Network chips maker MACOM Technology Solutions (NASDAQ: MTSI) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 33.5% year on year to $200.7 million. The company expects next quarter’s revenue to be around $215 million, coming in 5.1% above analysts’ estimates. Its non-GAAP profit of $0.73 per share was also in line with analysts’ consensus estimates.

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MACOM (MTSI) Q3 CY2024 Highlights:

• Revenue: $200.7 million vs analyst estimates of $200.5 million (in line)

• Adjusted EPS: $0.73 vs analyst expectations of $0.73 (in line)

• Revenue Guidance for Q4 CY2024 is $215 million at the midpoint, above analyst estimates of $204.6 million

• Adjusted EPS guidance for Q4 CY2024 is $0.78 at the midpoint, above analyst estimates of $0.75

• Gross Margin (GAAP): 54.7%, down from 57.6% in the same quarter last year

• Inventory Days Outstanding: 195, in line with the previous quarter

• Operating Margin: 13.7%, up from 10.4% in the same quarter last year

• Free Cash Flow Margin: 28.5%, down from 29.6% in the same quarter last year

• Market Capitalization: $8.80 billion

“Our team continues to identify opportunities to expand our customer base and gain share with our leading products and technologies,” said Stephen G. Daly, President and Chief Executive Officer.

Company Overview

Founded in the 1950s as Microwave Associates, a communications supplier to the US Army Signal Corp, today MACOM Technology Solutions (NASDAQ: MTSI) is a provider of analog chips used in optical, wireless, and satellite networks.

Analog Semiconductors

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, MACOM’s 8.2% annualized revenue growth over the last five years was decent. This is a useful starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but recency is necessary for semiconductors because of Moore's Law, which suggests the pace of technological innovation is so high that yesterday's hit new product could be obsolete today. MACOM’s recent history shows its demand slowed as its annualized revenue growth of 4% over the last two years is below its five-year trend.