Why Silicon Image Shares Lost Half Their Gains

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 Silicon Image started the day with a near-12% pop, but have settled into a 6% gain in the early afternoon as investors digest the company's second-quarter earnings report.

So what: Silicon Image managed to best both top- and bottom-line expectations, reporting $73.7 million in revenue (a 16% year-over-year increase) and earnings of $0.08 per share. Wall Street had projected $71.9 million in revenue and $0.07 in EPS, so the double beat was much welcomed. Silicon Image also announced a $50 million buyback plan, which could reduce shares outstanding by about 11% at current prices.

However, Silicon Image's third-quarter guidance isn't particularly impressive -- the company expects between $78 million and $81 million in revenue, whereas Wall Street was looking for $82.6 million. Based on guidance that anticipates gross margins in the 56% to 57% range, adjusted operating expenses of $35 million, and an adjusted tax rate of 30%, we can expect adjusted EPS to come in at $0.08 to $0.10, which slightly exceeds the EPS consensus of $0.08.

Now what: Silicon Image has been stuck in a rut for a while on a fundamental basis. Today's report is a step toward climbing out of that rut, but the company isn't quite there yet. You might want to dig a little deeper into Silicon Image's prospects before adding this stock to your portfolio.

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The article Why Silicon Image Shares Lost Half Their Gains originally appeared on Fool.com.

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