Network chips maker MACOM Technology Solutions (NASDAQ: MTSI) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 28.3% year on year to $190.5 million. The company expects next quarter's revenue to be around $200 million, in line with analysts' estimates. It made a non-GAAP profit of $0.66 per share, improving from its profit of $0.54 per share in the same quarter last year.
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MACOM (MTSI) Q2 CY2024 Highlights:
- Revenue: $190.5 million vs analyst estimates of $190.4 million (small beat)
- Adjusted Operating Income: $45.64 million vs analyst estimates of $45.72 million (small miss)
- EPS (non-GAAP): $0.66 vs analyst expectations of $0.66 (in line)
- Revenue Guidance for Q3 CY2024 is $200 million at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 53.2%, down from 58% in the same quarter last year
- Inventory Days Outstanding: 195, up from 188 in the previous quarter
- Free Cash Flow of $41.54 million, up from $13.07 million in the previous quarter
- Market Capitalization: $7.28 billion
“We remain focused on engineering excellence, financial performance and execution,” 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 4.9% annually. As you can see below, this was a weaker quarter for the company, with revenue growing from $148.5 million in the same quarter last year to $190.5 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 had a good quarter as its revenue grew 28.3% year on year, in line with analysts' estimates. We believe the company is still in the early days of an upcycle, as this was just the second consecutive quarter of growth and a typical upcycle tends to last 8-10 quarters.
MACOM's management team believes its revenue growth will accelerate, guiding to 33% year-on-year growth next quarter. Wall Street expects the company to grow its revenue by 22.8% 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.
This quarter, MACOM's DIO came in at 195, which is 42 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.
Key Takeaways from MACOM's Q2 Results
Revenue beat and revenue guidance was in line, showing that the company is on track. Despite a small miss on the operating income line, EPS was in line. Overall, this was a fine quarter for MACOM. The stock traded up 3.9% to $105 immediately after reporting.
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.