PMC-Sierra Shares Jump On Cost-Cutting

| About: PMC - (PMCS)

PMC-Sierra (NASDAQ:PMCS) Thursday night announced that it plans to close R&D centers in Winnipeg, Mannitoba and Saskatoon, Saskatchewan, resulting in the layoff of 175 positions, or almost 15% of the company’s total staff. The chip maker said the move will save $20 million to $24 million a year in ongoing annual expenses.

PMC said the restructuring will result in $12 million to $14 million in one-time charges. PMC also said that first quarter revenue should be at the middle to the high end of the range of its previous guidance, which was for $98 million to $105 million in revenue. The company will report results on April 25.

Though I doubt they were cheering up in Winnipeg or Sasktaoon, analysts responded enthusiastically to the news.

Alex Gauna, an analyst at UBS, repeated his Buy rating on the stock Friday, and upped his price target to $9 from $8.50; Romit Shah, of Lehman Brothers, maintained an Equal Weight rating, but raised his target to $6.80 from $5.50, and writes that he is “encouraged” by the cost savings plan.

Srini Pajjuri, an analyst at Merrill Lynch, says the company’s guidance suggests that “order rates are stabilizing and that the business appears to have bottomed in Q4.” Nonetheless, he keeps his rating at Neutral, and asserts that “upside is limited.” Likewise, CIBC’s Allan Mishan keeps his rating at Sector Performer, but says that the comments on the quarter suggest that “we are approaching the end of the inventory correction.”

PMC-Sierra Friday was up 72 cents, at $7.02.