Why Shares of MACOM Technology Solutions Crashed Today

What happened

Shares of analog semiconductor company MACOM Technology Solutions Holdings (NASDAQ: MTSI) tumbled on Wednesday after a disappointing third-quarter report. MACOM missed analysts' consensus estimates across the board, and it's fourth-quarter guidance was far from impressive. The stock was down 23% at 12:45 p.m.

So what

MACOM reported Q3 revenue of $194.6 million, up 36.7% year over year but $1.35 million below analysts' average estimate. CEO John Croteau pointed to weakening carrier spending in China as a major headwind during the quarter.

Non-GAAP EPS came in at $0.67, up from $0.51 in the prior-year period but $0.02 short of analysts' expectations. Adjusted gross margin rose 1.2 percentage points to 58.5%, while adjusted operating margin rose 2.7 percentage points to 27.2%.

Croteau preferred to emphasize the segments of MACOM's business that are growing quickly: "The decline in Optical was offset by strong growth in our Data Center businesses, which were up sequentially and 310 percent year-over-year, now totaling almost 30 percent of company revenue. We continue to ramp supply aggressively to meet the demand in these Cloud-based businesses."

Now what

MACOM is being conservative with its fourth-quarter guidance, given the uncertainty in its China business. The company forecasts revenue between $165 million and $174 million, and non-GAAP EPS between $0.45 and $0.50. Those numbers compare to $152.7 million of revenue and non-GAAP EPS of $0.54 in the prior-year period.

With revenue growth expected to slow, and with earnings expected to take a hit, investors punished the stock.

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