SEMTECH CORP Q4 FY2025 earnings call

Management Statement and Operational Highlights

• FY2025 Performance: Fiscal year 2025 had sequential growth in net sales, gross margin, operating margin, and earnings per share. Adjusted gross margin improved 200 basis points, adjusted operating margin improved 570 basis points, adjusted EBITDA margin improved 610 basis points, and adjusted diluted earnings per share increased 529%. Shifted investments to R&D programs aligned with market opportunities, improved balance sheet by reducing leverage and cash interest burden, prioritized divestitures of non-core assets, and saw improved employee engagement metrics.
• FY2026 Priorities: Three core priorities: portfolio optimization and simplification, strategic investment in R&D to drive innovation and growth while maintaining financial discipline, and driving margin expansion through portfolio optimization and leveraging AI for efficiency.

Segment Performance

• Infrastructure: Q4 infrastructure net sales were $69.1 million, up 5% sequentially and 75% year over year. Data center net sales were a record $50 million, up 16% sequentially and 183% year over year.
• High-end Consumer: Q4 net sales were $35.4 million, up 10% year over year, and for FY 2025, net sales were $147 million, up 17% year over year. In our high-end consumer TVS, Q4 trends in welded separation product line net sales were $24.1 million, up 16% year over year and down 15% sequentially. FY 2025 net sales were $103.3 million, up 33% year over year.
• Industrial: Q4 industrial net sales were $146.6 million, up 12% sequentially and up 21% year over year. Within the industrial end market, LoRa-enabled solutions recorded Q4 net sales of $37.1 million, up 28% sequentially and up 205% year over year. IoT systems hardware business recorded Q4 net sales of $69 million, up 19% sequentially.

Guidance

• Q1 FY2026 net sales expected ~$250 million plus or minus $5 million, up 21% year over year at the midpoint. Infrastructure net sales expected to increase sequentially with data center applications leading growth. High-end consumer net sales expected slightly up. Industrial end market expected down due to seasonality. Adjusted gross margin expected to be 53% plus or minus 50 basis points. Adjusted net operating expenses expected to be $87 million plus or minus $1 million, resulting in an adjusted operating margin at the midpoint of 18.2%. Adjusted EBITDA expected to be $53.3 million plus or minus $3 million, resulting in an adjusted EBITDA margin at the midpoint of 21.3%. Adjusted net interest expense expected to be $6.3 million. Adjusted diluted earnings per share expected to be 37 cents plus or minus $0.03.

Risks

• Copper edge volume ramp not materializing in FY2026 due to rack architecture changes; now expect copper edge demand at anchor customers to be lower than prior expectations for three to four quarters.

Question and Answer

• Q: Harsh Kumar with Piper Sandler asks about Copper Edge and data center growth.

A: Hong Hou responds that copper edge is a nascent business with over 20 customers engaged, expects revenue from multiple customers and applications by late FY2026, and growth in other data center segments despite copper edge headwinds.

• Q: Tim Acree with UBS asks about data center step change timing and portfolio rationalization.

A: Mark Lin states data center portfolio has broad-based growth, fiber edge net sales at record levels, and Hong Hou mentions portfolio rationalization is strategic with patience and synergy for buyers.

• Q: Christopher Rolland with Susquehanna asks about LoRa impact and sustainability.

A: Hong Hou explains LoRa sales are from chips to module manufacturers, China list and European competitor exit provide tailwinds, and LoRa growth is sustainable with new use cases and customer engagement.

• Q: Cody Acree with Benchmark Company asks about R&D priorities.

A: Hong Hou states R&D focused on data center, LoRa, person sensing for smart devices and robots, with investment in addressing market needs.