After falling 7.2% in the two sessions leading into last
night’s Q4 beat and upbeat guidance, shares of semiconductor firm SMART Global
(SGH 34.57, +7.40, +27.24%) trade up sharply today, tapping three-month highs.
Results proved to be better than market expectations as fourth quarter revenues exploded by 67.7% year/year to $373.97 mln. All told, SMART finished the year with record net sales and non-GAAP earnings of $1.3 bln in revenue and at $6.36/share in EPS. Quarterly profit also impressed at $1.72, and gross margins expanded about 60 basis points to 22.1% (within the company’s guidance of 22-23%).
In Specialty Memory, SMART reported net sales growth of about 20% sequentially, and about 40% year/year, to reach $122.8 mln. SMART’s strength continues to be major OEM customers where the company supplies application-specific DRAM and flash-based memory products. The proliferation of all-flash arrays within server and storage applications continues to be a strong driver for this business.
Regarding the memory market overall, management highlighted SMART as a significant buyer of memory components, and, in general, the company is seeing improved availability, pricing, and fewer shortages.
This was the first quarter in which SMART included the Specialty Compute and Storage business, which was acquired by way of the company’s Penguin Computing deal in early June. Penguin partners with leading companies such as NVIDIA (NVDA 269.76, -9.54, -3.41%) and Intel (INTC 46.87, -1.26, -2.62%) to offer artificial intelligence as well as high-performance computing also known as HPC systems. The company then markets these system solutions primarily to end users and also to some OEM customers. All told, the business reported net sales of about $52.53 mln.
Turning to the company’s operations in Brazil, SMART had another solid quarter as revenues grew 47% year/year to $198.62 mln. Despite the strong year/year number, sequentially the Brazilian business declined 14.7% as SMART came off a stronger than expected fiscal Q3 result. As a caveat, SMART highlighted that during the past fiscal year the company introduced some new memory products in Brazil and has set up a new business producing polymer cell-based batteries for smartphones. SMART estimates the market available for batteries for smartphones in Brazil alone to be over $400 mln in 2018.
SMART also gave some decent EPS guidance for Q1. The company expects non-GAAP EPS in the range of $1.74-1.79 on revenue growth between 41.3-46.9% to about $375-390 mln. Gross margin for the quarter is estimated to be about 22% to 23%. Management also sees capital expenditures in the range of $8-12 mln.
SMART highlighted that the guidance for Q1 does not include any view on foreign exchange gains or losses and includes an income tax revision expected to be in the range of 14-16%.
The company also commented on seasonality in the business. Typically, SMART’s fiscal Q1 for Penguin will be a strong quarter due to calendar year end government-related spending. As such, a fiscal Q2 ending in February will tend to be lower coming off a strong November quarter.
The company’s business in Brazil has also typically experienced seasonality on a fiscal Q2 due to holidays as well as customer shutdowns in December. That said, the company expects a strong second half of their fiscal year 2019.
SGH gapped above the 50-day simple moving average (30.83) this morning and has continued to march higher. The stock now holds gains of 27.4% after opening up 19.1%, bucking broader sector losses which have the VanEck Semiconductor ETF (SMH 101.67, -2.98, -2.85%) lower on Friday.
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