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Semtech (SMTC) Beats Earnings & Revenue Estimates in Q4

Zacks Equity Research

Semtech Corporation SMTC reported strong fiscal fourth-quarter 2019 results, wherein earnings and revenues beat the respective Zacks Consensus Estimate.

Non-GAAP earnings of 55 cents per share beat the consensus mark by a penny. However, the reported earnings decreased 12.7% sequentially but increased 37.5% year over year.

Non-GAAP revenues of $160 million decreased 7.8% sequentially but increased 13.8% 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 0.12% and came within the guided range of $155-$165 million.

The company’s improved profitability was driven by differentiated growth drivers and diversification strategy. 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 33% of its total revenues, increased on a sequential basis.

Sales to the high-end consumer market represented 24% of the total revenues, decreasing sequentially. Roughly 16% of high-end consumer revenues were attributable to mobile devices and 8% to other consumer systems.

The industrial and communications end markets both decreased sequentially, representing 32% and 11% of the total revenues, respectively.

Revenues by Product Group

Signal Integrity Product Group revenues contributed 45% to total sales and increased 2% sequentially. Continued strength in data center demand, PON, base station and video markets contributed to the growth.

Protection Product Group represented 26% of the total revenues and was down 21% sequentially. This was due to year-end inventory reduction efforts, and lower global demand for smartphones and other consumer equipment.

Wireless and Sensing Product Group, which contributed 29% to the total revenues, was down 9% sequentially but up 22% year over year.

Bookings

Bookings, which accounted for roughly 45% of the shipments, decreased on a sequential basis during the quarter. The book-to-bill ratio was below 1.

Margins and Net Income

Non-GAAP gross margin was 62.1%, up 40 basis points (bps) sequentially and 110 bps from the year-ago quarter.

Semtech’s adjusted operating expenses of $53.8 million increased 3.5% on a year-over-year basis. As a percentage of sales, selling, general and administrative expenses decreased, while product development and engineering expenses increased.

As a result, its operating margin of 28.9% was down 150 bps sequentially but up 440 bps year over year.

Balance Sheet & Cash Flow

Semtech ended the quarter with cash and cash equivalents of $312.1 million versus $312.2 million in the fiscal third quarter. Accounts receivables were $79.2 million, down from $83.8 million in the fiscal third quarter. Long-term debt was $192.8 million, down from $197.4 million in the fiscal third quarter.

During the quarter, cash flow from operations was $47.2 million, capital expenditure amounted to $4.1 million and free cash flow totaled $43.1 million.

Guidance

For fiscal first-quarter 2020, management expects revenues in the range of $125-$135 million.

Non-GAAP gross profit margin is expected within 61.9-62.5%. Management projects SG&A expenses within $26.5-$27.5 million, and research and development expenses in the range of $24.5-$25.5 million. Non-GAAP earnings per share are expected in the range of 30-36 cents.

Semtech Corporation Price, Consensus and EPS Surprise

Semtech Corporation Price, Consensus and EPS Surprise | Semtech Corporation Quote

Zacks Rank and Stocks to Consider

Semtech currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include Expedia Group, Inc. EXPE, AMETEK, Inc. AME and Inphi Corporation IPHI, 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 rate for Expedia, AMETEK and Inphi is projected at 13.4%, 9.6% and 28.4%, respectively.

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