What happened

Shares of Semtech (SMTC -3.12%) were down by almost 30% as of 1:33 p.m. ET Thursday after the chipmaker reported earnings results for its fiscal second quarter, which ended July 31.

For the quarter, revenue grew 13% year over year and 3.5% over the previous quarter. That was a deceleration in growth compared to its fiscal first quarter, when the top line grew by 19% year over year. What's more, a weakening economic backdrop caused management to issue a cautious outlook for the second half of the year. 

Year to date, the stock is down 64% as the market anticipates a rough short-term stretch for the chipmaker. 

So what

Semtech is a leading supplier of high-performance analog and mixed-signal chips for a range of markets. Management called out strong demand from the data center and industrial markets as key drivers of last quarter's results. But growth could be coming to a screeching halt, based on the actions management is taking. The company is reducing operating expenses as demand for its products softens.    

The reduction in operating expenses should keep profitability relatively stable if demand continues to slow as expected. Management expects revenues in the $170 million to $180 million range in fiscal Q3, down from the $195 million it reported in the prior-year quarter. 

Now what

Semtech stock is no longer expensively valued, trading at a modest price-to-earnings ratio of 15. But management called out several near-term challenges, including COVID-related problems in China, supply chain issues, and weakening consumer trends that could impact demand for the chips that Semtech makes for smartphones, wearables, and PCs. Its business is unlikely to improve until those macro-level issues abate.