SMTC Corporation (NASDAQ:SMTX)

SMTC Corporation delivered its third straight quarter of both sequential and year of year EPS growth.

2010 Second quarter highlights:

Comments in the the press release indicated that the 2010 third quarter would also be strong...

 "We enter the third quarter with a solid order backlog and continuing demand from our customers."

...but left a slight cloud of uncertainty regarding growth prospects thereafter:

However, we will take a cautious approach given continuing economic uncertainty and lack of visibility into customer end markets and into remaining customer inventory builds. We expect continued profitability through the remainder of the year but as has been our policy, we are not providing specific full year guidance." stated Mr. Caldwell.

We participated in the earnings conference call to gain more insight into future business prospects.  Management confirmed that the 2010 third quarter would build on the momentum established over the past several quarters. We asked management why it hesitated to give guidance past the third quarter.  It basically said that much of the recent growth was the result of customers restoring inventories that were inadequate to meet current demands. Thus, due to the uncertainty in the market place, the company was unwilling to make a definitive call that customers would not delay purchases until more certainty arrives on the scene.  

The company may also begin stepping up its IR efforts.

The SMTC story suddenly has a fly in the ointment. In its first quarter press release the company was able to make a broad assumption on 2010 as a whole:

"We continue to see signs of economic recovery. We experienced wide spread increased customer orders in the first quarter and thus far in the second quarter. With this strong order intake combined with a large opening order backlog, we expect continued sequential second quarter revenue growth. Although we have less visibility beyond the second quarter, at this point we expect aggregate revenue in the last two quarters at least to attain the first half level," stated Mr. Caldwell.

We have read too many press releases from other technology firms indicating that order bookings are at record highs and that visibility has improved. The question now becomes:  is the company being a little too conservative or does it see some weariness from its customers?  It is likely a little of both and in the end could lead to a disappointing 2010 fourth quarter.

With an erie feeling, we will keep the stock on the GeoSpecial on the Radar list, understanding the medium-term hurdles. With fully taxed adjusted trailing EPS of $0.35, we are not sure investors will take the stock much past a $3.00 to $5.00 range, until more clarity becomes evident about the future.