Updated from July 20

Shares of Applied Micro Circuits ( AMCC) fell nearly 10% Wednesday, a day after it reported results for the first quarter of fiscal 2005. Analysts used the word "cautious" to describe the company's near-term prospects, as AMCC digests a new acquisition and contends with an apparent inventory build in the communications market.

The stock was recently off 38 cents to $3.55.

Among Wall Street's concerns are integration challenges associated with AMCC's $200 million purchase of a PowerPC embedded chip portfolio from IBM, plus recent signs of a communications inventory build, said Pacific Growth Equities analyst Sandy Harrison.

"Given the channel and customer challenges associated with the PowerPC transition, along with signals that inventory in some communications end markets may have temporarily backed up, we believe AMCC has prudently taken a more conservative stance temporarily," he said, adding that he has also taken a "marginally more cautious near-term view" on the stock.

Revenue in AMCC's communications segment grew 3.4% sequentially to $36.4 million or 54% of revenue, reflecting what appears to be a near-term inventory correction. "This is consistent with some of the other commentary we have witnessed on other earnings reports in this segment," said Harrison, predicting the inventory build will clear up in the September or December quarter.

Besides communications, storage results were also disappointing, Harrison said, but added that he's encouraged by the potential opportunity from the IBM PowerPC acquisition. He maintained an equal weight rating on the stock; Pacific Growth doesn't do banking for Applied.

In a morning note, Lehman analyst Arnab Chanda wrote that yesterday's results accord with his "cautious" thesis on communications chipmakers.

"We believe that it is clear at this time that tight capacity caused over-ordering in the communications IC market, causing inventory corrections," he said. Chanda added he thinks AMCC's $70 million revenue guidance assumes bookings will pick up late in the quarter, "which may be challenging given new capacity additions."

Lehman likewise has an overweight rating on AMCC and hasn't done banking for the company.

On Tuesday, AMCC bested expectations on sales and earnings in the first quarter of its fiscal year 2005.

Quarterly net revenue totaled $67.4 million, more than triple last year's level of $20.5 million and slightly above the consensus estimate for $64 million.

The company posted a net loss of $21.8 million or 7 cents a share, narrowing its year-ago loss of $53.4 million or 18 cents a share.

On a pro forma basis, net income equaled $2.1 million or a penny a share, besting expectations for break-even results.

In a prepared statement, CEO Dave Rickey said, "I am pleased that we were able to continue improving our pro forma profitability through sound execution of our existing business and the effective integration of our acquisitions."