MACOM Technology Solutions reported quarterly revenue of $108.3 million for its fiscal third quarter ended June 28, 2019, a decrease of 21.4% compared to $137.9 million in the previous year fiscal third quarter and a decrease of 15.7% compared to $128.5 million in the prior fiscal quarter;
Gross profit was $33.8 million, a decrease of 29.8% compared to $48.2 million in the previous year fiscal third quarter and a decrease of 41.0% compared to $57.3 million in the prior fiscal quarter.
“This was a pivotal quarter for MACOM,” said Stephen G. Daly, President and Chief Executive Officer. “Our priority is to return the Company to profitability and to improve performance on key development projects so that we can achieve our growth objectives.”
On a conference call, MACOM execs confirmed that shipments to Huawei were suspended after Huawei was added to the Entity list. After carefully reviewing the export regulations, MACOM determined that it could resume the shipment of certain products not covered by the restrictions. Other products, however, are not being shipped to Huawei.
MACOM restructures citing Huawei-effect and exits optical module business for data centers
MACOM announced a significant corporate restructuring that includes the closure of seven product development facilities, including locations in France, Japan, the Netherlands, Florida, Massachusetts, New Jersey and Rhode Island. This incurs a workforce of approximately 250 employees, or 20% of the total workforce. These changes will result in approximately $14 million in restructuring charges including $7 million for employee severance obligations, a majority of which are expected to be incurred during the third fiscal quarter of 2019.
MACOM also announced that it will no longer invest in the design and development of optical modules and subsystems for data center applications. Going forward, MACOM will be a merchant supplier of semiconductor integrated circuits (ICs) and photonic devices and will support optical module manufacturers at the semiconductor component level.
MACOM cut its financial outlook citing the discontinuation of shipments to Huawei Technologies and certain of its subsidiaries and affiliates as a result of the U.S. Department of Commerce action of adding Huawei to its “Entity List.” In addition, the updated guidance also reflects reduced shipments to certain of MACOM’s distribution channel partners.
MACOM now expects revenue in the quarter to be between $107 million and $109 million, compared to prior guidance of $120 million to $124 million. Non-GAAP gross margin is now expected to be between 39% and 41%, which includes approximately $14 million in inventory reserves, or 1,300 basis points of gross margin impact. These inventory reserves are primarily associated with certain Data Center products and products that would otherwise be shipped to Huawei. This compares to prior non-GAAP gross margin guidance of 53% to 55%.
“We do not make these decisions lightly, however, these actions are necessary in order to strengthen our strategic plan,” said Stephen Daly, President and Chief Executive Officer.
