MACOM (NASDAQ:MTSI) Reports Q1 In Line With Expectations, Next Quarter's Growth Looks Optimistic

Adam Hejl /
2024/05/02 7:47 am EDT

Network chips maker MACOM Technology Solutions (NASDAQ: MTSI) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 7% year on year to $181.2 million. The company expects next quarter's revenue to be around $190 million, slightly above analysts' estimates. It made a non-GAAP profit of $0.59 per share, down from its profit of $0.79 per share in the same quarter last year.

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MACOM (MTSI) Q1 CY2024 Highlights:

  • Revenue: $181.2 million vs analyst estimates of $180.9 million (small beat)
  • EPS (non-GAAP): $0.59 vs analyst expectations of $0.59 (in line)
  • Revenue Guidance for Q2 CY2024 is $190 million at the midpoint, above analyst estimates of $188.2 million
  • Gross Margin (GAAP): 52.5%, down from 60.6% in the same quarter last year
  • Inventory Days Outstanding: 188, down from 208 in the previous quarter
  • Free Cash Flow of $13.07 million, down 54% from the previous quarter
  • Market Capitalization: $7.14 billion

“Our engineering, sales, operations, quality and administrative teams are doing an excellent job supporting our customers,” said Stephen G. Daly, President and Chief Executive Officer.

Founded in the 1950s as Microwave Associates, a communications supplier to the US Army Signal Corp, today MACOM Technology Solutions (NASDAQ: MTSI) is a provider of analog chips used in optical, wireless, and satellite networks.

Analog Semiconductors

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

MACOM's revenue growth over the last three years has been unimpressive, averaging 3.5% annually. As you can see below, this was a weaker quarter for the company, with revenue growing from $169.4 million in the same quarter last year to $181.2 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

MACOM Total Revenue

While MACOM was in line with analysts' revenue estimates, this was a sluggish quarter for the company as its revenue only grew 7% year on year. MACOM's growth, however, flipped from negative to positive this quarter. This encouraging sign will likely be welcomed by shareholders.

MACOM returned to positive revenue growth this quarter and its management team expects the trend to continue. The company is guiding to 27.9% year-on-year growth next quarter, and analysts seem to agree, forecasting 26% growth over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

MACOM Inventory Days Outstanding

This quarter, MACOM's DIO came in at 188, which is 38 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.

Key Takeaways from MACOM's Q1 Results

We were impressed by MACOM's strong improvement in inventory levels. We were also glad next quarter's revenue and EPS guidance were slightly higher than Wall Street's estimates. On the other hand, its operating margin regrettably fell and its gross margin shrunk. Overall, this was a mediocre quarter for MACOM. The stock is up 1.1% after reporting and currently trades at $100.13 per share.

So should you invest in MACOM right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.