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Will PMC-Sierra (PMCS) Q3 Earnings: What's in the Cards?

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PMC-Sierra Inc. is slated to report third-quarter 2015 results on Oct 26. In the last-reported quarter, PMC-Sierra recorded a negative earnings surprise of 22.22%. Let’s see how things are shaping up for this announcement.

Factors to Consider

PMC-Sierra posted weak second quarter results with both the top and bottom lines missing the Zacks Consensus Estimate. Revenues were down 2.8% sequentially and 1.6% year over year. Revenues also came in below management’s guided range. The decrease was due to lower sales in the storage and mobile segments.

Though storage and mobile revenues remained soft due to weak product demand, we are encouraged by the improvement in OTN revenues, introduction of several major products and design wins, transition from 6-gig SAS to 12-gig SAS connectivity and the densification of hyperscale data centers.

Also, PMC-Sierra is well positioned to grow and gain market share in server/storage, wireless infrastructure and optical communications. We expect the LTE build-out in China, cloud and data center build-outs and storage demand to increase substantially and act as solid growth catalysts in the soon-to-be reported quarter.

For the third quarter of 2015, PMC-Sierra expects total revenue in the range of $126–$136 million, up 1% to 9% sequentially. On a non-GAAP basis, the company expects gross margin in the range of 70.5%–71.5%; operating expenses in the $68.0–$69.0 million range; tax provision within $1.4–$1.8 million and non-GAAP earnings per share in the range of 11–12 cents, assuming a share count of 198 million.

Earnings Whispers?

Our proven model does not conclusively show that PMC-Sierra will beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 9 cents. Hence, the difference is 0.00%.

Zacks Rank: PMC-Sierra’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some companies, which you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

  • Facebook, Inc. (FB - Free Report) , with Earnings ESP of +12.50% and a Zacks Rank #1 (Strong Buy)
  • Apple Inc. (AAPL - Free Report) , with Earnings ESP of +1.60% and a Zacks Rank #2 (Buy)
  • Agilent Technologies Inc. (A - Free Report) , with Earnings ESP of +2.13% and a Zacks Rank #2


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