Disappointing Q2 For Macom

CEO blames deteriorating demand from cloud data centres

Macom has reported disappointing preliminary non-GAAP financial results for the company's second fiscal quarter ending March 29, 2019.

Non-GAAP revenue in the quarter is expected to be approximately $121 million, compared to guidance of $134 million to $142 million. Non-GAAP gross margin is expected to be around 49 percent, which includes $8 million in inventory reserves primarily associated with data center materials, or roughly 600 basis point of gross margin impact. This compares to non-GAAP gross margin guidance of 55 percent to 57 percent, which did not reflect the inventory reserve. Non-GAAP earnings per share is expected to be a loss of ($0.18), compared to guidance for adjusted earnings per share of $0.04 to $0.12.

President and CEO, John Croteau commented: “We are clearly disappointed with our preliminary fiscal Q2 results. There were several contributing factors, the majority of which were rooted in the acute inventory correction that is currently underway among cloud data centre customers.

“Over the course of the quarter, demand across our cloud data centre businesses deteriorated beyond our original forecasts due to the rapid deceleration of this previously high-growth end market. The decline in new orders from cloud service providers caused component inventory levels to grow more than we originally anticipated at many of our transceiver customers. This resulted in lower product revenue and was compounded by a corresponding impact across the supply chain as cloud customers delayed the ramp of new products and new transceiver suppliers.

“As a result, we did not recognise certain solutions revenue from a new customer in Q2, which we had originally anticipated in building our Q2 guidance. Moreover, the current demand environment drove cloud customers to deprioritise qualifying new suppliers during the quarter, creating added uncertainty in the timing of revenue from new players.

“Lastly, given light backlog and weak end market demand we recorded inventory reserves associated with certain data center products that we were ramping. The net result was a significantly larger decline in EPS and margin relative to the associated decrease in product revenue.”

Croteau concluded, “We believe that fiscal Q2 represents the bottom of the inventory correction in Data Center, as customer forecasts and market reports remain bullish for the second half of the calendar year. Given our leadership in 100G, 200G and 400G, CWDM and PAM-4 - across analog, DSP, laser and L-PIC content - we believe that we remain well positioned when orders turn back on. We will provide further commentary and fiscal Q3 guidance at our regularly scheduled earnings call in early May.”