A Solid End to the Year
Cavium reported that its sales for the December, 2010 quarter rose 8% from the September quarter, and 86% from December, 2009. That figure was slightly better than analysts had forecast and came about even those the company's largest segment saw a 2% sequential decline in sales. Keep in mind, too, that large customers like Cisco (Nasdaq:CSCO) and F5 (Nasdaq:FFIV) have not been impressing anyone lately with their growth lately, so the company has had to surmount that challenge as well.
On the profitability side, Cavium continued to show solid improvement. Gross margin improved about 40 basis points on a sequential GAAP basis, while operating margin improved more than a full point. While the non-GAAP figures for Cavium were different, the directionality was the same. (For more, see 2010: The Year In Chips.)
The Road Ahead
Cavium's base is in specialized networking chips that can handle complex routing needs and enable more intelligent and effective networks. That has given it a solid business with customers like Cisco, F5, and Juniper (Nasdaq:JNPR), while the sophistication of its chips has given it a lead on rivals like NetLogic (Nasdaq:NETL) and Broadcom (Nasdaq: BRCM). In some cases, customers have to choose between using Cavium's chips or cobbling together multiple chips from competitors to achieve the same capabilities; a Hobson's choice when space, power efficiency and other operating characteristics are considered.
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