Stock Story -
Semiconductor maker SMART Global Holdings (NASDAQ:SGH) reported results in line with analysts' expectations in Q1 FY2024, with revenue down 41.1% year on year to $274.2 million. The company expects next quarter's revenue to be around $285 million, coming in 2.9% above analysts' estimates. It made a non-GAAP profit of $0.24 per share, improving from its profit of $0.10 per share in the same quarter last year.
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SMART (SGH) Q1 FY2024 Highlights:
- Market Capitalization: $945.6 million
- Revenue: $274.2 million vs analyst estimates of $275 million (small miss)
- EPS (non-GAAP): $0.24 vs analyst estimates of $0.16 ($0.08 beat)
- Revenue Guidance for Q2 2024 is $285 million at the midpoint (raised from previous), above analyst estimates of $276.8 million
- Free Cash Flow of $26.83 million, similar to the previous quarter
- Inventory Days Outstanding: 99, up from 71 in the previous quarter
- Gross Margin (GAAP): 30.2%, up from 25.4% in the same quarter last year
Based in the US, SMART Global Holdings (NASDAQ:SGH) is a diversified semiconductor company offering memory, digital, and LED products.
Processors and Graphics ChipsThe biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.
Sales GrowthSMART's revenue growth over the last three years has been unremarkable, averaging 11.8% annually. This quarter, its revenue declined from $465.5 million in the same quarter last year to $274.2 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
SMART had a difficult quarter as revenue dropped 41.1% year on year, missing analysts' estimates by 0.3%. This could mean that the current downcycle is deepening.
Product Demand & Outstanding InventoryDays Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, SMART's DIO came in at 99, which is 23 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.
Key Takeaways from SMART's Q1 Results We were impressed by SMART's strong gross margin improvement this quarter. We were also excited its EPS outperformed Wall Street's estimates. While revenue missed by a small margin, full year revenue outlook was raised, which is a major positive. Zooming out, we think this was solid quarter, showing that the company is staying on track. The stock is up 8.2% after reporting and currently trades at $20 per share.
