Semtech shares hit two-year low after company lowers Q3 guidance
Camarillo-based Semtech produced record revenue and earnings in the second quarter of 2022, but its shares plummeted 27% the day after its earnings release after the company’s guidances for the third quarter were well below analysts’ expectations.
Semtech, a semiconductor company specializing in Internet of Things applications, saw its net income increase in the second quarter of 2022, to $51.6 million, or 81 cents per share, from $33.2 million, or 50 cents per share, in the same quarter a year ago, according to earnings released Aug. 31.
Semtech also reported 87 cents per share in adjusted earnings, beating the expectations of analysts polled by FactSet, who predicted earnings per share of 85 cents.
Both earnings per share figures were records for the company.
Semtech also beat analysts’ revenue expectations, with a record $209.3 million in sales, up from $185 million in sales in the same quarter a year ago. Analysts expected sales of $208.3 million, according to FactSet.
But investors were disappointed by Semtech’s forecast for the current quarter, which ends Oct. 30. Semtech expects adjusted earnings to be at 63 cents per share along with sales of $175 million.
According to Investor’s Business Daily, investors were looking for adjusted earnings of 90 cents per share and sales of $215.6 million, which would represent big growth from last year’s third quarter marks of 74 cents per share on sales of $194.9 million.
Semtech CEO Mohan Mahewswaran said during the company’s earnings call that “the macro demand environment is deteriorating and, as a result, we are anticipating a weaker second-half performance.”
“We are seeing the effects of a softening macro environment, ongoing COVID-related issues in China and a very weak consumer market. We also continue to have pockets of supply chain challenges in specific areas,” he said.
Shares of the semiconductor company nosedived 27.2% on Sept. 1 to close at with shares sitting at $33.65. That was its lowest point since March 2020, and year-to-date, Semtech’s stock is down 63.3%. The Nasdaq was down 2% on Sept. 1 and shares of many semiconductor companies declined, though not as steeply as Semtech’s.
Two Wall Street firms downgraded Semtech’s stock to neutral from buy after the earnings report: Cowen and Oppenheimer. At least four others cut their price targets on the stock.
Investors are also uncertain about the company’s $1.2 billion acquisition of Canadian-based Sierra Wireless.
“Weaker demand trends combined with the recently announced margin-dilutive Sierra Wireless deal that has received mixed reviews in our industry conversations move us to the sidelines,” Cowen analyst Matthew Ramsay said in a note to clients, according to Investor’s Business Daily.
Maheswaran addressed Semtech’s latest acquisition during the call as well.
Semtech intends to fund the transaction with cash on hand and committed debt financing arranged by J.P. Morgan, he said. Semtech expects the acquisition to close in fiscal year 2023.
“Hopefully, by the time that we’re done here, we should probably see a cost of capital in the 5% to 5.5% range,” Emeka Chukwu, Semtech’s CFO, said during the earnings call when asked about the debt financing position of the deal.
Semtech has declared its intention to keep all employees from Sierra.
The acquisition will approximately double the scale of Semtech’s non-GAAP earnings immediately and expand the company’s Internet of Things addressable market to almost $10 billion by 2027.
Sierra Wireless also makes components for Internet of Things applications. “Internet of Things” refers to devices connected to the internet that aren’t traditional computers, tablets or smartphones, items like smart refrigerators or agricultural irrigation systems.
Semtech’s third quarter guidance takes into account the impact of transaction costs with acquiring Sierra, but not the results of Sierra’s third quarter.
Semtech attributed the record sales and earnings per share to record growth in its wireless and sensing products group, which saw net sales grow 8.1% year-over-year, driven by records in its LoRa product group.
Semtech also had record sales in its signal integrity products group, which were up 19.5% year-over-year.
Semtech ended the quarter with $362.1 million in cash and cash equivalents.