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Kevin Landis of the Technology Leaders Fund http://www.firsthandfunds.com, provides the following stock idea on PMC-Sierra, Inc. (PMCS 39 3/4). Below is the write up.


PMC-Sierra, Inc. is the primary maker of semiconductor chips for the communications and networking industry. Kevin Landis of the Technology Leaders Fund, says that, "The next generation of Internet networks will be packet switched, which use ATM (Asynchronous Transfer Mode) integrated circuits. This is where PMC really leads... They are an Internet infrastructure stock." Most of the Internet traffic is carried over ATM networks. As the need for Internet bandwidth increases, so will the demand for PMC's chips.

PMC's stock has been under pressure recently. Kevin notes that there have been several factors why their stock has been down from their high of $51 set back in late June. Two years ago, PMC said they would discontinue their old product lines and focus on being only a networking chip company. In order to avoid badwill with their customers, they decided to supply them with the older products, even though the margins for these products were not that high. "The demand for their legacy business was high but will be coming down." This generated the illusion of slowing growth. PMC acquired two companies which are not supplying a lot of revenues and earnings in the short term, but will be beneficial for longer term growth. They also hired many employees in order to meet future growth needs for their business. "To the untrained eye, they look like a company that is starting to faulter," he says, "In reality, they are making all the right moves that will benefit the future growth of their business."

PMC has an impressive client list

Kevin also points out that an analyst that covers PMC (who is a big bull on their stock), recently floated a rumor that they might have had a slow month in July. Kevin argues that PMC went into their recent quarter (starting in July) with 70% of their orders in hand. "Even if they had a slow month, they could still make their quarter without too much trouble."

PMC has an impressive client list which includes Lucent Technology, Cisco Systems, Nortel, Ascend and Newbridge Networks. Kevin adds that PMC has established a leadership position with their customers and that their main driver is the Internet. "Even though there are unknowns about Internet traffic and who will win it. Internet traffic will continue to grow at an explosive rate."

PMC is the largest position in the Technology Leaders Fund. Kevin first started accumlating their shares back in August, 1996 and has been adding to the position on the stocks weakness. He feels comfortable with this year end estimates of $1.16 and figures they will earn $1.60 in 1999 with their shares hitting $60 during that time period.

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