Semtech Corp. :SMTC-US: Earnings Analysis: Q3, 2017 By the Numbers : December 2, 2016

Semtech Corp. reports financial results for the quarter ended October 31, 2016.

We analyze the earnings along side the following peers of Semtech Corp. – Maxim Integrated Products, Inc., Monolithic Power Systems, Inc., Linear Technology Corporation, ON Semiconductor Corporation, Microsemi Corporation, Silicon Laboratories Inc., Texas Instruments Incorporated, Inphi Corporation, Microchip Technology Incorporated and Analog Devices, Inc. (MXIM-US, MPWR-US, LLTC-US, ON-US, MSCC-US, SLAB-US, TXN-US, IPHI-US, MCHP-US and ADI-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 137.19 million, Net Earnings of USD 30.78 million.
  • Gross margins widened from 54.64% to 59.09% compared to the same period last year, operating (EBITDA) margins now 10.25% from 15.71%.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-10-31 2016-07-31 2016-04-30 2016-01-31 2015-10-31
Relevant Numbers (Quarterly)
Revenues (mil) 137.19 135.91 131.06 118.61 115.81
Revenue Growth (%YOY) 18.46 8.11 0.75 -9.04 -22.22
Earnings (mil) 30.78 8.98 6.89 1.25 10.7
Earnings Growth (%YOY) 187.52 2968.37 4950 108.08 -39.26
Net Margin (%) 22.43 6.61 5.25 1.05 9.24
EPS 0.46 0.14 0.11 0.02 0.16
Return on Equity (%) 21.64 6.58 5.16 0.95 8.32
Return on Assets (%) 12.63 3.83 3 0.55 4.63

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Market Share Versus Profits

Revenues History
Earnings History

SMTC-US‘s change in revenue this period compared to the same period last year of 18.46% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that SMTC-US is holding onto its market share. Also, for comparison purposes, revenues changed by 0.94% and earnings by 242.79% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth has been influenced by the year-on-year improvement in gross margins from 54.64% to 59.09%. However the company’s overhead costs have prevented it from fully capitalizing on these gross margin improvements. In fact, the company’s operating margins (EBITDA margins) showed no improvement over the same period last year.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

SMTC-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 195.67, compared to last year’s level of 194.74 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 4.90% to 10.25% and (2) one-time items. The company’s pretax margins are now 26.62% compared to 13.95% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Semtech Corp. designs, develops, manufactures and markets analog and mixed signal semiconductor products. It also offers proprietary solutions and breakthrough technology in power management, circuit protection, timing and synchronization, touch interface, high-performance optical transport equipment, high-reliability military products, low-power wireless RF, and digital sensor/signal conditioning ICs. The company operates its business through following segments: Semiconductor Products Group and the Systems Innovation Group. Semtech was founded in 1960 and is headquartered in Camarillo, CA.

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