Applied Micro Circuits Corporation (AMCC) recently reported revenues of $71.5 million in Q4, in-line with our estimate of $71 million. GAAP EPS was ($1.33). On a non-GAAP basis, EPS was $0.09, missing our estimate by a penny. Gross margin was down both on a GAAP and a non-GAAP basis.
On a product basis, processor revenues increased 11% quarter-over-quarter to $30.7 million driven by strong product shipments to the enterprise wireless access, 3G base station and packet processing applications. Transport revenues of $27.8 million were up 11% quarter-over-quarter.
However, storage revenues decreased 4% quarter-over-quarter to $13 million and contributed 18% of the total revenues. The Company has undergone a number of management and product transitions, which we believe should soon be positioned to enter a period of sustainable revenue growth as newer products move to production at key OEMs.
Going forward, management was conservative in its outlook and expects revenues to grow by 2%-4% sequentially. Gross margin is also expected to improve by 1%-1.5%. We believe AMCC is approaching an inflection point where revenue growth, which has been driven by a recovery back to a $70-$72 million per quarter run-rate, transitions to a sustainable and more consistent growth trajectory.
We expect this to be driven by a number of previous product initiatives that had been undertaken over the past several years and are moving into production at key OEMs. The company has also been diversifying into the storage and embedded markets.
In addition to becoming less dependent on the communications market, the company believes that it can exploit these diverse sets of expertise and introduce compelling new products. However, until we see sustainable improvement in the AMCC model, presumably in the first half of FY2009, we will stay on the sidelines and continue to rate the stock a Hold. Our target price currently is $10, which is roughly 2.1 times our FY2008 revenue estimate and is in line with the median P/S multiple of its peers.
Read the full analyst report on AMCC.
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