MaxLinear's (MXL) Q3 guidance "drop-off" prodded shares to a one-month low Tuesday, but Microsoft (MSFT) partner Inphi (IPHI) rocketed to an all-time high on a solid beat and raise.
By the closing bell on the stock market today, MaxLinear stock crashed 21% to 17.30. Shares are now in a sell zone, nearly 5% below a 19.20 entry point achieved July 8.
But Inphi stock rallied Tuesday, jumping 17% to 42.25. It propelled IBD's 41-company Electronic Semiconductor-Fabless industry group up nearly 1%, also touching an all-time high.
IBD'S TAKE: MaxLinear and Inphi stocks have top-performing IBD Composite Ratings of 99 and 98, respectively, meaning they perform in the top 1% and 2% of all stocks. They are in the Electronic-Semiconductor Fabless industry group, which ranks No. 11 out of 197 groups.
Needham analyst Quinn Bolton credited Inphi's success to strength in its optical unit and traction for its ColorZ product, a 100-gigabit "drone" capable of connecting multiple data centers within about 50 miles.
Cloud operators like Apple (AAPL), Alphabet (GOOGL), Amazon (AMZN) and Facebook (FB) are amassing online size, necessitating products like ColorZ, Inphi told IBD in March. In the near term, Inphi is working to expand production and drive growth in 2018, Bolton said.
For Q2, Inphi reported $60.5 million in sales (minus its Rambus memory unit, which it sold last week), topping Bolton's view for $57.5 million. Inphi beat earnings per share ex items expectations by 4 cents.
Minus Rambus, Inphi guided to $66.8 million-$68.8 million in sales and 37-39 cents EPS ex items for Q3. That beat Bolton's view for $62.5 million and 33 cents, and would be up a respective 9% and 52% vs. last year, even without the memory unit.
Bolton kept a strong-buy rating and boosted his price target on Inphi stock to 45 from 44. And despite the Q3 guidance stumble, Bolton maintained his buy rating and 21 price target on MaxLinear stock.
For Q2, MaxLinear topped analysts' sales views with $101.7 million, and delivered a 6 cent EPS minus items, which also beat. Yet, current-quarter guidance for $94 million to $98 million lagged analysts' model for $104.2 million and would be flat vs. Q3 2015.
MaxLinear's legacy video system-on-a-chip (SoC) and analog channel stack segments are reaching end-of-life status, William Blair analyst Anil Doradla wrote in a research report.
In Q2, video segment sales declined 50% sequentially, and they are expected to fall another 30% this quarter. MaxLinear expects its cable business to fall 10% sequentially in Q3 to $36.3 million in sales. Doradla had modeled a 5% decline.
"We expect in addition to a continued decline in legacy video SoC, the transition from analog channel stack to digital channel stack within the satellite sub-segment will pose some headwinds," he wrote.
Combined, those segments represented $21 million in Q2 sales, about 21% of total revenue. By June 2017, Doradla expects them to cease contributing to the top line. That weighed on MaxLinear stock Tuesday.
The "severe drop-off in revenue contribution was steeper than our prior expectations," Doradla wrote. He said those segments have declined in importance over several quarters but have posed a headwind to MaxLinear's overall growth.
