MACOM Technology Solutions Holdings, Inc. Q2 FY2025 earnings call

General Company Update

• Revenue for Q2 2025 was $235.9 million, adjusted EPS was $0.85 per diluted share. Ended the quarter with ~$682 million in cash and short-term investments. Book-to-bill ratio was 1.1:1, with fifth consecutive quarter of strong bookings and backlog at record level. Turns business was ~20% of total revenue.

End Markets

• Industrial & Defense: Demand grows due to U.S. and international DoD system upgrades, but traditional industrial and multi-markets (automotive, factory automation, medical) unremarkable.
• Telecom: Order trends improving, especially in 5G infrastructure, broadband access, metro long haul; SATCOM segment securing design wins.
• Data Center: Strong demand from domestic and international cloud service providers, on pace for strong growth though volatile.

Product Highlights

• At SATELLITE 2025, introduced Opto-Amp Product Line capable of 40 watts optical power for free space optic apps. At OFC, 17 products and tech demos displayed, including chip stacked TIA and photodetector for 800G and 1.6T apps.

Long-Term Strategy

• Highest Power: Build best-in-class semiconductor portfolio for high RF/microwave power levels, including new high-power optical amplifiers and ongoing GaN 4 process development.
• Highest Frequency: Develop differentiating GaN and GaN high-frequency processes, with new MBE reactor installed for advanced processing.
• High-Performance Connectivity: Focus on high-speed data transfer over copper/optical fiber, leveraging analog/mixed signal/digital IP.

Wolfspeed RF Business Fab Conveyance

• Transition activities on or ahead of schedule; plan to increase four-inch capacity by up to 30% in 12-15 months; exercised right of first refusal for RTP site real estate.

Recent Customer Engagements

• Received supplier award from BAE, lightweight BU's 200G photodetector products gaining traction, and pilot production orders from European radar manufacturer.

Revenue by end market: Industrial & Defense was $98.5 million (approx. 41.7% of total revenue), Data Center was $72.2 million (approx. 30.6% of total revenue), and telecom was $65.2 million (approx. 27.6% of total revenue). Industrial & Defense and Data Center quarterly revenues achieved record levels. Q2 book-to-bill ratio was 1.1:1, with backlog at a record level. Turns business was around 20% of total revenue.

MACOM expects fiscal Q3 2025 revenue to be in the range of $246 million to $254 million. Adjusted gross margin is expected to be in the range of 56.5% to 58.5% and adjusted earnings per share is expected to be between $0.87 and $0.91 based on 76.5 million fully diluted shares. Anticipates sequential revenue growth in all end markets, with Industrial & Defense leading at ~10% sequential growth, followed by Data Center at 5% and telecom slightly up.

• Macroeconomic uncertainty impacting the global business environment.
• Tariffs monitoring, though no noticeable impact seen to date, with complex manufacturing/assembly footprint to manage.
• Volatility in the data center market, with fast-moving ramp ups and downs observed.

Q: Tore Svanberg from Stifel asked about the data center business growth momentum and sustainability into fiscal '26.

A: Stephen Daly said data center business has been growing, on track for mid-40% year-over-year growth in fiscal 2025 driven by higher data rates and LPO standard ratification, but market is volatile with fast-moving ramp ups/downs expected.

Q: Tore Svanberg followed up on Wolfspeed RF fab transition and gross margin impact.

A: Stephen Daly said originally acquired business had low profitability, incrementally improving gross margins, and goal is to have fab transfer neutral/positive to gross margins; John Kober added they are looking to expand fab capacity and improve gross margins as they take more control of the fab.

Q: David Williams from Benchmark Company asked about data center budgets and growth opportunities.

A: Stephen Daly said ISPs continue to invest in data centers, SAM for MACOM in data center is growing, and they are involved in various high-data rate technologies.

Q: David Williams asked about the satellite business size and opportunity.

A: Stephen Daly said SATCOM business is growing, with Opto-Amp as an example, and opportunity in high frequencies like Ka-Band, Q-Band, etc., playing to MACOM's strengths.

Q: Karl Ackerman from BNP Paribas asked about SATCOM program timing and defense exposure to European spending.

A: Stephen Daly said large SATCOM program is on track, with R&D phase nearly complete and moving to build phase; MACOM's exposure to European defense spending is growing with acquisition of MESC in France.

Q: William Stein from Truist Securities asked about telecom market dynamics and industrial & defense exposure.

A: Stephen Daly said telecom growth due to 5G market share gain, SATCOM inclusion, and some market segments burning down inventory; industrial & defense has weak end demand with overhang of inventory issues.

Q: Neil Young from Needham & Company asked about gross margin expectations and tariff impact.

A: John Kober said gross margin expected to stay in mid-57% range; Stephen Daly said no noticeable tariff impact seen to date, business is unique with high stickiness.

Q: Blayne Curtis from Jefferies asked about data center growth commentary and OpEx.

A: John Kober said data center growth expected in fiscal 2025 with mid-40s year-over-year growth; John Kober also said OpEx increased due to investments, with leveling off expected in future quarters.

Q: Srini Pajjuri from Raymond James asked about data center inventory and LPO interest.

A: Stephen Daly said no inventory issue in data center, customers expediting orders; LPO interest varies with use cases, early stage with interest in 100-gig per lane for 800G solutions.

Q: Peter Peng from JPMorgan asked about data center new products revenue ramp.

A: Stephen Daly said data center has multiple new products with high NPI success rate, 200-gig photodetectors ramping, and SAM expanding into new areas like PCIe.

Q: Richard Shannon from Craig-Hallum Capital Group asked about I&D segment growth and data center new products impact.

A: Stephen Daly said I&D defense part growing with market share gain in radar systems; on data center new products, batting average on future calls is tricky, but working on CW lasers and LPO with potential impact if successful.