Semtech Corporation SMTC reported strong fiscal first-quarter 2019 results with earnings and revenues beating the Zacks Consensus Estimate.
Non-GAAP earnings of 47 cents per share beat the consensus mark by 1 cent and increased 12% sequentially and 7% year over year. Earnings matched the higher end of the guided range of 45-47 cents per share.
Non-GAAP revenues of $151.9 million increased 7% sequentially and 2% from the prior-year quarter. Revenues were within the guided range of $147-$153 million.
On a year-to-date basis, shares have gained 41.5%, outperforming the
industry’s 7.7% rally.
The company’s improved profitability was driven by differentiated growth drivers and diversification strategy. Key growth drivers for Semtech are product differentiation, operational flexibility, and a specific focus on fast-growing segments and regions.
The numbers in detail:
Revenues by End Market
Sales to the enterprise computing end market represented 32% of the total revenues and were up sequentially.
However, sales to the high-end consumer market represented 25% of the total net revenues and were down sequentially. Roughly 17% of the high-end consumer revenues were attributable to mobile devices and 8% to other consumer systems.
The industrial and communications end markets witnessed strong demand, and both increased sequentially, representing 32% and 11% of the total revenues, respectively.
Revenues by Product Group
Signal Integrity Product Group revenues contributed 43% to the total sales and increased 2% sequentially. The strong demand for 100-gigabit per second data center and seasonally higher spending from both the PON and base station markets contributed to the growth.
Protection Product Group represented 27% of the total revenues and was up sequentially. The product benefited from the increasing use of protection for 10-gig Ethernet ports in enterprise cloud switches, and wireless access points and base stations.
Wireless and Sensing Product Group was up 20% sequentially and 17% year over year, contributing 30% to the total revenues.
During the quarter, bookings increased sequentially, accounting for roughly 39% of the shipments. Book-to-bill ratio was above 1.
Margins and Net Income
Non-GAAP gross margin was 61.4%, flat sequentially but up 60 basis points (bps) from the year-ago quarter.
Semtech’s adjusted operating expenses of $52.5 million increased 2% sequentially, driven by higher variable compensation expenses.
The net result was an operating margin of 26.9% that was up 160 bps sequentially and 40 bps year over year.
Balance Sheet & Cash Flow
Semtech ended the quarter with cash and cash equivalents of $303.3 million, down from $307.9 million in the previous quarter. Accounts receivables were $65.6 million, up from $53.2 million in the prior quarter. Long-term debt was $206.6 million, down from $211.1 million in the last reported quarter.
During the quarter, cash flow from operations was $35 million, capital expenditure was $4.9 million and free cash flow totaled $30.1 million.
For fiscal second-quarter 2019, on a non-GAAP basis, management expects revenues in the range of $155-$167 million. The Zacks Consensus Estimate is pegged at $160.7 million.
Non-GAAP gross profit margin is expected within 61-62%. Management projects SG&A expenses within $27-$28 million, and research and development expenses of $24.5-$25.5 million. Non-GAAP earnings per share are expected in the range of 50-58 cents. The Zacks Consensus Estimate is pegged at 54 cents.
Zacks Rank and Stocks to Consider
Semtech has a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the technology sector are Littelfuse, Inc.
LFUS, SMC Corporation ( SMCAY Quick Quote SMCAY - Free Report) , both sporting a Zacks Rank #1, while Amazon.com, Inc. AMZN carries a Zacks Rank #2 (Buy).
Long-term earnings per share growth rate for Littelfuse, SMC and Amazon is projected to be 12%, 13.7% and 30.2%, respectively.
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