Irvine-based Broadcom Corp. might be one of the more diversified chipmakers in the industry. But it still is reliant on some key customers.
Perhaps the most notable: Cisco Systems Inc.
One analyst,Albert Lin, with the San Francisco office of institutional investor adviser Greenwich, Conn.-American Technology Research Inc., which advises institutional investors,recently downgraded Broadcom shares.
The reason: a worse-than-expected outlook from Cisco, which comprises at least 10% of Broadcom’s business.
Cisco, which tempered its sales growth outlook for the current quarter and the year through next July, could be a forebear of bad luck for Broadcom, argues Lin.
“The direct relationship between the two cannot be ignored,” Lin wrote. “Furthermore, Cisco’s ability to comment about the state of the overall networking industry is legitimate enough for us to seriously consider when it comes to an industry segment that comprised 42% of Broadcom’s sales in the June quarter. Simply stated, the lower-than-expected guidance from Cisco goes beyond market share shifts in our view.”
Broadcom wasn’t the only local company that got dinged by Lin. Irvine-based Linksys,a division of Cisco,got a smack, too.
“Linksys, the leading market share brand for consumer WiFi networking equipment, showed a second consecutive quarter of declining sales,” Lin wrote. “We find this to be a surprise given the new geographies the brand entered (which should have offset some/all seasonality in our view). With WiFi chipsets being a source of greater than expected strength, we are now concerned about WiFi’s potential to produce another upside surprise.”
Lin noted that Linksys’ sales were up 30% from a year earlier.
Broadcom Loses Round to LSI
In other Broadcom news, the chipmaker can’t use workers hired from Milpitas-based rival LSI Logic Corp. on projects where they could use information from their old jobs, a Colorado judge ruled earlier this month.
The ruling, which is temporary pending a trial, came as part of LSI’s legal fight protesting the hirings, claiming Broadcom brought the workers on to gain a competitive advantage.
“It is clear there is no feasible way for the individual defendants to work on projects involving the protected confidential information and trade secrets,” the judge wrote in his opinion.
Both LSI and Broadcom employ people in Colorado.
Broadcom chose to focus on the positive.
“Broadcom was encouraged by the court’s ruling earlier this week that the individual defendants’ current work at Broadcom does not involve LSI’s proprietary technology,” said spokesman Bill Blanning in a statement. “The court’s order therefore affirms the right of these engineers to continue working on their current assignments, as well as other technology areas, at Broadcom. The court’s order also does not bar Broadcom from hiring additional employees from LSI.”
No Cherokee Upside
Tustin-based Cherokee International Corp., a maker of power supplies for computers and other electronics, reported a loss and a sharp drop in second-quarter sales earlier this month.
Cherokee saw its shares plummet on the news.
The company said its sales of $31 million were off 20% from a year earlier, due to soft sales to telecommunications gear makers in Europe and the negative impact of exchange rates.
Cherokee reported an operating loss of $1 million, versus a year-ago profit of $6 million. The company posted a net loss of $1.7 million with severance payments and “higher-than-expected materials logistics costs.”
Costs related to Sarbanes-Oxley compliance also were a factor, the company said.
Demand from makers of servers and data storage computers were bright sports, according to Chief Executive Jeffrey Frank.
“We also recorded 32 design wins across a number of customer applications, and we expect a number of new programs from prior design wins to begin ramping production later this year,” he said.
The company also touted its $14.5 million in cash on hand at the end of the quarter, though that’s down from $18.7 million as of Dec. 31.
Cherokee said it sees continued slow sales in Europe and to telecom gear makers. Revenue for the third quarter is likely to fall from the second quarter’s level, the company said.
The results could embolden a change-minded investor that’s been buying Cherokee shares.
New York-based investment fund Steel Partners last month said it owns about 11% of Cherokee and could seek to buy more.
Steel said it may seek changes to Cherokee’s board, capitalization, ownership or operations, and even short sell or hedge the company’s shares.
One analyst has called for a sale of Cherokee. Michael Walker of Credit Suisse First Boston in New York wrote recently that Cherokee has been losing sales from its top customer, Nortel Networks Corp. The company is losing market share elsewhere, he said.
