Applied Micro (AMCC) Q2 Loss Narrower Than Expected

Shares of Applied Micro Circuits Corporation (NASDAQ:AMCC) surged 24.6% over the last three trading sessions following the company’s better-than-expected second-quarter fiscal 2017 results.

Adjusted net loss (including stock-based compensation) of a nickel was narrower than the Zacks Consensus Estimate of a dime. Applied Micro had reported a loss of 12 cents in the previous quarter and dime in the year-ago quarter.

Quarter Details

Revenues inched up 0.7% sequentially and 5.1% from the year-ago quarter to $41.8 million. Connectivity revenues increased sequentially to $30.2 million driven by increased sales of OTM and FI products and by strong customer demand across Tier 1 data center and service provider customer platform.

However, computing revenue totaled $11.6 million down sequentially due to lower order for the company’s legacy PowerPC products.

The company’s technology continues to gain traction as evident from the recent launch of HP Enterprise’s (NYSE:HPE) high volume enterprise storage (StoreVirtual 3200) that uses Applied Micro’s X-Gene ARM-based processor solutions.

Moreover, IEEE standards body recommended the adoption of Applied Micro single lambda 100 gigabit per second PAM4 Solution to be an industry standard for enterprise and data center connectivity. The recognition opens up considerable growth opportunities for the product going ahead.

Further, Applied Micro announced the next-generation X-Gene3 processor, which uses TSMC 60 nanometer FinFET Technology. X-Gene3 is anticipated to deliver six times the performance of current X-Gene product and is targeted to compete with mainstream high-end beyond E5 and E7 processors in a similar power. Management expects X-Gene3 samples will be available prior to the end of fiscal 2017.

Gross margin expanded to 66.2% as compared with 61.4% in the previous quarter and 55.3% in the year-ago quarter. The sequential growth was owing to favorable product mix, improved yields, lower materials and other cost.

Operating expenses as percentage of revenues were 77.5% in the reported quarter down from 87.2% in the previous quarter but almost flat on a year-over-year basis. The sequential decline was due to lower research & development (R&D) expense, which as percentage of revenues plummeted 870 bps. Additionally, selling, general and administrative (SG&A) declined 100 bps sequentially.

On a year-over-year basis, a 110 bps decrease in SG&A was fully offset by higher R&D expense, which increased by the same magnitude.

Operating loss was $4.7 million as compared with loss of $10.7 million in the previous quarter and almost $8.8 million in the year-ago quarter.

Balance Sheet

At the end of the quarter, Applied Micro had cash, cash equivalents and short-term investments of $81.7 million. Net cash outflow was $0.9 million as compared with cash flow of $1.6 million in the previous quarter.

Outlook

Applied Micro expects revenues to be in the range of $42.5–$43.5 million driven by the strong connectivity business. Non-GAAP gross margins are anticipated to be in the range of 63–67%. Non-GAAP operating expenses are expected to be in the range $25–$27 million. Applied Micro forecasts non-GAAP earnings of 2 cents per share (+/- 2 cents).

Zacks Rank & Key Picks

Applied Micro carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same space are Broadcom (NASDAQ:AVGO) and GigPeak Inc. (NYSE:GIG) . Both the stocks sport Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Brocade’s and GigPeak’s earnings are anticipated to grow 7.5% and 15%, respectively, over the long term, which is lower than Applied Micro’s estimation of 20%.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>