MACOM Technology (NASDAQ:MTSI) Reports Q4 In Line With Expectations, Next Quarter Growth Looks Optimistic

Kayode Omotosho /
2022/11/03 7:37 am EDT

Network chips maker MACOM Technology Solutions (NASDAQ: MTSI) reported results in line with analyst expectations in Q4 FY2022 quarter, with revenue up 14.7% year on year to $178.1 million. Guidance for next quarter's revenue was $179.5 million at the midpoint, which is 1.1% above the analyst consensus. MACOM Technology made a GAAP profit of $239.3 million, improving on its profit of $17.1 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) Q4 FY2022 Highlights:

  • Revenue: $178.1 million vs analyst estimates of $177.3 million (small beat)
  • EPS (non-GAAP): $0.77 vs analyst estimates of $0.76 (1.49% beat)
  • Revenue guidance for Q1 2023 is $179.5 million at the midpoint, above analyst estimates of $177.5 million
  • Free cash flow of $52.2 million, up 54.9% from previous quarter
  • Inventory Days Outstanding: 150, up from 148 previous quarter
  • Gross Margin (GAAP): 60.9%, up from 58.1% same quarter last year

“We are pleased with our Q4 and fiscal 2022 results,” 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. 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 unremarkable, averaging 11.7% annually. And as you can see below, last year has been even less strong, with quarterly revenue growing from $155.2 million to $178.1 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 still a slow quarter with just 14.7% revenue growth. This marks 10 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 continue, and is guiding for revenue to grow 12.4% YoY next quarter, and Wall St analysts are estimating growth 8.76% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. 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 150, 10 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from MACOM Technology's Q4 Results

With a market capitalization of $4.02 billion MACOM Technology is among smaller companies, but its more than $586.5 million in cash and positive free cash flow over the last twelve months give us confidence that MACOM Technology has the resources it needs to pursue a high growth business strategy.

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, revenue growth is overall a bit slower these days. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is flat on the results and currently trades at $57.6 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.

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