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Semtech (SMTC) to Report Q3 Earnings: What's in the Offing?

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Semtech Corporation ((SMTC - Free Report) ) is set to report third-quarter fiscal 2020 results on Dec 4. In the last reported quarter, the company delivered a positive earnings surprise of 5.56%.

For the fiscal third quarter, the Zacks Consensus Estimate for earnings has moved south to 39 cents per share over the past 30 days. This indicates a plunge of 38.10% from the year-ago reported figure.

Notably, the consensus mark for revenues is pegged at $139.94 million, implying a decline of 19.37% from the year-ago reported figure.

Let’s see how things have shaped up for this announcement.

Semtech Corporation Price and EPS Surprise


Factors at Play

The global expansion of cloud and hyperscale data centers, the transition to 5G base stations and the acceleration of 10 gig PON is expected to have benefited the company’s SIP product group, helping boost its top-line growth in the quarter under review.

In addition, the AptoVision drive acquisition is likely to have helped the company’s broadcast video perform well in the fiscal third quarter. Moreover, both industrial and communications end markets are anticipated have witnessed strong demand, aiding top-line growth in the to-be-reported quarter.

The growing need for more efficient energy management in home and industrial settings, increasing electronic system requirements for mobile devices, along with the propagation of green standards, are likely to have spurred demand in these segments, thereby bolstering its quarterly performance.

However, Semtech has been adversely impacted by heightening competition in the semiconductor space, including slowing demand in China.  The Huawei ban is expected to have affected the company’s PON business in the upcoming quarter.

The resultant pricing pressure might have dampened the company’s margins and profitability in the fiscal third quarter. Moreover, seasonality in the consumer segment is a matter of concern and may have hampered top-line growth.

Also, geopolitical issues, and weakness in both smartphone and data-center end markets are likely to have impacted its results.

For the fiscal third quarter, management expects revenues on a non-gap basis in the range of $135 million to $145 million.

Non-GAAP gross profit margin is expected within 61.4-62%. Management projects SG&A expenses within $28-$29 million, and research and development costs of $24-$25 million. Non-GAAP earnings per share are projected at 38-42 cents.

What Our Model Says

Our proven model does not conclusively predict an earnings beat for Semtech this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is not the case here as you will see below.

Earnings ESP: The company has an Earnings ESP of -8.70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Semtech carries a Zacks Rank #4.

Stocks That Warrant a Look

Here are a few stocks worth considering, as our model shows that these have the right combination of elements to deliver an earnings beat in the upcoming releases.

Adobe Systems Incorporated (ADBE - Free Report) has an Earnings ESP of +0.12% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

CSX Corporation (CRM - Free Report) has an Earnings ESP of +4.97% and a Zacks Rank #3.

Slack Technologies, Inc. (WORK - Free Report) has an Earnings ESP of +9.43% and a Zacks Rank #2.

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