No Surprises In MACOM Technology's (NASDAQ:MTSI) Q1 Sales Numbers But Stock Drops

Adam Hejl /
2022/01/27 1:11 pm EST

Network chips maker MACOM Technology Solutions (NASDAQ: MTSI) reported results in line with analyst expectations in Q1 FY2022 quarter, with revenue up 7.48% year on year to $159.6 million. The company expects that next quarter's revenue would be around $163 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. MACOM Technology made a GAAP profit of $138.8 million, improving on its loss of $8.96 million, in the same quarter last year.

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MACOM Technology (MTSI) Q1 FY2022 Highlights:

  • Revenue: $159.6 million vs analyst estimates of $158.9 million (small beat)
  • EPS (non-GAAP): $0.64 vs analyst estimates of $0.62 (3.27% beat)
  • Revenue guidance for Q2 2022 is $163 million at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow of $29 million, down 18.9% from previous quarter
  • Inventory Days Outstanding: 123, up from 116 previous quarter
  • Gross Margin (GAAP): 58.9%, up from 54% same quarter last year

“Our focus on internal investment continues to drive technology and product development, revenue growth and improved financial 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.

Sales Growth

MACOM Technology's revenue growth over the last three years has been slow, averaging 3.45% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $148.5 million to $159.6 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 7.48% revenue growth. This marks 7 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 9.76% YoY next quarter, and Wall St analysts are estimating revenue growth of 10.8% over the next twelve months.

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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 123, 17 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 Q1 Results

With a market capitalization of $4.39 billion MACOM Technology is among smaller companies, but its more than $477.7 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, it was less good to see that the revenue growth was quite weak and inventory levels increased. Overall, this quarter's results still seemed pretty positive and shareholders can feel optimistic. But the market was likely expecting more and the company is down 7.51% on the results and currently trades at $58.32 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.