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Friday, August 25, 2006

PMC Sierra Take A Breather From Its Beating

Stocks: (PMCS)

PMC got clobbered after announcing its last quarter's earnings. Revenue hit $119 million, up 66%, but some of that was from its acquisitions of Passave and Avago.

The telecommunications chip company was expecting a big lift from revenue from Passave. That did not happen. According to a Morgan Stanley analyst quoted in Forbes, it was a big let-down: "When management announced plans to acquire Passave, Sur said he had expected the acquisition to add $60 million to $65 million in revenue in 2006. PMC-Sierra management announced Passave contributed just $8.8 million in the June quarter with guidance of $13 million next quarter." Pretty big miss.

This fiasco was followed by an announcement that PMC has options pricing problems. Fortunately for PMC, the company was able to resolve that there had been errors in option pricing, it took an accounting charge, and filed a correct Q2 statement. The tiny silver lining of the cloud was that a delayed filing might have gotten PMC in trouble with the NASDAS listings police. At least the company dodged that.

Short seller in the company's shares obviously got a bit nervous, perhaps because they thought the company would get its options troubles behind it faster than companies like Apple have. Short interest in the shares dropped 7 million to 19 million from mid-July to mid-August.

Wall St is still skeptical. The company's shares traded at $10 in early June. After dropping to about $5 in mid-July, they now trade at $6.26.

The shorts may be moving out now, but if PMC does not show that it has taken advantage of its acquisitions, they will probably be back with a vengeance.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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