Why PMC-Sierra Is Winning In China; Susquehanna Upgrades To Positive

• PMC-Sierra, Inc. (NASDAQ: PMCS) shares have increased by a 13.06 percent in the past three months, reaching a high of $7.25 on October 1.
• Susquehanna’s Mehdi Hosseini has upgraded the company from Neutral to Positive, raising the price target from $7 to $11.
• Hosseini expressed increased confidence in the secular growth of the Datacenter segment in China, which he believes would benefit PMC-Sierra.

Analyst Mehdi Hosseini explained “a sustained datacenter build-out/refresh cycle in China… will contribute materially to PMCS results,” given that China accounts for about 40 percent of the company’s revenues.

Growth of the China datacenter segment would prove positive for both of PMC-Sierra’s businesses, since the storage controller product has been rated as superior by several of the company’s customers, one of PMC-Sierra’s customers accounts for 60 percent share of the PCIe SSD market in China, and carrier buildout in China would prove positive for the company.

According to the Susquehanna report, datacenter spending in China is expected to grow to 60-65B RMB in 2016, represent a 30 percent year-on-year increase, “as China accelerates the upgrade of its IT infrastructure.”

Regarding the Carrier business, Hossieni believes that the company would benefit from China’s LTE buildout, with “the roll out of service provider tenders, from both China Telecom and Unicom, and an acceleration in datacenter spending,” expected to drive “100G networking demand.”

The FY16 and FY17 EPS estimates have been raised from $0.58 to $0.64 and from $0.71 to $0.90, respectively.