We Might Be Underestimating The Magnitude Of Semtech's Return To Growth

While Semtech Corporation SMTC has been expected to return to strong growth, the magnitude was underestimated, BlueFin Research Partners’ Paul Peterson said in a report. In February, the rating for the company has been raised from Negative to Neutral. 

Compelling Story

Peterson noted that Semtech has a highly attractive Data Center portfolio, as the industry transitions to 100G and then to 400G. The company also has compelling ultra-lower power radio technology for the Internet of Things [IoT] markets.

Semtech achieved significant momentum with the LoRa Alliance, and had moreover than 200 members worldwide. Management expects LoRa to become a $100M business in three years.

Mentioning that IoT designs “typically take longer than expected and often don’t reach forecasted levels,” the analyst commented, “So while we’re not quite ready to embrace SMTC as a favorite, we will be following the LoRa story more closely this year for signs of a breakout that could see the company growing significantly faster than the industry or become an attractive acquisition target.”

Samsung Headwind Reduces

Samsung is no longer a meaningful headwind and its volatile supply chain swings do not significantly affect Semtech, since they represent only 6 percent of the latter’s revenues. Peterson added, however, that Semtech’s protection business continues to face challenges.

Short Term Outlook

The analyst expects Semtech to meet or slightly beat consensus expectations for the April quarter. The company is likely to guide to low-single-digit growth in revenues for the July quarter, with continued growth in the Signal Integrity business.

“While the broad-based Protection business should be up sequentially, we think Samsung will be down in the July quarter, limiting the overall growth for this business,” the BlueFin report added.