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.
Growth drivers
The enterprise data center and service markets are the drivers of Cavium’s growth, and presence of a major customer in the form of Cisco Systems, Inc. (NASDAQ:CSCO) is certainly an advantage. Cavium Inc (NASDAQ:CAVM) has witnessed growth in its Cisco Systems, Inc. (NASDAQ:CSCO) account, which accounts for 19% of its revenue. Sales to Cisco grew 14% on a sequential basis as the networking behemoth seems to have ramped up network modules used in data networking and optical networks.
Cisco Systems, Inc. (NASDAQ:CSCO) is aggressively going about its cloud business and the company recently entered into a partnership with Microsoft Corporation (NASDAQ:MSFT) as the two titans would be combining their technologies in order to offer solutions that would enable customers to eliminate complexity and boost productivity. This is just one of the many moves that Cisco Systems, Inc. (NASDAQ:CSCO) is making to position itself as the biggest player in the cloud and it would be safe to say that Cavium could witness even better times going forward.
Apart from Cisco Systems, Inc. (NASDAQ:CSCO), Cavium Inc (NASDAQ:CAVM) is making progress at other Tier 1 customers as well. The company has landed design wins at Nokia Siemens, Samsung, Alcatel-Lucent, Huawei, and more content at Cisco Systems, Inc. (NASDAQ:CSCO) as well. Cavium expects to benefit from growth in sales of data center equipment, routers, and expansion of wired and wireless infrastructure, on which telcos such as AT&T Inc. (NYSE:T) would be spending considerably in the coming years.
The takeaway
Cavium’s new products are finding solid traction and the fact that it supplies its products to some of the biggest names in the industry could evoke interest from others as well. Management expects the business to flourish going forward as demand from its major end markets continues to be strong. Cavium has exhibited impressive growth since last year and there are indications that it could continue, with analysts expecting its revenue in the current fiscal year to climb 30% over last year.
Now, it’s clear that Cavium Inc (NASDAQ:CAVM) didn’t deserve the drop it saw over the course of April. However, the good news is that shares haven’t run up too much and investors can still scoop up shares as the stock looks set to get better in the long run.
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The article After Solid Earnings, This Stock Is Set to Fly Higher originally appeared on Fool.com.
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