On Mar 20, Zacks Investment Research downgraded semiconductor manufacturer Applied Micro Circuits Corporation AMCC to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold). A downgrade in the Zacks Rank serves as one of the triggers to exit certain underperformers at the right time to maximize portfolio returns. Selling off losers can be at times difficult, but with the continuous share price decline, it seems to be an opportune time to get rid of this stock before more losses hit your portfolio.
Why the Downgrade?
Applied Micro operates in intensely competitive markets that undergo rapid technological change and significant pricing pressure. The company has to continually excel in terms of product quality, customer service, technical and computing capabilities and price competitiveness to maintain its market share against stiff competition. This erodes its profitability and reduces its margins.
Applied Micro‘s computing segment also continues to be adversely impacted by overall business spending cuts as the PowerPC architecture is reportedly in secular decline. The company reported lackluster third-quarter fiscal 2015 results with GAAP net loss of $12.1 million or loss of 15 cents on a per share basis compared with a net loss of $7.3 million or loss of 10 cents per share in the year-ago period. The year-over-year decline despite lower operating expenses was primarily driven by lower revenues. Net revenues for the third quarter of fiscal 2015 were $36.7 million versus $54.8 million in the year-ago quarter.
Over the last one-year period, Applied Micro has performed dismally in comparison to the overall S&P 500 with an average return of -47.51% versus 11.6% for the benchmark index. The current Zacks Consensus Estimate for the fourth quarter of fiscal 2015 is pegged at a loss of 14 cents, which represents a year-over-year decline of 366.7%.
The company continues to be cautious about the erratic macroeconomic environment, which may further impede its growth in the future. Applied Micro is presently monetizing underutilized assets to increase liquidity and remain afloat. All these offer a rather bleak future for the company and should compel investors to reconsider holding its stock.
Stocks to Consider
Other better-ranked players in the industry that are worth mentioning include Amkor Technology, Inc. AMKR, Avago Technologies Limited AVGO and Mellanox Technologies, Ltd. MLNX, each carrying a Zacks Rank #1 (Strong Buy).
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