What happened
Semtech (NASDAQ: SMTC) investors had a tough week as shares fell 21% through Thursday trading. That's compared to a 2% rally in the wider market, according to data provided by S&P Global Market Intelligence. The connectivity tech specialist is now in negative territory so far on the year, down 12% compared to a 6% increase in the S&P 500 in 2023.
The slump was sparked by a conservative new outlook from Semtech's management team.
So what
Semtech announced on Wednesday that fourth-quarter sales for fiscal 2023, which ended Jan. 29, landed at $168 million, which was right within management's short-term forecast. Gross profit margin declined slightly, but the company still boosted gross profit for the quarter and the wider 2022 year.
Yet investors focused instead on the company's conservative fiscal 2024 projection, which factors in what management called a "challenging macroeconomic environment." Semtech sees weaker sales and profit trends in 2024, including losses for the year.
Now what
Specifically, sales in Q1 should land between $230 million and $240 million, which was below Wall Street's expectations. Gross profit margin will fall significantly over the next few quarters, too, thanks to the combination of Semtech's recent acquisition of Sierra Wireless and sluggish demand trends across the industry.
Executives said in a press release that they see a difficult selling environment likely lasting over the next few quarters, and these pressures will contribute to non-GAAP (adjusted) losses of between $0.11 per share and $0.04 per share this year.
Combined with the financial pressures of its $1.3 billion acquisition of Sierra Wireless, this demand challenge makes it likely that the fiscal 2024 year will be a difficult one for sales, profitability, and earnings.
Semtech's management believes the purchase still puts the company in a better position by filling out its portfolio and providing geographical diversification. But the tech stock still fell as investors reduced their short-term expectations for the business.
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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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