MACOM Technology (NASDAQ:MTSI) Reports Q4 In Line With Expectations

Full Report / November 04, 2021
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Network chips maker MACOM Technology Solutions (NASDAQ: MTSI) reported results in line with analyst expectations in Q4 FY2021 quarter, with revenue up 5.4% year on year to $155.2 million. The company expects that next quarter's revenue would be around $159 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. MACOM Technology made a GAAP profit of $17.1 million, down on its profit of $17.4 million, in the same quarter last year.

MACOM Technology (MTSI) Q4 FY2021 Highlights:

  • Revenue: $155.2 million vs analyst estimates of $154.9 million (small beat)
  • EPS (non-GAAP): $0.61 vs analyst estimates of $0.58 (4.98% beat)
  • Revenue guidance for Q1 2022 is $159 million at the midpoint, above analyst estimates of $158 million
  • Free cash flow of $35.7 million, roughly flat from previous quarter
  • Inventory Days Outstanding: 116, in line with previous quarter
  • Gross Margin (GAAP): 58.1%, up from 52.7% same quarter last year

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.

MACOM’s peers and competitors include Analog Devices (NASDAQ:ADI), Texas Instruments (NASDAQ:TXN), Skyworks (NASDAQ:SWKS), Infineon (XTRA:IFX), NXP Semiconductors NV (NASDAQ:NXPI), Monolithic Power Systems (NASDAQ: MPWR), Marvell Technology (NASDAQ:MRVL), and Microchip (NASDAQ:MCHP).

Analog Semiconductors

Longer manufacturing duration allows analog chip makers to generate greater efficiencies, leading to structurally higher gross margins than their fabless digital peers. The downside of vertical integration is that cyclicality can be more pronounced for analog chipmakers, as capacity utilization upsides work in reverse during down periods. Read More The semiconductor industry is broadly divided into analog and digital semiconductors. Digital chips are what most people think of as the brains of almost every electronic device. Their primary purpose is to either store (memory chips) or process (CPUs/GPUs) data. By comparison, analog chips regulate real world signals, such as temperature, speed, sound, or electrical current, converting them into a stream of digital data that can be processed by digital semiconductors. Analog semiconductors are also used to manage power in any electronic device; they convert, store and distribute the electrical energy that comes from a battery or wall plug. Analog chips are found everywhere from household appliances like refrigerators or washing machines, to smartphones, cars and factory production lines.

Sales Growth

MACOM Technology's revenue growth over the last three years has been slow, averaging 4.08% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $147.2 million to $155.2 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 5.4% revenue growth. This was the third straight quarter of decelerating growth for MACOM Technology, potentially indicating a coming cycle downturn.

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 116, 26 days below the five year average. Flat on last quarter, there is no indication of an excessive inventory buildup at the moment.

Pricing Power

MACOM Technology's gross profit margin, how much the company gets to keep after paying the costs of manufacturing its products, came in at 58.1% in Q4, up 5.3 percentage points year on year.

MACOM Technology Gross Margin (GAAP)

Over the past year, MACOM Technology has seen its already strong gross margins continue to rise, averaging 56.3%, indicative of a potent competitive offering, pricing power, and efficient inventory management.


MACOM Technology reported an operating margin of 33.2% in Q4, up 18.9 percentage points year on year. Operating margins are one of the best measures of profitability, telling us how much the company gets to keep after paying the costs of manufacturing the product, selling and marketing it and most importantly, keeping products relevant through research and development spending.

MACOM Technology Adjusted Operating Margin

Operating margins have been trending up over the last year, averaging 21.8%. However, MACOM Technology's margins are still above average for semiconductor companies, driven by an efficient cost structure.

Earnings, Cash & Competitive Moat

Analysts covering the company are expecting earnings per share to grow 15.7% over the next twelve months, although estimates are likely to change post earnings.

Earnings are important, but we believe cash is king as you cannot pay bills with accounting profits. MACOM Technology's free cash flow came in at $35.7 million in Q4, down 48.5% year on year.

MACOM Technology Free Cash Flow

MACOM Technology has generated $130.4 million in free cash flow over the last twelve months, translating to 21.4% of revenues. This is a strong result; MACOM Technology's free cash flow conversion was higher than most semiconductor companies, in the last year. If it maintains this level of cash generation, it will be able to invest plenty in new products, and ride out any cyclical downturn more easily.

Over the last 5 years MACOM Technology has reported an average return on invested capital (ROIC) of just -3.3%. This suggests it may struggle to find compelling reinvestment opportunities within the business.

Key Takeaways from MACOM Technology's Q4 Results

With a market capitalization of $5.06 billion MACOM Technology is among smaller companies, but its more than $344.9 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 gross margin this quarter. And we were also glad to see the improvement in operating margin. On the other hand, it was less good to see that the revenue growth was quite weak. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. But the market was likely expecting more and the company is down 0.63% on the results and currently trades at $73.14 per share.

Is Now The Time?

When considering MACOM Technology, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in the case of MACOM Technology we will be cheering from the sidelines. Its revenue growth has been very weak, and analysts expect growth rates to deteriorate from there. And while its strong free cash generation allows it to sustainably invest in growth initiatives, unfortunately its relatively low return on invested capital suggests suboptimal growth prospects.

MACOM Technology's price to earnings ratio based on the next twelve months is 29.8x. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.

The Wall St analysts covering the company had a one year price target of $71 per share right before these results, implying that they didn't see much short-term potential in the MACOM Technology.

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