Signs the Economy Is Getting Better

Economic growthGetting back to earnings season, a lot of companies aren’t able to report as quickly as larger-cap businesses. They just don’t have the same size accounting departments and the same number of auditors on the case. Most of the big, brand-name companies get all the headlines, but there are so many more small- and medium-sized businesses that are good benchmarks for the economy. In fact, as I’m sure you already know, small business is the real engine of the Main Street economy. More jobs come from smaller businesses than any other group.

Back in April, I wrote in this column about a small-cap company called Cavium Networks, Inc. (NASDAQ/CAVM). This company makes semiconductor chips that are used in electronic equipment and sells those chips directly to manufacturers of networking, wireless and consumer electronic equipment. This firm is a good benchmark company in the non-PC market for semiconductors. Intel Corporation (NASDAQ/INTC) pretty much owns that market.

Previously, in the second quarter of 2010, Cavium saw its revenues grow over 100% to a record 42.0 million dollars. The company experienced a sequential revenue increase of 30%. In its latest quarter, the third quarter of 2010, the story is the same. According to Cavium, its revenues during the third quarter grew 113% to 55.2 million dollars. Earnings came in at $5.0 million, or $0.10 per diluted share, compared to a net loss of $4.2 million, or ($0.10) per diluted share, in the third quarter of last year.

As I say, a company like Cavium is a good benchmark company to follow, because its business operations highlight what’s happening in the non-PC market for electronics. According to this story, business is getting a lot better. The latest quarter was Cavium’s sixth consecutive quarter of double-digit sale growth. In addition, operating margins are going up which is also a good sign for the future of the industry.

There is positive momentum in this economy. It’s just not across the board. Third-quarter earnings are still pouring in and a lot of smaller companies like Cavium are reporting good growth stories. The economy is turning around, only it’s doing so without the housing market.