) reported fourth-quarter fiscal 2014 earnings of 18 cents per
share, missing the Zacks Consensus Estimate by a couple of cents.
Adjusted earnings per share exclude one-time items but include
stock-based compensation expense.
Semtech's total revenue was $126.5 million, down 10.3%
sequentially and 16.0% year over year. Reported revenues were
below management's expected range of $132.0 to $144.0 million and
the Zacks Consensus Estimate of $128.0 million. The sequential
decline was due to the ongoing weakness in capex spending in the
optical long-haul communications infrastructure market and the
seasonal softness in the consumer market.
Direct sales represented approximately 53.0% of the total
fourth-quarter revenue, while distribution brought in the
In the quarter, bookings improved sequentially, resulting in a
book-to-bill ratio of above 1.
Revenues by Geography
In the fourth quarter, Asia remained the largest contributor
of Semtech's revenues, with approximately 73% share versus 71% in
the prior quarter. North America accounted for 15% of the
revenues, down from 16% in the prior quarter. Europe contributed
the remaining 12% of revenues, down from 13% in the prior
Reported gross margin for the quarter was 42.5%, down 1,660
basis points (bps) sequentially and 1,590 bps from the year-ago
quarter. The decrease in gross margin was due to higher inventory
reserves of approximately $15 million, fixed asset write-downs of
approximately $4.3 million and $1.7 million in contract
Semtech reported operating expenses of $220.5 million, soaring
192.0% from the year-ago quarter's $75.5 million. The significant
increase in operating expenses was due to the impact of various
one-time special charges.
As a percentage of sales, selling, general &
administrative (SG&A) expenses decreased from the year-ago
quarter, while product development & engineering expenses
increased. The net result was an operating margin of (131.8%),
down from 8.3% in the year-ago quarter.
On a GAAP basis, Semtech recorded net loss of $210.8 million
($3.12 per share) compared with net income of $12.5 million (18
cents per share) in the prior quarter.
On a pro-forma basis, Semtech generated net income of $11.9
million compared with $18.8 million in the prior quarter.
Pro-forma earnings per share came in at 18 cents compared with 27
cents in the prior quarter.
Balance Sheet & Cash Flow
Semtech ended the quarter with cash and cash equivalents
(including temporary investments) of $243.2 million versus $237.4
million in the previous quarter. Accounts receivables were $66.3
million, down from $74.1 million in the prior quarter. Days sales
outstanding were 51 days, up from 50 days in the last
During the quarter, cash flow from operations was $30.6
million, capital expenditure was $6.4 million and free cash flow
was $24.2 million.
In the last quarter, the company spent $15 million to buy back
approximately 550,000 shares.
For the first quarter of 2015, management expects revenues in
the range of $127.0 to $133.0 million, while the Zacks Consensus
Estimate is pegged at $133.0 million. Gross profit margin is
expected in the range of 58.5-59.6% on a GAAP basis and
59.0-60.0% on a non-GAAP basis.
SG&A expense is expected in the range of $30.8-$31.8
million and research and development expense is expected in the
range of $27.7 to $28.4 million on a GAAP basis. The company
anticipates stock-based compensation expense of $7.0 million,
amortization of acquired intangible assets of $6.4 million,
restructuring charges in the range of $0.5 to $0.7 million and
interest and other expense of $1.8 million.
Accordingly, based on a share count of 68.0 million, GAAP
earnings per share is expected in the range of 10 to 14 cents and
non-GAAP earnings per share is expected within 28-32 cents.
Also, for the first quarter, tax rate is expected in the range
of 14-16%. Capital expenditure is expected to be approximately
Semtech Corporation manufactures a wide range of analog and
mixed-signal semiconductors, including Standard Semiconductor
Products, Rectifier and Assembly Products and Other Products. The
company reported a weak quarter, with both earnings and revenues
missing our expectations.
Though we remain encouraged by the company's new design wins
and various product introductions, Semtech stated that a
reduction in demand remains a matter of concern.
Additionally, the company plans to reduce its investment in
the long-haul optical market due to weak capex spending. These
include reducing worldwide headcount by approximately 6%,
terminating certain new product developments associated with the
long-haul optical market and suspending some discretionary
Though we remain encouraged by the company's constant focus on
reducing its operating expenses, challenges in several key end
markets will likely weigh on the near-term growth prospects.
Currently, Semtech has a Zacks Rank #5 (Strong Sell). Other
stocks that are performing well at current levels include
M/A-Com Technology Solutions Holdings, Inc.
). All of these carry a Zacks Rank #2 (Buy).
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