Semiconductor technology firm M/A-COM Tech (MTSI 31.89, -4.72 -12.9%) sinks to about 15-month lows this afternoon in response to weak Q4 earnings and Q1 guidance.
For those who may not be familiar with the name, MTSI is primarily involved with semiconductor technologies for optical, wireless and satellite networks. The company’s portfolio consists of RF applications, microwave, millimeterwave and lightwave semiconductor products.
MTSI’s Q4 earnings came in mostly in-line with Street expectations at $0.46 per share. Revenues of $166.4 million missed expectations, yet rose about 9.0% compared to a year ago. Also, gross margins were 52.2%, compared to 53.6% in the previous year and 47.6% in the prior fiscal quarter. Management noted that by far the most impactful, the hard pause in China leading up to and through the recent government transition in Beijing continues to negatively affect all of its Networks businesses, including legacy Data Center products, which in total had reached 75% of total revenue by Q3 of last year.
Further, management commented on the expected challenging Q4, as the company navigated through a hard pause in network infrastructure demand in China, impacting its entire range of Networks businesses. As such, the Networks business was down 25% sequentially, though it still grew 3% year on year. Somewhat offsetting the decline in Networks, MTSI had a very strong quarter in Aerospace and Defense and Multi-market businesses, which grew 32% and 16% year-over-year, respectively.
Perhaps the driving force of the stock weakness today, though, is the rough guidance issued along with the quarterly report. Specifically, MTSI sees Q1 EPS coming in well below Street expectations at $0.10-0.16 with Q1 revenue guidance equally as soft, expected to come in at $130-136 million. Additionally, starting in Q1, MTSI will begin reporting Multi-Market and its A&D business as one combined end market called Industrial and Defense. Also, the company will begin formally reporting Data Center revenue as its own end market. Its third and final end market will be called Telecom.
Commenting on the guidance, management noted that in the December quarter, the company expects Networks demand to remain soft, and the A&D and Multi-market businesses to return to more normalized levels. Further, MTSI expects the December quarter will be the bottom of the down-cycle in network infrastructure, which appears to be on the verge of turning. And lastly, the company sees 2018 providing a more positive environment. In addition to expecting a cyclical recovery in Telecom networks, MTSI has expanded its customer footprint, and management feels that several of its secular growth drivers look to be approaching major inflection points as the company secures deals with industry franchise players. The company believes it is poised to be a major beneficiary of the upgrade from 40G to 100G CWDM that’s well underway inside the Data Center.
As Chinese demand continues to wane in the optical space, MTSI highlighted that it is not immune. Guidance for the coming quarter was tepid as issues in China and supply chain constraints are expected to continue. Despite robust demand in the Data Center business, MTSI will not offset weakness in China going forward.
After shares sold off hard on the early-August reaction to the Q3 earnings, the stock began to carve out a channel, trading between $36.85-46.00 for the majority of the quarter. The stock quickly fell through support at about $35.60 in the afterhours last night, and trades near lows into midday.