On Nov 29, 2014, Zacks Investment Research downgraded Exar Corp. (EXAR) to a Zacks Rank #4 (Sell) following dismal second-quarter fiscal 2015 results. The company witnessed downward estimate revisions over the past 30 days.
Why the Downgrade?
Exar reported second-quarter fiscal 2015 results on Nov 5 wherein its adjusted loss per share (including stock-based compensation expense) came in at 3 cents, missing the Zacks Consensus Estimate of a loss of 2 cents per share. The reasons for the tepid performance included softness in the overall small-cap semiconductor industry. Also, weakness in DCS (Data Compression & Security) continued to be a significant drag on the company’s results.
The leading provider of analog and mixed-signal integrated circuits recently closed the acquisition of Integrated Memory Logic fabless semiconductor design company ("IML"), which led to significant integration costs. The company is also undertaking restructuring initiatives across its divisions, which are intended to lead to cost savings down the road but resulted in a considerable increase in operating expenses for the quarter.
Also, the company witnessed downward estimate revisions for the third quarter and fiscal 2015 over the past month. Zacks Consensus Estimate for the third quarter declined from earnings of 2 cents to a loss of 1 penny over the said time frame, while the estimate for fiscal 2015 slid to a loss of 8 cents per share from the breakeven level over the past 30 days.
It is worth noting that despite the weak results, Exar expects the IML acquisition to boost its revenues and geographic presence in the coming quarters, and anticipates operational improvements as its restructuring actions culminate in cost savings.
Nonetheless, we prefer to wait and see whether the company’s continued investment in operational infrastructure improvements, rationalize margins in the near term. Furthermore, semiconductor market volatility and intense competition from its peers remain headwinds.
Other Stocks to Consider
Some better-ranked semiconductor stocks that are worth considering include Anadigics, Inc. (ANAD), FormFactor Inc. (FORM) and Entropic Communications, Inc. (ENTR), each carrying a Zacks Rank #2 (Buy).
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