Semtech Corporation Q3 FY2026 earnings call

• Semtech had solid progress this quarter with net sales of $267 million, up 4% sequentially and 13% year-over-year. Adjusted operating margins grew 180 basis points sequentially and 230 basis points year-over-year. - Optimized capital structure with a successful convertible offering. - Completed acquisition of the Force Sensing business at the start of Q4. - Data center business expected to accelerate growth with momentum in AI CapEx and demand for high-performance solutions. - LoRa business continues to expand with Gen 4 LoRa plus transceivers offering multiprotocol capabilities. - IoT systems and connectivity business has strong design win momentum in 5G, launched AI-powered support tools and management platform.

Infrastructure net sales were $77.9 million in Q3, up 6% sequentially and 18% year-over-year. Data center net sales reached a record $56.2 million, up 8% sequentially and 30% year-over-year. High-end consumer Q3 net sales were $41.9 million, up 2% sequentially and 5% year-over-year. Industrial Q3 net sales were $147.2 million, up 3% sequentially and 12% year-over-year, with LoRa-enabled solutions net sales at $40 million, up 10% sequentially and 40% year-over-year. IoT systems and connectivity business recorded Q3 net sales of $88.3 million, down 1% sequentially and up 7% year-over-year.

• Expect Q4 net sales of $273 million, plus or minus $5 million, up 9% year-over-year at midpoint. - Adjusted gross margin expected to be 51.2%, plus or minus 50 basis points. - Adjusted net operating expenses expected to be $91.2 million, plus or minus $1 million. - Adjusted EBITDA expected to be $56 million, plus or minus $3 million. - Adjusted diluted earnings per share expected to be $0.43, plus or minus $0.03.

• Geopolitical uncertainties could impact business. - Supply chain capacity constraints may pose challenges. - Market concerns around reliability of ACC could potentially affect ramp.

Q: Rick Schafer asked about CopperEdge ramping with lead CSP and sizing the ACC opportunity.

A: Hong Hou said CopperEdge is ramping with a leading hyperscaler with product designed into three programs, ramp to start in 2026, and ACC is positioned in a sweet spot between DAC and AEC.

Q: Sean O'Laughlin asked about LPO market size and foundry CapEx.

A: Mark Lin talked about semiconductor gross margins and Hong Hou addressed foundry capacity planning.

Q: Harsh Kumar asked about Force Sensing acquisition.

A: Hong Hou explained Force Sensing combines with capacitive sensing for broader capabilities and Mark Lin mentioned incremental R&D and OpEx.

Q: Tim Arcuri asked about divestiture evolution.

A: Hong Hou said potential acquirers have more interest due to geopolitical and business tailwinds.

Q: Tore Svanberg asked about ISC gross margin.

A: Mark Lin said ISC gross margin is impacted by mix of cellular modules and other business.

Q: Quinn Bolton asked about divestiture dilutive to EPS.

A: Mark Lin said noncore asset divestiture has nominal or immaterial impact.

Q: Cody Acree asked about ACC reliability and capacity availability.

A: Hong Hou said no reliability concerns and Semtech is qualifying foundry from different locations for capacity.