Atheros (ATHR) 2Q:2008 results

Quarter was slightly better on the top line with a slight gross margin miss. EPS beat consensus by a penny due to a lower tax rate, which averted an EPS miss.

Revenue guidance for next quarter of 13-15% sequential growth equates to 136-139mm, which is slightly better than consensus. Gross margin guidance of 48.5 - 49.5% is well below estimates. Broadcom had a similar dynamic to their quarter -- much bigger revenue blowout with a forecasted decline in gross margins -- the stock is down 20% since. I would expect Atheros to trade lower... in fact, I added to the short at 29 pre-opening.

Though 802.11 is a high growth market, Atheros is highly dependent on 802.11g -- the older flavor. It makes up 63% of revenues. As 802.11n is quickly becoming the mainstream part, 11g pricing will erode quickly. I don't expect their margin situation to change any time soon. The company has talked about adding in new lines of business with large TAMs (total addressable markets) -- this likely means they'll do a large acquisition at some point. Their future is fraught with pricing pressure and integration risk. I don't like it.