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Updated from 9:57 a.m. EST



delivered slightly better-than-expected fourth-quarter results after the bell Tuesday. The company also offered the bonus of a healthy upside in sales guidance, but it wasn't enough to please a finicky Wall Street.

Traders initially bid the stock down over 6% after the earnings release to around $23 in after-hours trading before regaining some lost ground after guidance was issued. At about 10:45 a.m. EST Wednesday, PMC-Sierra shares were down 79 cents, or 3.2%, to $23.72.

Though some on the Street have lately warmed up toPMCS given improving industry fundamentals, severalanalysts said Wednesday the shares are simply tooexpensive to be a good investment. "We continue torate the stock a hold based on current high valuationeven though we are increasing our 2004/2005 sales andEPS forecast significantly," said analyst David Wu ofWedbush Morgan Securities. He pointed out that theshares trade at an enterprise value-to-sales ratio oncalendar year 2004 of 12 times and a price-to-earnings ratio of 61 timeshis calendar year 2005 EPS estimate. (Wedbush Morgan hasn'tdone recent investment banking for PMCS, but Wu has along position in the shares personally.)


Trading at 60 times peak earnings for thecurrent cycle, we believe the valuation remainsdecoupled from fundamentals," agreed Piper Jaffray'sAshok Kumar, who has an underperform rating on PMCS.Piper hasn't done investment banking for PMCS.

The networking-chip maker posted fourth-quarter sales of $70.6 million, up 34% from last year's levels and above analysts' expectations of $69.5 million. But that was only slightly above PMC's guidance for sales in the range of $68 million to $70 million.

Net income totaled $9.5 million, or 5 cents a share, compared to a loss of $30.5 million a year ago. Pro forma income, on a per-share basis, totaled 3 cents a share, a penny above expectations.

In the quarter ending in March, the company expects sales in the range of $77 million to $79 million, above the consensus estimate for $71.3 million. Leading up to the conference call, analysts had outlined expectations for flat earnings.

PMC-Sierra sells to companies including



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. Its stock has catapulted upward in 2004, rising from $5.56 on Dec. 31, as Wall Street has grown ever more bullish on prospects for increased telecom spending.

The head of PMC-Sierra backed that outlook Tuesday, albeit in measured fashion. "We expect to see a modest increase in global carrier capex in 2004, supported by companies like




," CEO Bob Bailey said on a postclose conference call, noting both service providers expect to increase their spending for the first time in over three years. Bailey is "cautiously optimistic" about PMC-Sierra's prospects in 2004 and said that if the economy stays on track, all the company's product lines should see growth.

Shares of PMC-Sierra jumped nearly 9% last Friday after a sunny report from network-equipment maker Juniper. Also last week, PMC-Sierra saw

two separate upgrades from Lehman (which moved its rating from market perform to overweight) and Merrill Lynch (which merely shifted from a sell to a neutral rating). Both banks cited improving telecom spending as one of the biggest reasons for their brightened outlook on the name.