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Thursday, Apr 18, 2024

Semetch Hopes New Router Helps Its Share Price

Shares of Semtech Corp., the Camarillo-based semiconductor and Internet-of-Things products manufacturer, have lost about 7% of their value since the beginning of January.

 The company’s stock closed at $21.64 on Jan. 2, compared with a closing price of $20.08 on Feb. 20. 

The stock’s price rose by a fraction of a percent the following day to close at $20.10, perhaps the result of a new-product announcement. 

The AirLink XR60 5G Router, which was announced on Feb. 21, is an advance in networking technology designed to offer 5G and Wi-Fi 6 performance in an ultra-compact and ultra-rugged design, according to the company. 

Semtech shares closed at $20.83 on Feb. 22, the day after the router was announced. That represents a 3.7% increase over the previous day but is still a 36% decrease from the 52-week high closing price of $32.36 reached on March 23 of last year. 

Still, the company’s stock has seen some growth this past quarter.

In an analysis of Semtech’s financials published on Feb. 10, Simply Wall Street wrote that shareholders will be “very grateful” to see the share price up 44% in the last quarter. “But only the myopic could ignore the astounding decline over three years,” the investment website said. “The share price has sunk like a leaky ship, down 73% in that time. Arguably, the recent bounce is to be expected after such a bad drop. Only time will tell if the company can sustain the turnaround.” In the three years since Feb. 22, 2021, when Semtech shares closed at $76.71, and the close of $20.10 on Feb. 21, Semtech has decreased 73% in value. 

Revenue gains are expected

According to an analysis of Semtech’s financial picture published by investment website Zacks Equity Research on Feb. 9, analysts are currently expecting revenue to increase by 14.6% this fiscal year and to drop 1.1% the next year. 

“Earnings, on the other hand, are projected to decline over 96% this year, followed by a 395% increase (next year),” the Zacks website reported.

The most recent quarter’s results benefited from a substantial contribution from the acquisition of Sierra Wireless, which closed last year and cost Semtech $1.2 billion in the all-cash deal. 

“Related synergies are expected to support future earnings,” Zacks said in its analysis. “The ongoing restructuring effort is expected to better align costs with revenue, also supporting earnings even when revenue goes flat to down.”

The company attributed the increase in third-quarter revenue to the strong performance of the industrial end-user market and the high-end consumer market. In the former, revenue increased by 65% over the previous year to $120 million, while with the latter revenue went up by 8% to $37.6 million. 

The infrastructure end market showed a decrease of 39% to $43.2 million. That market includes data centers, passive optical networks and fiber-to-the-home connections.

In a conference call on Dec. 6 with analysts to discuss quarterly earnings, Semtech Chief Executive Paul Pickle said that hyperscale data center applications benefited from continued momentum of AI-driven applications and grew both sequentially (from the second quarter) and year over year. 

In early December, with the release of fiscal third-quarter earnings, the stock’s price increased by 16% from the close of $16.70 on Dec. 6 and the following day’s close of $19.42. It has remained in that range since then.

Semtech reported after the market closed on Dec. 6 adjusted net income of $1.5 million (2 cents a share) for the quarter ending Oct. 29. This was a significant decrease from the adjusted net income of $41.6 million (65 cents) in the same period of the previous year. 

Revenue increased by 13% from the fiscal third quarter of the prior year to $201 million. 

In a research report published on Dec. 7, Tore Svanberg, an analyst with Stifel Financial Corp. in St. Louis, noted that infrastructure revenue was up 2% quarter over quarter. 

Svanberg added that the numbers were driven by data-center revenue (especially AI-driven applications, as well as general computer demand), while (passive optical network) and wireless/infrastructure protection products remained impacted by high channel inventories. 

“Industrial was down 26% quarter over quarter, driven by declines in LoRa (long range, low power technology) product sales, partially offset by 3% quarter-over-quarter growth from connected gateways,” Svanberg said in the report.

Svanberg wrote in the report that he was maintaining a buy rating on Semtech’s stock with a target price of $22. This was down from the previous target price of $24 that he maintained for the stock.

Craig Ellis, an analyst with B. Riley Securities Inc. in West Los Angeles, also reiterated his buy rating on Semtech’s stock and gave it a target price of $35. 

James Brock
James Brock
James Brock has worked in newsrooms around the world, including in New York, Paris, Abu Dhabi, Dubai, Houston, and Los Angeles. He began his career with a Newhouse News daily, where he served on the news desk and the editorial page. He was the copy chief for The New York Sun, and founded and edited the personal finance section for Abu Dhabi-based The National, among other positions. He has interviewed Anthony Bourdain, Tom Ford, Mark Cuban, and many other individuals, and has written and edited thousands of stories and articles.

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