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Semtech (SMTC) Q2 Earnings & Revenues Surpass Estimates

Semtech Corporation’s SMTC fiscal second-quarter 2021 non-GAAP earnings of 43 cents per share surpassed the Zacks Consensus Estimate by a penny. The reported earnings increased 22.9% sequentially and 13.2% year over year.

Non-GAAP revenues of $143.7 million increased 8% sequentially and 5% from the prior-year quarter. The increase was driven by strength in the Signal Integrity products group. Strong growth from the Hyperscale data center and 5G wireless base station markets also aided the growth.

Revenues surpassed the Zacks Consensus Estimate by 1.1%.

Management remains optimistic about the LoRa business amid the COVID-19 pandemic. As LoRa is ideally suited for applications such as contact tracing, distance tracking, hygiene and health monitoring, as well as occupancy management, the company expects to see further growth in the LoRa business.

Its key growth drivers are product differentiation, operational flexibility, and specific focus on fast-growing segments and regions.

Let’s delve into the numbers in detail:

Semtech Corporation Price, Consensus and EPS Surprise

Semtech Corporation Price, Consensus and EPS Surprise

Semtech Corporation price-consensus-eps-surprise-chart | Semtech Corporation Quote

Revenues by End Market

Sales to the infrastructure end market (including enterprise computing and communications end markets) — which represented 47% of its total revenues — increased 18% on a sequential basis and 37% year over year, driven by a strong rebound in PON demand.

However, revenues from the industrial market increased 12% sequentially and represented 31% of total net revenues.

Also, sales to the high-end consumer market represented 22% of total revenues and decreased 11% sequentially. Roughly 14% of high-end consumer revenues were attributed to mobile devices and 8% to other consumer systems.

Revenues by Product Group

Signal Integrity Product Group revenues contributed 50% to total sales. The reported figure increased 20% sequentially and 30% from the prior year. The increase was driven by persistently strong hyperscale data center customer addition and solid demand for 10 gig PON products.

Revenues from its Protection Product Group represented 23% of the total revenues. The figure was down 17% sequentially due to COVID-19-related issues.

Wireless and Sensing Product Group revenues, which contributed 27% to total revenues, increased 18% sequentially. The increase was driven by record net sales of LoRa platform products.

Bookings

Net bookings decreased sequentially but resulted in a book to bill above 1. POS bookings accounted for approximately 21% of shipments during the quarter.

Margins and Net Income

Non-GAAP gross margin was 61.4%, up 50 basis points (bps) sequentially but down 50 bps from the year-ago quarter. The sequential increase was due to a higher mix of infrastructure revenues.

Semtech’s adjusted selling, general and administrative expenses decreased 8.3% year over year to $27.9 million. However, product development and engineering expenses increased 11.7% from the year-ago quarter to $26.1 million.

As a result, its operating margin of 24.2% was up 300 bps sequentially and 130 bps year over year.

Balance Sheet & Cash Flow

Semtech ended the quarter with cash and cash equivalents of $281.5 million versus $268.9 million in the fiscal first quarter. Accounts receivables were $51.7 million, up from $49.5 million in the fiscal first quarter. Long-term debt was $187 million, down from $190.8 million in the fiscal first quarter.

For the quarter, cash flow from operations was $37.2 million, capital expenditure amounted to $7 million and free cash flow totaled $30.2 million.

During the quarter, the company repurchased 233,000 shares for $12.4 million.

Guidance

For fiscal third-quarter 2021, management expects revenues in the range of $145-$155 million. The corresponding Zacks Consensus Estimate is pegged at $145.85 million.

Non-GAAP gross profit margin is expected within 61-62%. Management projects SG&A expenses within $29-$30 million, and research and development costs in the range of $25-$26 million. Non-GAAP earnings per share are expected in the range of 43-49 cents. The Zacks Consensus Estimate for the same is pegged at 45 cents per share.

Zacks Rank and Other Stocks to Consider

Semtech currently has a Zacks Rank #2 (Buy). Some better-ranked stocks in the broader technology sector include Stamps.com Inc. STMP, eBay Inc. EBAY and Atlassian Corp. TEAM. While Stamps.com and eBay sport a Zacks Rank #1 (Strong Buy), Atlassian carries 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 for Stamps.com, Atlassian Corp. and eBay is currently projected at 15%, 22.3% and 11.25%, respectively.

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