SEMTECH CORP Q1 FY2026 earnings call

Management Statement and Operational Highlights

• Q1 results showed net sales, adjusted gross margin, adjusted operating margin, and adjusted diluted earnings per share above guidance midpoint, illustrating business resiliency.
• Successfully navigated turbulent tariff policies through coordination among operations, sales, and compliance teams.
• In infrastructure, data center growth is driven by hyperscalers' capital expenditure and innovations in copper and optical portfolios. CopperEdge demonstrated high performance, and LPO deployments are expected in H2 2026.
• In high end consumer, TVS net sales were flat but up, with PerSe products used in smart glasses. In industrial, LoRa and IoT systems hardware showed growth with new markets like medical and robotics.

Segment Performance

• Infrastructure: Q1 net sales were $72.8 million, up 5% sequentially and 30% year-over-year. Data center net sales reached a record $51.6 million, up 3% sequentially and 143% year-over-year. CopperEdge is expected to have design wins and volume ramps by the end of the fiscal year, with LPO deployments anticipated in the second half of 2026.
• High End Consumer: Q1 net sales were $35.4 million, flat sequentially and up 3% year-over-year. Consumer TVS net sales were $24.5 million, in line with outlook. PerSe products are used in smart glasses and deployed in leading manufacturers' devices.
• Industrial: Q1 net sales were $142.8 million, down 3% sequentially but up 24% year-over-year. LoRa enabled solutions net sales were $38.9 million, up 5% sequentially and 81% year-over-year. IoT systems hardware net sales were $63.5 million, down 8% sequentially but up 31% year-over-year, with IoT cellular portfolio expected to grow.

Guidance

• Q2 Outlook: Expected net sales of $256 million ±$5 million, up 19% year-over-year at midpoint. Adjusted gross margin expected to be 53.0% ±50 basis points, adjusted operating margin 18.8%, adjusted EBITDA $56 million ±$3 million, and adjusted diluted EPS $0.40 ±$0.03 based on 90 million weighted average shares.

Risks

• Macro Uncertainty: Impact on timing of portfolio optimization initiatives due to macroeconomic uncertainties, potentially delaying strategic initiatives.
• Tariffs: Previously mentioned, but Q1 net sales not materially affected by tariffs.

Question and Answer

Q: Question on cellular module business and margin in Q1.

A: Hong and Mark discuss seasonality, booking tailwinds, and mix impact on margins.

Q: AI connectivity update on CopperEdge.

A: Hong talks about engagements, customer qualification, and Q4 ramp.

Q: LPO and optical margin.

A: Hong discusses TIA performance, LPO deployments, and driver design wins.

Q: Data center business trend.

A: Hong talks about FiberEdge growth and LPO/ACC ramps.

Q: LoRa growth and outlook.

A: Mark and Hong discuss LoRa run rate, medical customer orders.

Q: AI connectivity and CopperEdge timeline.

A: Hong explains air pocket and Q4 revenue from other customers.

Q: Portfolio optimization uncertainty.

A: Hong talks about macroeconomic uncertainty delaying strategic initiatives.

Q: PerSe product ramping.

A: Mark discusses PerSe in smart glasses and H2 2026 ramp.

Q: Seasonality and gross margin trends.

A: Hong talks about product mix, R&D investments, and OpEx.

Q: Data center portfolio and SurgeSwitch.

A: Hong and Mark discuss data center portfolio breadth and SurgeSwitch in system-level protection.

Q: Data center normalized growth and cellular module margin.

A: Hong and Mark talk about data center normalized growth and cellular module margin expansion.