MACOM Technology Solutions Q2 2025 Earnings Call Transcript

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May 8, 2025
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Operator

Welcome to MACOM's Second Fiscal Quarter twenty twenty five Conference Call. This call is being recorded today, Thursday, 05/08/2025. At this time, all participants are in a listen only mode. I will now turn the call over to Mr. Steve Ferrante, MACOM's Vice President of Corporate Development and Investor Relations.

Operator

Mr. Ferranti, please go ahead.

Stephen Ferranti
Vice President of Corporate Development & Investor Relations at MACOM Solutions

Thank you, Olivia. Good morning, and welcome to our call today to discuss MACOM's financial results for the second fiscal quarter of twenty twenty five. I would like to remind everyone that our discussion will include forward looking statements, which are subject to certain risks and uncertainties as defined in the Safe Harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. For more detailed discussion of the risks and uncertainties that could result in those differences, we refer you to MACOM's filings with the SEC.

Stephen Ferranti
Vice President of Corporate Development & Investor Relations at MACOM Solutions

Management statements during this call will also include discussion of certain adjusted non GAAP financial information. A reconciliation of GAAP to adjusted non GAAP results is provided in the company's press release and related Form eight ks, which was filed with the SEC today. With that, I'll turn over the call to Steve Daley, President and CEO of MACOM.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Thank you and good morning. I will begin today's call with a general company update. After that, Jack Kober, our Chief Financial Officer, will review our Q2 results for fiscal year twenty twenty five. When Jack is finished, I will provide revenue and earnings guidance for the third quarter of fiscal twenty twenty five and then we will be happy to take some questions. Revenue for the second quarter of fiscal twenty twenty five was $235,900,000 and adjusted EPS was $0.85 per diluted share.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

We ended the quarter with approximately $682,000,000 in cash in short term investments on our balance sheet. The diversity of MACOM's end markets, product portfolio and global customer base continues to provide us with great opportunities for growth. Revenue by end market were as follows: industrial and defense was $98,500,000 data center was $72,200,000 and telecom was $65,200,000 Telecom was up 18% sequentially, data center was up 11% sequentially and I and D was up 1% sequentially. Our I and D and data center quarterly revenues achieved record levels. Our Q2 book to bill ratio was 1.1 to one.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Notably, this was the fifth consecutive quarter of strong bookings and we are pleased our backlog is at a record level. Our turns business or orders booked and shipped within the quarter was around 20% of total revenue. We believe our growth is driven by our new products gaining market share, as well as positive secular trends in certain segments of our three major end markets. Now turning to the end markets. First, industrial and defense demand continues to grow, driven by The US and international DoD system upgrades in radar, EW and communication systems.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

The need for higher frequencies, higher power levels and higher levels of integration within the defense electronic sector plays directly to MACOM strengths and enhances our addressable opportunities. Outside of the aerospace and defense business, demand in our traditional industrial and multi markets area, which includes automotive, factory automation and medical was unremarkable. Second, telecom order trends have been improving, specifically in five gs infrastructure, broadband access and metro long haul. The most active areas of the telecom market is our Satcom segment, where we continue to secure design wins in ground and space based systems supporting broadband connectivity and direct to cell applications. Third, data center business is strong, continue with demand from domestic and international cloud service providers.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

We see an accelerated pace of new technology deployments in this market, as well as rapid shifts in demand between various platforms in production. Our data center business is on pace to have a strong growth year, although we always like to remind investors that this market is our most volatile end market. During Q2, MACOM had exhibits at two significant industry trade shows, including the Satellite twenty twenty five Conference in Washington DC and the Optical Fiber Conference or OFC in San Francisco, California. These large industry events were great venues to demonstrate the full breadth of our technology offerings and to introduce new product lines to our customers. So, I'll take a moment to highlight some key products we displayed.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

At Satellite twenty twenty five, we introduced our new Opto Amp product line. Our flagship product is capable of producing up to 40 watts of optical power. Our OptoAmp is an all optical amplifier and has been developed to support free space optic applications, including satellite to satellite links and gateways to satellite links. This new product line leverages MACOM's command and experience with optical amplification. Our knowledge and relationships in the space and satcom industry, as well as our RF over fiber, photonics and material science expertise.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

OptoAmp utilizes advanced materials like Erbium and Terbium to achieve high output power and efficiencies. Because of our engineering capabilities and manufacturing scale, I believe this new product line can rapidly gain market share over the next few years. At OFC, MACOM had a total of 17 products and technology demonstrations. One of the major themes at OFC was the maturity of the Linear Pluggable Optics or LPO ecosystem. MACOM's booth featured a full ecosystem demonstrating at 100 gig per lane, consisting of switches from two different vendors, three different servers, and 408 gs modules from 12 different module vendors.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

The multi mode and single mode fiber optic link demonstrations ran seamlessly during the show, with bit error rates well below required thresholds. One of the applications for LPO that appears to be gaining traction is server to switch links at 100 gs and 200 gs per lane. These high volume short reach links, which typically involve active optical cables, require very low power consumption. We also unveiled our chip stacked TIA and photodetector for 800 gs and 1.6T applications. This solution utilizes four of MACOM's new 200 gs photo detectors, which are die stacked onto a MACOM eight hundred gs transimpedance amplifier.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

This solution leverages MACOM's expertise in high speed signal integrity, ICs, photonics, system design and advanced packaging. As we have just passed the midpoint of our fiscal year, I would like to update and remind everyone of our long term strategy. Simply put, we are focused on designing semiconductor based products and platforms to support the highest power, highest frequency and highest data rate applications within our three core markets. We estimate our SAM is approximately 7,000,000,000 to $8,000,000,000 I'll take a moment to discuss a few fundamental themes of our strategy. First, highest power.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Our strategy is to build a best in class semiconductor portfolio that will enable commercial and defense systems to operate at the highest possible RF in microwave power levels. Our portfolio is underpinned by an array of leading proprietary III V semiconductor process technologies and we continue to focus on innovation in these areas. Differentiated semiconductor process performance is a critical factor in our products competitive advantage and therefore advanced process development is an important part of our strategic plan. Today's development efforts may not impact our revenue for three or four years, but they are the lifeblood of the future growth of the company. When we think about high power, we don't just think about amplifiers, but a wide range of products like control products, kilovolt capacitors, 50 watt to seven kilowatt transistors, filters, power combiners, TWT linearizers and receiver protector limiters, just to mention a few.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

And as I just discussed, we have added high power optical amplifiers to the portfolio, which will be a new growth vector for us. As we focus on future requirements for commercial systems, I'll also highlight that our team is making great progress on the development of our fourth generation GaN on Silicon Carbide RF power process, also known as GAN four. We expect this new process will ensure MACOM's next generation cellular infrastructure products support customers demands of higher power, better efficiency and improved linearity. Second is highest frequency. Our strategy is to develop differentiating gas and GaN high frequency processes to support our core three markets.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

As a reminder, in 2021, we announced a Cooperative Research Development Agreement or CRADA with the Air Force Research Labs on the topic of millimeter wave GaN on silicon carbide. This CRADA led to the release of our first generation 140 nanometer GaN process, which is in production. Since then, we have been awarded numerous government contracts to support development of advanced millimeter wave GaN. This work has been underpinned by a recently signed second CRADA with the Air Force Research Labs, which focuses on sub 100 nanometer GaN technology. Associated with these efforts, we recently completed the installation of a new molecular beam epitaxy or MBE reactor at our low wafer fab, that gives us the ability to perform advanced semiconductor processing steps, including developing new ways to reduce ohmic contact resistance.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

A lower resistance equates to higher frequency operation, higher gain and higher power efficiencies, especially at sub 140 nanometer gate lengths. The reactor is installed and operational and our team is already developing proprietary processes to create industry leading omic contact performance. I'll note the reactor will also be used on other product lines besides GaN, including X band BAW filter technology, which is currently in development. Installing and qualifying the MBE is a major undertaking and our fab, equipment and technology teams have done a great job executing this project on time and in budget. These US based activities are complemented with efforts to expand our presence in Europe at MACOM's European Semiconductor Center or MESC, which has expertise in epigrowth, compound semiconductor wafer processing, and IC design.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

MESC offers leading edge high performance hemp and HBT processes in gallium arsenide as well as gallium nitride, ideal for microwave and millimeter wave applications. We are seeing an increase in customer adoption of MESC's core products and technologies, and we are gaining market share across Europe and The US. Customers are pleased to see MACOM revitalize and scale MESC's capabilities. Our efforts to transfer the current processes from three inches to six inches production tooling are on plan and should be completed within the next few quarters. Once the transfers are complete, we will initiate an exciting technology development roadmap with the goal of becoming Europe's leading 3.5 foundry for gas and GaN on Silicon Carbide.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

In parallel, we expect to expand our European engineering and hybrid manufacturing capabilities to support a wide range of growing European industries. Third is high performance connectivity. Our strategy in high performance connectivity revolves around high speed data transfer over copper and optical fiber. While we often say our solutions are analog based, in fact, many of our ICs contain significant proprietary mixed signal in digital IP to support complex functionality and performance modes as required by the applications. Our growing team of analog, mixed signal and digital IC designers have a rich history of advanced circuit design and innovation.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Our strategy is to focus on customers building systems for data center and telecom optical networking, emulation and prototyping, broadcast video and semiconductor testing. In addition, we look to diversify our product portfolio and customer base. We are fluent in NRZ, PAM4 and coherent modulation schemes and multiple protocols including Ethernet, fiber channel, InfiniBand and PCIe, as well as multiple automotive and industrial standards. For the data center, we focus on using advanced high performance silicon processes and leverage our design techniques to address requirements at 800 gs, 1.6 T and 3.2 T data rates to achieve best in class performance in support of next generation data center deployments. Our experienced designers collaborate across multiple design centers to support a single mission, to provide advanced, highly integrated analog and mixed signal IC solutions, to help customers solve complex signal integrity problems, while moving high speed data.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

In summary, our long term growth strategy revolves around developing high performance solutions, using a wide range of semiconductor technologies and circuit design expertise. We seek to deploy our expertise to provide our customers standard and customized IC solutions that achieve the highest speeds, lowest noise, best distortion and highest power. Our diverse portfolio is unique to the industry and we remain focused on growing our business in a differentiated way. Next, I would like to provide an update on the status of Wolfspeed RF business fab conveyance to MACOM. As a reminder, MACOM acquired Wolfspeed's RF business in December of twenty twenty three, and it was estimated it would take Wolfspeed approximately twenty four months to prepare the RTP North Carolina fab for transition to MACOM.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Our respective teams remain focused on meeting or beating the original timeline. Three specific current events to highlight regarding the fab. First, we believe the transition activities are on or ahead of schedule and it is possible that we may elect to transfer the fab before December 2025. Second, due to increasing demand, the fab is experiencing high equipment utilization and in some cases bottlenecks. To reduce execution risks and expand capacity, we are developing plans to increase the current four inch capacity by up to 30% over the next twelve to fifteen months.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

We see an opportunity to increase four inch capacity with a modest investment by purchasing and installing a short list of used equipment. And third, as part of the original RF business transaction, we established the right of first refusal to acquire the real estate associated with the RTP site. We have exercised our right and we are facilitating a real estate transaction in which our current landlord of our low location would purchase the RTP real estate and then lease it to MACOM. This real estate exchange will have no material impact on our P and L. To summarize, we are focused on ensuring a smooth transfer of the fab and enabling further growth of the RF business.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Before I pass the discussion to Jack, I would like to review a few recent customer engagements, which exemplify the diversity and span of our portfolio. We recently received a supplier award from BAE in recognition of our quality and delivery performance. Congratulations to our linear module systems team for this well deserved recognition. Our lightweight BU's new 200 gs photodetector products are gaining traction in the market for next generation data center applications. Our sales, engineering and operation teams have been collaborating to achieve major wins and we are in the midst of ramping up volume production.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

And finally, we received pilot production orders from a leading European radar manufacturer to support its new large ground based radar program. Jack will now provide a more detailed review of our financial results.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

Thank you, Steve. Our Q2 results reflect record revenue levels and strong financial performance, building upon our steady growth in revenue, increased operating income and ongoing cash generation. Our operational performance has allowed us to maintain a strong balance sheet while continuing to generate cash, which we believe positions us well. Fiscal Q2 revenue hit a new quarterly record of $235,900,000 up 8.1% sequentially based on growth across all three of our end markets. Notable double digit sequential growth within data center and telecom were the primary drivers.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

Our overall book to bill ratio for Q2 was again above one, with customer orders exceeding our revenue by approximately 10%. Adjusted gross profit for fiscal Q2 was $135,600,000 or 57.5% of revenue, in line with the past few quarters. Total adjusted operating expense for our second quarter was $75,800,000 consisting of research and development expense of $50,400,000 and selling, general and administrative expenses of $25,400,000 The sequential increase in adjusted operating expense compared to Q1 was primarily driven by higher R and D and marketing costs, as well as employee related costs associated with calendar year payroll tax resets and variable compensation. As we are scaling the business, we have added new capabilities and resources primarily within R and D functions, including those from the recently completed and previously announced Engine IC acquisition. I would like to note that we remain very focused on controlling our OpEx as we continue to grow our revenue.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

Depreciation expense for fiscal Q2 twenty twenty five was $6,800,000 compared to $6,700,000 in Q1 twenty twenty five. Adjusted operating income in fiscal Q2 was $59,800,000 up 8% sequentially from $55,400,000 in fiscal Q1 twenty twenty five. For fiscal Q2, we had adjusted net interest income of $6,400,000 which increased $500,000 sequentially from $5,900,000 in Q1. Our adjusted income tax rate in fiscal Q2 was 3% and resulted in an expense of approximately $2,000,000 Our net cash tax payments were approximately $2,800,000 in Q2. We expect our adjusted income tax rate to remain at 3% for the remainder of fiscal year twenty twenty five.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

As of 04/04/2025, our deferred tax asset balances were $213,000,000 as compared to $212,000,000 at the end of fiscal Q4 twenty twenty four. We anticipate continued utilization of our deferred tax asset balances through the remainder of 2025 into fiscal twenty twenty six and beyond. Our utilization of these deferred tax asset balances as well as other items will help to minimize our future cash tax payments. I would like to highlight that based on our continued and increasing profitability, we currently estimate our adjusted tax rate will increase in the future. We anticipate our tax rate will begin to rise from 3% to mid single digits as we progress through fiscal year twenty twenty six.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

Fiscal Q2 adjusted net income increased approximately 8% to $64,300,000 compared to $59,500,000 in fiscal Q1 twenty twenty five. Adjusted earnings per fully diluted share was $0.85 utilizing a share count of 75,700,000.0 shares compared to $0.79 of adjusted earnings per share in fiscal Q1 twenty twenty five. We continue to make operational improvements within the business, which can be seen in the sequential increases in our adjusted operating income and EPS over the past seven quarters. Now moving on to operational balance sheet and cash flow items. Our Q2 accounts receivable balance was $131,400,000 up from $91,800,000 in fiscal Q1 twenty twenty five.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

The increase in our AR balance was driven by higher Q2 revenue as well as revenue timing during the quarter, with more revenue being recorded later in the March as compared to our December quarter. Our days sales outstanding averaged fifty one days, which we feel is within our normal operating range. Inventories were $209,300,000 at quarter end, up sequentially from $198,400,000 Inventory turns increased to 1.9 times from 1.7 times in the preceding quarter. We have continued to make strategic investments in inventory to support key programs and feel our growth in inventory over the past year is in line with our overall revenue growth. We remain confident that the quality and mix of our inventory is strong and supports our strategic plans.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

Fiscal Q2 cash flow from operations was approximately $38,700,000 down $28,000,000 sequentially and an increase of more than $20,000,000 over the fiscal Q2 twenty twenty four time period. The sequential decrease was primarily due to working capital increases. Given the dynamics of our growing business, it is typical to have variations in cash flow from quarter to quarter. MACOM's proven business model has over the last few years demonstrated strong cash flow from operations. As an example, in fiscal year twenty twenty three, our cash flow from operations was $167,000,000 fiscal year 20 20 4 was $163,000,000 and we believe we are on track for our cash flow from operations to be in excess of $210,000,000 for fiscal year twenty twenty five.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

Capital expenditures totaled $8,200,000 for fiscal Q2, up $2,900,000 sequentially. Much of this increase is driven by upgrades to our wafer foundry and R and D facilities. We expect our capital expenditures to be approximately $30,000,000 for the full fiscal year twenty twenty five. Next, moving on to other balance sheet items. Cash, cash equivalents and short term investments for the second fiscal quarter were $681,500,000 up $25,000,000 from Q1.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

Comparing our cash and short term investments to the book value of our convertible notes, we are in a net cash position of more than $182,000,000 as of 04/04/2025. We are aware of the increasing macroeconomic uncertainty impacting the global business environment. We maintain a strong balance sheet with ample cash to support our strategic goals. We continue to carefully manage our discretionary spending and capital spending to help drive improving margins and cash flow over the long term. In summary, I'm pleased with the company's performance and accomplishments during the first half of fiscal year twenty twenty five.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

We will execute our financial goals as we continue down the path of building a company to support annualized revenue in excess of $1,000,000,000 while further improving our operating margin, EPS and cash flow. I would like to thank the entire MACOM team for their support and look forward to the remainder of fiscal year twenty twenty five.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

Steve, now back over to you.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Thank you, Jack. MACOM expects revenue in fiscal Q3 ending 07/04/2025 to be in the range of $246,000,000 to $254,000,000 Adjusted gross margin is expected to be in the range of 56.5% to 58.5% and adjusted earnings per share is expected to be between $0.87 and $0.91 based on 76,500,000.0 fully diluted shares. We expect sequential revenue growth in all of our end markets. We anticipate that Industrial and Defense will lead with approximately 10% sequential growth followed by data center at 5% sequential growth and telecom slightly up sequentially. As Jack noted, we acknowledge the increased uncertainty in the markets.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Nevertheless, we have an amazing product portfolio, a sound long term growth strategy and we continue to focus on execution to capture market share. I would now like to ask the operator to take any questions.

Operator

Thank you. And our first question coming from the line of Tore Stenberg with Stifel. Your line is now open.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

Thank you and congratulations on the strong results here. Steve, so your data center business is on track to growing, I think, close to 50% or above 50% this fiscal year. You've talked about this business being quite volatile. What's your current read on the market and do you think this growth momentum can sustain going into fiscal twenty twenty six?

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Great. Thanks for the question, Tore. And you're right to observe that our data center business has been growing. In fact, it's been it's really been growing since 2018 year on year. More recently in our fiscal twenty twenty three, we had about 6% year over year growth and then in our fiscal twenty twenty four, about 35% And here we are, halfway through fiscal twenty twenty five and I would say we're on track to be somewhere in the mid-forty percent year over year growth range.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

A lot of that is coming from the movement within the data center to go to the higher data rates. A lot of that is being driven by the adoption of the 100 gs per lane platforms across multiple data rates, including 800 gig SR8, 400 gig SR4 and even some early adopters of 1.6T. Generally speaking, we think those trends will continue. And then as a tailwind, we do see that the industry is beginning to seriously look at LPO. And I think the industry sort of hit a milestone in March at OFC when it, ratified the LPO standard, within the MSA.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

And so just to remind everybody, there's an industry organization that's helping define the interface standard for LPO solutions and, a specification was released in March. It's basically an Ethernet based single mode link, at 100 gs per lane and it allows the switch and the NIC and the module manufacturers to understand what the interface specs are. And so now that that is settled, we believe over the next year to two years, LPO will become a mainstay in a variety of applications. And we believe if that happens, then we could continue to see strong growth. Now with all that said, I would just also highlight as I did on my script, this is a very volatile market.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

We have seen examples of fast moving ramp ups and ramp downs during this year, and we would expect that type of volatility to continue. So from our point of view, we have to continue to be on that leading edge of high data rate. We have to introduce new products and I talked about our 200 gig photodetector, how we're now mounting those devices on our TIAs. And we're also working on lasers. On our last conference call, we talked about the efforts that MACOM is making with CW lasers.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

So a lot of moving parts, I would probably not recommend investors or analysts to expect continued growth at these growth rates. We think that, over the long term things will settle down into a more rational growth rate.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

That's great color. Thank you for that. And as my follow-up, I had a question on the WealthSpeed RF fab transition. So we're about six months away here. It sounds like things are ahead of schedule.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

So just trying to get an understanding of some of the gross margin impact as that transition happens here in about six months, especially given your comment that things are running ahead of schedule.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Yes. And maybe we'll do a two part answer. I'll take the front end of that with some comments and then Jack can also add some commentary. So when we originally acquired the business, we highlighted to investors that the overall business was had very low profitability, the gross margins were very low. And we did a lot of work before we closed the deal to restructure and adjust the OpEx, so that on day one, the business would be accretive to MACOM's P and L, although it would be dilutive to the gross margins.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

And you saw that come into fruition, back in 2023 when we on that first quarter where we had a step back in gross margins. Since then, over the past seventeen, eighteen months, we have been incrementally improving the margins, the gross margins. And we always had a goal that when that fab transferred, it would be neutral or positive to our gross margins. And I would say that, today we're not there. I think we have more of a gap to close in terms of looking at yields, looking at throughput cycle times and things of that nature.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

And so I do think that there is a gap. It's not easy for us to say what that gap is right now, because we're not running the fab. We only have our models, which I think are very good. So I would say that we still have a little bit of work to do and certainly we have more time to do that as you highlighted the fab would be conveying maybe between now and year end and that work will continue after the fab conveys. And the last thing I will say before I turn it over to Jack is, we established a model where this transaction would pay for itself in three years.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

We are on or ahead of plan to make that happen. So the cash generation from this transaction has been very positive. Jack, do want to go a little deeper on gross margins?

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

Sure. I think I would just add, as Steve had mentioned in his prepared remarks, there is increasing demand on the fab down there. We are looking to expand the capacity. And I think as things continue to transition for us where we can take effectively more control when the fab is under our direction, we'll be able to make further improvements from an overall gross margin perspective. So hopefully that helps more to come as we work our way through the remainder of the calendar year.

Operator

Thank you. And our next question coming from the line of David Williams with The Benchmark Company. Your line is now open.

David Williams
Equity Research Analyst at The Benchmark Company LLC

Hey, good morning, and thanks for taking my questions here. I guess maybe Steve, you talked a little bit about the volatility and the changing trends that happened within the data center. But I guess from a bigger picture, are you seeing the budgets kind of play out this year? And maybe what are your expectations for next next year in that data center, especially where you're positioned and where do you think you're going to see the largest growth opportunities there, maybe by technology?

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Well, do see continued trends that the ISPs are continuing to invest in data centers. So that's a positive trend that we think will continue into next year and even the year after that. That's number one. Number two, we also are seeing a high level of innovation within the platforms that we service and you hear things like CPO and NPO and LPO and all of these different variations of how to connect high speed data. And as a merchant supplier, sticking ourselves right in the middle of that conversation, whether we're talking with somebody that's in compute or whether somebody is building a server or a switch or a module.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

And we want to bring to them not only high speed electrical solutions, but also optical solutions. So whether they make those short reach connections using, copper cable or optical cables or fiber optic links, we want to be involved in that. And so we think that the SAM within the data center for MACOM is growing. And so because of that, we think that there's still tremendous room to grow in the future, But we have to we of course have to pick and choose our battles. We have to make sure we have the right product at the right time.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

We have to remain competitive on a lot of different levels in terms of performance, cost, producibility, time to market. So it's an exciting place to be. We are not short of opportunities and we do think that we will continue to grow and gain market share in the data center.

David Williams
Equity Research Analyst at The Benchmark Company LLC

Great. Thanks for that color. And then maybe just secondly, the satellite business, it sounds like you're continuing to gain some nice traction there. Just wonder if you can kind of size the magnitude of what you think your opportunity is there. And maybe just any color around how quickly that market is developing would be helpful.

David Williams
Equity Research Analyst at The Benchmark Company LLC

Thank you.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Thanks. Thank you, David. So the SATCOM business for MACOM is continuing to grow. It's been growing over the past few years and we expected more good things in the future. And maybe I would just highlight an example of increasing our SAM within that market by adding new product lines.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

And I talked about the OptoAmp, which is a high power optical amplifier that's suitable for gateways or onboard satellites, to have a free space optical link, which will not only provide data streaming from satellite to satellite, but also location, position and other overhead that's necessary to run the network. So we're very excited about doing things like that, bringing unique, difficult products to bear, our customers find solutions. And I think that OptoAmp is just a really good example of adopting, new technology coming up with unique circuit designs, so that we can support our customers. The other thing I'll highlight in the SATCOM market, which is historically a lot of the links have been a Ku band, which is about a 10 to 13 gigahertz, maybe 14 gigahertz frequency. And what we're seeing is a lot of the newer, satellite networks and the connectivity is moving up to Ka band, which is, in that 30 gigahertz range, as well as Q band and V band and to throw another one out there, W band.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

And so these are all very high frequencies, 40 GHz, 50 GHz and even 65, 70 GHz. And so there are very few companies, in the industry that can provide chips for these networks. And in addition to that, there's very few companies that can build, modules or subsystems or help a customer close a link at these frequencies and we're one of those companies that can do that. And so when we go to market and we think about the SATCOM opportunity, we think about optics, we think about power, RF power, and we think about very high frequency. So these play to our strengths.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

So we think that the opportunity size is actually, very attractive. We're always hesitant to put a number on it, because it depends on where you draw the line. But I would say that we are continuing to invest our R and D dollars to support the opportunity.

Operator

Thank you. And our next question coming from the line of Karl Ackerman with BNP Paribas. Your line is now open.

Karl Ackerman
Managing Director - Equity Research at BNP Paribas

Yes. Thank you. Steve, I'd like to go back to that comments or comments on SATCOM. I was hoping you could address the timing of the previously announced 55,000,000 SATCOM and whether you have greater clarity on the opportunity for the program to expand additional 25,000,000. I guess as you address that perhaps you could discuss the breadth of design wins and size of the satcom business within your telecom business today?

Karl Ackerman
Managing Director - Equity Research at BNP Paribas

And I have a follow-up please.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Sure. So, the large contract that we announced about a year ago, we explained that that sort of two phases. The first phase is an R and D phase, where we were doing a wide range of chip developments. I think there's between ten and fifteen specific chips that we are designing for that platform. We're pretty much, I would say, three quarters through that phase, things look great.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

We're having some amazing results from our chip designers and they're hitting the specs they need to hit and things like that. And now we're moving into more of a build phase and getting our EMs or engineering models built up and delivered to customer and going through sort of a certification phase. What will follow after that will be a ramp in revenue and production. We expect that that's probably about six months away. And so probably starting towards the end of this year, beginning of next year, depending on how things go.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

And so I would say generally that large program is on track. I don't want to comment on the potential follow on of that 25,000,000 additional modules. And so I really just don't want to comment on that. At this point, we're very focused on executing the program we're on and that if there's announcements that need to be made on that later, we'll certainly do that. But I would say generally speaking, that program is on track and the team is doing a great job.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

In terms of some of the other questions you had about the overall size and other opportunities, I'll just say that we're continuing to see new companies enter the market. They have different approaches to solving communication, sensor and networking problems and we are again inserting ourselves and providing lots of, semiconductor content. And perhaps one example would be, you're starting to see more and more, networks adopt direct to cell connectivity, which means the LEOs or the MEOs are going to have a connectivity directly to your cell phone. And so if you can imagine that MACOM is a big supplier into the cellular infrastructure market, we understand, what's necessary to have an efficient transmitter or receiver, in a base station and we're bringing that same knowledge to bear to our satellite customers and they love it. They like the fact that we understand the protocol, we understand all the different bands, we understand how to make these products work and we have the space heritage.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

So they're embracing us to help them solve the direct to sell issues.

Karl Ackerman
Managing Director - Equity Research at BNP Paribas

Got it. Thank you for that. I want to pivot to defense. You indicated that industrial and defense should grow 10% sequentially. Perhaps both of those markets are growing with industrial maybe appear to be bottoming.

Karl Ackerman
Managing Director - Equity Research at BNP Paribas

But within defense, I was hoping you could address what your exposure is to European defense spending directly or indirectly. I ask given your very large defense business and certainly growing government interest to expand defense spending globally. Thank you.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Thank you. So, our direct exposure to European defense spending is growing and we see that as a good thing. And, part of our long term growth strategy was to build out a stronger presence in Europe and really the catalyst for that was the acquisition of a small wafer fab based right outside of Paris in France. And that has given us a great platform to work with customers across Europe, to support their programs. Now historically, that business, had, about 50% of its revenue came from foundry business, meaning the customers design the chips and the other 50% was product based.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

The 50% that was foundry based was primarily coming from European defense contractors. And so when we completed that acquisition, it gave us a really sort of a running start in a instant relationship with a lot of companies we hadn't done business with. And so, over the last two years, we've been developing those relationships. We've been improving the performance of the MESC facility. We've been introducing a lot of our U.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

S. Based technologies, including optical technology and GaN on Silicon Carbide. And so all of these things are starting to fall into place and will generate future growth. And as I highlighted in my comments, we recently received a very significant pilot order to support a large European radar program and so we expect more good things to happen. We expect that exposure will increase.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

There is not in Europe, they do not have the depth in my opinion, that The U. S. Has in terms of the capabilities on the RF and microwave side. So they're looking for companies like ours to set up shop and support them and that is exactly what we plan on doing. And I'll add that we will use our MESE facility as a foundation to build higher level solutions for our customers, not only on the defense side, but also on the space side.

Operator

Thank you. Our next question coming from the line of William Stein with Truist Securities. Your line is now open.

William Stein
William Stein
Managing Director/Senior Analyst - Technology at Truist Securities

Great. Thank you for taking my question. Congrats on the good results and outlook. I'd like to start by asking about the telco end market broadly. It seems to me by my less trained eye that this was the end market that drove the majority of the upside in the quarter.

William Stein
William Stein
Managing Director/Senior Analyst - Technology at Truist Securities

And yet I recognize that revenue performance in that end market over the last few quarters has been relatively depressed. So was this a matter of sort of true end market demand or was this more a matter of inventory through the supply chain having been consumed and we're starting to grow from that? Maybe you could clarify which of those two dynamics is really driving this?

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Sure. And maybe just a few words on the telco. So you're right that, it had a great quarter in Q2. I would say that if you compare our current run rate, we should start to get into a range where we're having record telecom revenues on a yearly basis. So we're very happy about that.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

From a market segment point of view, I would just highlight that the five gs market generally, if we listen to the major OEMs, they're saying that business is relatively flat. Nevertheless, we continue to grow our business by gaining market share, introducing more products to the same customers. So our that has been a tailwind for our five gs business. Second, we put Satcom inside of telecom numbers, so that's also a big driver of some of the growth that we're seeing. And regarding inventory, I would say that there are some segments of the telecom market that have pretty much gone through and burned down their inventory.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

One of them would be cable infrastructure, we're starting to see an increase in orders, albeit at a very low level, but increases in orders from our cable infrastructure customers here in The U. S. And also we're starting to see a slight growth in sequential growth in 10 gs PON. The last item I'll highlight within telecom is a segment we call metro long haul, which is generally these are links between data centers or that are in different cities that use coherent modulation. These are generally very high data rate, 128 gigabaud, data rates and the customer base that's building these as sort of a different customer base than the, let's say the traditional data center customer base and we've started to see a ripple effect that the growing data center demand is now increasing the connectivity between data centers at higher rates.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

And so we are involved in some nice programs that are as high as 1.2T for coherent modules where we supply chips into those solutions. So that business is doing well. We're actually continuing to build backlog to support our metro long haul business. So we think that business will continue to grow over the next few quarters.

William Stein
William Stein
Managing Director/Senior Analyst - Technology at Truist Securities

That helps. Thank you. And maybe help me understand whether I think there's a similar dynamic in the industrial part of your industrial defense. I think in your prepared remarks you said that performance was unremarkable in those industrial end markets. And I suspect there's an over inventory situation there as well, but I'm not sure.

William Stein
William Stein
Managing Director/Senior Analyst - Technology at Truist Securities

So maybe you can clarify please.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Yes, I would say that, we see that there's a few catalysts in the industrial sector right now for growth and that is, so I would say end demand is weak and then perhaps there's an overhang of inventory issues, but we see that more fundamentally a weak environment.

Operator

Thank you. And our next question coming from the line of

Quinn Bolton
Senior Analyst at Needham & Company

Quinn

Quinn Bolton
Senior Analyst at Needham & Company

Bolton. I know you touched on gross margin a little bit when discussing the Wolfspeed RF fab. But I guess looking forward, what are your gross margin expectations throughout the rest of the year? And if possible, could you walk us through the puts and takes? Thanks.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

Yes, Neil, this is Jack Kober. So as we've looked back over the past couple of quarters, we've been in the mid 57% gross margin range. And also looking forward to our guide that puts us roughly in a similar spot at 57.5% as the midpoint of the guide. As we get out longer term, think we'll have to see how things play out from an overall mix perspective. We've continued to have some lower utilization of our low fab, just where all of the costs are not being absorbed like they were a number of years ago.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

Some of that is driven by the low demand that Steve was just referencing with regard to the industrial end markets that we service. So as we go out longer term, we're going have to see how it plays out. But in terms of the guide that we have going out through Q3, still in that mid 57% range is where we see things.

Quinn Bolton
Senior Analyst at Needham & Company

Okay, great. Thanks. And you did mention tariffs in your prepared remarks. I was wondering if you've seen any direct or indirect impact so far. And if not, I guess looking forward, which areas of business by product line or end market do you think would be more exposed and which would be more insulated?

Quinn Bolton
Senior Analyst at Needham & Company

Thank you.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Thank you for the question. So, I would say that we've not seen any noticeable impact to date, regarding customer behavior, whether pull ins, push outs, cancellations, we've seen none of that. I'll just remind everybody that, over 95% of our business is direct with customers, and in some cases with partners, reseller partners. So we have good line of sight of major programs. We're selling non commodity products that are generally sole source.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

So we have a lot of stickiness with our business. So I would say that we'll continue to monitor the situation. Of course, we have a complex manufacturing and assembly manufacturing footprint. But I would say that this is something that the team is more than capable of managing. And in terms of breaking out country of origin by product line, we're not going to do that due to competitive reasons and other reasons and the potential impact is always subject to change anyway.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

So I would just reassure investors that our business is unique. It's, in many ways, very U. S. Centric, about half our businesses here in The U. S, built and shipped into The U.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

S. And then the balance, other sort of half of our business, I think we're going to be able to manage quite well.

Operator

Thank you. And our next question coming from the line of Blayne Curtis with Jefferies. Your line is now open.

Blayne Curtis
Blayne Curtis
Managing Director at Jefferies Financial Group

Hey, guys. Good morning and great results. I actually want to go back to on the data center market. I thought you said mid-40s, and I just clarify that. I'm assuming that's fiscal year.

Blayne Curtis
Blayne Curtis
Managing Director at Jefferies Financial Group

And I just want to understand, I mean, I guess, if you take it straight literally, that would be a down September and I think you said something about lumpiness. I thought when we saw you at OFC, it seemed like you had that transition 800 gs and it was coming in at plan. So I just maybe you can just elaborate on what that messaging was.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

I think as we had this is Jack, Blaine. As we had talked about, high level, if you look year over year, and that's fiscal year 2025 for us, we'd probably be in the mid-40s. I think we can support growth as we talked about going into the third quarter. Fourth quarter, as Steve had mentioned, is still to be determined, but still the underlying demand is there to support growth even going into our fiscal fourth quarter.

Blayne Curtis
Blayne Curtis
Managing Director at Jefferies Financial Group

Got you. Thanks, Jack. And then maybe another one for you. I just want to ask on OpEx. I think it increased 5,000,000 or $6,000,000 in March.

Blayne Curtis
Blayne Curtis
Managing Director at Jefferies Financial Group

And I think the implied guide is probably something similar, maybe 4,000,000 or $5,000,000 So how do we think about OpEx for the year?

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

Yes. We've seen a step up here in the operating expenses, as I had described in my prepared remarks with some continued investments. We've been carefully managing our operating expenses over the past number of years. So with that step up, we've made investments obviously in R and D type applications, but there's also been other things as we're growing to that $1,000,000,000 run rate that we hope to achieve in terms of investing in the business and things including IT infrastructure and IT security. So there's other things that we're seeing.

John Kober
John Kober
CFO & Senior VP at MACOM Solutions

As we work our way through the remainder of the year and once we get beyond that, the Q3 time period, we would probably see a bit more of a leveling off of the operating expense increases from an absolute dollars increase standpoint, going into Q4 and as we work our way through fiscal year twenty twenty six.

Operator

Thank you. And our next question coming from the line of Srini Pajuria with Raymond James. Your line is now open.

Srini Pajjuri
Srini Pajjuri
Managing Director at Raymond James Financial

Thank you. I just want to go back to the previous question on data center. The September commentary, I understand the visibility is not great in these businesses, but at the same time, are you seeing any sort of inventory at your customers? Is that what's giving you pause? Because on one hand, I see that the market is moving to 1.6 and you also talked about the potential opportunity on the LPO, LRO side.

Srini Pajjuri
Srini Pajjuri
Managing Director at Raymond James Financial

But I guess your commentary about September sounds a bit cautious. So I'm just trying to understand what's giving you that little bit of caution as we head into September.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Yes, thank you for the question. So just to be clear, we're not guiding for the fourth quarter. So we go out one quarter at a time and we're certainly very confident in the numbers that we're forecasting for Q3. So I just want to make that point and we would always be very, very cautious about commenting on more than one quarter out and you shouldn't read into that, as a negative news, let's say, or negative commentary or sentiment. It's just being cautious and especially cautious in our most volatile market as we talked about, which is the data center.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

In terms of the general trends, I would say that, what we talked about on the last call is also playing out as we had expected, which is that we were seeing a major customer of ours ramp down multiple 800 gig platforms and at the same time, we were ramping up other customers at 800 gig and the timing and how those things come together has yet to play out. So I would just highlight that. The second thing I would highlight just regarding 1.6T is there's really only one major company in the industry that is very focused on 1.6T. The rest of the industry is primarily focused on 800, four hundred and even 100. And when we peel apart our revenue and our numbers as we look forward, we see continued growth in even some of the lower data rates including 100 gs platforms.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

So I just want to highlight that. The other thing I would highlight is, we do not see an inventory issue in the data center segment. I would say it's the opposite. We are being expedited across multiple platforms, multiple data rates, multiple end customers. And so it's really the opposite.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Customers are they want their products, they see demand and there's a lot of pressure on MACOM and our operations team to do more faster, which is a good problem to have. So hopefully that gives you comfort without guiding to Q4.

Srini Pajjuri
Srini Pajjuri
Managing Director at Raymond James Financial

Yes. Thanks, Steve. That's very helpful. And then on the same topic, kind of mentioned that the LPO LRO standards have been ratified. Just want to hear your thoughts on what you're hearing from your customers in terms of what sort of interest there is in the market and what sort of applications are customers looking to implement these solutions and in terms of speeds, are you seeing more interest in lower speed versus higher speed for these applications?

Srini Pajjuri
Srini Pajjuri
Managing Director at Raymond James Financial

And also if you can talk about whether these applications are seeing interest from the so called mega clusters or is it more for cloud workloads? I think that would be very helpful. Thank you.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Yes, I would say a few things. What's interesting is, first of all, most of it, the folks that are interested are at 100 gig per lane for 800 gs solutions, that's number one. The second comment I would make is not all ISPs are interested right now in LPO. Some are very interested and some are going to take a wait and see and we see the full spectrum. We have, as an example, ISPs that they care about reliability and they don't care about power consumption or cost and others, it's all about power, latency and cost and they're willing to lean into new technologies like LPO.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

So I think we're in this mode where people are very interested, they are looking at different use cases and it's still very early. So ultimately, ISPs are interested or not, I mean, that's proprietary information to MACOM, so we not going to discuss the engagements at that level, but I can say that we see the continuum of interest and I would highlight that not all ISPs are interested today. I think over time that will change as the use cases and scale are proven out and then the more risk averse will perhaps adopt. In terms of the application, we see server to NIC or I should say, NIC to switch and generally very short reach and that is the area that we will probably go into production first.

Operator

Thank you. And our next question coming from the line of Peter Peng with JPMorgan. Your line is now open.

Peter Peng
Equity Research at JP Morgan Chase & Co

Hey, thanks for taking my question. On the data center, you guys do have, like, several new products coming, you know, like your photo detectors, your CW lasers, and your ACC solutions. Maybe you can talk about, like, how, you know, to think about the revenue ramp there, and how material could it be, you know, in this you know, in the second half of this year and and more so in in the next fiscal year?

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Sure. I mean, to highlight that within our data center segment, we have multiple product lines, multiple functions, multiple form factors and so to sort of call out two or three that may or may not be ramping is sort of understates the breadth of the product line. So I just want to highlight that. I did comment in the remarks that our 200 gig photodetectors are ramping and those are primarily for 800 gs DR4 applications. And that I don't want to necessarily comment on the materiality of that.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

We also see opportunities and activity at 1.60T as well, just to be clear on the 200 gig PD. I would say that the overall performance of our NPI metrics for our data center products is best in class. We have a very high success rate of designing products, getting them to market and getting design wins that we had originally targeted. So our team does a very strong job with execution in this area. And I'll highlight that today, supporting our data center business, we actually have eight different design centers collaborating on different projects to support this business.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

And so a lot of moving parts, a lot of different end use cases, as I mentioned in my script, we are starting to take a very serious look at PCIe, as the networks and the data centers begin to disaggregate memory and storage, that creates opportunities for high speed connectivity. And so that would be another example of the SAM expanding, where we are going to try to insert ourselves directly into those opportunities.

Peter Peng
Equity Research at JP Morgan Chase & Co

Perfect. Thank you. And then on just on the gross margin, I think in aggregate, your telecom and industrial defense kept coming in a little better, and I would think that would maybe help some of the utilization that you're low fab. Maybe just remind us like what

Peter Peng
Equity Research at JP Morgan Chase & Co

is running through your low fab and

Peter Peng
Equity Research at JP Morgan Chase & Co

maybe why even with the upside, it's more flattish gross margin?

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Sure. And I think Jack touched on this a little bit that generally speaking, the utilization rates of our low fab have not changed over the past couple of quarters. Most of the products within the low fab are RF products. We have different categories. We have discrete diodes and there's about a half a dozen different product families within the diode product line.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

We also have MMICs that are gas or GaN running through the fab. Additionally, we are running indium phosphide lasers through the fab. So it's a high mix, medium volume fab. I would say there generally is more exposure to defense and industrial related markets with the low fab, not entirely, but I would say that's the most exposure. And as we've been talking about over the past couple of quarters, our industrial business is down.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

And so while our defense business is growing quite strongly, it's coming from other areas of our technology portfolio.

Operator

Thank you. Our next question coming from the line of Richard Shannon with Craig Hallum Capital Group. Your line is now open.

Richard Shannon
Senior Research Analyst at Craig-Hallum Capital Group LLC

Well, hi, guys. Thanks for taking my question. Maybe a follow-up in the IND segment here. You're clearly suggesting industrial is soft, which is not necessarily surprising, but it says the defense part here is doing very well. I'd love to get a sense of if there's any large programs that are driving this very strong growth we're seeing in this quarter.

Richard Shannon
Senior Research Analyst at Craig-Hallum Capital Group LLC

Does that convey over to following quarters here? And would it seem to suggest that the IND segment kind of takes growth leadership, for MACOM as we get into fiscal twenty twenty six?

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Thank you for the question, Richard. Our core area in defense is centered around radar systems. Second to that would be EW and communication systems. When we look at these platforms, we envision not just selling RF content, but also optical content and subsystem content. And so you have a wide range of solutions and platforms that we're selling to these large programs.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

There is absolutely a refresh going on with radar systems across multiple platforms to address drone related threats. We are involved in both sides of that equation. We're involved on the next generation drones that have more sophisticated sensors as well as technologies that want to knock the drone out of the sky. So we would be looking at ways to support both of those applications. As we look at our business and our strategy, our strategy is to bring more technologies to bear on this market.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

And we've talked over the last couple of years about MACOM pivoting a lot of its analog mixed signal and optical technologies into the defense market and that strategy has been playing out and proven to be very successful. In terms of our 2026 and the potential growth there, I think it's too early to say, other than I just highlight that our team has never been busier in terms of the amount of opportunities. When we acquired Wolfspeed's portfolio, it was a major booster shot of high power technology to MACOM and we are taking full advantage of that in the market. So we believe we are gaining market share in large radar systems, not only ground based but shipborne and airborne.

Richard Shannon
Senior Research Analyst at Craig-Hallum Capital Group LLC

Very helpful details, Steve. Thanks for that. My second question is in data center. Really looking at the newer products and how do we think of this over the next, know, one to two years. Obviously, you just started selling the the PDs here at 200 gig, talked about CW lasers and LPO.

Richard Shannon
Senior Research Analyst at Craig-Hallum Capital Group LLC

How do we think about, you know, kind of the timing, I guess, more so on the CW lasers and LPO? But then if you look, say, one to two years out, which one of these newer areas within this bucket do you think can have the most impact?

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Yes, I think that's a tricky question because I would say our batting average on calling the future is not so good And we've had examples in the past where we thought one product line would, have a breakout year and it turns out it was another one. And so I would say that we would rather talk about the successes of these new product lines retrospectively. And so we're talking about the PD because we have big orders and we're ramping production and as the other, product lines come on, we'll certainly do the same there. We are very with that said, I would just highlight, we are very interested in taking a position in the market on CW lasers. We have a unique technology with our edge faceted technology and we believe that the market demand for CW lasers is increasing, but we still have a lot of work to do.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

I think that the market wants a 75 milliwatt or 100 milliwatt part and we're working to make sure that we can feel the very competitive part. So still a lot of work to do there. But of course, if we have success on lasers, it could be a meaningful number, but we don't want to count our chickens before they hatch.

Operator

Thank you. And I'm showing no further questions in the queue at this time. I will now turn the call back over to Mr. Steve Daley for any closing remarks.

Stephen Daly
President, CEO & Chairman at MACOM Solutions

Thank you. In closing, I would like to acknowledge and thank all of our employees for their continued dedication. Have a nice day.

Operator

This concludes today's conference call. Thank you for your participation, and you may now disconnect.

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Key Takeaways

  • MACOM reported record Q2 revenue of $235.9 M with adjusted EPS of $0.85, ending the quarter with $682 M in cash and short‐term investments, and guided Q3 revenue of $246–254 M and EPS of $0.87–0.91.
  • Sequential growth across all end markets saw telecom up 18%, data center up 11% and industrial & defense up 1%, while the book‐to‐bill reached 1.1 and backlog hit a record level.
  • At industry trade shows MACOM unveiled its OptoAmp 40 W optical amplifier for free‐space optics, demonstrated a full 100 Gb/s-per-lane LPO ecosystem at OFC, and introduced a chip‐stacked TIA with 200 Gb/s photodetectors for 800 Gb/s–1.6 Tb/s links.
  • The company's long-term strategy focuses on developing highest power (GaN on SiC), highest frequency (sub-100 nm GaN) and high performance connectivity semiconductor solutions for defense, telecom and data center markets.
  • MACOM’s acquisition of Wolfspeed’s RF fab is ahead of schedule with a potential early handover, plans to boost 4″ wafer capacity by 30% and a no-impact real estate leaseback to secure the RTP site.
A.I. generated. May contain errors.
Earnings Conference Call
MACOM Technology Solutions Q2 2025
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