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Smart Global Holdings (SGH) likely to report weak Q1 earnings on Dec 19

Smart Global Holdings Inc. (NASDAQ: SGH) stock soared to a yearly high of $36.19 on Monday ahead of its first-quarter 2020 earnings results on Thursday after the market closes. The results are likely to be hurt by the significant decline in the memory market component pricing that primarily impacted its Brazil business and Specialty Memory Products.

The company has been struggling to sell its products directly to global OEMs, enterprises, government, and other end customers. The Brazil business has been experiencing a worse pricing environment for commodity memory products that are supplied to high volume requirements in smartphones and PCs.

Read: Okta Q3 earnings review

In specialty memory products and Brazil products, Smart Global primarily competes against global and local memory module providers and large semiconductor memory IC manufacturers that utilize a portion of their capacity to manufacture memory modules. The stiff competition in the industry has been stealing away the customers from the company.

The weak demand for memory solutions, products, and related service offerings in current markets including Brazil are likely to hurt the results for the first quarter. The company is also expected to face hindrances in the SCSS business unit including its Smart EC and Smart Wireless.

The bottom line will be hurt by its investments in research and development projects, enhancements to sales and marketing efforts, integration of acquisitions, and expenditure related to the operation of its business. Also, competitors will continue to improve the performance of their current products, lower prices and introduce new products, which could lower sales.

Read: Lattice Semiconductor Q3 earnings snapshot

Analysts expect the company’s earnings to plunge by 58.30% to $0.73 per share and revenue will drop by 29% to $280.02 million for the first quarter. The company has missed analysts’ expectations thrice in the past four quarters. For the first quarter, the company expects net sales of $275-285 million, GAAP earnings of $0.30-0.40 per share, and adjusted earnings of $0.68-0.78 per share.

For the fourth quarter, Smart Global Holdings posted an 81% dip in earnings due to lower revenues. The results were below its previous guidance primarily due to weakness in its supply chain services business, which is reported as part of Specialty Memory Products.

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