MACOM (NASDAQ:MTSI) Reports Q4 In Line With Expectations But Quarterly Guidance Underwhelms

Adam Hejl /
2023/11/09 7:41 am EST

Network chips maker MACOM Technology Solutions (NASDAQ: MTSI) reported results in line with analysts' expectations in Q4 FY2023, with revenue down 15.6% year on year to $150.4 million. On the other hand, next quarter's revenue guidance of $151 million was less impressive, coming in 3% below analysts' estimates. Turning to EPS, MACOM made a non-GAAP profit of $0.56 per share, down from its profit of $0.77 per share in the same quarter last year.

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MACOM (MTSI) Q4 FY2023 Highlights:

  • Revenue: $150.4 million vs analyst estimates of $150.3 million (small beat)
  • EPS (non-GAAP): $0.56 vs analyst estimates of $0.55 (1.3% beat)
  • Revenue Guidance for Q1 2024 is $151 million at the midpoint, below analyst estimates of $155.6 million (EPS guidance also slightly below)
  • Free Cash Flow of $44.55 million, similar to the previous quarter
  • Inventory Days Outstanding: 195, down from 203 in the previous quarter
  • Gross Margin (GAAP): 57.6%, down from 60.9% in the same quarter last year (miss)

“We believe focusing on the highest frequency, highest power and highest data rate applications will further strengthen our market position and results in fiscal year 2024,” 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 7.6% annually. This quarter, its revenue declined from $178.1 million in the same quarter last year to $150.4 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

This was a slow quarter for the company as its revenue dropped 15.6% year on year, in line with analysts' estimates. This could mean that the current downcycle is deepening.

MACOM's revenue growth has slowed over the last three quarters and its management team projects growth to turn negative next quarter. As such, the company is guiding for a 16.2% year-on-year revenue decline, but Wall Street thinks there will be a recovery next year. Analysts' estimates call for 4.2% 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 195, which is 49 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 Q4 Results

With a market capitalization of $5.18 billion, MACOM is among smaller companies, but its $514.5 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.

A highlight during the quarter was MACOM's improvement in inventory levels. We were also happy its EPS narrowly outperformed Wall Street's estimates. On the other hand, its revenue guidance and EPS for next quarter underwhelmed and its operating margin shrunk. Overall, this was a mediocre quarter for MACOM. The stock is up 4.4% after reporting and currently trades at $76.15 per share.

MACOM may have had a tough quarter, but does that actually create an opportunity to invest 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.

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The author has no position in any of the stocks mentioned in this report.