Why PMC-Sierra Shares Crashed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of chip maker PMC-Sierra (NAS: PMCS) were down as much as 15% today after the company reported second-quarter results after hours yesterday.

So what: While revenue topped estimates and the company's adjusted $0.09 EPS actually beat analyst expectations by a penny, its third-quarter guidance had investors running for the hills. CEO Greg Lange predicted revenue for the coming quarter of $130 million to $138 million, below this quarter's $137.8 million and well under the Street's view of $148.9 million.

Now what: Coming into earnings season, several tech companies had signaled weaker-than-expected earnings, so PMC-Sierra's revised guidance shouldn't come as a huge surprise. Management cited a "challenging macro environment" as a source of headwinds in its release. I'd keep an eye on Cisco's (NAS: CSCO) upcoming earnings release and outlook since it's one of PMC-Sierra's biggest customers and a heavyweight in the industry. Considering the overall weakness in the tech sector, analyst estimates of a 12% drop in revenue this year, and the downgrades starting to come in, I'd wait for positive signs from Cisco or another tech titan before jumping in with PMC-Sierra. Things could get worse before they get better.

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The article Why PMC-Sierra Shares Crashed originally appeared on Fool.com.

Fool contributorJeremy Bowmanholds no positions in the companies in this article. The Motley Fool owns shares of Cisco Systems. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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