Semiconductor company Semtech (NASDAQ:SMTC) reported Q4 CY2023 results beating Wall Street analysts' expectations, with revenue up 15.2% year on year to $192.9 million. Guidance for next quarter's revenue was also optimistic at $200 million at the midpoint, 2.4% above analysts' estimates. It made a non-GAAP loss of $0.06 per share, down from its profit of $0.47 per share in the same quarter last year.
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Semtech (SMTC) Q4 CY2023 Highlights:
- Revenue: $192.9 million vs analyst estimates of $190.7 million (1.2% beat)
- EPS (non-GAAP): -$0.06 vs analyst expectations of -$0.04 (34.7% miss)
- Revenue Guidance for Q1 CY2024 is $200 million at the midpoint, above analyst estimates of $195.3 million (gross margin and adjusted EBITDA guidance also head for the period)
- Gross Margin (GAAP): 48.6%, down from 61.2% in the same quarter last year
- Inventory Days Outstanding: 133, down from 149 in the previous quarter
- Free Cash Flow of $12.21 million is up from -$12.42 million in the previous quarter
- Market Capitalization: $1.79 billion
"End market demand for our semiconductor business has progressed from stable to growing," 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 14.1% annually. But as you can see below, this was a strong quarter for the company, with revenue growing from $167.5 million in the same quarter last year to $192.9 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 had a decent quarter as its revenue grew 15.2% year on year, topping analysts' estimates by 1.2%. This marks 4 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 15.4% year-on-year decline. On the other hand, analysts seem to disagree and forecast 1.1% 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.
This quarter, Semtech's DIO came in at 133, which is 10 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.
Key Takeaways from Semtech's Q4 Results
We were impressed by Semtech's strong improvement in inventory levels. "End market demand for our semiconductor business has progressed from stable to growing," said Paul H. Pickle, Semtech's president and chief executive officer. We were also glad next quarter's revenue, gross margin, and adjusted EBITDA guidance all came in higher than Wall Street's estimates. Overall, this was an encouraging quarter for Semtech. The stock is up 10.1% after reporting and currently trades at $30.29 per share.
So should you invest in Semtech 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.