Semiconductor manufacturer SiTime (SITM -2.73%) ended the second quarter much less optimistic about the year than at the end of the first quarter, and the change spooked investors. Shares of SiTime lost 42.8% of their value in August, according to data provided by S&P Global Market Intelligence, as investors were forced to recalibrate their expectations.
SiTime is a manufacturer of specialty timing microchips that go into a range of products including cell towers, automobiles, and consumer electronics. The company’s chips have an advantage over traditional quartz timing devices in that they are more rugged and consume less power.
It’s a fast-growing company, and when SiTime released its second-quarter results on August 3, the numbers did little to change that perception. Revenue increased 78.5% year over year and 13% from the previous three months, and SiTime generated a gross margin of 66.3% of revenue.
The company, however, reversed some of its enthusiasm for the full year. After the first quarter results, SiTime had raised its revenue forecast for 2022 from 35% to 35% to 50%. But after some slowdowns in orders during the second quarter, SiTime now expects sales to grow at its original pace of 35%, dragging shares down.
Although less than 50%, 35% growth is no reason to panic. But SiTime is highly rated, trading at more than eight times the sell even after earnings decline, and as the saying goes, when investors have priced a stock to perfection, they tend to demand the perfection.
Historically, semiconductor stocks have tended to struggle during downturns. Investors are likely worried that the downgrade in forecasts is a sign of things to come in the coming quarters. Indeed, SiTime said that while demand is holding up well in areas like aerospace and automotive, where robustness of its chips is a requirement, it has fallen in consumer electronics and other products where quartz is a suitable replacement.
For long-term investors, SiTime has the potential to benefit from a number of megatrends, including autonomous driving, the rise of cellular 5G, and the expansion of data centers to accommodate cloud computing. But that opportunity will take time, and after a disappointing second-quarter forecast revision in August, investors became more focused on what the next few months will bring.
Lou Whiteman has no position in the stocks mentioned. The Motley Fool fills positions and recommends SiTime Corporation. The Motley Fool has a disclosure policy.