Avid Technology: Expecting a Weak Q4

Piper Jaffray is out with an interesting call on Avid Technology (AVID) saying that while post production resellers checks point to an in-line Q3, they believe Street estimates for Q4 may be too high.

Of the 10 resellers in Piper's checks, six saw flat demand q/q in Q3, while three saw an increase in demand q/q and one was tracking down sequentially. On average, resellers indicated that their Avid video business is up 5% sequentially (essentially in line with their model at up 3%). 40% of the resellers the firm spoke with said they do believe the ongoing transition at Avid is starting to disrupt their Avid-related business.

Street models assume Avid Q4 revenue will be up 8% q/q. Resellers in checks were split between: 1) expecting an up sequential Q4, and 2) uncertain pipelines that could lead to an up or down sequential Q4. Given Q4 is typically a seasonally up quarter, the firm was somewhat surprised by the high level of uncertainty among resellers on whether they felt they would see a sequential uptick. Piper believes this uncertainty regarding Q4 pipelines is a sign that Q4 Street estimates may be aggressive.

They are taking their target to $27 from $32, and maintain a Market Perform rating.

Notablecalls: AVID's a bit of a mess here. CEO David Krall decided (or was forced) to leave on July 16, leaving behind a somewhat troubled company. The stock has been weak over the past 3-4 months, most likely discounting the fears highlighted in today's Piper call.

On the valuation side, we still have the stock trading 20x CY07 EPS and around 17-16x FY08, which does not look cheap enough, given the problems and slowing growth AVID seems to be facing here.

Note that the company warned during the same time last year (Sept. 25) and given Piper's checks, I would not be surprised to see another warning in the near-term.

AVID continues to be radioactive here and I suspect the stock will get hit further.

I don't see seasoned players stepping into AVID until the stock hits the $20-$25 level. That's where it seems to be heading currently.

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