Are Smartphones Back?

Earnings Reports

Arm Holdings (ARM) - ARM delivered a strong report and guidance, citing content gains and potentially the bottom in the stagnant smartphone market. The company boasted next quarter revenue guidance to $850-$900 million from the $780 million than analysts were estimating. This should provide a boost to other companies in the smartphone segment, including QCOM, SWKS, QRVO, CRUS, etc. Arm did cite market share gains outside of smartphones as well, including the automotive sector and the data center, but the biggest market impact here is the positive implications for smartphones.

Axcelis Technologies (ACLS), a maker of ion implantation for semiconductor manufacturing, traded significantly lower after the close last night despite a decent December report as the company guided March lower. December revenue was $310 million vs. $298 million consensus and the company reported EPS of $2.15 vs. an expected $2.02. March top-line guidance, however, was $242 million vs. an expected $285 million, a 15% miss, with EPS expected at $1.22 vs. analyst expectations of$1.83, a miss of about 33%. Management stated that CY24 revenue should be flat year-over-year, and heavily weighted towards the second half of CY24. Not a great start to the year.

Digital Turbine (APPS) December revenue came in a bit shy of expectation at $142.6 million vs. $146.2 million, with EPS of $0.15 vs. and expected $0.17. The company did not provide March quarter guidance, but did give full year 2024 revenue guidance of $550 million and EPS of $0.52 at the mid-point. Full year guidance is below consensus estimates of $572.5 million and $0.61. Management cited weaker US device upgrades and platform consolidation as factors in the weaker than expected performance. The company hopes that the recently announced Digital Market Act in the European Union will create a rebound opportunity as carriers may look to APPS to provide alternative platform distribution offerings to the top six providers, which include Alphabet (GOOG), Amazon (AMZN), Apple (AAPL), ByteDance, Meta (META) and Microsoft (MSFT). The six platform companies have until March 6, 2024 to comply with the Act’s provisions. While this should create an opportunity for Digital Turbine, it doesn’t appear to be enough to save CY24 from the weakness it is experiencing in its existing business. Or, management is sand-bagging the year, and any weakness in the stock today could represent a decent buying opportunity.

FormFactor (FORM), a provider of test and measurement technologies, delivered positive results and guidance. For the December quarter, revenue was $168.2 million, above consensus of $165.3 million and EPS was $0.20 vs. and expected $0.22, negatively impacted by a higher than planned tax rate. For March, management is guiding top line revenue of $165.0 million at the mid-point vs. current consensus of $166.2 million and EPS of $0.19 ± $0.04 vs. consensus of $0.22. Geographically, FORM experienced the largest growth in the US, Japan and Singapore, with weakness in Taiwan, China and Malaysia. Its DRAM and Flash segments both experienced growth while Foundry & Logic and its Systems businesses both declined in the quarter. SK Hynix topped the 10% customer list for the first time, and Samsung Electronics dropped from over 11% to less than 10% during the December quarter.

Knowles (KN) reported mostly in-line results for the December quarter with $215.2 million in revenue and $0.28 in EPS, just shy of the $0.29 consensus target. March revenue guidance is $195 million at the mid-point, one million higher than consensus expectations. The company is still experiencing excess channel inventory in its end markets, particularly in the industrial and distribution segments. The $195 million March revenue guidance is up 35% Y/Y, but this includes the benefit of the recent Cornell Dubilier (CD) acquisition from approximately two months ago.

Monolithic Power Systems (MPWR) gapped higher after its December quarter and full year results after the close last night. The company, which makes power-electronics solutions, announced that it was raising its quarterly cash dividend by 25% in addition to the acquisition of a Netherlands-based fabless semiconductor start-up called Align B.V. that makes programmable multi-core DSPs for the automotive, home, concert and stadium venue markets. For the December quarter, the company reported revenue of $454.0 million just shy of the consensus target of $452.1 million. EPS for the quarter was $2.88, a touch higher than the expected $2.85. Guidance for March is $447.0, above consensus of $430.8 million. MPWR experienced significant growth in its Enterprise Data segment in CY23, with modest growth in its Storage & Computing segment. Automotive, Industrial, Communications and Consumer were all lower year-over-year, and management remains cautious about its business in the near term.

Silicon Labs (SLAB) modestly beat expectations top-line in the December quarter, and is projecting a return to Q/Q revenue growth starting in the current (March) quarter. The company did significantly improve its operating performance, however, delivering a lower than expected loss during the quarter. This, combined with a reassuring statement regarding the on-time filing of its 10-K by the end of February after earlier concerns involving its internal controls, helped the stock jump well over 10% after the close last night. For December, revenue was $87.0 million vs. consensus of $85.2 million and non-GAAP loss per share was ($1.19) vs. an expected loss of ($1.43). For March, management is guiding to revenue of $105 million at the mid-point (± $5.0 million) vs. consensus of $98.8 million and a lower loss of ($0.92-$1.04) vs. current expectations of (1.03).

In Other News

Is Credo (CRDO) overvalued? The provider of high-speed optical connectivity solutions for the optical and electrical Ethernet applications is trading near its all time high of $22.49 set on January 4th, 2024. The company reports an off quarter, with its third quarter ending in January, and therefore won’t report until February. While it is reasonable to assume that insiders are selling after years of building the company, and the sales relative to holdings is small for the CEO, CFO and COO, it doesn’t breed a lot of confidence. The COO just sold about 130k shares, the CEO has sold over 60k shares, the CFO sold 60k shares, the Chief Legal Officer & Secretary sold 320k shares, half of her position, the CTO sold close to 60k shares, etc. All of this insider selling is just since the third week of January. While it is possible that this is all just profit taking and diversification, it may signal something else and is worth noting.

AIChemistry - The University of Liverpool and Imperial College London have been granted £12 million by the Engineering & Physical Sciences Research Council (EPSRC) and consortium partners to create a research hub for the development of state-of-the-art Artificial Intelligence (AI) for chemistry and accelerate its adoption.

The AI for Chemistry Hub, AlChemy, will bring together leading academic researchers, industry, and other stakeholders to promote a collaborative community, offer training, and create new approaches using AI tools such as machine learning, automation, and robotics, which have the potential to support faster chemistry discoveries to address key societal needs.

Professor Andy Cooper stated: “This is the UK’s first academic-industrial institute of its kind dedicated to supporting collaboration between chemistry and AI researchers. There is huge scope for chemistry researchers to work more effectively with AI researchers, and this new hub will bring together two separate disciplines to build a new cohesive UK research community.”

D-Wave Quantum (QBTS) and Zapata AI announce collaboration to advance quantum-enabled machine learning. The partnership marries two vanguard technologies, generative AI and quantum computing, to tackle applications for customers faced with computationally complex problems. The initial focus of the collaboration will be to develop quantum generative AI models for the discovery of new molecules. “Our agreement with Zapata AI marks a significant step toward realizing the potential of combining two of today’s most transformative technologies — generative AI and quantum computing — to help tackle our society’s most computationally complex problems,” said Dr. Alan Baratz, CEO of D-Wave. “Our companies share a common vision — to accelerate exploration, adoption, and commercial use of emerging technologies to fuel innovation and transformation. Together, we believe D-Wave and Zapata AI will usher in the commercial era of quantum machine learning.”

Chart of the Day

Skyworks (SWKS) has lost nearly half of its value since early 2022, driven by the weakness in the smartphone market and the ongoing trade dispute with China. CEO Liam Griffin highlighted that its broad markets business has hit bottom thanks to more normalized inventory channels, a bounce in consumer IoT and the ongoing shift from Wi-Fi 6 to Wi-Fi 6E and 7. Additionally, The smartphone market may see a boost from the introduction of AI capabilities in the new handsets like the Samsung S24, and the manufacturing shift from China to India, which could spark economic improvement in a country with over a billion inhabitants. SWKS has been range-bound between $85 and $120, with most of the volume on the up moves over the past nine months. It wouldn’t take much to get the stock moving back toward $120, and a small amount of traction in the AI/smartphone market could send shares significantly higher.

Earnings Calendar