Cavium Networks Attracts Hot Money with Solid Quarter & Chinese Acquisition

It appears Cavium Networks (CAVM) was completely off the map for hot money, as the company reported a quarter with very nice metrics but not much off what analysts expected.  For whatever the reason (perhaps the announcement of a purchase of a Chinese company) the stock is exploding higher this morning… after actually trading down in after hours yesterday.  Which yet again shows how arbitrary reactions to earning reports are – even the same report can create a reaction 180 degrees different 15 hours apart.

Analysts were in for $59.1M in revenue and 27 cents EPS; Cavium had a slight beat on the top line at $59.8M and bested estimates by 2 cents on the bottom – not normally something I’d associate with a 12-13% surge the next day in a normal market.  Gross profits were pretty flat at 65.2%.  Full report here.

  • Net income for the fourth quarter of 2010, on a non-GAAP basis, was $14.9 million, or $0.29 per diluted share, compared with non-GAAP net income of $12.5 million, or $0.25 per share in the third quarter of 2010.
  • Revenue in the fourth quarter of 2010 was $59.8 million, an 8% sequential increase from the $55.2 million reported for the third quarter of 2010 and an increase of 86% from the $32.1 million reported for the fourth quarter of last year.


I have to assume the stock is surging due to this very small acquisition:

  • Cavium Networks (NASDAQ: CAVM), a leading provider of semiconductor products that enable intelligent processing for networking, communications and the digital home, announced today that it is has signed a definitive agreement to acquire China-based privately held Celestial Semiconductor, a fabless semiconductor company headquartered in Beijing, China with centers in Shenzhen and Shanghai. Celestial is a fast growing provider of ARM-based system-on-a-chip (SoC) processor solutions for a range of digital media applications.
  • The net purchase price of the acquisition will be approximately $55 million, to be paid in a combination of cash and stock.   Cavium Networks expects this acquisition will be non-GAAP earnings neutral during the first half of 2011 and modestly accretive by the second half of 2011.

One analyst weighs in:

  • “The new acquisition will grow their presence in television along with wireless high-definition multimedia interface (HDMI) products,” Stifel Nicolaus analyst Kevin Cassidy told Reuters.  “It could open up new markets for them. They don’t have a lot of market share in TVs in general.”

Cavium Networks is a leading provider of highly integrated semiconductor products that enable intelligent processing in networking, communications, storage, wireless and video applications. Cavium Networks offers a broad portfolio of integrated, software compatible processors ranging in performance from 10 Mbps to 40 Gbps that enable secure, intelligent functionality in enterprise, data-center, broadband/consumer and access & service provider equipment.

Disclosure: No position

About Mark Hanna 542 Articles

Affiliation: Hanna Capital, LLC

Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting. Mark attended the University of Michigan where he graduated with a degree in Economics.

As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like. Occasional cynicism and wit shall be deployed in his postings.

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