Agere At The Rubicon (AGR)

Apr.26.06 | About: Agere Systems (AGR-OLD)

Agere Systems Inc. (NYSE:AGR), which makes semiconductors for storage, wireless data, and public and enterprise networks, had a bit of a rough fiscal Q2 (ending March 31 2005). The company has some nifty products. They make ASICS for Ethernet switching, storage area networking, wireless infrastructure and imaging. Agere also makes platform designs and integrated solutions that have made their way into millions of wireless handsets. They company also designs integrated circuits for hard disk drives.

Unfortunately, the company just can't seem to ramp revenue. In its fiscal Q2, the company delivered revenue of $397 million. However, a year ago revenue was $417 million and in the December 2005 quarter it was $403. Guidance for the June quarter has a low end of $390 million. None of the company's reporting segments showed any progress from the previous quarter. In the earnings announcement, Agere's CEO spoke of "strong underlying growth", but it was hard to find that in the numbers or guidance.

The company had an operating income loss of $15 million which was better than a year ago, but on par with the last quarter. Guidance is for EPS to be at least breakeven in the current quarter.

The market seemed pleased with company guidance and moved the stock up almost 8% to $15, near to the 52-week high of $15.79. The low for the period was $8.81.

Agere has not had much luck expanding its business the last few years. Fiscal 2005, which ended September 30, 2005, had revenue of $1.676 billion. The prior year, revenue was $1.912 billion. The company had operating deficits both years.

Agere has now had four sequential quarters of revenue declines. And, the company's cost structure is such so that it is difficult for Agere to make money at these levels.

While the market showed some support for the company's outlook, the stock still trades well below the $25 level where it was two years ago. And, if the company cannot show several quarters that buck the trend of dropping revenue or alternatively cut costs significantly, it is hard to see a case for investors continuing to drive the share price north.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.