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Semtech (SMTC) 1Q Earnings In Line, Revenues Beat Estimates

Zacks Equity Research

Semtech Corporation’s SMTC non-GAAP earnings of 34 cents per share were in line with the Zacks Consensus Estimate. The reported earnings decreased 38.2% sequentially but increased 61.9% year over year.

Non-GAAP revenues of $131.4 million decreased 17.9% sequentially but increased 0.71% from the prior-year quarter. The year-over-year increase was driven by growth in IoT, data center and mobile markets. Revenues surpassed the Zacks Consensus Estimate by 0.64% and came in within the guided range of $121-$135 million.

According to management, the sequential decline was due to a weaker overall global demand environment in all the end markets served by the company.

Key growth drivers for Semtech are product differentiation, operational flexibility, and a specific focus on fast-growing segments and regions.

Let’s delve into the numbers in detail:

Revenues by End Market

Sales to the enterprise computing end market, which represented 27% of its total revenues, decreased on a sequential basis.

Also, industrial and communications end markets both decreased sequentially, representing 30% and 10% of the total revenues, respectively.

However, sales to the high-end consumer market represented 33% of the total revenues, increasing 13% sequentially. Roughly 25% of high-end consumer revenues were attributable to mobile devices and 8% to other consumer systems.

Revenues by Product Group

Signal Integrity Product Group revenues contributed 438% to total sales and decreased 30% sequentially. Weakness in data-center demand, PON and wireless base station led to the decline.

Revenues from Protection Product Group represented 30% of the total revenues and were down 8% sequentially.

Revenues from Wireless and Sensing Product Group, which contributed 32% to total revenues, were down 9% sequentially.

Bookings

Bookings, which accounted for roughly 47% of the shipments, increased on a sequential basis during the quarter. The book-to-bill ratio was above 1.

Margins and Net Income

Non-GAAP gross margin was 62.2%, up 10 basis points (bps) sequentially and 710 bps from the year-ago quarter.

Semtech’s adjusted operating expenses of $53.1 million were flat on a year-over-year basis.

As a result, its operating margin of 21.8% was down 710 bps sequentially but up 700 bps year over year.

Balance Sheet & Cash Flow

Semtech ended the quarter with cash and cash equivalents of $287.3 million versus $312.1 million in the fiscal fourth quarter. Accounts receivables were $66.5 million, down from $79.2 million in the fiscal fourth quarter. Long-term debt was $188.3 million, down from $192.8 million in the fiscal fourth quarter.

During the quarter, cash flow from operations was $6.7 million, capital expenditure amounted to $15.3 million and free cash flow totaled $8.5 million.

Guidance

For fiscal second-quarter 2020, management expects revenues in the range of $128-$142 million.

Non-GAAP gross profit margin is expected within 61.9-62.5%. Management projects SG&A expenses within $28-$29 million, and research and development costs in the range of $24-$25 million. Non-GAAP earnings per share are expected in the range of 32-40 cents.

Semtech Corporation Price, Consensus and EPS Surprise

 

Semtech Corporation Price, Consensus and EPS Surprise

Semtech Corporation price-consensus-eps-surprise-chart | Semtech Corporation Quote

Zacks Rank and Stocks to Consider

Semtech currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the broader technology sector include Facebook, Inc. FB, IAC/InterActiveCorp IAC and AXT, Inc. AXTI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth for Facebook, IAC/InterActiveCorp and AXT is currently projected at 20.2%, 20.5% and 15%, respectively.

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