Cavium Inc (CAVM), F5 Networks, Inc. (FFIV), Cisco Systems, Inc. (CSCO): The Takeaway

When Cavium Inc (NASDAQ:CAVM), which supplies chips for networking and communication equipment, had released its fourth quarter report in February this year, I was quite confident that the stock could be a winner in 2013. The stock has appreciated around 8% so far this year, but frankly, its performance should have been better. After rising steadily in the first calendar quarter, shares of Cavium Inc (NASDAQ:CAVM) have simply fallen off a cliff as you see in the chart below.

CAVM data by YCharts

What did I do?

The reason behind the drop is not pretty clear, as Cavium Inc (NASDAQ:CAVM) hasn’t done anything wrong. Probably, negative industry news has done the company in. After F5 Networks, Inc. (NASDAQ:FFIV) posted catastrophic results early in April, the mood in the networking and equipment industry was quite somber.

F5 Networks, Inc. (NASDAQ:FFIV) dropped almost 20% in one day after it cited a slowdown in orders from its North American customers and said that it would be unable to meet consensus estimates. F5 Networks, Inc. (NASDAQ:FFIV) wasn’t able to close a few deals, and this led to a sell-off among component suppliers and equipment makers in the industry as investors feared a slowdown in telco and infrastructure spending. This negativity spilled over to Cavium Inc (NASDAQ:CAVM), and probably that’s one of the reasons why the stock has lost momentum.

A solid report

However, all companies are not created equal and F5 Networks, Inc. (NASDAQ:FFIV)’s problem was its own, not Cavium’s. This fact is proved further when you take a look at Cavium Inc (NASDAQ:CAVM)’s recently-released first quarter results. It posted revenue of $69.5 million, up 32% from last year and 5% sequentially, while non-GAAP net income of $0.19 a share was ahead of consensus estimates by a penny.

Cavium has performed consistently over the past one year and the market has rewarded it well as the stock is up 30% over the past 52 weeks. Most importantly, the growth in Cavium Inc (NASDAQ:CAVM)’s business is set to continue as it is guiding for a sequential growth of 5%-8% for the next quarter.