Semtech Corporation Q1 FY26 Earnings Analysis

- Data center revenue expected to grow approximately 50% year-over-year in fiscal 2027, driven by ACC with hyperscalers, 1.6T FiberEdge, and linear equalizers. (Page 11) - LoRa long-term growth projected at ~20%, with quarterly sales ranging from $35 million to $45 million, supported by multiple regions including China, Europe, and North America. (Pages 8, 13) - LPO adoption continuing to ramp with mid-single digit growth, contributing to data center and FiberEdge product categories. (Page 12) - New 1.6T and 3.2T data center products, including CopperEdge production shipments, expected to accelerate growth in the second half of fiscal 2027. (Pages 5, 11) - Growth drivers also include increased R&D investments in core data center, LoRa, and sensing portfolios yielding strong returns. (Pages 5, 12) - LoRa proliferation supported by Amazon Sidewalk and multiple protocol support accelerating adoption. (Pages 4, 13)

- **Fiscal Year 2027 Outlook:** - Net sales expected at $283 million (± $5 million), up 13% YoY at midpoint. - Adjusted gross margin anticipated at 52.8% (± 50 bps), down 130 bps sequentially due to ramp costs. - Adjusted net operating expenses approximately $96.9 million (± $1 million), with R&D focused on data center, LoRa, and sensing. - Adjusted operating margin projected at 18.6% midpoint. - Adjusted EBITDA expected at $59.5 million (± $3 million), with margin around 21%. - Adjusted diluted EPS forecasted at $0.45 (± $0.03) based on 96.6 million shares. - Gross margin contributions from new data center products (copper/optical 1.6T portfolio) expected to be accretive in H2. - Continued strong R&D investment with good returns; disciplined spending aligned with strategic growth drivers. - Long-term LoRa growth anticipated at ~20% annually. - Data center segment projected to grow ~50% YoY in 2027.

- Semtech is executing a comprehensive investment plan to expand domestic capacity at the Alhambra, California facility, especially to support the newly acquired HieFo indium phosphide laser business. - The fab already has key capabilities; selective capacity additions and equipment upgrades are ongoing to meet demand. - CapEx intensity is moderate and can be supported by approximately one quarter of free cash flow. - CapEx ramp is spread over multiple quarters with planning in place to manage equipment lead times and capacity constraints. - Much of the CapEx qualifies for the U.S. Section 48 Investment Tax Credit (35%) and additional government grants aimed at strengthening U.S. semiconductor manufacturing. - Significant R&D investment continues in core data center, LoRa, and sensing portfolios, with disciplined governance to drive new growth drivers and product differentiation. - Strategic tuck-in acquisitions, such as the force sensing portfolio and laser/gain chip business, have been funded from strong free cash flow, supporting long-term growth.

- There is no explicit mention of new fundraising through debt or equity in the call. - As of Q4, Semtech had $195.2 million in cash and cash equivalents and $503 million in debt, unchanged from last quarter. - The adjusted net leverage ratio improved to 1.3, down from 1.5 sequentially and 2.3 year-over-year, indicating strong financial health. - Management emphasized strong cash flow generation, with operating cash flow of $61.5 million and free cash flow of $59.1 million in Q4. - They demonstrated flexibility to invest in R&D and acquisitions, such as the recent HieFo and force sensing portfolio purchases. - CapEx for capacity expansion is expected to be moderate and supported by free cash flow. - No indication of planned new equity issuance or debt fundraising was provided.

- In the optical laser and gain chip business (HieFo acquisition), demand is currently capacity-limited and growing, indicating a strong order backlog. - For CopperEdge products, long-range forecasts are in place to prepare wafer starts and material readiness; final mix between ACC cables and linear equalizers will be clearer in 1-2 months. - LoRa product demand experiences some quarter-to-quarter volatility due to project-based deployments but shows an increasing overall trend and broad-based regional growth. - The industry demand for the intensity modulated direct drive CW lasers is strong, with multiple customers requesting samples post-announcement. - Data center products, including optical and copper portfolios, are ramping well with shipments beginning by April for some hyperscaler customers. - Overall, multiple growth drivers including data center, LoRa, and industrial portfolio show strong engagement and expanding order pipelines.