Applied Micro's 1Q Disappoints

Applied Micro Circuits Corporation ( AMCC - Analyst Report ) posted a non-GAAP net loss of $11.4 million in its first quarter of fiscal 2013 (ending June 30, 2012), compared to a net income of $0.6 million in the year-ago quarter and a net loss of $6.2 million in the previous quarter. Loss per share came in at 18 cents compared to earnings of 1 cent per share in the year-ago quarter and a net loss of 10 cents per share in the previous quarter. The loss reported was narrower than the Zacks Consensus Estimate of a loss of 27 cents.

The GAAP net loss for the quarter amounted to $23.4 million or 37 cents per share versus a net loss of $6.9 million or 11 cents per share in the year-earlier quarter and net loss of $67.6 million or $1.10 per share in the previous quarter.

Revenues

Net sales came in at $41.3 million, declining 32.1% from the year-earlier quarter and 15.3% sequentially. This surpassed the Zacks Consensus Estimate of $40 million.

The clouded fiscal scenario was largely responsible for deteriorating the company’s performances in the reported quarter. However, a substantial progress in Applied Micro’s product ranges during the quarter helped somewhat to alleviate the company’s concerns.

Margins

Gross margin came in at 55.6% compared to 46.6% in the last year quarter and 57% in the fourth quarter of fiscal 2012.

Operating loss for the quarter came in at $25 million, rising from an operating loss of $8.4 million in the previous year quarter.

Selling, general and administrative expenses in the quarter were $12.5 million, down slightly by 0.7% year over year. Research and development expenses amounted to $34.8 million, surging 22.6% from the year-ago quarter.

Balance Sheet and Cash Flows

Applied Micro ended the quarter with cash and cash equivalents and short-term investments of $96.1 million versus $113.8 million at the end of the previous quarter. Inventories were $22.6 million versus $23.2 million at the end of the fourth quarter of fiscal 2012. Accounts payable by the end of the quarter amounted to $13.7 million, declining from $21.4 million at the end of the previous quarter.

In the first quarter of fiscal 2013, net cash used for operating activities was around $20.5 million compared to $4.2 million in the year-earlier quarter.

Outlook

Applied Micro shows determination as it looks ahead following an acutely disappointing performance in the reported quarter brought about largely by a clouded fiscal scenario in the economy. The company still expects that the revenue will surge in the second half of the fiscal 2013.

The company anticipates that for the second quarter of fiscal 2013, total revenue will improve by 8% -12% sequentially (mid-point will be $45.5 million). The total gross margin is likely to be approximately 57%, plus or minus half a point. Moreover, Applied Micro expects that the interest income will be $0.7 million and tax rate will be 3% in the second fiscal quarter of 2013.

Peers

Headquartered in Sunnyvale, California, Applied Micro is a leading provider of high-bandwidth low power integrated circuits (ICs), which are essential for the processing, transporting and storing of information. However, the company continues to wrestle with very tough and progressive rivals in the semiconductor industry. Big players here are Broadcom Corp. ( BRCM - Analyst Report ) , Intel Corp. ( INTC - Analyst Report ) and LSI Corp. ( LSI - Analyst Report ) . The company currently does not appear to be in a good enough position to battle these formidable competitors with its current weakened quarterly outlook.

Our Recommendation

Applied Micro currently has a Zacks Rank# 3 which implies a short-term (1-3 months) ‘Hold’ rating on the stock.