Opinion on  SiRF Technology Holdings Inc (SIRF)     Sector: Technology  >  Industry: Communications Equipment
Wipeout: SiRF's Down

SiRF Tech (SIRF) reported earnings the other day that were a bit disappointing. And the ensuing reaction by the stock was even more disappointing.

The company reported in-line earnings, but they were aided by a lower tax rate. The big disappointment was that they lowered revenue guidance, citing a slower than expected ramp in wireless.

This had been one of the areas that made me the most bullish. There is talk that much of the weakness stemmed from problems at Motorola (MOT), as opposed to the company losing market share or carriers losing interest in LBS.

So the bullish thesis is that wireless growth will still kick in at some point, and that the attractive growth profile for the company warrants sticking with the investment. The bearish argument is that the last few earnings reports have been disappointing, and thta brings into questions management's ability to execute.

I have traded SIRF very profitably over the last couple of years. This trade was looking good, adding to the position in the low 20s, and watching it rise into the mid 20s. At that point, I hedged my risk. But going forward, I think SIRF is going to be in the penalty box for a while, and I might use any bounce to exit positions and deploy the proceeds elsewhere.

long SIRF

Growth stocks are continuing to outperform today, with the NDX +1.0% and the SPX +0.25% as of this post.

One stock that I am involved in that looks to be finding some support is SiRF Tech (SIRF). I have owned this stock on and off for years, with my most recent purchase coming before the company reported earnings, when the stock dipped into the low $20s.

The market did not like the earnings report one bit, when management basically gave soft guidance and said that the big growth from wireless carriers might take a little longer than expected.

I was tempted to sell after it gapped lower the next day, but it soon reached levels where I felt it was just too cheap to sell. Since then, the stock has started to bounce back, and a look at the chart above shows some solid support developing in the form of a double bottom.

I think the stock can climb back to the area from which it broke down, around $22-23. I will look to use such levels as a better exit point for this trade.

long SIRF

I have traded and recommended SIRF on and off for a couple years now (see archives), and have been very profitable. But my most recent trade did not work out as well.

The stock has come down quite a bit, mostly on pricing concerns as ASPs fell quicker than expected and hurt margins. Also, the rollout of location-based services (LBS) among wireless carriers was delayed, and this was supposed to be a big area of growth.

Today, the stock is spiking +9% higher on some good LBS news - finally. Motorola (MOT) has a new handset out, and it is believed to have SIRF chipsets in it. This is good news, and is certainly helping the stock. I held on to my position when it fell into the upper teens, as I felt it was simply too low to sell.

But on today's bounce, I am letting go of my positions. The stock could enjoy more of this relief rally, but I am not sure how long it lasts. I think the pricing pressure is still there, and there is also growing competition from large competitors such as Broadcom (BRCM).

The stock has certainly been a laggard this year, especially when compared to some other stocks in the GPS space, such as Navteq (NVT) and Garmin (GRMN). I think both of these stocks make better swap candidates, and would look to get into one of them on a pullback.

sold SIRF