What happened

Semiconductor manufacturer SiTime (SITM -1.30%) finished the second quarter a lot less optimistic about the year than how it felt at the end of the first quarter, and the change spooked investors. Shares of SiTime lost 42.8% of their value in August, according to data provided by S&P Global Market Intelligence, as investors were forced to recalibrate expectations.

So what

SiTime is a maker of specialized timing microchips that go into a range of products, including cellular towers, automobiles, and consumer electronics devices. The company's chips have an advantage over traditional quartz timing devices in that they are more rugged and use less power.

This has been a fast-growing business, and when SiTime released second-quarter results on Aug. 3, the numbers did little to change that perception. Revenue was up 78.5% year over year and up 13% from the prior three months, and SiTime delivered a gross margin that was 66.3% of revenue.

The company did, however, walk back some of its enthusiasm for the full year. After first-quarter results, SiTime had boosted 2022 revenue guidance from up 35% to up 35% to 50%. But following some order slowdowns during the second quarter, SiTime now expects to grow sales at its initial 35% pace, causing the shares to drop.

Now what

Though less than 50%, 35% growth is nothing to panic about. But SiTime is richly valued, trading at more than eight times sales even after the post-earnings decline, and as the saying goes, when investors have priced a stock for perfection, they tend to demand perfection.

Historically, semiconductor stocks have tended to struggle during downturns. Investors are likely worried that the downward revision to guidance could be a sign of things to come in the quarters ahead. Indeed, SiTime said that while demand is holding up well in areas like aerospace and automotive, where the ruggedness of its chips is a requirement, it has fallen off in consumer electronics and other products where quartz is an adequate replacement.

For long-term investors, SiTime has the opportunity to benefit from a number of megatrends, including autonomous driving, the rise of 5G cellular, and expanding data centers to accommodate cloud computing. But that opportunity will take time, and coming off of a disappointing guidance revision in the second quarter, in August investors were more focused on what the next few months will bring.