looking revenue growth has been stellar.  This time it was 57% year over year growth and 4% sequentially; gross margins held in flat.  Some sectors go forward do look weak however, per guidance.  That said the trashing the stock has taken for quarters on end probably reflects some of the weakness.

Technically, the stock rallied to the 200 day moving average (actually through it intraday, before closing at it) which might be the peak of the move if there is no push into this name by the computers.   In after hours the stock was down 2%; I was hoping for a report that was able to create a surge through the key technical level.  I'll decide if I keep holding this in the next few days because if it cannot get over the 200 day, it remains in the very small cadre of stocks showing immense weakness in a tape where throwing a dart (blindfolded) creates winners.

(Full report here)

Via Reuters:
  • Wireless networking chipmaker Atheros Communications Inc (ATHR.O) forecast fourth-quarter results well short of market estimates as it expects weakness in its computing segment to continue. 
  • For the third quarter, the company earned $28.1 million, or 39 cents a share, compared with a profit of $38.6 million, or 60 cents per share, a year ago.  Excluding items, Atheros earned 67 cents a share, in line with market view.  Revenue rose 58 percent to $247.1 million, lagging analysts' estimates of $248.4 million.

Guidance is not so great
  • The company sees a sequential drop in its computing segment as demand for wireless LAN and ethernet products remains soft.  
  • The company forecast fourth-quarter adjusted earnings of 48-51 cents a share, on sales of $220-$225 million. Analysts on average were looking for earnings of 65 cents a share, excluding items, on sales of $251.1 million,

  • Shares of the company have lost 35 percent of their value since touching a year high of $43.90 in April amid growing concerns about weakening PC demand.
  • Atheros has been diversifying away from its PC original equipment manufacturer business, which contributed 23 percent to third-quarter sales, down from 40 percent last year.

Taking into consideration the new guidance, I will reduce the year end consensus of $2.57 to a figure closer to $2.40.   At $29 that is still a 12x forward PE for a company diversifying away from PC and into mobile, and should be able to have a longer term growth near around 20%.   

  • "While we continue to see weakness in certain channels, increasing demand for Atheros' ROCm® low-power mobile connectivity solutions in a growing number of consumer electronics products fueled our record revenue in the third quarter," said Craig Barratt, president and chief executive officer of Atheros Communications. "Additionally, with our recently completed acquisition of Opulan, we further strengthened our networking product line, enabling us to address an even larger portion of the rapidly expanding global networking market."

Seems fine on a valuation stand point but time is money, and if the stock cannot perform as I noted above - I'll punt and revisit it at some later date when the computers want to run it up.

Atheros combines its wireless and networking systems expertise with high-performance radio frequency (RF), mixed signal and digital semiconductor design skills to provide highly integrated chipsets that are manufactured on low-cost, standard complementary metal-oxide semiconductor (CMOS) processes. Atheros technology is used by a broad base of leading customers, including networking equipment, computing and consumer device manufacturers.

Long Atheros Communications in fund; no personal position

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