What’s Up With Cavium Networks?
Well, somebody decided to give up on Cavium Networks (CAVM) today, apparently.
The company, which makes processors used by networking equipment companies like Cisco (CSCO), Juniper (JNPR), Huawei and others, has been growing rapidly. Lehman’s Tim Luke, who wrote a bullish note on the company today following a meeting with management in New York yesterday, expects the company to grow the top line 70% this year and 46% in 2009; he sees profits jumping to 42 cents this year and 70 cents next year from 6 cents last year, and says the company should grow 45-50% a year for the next 3-5 years. He says the company is seeing design win momentum, and expects the March quarter to be “solidly in line.” Luke today repeated his Overweight rating and $28 price target on the stock.
Nonetheless, the stock sold off today on big volume: CAVM lost $3.58, or 20.1%, to $14.22 (The stock has rebounded 81 cents in after hours trading.)
In an interview, Luke says he isn’t sure why the stock crumbled today; one possibility, he says, is that the final batch of about 3 million shares held by the company’s original venture investors could have been distributed to the VC’s limited partners. Volume in the stock today hit 3 million shares, or about 7.6% of the company’s shares outstanding. That the heaviest day of trading in the stock ever, other than the day it came public.
Thoughts, anyone?
As an ex-employee, I didn’t think much of the management team. The management team are a hard-working bunch and drive their employees hard as well. What they lacked was a strategic vision other than how-do-we-get-into-CSCO-boxes. Good tactics, but no strategy. CSCO’s job is to marginalize companies like Cavium/BRCM/ etc. CSCO will pay them based on the number of gates on their dye. There isn’t any other premium.
As another ex-employee, I disagree with the anon March 1 assessment.
The company absolutely has vision. They are constantly monitoring market trends and communicating with customers to make sure they are aligned on new and existing products. For the number of employees they have, the productivity is staggering.
The mgmt team is a tough bunch and they do drive the employees hard. But so do Marvel and Broadcom. That is simply a characteristic of successful companies.
One of the strong points of Cavium is that they have a very diverse customer base. Yeah, everybody wants a big Cisco win, but if Cisco goes away tomorrow, Cavium will survive. Not many companies their size have that diversity of revenue stream. That’s one of the reasons they are a contender to be the next Marvell or Broadcom.
Listen in on the next earnings call and make your own assessment.
Anom 2 said..
…Yeah, everybody wants a big Cisco win, but if Cisco goes away tomorrow, Cavium will survive..
heck, this is the best JOKE i heard this year.
@Anon 2,
If they are so good, why did you vote with your legs to the contrary?
CSCO will pay CAVM based on the number of gates on their chip plus a paltry 10% for their troubles. CAVM need to stay happy with that
Tech Trader Daily is a blog on technology investing written from Palo Alto, California by long-time Barron's West Coast Editor Eric J. Savitz. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields.
