Taking a look at the numbers, EPS doubled year/year to $1.84, beating the $1.77 consensus, with revenue climbing by 62% to $335.5 mln, also ahead of the $331.5 mln consensus.
There are a few possible explanations for the limp reaction in the stock today following what seems at a headline glance to be a strong report. First, while the company provided impressive upside revenue guidance for Q4 -- projecting sales of $360-$380 mln versus the $348.8 mln consensus -- its EPS guidance was merely in-line at $1.62-$1.72 versus the $1.67 consensus. SGH's recent track record has been to issue strong upside guidance for both revenue and EPS, so, this is a notable break from its trend.
Pressuring its earnings, at least on a GAAP basis, is the recent depreciation in the Brazilian Real. For its Q3, this had a negative impact of $0.27/share, and it is expected to have a significant impact in Q4 as well. This is illustrated in the difference between its Non-GAAP EPS guidance of $1.62-$1.71 and its GAAP guidance of $1.41-$1.50.
Outside of the FX pressures, the over-arching concern, though, is that the fall in the Real is foreshadowing deeper problems in the Brazilian economy -- where nearly two-thirds of SGH's business is done. Central bankers in the country have been aggressively trying to support the currency via foreign exchange currency swaps, but with no effect. Simultaneously, analysts have been scaling back their outlook on Brazilian GDP, cutting it to about 2.2% this year from the prior expectation of 3.0%.
From a business specific standpoint, SGH continues to benefit from the Brazilian government enforcing regulations on mobile device OEMs to increase their memory densities. This has created a wind-fall for SGH as it is the clear leader in memory and storage components in Brazil.
The company also recently acquired Penguin Computing, a specialty computing and storage solutions company that specifically targets applications in Artificial Intelligence. This has opened up a whole new market for SGH, broadening its product portfolio and reach. While SGH didn't provide much in commentary last night regarding Penguin's financial impact, the initial expectation was that it would be accretive to EPS by about $0.40/share.
To conclude, fear is what is hammering SGH today. The quarterly results and its outlook were solid overall, but investors and traders are clearly feeling anxious about what is going on in Brazil. Fear can cause an over-reaction and the sell-off may be over-done, but investors don't seem willing to give SGH the benefit of the doubt at the moment.After the close last night, Brazilian chip maker SMART Global (SGH) reported better-than-expected Q3 results and issued upside Q4 revenue guidance, commenting that strength in its Specialty Memory business continues to drive strong growth. However, the earnings report has not helped to break the stock out of its recent slump. Quite to the contrary, actually. as shares are down by another 10% this morning.