SMART Global Holdings (SGH, Financial) saw its shares soar by 16% following its Q3 (May) results, bouncing back from last quarter's downturn. The company, which operates Intelligent Platform Solutions (IPS), Memory Solutions, and LED Solutions, had previously experienced a significant drop despite similar Q2 results. The primary issue last quarter was sluggish IPS growth, particularly concerning given its focus on AI and high-performance computing (HPC). Additionally, broader investor sentiment was bearish at the time.
In Q3, although IPS still saw a year-over-year decline, it was only half the drop from Q2. SGH's Memory business showed signs of recovery, consistent with management's previous remarks about an upward memory cycle. LED demand also improved, reversing last quarter's sequential sales decline. Investors are now more confident that SGH's difficulties are largely behind it.
- SGH posted an adjusted EPS of $0.37 in Q3, exceeding estimates more significantly than in Q2. Revenue declined by 12.7% year-over-year to $300.58 million, aligning with analyst expectations.
- IPS revenue dropped by 15% year-over-year to $144.97 million, a substantial improvement from the 36% decline last quarter. The segment's Penguin-branded products saw increased activity and key customer wins, including a multi-million-dollar non-hardware contract. This software win highlights SGH's competitive edge in helping customers set up and run their data centers, crucial in an AI-driven market.
- Memory sales fell by 25% year-over-year to $83.30 million due to ongoing customer inventory adjustments. However, sequential revenue climbed in Q3, suggesting that the worst may be over. Management expects sequential sales improvement, driven by the increasing demand for high-capacity memory in AI technology.
- SGH's LED business, its smallest segment, showed flat year-over-year revenue but a 6% sequential increase. Management noted improving backlog and channel visibility.
- Looking ahead, SGH forecasts Q4 (Aug) revenue to potentially turn positive year-over-year for the first time since Q3 2022, projecting $300-350 million. All segments are expected to grow sequentially. The adjusted EPS outlook of $0.25-0.55 represents a 14% year-over-year improvement, although gross margins may decline due to a higher proportion of hardware shipments.
Overall, each of SGH's segments showed positive signs in Q3, a stark contrast to Q2. This optimism has helped the stock recover from its earlier losses.
