Soitec Earnings: Expected Cut in Midterm Guidance; Maintaining EUR 180 Fair Value Estimate

Narrow-moat Soitec reported a 12% organic sales decline in its third fiscal quarter of the year as it continues to be dragged by its mobile segment, as expected. The smartphone market is still absorbing excess inventories, and inventory level has not improved as quickly as management anticipated earlier in the year. In turn, management lowered guidance on revenue for 2024 down to around a 10% year-on-year loss from a mid-single-digit loss previously. Management also lowered EBITDA margin guidance to 34% from 35% and now expects the firm to reach $2.1 billion in revenue in fiscal year 2027 versus 2026. We are not surprised by the downward revisions as management had already suggested this could happen. Management’s guidance looked too optimistic to us, and we model revenue will only reach Soitec’s medium-term guidance of $2.1 billion in 2028, compared with management’s initial forecast of 2026, which now has been pushed to 2027. Our long-term adjusted EBITDA margin remains at 37.5%, compared with management’s target of 40%. We are maintaining our EUR 180 fair value estimate.