Semtech (SMTC) Q1 Earnings Beat Estimates, Revenues Up Y/Y

Semtech Corporation (NASDAQ:SMTC) reported strong fiscal first-quarter 2019 results with earnings and revenues beating the Zacks Consensus Estimate.

Non-GAAP earnings of 47 cents per share beat the consensus mark by 1 cent and increased 12% sequentially and 7% year over year. Earnings matched the higher end of the guided range of 45-47 cents per share.

Non-GAAP revenues of $151.9 million increased 7% sequentially and 2% from the prior-year quarter. Revenues were within the guided range of $147-$153 million.

On a year-to-date basis, shares have gained 41.5%, outperforming the industry’s 7.7% rally.

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.

The numbers in detail:

Revenues by End Market

Sales to the enterprise computing end market represented 32% of the total revenues and were up sequentially.

However, sales to the high-end consumer market represented 25% of the total net revenues and were down sequentially. Roughly 17% of the high-end consumer revenues were attributable to mobile devices and 8% to other consumer systems.

The industrial and communications end markets witnessed strong demand, and both increased sequentially, representing 32% and 11% of the total revenues, respectively.

Revenues by Product Group

Signal Integrity Product Group revenues contributed 43% to the total sales and increased 2% sequentially. The strong demand for 100-gigabit per second data center and seasonally higher spending from both the PON and base station markets contributed to the growth.

Protection Product Group represented 27% of the total revenues and was up sequentially. The product benefited from the increasing use of protection for 10-gig Ethernet ports in enterprise cloud switches, and wireless access points and base stations.

Wireless and Sensing Product Group was up 20% sequentially and 17% year over year, contributing 30% to the total revenues.

Bookings

During the quarter, bookings increased sequentially, accounting for roughly 39% of the shipments. Book-to-bill ratio was above 1.

Margins and Net Income

Non-GAAP gross margin was 61.4%, flat sequentially but up 60 basis points (bps) from the year-ago quarter.

Semtech’s adjusted operating expenses of $52.5 million increased 2% sequentially, driven by higher variable compensation expenses.

The net result was an operating margin of 26.9% that was up 160 bps sequentially and 40 bps year over year.

Balance Sheet & Cash Flow

Semtech ended the quarter with cash and cash equivalents of $303.3 million, down from $307.9 million in the previous quarter. Accounts receivables were $65.6 million, up from $53.2 million in the prior quarter. Long-term debt was $206.6 million, down from $211.1 million in the last reported quarter.

During the quarter, cash flow from operations was $35 million, capital expenditure was $4.9 million and free cash flow totaled $30.1 million.

Guidance

For fiscal second-quarter 2019, on a non-GAAP basis, management expects revenues in the range of $155-$167 million. The Zacks Consensus Estimate is pegged at $160.7 million.

Non-GAAP gross profit margin is expected within 61-62%. Management projects SG&A expenses within $27-$28 million, and research and development expenses of $24.5-$25.5 million. Non-GAAP earnings per share are expected in the range of 50-58 cents. The Zacks Consensus Estimate is pegged at 54 cents.

Zacks Rank and Stocks to Consider

Semtech has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the technology sector are Littelfuse, Inc. (NASDAQ:LFUS) , SMC Corporation (OTC:SMCAY) , both sporting a Zacks Rank #1, while Amazon.com, Inc. (NASDAQ:AMZN) carries a Zacks Rank #2 (Buy).

Long-term earnings per share growth rate for Littelfuse, SMC and Amazon is projected to be 12%, 13.7% and 30.2%, respectively.

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