Hooking Up to Ethernet Pays Off With Investors

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As Vitesse Semiconductor Corp. stakes its turnaround effort on Ethernet technology, investors are starting to connect with the Camarillo company’s shares.

Vitesse recently shifted its focus to selling silicon components and software for Ethernet hardware. The company took another step in that direction this month when it released software intended to help manufacturers shorten the process of getting that hardware to market.

That announcement helped Vitesse shares jump 15 percent to close at $3.81 on Jan. 22, making it one of the top gainers on the LABJ Stock Index. The stock is up 66 percent from a year ago.

Chief Executive Chris Gardner told the Business Journal investors are encouraged by the company’s growing line of Ethernet-related business.

“Investors are taking another look at the company,” he said. “(But) we’re not all the way through the transition.”

Vitesse previously focused on selling components for fiber-optics networks. The company decided a few years ago to shift into Ethernet as the fiber-optic business began its decline. Part of the reason for the shift is that Ethernet is easily upgradeable and well suited to handle heavy loads of data needed to stream videos on mobile devices.

Vitesse’s Ethernet business increased about 19 percent last year and accounted for about 30 percent of product revenues. Clients include hardware manufacturers that supply telecom giants such as Verizon and Sprint.

“The new product story is pretty compelling,” said Quinn Bolton, an analyst who follows Vitesse at Needham & Co. in New York. “I think the Street has taken notice.”

Still, lagging sales of Vitesse’s older tech components led to a loss of $22 million (-55 cents a share) for the year ended Sept. 30, compared with a loss of $1.1 million the previous year. Revenue fell 13 percent to $104 million for the year.

The company expects to be profitable on an operating basis by June of this year. Vitesse also raised $40 million in a stock offering in June that will help to pay off debt obligations due in October.

One benefit of the software unveiled this month is that it could appeal to manufacturers overseas looking for a complete package to set up and manage Ethernet hardware, Bolton said.

Gardner is also optimistic about the so-called Internet of Things, which will connect inanimate objects such as washing machines or entire trucking fleets through Ethernet networks.

He thinks his company is positioned to benefit from industrial-level applications of Ethernet.

“We realized that there was a big transition going on where our products were ideally suited,” Gardner said.

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