Semtech Corporation Q2 FY2026 earnings call

Management Statement and Operational Highlights

• Balance Sheet Strengthening: Reduced debt by $879 million since CEO took office, with year-over-year quarterly interest expense down 80% and net leverage ratio improving to 1.6x from 8.8x a year ago.
• Portfolio Rationalization: Core assets (data center, LoRa, PerSe) contributed to net sales momentum. Increased R&D investment in core areas to accelerate growth.
• Culture Revitalization: Improved employee engagement through frequent communications, instilling a culture of customer intimacy, operational discipline, and execution.
• End Market Focus: Infrastructure saw record data center sales driven by FiberEdge and CopperEdge. High-end consumer benefited from TVS growth and PerSe expansion. Industrial showed growth in LoRa-enabled solutions and IoT systems hardware.

Segment Performance

• Infrastructure: Net sales were $73.4 million in Q2, up 1% sequentially and 39% year-over-year. Data center net sales reached a record $52.2 million, up 1% sequentially and 92% year-over-year. FiberEdge products achieved record net sales, offsetting CopperEdge challenges.
• High-end Consumer: Net sales were $41.2 million, up 16% sequentially and 11% year-over-year. Consumer TVS net sales were $29.9 million, up 22% sequentially and 15% year-over-year. PerSe sensing technology is expanding into various applications.
• Industrial: Q2 industrial net sales were $143 million, up slightly sequentially and 14% year-over-year. LoRa-enabled solutions net sales were $36.9 million, down 5% sequentially but up 29% year-over-year. IoT Systems hardware net sales were $64.8 million, up 2% sequentially and 24% year-over-year.

Guidance

• Q3 Outlook: Net sales expected $266 million ±$5 million, up 12% year-over-year at midpoint. Adjusted gross margin expected 53.0% ±50 basis points, adjusted operating margin 19.6% ±130 basis points, adjusted EBITDA $60 million ±$3 million, and adjusted diluted EPS $0.44 ±$0.03.
• Financial Trends: Anticipates continued growth in data center, with LPO and ACC opportunities contributing, and seasonally adjusted expectations for other segments.

Risks

• No specific risks detailed in the transcript, but refers to risk factors in Form 10-K for potential material differences from forward-looking statements.

Question and Answer

Q: On LPO opportunity and timing, what's the progression and potential prepayment?

A: LPO engaged with broad customer base, some customers to start deployment in Q4, TIA already in many transceivers but small volume initially.

Q: How is the general state of data center spend?

A: CSPs have strong CapEx plans for expansion and AI upgrade, China CSPs booking activity improved after initial caution.

Q: Confidence in CopperEdge broader adoption and projects?

A: Engaged with over 20 customers, strong traction in low power, flexibility, and signal integrity, with ramp expected in Q4 or early 2026.

Q: LoRa performance and future expectations?

A: LoRa revenue expected $30M-$40M, new applications like low altitude economy unlocked, end node shipments historic record.

Q: ACC opportunity timing and first applications?

A: 800 gig/100 gig per lane ACCs to ramp in Q4, with scale-up and backplane applications first.

Q: Leverage impact on acquisitions/divestitures?

A: Improved leverage allows aggressive growth, focus on portfolio optimization, potential small tuck-ins but priority on optimization.

Q: Tri-Edge outlook and PAM4 growth?

A: Tri-Edge continues, plan to catch wave of 1.6T transceivers with low-power, low-cost solutions.

Q: Seasonality and January guidance?

A: High-end consumer seasonally down, but data center growth engine, LPO and ACC incremental to growth.

Q: LPO hyperscalers location?

A: Two U.S. and one China hyperscalers in 800 gig production in Q4, LPO transition beneficial for content.

Q: Second year goals for the business?

A: More aggressive growth, R&D results showing momentum, aiming to lead the market with solutions across product groups