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IDT 4Q18 report +3

17:45 30-Apr-18


The IDT conference call has just concluded.  Management has guided current quarter revenue to $227M +/- $5M, which beats by $2M.  However, this is net of sales to ZTE, which had sales to it banned as part of the trade spat with China.  This resulted in a $4M hit this quarter, and should be about $5M per quarter going forward.  I can understand the market's concern over issues like this expanding, but IDT has a very broad customer base and cutting edge technology.  In fact, management has been and will continue to increase R&D investment to take advantage of growth opportunities, and that is already bearing fruit.  So, weakness to China should be mostly offset by increased business elsewhere, and I continue to think of fair value for IDTI as being around $30, and set to rise going forward.

For the immediate future, the automotive and industrial segments are expected to be slightly down, and everything else up substantially.  Highlights, with useful commentary on some key markets are:

Sensors: we've been expecting this to take off for a while and that should start to show this year.  IDT is set to introduce a new implantable glucose monitoring sensor.

Wireless: this business is not affected so much by smart phone slowdown because
  1. most business in that target market is new
  2. more transmitters (than receivers) are being shipped, especially in autos
  3. non-phone applications like the just mentioned med devices are seeing adoption, as are industrial applications.
Memory: this upgrade cycle should be substantially stronger and more sustained than usual.  I found it interesting, though not surprising, that delays for Intel's Cannon Lake processors are actually neutral to positive.  Performance oriented programmers already know that memory interfaces are far more critical to overall performance than processing power.  Thus, the delays actually spur most computer makers to fill the gap, as were.

 Communications: One of the reasons I watch IDT is for foresight into developments into end markets.  To that end, management sees CapEx in the telecom market as generally unchanged.  Development which is being branded as 5G is ramping, but the term is being used inexactly.  True 5G probably ramps in 2020, which is something I've been saying all along in my CenturyLink analysis.

In conclusion, this was a very good quarter and there appear to be many more to come.  Management thinks gross margins could reach 63-64% (from 62-62.5%) in second half, and the board has increased its buyback authorization by over $400M accordingly.  IDTI often moves unpredictably following earnings, and issues with Chinese allow for even more scope than usual in this case.  Despite that, I am set to accumulate shares on any significant weakness.

On 04/30/2018 04:28 PM, Esekla wrote:

Integrated Device Technology has reported earnings for its fourth quarter of fiscal 2018:

  • EPS of 46 cents beats by 2 cents
  • on $224.6M in sales, which beats by $2.6M

Unlike many companies, which underestimate in order to make for easy beats, IDT management generally tries to be accurate, though conservative.  So this is a legitimately good result, which is currently moving IDTI shares back to fair value, after they had sagged (inappropriately, in my opinion) during the recent chip selloff.  Furthermore, management says it expects continued broad-based strength across its business segments.  That should lead to good guidance in the conference call, which is beginning now.  I'll report again if there is anything interesting.