Semtech Q1 2026 Earnings Call Transcript

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Provided by Quartr
May 27, 2025
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Operator

Good day, and thank you for standing by. Welcome to Semtech Corporation's First Quarter Fiscal Year twenty twenty six Earnings Conference Call. At this time, all participants are in a listen only mode. After management's remarks, there will be a question and answer session. Please be advised that today's conference call is being recorded.

Operator

I would now like to hand the conference over to Mark Lynn, Executive Vice President and Chief Financial Officer. Please go ahead.

Mark Lin
Mark Lin
EVP & CFO at Semtech

Thank you, operator. Good day, everyone, and welcome. In addition to Hong Ho, President and Chief Executive Officer, I'm thrilled to be joined by Mitch Haws, Senior Vice President of Investor Relations. Many of you know Mitch given his breadth of semiconductor experience at AMD, Skyworks and Freescale and now Semtech. With that, I'll turn the call over to Mitch.

Mitch Haws
Mitch Haws
SVP - IR at Semtech

Thanks, Mark. I'm very happy to join the Semtech team and look forward to engaging with all of you in the months and quarters ahead. Today, after market close, we released our unaudited results for the first quarter of fiscal year twenty twenty six, which are posted along with an earnings call presentation to our investor website at investors.semtech.com. Today's call will include various remarks about future expectations, plans and prospects, which comprise forward looking statements. Please refer to today's press release and see Slide two of the earnings presentation as well as the Risk Factors section of our most recent annual report on Form 10 ks for a number of risk factors that could cause our actual results and events to differ materially from those anticipated or projected on this call.

Mitch Haws
Mitch Haws
SVP - IR at Semtech

You should consider these risk factors in conjunction with our forward looking statements. Unless otherwise noted, all income statement related financial measures will be non GAAP other than net sales. Please refer to today's press release and see Slide three of the earnings presentation for important information regarding notes on our non GAAP financial presentation. The press release and earnings presentation also include reconciliations of our GAAP and non GAAP financial measures. With that, I will turn the call over to Hong.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Thank you, Mitch. Welcome aboard. Good afternoon, everyone. We reported Q1 results with net sales, adjusted gross margin, adjusted operating margin and adjusted diluted earnings per share, each above the midpoint of our guidance. These results illustrate the resiliency of our business and offer another proof point of our operational excellence.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Semtech's Q1 ended on April 27, so we closed the last month of the quarter during an extremely turbulent period, but we successfully navigated through dynamic tariff policies. Superb coordination among our operations, sales, compliance teams was instrumental in mitigating the tariff situation for Semtech and our customers, facilitating a stable flow of product across the global semiconductor supply chain. I extend my heartfelt thanks to these teams and recognize their efforts in helping us achieve our Q1 results and supports our conviction for the quarters ahead. Semtech's Q1 results also reflect our focus on core priorities, including portfolio optimization, strategic investment in R and D, and driving margin expansion. While uncertainty in the market may impact the timing of some of our portfolio optimization initiatives, we have strong conviction that we can operate these businesses to grow the top line, expand profit margins and improve overall financial metrics.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

We believe this will create more value for our shareholders. Moving to our end markets. For Q1, infrastructure net sales were $72,800,000 up 5% sequentially and up 30% year over year. Net sales for data center were a record $51,600,000 up 3% sequentially and up 143% year over year. Our expectations for a short term demand gap in CopperEdge remain consistent.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

That said, we expect our data center business to be a sustainable growth driver, especially given recent indications of capital expenditure growth by hyperscalers as well as from innovations in our copper and optical portfolios. AI data centers face critical power and thermal challenges, which will grow exponentially as compute workloads increase. Our analog solutions are well suited to address this address these challenges. Corporate Edge enables a significant paradigm shift in connectivity, delivering the signal integrity and rich extension needed for next generation AI clusters. Compared to DSP based options, CopperEdge reduced power consumption by over 90% and also enables significantly longer reach than the direct attached copper of DAC cables.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

At OFC, we demonstrated a number of copper edge driven ACC applications, all with a bit error rate well below acceptable ranges. At 1.6, we successfully run traffic across a three meter 27 gauge cable using two twenty four gig SerDesports. Our launch application at our anchor customer last year was a 1.1 meter cable. So this demonstration highlighted the high performance capabilities and the reach of our copper edge ICs. At 800 gig, the dominant rate of data center traffic, we demonstrated an extended reach five meter ACC connected to a Broadcom Tomahawk five switch.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

A prospective customer requested this configuration for use as a replacement to deck cables. Also connected to the Tomahawk five switch was a ultrathin three meter 36 30 gauge cable that has significant benefits in airflow and bending radius, both characteristics valued by REC architects. We remain closely engaged with our copper edge anchor customer for applications in their future generation RACs. In addition, hyperscalers, switch vendors, and the cable manufacturers continue to show interest in copper edge ACCs. We have delivered ACC cables for testing and qualification to multiple customers and expect the meaningful design wins at hyperscalers and enterprise customers leading to volume ramps before the end of this fiscal year.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

On the optical side, our LPO demonstration at OFC generated significant interest, and our expectation of deployments in the second half of this fiscal year remains unchanged. We are pleased that the feedback from our customers indicates Semtech TIA for LPO offers superior performance, and we believe we are winning the lion's share in TIAs. We also released our LPL laser drivers last quarter and are generating design in traction at multiple module suppliers. Moving to our high end consumer end market. Net sales for Q1 were $35,400,000 flat sequentially and up 3% year over year.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Net sales in consumer TVS were $24,500,000 in line with our outlook for Q1 and up 2% sequentially. We expect a pattern of smartphone unit ramps fairly consistent with the past years with the increase in the second quarter and the successive increase in the third quarter. Within consumer TVS, we believe our innovation continues to result in increased content. I'm pleased to highlight expanded design and activity of SurgSwitch, a system level protection device across a number of manufacturers and platforms. SearchSwitch has the capability to simultaneously address expanded dimension of threat from ESD or electrostatic discharge or EOS or electric electrical overstress across a wide operating temperature range.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Finer process geometry in advanced nodes for IC fabrication have increased the the demand for the type of rigorous off chip system level protection offered by search switch. For a per se a person sensing products, we have discussed use in smart glasses, an application we believe has a strong potential to be next generation AI interface platform. We have a growing field of opportunity and are actively engaged with a broad range of customers on both existing designs and on new launches. In smartphones, Per Se addresses increasingly stringent specific absorption rate or SAR standards and is currently deployed on devices at the most leading manufacturers. Perse offers meaningfully lower power, improved sensitivity, and best in class noise

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

rejection. Perse's use of Semtech's novel packaging expertise also results in smaller footprint that allow us and our customers to develop a slicker form factors.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Moving to our industrial end market. For Q1, industrial net sales were $142,800,000 down 3% sequentially, in line with our outlook and up 24% year over year. Within the industrial end market, net sales of LoRa enabled solutions remained strong at $38,900,000, up 5% sequentially and up 81% year over year. Demand supporting new product launches and deployments remained robust. We recently announced that Sunnova, a world leader in innovative health care solutions, chose as a technology partner to create a ultra small, ultra low power wireless radio and power management IC.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

LoRa Technology highlights Semtech's deep expertise in ultra low power RF with the clear match for battery operated devices, including hearing aids. Robotics and the unmanned aerial vehicles are also a emerging market for LoRa. LoRa's ability to operate in dual band 2.4 gigahertz and ISM frequencies offered enhanced bandwidth, which is well suited for these applications. In addition, LoRa's modulation scheme now paired with multiple protocols provided a capability of LoRa plus allows manufacturers to extend the end applications, including safety, security, as well as smart building. Our IoT systems hardware business recorded Q1 net sales of $63,500,000, down 8% sequentially, but within expectation of our outlook and up 31% year over year.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Bookings in the first quarter for this business increased for the seventh consecutive quarter. Pipeline also increased substantially in Q1, attributable to both the inclusion of a significant China based competitor on a sanction list and the strong indications of a broader market recovery. We expect a continued growth and improved profitability in our IoT cellular portfolio based on stronger pipeline and bookings. Growing five g adoption rates, particularly in North America, is benefiting our hardware business with the current deployments utilizing the first and second gen modules. In q one, we launched the two third gen five g modules, a cost optimized solution supporting broader five g adoption for value focused applications and performance optimized solutions supporting five gs advanced to enable next generation edge based AI applications.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

IoT connected services net sales were overall stable for this largely reoccurring revenue business. Our connected services business is a great example of Semtech's deployment of AI tools. As an example, anomaly detection highlights abnormal network activities and notifies our operating center. And we believe this improved detection capabilities have prevented a security incidents for our customers. In summary, we have made significant strides in strengthening Semtech's financial foundation over the past year, which allows us to sharpen our focus on improving profitability and investing in innovation and capabilities that position us for long term business growth.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Our Q1 results reflect disciplined execution. At the same time, we recognize that there is still much work ahead of us to fully unlock the value of our unique technologies and to deliver sustainable long term returns for our shareholders. We must continue to solidify a winning culture, accelerate innovation, and leverage our technology leadership and execution, all of which position us to deliver enhanced value to our shareholders with increased revenue and expanded margins. I now turn the call to Mark for additional details on our financial results and our outlook for the second quarter of fiscal twenty twenty six. Mark?

Mark Lin
Mark Lin
EVP & CFO at Semtech

Thank you, Hong. For Q1, net sales were a record $251,100,000 above the midpoint of our outlook and up 22% year over year. We do not believe our Q1 net sales reflect material pull ins due to tariffs. Net sales trends by end market, reportable segment and geographic region is included on slide 16 of the earnings presentation. Adjusted gross margin was 53.5%, up 30 basis points sequentially and up three seventy basis points year over year.

Mark Lin
Mark Lin
EVP & CFO at Semtech

Adjusted net operating expenses were $86,600,000 below the midpoint of our outlook. Adjusted operating income was $47,600,000 resulting in an adjusted operating margin of 19%, up six eighty basis points year over year. Adjusted EBITDA was $55,400,000 up 68% year over year and adjusted EBITDA margin was 22.1, up 600 basis points year over year. Adjusted net interest expense was $5,000,000 down sequentially from $11,200,000 The decrease was primarily reflective of a full quarter of savings from our Q4 debt pay down. We recorded other net non operating expenses of $2,800,000 substantially reflective of foreign exchange revaluation losses.

Mark Lin
Mark Lin
EVP & CFO at Semtech

This amount stemmed from a weaker U. S. Dollar most notably in the month of April. We recorded adjusted diluted earnings per share of $0.38 up from $06 a year ago. Operating and free cash flow for Q1 were $27,800,000 and $26,200,000 respectively and these amounts reflect variable compensation payments in Q1.

Mark Lin
Mark Lin
EVP & CFO at Semtech

At the end of Q1, net debt sequentially decreased $14,800,000 to $396,200,000 and comprised of approximately $171,000,000 in term loan and $382,000,000 in convertible notes, offset by $156,000,000 in cash and cash equivalents. Along with debt reduction, strong business performance contributed to an adjusted net leverage ratio below two as of the close of Q1. We continue to prioritize debt reduction with a $10,000,000 term loan prepayment in the first quarter and an additional $15,000,000 to date in the second quarter. On our revolving credit facility, I am pleased we successfully amended the facility to increase our total borrowing capacity by $117,500,000 for a total revolving credit facility size of $455,000,000 No financial covenants or material terms were modified as part of this amendment. As of today the revolving credit facility remains undrawn except for previously outstanding letters of credit totaling about $3,000,000 turning to our second quarter outlook.

Mark Lin
Mark Lin
EVP & CFO at Semtech

We currently expect net sales of $256,000,000 plus or minus $5,000,000 up 19% year over year at the midpoint. We expect net sales from our infrastructure end market to increase sequentially including growth in data center. We expect net sales from our high end consumer end market to be up slightly reflective of typical seasonality. We expect net sales from industrial end market to be flat to slightly down with moderation in LoRa offsetting growth in our IoT cellular business. Based on expected product mix and net sales levels, we expect adjusted gross margin to be 53% plus or minus 50 basis points, a two sixty basis point improvement year over year at the midpoint.

Mark Lin
Mark Lin
EVP & CFO at Semtech

Adjusted net operating expenses are expected to be $87,500,000 plus or minus $1,000,000 resulting in an adjusted operating margin at the midpoint of 18.8%, a four sixty basis point improvement year over year. Adjusted EBITDA is expected to be 56,000,000 plus or minus $3,000,000 resulting in an adjusted EBITDA margin at the midpoint of 21.9%, a three ten basis point improvement year over year. We expect adjusted interest and other expenses net to be $5,500,000 reflective of leverage based pricing on our term loan that reduces our interest rate, another benefit of our lower leverage ratio. We expect an adjusted normalized income tax rate of 15%. These amounts are expected to result in adjusted diluted earnings per share of $0.4 plus or minus $03 based on a weighted average share count of 90,000,000 shares.

Mitch Haws
Mitch Haws
SVP - IR at Semtech

Thank you, Mark. We can now turn the call back over to the operator for the question and answer session.

Operator

Thank

Operator

and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And due to the interest of time, we ask that you ask only that you ask only one question and one follow-up. One moment, please, while we pull for questions.

Operator

And our first question comes from the line of Quinn Bolton with Needham and Company.

Quinn Bolton
Senior Analyst at Needham & Company

I wanted to start off with a question on the cellular module business. I was, I guess, a little surprised to see that down, I think, after six quarters of increased bookings and Q1 being the seventh quarter. So wondered if there was anything specific to call out in the cellular module business in April. And thank you for the additional gross margin disclosure in today's press release. But it does look like the gross margin on the cellular modules also came in, down meaningfully both quarter on quarter and year on year.

Quinn Bolton
Senior Analyst at Needham & Company

Just wondering if you could explain what happened on the margin side of the cellular module business in the first quarter?

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Quinn, thank you for your question. Yes. So from our Q4 guidance, we expected some level of seasonality on our IoT system product. And but you are right, this business is experiencing pretty significant tailwind as I as I provided during the prepared remarks because of the Sansk list for our competitor based in China and also the exit of U Blocks into the IoT cellular business. This tailwind is very evident from our booking activities.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

And so we do expect this business is going to be revenue is going to be accelerating in the quarters forward. But Q1 was a little low and we expected that from the guidance out of Q4.

Mark Lin
Mark Lin
EVP & CFO at Semtech

Quinn, just to address gross margins. This also came in with an expectation. We had guided a little bit lower gross margin or we expect a little bit lower gross margin from the ISC business. But within this business, you also have a little bit of mix between modules and routers affecting the gross margin that we reported.

Quinn Bolton
Senior Analyst at Needham & Company

So so you saw mix shift more to modules away from routers, and that's that's why it came in lower than, say, the prior quarter or prior year?

Mark Lin
Mark Lin
EVP & CFO at Semtech

That's correct.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

And there is also a onetime event on the inventory on the module side. So that is a kinda like a, you know, impacting the overall IoT system margin, adversely. That is that's onetime, event.

Quinn Bolton
Senior Analyst at Needham & Company

Got it. So there's a a write off of obsolete or, excess inventory in that, something like that that that was a was a further drag?

Mark Lin
Mark Lin
EVP & CFO at Semtech

Patrick, when it was more in q four, we had a little bit of a a tailwind that we didn't recur in q one.

Quinn Bolton
Senior Analyst at Needham & Company

Okay. Thank you. I'll get back in queue.

Operator

The next question comes from the line of Christopher Rolland with Susquehanna International Group. Please proceed.

Christopher Rolland
Christopher Rolland
Senior Equity Analyst at SIG Group

Hey, guys. Thanks for the question. So mine is just around AI connectivity. It sounded like there was some progress here maybe on the CopperEdge side with engagements and revenue by the end of the year. Perhaps you could expand on that and just more broadly talk about where we are in visibility around AI connectivity for you guys overall.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Yeah. Chris, thank you for that question. You know, our CopperEdge product, we trailblazed that product into the market through the engagement with the anchor customer. Since then we have reached out to more than 20 customers in having very close engagement with many of them And it is really very encouraging to see that they finally recognize the unique advantage that ACC offers compared to AOC or AEC in terms of low power consumption, low latency. And a number of them are taking our product prototype samples for qualification and testing.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

And so the use cases are going in for, scale up of the ASICs interconnect and also for scale out, especially the first level of the switch fabric from NIC to top of the rack. And our demo at OFC, it's used stop by at CNET and really shows and give a lot of confidence for our customers. They come in, see and kick the tire, know, wiggle the cables and see the bit error rate well below the acceptable limit. And so for say 200 gigabit, they could see our product can transmit over three meters, with a 30 gauge cable. That is really very desirable.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

So, as I said, we expect a number of the customers we're engaging is gonna be finished the qualification and start ramping by q four this year.

Christopher Rolland
Christopher Rolland
Senior Equity Analyst at SIG Group

Excellent. Thank you, Hong. My second question is around LPO and Optical more generally for you guys. If you could describe what you're seeing there in terms of like TIAs, drivers for maybe regular optical and then for LPO and how that might ramp through the year? That that that would be great.

Christopher Rolland
Christopher Rolland
Senior Equity Analyst at SIG Group

Thank you, guys.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Yeah. Thank you. So as you know, that the Semtech TIA is considered the gold standard for the industry. For traditional retimed, our LPO, our TIA has been designed in almost in every module manufacturers. And LPO are coming out of the OFC, you know, that MSAs, they finalize the specification.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

So now the suppliers, the customers, the cloud service providers, they're all on the same sheet of music and having the same expectation on performance. And there's no longer any argument. Now it's really about the timing and what platform they started deployment. So this is a tremendous progress compared to a couple years ago as you know this industry and tracking for a long time. We're seeing 800 gig LPO links or a hundred gigabit per second is, going to be, used the first by multiple cloud service providers.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

And we're designed in from TIAs. Our driver is a little bit late compared to our competitor and by the way released the last quarter and our driver because of late reduction did incorporate the specific requirements that MSA dictated or authored. So I will say our driver is a fully LPA, PO compliant driver and we are working with multiple module manufacturers in incorporation and qualification. So that will bring additional revenue say in fact I will say by Q4 this fiscal year. So in general our fiber edge product had a pretty broad application that different data rates and different applications and we are benefiting from the increased CapEx spending of the industry, but also I believe we're gaining some market share.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

So that will be, continue to be a driver for our data center and overall revenue growth.

Christopher Rolland
Christopher Rolland
Senior Equity Analyst at SIG Group

Thanks for the color, Hong.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Thank you.

Operator

The next question comes from the line of Harsh Kumar with Piper Sandler. Please proceed.

Harsh Kumar
Harsh Kumar
Managing Director & Senior Research Analyst at Piper Sandler Companies

Yeah. Hey, guys. Welcome, Mitch. Good to talk to you again. Hong, I had a

Harsh Kumar
Harsh Kumar
Managing Director & Senior Research Analyst at Piper Sandler Companies

I was curious if you could talk about your data center business, the core business, excluding, you know, futuristic outlook for LPO and maybe ACC. Just your just your plain vanilla core data center business, how you see that business trending over the next, call it, six to twelve months? And then I had a follow-up.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Good. Thank you, Harsh. So you know that we disclosed there are air pocket in demand on ACC. So from the end to customer, but the very fact that we delivered a sequential growth in Q1 versus Q4 on our data center product is due to the strength of our fiber edge product. So the LPO certainly is in a design win stage.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

It's not contributed to meaningful revenue yet. And based on the booking activities and based on the our conversation with our customers, we hold a strong conviction for the second half of the year that the fiber etch and the plain vanilla as you put it, PMDs, we call it physical media devices, will continue to experience experience, growth, maybe accelerated growth. I'm really optimistic about that.

Harsh Kumar
Harsh Kumar
Managing Director & Senior Research Analyst at Piper Sandler Companies

Great. Thank you, Hong. And then I was curious about LoRa. LoRa, I think in your guidance, Mark, you said LoRa will be off a little bit. This is coming on the heels of some very strong growth over the last several quarters.

Harsh Kumar
Harsh Kumar
Managing Director & Senior Research Analyst at Piper Sandler Companies

You talked about some new end markets, automotive, robotics, hearing aids, etcetera. I was curious if you could help us understand why LoRa is going to be off just a little bit. Is it just small stuff like timing or just coming off of hot growth, Or is there something else? And then when do you see these new markets materializing? And I'll get back in line after this.

Mark Lin
Mark Lin
EVP & CFO at Semtech

Sure. Thanks for the question, Harsh. So, Laura, in q one, we reported $38,900,000 up from $37,100,000 in Q4. So very nice sequential growth. Last quarter, we were guiding Laura into the, call it, the $30,000,000 to $35,000,000 range.

Mark Lin
Mark Lin
EVP & CFO at Semtech

So that's where we believe the market will kind of fall out in the next few quarters. We do believe that in our first quarter, there was a little bit of additional build. We've said that LoRa has some project spend. Also, had customer build additional units for in anticipation of a product launch. So that's where LoRa is we believe that LoRa next quarter will be coming down a little bit.

Mark Lin
Mark Lin
EVP & CFO at Semtech

But still quite a strong business. Dollars 38,900,000.0 is still up 81% year over year.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Thank you, This is on Laura. We do expect a comfortable 30,000,000 to $35,000,000 quarterly run rate. As Mark said, we disclosed a medical customer is ready to launch new product. In Q1, there are some additional orders from them to support a new product launch.

Harsh Kumar
Harsh Kumar
Managing Director & Senior Research Analyst at Piper Sandler Companies

Understood. Thank you, guys.

Operator

The next question comes from the line of Timothy Arcuri with UBS. Please proceed.

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

Thanks a lot. I also wanted to ask about the update on AI connectivity. I I I assume that CopperEdge pretty much is zero in July and October, and then sounds like you get a pretty big step up in fiscal q four because of all these, all these engagements. Is that the right way to think about it?

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

So, Tim, that's a good question. We talked about the air pocket in demand due to the platform change with the anchor customer. That is unchanged and but we continue to engage with them for future generation either well in both you know cable form and chips on board type for linear equalizer applications, that relationship continue to be very tight, but it didn't demand from them. It was a lower, a lot lower than we, you know, early expected. But the engagement with other customers for the application of the CopperEdge product and really very, very exciting and encouraging.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

There are four or five different application and use cases go beyond just the scale up, interconnect between different racks are materializing, and some of them are completing the qualification and just waiting for the deployment in their, next generation platforms. We do believe, the revenue from other customers will come, in q four time frame and start ramping from there.

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

Thanks a lot. And then, Mark, can you talk about margin there? I mean, this is kind of a nit, but revenue's up, like, 5,000,000 sequentially and gross margin's down 50 bps. What what what's is

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

is that just mix?

Mark Lin
Mark Lin
EVP & CFO at Semtech

Yeah. So Semtech is is largely mix dependent. So the guide reflects what we believe the current mix will be. So 53% in q two, it's a 260 basis point improvement. So in our financial in our press release, in earnings presentation, we do now break out our semiconductor products groups that consist of our signal integrity and our analog, big signal and wireless segments.

Mark Lin
Mark Lin
EVP & CFO at Semtech

So we brought that disclosure in from our 10 Q. We felt it'd be helpful for investors to see it also in our earnings release and our earnings presentation. So within semiconductor products, it was 63.7% gross margin, up seven twenty basis points year over year, but largely mix dependent.

Operator

Thanks a lot. The next question comes from the line of Joe Moore with Morgan Stanley. Please proceed.

Joseph Moore
Joseph Moore
Managing Director at Morgan Stanley

Great. Thank you. There was a line in your prepared remarks, you sort of said when uncertainty in the market may impact timing of some of the portfolio optimization initiatives. Can you just talk about what you mean by that and kind of it doesn't sound like you guys are overly impacted by tariffs. What kind of uncertainty is that creating for you?

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

I see. So Joe, thank you for the question. What I mean by that is not about the tariff related, but it's just the overall macroeconomic uncertainties as you know the deal flow and people thinking about strategically is probably get a little bit deferred. But we continue to hold our strategic initiatives at a high priority, but because of the overall industry get distracted and getting focused on how to mitigate the tariff risk and activities on the strategic initiative is going to be get delayed. So that's what we mean.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

And but we do provide more visibility in our gross margins from our earnings release so that you can see that we own the business and as long as we own it, we'll continue to work hard to improve and deliver better results. That's the best way to create, shareholders value. We control what we can control. We can't do much on things we can't control. So that's the macroeconomic environment.

Joseph Moore
Joseph Moore
Managing Director at Morgan Stanley

Got it. Okay. Thank you.

Operator

The next question comes from the line of Tore Svanberg with Stifel. Please proceed.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

Yes. Thank you, and welcome on board, Mitch. You. Hung, I had a question about the per se proximity sensor for for the glasses. You talked a little bit about that, but how should we think about that business ramping?

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

Would that happen second half of fiscal twenty six, or is that gonna be more of a fiscal twenty seven event?

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Hey, Terry. That's a good question. So we're really excited about the Perseil product. And as you know, traditionally, that product has been designed for, the SAR standards or specific absorption rate reduction. So, it come in really handy due to its low power and high accuracy and also the noise rejection capabilities for smart wearables.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

I bought a Meta Riband smart glasses. It was absolutely phenomenal. You know? It's just taking pictures and recognize the different locations and do the translation in real time. And we're seeing probably five, six of other customers we are engaging for similar devices.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

So from the get go, you know, I think cumulative, we have supported over a million smart glasses, using this, gesture control capability. Just imagine how many variable, devices it can be have out there and and using the smart glasses at AI interface to link into the infrastructure. So we're very excited about that market perspective. We do believe, again, the second half of this year, they're gonna be more than Meta, jump on that bandwagon to provide smart glasses.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

Yeah. That's great color. And and as my follow-up and specifically on Laura, you mentioned the medical customer or perhaps customers. Is is this still only gonna be the hearing aids, or are you seeing LoRa perhaps penetrate other types of medical applications?

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

For now, it's, just the hearing aids we're talking about, but I wouldn't be surprised that, the people start using LoRa for other medical device applications. The beauty of that, it's just a very low power consumption and very robust, connectivity. So, you know, for example, the robotics is a new application and that now, is being proliferated pretty widely and using the LoRa to interconnect a different robotics and robots and to to build a network.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

Very helpful. Thank you.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Thank you, Troy.

Operator

The next question comes from the line of Cody Acree with The Benchmark Company. Please proceed.

Cody Acree
Equity Research Analyst at The Benchmark Company LLC

Yes. Thanks, guys, for taking my questions and congrats on the progress. Guys, could you talk about your expectations for seasonality into the second half across your various markets?

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Yeah. Hey, Cody. Thank you for the question. The seasonality for our TVS product, that's a high end consumer. You know, we know that it's coinciding with the smartphone release schedule.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Other than that, I think the seasonality for at least for the next two, three quarters, we don't see the obvious seasonality. We do see industrial side, the broader market recovery. We see in the data center side, everyone was concerned about the CapEx spending in AI area. But now, you know, many of the CSPs and also the industry participants in the broader ecosystem all show the strong confidence that the second half, the CapEx spending is gonna be accelerating. We're seeing that from our booking activities.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

LoRa side is the only one, I wouldn't call it a seasonality and it's just this this project based spending out, you know, they need more material for our q one. And but no the end notes numbers are increasing and we are shipping records number every quarter. We're creating more new record for number of end nodes. The new applications are being discovered and new product, our RIGI offers LoRa plus. What a LoRa plus mean in addition to LoRa protocol, we support other RF protocols.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

The significance for that, for example, BLE, the Bluetooth enhanced, is that some applications, they wanted to use LoRa, but they wanted to have the back end compatibility on their installed and deployed base. So what this compatibility of LoRa plus allow us, allow the integrators to offer a product, offer the back end of compatibility with the existing protocol, but going forward, they can take advantage of the LoRa, protocol. So LoRa plus is still to us is LoRa centric. That's, will unlock a range of new applications. I feel that, even though the q two revenue compared to q one will be slightly down, but that's not a seasonality.

Cody Acree
Equity Research Analyst at The Benchmark Company LLC

Excellent. Thanks for the help there. And then just thoughts on your gross margin and OpEx drivers in the second half and and what kind of trends can we expect?

Mark Lin
Mark Lin
EVP & CFO at Semtech

Hey, Cody. So I think we've talked about product mix between our three end markets. That will largely drive our gross margin into the second half. And for OpEx, just note for gross margin OpEx, we're only guiding out one quarter. But for OpEx, I believe we're making some very good investments in R and D.

Mark Lin
Mark Lin
EVP & CFO at Semtech

So we continue to focus on project spend and monitoring our project spend with R and D. That has not changed quarter over quarter. We believe we have some great opportunities in front of us. Other areas of OpEx growth, we're kind of filling out our commercial team, and that commercial team is like a technical sales force. Right?

Mark Lin
Mark Lin
EVP & CFO at Semtech

So that team allows us to get some better information, better information exchange with our customers and then better aligns our r and d spend to what our customers need.

Cody Acree
Equity Research Analyst at The Benchmark Company LLC

Alright. Thanks for the help.

Operator

The next question comes from the line of Craig Ellis with B. Riley Securities. Please proceed.

Craig Ellis
Director of Research at B Riley Financial

Yes. Thanks for taking the question. And Mitch, great to be back in touch and having you onboard the Semtech team. Guys, I wanted to start just by getting better understanding of what you're expecting within data center in the back half of the year. So it seems clear that we've got two significant things happening.

Craig Ellis
Director of Research at B Riley Financial

We've got AI connectivity that seems to be coming up and coming back on, multiple customer wins away from your key customer, and then we've got LPO that's starting to ramp up. The question is, can you help us dimension those two items as we exit the year? Which will be the the bigger driver? And you should look at the arc of what's happening with each. Can you help us by characterizing what we should expect as those programs go from initial ramps to more meaningful volume?

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Thank you, Craig. Yeah. So as you know, we are we have a pretty broad product portfolio for our data center connectivity. We got fiber edge, which is a the TIA and the drivers. We got a copper edge with a linear equalizers and then we got tri edge as a CDRs and basically integrated with a PMD.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

So this diverse portfolio does help us even when we experience a little bit of air pocket in copper edge with the anchor customer and the growth in fiber edge and the tri edge, you know, overweight the drop or the the decrease in demand on the copper etch. But as I said, you know, we expect lot of good things happening in the later part of this fiscal year with more than the anchor customer demand for copper etch, that's going to materialize. LPO, that's incremental opportunity is going to materialize. When the customers start deploy 1.6 optical transceivers, they likely to use drivers for lasers and modulators. And because traditional 100 gig or below, they could use the integrated driver from DSP to drive EML and looks that the performance in order to get a link, very robust, they need external driver.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

So that's an incremental opportunities for us. So if I have to take a step back, look at the fiber edge, it's a strong product line and itself provide a very high level of demand. And then, you know, when this tailwind start coming in, playing in, and that's all incremental on top of it. And the fiber adds would benefit from, as I said, that CapEx spending from the CSP side. And that and also I believe we're gaining some market share in there.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

So we get a strong drilling base and you get three incremental opportunities superimposed on top of that. And this really we feel like a broader portfolio to help to mitigate the exposure on the air pocket we described before.

Craig Ellis
Director of Research at B Riley Financial

Okay. So very broad based as we exit the year and participation from three key parts of the portfolio. The follow-up question was around a product that you spoke to in your prepared remarks, Fong. You talked about surge switch as being an integrated product that is more system level protection. I wanna understand what types of products is that getting designed into, and how does the the dollar content for that product compare to what we would typically expect with protection?

Craig Ellis
Director of Research at B Riley Financial

And how should we think about that product's ability to drive visible growth within that part of the business and high end consumer? Thank you.

Mark Lin
Mark Lin
EVP & CFO at Semtech

Yeah. Greg, so on on search switch, you're right. It is an integrated device. So it's it provides additional protection and additional features. So we've launched this in multiple customers.

Mark Lin
Mark Lin
EVP & CFO at Semtech

System level design does require a lot more customer intimacy. So we're we're very happy with the amount of engagement that we have with customers. And it does have some noticeable or some improvement in in ASPs. But again, I think Semtech's TVS products are not just commodity type products. So we've already been enjoying or deserving, I should say, higher ASPs based on our technology.

Mark Lin
Mark Lin
EVP & CFO at Semtech

So surge switch, though, it it, protects against electrical overstress in addition to, electrostatic discharge over a wider temperature operating range. So that's the benefit that our our users our users get when they design in surge switch.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

And then, also, you know, it kinda like a they used to protect the type C connectors. Now the type C is used everywhere. It's not only in the smartphone, it's in the automotive, it's in a telecom, in a in a many different charge ports. So the circuit switch just to provide a lot more robust protection capabilities.

Craig Ellis
Director of Research at B Riley Financial

Okay. So it's nicely, Sam, expansive for you over time?

Mark Lin
Mark Lin
EVP & CFO at Semtech

Exactly. Yep.

Craig Ellis
Director of Research at B Riley Financial

Got

Craig Ellis
Director of Research at B Riley Financial

it. Thanks, guys.

Mark Lin
Mark Lin
EVP & CFO at Semtech

Thank you.

Operator

And the last question will come from the line of Scott Searle with Roth Capital Partners.

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Maybe to just follow-up quickly on the data center front. I was wondering if we could get calibrated if if we put LPOs to the side starting to ramp up in third and fourth quarter and some ACC traction starting by the end of this year and ramping into fiscal twenty seven. The the portfolio outside of that, what sort of normalized growth rate do you think we should see over the next couple of years? It sounds like in the near term, we're starting to see Five Ridge continue to drive that. I'm wondering if you could help us understand what that that normalized expansion looks like and your comfort level that customer inventories are at a pretty good level, so that we don't see any sort of air pockets or big drawdowns in the next couple of quarters, and I'll call it core data center before we get to LPOs and ACCs.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Great. Thank you, Scott. So the normalized accruals rate, you know, I think we can track basically all the research report, you know, on the CapEx spending. Then, you know, for number of research market research report, they even call out more specific optical transceivers. As I said, our data center product and the main thing is fiber edge.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

If you track the volume increase of data center transceivers and as I think our growth rates would track that pretty well and probably higher than that. The LPO adoption will bring incremental capability, incremental revenue for us because of the driver, because the premium on TIA side. And copper edge, you know, right now where the anchor customer is not zero, but it's lingering and until the next generation. But with other customers, it's gonna be start contributing meaningfully in q four and ramping in the next fiscal year. Then they try try edge product, which is a CDR.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

Alright. You know, we designed in the major with the major CSPs for the reasons beyond our control. They delay the deployment, and now they seem to be resuming. So that's why, you know, give us a strong conviction. All these factors compounded together.

Hong Hou
Hong Hou
President , CEO and Member of the Technology and Strategy Committee at Semtech

I do feel barring, you know, the rapid adverse change of the tariff policy or something else beyond our control, we do feel, the second half of the year is we are very well positioned.

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Okay. Very helpful. And and if I could conclude just on the on the solar module front, seasonally down quarter, you know, gross margins with utilization under a little bit of pressure. But, you know, given given QuackTel's headwinds within the North American markets and increasingly, I think, European markets, what we're seeing with the exit of uBlocks as well. I wonder if you could talk a little bit more about the bookings, when you would expect that to inflect and we start to see that more in the P and L?

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

And really realistically, what target gross margins could look like in that environment given that some of your competitors are gonna be facing pretty high bars in terms of tariff headwinds? Thanks.

Mark Lin
Mark Lin
EVP & CFO at Semtech

Hey, Scott. I'll take that one. So we as we reported, we've had seven consecutive quarters of bookings growth. So I think that's long term kind of sustainable bookings. We did have a down quarter in Q1, but again that was in line with our expectations and we guided for Q2, the IoT cellular business to increase in revenue.

Mark Lin
Mark Lin
EVP & CFO at Semtech

Gross margins, we should see step ups in gross margins. We are managing this business for margin expansion along with our other businesses.

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Great. Thanks so much.

Operator

Thank you. This concludes the question and answer session. And I'd like to turn the call back to Mitch Hodge for closing remarks.

Mitch Haws
Mitch Haws
SVP - IR at Semtech

Thanks, Joe. That concludes today's call. Thanks to all of you for joining us today.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Executives
    • Mark Lin
      Mark Lin
      EVP & CFO
    • Mitch Haws
      Mitch Haws
      SVP - IR
    • Hong Hou
      Hong Hou
      President , CEO and Member of the Technology and Strategy Committee
Analysts
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Key Takeaways

  • Q1 financial performance: Semtech delivered $251.1 M in net sales (up 22% YoY) with adjusted gross margin (53.5%), operating margin (19%) and EPS ($0.38) all above guidance midpoints.
  • Record data center sales: Infrastructure revenue rose 30% YoY to $72.8 M and data center net sales reached $51.6 M (up 143% YoY), driven by strong demand for AI connectivity solutions like CopperEdge and upcoming LPO deployments.
  • LoRa-enabled solutions growth: Industrial sales of LoRa solutions jumped 81% YoY to $38.9 M, supported by a new partnership with Sunnova and expanded applications in healthcare, robotics and dual-protocol “LoRa Plus” devices.
  • Improved balance sheet: Net debt fell to $396.2 M with an adjusted net leverage ratio below 2× after $25 M in term loan prepayments, and a $455 M revolving credit facility was successfully expanded.
  • Strong Q2 outlook: The company expects Q2 net sales of $256 M ± $5 M (up 19% YoY), adjusted gross margin of ~53%, and EPS of $0.40 ± $0.03, reflecting continued top-line growth and margin expansion.
AI Generated. May Contain Errors.
Earnings Conference Call
Semtech Q1 2026
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