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Semtech (SMTC) Down 5.7% Since Last Earnings Report: Can It Rebound?

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Zacks Equity Research
·5 min read
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A month has gone by since the last earnings report for Semtech (SMTC). Shares have lost about 5.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Semtech due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Semtech Q4 Earnings & Revenues Surpass Estimates

Semtech Corporation’s fiscal fourth-quarter 2021 non-GAAP earnings of 51 cents per share beat the Zacks Consensus Estimate by 3 cents. The reported earnings increased 8.5% sequentially and 27.5% year over year.

Non-GAAP revenues of $164.7 million increased 6.9% sequentially and 19.3% from the prior-year quarter. Revenues also surpassed the Zacks Consensus Estimate by 3.96%.

The increase was driven by strong demand from all end-markets served.

During the fourth quarter, shipments in Asia represented 79% of net sales, North America contributed 12% and Europe accounted for the remaining 9%.

Management remains optimistic about the LoRa business amid the COVID-19 pandemic. As LoRa is ideally suited for applications such as contact tracing, distance tracking, hygiene and health monitoring, as well as occupancy management, the company expects to see further growth in the LoRa business.

Its key growth drivers are product differentiation, operational flexibility, and specific focus on fast-growing segments and regions.

Let’s delve into the numbers in detail:

Revenues by End Market

Sales to the infrastructure end market (including enterprise computing and communications end markets) — which represented 37% of its total revenues — increased 3% on a sequential basis and 7% year over year. The increase was driven by strong rebound in PON demand.

Also, revenues from the industrial market increased 9% sequentially and 25% from the year-ago quarter. It represented 33% of total net revenues.

Also, sales to the high-end consumer market represented 30% of total revenues. Revenues increased 10% sequentially and 32% year over year. Roughly 19% of high-end consumer revenues were attributed to mobile devices and 11% to other consumer systems.

Revenues by Product Group

Signal Integrity Product Group revenues contributed 38% to total sales. The reported figure increased 1% sequentially. The increase was driven by stronger demand from passive optical networks and the wireless base station business.

Revenues from its Protection Product Group represented 29% of the total revenues. The figure was up 15% sequentially and 26% year over year. The increase was driven by strong demand from Asian smartphone customers. Also, demand from North American smartphone customers remained solid.

Wireless and Sensing Product Group revenues, which contributed 33% to total revenues, increased 6% sequentially and 32% year over year. The increase was driven by record net sales of LoRa platform products.

Bookings

Net bookings increased both sequentially and year over year, resulting in a book-to-bill ratio above 1.

Margins and Net Income

Non-GAAP gross margin was 61.5%, flat both sequentially and year over year, reflecting a higher mix of consumer revenues.

Semtech’s adjusted selling, general and administrative expenses increased 11.8% year over year to $33.3 million. Also, product development and engineering expenses increased 20% from the year-ago quarter to $29 million.

Non-GAAP operating margin of 23.7% was down 70 basis points (bps) sequentially but up 120 bps year over year.

Balance Sheet & Cash Flow

Semtech ended the quarter with cash and cash equivalents of $268.9 million compared with $262.3 million in the fiscal third quarter. Accounts receivables were $70.4 million, up from $58.7 million in the fiscal third quarter. Long-term debt was $179.2 million, down from $183.1 million in the fiscal third quarter.

For the quarter, cash flow from operations was $27.3 million, capital expenditure amounted to $10.6 million and free cash flow totaled $16.7 million.

During the quarter, the company repurchased 1.6 million shares for $71.4 million.

Guidance

For fiscal first-quarter 2022, management expects revenues in the range of $164-$172 million.

Non-GAAP gross profit margin is expected within 61-62%. Management projects SG&A expenses within $32.5-$33.5 million, and research and development costs in the range of $28.5-$29.5 million. Non-GAAP earnings per share are expected in the range of 49-55 cents.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 15.91% due to these changes.

VGM Scores

Currently, Semtech has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Semtech has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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