Spectra7 Microsystems still a good bet in the long term, Canaccord Genuity says

Despite Q3 results that he describes as disappointing, Canaccord Genuity analyst Taylor Arnold is staying upbeat about Spectra7 Microsystems’ (Spectra7 Microsystems Stock Quote, Chart, News: TSXV:SEV) long-term viability.

On Tuesday, Spectra7 announced preliminary third quarter results it said would be down 35 per cent, quarter over quarter. The company attributed the decline to supply chain issues it said are currently being resolved.

“Production ramp issues and supply constraints left unfilled orders on the books as the quarter ended,” said CEO Raouf Halim. “We want to emphasize that this was a supply-driven issue during the quarter, and that our customers remain committed. We are working diligently to complete and ship these unfilled orders early in the fourth quarter”.

Arnold says this development has interrupted Spectra7’s momnetum, but adds that longer-term the story remains the same.

“Spectra7 announced preliminary Q3/17 results that were below consensus estimates. Revenue of $2.0 million missed our estimate of $3.7 million and consensus at $3.8 million while the gross margin range of 55-58% was below our forecast at 60.5%,” the analyst notes. “The company attributed weak Q3/17 results to manufacturing delays and supply-side push outs late in the quarter that impacted its ability to meet demand. Spectra7 is currently resolving these supply-side issues and expects to return to a normal shipping schedule in Q4/17. Despite the hiccup, management noted that its customers remain committed and the company is still facing a robust demand profile. While these results are clearly disappointing we remain positive on the longer term growth trajectory considering the pipeline of Tier-1 VR/MR design wins and steady progress with its data centre products heading into 2018E.”

In a research update to clients today, Arnold maintained his “Speculative Buy” rating and one-year price target of $0.75 on Spectra7 Microsystems.