Semiconductor materials supplier Entegris (NASDAQ:ENTG) reported results in line with analysts' expectations in Q1 CY2024, with revenue down 16.4% year on year to $771 million. On the other hand, next quarter's revenue guidance of $800 million was less impressive, coming in 1.6% below analysts' estimates. It made a non-GAAP profit of $0.68 per share, improving from its profit of $0.65 per share in the same quarter last year.
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Entegris (ENTG) Q1 CY2024 Highlights:
- Revenue: $771 million vs analyst estimates of $771.5 million (small miss)
- EPS (non-GAAP): $0.68 vs analyst estimates of $0.62 (10.4% beat)
- Revenue Guidance for Q2 CY2024 is $800 million at the midpoint, below analyst estimates of $813.4 million
- Gross Margin (GAAP): 45.6%, up from 44.4% in the same quarter last year
- Inventory Days Outstanding: 136, up from 118 in the previous quarter
- Free Cash Flow of $80.57 million, up from $21.99 million in the previous quarter
- Market Capitalization: $20.04 billion
With fabs representing the company’s largest customer type, Entegris (NASDAQ:ENTG) supplies products that purify, protect, and generally ensure the integrity of raw materials needed for advanced semiconductor manufacturing.
Semiconductor ManufacturingThe semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.
Sales GrowthEntegris's revenue growth over the last three years has been strong, averaging 22.5% annually. But as you can see below, its revenue declined from $922.4 million in the same quarter last year to $771 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
Entegris had a difficult quarter as revenue dropped 16.4% year on year, missing analysts' estimates by 0.1%. This could mean that the current downcycle is deepening.
Entegris's revenue growth has slowed over the last three quarters and its management team projects revenue to fall next quarter. As such, the company is guiding for a 11.2% year-on-year revenue decline, but Wall Street thinks there will be a recovery next year. Analysts' estimates call for 5.4% growth over the next 12 months.
Product Demand & Outstanding InventoryDays Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Entegris's DIO came in at 136, which is 11 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.
Key Takeaways from Entegris's Q1 ResultsWe were impressed by how significantly Entegris blew past analysts' EPS expectations this quarter. We were also glad its gross margin improved. On the other hand, its revenue guidance for next quarter missed analysts' expectations and its inventory levels increased. Overall, the results could have been better. The stock is flat after reporting and currently trades at $131.75 per share.
