Yet another breakout in a fundamentally interesting story I've had my eye on for many months, Cavium Networks (CAVM).   After a huge move in the spring and summer, the stock has been consolidating and repeatedly turned back at $22 for the past 4 months - but an increase in guidance yesterday afternoon woke up analysts whose uprades today has taken the stock out of the base.  Away it goes.

To chase or not to chase?... that is the question.  Recent evidence says yes you should.

Cavium is a $1B market cap company, with about $100M in revenue (price to sales quite expensive) and barely profitable - but who has a solid niche in the electronic convergence world we live in.

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.

Yesterday's raised guidance.

  • Cavium Networks (CAVM), a leading provider of highly integrated semiconductor products that enable intelligent processing for networking, communications, storage, wireless and video applications, today announced that expected revenue in the fourth quarter of 2009 will be stronger than the company's previous outlook.
  • The company now expects that revenue in the fourth quarter of 2009 will increase sequentially by between 18% and 20% over revenue in the third quarter. This is a positive increase over the guidance provided by Cavium Networks in October 2009 that revenue would increase sequentially by between 12% and 16%. The updated estimates do not include any incremental revenue contribution from the acquisition of MontaVista Software, Inc.
  • Customer demand has been very strong and broad based this quarter with strength across all of our product lines. The enterprise and data center market segments continued to see very robust growth, said Syed Ali, president and CEO of Cavium Networks. New product ramps are in early stages at a number of tier-1 customers which is helping drive stellar sequential growth rates.

That news really didn't move the needle yesterday, but the analysts today seem to have done the trick.

  • Shares of chip designer Cavium Networks Inc. ticked up Friday as Jefferies & Co. initiated coverage of the stock with a Buy rating, predicting strong sales growth for the company over the next few years.  Jefferies analyst Adam Benjamin said Cavium is benefiting from a shift to multi-core processors, chips that combine processors to enhance computing power and efficiency. The company designs semiconductors for network gear providers.
  • Benjamin estimates Cavium has a backlog of orders totaling $500 million and is gaining traction with customers including Cisco Systems Inc., Huawei Technologies Co., Nokia Siemens Networks, Juniper Networks Inc. and Alcatel-Lucent.

Also

  • Thomas Weisel Partners analyst Kevin Cassidy, meanwhile, raised his rating to Overweight from Market Weight. “CAVM’s December quarter positive pre-announcement validates our thesis that the enterprise upgrade cycle is now materializing, and that CAVM is likely to be a beneficiary,” he writes.
  • Cassidy lifted his 2009 EPS forecast to 2 cents from break even; for 2010 he now sees 37 cents, up from 28 cents.

No position but tempted...