Semiconductor company Semtech (NASDAQ: SMTC) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 19.6% year on year to $257.6 million. The company expects next quarter’s revenue to be around $266 million, close to analysts’ estimates. Its non-GAAP profit of $0.41 per share was in line with analysts’ consensus estimates.
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Semtech (SMTC) Q2 CY2025 Highlights:
- Revenue: $257.6 million vs analyst estimates of $256.1 million (19.6% year-on-year growth, 0.6% beat)
- Adjusted EPS: $0.41 vs analyst estimates of $0.40 (in line)
- Adjusted EBITDA: $56.5 million vs analyst estimates of $49.62 million (21.9% margin, 13.9% beat)
- Revenue Guidance for Q3 CY2025 is $266 million at the midpoint, roughly in line with what analysts were expecting
- Adjusted EPS guidance for Q3 CY2025 is $0.44 at the midpoint, roughly in line with what analysts were expecting
- EBITDA guidance for Q3 CY2025 is $60 million at the midpoint, above analyst estimates of $50.39 million
- Operating Margin: -6.3%, down from 3.6% in the same quarter last year
- Free Cash Flow was $41.5 million, up from -$8.41 million in the same quarter last year
- Inventory Days Outstanding: 135, up from 132 in the previous quarter
- Market Capitalization: $4.43 billion
Company Overview
A public company since the late 1960s, Semtech (NASDAQ: SMTC) is a provider of analog and mixed-signal semiconductors used for Internet of Things systems and cloud connectivity.
Revenue Growth
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Semtech’s 12.4% annualized revenue growth over the last five years was solid. Its growth beat the average semiconductor company and shows its offerings resonate with customers. 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 short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Semtech’s annualized revenue growth of 10.2% over the last two years is below its five-year trend, but we still think the results suggest healthy demand. 
This quarter, Semtech reported year-on-year revenue growth of 19.6%, and its $257.6 million of revenue exceeded Wall Street’s estimates by 0.6%. Beyond the beat, this marks 4 straight quarters of growth, implying that Semtech is in the middle of its cycle - a typical upcycle generally lasts 8-10 quarters. Company management is currently guiding for a 12.3% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 6% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will face some demand challenges.
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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, Semtech’s DIO came in at 135, which is 16 days below its five-year average. These numbers show that despite the recent increase, there’s no indication of an excessive inventory buildup.
Key Takeaways from Semtech’s Q2 Results
It was encouraging to see Semtech meet analysts’ sales and EPS expectations this quarter. On the other hand, its inventory levels increased. Zooming out, we think this was a decent quarter. The stock traded flat following the results.
So should you invest in Semtech right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
