Shares of Semtech (NASDAQ: SMTC) are up 16%, according to data provided by S&P Global Market Intelligence, after the analog and mixed-signal semiconductor specialist announced a surprise profit for its fiscal third quarter.
Indeed, late Wednesday Semtech revealed net sales for its fiscal Q3 (ended Oct. 29, 2023) grew 13.1% year over year to $200.9 million, slightly above Wall Street's consensus estimates. On the bottom line, that translated to adjusted (non-GAAP) earnings of $0.02 per share, trouncing expectations for an adjusted net loss of $0.15 per share.
On Semtech's stabilizing demand, optimized cost structure
These results are particularly surprising considering Semtech only recently reiterated its previous outlook in late October, calling for revenue of $190 million to $210 million and an adjusted net-loss per share of $0.22 to $0.09.
"We remain proactive in evaluating our business, including operational refinements and capital structure changes, to provide long-term benefit to our shareholders as economic conditions evolve," Semtech CEO Paul Pickle stated at the time.
In Semtech's press release this week, Pickle noted that the company continues to grapple with elevated channel inventories and constraints in its hardware business. But he also said Semtech saw stabilization in end-market demand for its semiconductor offerings, with particular strength in high-end consumer and data-center applications. Semtech CFO Mark Lin added that the company continues to optimize its cost and capital structures as it works through the current uncertain macroeconomic environment.
What's next for Semtech investors?
For the current Q4 of fiscal 2024 ending in January, Semtech expects net sales of $180 million to $200 million, with adjusted earnings ranging from a loss of $0.11 per share to a profit of $0.01 per share. In this case, the midpoints of both ranges are technically below consensus estimates for a loss of $0.03 per share on revenue closer to $212 million.
Given its relative earnings outperformance in fiscal Q3 as demand stabilizes for its core semiconductor products, however, it seems the market is willing to overlook this guidance shortfall. If the company is able to seize this momentum going forward, it might well prove to be a compelling buy on the cusp of a turnaround.
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