Soitec: First-Quarter Sales Down 24%; Full-Year Sales Guidance Achievable

Narrow-moat Soitec reported a 24% organic sales decline in its first fiscal quarter of the year mainly dragged by its mobile segment, as expected. Although the smartphone market is still absorbing excess inventories, the overall inventory level seems to be getting healthier as the year progresses. Last week, TSMC saw mobile revenue decline 9% year over year, a significant improvement to the 27% decline reported in the first quarter. However, TSMC also downgraded its full-year guidance to around a 10% sales decline compared with a mid-single-digit decline previously, on the back of a slower recovery for smartphones and IT spending. Given TSMC’s comments, Soitec’s guidance of flat sales growth for full fiscal year 2024 supported by a strong recovery of mobile revenue in the second half of the year might seem slightly optimistic. However, Soitec’s exposure to volume changes in the smartphone market is offset by the upward trend toward higher semiconductor content per smartphone, and some of Soitec’s technologies (FD-SOI and POI) have grown nicely during the second quarter in the smartphone market. Also, Soitec’s fiscal year ends in March, so its next full-year results will include three months of 2024, where the smartphone market might have recovered more. We therefore believe Soitec’s full-year revenue guidance is still achievable. We are maintaining our EUR 190 fair value estimate, with shares having recovered strongly by 40% since the May lows.