PMC-Sierra revenues indicate telecoms recovery

The sun has started to shine through the clouds in the telecoms sector, according to PMC-Sierra, which reported higher revenues and net income for Q1 2004 – the fifth consecutive quarter of gains.

The maker of chips for telecommunications and enterprise applications saw revenues climb to $78.7m compared to $70.6m in Q4 and $55.4m for the same period a year ago. Sales to the telecoms industry account for 65 per cent of the company’s business. Of those telecoms sales, 80 per cent are to wireline applications and 20 per cent are for wireless basestations.

Net income grew to $16.8m, up from $9.5m in Q4 and a loss of $11.5 for the same period a year ago.

“We see this recovery as sustainable for the next several quarters,” said Alan Krock, CFO. Krock pointed to growth in the Chinese market as service providers deployed in green field geographies and to upgrades going on in the North American market.

“The China deployment will span decades,” he said. “In North America they do things all together and over a multiyear period of about ten years. So by 2008 or 2009, the networks will be updated and they will stop spending again.”

For the near term the company is forecasting Q2 revenue growth of between five per cent and eight per cent sequentially, with 70 per cent gross margins, Krock said. In an average year the company expects about 35 per cent revenue growth. However, in a recovery year like this one, that number would normally be higher, Krock said.

And after a few years of oversupply inventory levels within the company are finally back down to normal levels. The telecoms recovery comes after a long drought after a bubble in 1999 and 2000. Now, as service providers have paid down their debt and competition from other technologies and companies threaten their markets, they are ready to spend again, according to Krock.

“The biggest recovery to date has been for products that go into broadband DSL applications,” he said. “But telcos are also looking to get into the voice over IP market. Other growth areas are metro routers and multiservice switches.”

On the MIPS processor side of the business, which sells devices that go into products for the enterprise, sales remained flat in Q1 as that recovery lost steam compared to telecoms.