MACOM cuts June-quarter revenue guidance from $120-124m to $107-109m

In response to (1) reduced shipments to certain distribution channel partners and (2) the US Department of Commerce’s Bureau of Industry and Security (BIS) on 15 May adding Huawei Technologies Co Ltd and 68 of its subsidiaries and affiliates to its ‘Entity List’ prohibiting the sale to Huawei of products covered by the Export Administration Regulations (EAR) without obtaining an appropriate export license, for its fiscal third-quarter 2019 (to end-June) MACOM Technology Solutions Holdings Inc of Lowell, MA, USA (which makes semiconductors, components and subassemblies for RF, microwave, millimeter-wave and lightwave applications) has reduced its guidance for revenue from $120-124m to $107-109m.

Non-GAAP gross margin guidance has been reduced from 53-55% to 39-41%, which includes about $14m in inventory reserves (1300 basis points of gross margin impact) associated primarily with data-center products and products that would otherwise have been shipped to Huawei.

Guidance for adjusted earnings per share has been revised from a loss of $0.08-0.04 to a loss of $0.41-0.45 (not include any restructuring- or impairment-related charges).

To save about $50m in annual expenses (once fully implemented), MACOM has implemented a restructuring plan that includes the following:

A permanent reduction in MACOM’s hourly, salaried and management workforce of about 250 (20% of the total), including personnel in R&D, Production, Sales & Marketing and General & Administrative functions. Substantially all affected staff have been notified and customary transition assistance will be provided.
The closure of seven product development facilities, including locations in France, Japan, The Netherlands, Florida, Massachusetts, New Jersey and Rhode Island.

The firm also says 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 integrated circuits and photonic devices and will support optical module manufacturers at the component level.

“These actions are necessary in order to strengthen our strategic plan,” says president & CEO Stephen Daly.

The firm expects about $14m in restructuring charges including $7m for employee severance obligations, most of which are expected to be incurred during fiscal third-quarter 2019. In addition, it is performing a recoverability assessment for its long-lived assets, most specifically intangible assets (which had a carrying value of $472m as of 29 March) that may be impacted. To date, MACOM has also identified about $15m of non-cash impairment charges associated with these restructuring actions.

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