Monday, October 25, 2010

PLX Technology Getting a Little of the Equinix Treatment

By David Gross

One of the key metrics in data center investing right now is the expectations multiple, or how much a stock rises or falls based on unexpected guidance revisions.   Equinix, Mellanox, and Riverbed have all experienced this over the last few months.   Now it's PLX Technology's (NASDAQ:PLXT) turn.

PLX Technology is a leading manufacturer of PCI Express silicon, and recently entered the 10 Gigabit Ethernet silicon market by acquiring 10GBASE-T chip manufacturer Teranetics.   The company guided next quarter's revenue down from an expected $32.5 million to a range of $28 million - $31 million.   A 9% drop in the midpoint has resulted in the shares being knocked down 15% after hours.   Revenues for the past quarter also came in slightly under expectations, although they were up 40% year-over-year to $30.2 million. 

With its market cap now down to $133 million, and with $43 million in the bank, PLXT has an enterprise value of $90 million, or .75x annualized revenue.    GAAP earnings for the quarter were $1.1 million, or 3 cents a share, while non-GAAP earnings were $2.7 million, or 7 cents a share.    So at the after hours price of $3.60, its trading at 13x annualized non-GAAP EPS, or about 9x annualized non-GAAP EPS net of cash.

In addition to a very reasonable valuation, the company is poised to benefit from the release of PCI Express 3.0 (aka Gen 3) late this year, which will lead to a wave of new product introductions in mid-to-late 2011.    And growth beyond the next six months looks promising with many SSD manufacturers looking to use PCIe 3.0, as are 40 Gigabit Ethernet line card manufacturers and InfiniBand suppliers.  Additionally, if PLXT is not selling the 10GBASE-T chips it acquired from Teranetics, Mellanox is not selling its 10GBASE-T LOM product, because PLXT supplies Mellanox with the PHY for that product. 

With the expectations multiple trumping earnings multiples with data center equities right now, this stock is now on sale due to yet another Wall Street overreaction to a single digit percentage, top line guidance revision.

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