MACOM Technology (NASDAQ:MTSI) Beats Q2 Sales Targets, Next Quarter Growth Looks Optimistic

Radek Strnad /
2022/04/28 7:54 am EDT

Network chips maker MACOM Technology Solutions (NASDAQ: MTSI) reported Q2 FY2022 results beating Wall St's expectations, with revenue up 9.67% year on year to $165.1 million. The company expects that next quarter's revenue would be around $170 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. MACOM Technology made a GAAP profit of $29.5 million, improving on its profit of $14.8 million, in the same quarter last year.

Is now the time to buy MACOM Technology? Access our full analysis of the earnings results here, it's free.

MACOM Technology (MTSI) Q2 FY2022 Highlights:

  • Revenue: $165.1 million vs analyst estimates of $163.1 million (1.23% beat)
  • EPS (non-GAAP): $0.68 vs analyst estimates of $0.66 (2.83% beat)
  • Revenue guidance for Q3 2022 is $170 million at the midpoint, above analyst estimates of $168.4 million
  • Free cash flow of $35.4 million, up 22% from previous quarter
  • Inventory Days Outstanding: 128, up from 123 previous quarter
  • Gross Margin (GAAP): 59.9%, up from 55.8% same quarter last year

“We continue to improve the quality of our earnings and expand our technology portfolio,” 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.

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. The biggest secular growth drivers currently are the adoption of electric vehicles, 5G networks and Internet of Things connectivity, and demand for chips that reduce power consumption. 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 Technology's revenue growth over the last three years has been unimpressive, averaging 5.47% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $150.5 million to $165.1 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 Technology Total Revenue

While MACOM Technology beat analysts' revenue estimates, this was a very slow quarter with just 9.67% revenue growth. This marks 8 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

However, MACOM Technology believes the growth is set to even accelerate, and is guiding for revenue to grow 11.3% YoY next quarter, and Wall St analysts are estimating growth 11.5% over the next twelve months.

There are others doing even better than MACOM Technology. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 150% since the IPO last December. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business 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 Technology Inventory Days Outstanding

This quarter, MACOM Technology’s inventory days came in at 128, 11 days below the five year average, showing that despite the recent increase there is no indication of an excessive inventory buildup at the moment.

Key Takeaways from MACOM Technology's Q2 Results

With a market capitalization of $3.58 billion MACOM Technology is among smaller companies, but its more than $503 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were very impressed by the strong improvements in MACOM Technology’s operating margin this quarter. And we were also glad to see the improvement in gross margin. On the other hand, it was less good to see that the revenue growth was quite weak and the inventory levels increased a little. Overall, this quarter's results still seemed pretty positive and shareholders can feel optimistic. The company is flat on the results and currently trades at $51.5 per share.

Should you invest in MACOM Technology right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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