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Markets & Stocks
PMC-Sierra leveled
January 26, 2001: 5:05 p.m. ET

Stock in commucations chip maker takes a tumble on warning
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NEW YORK (CNNfn) - A profit warning from PMC-Sierra sent shares of the communications chip maker tumbling 23 percent Friday.

The losses came after PMC-Sierra, the leading supplier of semiconductors used in high-speed data-networking systems, warned after the close of trading Thursday it would log first-quarter earnings of 13-to-15 cents per share. That's well below the 37 cents expected by analysts surveyed by  First Call, a research firm that tracks such projections.

The company's fourth-quarter profits met forecasts.

Executives blamed the profit shortfall on a glut of inventory among PMC-Sierra's customers, the largest of which is networking-equipment giant Cisco Systems (CSCO: Research, Estimates), whose shares fell 94 cents  to $38.38.

graphicPMC-Sierra executives said they expect the company to log overall 2001 sales growth of about 30 percent, with weakness in the first half countered by a pickup in sales in the second half of the year.

The company's revelation prompted a parade of downgrades from at least eight brokerages, including UBS Warburg, which changed its rating on the stock to "hold" from "strong buy."

Goldman Sachs also chimed in, reducing its rating on PMC-Sierra shares to "market outperform," and removing it from the firm's closely watched "recommended list." SG Cowen lowered its rating to "neutral" from "buy." Banc of America Securities downgraded the shares to "buy" from "strong buy."

PMC-Sierra shed $21.88 to $70 after hitting a record high of $225.50 in March.

David Wong of UBS Warburg told his clients that PMC-Sierra's outlook should not be viewed as a sign of broad weakness in the communications chip segment.

"Despite the PMC-Sierra situation, we remain very positive on other communications chip companies and we are maintaining our 'strong buy' ratings on Applied Micro Circuits, Broadcom, Vitesse and TransSwitch," Wong said in a research note Friday.

Even so, the negative sentiment sparked by PMC-Sierra's news spread to several of its competitors.

Applied Micro (AMCC: Research, Estimates) shares fell $1.81 at $76.19 and TranSwitch (TXCC: Research, Estimates) lost $2.75 to $43.38.


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At the same time, shares of Vitesse (VTSS: Research, Estimates), rose $2.75 to $72.50. That company on Monday reported its latest results, which beat the Street's expectations, and said it sees accelerating revenue growth moving into 2001.

Stocks in the broader semiconductor segment ended little changed. The Philadelphia Stock Exchange's semiconductor index, which lists 16 chip and chip-equipment companies, fell. 0.37 points at 692.47.

Fiber-optic stocks recover

Meanwhile, some of the stocks in the fiber-optic segment that fell sharply on Thursday recouped some of those losses.

Shares of JDS Uniphase (JDSU: Research, Estimates), the world's largest supplier of components used in fiber-optic networking equipment, gained $4.44 to $59.63.

After Thursday's close, JDS Uniphase logged a fiscal second-quarter profit that exceeded forecasts. And while the company warned that softness in telecommunication service providers' capital spending could result in slightly lower revenue in the March quarter, executives said they remain bullish on the prospects for their business moving forward and said their profit for the year will be slightly above the Street's most recent forecasts.

Meanwhile, SDL (SDLI: Research, Estimates), a fiber-optic component maker which is set to be acquired by JDS Uniphase, gained $18.81 to $218. SDL, whose shares fell more than 14 percent on Thursday, reported its latest results Wednesday, beating the Street by more than 4 cents per share.

At the same time, shares of Corning (GLW: Research, Estimates), which shed nearly 20 percent of their value on Thursday after it warned of slowing sales in the first quarter, lost $1.25 to $55.

Ericsson (ERICY: Research, Estimates), the world's leading maker of wireless network equipment and the No. 3 wireless handset supplier, fell $1.75 to $11.25.

The Stockholm-based company reported its latest results before the U.S. markets opened, logging a 64 percent decline in net income. It also announced plans to outsource all of its wireless handset manufacturing to Flextronics (FLEX: Research, Estimates), a leading supplier of electronics manufacturing services on a contract basis.

Ericsson also cut its forecast for sales growth in 2001 to between 15 percent and 20 percent, from an earlier estimate of more than 20 percent, and said it would only break even in the first quarter.

Shares of Flextronics, which will begin production of Ericsson phones in April, rose $2.81 to $39. graphic





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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.