MACOM Technology Solutions Holdings, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• General Update: Fiscal Q3 revenue was $252.1 million, with adjusted EPS of $0.90 per diluted share. The company had strong cash generation, ending the quarter with approximately $735 million in cash and short-term investments. I&D and Data Center quarterly revenues achieved record results, and the book-to-bill ratio was just over 1.1:1 with backlog at a record level.
• Product Segments:
  • Industrial & Defense: Strong in Defense, with growth in electronic warfare, military space electronics, and onboard drone electronics. The industrial segment showed modest improvement.
  • Data Center: Driven by the global expansion, with demand solid for high-performance connectivity ICs supporting 800G and 1.6T deployments. New product lines like 200G PDs and LPO chipsets are entering production.
  • Telecom: Solid in 5G infrastructure, broadband access, and metro/long haul. The GaN 4 process for 5G applications is showing positive feedback.
• Operational Developments: The RTP fab is under full control ahead of schedule, though causing a minor near-term gross margin headwind. Plans to increase fab output capacity by up to 30% with new equipment. Exhibited at the International Microwave Symposium, showcasing new products like a 1-kilowatt X-band pulse power amplifier and an RF over fiber module. Business development in Europe with the European Semiconductor Center (MESC) to target European industrial, defense, space, and telecom accounts.

Segment Performance

• Industrial & Defense: Revenue of $108.2 million, accounting for 43% of total revenue. It saw a 10% sequential increase. Driven by Defense, with growth in electronic warfare and related applications.
• Data Center: Generated $75.8 million in revenue, making up 30% of total revenue. It had a 5% sequential rise. There's strong growth across all data rates, with new product lines like 200G photodiodes (PDs) and linear pluggable optics (LPO) entering production.
• Telecom: Registered $68.1 million in revenue, representing 27% of total revenue. It had a 4% sequential increase. A modest sequential decline is expected in Q4, but strong full-year growth is anticipated, especially in satellite communications (SATCOM) and 5G.

Guidance

• Fiscal Q4 2025: Revenue is expected to be in the range of $256 million to $264 million. Adjusted gross margin is anticipated to be between 56% and 58%, inclusive of the near-term impact of the early RTP fab transfer. Adjusted earnings per share is expected to be between $0.91 and $0.95 based on 76.5 million fully diluted shares.
• Segment Growth: Anticipates 5% sequential revenue growth in Data Center and Industrial & Defense, with Telecom revenues slightly down sequentially.

Risks

• RTP Fab Integration: The accelerated transfer of the RTP fab has resulted in a minor near-term gross margin dilution of approximately 60 basis points. However, long-term potential exists for margin improvement as yield enhancement efforts and capacity optimizations are implemented.
• Market Volatility: Fluctuations in end markets, such as the sequential decline in Telecom revenues, and potential delays in satellite product production pose risks to financial performance.

Question and Answer

• Q: What is the impact of the RTP fab conveyance on margins? A: The accelerated transfer of the RTP fab has caused a ~60 basis point headwind, but plans are in place to improve yields and capacity over the next quarters, expecting 25-50 basis point improvement by the end of next year.
• Q: What is the outlook for LPO adoption? A: One customer is in production, close to signing a second, with increasing pull as LPO offers lower power, lower latency, and lower cost.
• Q: What is the product roadmap for the RTP fab? A: Focus on MMICs, GaN on silicon carbide for defense, telecom, and SATCOM applications, with plans to insource passive devices and expand capacity.
• Q: What is the growth outlook for Telecom? A: Secular growth in SATCOM and 5G is expected, with a Q4 dip due to backlog management but strong full-year growth anticipated.
• Q: What is the growth outlook for the Data Center? A: Broad growth across data rates, diversifying with LPO, PDs, and R&D for next-generation rates, though year-over-year comps for active copper cable (ACC) are to be determined.