| | | Semtech targets $266M Q3 net sales as data center and LoRa momentum accelerate
Aug. 25, 2025 8:32 PM ET
AI-Generated Earnings Calls Insight
Earnings Call Insights: Semtech Corporation (SMTC) Q2 2026
Management View- CEO Hong Q. Hou stated that Semtech achieved record net sales in Q2 with sequential increases across each end market, delivering improvement in adjusted gross profit, operating income, and earnings per share. Hou emphasized, "At the end of Q2, we have reduced debt by $879 million from the time I started as a CEO, resulting in a year-over-year quarterly interest expense reduction of 80% and a substantial net leverage ratio improvement 1.6x at the close of Q2 '26 compared to 8.8x a year ago." He highlighted strong contributions from data center, LoRa, and PerSe, and noted increased R&D investment in these core areas. Hou further outlined the company's revitalized culture and portfolio optimization, with noncore assets returned to growth and positioned as "a very compelling business to the right shooter."
- Data center net sales reached a record $52.2 million, up 1% sequentially and up 92% year-over-year. FiberEdge products set a new sales record, and Semtech secured several LPO design wins, expecting revenues to begin ramping in Q4. The company is working with leading hyperscalers on 800-gig LPO solutions, with 1.6T LPO drivers and TIAs targeted for sampling before year-end. CopperEdge for ACC and onboard linear equalizer is being qualified by multiple hyperscaler and enterprise customers, with launches expected during 2026.
- In high-end consumer, Q2 net sales were $41.2 million, up 16% sequentially and up 11% year-over-year, with TVS sales at $29.9 million. Hou described continued market share gains and noted, "Designed for ultra-high capacitance, sensitivity and fast response times, these devices safeguard displays as well as high-speed interfaces... without compromising signal integrity or performance."
- Industrial net sales were $143 million, up slightly sequentially and up 14% year-over-year. LoRa-enabled solutions posted $36.9 million in net sales, down 5% sequentially but up 29% year-over-year, driven by expansion into new applications, dual band capability, and growth in drone and smart city markets.
- Mark Lin, CFO, reported, "For Q2, net sales were a record $257.6 million, above the midpoint of our outlook, up 20% year-over-year and the sixth consecutive quarter of growth." Lin confirmed adjusted gross margin was 53.2%. "We recorded adjusted diluted earnings per share of $0.41, up from $0.38 in Q1 and a substantial improvement from $0.11 recorded a year ago."
Outlook- The company projects Q3 net sales of $266 million, plus or minus $5 million, up 12% year-over-year at the midpoint. Net sales from infrastructure and data center are expected to increase, with high-end consumer and industrial end markets also anticipated to be up. Adjusted gross margin is expected at 53.0%, plus or minus 50 basis points. Adjusted operating margin is projected at 19.6% at the midpoint, and adjusted EBITDA is expected to be $60 million, plus or minus $3 million. Adjusted diluted earnings per share are forecast at $0.44, plus or minus $0.03.
Financial Results- Q2 net sales totaled $257.6 million. Adjusted gross margin was 53.2%. Adjusted operating income reached $40.6 million, and adjusted operating margin was 18.8%. Adjusted EBITDA was $56.5 million, with an adjusted EBITDA margin of 21.9%. Adjusted net interest expense was $4.1 million. Operating cash flow was $44.4 million, and free cash flow was $41.5 million. The company ended Q2 with $168.6 million in cash and cash equivalents and net debt of $359.1 million. A noncash $41.9 million goodwill impairment charge was recorded for the connected services business.
Q&A- Harsh V. Kumar, Piper Sandler: Asked about LPO timing and its progression through the year. CEO Hou responded, "Our TIA has been in pretty much every transceiver manufacturer's design and qualification. As for timing... some of them will start deployed in Q4... we do expect that Q4, they will start deploy."
- Kumar followed up on data center spend and hyperscaler outlook. CEO Hou noted, "We all read the same news and the earnings report. The CSPs, they have strong conviction and the forecast to increase the CapEx spending... we're seeing from our direct customers, a very strong forecast for 2026 and beyond."
- Joseph Lawrence Moore, Morgan Stanley: Inquired about CopperEdge adoption and hyperscaler projects. CEO Hou indicated strong traction with over 20 customers and highlighted, "They definitely see the advantage of low power, more flexible and higher signal integrity and a longer reach than deck cable."
- Moore asked about 1.6T optics supply constraints. CEO Hou stated, "At this point, the port would require 1.6T connectivities. There are only two -- from two major ASIC manufacturers... the bottom line, we don't see the constraint from outside."
- Unidentified Analyst, UBS: Asked about LoRa performance and outlook. CEO Hou replied, "We expect the LoRa revenue on a quarterly basis to be between $30 million to $40 million."
- Nathaniel Quinn Bolton, Needham & Company: Queried ACC opportunity timing and PerSe adoption. CEO Hou clarified 100 gig per lane ramps in Q4, with 1.6T applications tied to switch availability. On PerSe, Hou said it is "the industry standard for smartphone... and the smart wearable continue to evolve and demand more functionalities."
- Christopher Adam Jackson Rolland, Susquehanna: Asked about January seasonality. CFO Lin said, "We don't really see a change to that particular trend. I mean high-end consumer net sales were $41.2 million in Q2... I still view Q4 as just a seasonally trail down, not a weakness at all in any of the business."
- Rolland inquired about leverage and portfolio actions. CEO Hou stated, "This improved financial foundation allows us to go more aggressive in capturing the opportunities of growth... We'll continue the strategy going forward."
- Richard Ewing Schafer, Oppenheimer: Asked about Tri-Edge and PAM4 opportunity. CEO Hou confirmed ongoing development to move up to 200 gig, noting, "The beauty of the 200-gig Tri-Edge CDR based is going to continue to deliver low power consumption."
- Cody Grant Acree, The Benchmark Company: Sought clarification on ACC timing and gross margin outlook. CEO Hou noted ramp timing linked to switch availability, while CFO Lin reiterated mix-driven margins and prudent R&D spending.
- Tore Egil Svanberg, Stifel: Requested color on linearity of bookings. CEO Hou stated, "We are seeing pretty strong booking activities, data center area, LoRa and PerSe, even the consumer -- high-end consumer TVS is very strong."
- Svanberg followed up on LPO hyperscaler engagement. CEO Hou said, "Three hyperscalers, two are in the U.S. and one in China."
- Craig Andrew Ellis, B. Riley Securities: Asked about second-year priorities and product evolution. CEO Hou highlighted, "If the first year, we play some catch-up game, the second year, I wanted to be outright lead the market with the solutions out there."
Sentiment Analysis- Analysts asked pointed questions about timing of new product ramps, sustainability of recent gains, and the outlook for growth, showing a slightly positive and constructive tone. There was a focus on clarity around LPO, ACC, and LoRa timing, as well as overall demand trends and portfolio optimization.
- Management's prepared remarks conveyed confidence, with CEO Hou frequently highlighting "strong momentum" and improved financial positioning. During the Q&A, management maintained a positive outlook but provided careful clarifications on timing and product adoption. Statements such as "We believe we are well positioned to further transform Semtech into a higher growth and more profitable company" demonstrated ongoing optimism.
- Compared to the previous quarter, management's tone remained confident but more assertive regarding growth catalysts, and analysts appeared incrementally more engaged on the specifics of product and market execution.
Quarter-over-Quarter Comparison- Guidance for Q3 raised to $266 million in net sales at the midpoint, up from prior quarter's outlook of $256 million. Adjusted diluted EPS guidance increased to $0.44 from $0.40. Gross margin guidance remained steady at 53.0%.
- Management's confidence in data center and LoRa growth strengthened, with LPO and ACC timelines clarified. Portfolio optimization and debt reduction continued as priorities, with leverage ratio improved to 1.6x from below 2 in Q1.
- Analysts' questions in Q2 focused more on execution timelines and adoption rates for emerging products, compared to broader concerns about macro uncertainty and seasonality in Q1. Tone from both management and analysts indicated increased conviction in the business trajectory.
- Strategic focus shifted further toward leading in high bandwidth, low power solutions and capturing incremental growth through expanded R&D investment.
Risks and Concerns- Management identified timing for ACC and 1.6T product ramps as linked to switch platform availability. Noncore asset divestiture remains a focus, but no specific timelines or buyers disclosed.
- A noncash $41.9 million goodwill impairment charge in the connected services business was reported due to results not meeting internal earnings forecasts.
- Analysts expressed concerns on seasonality and the sustainability of growth in consumer and LoRa, with management reiterating confidence in demand drivers and product innovation.
Final Takeaway
Semtech delivered record Q2 results driven by robust data center and LoRa growth, accelerated R&D in core businesses, and continued improvement in financial metrics and leverage. The company outlined clear expectations for higher Q3 revenue and profitability, highlighted upcoming product ramps in LPO and ACC, and reinforced its strategy of portfolio optimization and market leadership in high bandwidth, low power connectivity solutions. Management remains confident in the company's ability to capitalize on secular growth drivers and operational discipline in the quarters ahead.
Read the full Earnings Call Transcript |
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