Semtech (NASDAQ:SMTC) Exceeds Q1 Expectations, Next Quarter's Growth Looks Optimistic

Anthony Lee /
2024/06/05 4:25 pm EDT

Semiconductor company Semtech (NASDAQ:SMTC) reported Q1 CY2024 results exceeding Wall Street analysts' expectations, with revenue down 12.9% year on year to $206.1 million. The company also expects next quarter's revenue to be around $212 million, slightly above analysts' estimates. It made a non-GAAP profit of $0.06 per share, improving from its loss of $0.46 per share in the same quarter last year.

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Semtech (SMTC) Q1 CY2024 Highlights:

  • Revenue: $206.1 million vs analyst estimates of $200.1 million (3% beat)
  • EPS (non-GAAP): $0.06 vs analyst estimates of $0 ($0.06 beat)
  • Revenue Guidance for Q2 CY2024 is $212 million at the midpoint, above analyst estimates of $210.2 million
  • Gross Margin (GAAP): 49.4%, up from 48.3% in the same quarter last year
  • Inventory Days Outstanding: 130, down from 174 in the previous quarter
  • Free Cash Flow was -$1.42 million compared to -$12.21 million in the previous quarter
  • Market Capitalization: $2.41 billion

"I am pleased with Semtech’s solid first quarter financial performance, with net sales above the high-end of our guidance range, along with meaningful declines in channel inventories across each of our end markets," said Paul H. Pickle, Semtech's president and chief executive officer.

Operating for more than 60 years, Semtech (NASDAQ:SMTC) is a provider of analog and mixed-signal semiconductors used for Internet of Things systems and cloud connectivity.

Semiconductor Manufacturing

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.

Sales Growth

Semtech's revenue growth over the last three years has been unremarkable, averaging 10.7% annually. This quarter, its revenue declined from $236.5 million in the same quarter last year to $206.1 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).

Semtech Total Revenue

Even though Semtech surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 12.9% year on year.

Semtech's revenue inverted from positive to negative growth this quarter, which was unfortunate to see. Looking ahead to the next quarter, the company's management team forecasts a 11.1% year-on-year revenue decline. On the other hand, analysts expect revenue to turn positive over the next 12 months, with average estimates of 10.1% growth.

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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.

Semtech Inventory Days Outstanding

This quarter, Semtech's DIO came in at 130, which is 19 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.

Key Takeaways from Semtech's Q1 Results

We were impressed by Semtech's strong improvement in inventory levels. We were also excited its revenue, EPS, and outlook outperformed Wall Street's estimates. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The stock is up 2.6% after reporting and currently trades at $39.66 per share.

Semtech may have had a good quarter, but does that mean you should 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.