Semtech Corporation (SMTC) Earnings & Analysis

Latest quarter

Semtech reported Q2 FY2027 revenue of $341.9 million, above the $328.4 million consensus. Adjusted earnings per share of $0.71 also beat the $0.62 consensus. Revenue was above the company’s own guidance for the quarter.

Revenue rose 32.7% from $257.6 million a year earlier. In its filing, Semtech attributed the increase primarily to demand and sales volumes in infrastructure and industrial markets. The filing said infrastructure sales rose $50.4 million, driven primarily by an approximately $47.4 million increase in data center sales. Industrial sales rose $35.8 million, while high-end consumer sales fell $1.9 million.

Semtech’s gross margin increased to 53.8% from 52.1%, and its operating margin rose to 16.3% from −6.29%. Diluted earnings per share were $1.59, compared with −$0.31 a year earlier. The filing said the release of a U.S. valuation allowance produced a $112.4 million non-cash tax benefit in the quarter. Semtech reported free cash flow of $60.7 million, up from $39.3 million.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Hong Hou said demand for data center products had increased and that the earlier-than-expected ramp of 1.6T FiberEdge contributed to the quarter. Asked what had changed since the prior outlook, Hou pointed to the timing of customer qualifications and said customers had accelerated adoption.

Hou said Semtech’s 800-gig market share had grown from about 18% two years earlier to well over 50%. He said the company was expanding beyond CopperEdge into FiberEdge and photonics, following its acquisition of Hypho. Hou also said Semtech was engaged in multiple programs for higher-density optical packaging and was developing photodiode arrays alongside its existing products.

On capacity, Hou said bookings and backlog could outstrip the supply already secured for FY2028, particularly in the second half. He said Semtech was working with manufacturing partners to add testers, qualify additional partners and increase front-end capacity, including through possible prepayments or capital spending. Hou said backlog covered the company’s remaining fiscal-year target and probably over 70% of its target for the following year.

Asked about pricing, Hou said availability was more important to customers and that Semtech expected no near-term price erosion on orders in backlog. He said costs were rising slightly but that the company could pass increases on to customers in most cases.

CFO Mark Lin said the planned sale of the cellular module business would improve gross margin by over 500 basis points. He also attributed margin changes to product mix, including the ramp of 1.6T and growth in LoRa and 800-gig products. Hou said Semtech remained focused on closing the module sale.

For Q3, Hou said 1.6T FiberEdge and CopperEdge would surpass 50% of data center revenue. He also said LoRa revenue was expected to grow 15% sequentially, translating to 65% year-over-year growth.

Guidance

For Q3 FY2027, Semtech expects adjusted diluted earnings per share of $1.05, plus or minus $0.03; its prior-quarter guide for Q2 was $0.61, plus or minus $0.02. The company expects an adjusted operating margin of 31.0%, plus or minus 60 bps, compared with its Q2 guide of 21.9%.

Semtech forecasts adjusted gross margin of 58.3%, plus or minus 100 basis points, for Q3; its Q2 guide was 54.0%. It expects an adjusted normalized tax rate of 18.0%, compared with its prior Q2 guide of 17.0%.