Applied Micro Circuits (AMCC)

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Peter Maa

Applied Micro Circuits Corporation (AMCC) designs and manufacturers integrated circuits for enterprise and telecom industry customers. In the consumer and small business space, the company provides stand-alone semiconductor solutions using its software and system-level expertise. Once a multi-billion market capitalization company in the dot-com boom, AMCC now is a much smaller company. The fast-growing telecommunications segment and surging demand for broadband bandwidth, especially in 3G/4G infrastructure, is expected to benefit AMCC.

Business Growth

While Applied Micro Circuits Corp's earnings have increased from $0.07 to an estimated $0.15 over the past 5 quarters,^[1] the company's earnings volatility-adjusted growth rates have decelerated quite strongly. Net operating cash flow almost doubled from fiscal 2010 to fiscal 2011, from $31.0M to $16.9M, reflecting continued growth in telecommunications sales.^[1]

Trends and Forces

Booming demand for 4G to drive sales growth

As consumers increasingly expect to stay connected via their cell phones, tablets, and notebook computers, demand for higher bandwidth wireless networks has skyrocketed. While 4G mobile makes up only 0.33% of the wireless chipset market as of 2011, analysts expect the number to jump to 20% by 2014.^[2] As a manufacturer of integrated circuits for both the telecommunications industry and consumer / small business end-user, AMCC is poised to benefit from this continued growth in wireless communication.

Cyclical nature of business poses risk

The semiconductor communications market is highly competitive and subject to rapid technological change. Companies generally face intense competition during the design stage, when customers decide which semiconductors to include in a planned device. However, once this stage is complete and the chips are designed, chipmakers enjoy long product cycles.^[1]

Competition

About 5,000 companies operate in the US telecommunications industry, which has approximate annual revenue of $150 billion, although the top 50 companies hold more than 70% of total market share.^[3] The industry is highly cyclical and subject to downstream supply/demand fluctuations and intense price competition. Geographically, manufacturers have shifted from North America to Asia to increase price savings.

Other major players include Intel (INTC), Texas Instruments (TXN), Micron Technology (MU), and Advanced Micro Devices (AMD).

References

1. ↑ ^{1.0 1.1 1.2} Form 10-K AMCC 2011
2. ↑ "Sequans (SQNS) to See Explosive Growth as 4G Catches On - Cramer" StreetInsider
3. ↑ AMCC, theStreet analyst report