UBS Reduces PMC-Sierra (PMCS) Estimates

CONTRIBUTOR http://notablecalls.blogspot.com

UBS notes they reduced PMC-Sierra (NASDAQ: PMCS) estimates on recent negative checks at the ITU Telecom World show suggesting further delays in China's 3G build out, negative mid-Q updates from ALTR and XLNX, wireline capex delays in Japan, and near term PON sales volatility. Firm estimates 50% of PMCS' sales come from telecom/comms end markets.

Firm left 4Q06 ests unchanged but lowered C2007E rev to $455M (vs $475M) and pro forma EPS to $0.27 (option burdened/OB: $0.15) vs. $0.40 (OB: $0.30) previously. They also introduce C2008 ests of $500M and $0.35 (OB: $0.20).

While they still think PMCS has solid positioning in wireless/wireline comms, PON, and enterprise storage equipment, and valuation remains fair, the firm believes upside to PMCS shares is limited until M&A integration activities subside, opex synergies offer margin leverage, and demand trends improve.

Tgt goes to $9 from $11. Reits Buy.

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