Audinate (ASX:AD8) share price crashes 10% on Q1 update

This tech share is starting the week deep in the red…

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The Audinate Group Ltd (ASX: AD8) share price is under pressure on Monday morning.

At the time of writing, the media networking solutions provider’s shares are down 10% to $8.84.

Why is the Audinate share price crashing?

Investors have been selling down the Audinate share price today following the release of its first quarter update.

According to the release, Audinate has started the new financial year in a very positive fashion. For the three months ended 30 September, the company achieved unaudited revenue of US$7.6 million. This represents a 46.1% increase over the prior corresponding period and is a record quarterly performance.

Things would have been even better for Audinate if it were not for factory closures in both Malaysia and China that limited further revenue growth during the period.

What’s driving this growth?

Management advised that this strong revenue growth was driven by demand for Dante products continuing to reach record highs.

In fact, demand has been so strong that the backlog of orders for chips, cards, and modules increased to US$14.8 million at the end of the quarter.

Management advised that this reflects original equipment manufacturer (OEM) customers placing orders further into the future and strong underlying growth in demand.

So why are its shares tumbling?

Weighing heavily on the Audinate share price today has been management’s warning that component shortages are expected to impact its second half performance.

It notes that an important supplier has informed Audinate of an unexpected and sudden reduction in the supply of a silicon chip used primarily in the Brooklyn II, Broadway and Dante video products. This component is also purchased directly from the supplier by OEM customers for use in high channel count reference designs and some IP Core implementations.

In light of this, with immediate effect the supplier can no longer guarantee delivery of open orders for Audinate or other customers using the affected part. For Audinate, this means for orders dating back to January of this year.

What now?

In response, Audinate is accelerating plans to release the next generation Brooklyn product by the fourth quarter. The new generation Brooklyn product will be a pin compatible, drop-in replacement for the current Brooklyn II. It expects most OEMs to be able to incorporate it in their products with little or no re-design.

However, until then, the company’s revenues are expected to be severely impact. For example, management notes that the component shortage constrains its ability to supply products that have historically delivered approximately 43% of Audinate’s revenue.

And while the company still expects to deliver revenue growth in FY 2022, it will not be in the pre-COVID historical range.

Audinate’s Co-Founder and CEO, Aidan Williams, commented: “Whilst it is disappointing when unexpected events emerge, I have been pleased with the way in which the team has galvanised into action and been able to accelerate some of the plans we already had in the technology roadmap.”

“While there will be an additional element of uncertainty heading into the second half of FY22, I remain confident that we will be able to overcome another COVID related speed bump. Underlying demand is at record levels and we will do our best to satisfy as much of it as we possibly can over the remainder of the financial year,” he concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AUDINATEGL FPO. The Motley Fool Australia owns shares of and has recommended AUDINATEGL FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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