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The buy rating is not risk-free. Any significant reduction or delay in the purchase of precision optical solutions by the U.S. government could have an impact on financial performance, as the company derives a significant portion of revenue from this source.

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Pericom Semiconductor(PSEM Quote), which makes integrated circuits and frequency-control products, has been rated a buy since February on the basis of growth in the company's revenue, net income and operating cash flow over the last quarter and fiscal year. Also, Pericom has a healthy cash balance, an improved return on equity and minimal long-term debt.

Fiscal-year first-quarter net profit surged 139% over the year-earlier period to $3.9 million, or 15 cents a share, bolstered by strong demand for its products. Sales climbed 24.5% to $38.5 million. Operating expenses edged up 1.9% to $9.92 million from $9.74 million as a result of higher selling, general and administrative expenses and stock-based compensation costs. Finally, higher interest and other income, which advanced to $1.37 million, also helped the net income increase.

During the quarter, Pericom expanded its digital video product portfolio by introducing a dual mode DisplayPort to DVI/HDMI Bridge. The company also launched two new HDMI switches under the same segment. To meet its target for the share-repurchase program, Pericom repurchased 454,000 shares of its stock during the quarter at an average price of $10.93 for a total of $5 million.

On the downside, stiff competition and a weaker gross margin could negatively affect earnings.