Semtech (NASDAQ:SMTC) Reports Q3 In Line With Expectations, Stock Jumps 12.3%

Max Juang /
2023/12/06 4:38 pm EST

Semiconductor company Semtech (NASDAQ:SMTC) reported results in line with analysts' expectations in Q3 FY2024, with revenue up 13.1% year on year to $200.9 million. On the other hand, next quarter's revenue guidance of $190 million was less impressive, coming in 8.3% below analysts' estimates. It made a non-GAAP profit of $0.02 per share, down from its profit of $0.65 per share in the same quarter last year.

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Semtech (SMTC) Q3 FY2024 Highlights:

  • Revenue: $200.9 million vs analyst estimates of $200.5 million (small beat)
  • EPS (non-GAAP): $0.02 vs analyst estimates of -$0.15 ($0.17 beat)
  • Revenue Guidance for Q4 2024 is $190 million at the midpoint, below analyst estimates of $207.2 million
  • Free Cash Flow was -$12.42 million compared to -$18.93 million in the previous quarter
  • Inventory Days Outstanding: 149, up from 129 in the previous quarter
  • Gross Margin (GAAP): 51.3%, down from 65.1% in the same quarter last year

"While recognizing ongoing constraints in our hardware business and effects of elevated channel inventories, we noted stabilization of end market demand for our semiconductor business," 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 mediocre, averaging 14.5% annually. As you can see below, this was a weaker quarter for the company, with revenue growing from $177.6 million in the same quarter last year to $200.9 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

Semtech had an average quarter as its revenue grew 13.1% year on year, in line with analysts' estimates. This marks 3 straight quarters of growth, implying that Semtech is in the middle of its cycle, as a typical upcycle generally lasts 8-10 quarters.

Semtech's revenue is projected to contract next quarter, with the company guiding to a 11.8% year-on-year decline. On the other hand, analysts seem to disagree and forecast 7.9% revenue growth over the next 12 months.

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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 149, which is 8 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Semtech's Q3 Results

Although Semtech, which has a market capitalization of $1.07 billion, has been burning cash over the last 12 months, its more than $123.8 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.

We were impressed by how significantly Semtech blew past analysts' adjusted EBITDA and EPS expectations this quarter. That stood out as a positive in these results and was partly driven by outperformance in its infrastructure and high-end consumer segments. On the other hand, its revenue guidance for next quarter underwhelmed and its operating margin shrunk. On October 2nd, Mark Lin also became the company's Chief Financial Officer. Overall, this was a mixed quarter for Semtech. The stock is up 12.3% after reporting and currently trades at $18.75 per share.

Semtech may not have had the best quarter, but does that create an opportunity to 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.

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