Technology Stocks

Smart Global Holdings Inc (NASDAQ:SGH) Lowers Q22019 Forecast Cites Seasonality Changes In Brazil Businesses

Smart Global Holdings Inc (NASDAQ:SGH) posted its 1Q2019 fiscal year and investors are not amused by the 2Q2019 guidance either. The company generated net sales of $393.9 million representing a 48% year over year surge. Smart Global posted a GAAP operating income of $47.8 million and a GAAP net income of $31.0 million. The GAAP diluted earnings per share (EPS) was a remarkable $1.33 while on the other hand, the Non-GAAP diluted EPS was $1.75.

It bears to mention that the company fared well during the fiscal season which it credits its Specialty Memory business.

Ajay Shah, the company’s Chairman, and Chief Executive Officer noted that “We had a strong start to fiscal 2019 with revenue in our first quarter exceeding the high end of our guidance and coming in at $393.9 million.”

He further added that the major contributor to the outstanding revenue was the “Specialty Memory business, as well as solid sequential growth from our new Specialty Compute & Storage Solutions business. Our business in Brazil also met expectations.”

Mr. Shah expressed a lot of optimism on the company’s overall business save for the Brazilian business, which will suffer increased seasonality during the second quarter of the year. The CEO was confident that the rest of the company’s businesses would meet even possibly surpass expectations.

Smart Holdings Stock

Now to what angered investors, the management set soft guidelines for the second quarter of 2019. The guidelines are a far outcry from the Q1 2019 results and even worse compared to analysts expectations.

The company’s shares slammed 11.41% during the after-market session following the mediocre Q2 guidelines way below consensus estimates. However, as of this writing, the company’s shares had gained 1.21% to close at $24.21 during the Thursday’s market day.

The shares that opened at $23.41 fell to a low of $23.40 and gained to session’s best of $23.60 before settling at the day’s closing price. The stock has fallen about 50% its 52-week high of $56.69 gaining about a dollar its 52-week low of $22.50.


Smart Holdings currently has a market valuation of $538.23 million.

Q2 2019 Guidelines

The management forecasted the Q2 2019 earnings as follows; net sales were projected between $310 million and $325 million with the gross margin estimated at 18% to 20%.

GAAP earnings per diluted share were dilutedfrom Q1’s encouraging $1.33 to between $0.53 and $0.57. On the other hand, non-GAAP diluted earnings per share were set at $0.73 and $0.77. The company estimated capital expenditure for the fiscal quarter between $4 million and $8 million. Close to 23.4 million shares will be used to calculate earnings per diluted share for the Q2 2019 period.

CEO’s Additional Remarks

Among the subjects addressed by the company’s CEO include the Specialty Memory business. Mr. Shah pointed out that net sales from the segment climbed 14% to a tidy $140 million during the just-concluded quarter.The company unveiled a number of products for the business including the 96 gigabytes Gen Z Memory Module dubbed ZMM. The module allows OEMs to adopt the new Gen-Z interconnect protocol standard.

Further, Shah assured investors that the existing volatility in the memory semiconductor market doesn’t affect the company’s business as witnessed in the Q1 results.

As it turns out, the increased revenue from the specialty computing and storage business operated by SMART’s affiliate Penguin Computing is as a result of essential new programs enhancing computing performance.

Lastly, Shah noted the impressive performance of the Brazil business. Revenue from the line of business grew 26% year overto reach $199.3 million. He further noted that activities would slow in line citing seasonality.

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