What’s driving Smart Global Holdings Inc (NASDAQ: SGH) stock

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Smart Global Holdings Inc (NASDAQ: SGH) stock rose over 6.1% on 4th October, 2019 (as of 11:39 am GMT-4; Source: Google finance) after the company achieved non-GAAP operating profit 36% higher than the previous quarter and non-GAAP earnings per share of $0.50, which was 47% higher than the previous quarter. SGH has generated significant operating cash flow of about $50 million, the company has further reduced its inventories by another 11% in the quarter and ended the quarter with $98 million in cash and short-term investments. SGH has completed two key acquisitions and are on the way to integrate them to accelerate growth, profitability and diversification away from commodity memory products and from the business in Brazil. SGH has reported Non-GAAP net income for the fourth fiscal quarter was $11.9 million compared with $7.9 million in the previous quarter. Adjusted EBITDA had totaled $25.2 million compared with $19.2 million in the prior quarter.

Meanwhile, the company’s supply chain services business, which comes under specialty memory products came in well below the company’s expectations. Late in the quarter, this business was affected due to the weakness in some of the OEM customers, resulting from adjustments to their inventory positions. However, the company believe that the supply chain business is bottomed-out and are currently anticipating a modest improvement in the first fiscal quarter.

SGH in the fourth quarter of FY 19 has reported the adjusted earnings per share of 50 cents, missing the analysts’ estimates for the adjusted earnings per share of 67 cents. SGH has posted 32% of revenue from Brazil. 30% of the revenues coming from a new vertical called Specialty Computing and Storage Systems, while 38% of the revenues are generated from the Specialty Memory Products business for the fourth quarter. The Inforce business which is now Wireless Computing line of products posted sales of roughly $15 million in the trailing 12 months pre-acquisition and is expected to more than double in fiscal 2020, on the back of the synergies in the SMART’s OEM sales force and its operational strengths.

For the first quarter fiscal ’20 the net sales is expected to be in the range of $275 million to $285 million. The company expect mobile memory units to increase by greater than 20% for Brazil, leading to an increase in revenue by the mid-single digits from Q4. Specialty compute is also expected to increase in Q1, due to the full impact of Embedded Computing and Inforce for a full quarter. Gross margin for the quarter is expected to be approximately 22% plus or minus 1%, up 3% from Q4.

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