Soitec Earnings: Uncertainty Remains High After Weak Performance; Maintain Fair Value Estimate

We maintain our EUR 150 fair value estimate for narrow-moat Soitec after expected weak first-quarter results, which included a 24% decline in organic revenue year over year to EUR 120 million, its lowest level in four years. Although we expect this to be the bottom, investors in Soitec must be ready to stomach uncertainty over the coming quarters. Soitec requires an 85% sequential revenue growth rate in the second quarter to meet its guidance of a 15% sales decline in the first half of the year. This will require a strong triple-digit growth rate in the mobile division next quarter, with mobile revenue reaching at least EUR 120 million in our view. Soitec is perfectly capable of delivering this sales level, as revenue has been well above this threshold for most quarters in the past three years. However, mobile RF silicon-on-insulator wafer market sentiment is mixed with management commenting that while some customers are already replenishing their wafer inventory and placing new orders, others continue to deplete their excess inventories. Management maintains that revenue growth for RF-SOI wafers should rebound in the second half of the year. We see high uncertainty for Soitec in the near term even if the firm achieves a strong second quarter in line with guidance; it still needs 80% sequential revenue growth in the second half of the year to reach its flat year-over-year revenue outlook.