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PMC-Sierra Growth Questioned

PMC-Sierra Inc. (Nasdaq: PMCS) stock was down 25 percent today as unsteadiness in the passive optical networking (PON) market is opening up questions about the company's growth prospects.

On its earnings call yesterday, PMC noted that revenues from Passave, the PON chip vendor acquired in May, will drop next quarter, to $13 million compared with $16 million the previous quarter. (See PMC Preps PON Plans.)

Small numbers are a big deal here, because Passave was expected to be the growth engine for PMC, according to Stanford Group analyst Tim Kellis, who downgraded PMC to Sell from Hold this morning.

"We had been concerned about the lack of growth within the legacy business and the new storage business, but this was supposed to be offset by the growth in the Passave business unit," Kellis wrote in his report.

PMC shares closed down $1.84 (26.36%) to $5.14 today, a startling drop even to Kellis. "I didn't think the stock was ready for a 25 percent haircut," he told Light Reading. It didn't help that the Nasdaq was making a new 14-month low.

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