Semiconductor maker SMART Global Holdings (NASDAQ:SGH) reported results in line with analysts' expectations in Q1 CY2024, with revenue down 33.6% year on year to $284.8 million. On the other hand, next quarter's revenue guidance of $300 million was less impressive, coming in 3.4% below analysts' estimates. It made a non-GAAP profit of $0.27 per share, down from its profit of $0.76 per share in the same quarter last year.
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SMART (SGH) Q1 CY2024 Highlights:
- Revenue: $284.8 million vs analyst estimates of $285.1 million (small miss)
- EPS (non-GAAP): $0.27 vs analyst estimates of $0.25 (7.1% beat)
- Revenue Guidance for Q2 CY2024 is $300 million at the midpoint, below analyst estimates of $310.4 million
- Gross Margin (GAAP): 28.8%, up from 27% in the same quarter last year
- Inventory Days Outstanding: 77, down from 99 in the previous quarter
- Free Cash Flow was -$27.12 million, down from $26.83 million in the previous quarter
- Market Capitalization: $1.34 billion
Based in the US, SMART Global Holdings (NASDAQ:SGH) is a diversified semiconductor company offering memory, digital, and LED products.
Processors and Graphics ChipsThe biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.
Sales GrowthSMART's revenue growth over the last three years has been unimpressive, averaging 7.6% annually. This quarter, its revenue declined from $429.2 million in the same quarter last year to $284.8 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).
SMART had a difficult quarter as revenue dropped 33.6% year on year, missing analysts' estimates by 0.1%. This could mean that the current downcycle is deepening.
SMART may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 21.7% next quarter, analysts are expecting revenue to grow 12.6% over the next 12 months.
Product Demand & Outstanding InventoryDays 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, SMART's DIO came in at 77, which is one day below its five-year average. At the moment, these numbers show no indication of an unusual inventory buildup.
Key Takeaways from SMART's Q1 Results
We were impressed by SMART's strong improvement in inventory levels. We were also excited its EPS outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter missed analysts' expectations and its operating margin shrunk.
During the earnings release, SMART also appointed Pete Manca as President of its Intelligent Platform Solutions segment. Before joining, Manca was a Senior Vice President and General Manager at Dell Technologies (NYSE:DELL).
Overall, this was a mixed quarter for SMART, and the market is likely spooked by its weak outlook. The company is down 10.5% on the results and currently trades at $23.19 per share.