The company notes a 30% decline in revenue recognized through distribution. They also failed to mention any customer of business reason for the decline. Naturally one can speculate that the revenue shortfall was due exclusively to a decline in revenue shipped through distribution.
According to the latest 10Q filed by AMCC, Avnet (AVT) accounted for 26% of quarterly revenue, or $19.8M or $76M in Dec 06 quarterly revenue. Assuming the shortfall was entirely with Avnet (which is a big assumption) this would result in Avnet based revenue dropping $6M.
Which is exactly what happened - AMCC quarterly revenue dropped from $76M to $70M, a $6M decrease.
An additional $10M reduction is expected to come between now and June-end. Given the lack of any end market or customer explanation (such explanations are usually nonsense anyway) I am left concluding that AMCC decided to kick the channel stuffing habit, something that I’ve been proselytizing companies should do (see related articles).
This is extremely positive (provided you didn’t own the stock yesterday, that is). It also opens up an interesting trading opportunity once organic revenue and steady state business resumes.
Provided no underlying issues exist with market or customer demand (networking has shown weakness industrywide), once the channel is flushed and shipments resume, AMCC gross margins should go up and revenue should return to previous levels.
So, for the first time in a long time, I am now the
proud owner of an equity stake in AMCC. The conference call is next week and I will be listening.
Disclosure: Author owns and controls a long position in AMCC, VTSS, a short position in NUHC and no position in Avnet.
AMCC 1-yr chart: