Network chips maker MACOM Technology Solutions (NASDAQ: MTSI) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 30.2% year on year to $235.9 million. On top of that, next quarter’s revenue guidance ($250 million at the midpoint) was surprisingly good and 5.7% above what analysts were expecting. Its non-GAAP profit of $0.85 per share was in line with analysts’ consensus estimates.
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MACOM (MTSI) Q1 CY2025 Highlights:
- Revenue: $235.9 million vs analyst estimates of $230 million (30.2% year-on-year growth, 2.6% beat)
- Adjusted EPS: $0.85 vs analyst estimates of $0.84 (in line)
- Adjusted EBITDA: $66.61 million vs analyst estimates of $67.8 million (28.2% margin, 1.8% miss)
- Revenue Guidance for Q2 CY2025 is $250 million at the midpoint, above analyst estimates of $236.6 million
- Adjusted EPS guidance for Q2 CY2025 is $0.89 at the midpoint, above analyst estimates of $0.87
- Operating Margin: 14.8%, up from 8.5% in the same quarter last year
- Free Cash Flow Margin: 12.9%, up from 7.2% in the same quarter last year
- Inventory Days Outstanding: 180, up from 179 in the previous quarter
- Market Capitalization: $8.43 billion
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.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, MACOM’s sales grew at an impressive 12.6% compounded annual growth rate over the last five years. Its growth beat the average semiconductor company and shows its offerings resonate with customers, a helpful 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.
We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. MACOM’s annualized revenue growth of 9.9% over the last two years is below its five-year trend, but we still think the results suggest healthy demand. 
This quarter, MACOM reported wonderful year-on-year revenue growth of 30.2%, and its $235.9 million of revenue exceeded Wall Street’s estimates by 2.6%. Beyond the beat, this marks 5 straight quarters of growth, implying that MACOM is in the middle of its cycle - a typical upcycle generally lasts 8-10 quarters. Company management is currently guiding for a 31.2% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 16.3% over the next 12 months, an improvement versus the last two years. This projection is commendable and indicates its newer products and services will fuel better top-line performance.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, MACOM’s DIO came in at 180, which is 23 days above its five-year average, suggesting that the company’s inventory has grown to higher levels than we’ve seen in the past.
Key Takeaways from MACOM’s Q1 Results
It was great to see MACOM’s revenue guidance for next quarter top analysts’ expectations. We were also happy its revenue outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 7.1% to $121.50 immediately following the results.
MACOM had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
