Inphi Corp.'s Lower Q1 Guidance Triggers BofA Downgrade

Inphi Corporation (NYSE: IPHI) reported fourth-quarter results Wednesday that were largely in-line with the Wall Street consensus, but guided a first-quarter outlook that fell short of expectations. 

The Analyst

Bank Of America Merrill Lynch's Vivek Arya downgraded Inphi Corp. from Neutral to Underperform and decreased the price target from $40 to $21.

The Thesis

Inphi Corp. reported Q4 sales inline with the expectations and beat EPS estimates by 3 cents per share. This wasn't enough to soften the impact of significantly lower Q1 sales guidance. Inphi expects 30-percent lower sales quarter-over-quarter and 36-percent lower sales year-over-year — 21-percent below expectations, Arya said in a note.

BofA's concerns include persistent inventory issues, a lack of concrete orders from customers, lower demand in China, deteriorating prices and the unexpected loss of a second customer for its Colorz data center product.

Given the uncertainty of the company's earnings, Arya said he decided to switch to an EV/S methodology, and his new price target is based on 3 times EV/S. The analyst said he has a downward bias to the company's gross margin; it was guided down for Q1, and Arya said he sees more room for a downside surprise. 

The Price Action

Inphi shares were down 15.55 percent at $25.09 at the close Thursday. 

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