MTSI
Earnings call · Apr 2025 (Q2 FY25)

MACOM Technology Solutions Holdings Q2 FY25 earnings call MTSI

May 8, 2025 Source

Executive summary

MACOM Q2 FY25 — Record Revenue and Strong Data Center/Telecom Growth

MACOM delivered record Q2 FY25 revenue and strong adjusted EPS, driven by sequential growth across all end markets, particularly Data Center and Telecom. The company continues to execute on its long-term strategy of developing high-performance semiconductor solutions for high power, high frequency, and high data rate applications, expanding its market share through new product introductions and strategic investments like the Wolfspeed RF fab transition. While the Data Center market remains volatile, MACOM is focused on innovation and operational improvements to sustain growth and enhance profitability.

Highlights

5

  • Record quarterly revenue of $235.9 million, up 8.1% sequentially.

  • Adjusted EPS of $0.85 per diluted share, up from $0.79 sequentially.

  • Fifth consecutive quarter of strong bookings with a book-to-bill ratio of 1.1:1, leading to a record backlog.

  • Data Center and Industrial & Defense segments achieved record quarterly revenues.

  • Cash and short-term investments increased to $681.5 million, resulting in a net cash position of over $182 million.

Concerns

4

  • Industrial and multi-markets area (automotive, factory automation, medical) demand was unremarkable and fundamentally weak.

  • Data Center market remains volatile with rapid shifts in demand and potential for fast ramp-ups and ramp-downs.

  • Gross margin improvement for the Wolfspeed RF fab transition still has a gap to close, though the overall transaction is ahead of its 3-year payback plan.

  • Anticipated increase in adjusted income tax rate from 3% to mid-single digits starting in fiscal year 2026.

Guidance & targets

CategoryTargetConfidence
Revenue
$246M to $254M
high materiality
High
Adjusted gross margin
56.5% to 58.5%
medium materiality
High
Adjusted EPS
$0.87 to $0.91
high materiality
High
Industrial & Defense sequential growth
Approximately 10%
medium materiality
Medium
Data Center sequential growth
5%
medium materiality
Medium
Telecom sequential growth
Slightly up
medium materiality
Medium
Cash flow from operations
In excess of $210M
high materiality
High
Capital expenditures
Approximately $30M
medium materiality
High
Adjusted income tax rate
Mid-single digits
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Industrial & Defense
Achieved record quarterly revenue. Demand continues to grow driven by U.S. and international DoD system upgrades. Traditional industrial and multi-markets area was unremarkable.
$98.5M—1%—
Data Center
Achieved record quarterly revenue. Business is strong with continued demand from domestic and international cloud service providers. Accelerated pace of new technology deployments and rapid shifts in demand. On pace for strong growth year, but remains a volatile end market.
$72.2M—11%—
Telecom
Order trends have been improving, specifically in 5G infrastructure, broadband access, and metro long-haul. SATCOM segment continues to secure design wins in ground and space-based systems.
$65.2M—18%—

Operational metrics

Revenue
$235.9M Up 8.1% sequentially
Q2 FY25

Fiscal Q2 revenue hit a new quarterly record of $235.9 million, up 8.1% sequentially based on growth across all 3 of our end markets.

Non-GAAP EPS
$0.85 Up from $0.79 in Q1 FY25
Q2 FY25

Adjusted EPS was $0.85 per diluted share, utilizing a share count of 75.7 million shares, compared to $0.79 of adjusted earnings per share in fiscal Q1 2025.

Cash and investments balance
$681.5M Up $25M from Q1
Q2 FY25

Cash, cash equivalents and short-term investments for the second fiscal quarter were $681.5 million, up $25 million from Q1.

Net cash position
More than $182M
Q2 FY25

Comparing our cash and short-term investments to the book value of our convertible notes, we are in a net cash position of more than $182 million as of April 4, 2025.

Book-to-bill ratio
1.1:1 Fifth consecutive quarter of strong bookings
Q2 FY25

Our Q2 book-to-bill ratio was 1.1:1. Notably, this was the fifth consecutive quarter of strong bookings, and we are pleased our backlog is at a record level.

Turns business % of revenue
Around 20%
Q2 FY25

Our turns business, or orders booked and shipped within the quarter, was around 20% of total revenue.

Non-GAAP gross margin
57.5% In line with past few quarters
Q2 FY25

Adjusted gross profit for fiscal Q2 was $135.6 million or 57.5% of revenue, in line with the past few quarters.

Adjusted operating expense
$75.8M Sequential increase compared to Q1
Q2 FY25

Total adjusted operating expense for our second quarter was $75.8 million consisting of research and development expense of $50.4 million and selling, general and administrative expenses of $25.4 million.

Depreciation expense
$6.8M Compared to $6.7M in Q1 2025
Q2 FY25

Depreciation expense for fiscal Q2 2025 was $6.8 million compared to $6.7 million in Q1 2025.

Adjusted operating income
$59.8M Up 8% sequentially from $55.4M in Q1 FY25
Q2 FY25

Adjusted operating income in fiscal Q2 was $59.8 million, up 8% sequentially from $55.4 million in fiscal Q1 2025.

Adjusted net interest income
$6.4M Increased $500,000 sequentially from $5.9M in Q1
Q2 FY25

For fiscal Q2, we had adjusted net interest income of $6.4 million, which increased $500,000 sequentially from $5.9 million in Q1.

Adjusted income tax rate
3%
Q2 FY25

Our adjusted income tax rate in fiscal Q2 was 3% and resulted in an expense of approximately $2 million.

Net cash tax payments
$2.8M
Q2 FY25

Our net cash tax payments were approximately $2.8 million in Q2.

Deferred tax asset balances
$213M Compared to $212M at the end of fiscal Q4 2024
Q2 FY25

As of April 4, 2025, our deferred tax asset balances were $213 million as compared to $212 million at the end of fiscal Q4 2024.

Adjusted net income
$64.3M Increased approximately 8% to $64.3M compared to $59.5M in Q1 FY25
Q2 FY25

Fiscal Q2 adjusted net income increased approximately 8% to $64.3 million compared to $59.5 million in fiscal Q1 2025.

Accounts receivable
$131.4M Up from $91.8M in Q1 FY25
Q2 FY25

Our Q2 accounts receivable balance was $131.4 million, up from $91.8 million in fiscal Q1 2025.

Days sales outstanding (DSO)
51 days
Q2 FY25

Our days sales outstanding averaged 51 days, which we feel is within our normal operating range.

Inventories
$209.3M Up sequentially from $198.4M
Q2 FY25

Inventories were $209.3 million at quarter end, up sequentially from $198.4 million.

Inventory turns
1.9x Increased to 1.9x from 1.7x in the preceding quarter
Q2 FY25

Inventory turns increased to 1.9x from 1.7x in the preceding quarter.

Capital expenditures
$8.2M Up $2.9M sequentially
Q2 FY25

Capital expenditures totaled $8.2 million for fiscal Q2, up $2.9 million sequentially.

Direct customer business
Over 95%
Current

Over 95% of our business is direct with customers, and in some cases, with partners, reseller partners.

Data Center revenue growth
Mid-40s% Year-over-year
FY25

Here we are halfway through fiscal '25, and I would say we're on track to be somewhere in the mid-40% year-over-year growth range.

SATCOM contract R&D phase completion
3/4 complete
Current

We're pretty much, I would say, 3/4 through that phase. Things look great.

Wolfspeed RF fab 4-inch capacity expansion
Up to 30%
Next 12-15 months

To reduce execution risks and expand capacity, we are developing plans to increase the current 4-inch capacity by up to 30% over the next 12 to 15 months.

Industry KPIs

MetricValueDetails
Backlog order bookRecord level
Book to bill ratio1.1:1 ratio
Ai data center revenue$72.2M USD
Fab capacity utilizationHigh %
Bookings net order intake1.1:1 ratio
Design wins socket pipelineMultiple
Inventory channel inventory$209.3M USD
Node platform ramp scheduleGaN4 process development
End market segment revenue mixIndustrial & Defense: $98.5M; Data Center: $72.2M; Telecom: $65.2M USD

Orderbook & backlog

Backlog Record level Q2 FY25

Pleased our backlog is at a record level.

Product announcements

ProductTypeDetails
Opto-Amp product linelaunch
Chip-stacked TIA and photodetectorlaunch
LPO (Linear Pluggable Optics) ecosystemmilestone

Deals & partnerships

Wolfspeed Acquisition of Wolfspeed's RF business

MACOM acquired Wolfspeed's RF business in December 2023. The transition of the RTP North Carolina fab to MACOM was estimated to take 24 months, but is on or ahead of schedule. MACOM has exercised its right of first refusal to acquire the real estate associated with the RTP site, with a real estate exchange facilitated by its Lowell landlord.

Air Force Research Labs Cooperative Research Development Agreement (CRADA) for millimeter wave GaN

A second CRADA has been signed focusing on sub-100-nanometer GaN technology, building on the first CRADA that led to the release of the first-generation 140-nanometer GaN process. This work supports the development of advanced millimeter wave GaN.

Risks & headwinds

Market Volatility (Data Center) Ongoing

Data Center growth expected mid-40s% YoY for FY25, but long-term growth rates expected to settle to more rational levels.

Mitigation:Focus on being on the leading edge of high data rates, introducing new products (e.g., 200G photodetectors, CW lasers), and expanding SAM.

Industrial Market Weakness Ongoing

Unremarkable performance in Q2 FY25.

Mitigation:Overall strategy focuses on diversified portfolio and market share gains, though no specific mitigation for this segment was detailed.

Wolfspeed RF Fab Gross Margin Dilution Until fab transfer (possibly before Dec 2025) and beyond.

Currently dilutive to MACOM's gross margins; "more of a gap to close" in yields and throughput to reach neutral/positive gross margins.

Mitigation:Working to improve yields and throughput, expanding 4-inch capacity by up to 30% over 12-15 months.

Increasing Adjusted Tax Rate Starting in fiscal year 2026.

Expected to increase from 3% to mid-single digits.

Mitigation:Continued utilization of deferred tax asset balances to minimize future cash tax payments.

What to watch in Q3 FY25

Wolfspeed RF Fab Gross Margin Improvement

Next few quarters, potentially by fab transfer (before Dec 2025).
Current Dilutive to MACOM's gross margins, "more of a gap to close".
Target Neutral or positive to MACOM's gross margins.

Why it matters

Critical for overall company profitability and successful integration of the Wolfspeed acquisition.

I would say that today, we're not there. I think we have more of a gap to close in terms of looking at yields, looking at throughput cycle times and things of that nature.

Q&A highlights

Inquired about the sustainability of the Data Center business's high growth rate (mid-40s% FY25) given its historical volatility, and the outlook for FY26.

Steve Daly confirmed the mid-40s% growth for FY25, driven by higher data rates and LPO adoption. He noted the market's inherent volatility with fast ramp-ups/downs and cautioned against expecting continued growth at these rates long-term, but expects continued market share gains.

“I would probably not recommend investors or analysts to expect continued growth at these growth rates. We think that over the long term, things will settle down into a more rational growth rate.”

asked by Tore Svanberg · answered by Stephen Daly

2 min read 6 chapters

Detailed narrative

Strategic Focus on High-Performance Solutions

MACOM's long-term strategy centers on designing semiconductor products for the highest power, highest frequency, and highest data rate applications across its three core markets. This involves continuous innovation in proprietary III-V semiconductor process technologies, including GaN on Silicon Carbide, and advanced circuit design expertise. The company estimates its Serviceable Addressable Market (SAM) at approximately $7 billion to $8 billion, indicating significant future growth potential.

Wolfspeed RF Fab Transition Update

The transition of the Wolfspeed RF business fab is on or ahead of schedule, with a possible transfer before December 2025. Due to increasing demand, plans are underway to expand the 4-inch capacity by up to 30% over the next 12-15 months with modest investment. MACOM has also exercised its right of first refusal to acquire the RTP real estate, with a real estate exchange facilitated by its Lowell landlord, having no material P&L impact. This ensures a smooth transfer and supports future growth.

New Product Introductions and Market Traction

MACOM introduced its new Opto-Amp product line at SATELLITE 2025, capable of 40 watts of optical power for space optic applications, leveraging its expertise in optical amplification and SATCOM. At OFC, the company showcased 17 product demonstrations, including the maturity of the Linear Pluggable Optics (LPO) ecosystem and a new chip-stacked TIA and photodetector solution for 800G and 1.6T applications, utilizing 200G photodetectors. These innovations are gaining traction in next-generation data center applications.

Advanced Process Development

Significant progress is being made on the fourth-generation GaN on Silicon Carbide RF power process (GaN4) for cellular infrastructure, aiming for higher power, better efficiency, and improved linearity. A second Cooperative Research Development Agreement (CRADA) with the Air Force Research Labs focuses on sub-100-nanometer GaN technology, supported by a new molecular beam epitaxy (MBE) reactor installation at the Lowell fab. This reactor will develop proprietary processes for industry-leading ohmic contact performance and will also be used for X-band BAW filter technology.

European Expansion

MACOM is expanding its presence in Europe through MACOM's European Semiconductor Center (MESC), which offers leading-edge HEMT and HBT processes in GaAs and GaN. Efforts to transfer current processes from 3-inch to 6-inch production tooling are on plan and expected to be completed within the next few quarters. The goal is to establish MESC as Europe's leading III-V foundry for GaAs and GaN on Silicon Carbide, expanding engineering and hybrid manufacturing capabilities to support growing European industries.

Customer Engagements and Awards

The company received a supplier award from BAE in recognition of its quality and delivery performance. Its new 200G photodetector products are gaining traction in the market for next-generation data center applications, with volume production ramping up. Additionally, MACOM received pilot production orders from a leading European radar manufacturer to support its new, large, ground-based radar program, highlighting its growing market share in defense.

AI-generated summary of the company's earnings call. Not investment advice.