Why Shares of MACOM Technology Solutions Holdings Are Tumbling Today

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What happened

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Shares of semiconductor company MACOM Technology Solutions Holdings (NASDAQ: MTSI) slumped on Wednesday following a mixed fiscal fourth-quarter report. MACOM matched expectations for earnings but came up short on revenue, and its first-quarter guidance was far below analyst estimates. The stock was down about 16% at 11:50 a.m. EST.

So what

MACOM reported fourth-quarter revenue of $166.4 million, up 9% year over year but nearly $4 million below the average analyst estimate. The company pointed to a hard pause in network infrastructure demand in China, which affected all its networks' businesses. Networks revenue was up just 3% year over year, with strong growth in other segments picking up the slack.

Non-GAAP earnings per share came in at $0.46, down from $0.54 in the prior-year period and in line with analyst expectations. Non-GAAP gross margin slumped 40 basis points year over year to 58.1%, while non-GAAP operating margin tumbled 230 basis points to 22.8%.

MACOM expects to produce between $130 million and $136 million of revenue during the fiscal first quarter, well below the average analyst estimate of $171 million. Non-GAAP EPS is expected between $0.10 and $0.16, also well short of the $0.45 analysts were expecting.

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Now what

MACOM expects the near-term environment to remain challenging, although it believes the situation will improve in 2018. President and CEO John Croteau discussed potential tailwinds next year:

We see 2018 providing a more positive environment. In addition to expecting a cyclical recovery in Telecom networks, we've expanded our customer footprint, and several of our secular growth drivers look to be approaching major inflection points as we secure deals with industry franchise players. We believe we are poised to be a major beneficiary of the upgrade from 40G to 100G CWDM that's well underway inside the Data Center.

The semiconductor industry is cyclical, and MACOM is currently caught on the unpleasant side of one of these cycles. The stock was hammered on disappointing guidance despite the optimistic talk about 2018, and it will likely take a return to robust growth to change the market's mind.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.