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PON & Backhaul Backfire for PMC-Sierra

Craig Matsumoto
10/30/2012

Chipmaker PMC-Sierra Inc. (Nasdaq: PMCS) is writing off $276.1 million in goodwill from its acquisitions of Passave and Wintegra.

The writedown, announced Monday with the company's third-quarter earnings report, resulted in a $274.4 million loss for the quarter, under generally accepted accounting principles (GAAP).

Non-GAAP net income -- that is, discounting one-time items -- was $21.4 million, or 10 cents per share, slightly better than the 9 cents analysts were expecting.

Writedowns happen when it's clear a company overpaid for an acquisition, the cause usually being that demand for a product wasn't what everyone expected.

In the case of Wintegra, which sold network processors, it's the wireless backhaul market that has disappointed. PMC acquired Wintegra for a net $213 million in cash in 2010; it's contributing $123 million to the third-quarter writedown.

"The big challenge there, on the wireless backhaul front, has been the weak carrier spending," CEO Greg Lang said during Monday's earnings call. "The timing of these returns has been pushed out at least a couple of years."

Passave sold chips for passive optical networking (PON), a market that's never met PMC's hopes. Asia/Pacific carriers have bought PON equipment, but demand has been muted elsewhere.

"There wasn't a DSL- or cable-type of pop there. My opinion is that it's due to the large capex requirements. People are really motivated to get the last drop out of their copper networks," Lang said.

PMC acquired Passave in 2006 for stock worth (at the time) $300 million. Passave represents $146 million of the third-quarter writedown.

PMC's third-quarter revenues were $131.7 million, compared with $173.3 million in the same quarter a year ago. PMC's year-ago GAAP net income was $47.3 million, or 20 cents per share.

PMC shares were up 11 cents (2%) at $5.00 in after-hours trading Monday.

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— Craig Matsumoto, Managing Editor, Light Reading

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paolo.franzoi
paolo.franzoi
12/5/2012 | 5:18:28 PM
re: PON & Backhaul Backfire for PMC-Sierra


 


Passave was massively over-paid for and that also hurt Broadlight (who held out for too much).  Passave never made it out of the EPON business and that market while not 0 is not huge (same could be said for GPON).  


As for Wintegra, I think they got really hurt when at least one of their major OEMs lost a big deal in wireless backhaul (read here Tellabs @ AT&T).  I also know they were included in a design for the upgrade of the BPON OLTs in FiOS which will have completed deployment sometime back.


Of the 2, Wintegra is a better long term business for PMC but it is still a pretty limited space.  PMC has gotten to nibbling at the corners.  Interested in seeing what they do next.


seven


 

opticalwatcher
opticalwatcher
12/5/2012 | 5:18:26 PM
re: PON & Backhaul Backfire for PMC-Sierra


According to the Infonetics web site, China, which was originally an EPON country, spent 715million on GPON deployments last year. So if Passive never made it out of EPON, then they may have bet on the wrong horse.


And although Wintegra positions their network processor for lots of applications, I think that it was originally designed for TDM interfacing, which is a diminishing market.


 

paolo.franzoi
paolo.franzoi
12/5/2012 | 5:18:25 PM
re: PON & Backhaul Backfire for PMC-Sierra


tera,


 


The newer gen Wintegra stuff has a lot more Ethernet stuff.


 


seven

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