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Guess How MACOM Technology Solutions Crushed It in Q1

By Anders Bylund - Jan 29, 2020 at 9:07AM

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The maker of top-shelf networking chips tapped into a technology megatrend to smash analyst expectations across the board.

Networking semiconductors maker MACOM Technology Solutions (MTSI 8.31%) reported first-quarter results after Tuesday's closing bell. The analyst-stumping report drove Macom's share prices more than 13% higher in after-hours trading.

MACOM Technology Solutions' first-quarter results by the numbers

Metric

Q1 2020

Q1 2019

Change

Analyst Consensus

Revenue

$119 million

$151 million

(21%)

$115 million

GAAP net loss

$28 million

$22 million

(30%)

N/A

Adjusted earnings per share (diluted)

$0.07

$0.01

600%

$0.03

Data source: MACOM Technology Solutions. GAAP = generally accepted accounting principles.

Macom's guidance for the first quarter of fiscal year 2020 pointed to adjusted earnings near $0.03 per share on approximately $115 million in top-line revenues. Data center sales were expected to post the strongest sequential growth among Macom's three operating units, followed by the telecom group and then the industrial and defense segment. Management anticipated positive growth in all three cases. Analysts toed this line but the company exceeded its own expectations.

Macom's revenues plunged throughout 2019 due to weak demand from data center customers. The data center decline was reversed in the fourth quarter, followed by a 2% sequential gain in Tuesday's report.

As a whole, Macom's sales rose 6% compared to the fourth quarter. The main driver of this improvement is found in the telecom segment, where revenues jumped 15% higher to land at $45.6 million. Digging one level deeper, the telecom boost rests on a strong demand for Macom's 5G components.

"We view 5G as a key driver for Macom revenue in the years ahead, and in the coming quarters we anticipate expanding our current 5G portfolio by launching complementary new products including more optical components, more discrete [radio frequency] components, and more high-performance analog and mixed-signal ICs," CEO Steve Daly said on the earnings call.

Rendering of a red arrow bouncing skyward off a trampoline.

Macom is bouncing back from a few rough quarters in 2018 and 2019. Image source: Getty Images.

What's next for Macom and its investors?

Going forward, Macom's second-quarter guidance pointed to adjusted earnings near $0.11 per share on revenues in the neighborhood of $124 million. That's significantly above the current analyst consensus, which calls for earnings of roughly $0.05 per share and sales of approximately $117 million.

The burgeoning market for 5G devices and components is boosting the prospects of many networking specialists these days. Skyworks Solutions (SWKS 3.99%) crushed Wall Street's estimates earlier this week, citing 5G component sales as the main driver of its top-to-bottom financial surprises. Investors in Macom and Skyworks would do well to keep an eye on fellow networking chipmakers Qorvo (QRVO 3.04%) and Inphi (IPHI) when they report their results later today and next Tuesday, respectively. All four of the stocks have delivered 6-month returns of at least 66%, led by a 113% gain for Inphi, and all of them are tightly connected to the 5G networking trend.

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Stocks Mentioned

MACOM Technology Solutions Holdings, Inc. Stock Quote
MACOM Technology Solutions Holdings, Inc.
MTSI
$49.68 (8.31%) $3.81
Skyworks Solutions, Inc. Stock Quote
Skyworks Solutions, Inc.
SWKS
$98.03 (3.99%) $3.76
Inphi Corporation Stock Quote
Inphi Corporation
IPHI
Qorvo, Inc. Stock Quote
Qorvo, Inc.
QRVO
$97.87 (3.04%) $2.89

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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