Semtech (SMTC, Financial), known for its high-performance semiconductor systems, faced a challenging Q4 (January) with modest earnings and sales due to high global inventories. Despite this, the company remains optimistic about its early-stage recovery, which is reflected in its stock's recent upward trend, gaining about +30% over the past week and more than doubling since October's lows.
Upon taking the CEO position in June 2023, Paul Pickle had to navigate through inflation and demand challenges, leading to cost-saving actions and a cautious stance. However, the demand landscape has been improving, boosting investor confidence significantly. The market believes SMTC is moving past its toughest period, with future demand for cloud access expected to provide a long-term boost.
- Despite a sequential increase in demand across all end markets, Q4 revenue slightly declined to $192.9 million, affected mainly by the infrastructure and high-end consumer markets, with a minor positive adjustment from industrial market growth.
- Infrastructure revenue decreased by 9% to $39.4 million, attributed to a slowdown in North American data center deployments and efforts to normalize inventory levels. However, certain data center components and broadband demand are on the rise.
- The high-end consumer segment experienced a 15% quarter-over-quarter decrease, following strong sales in voltage protection devices. Yet, channel inventory levels are normalizing, and proximity sensing bookings have hit a yearly high, especially from Chinese handset manufacturers.
- Industrial sales slightly increased by 1% to $121.5 million, driven by the internet-of-things (IoT) demand. Despite being the largest market, high module inventories and limited visibility suggest a delayed recovery, possibly extending into the second half of the year.
- For Q1 (April), SMTC forecasts a mild recovery with adjusted EPS ranging from $(0.04) to $0.04 and revenues between $195 million and $205 million. This guidance suggests an inverse trend to Q4, with expected increases in infrastructure and high-end consumer revenues but a potential dip in industrial sales.
While Q4 results for SMTC may not have been stellar, they indicate progress towards recovery. The interest in AI technology positions SMTC well for growth, making it an attractive option for investors, especially with its shares still about 70% below their late 2021 peak.
