SMART Global Holdings Inc. (NASDAQ:SGH) stock plunges 43.51% (As on October 13, 11:14:35 AM UTC-4, Source: Google Finance) after the company posted lower than expected results for the fourth quarter of FY 23. On June 13, 2023, the company had entered into an agreement to sell an 81% interest in the SMART Brazil operations. The transaction is expected to close at the end of calendar 2023 or early 2024, subject to required regulatory approvals and satisfaction of customary closing conditions. SMART’s revenue growth has slowed over the last three quarters and its management team projects growth to turn negative next quarter. As such, the company is guiding for a 40.9% year-on-year revenue decline, but Wall Street thinks there will be a recovery next year. Analysts’ estimates call for 12.7% growth over the next 12 months. This quarter, SMART’s DIO came in at 71, which is 4 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.

SGH in the fourth quarter of FY 23 has reported the adjusted earnings per share of 35 cents, missing the analysts’ estimates for the adjusted earnings per share of 45 cents. The company had reported 12.6 percent decline in the adjusted revenue to $316.7 million in the fourth quarter of FY 23, missing the analysts’ estimates for revenue of $375 million. Non-GAAP gross margin of 31.7%, up 460 basis points versus the year-ago quarter. The company exited the fourth quarter with a strong balance sheet, including cash, cash equivalents and short term investments of $391 million

Moreover, the biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles. Sales GrowthSMART’s revenue growth over the last three years has been mediocre, averaging 15.8% annually. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

The Revenue Guidance for Q1 2024 is $275 million at the midpoint, below analyst estimates of $384.7 million.