Stratus acquisition and Smart Global’s core competency in custom memory modules have strengthened its position in HPC/AI, says analyst

rose petal Analyst Kevin Cassidy maintained a buy rating Smart Global Holdings Inc (NASDAQ: SGH), with a price target of $38.00. Cassidy remained bullish on SGH shares regarding its earnings report dated January 3, 2023.

SGH’s recent acquisition of Stratus has strengthened its position in the HPC and AI systems market, combined with the company’s core competency in custom memory modules for data centers, networking and telecom, positioning the company well for long-term growth.

The analyst saw cash flow trade volatility in these deals and expected SGH’s first quarter 2023 results to be in line with consensus.

Not much has changed in the general trends in the past quarter. Cassidy’s estimate may be too conservative as supply chains loosen.

Looking ahead to the second quarter of 2023, the analyst expects the backlog to revenue conversion of IPS to continue as the supply chain loosens. Cassidy will focus on backlog visibility at 2HF23 and software and service traction.

Demand for core specialty memory offerings is expected to remain healthy from OEM customers in the networking, telecom, enterprise computing and storage segments as they are less vulnerable to price volatility of leading storage devices.

The raw material side of SGH’s memory business is located in Brazil. Brazil posted its lowest quarterly sales in many, many years. The analyst believes lower memory prices will lead to more content and systems.

Over the long term, Cassidy saw two trends in the memory industry, DDR5 and CXL, that will bring new growth to SGH’s Memory Solutions Group.

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During Q4 22, LED revenue surprisingly fell about 20% q/q due to strong headwinds in China, with COVID-related policies contributing to supply chain restrictions impacting demand. Business in China remains weak and is beginning to decline in the US and Europe.

Cassidy expects another quarter of destocking in 2Q23. The analyst expects the LED business to return to Q/Q and Y/Y growth in 2HF23.

The 2QF23 management forecast would be in line with the consensus estimate. The key metrics will be whether the memory content of mobile phones and PCs in Brazil is growing enough to offset the drop in storage prices, even as LED channel inventory has been reduced to meet lower demand driven by China’s COVID-19 lock was caused.

The analyst remains confident that demand for HPC and AI systems and specialty memory modules in CY23 remains robust.

Price promotion: SGH shares traded up 2.59% to $15.07 on the last check Thursday.

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