Applied Micro Circuits Corp (AMCC)

The stock of Applied Micro Circuits Corporation (AMCC) has been declining since late February when it reached a 10-month high and now it is trading at less than $3 per share. The shares were also affected by the company’s the fourth quarter results where in the revenue declined by 8% sequentially and the gross margin also declined 340 bps to 56.0% due to unfavorable mix and pricing. The poor performance was mainly driven by the 30% decline in the sales to the distributors which affected all the products in the company’s portfolio.


Adding to the investors concern is the company’s next quarter’s guidance which points to a 15% further sequential decline. Although the company’s net loss narrowed a bit, but the operating margins have been negative since the several quarters. Looking at the management’s recent guidance and the performance, the company seems to be a long way from re-approaching a double-digit operating margin figure.


AMCC is building a better company around the PowerPC processor and next-generation optical products, with SAS as upside. The company has recently had a $3.7 million processor design the nature of which is such that it is expected to generate large dollars over a one or two-quarter timeframe, every four to five quarters. But as of now it is not expected to meaningfully reoccur until sometime late in fiscal year 2008 or early fiscal year 2009. Looking at the current scenario the investors are unlikely to bid up AMCC shares for the coming year or so.