MACOM (MTSI) Q2 FY26 earnings call: guidance and Q&A

What are the key drivers behind the gross margin improvement, specifically volume versus mix, and how should we think about it for the rest of the year?

Volume increases from both Lowell and North Carolina fabs are contributing to gross margin improvements. Data Center's increasing revenue share also helps, though gross margins vary across all segments. The team is focused on yield enhancement, efficiencies, and cost reductions. Management expects continued improvements, raising the year-end target from 59% to closer to 60%.

“Generally speaking, the team has been very focused on yield enhancement, efficiencies, cost reductions as we're scaling across a whole wide range of technologies, some of which I talked about in the prepared remarks.”

asked by Blayne Curtis · answered by Stephen Daly

How is the coherent light market developing, and is it considered part of Data Center or Telecom?

Coherent light is categorized under Data Center. MACOM sees it as an area of strength with nice differentiation, especially as platforms move to higher gigabaud data rates (64 to 128, even 192 gigabaud). MACOM is well-positioned to participate depending on hyperscaler deployments, leveraging its differentiated technology across multiple product lines.

“So we would put coherent light in the Data Center category. And as you know, historically, we have put the metro/long haul, which is more DCI in the Telecom segment.”

asked by Blayne Curtis · answered by Stephen Daly

Can you comment on the projected number of LEO launches, MACOM's content per satellite, and the timing of revenue ramp for the SATCOM business?

MACOM has serviced the space market for decades and is engaged with major players in the growing LEO market. While not commenting on absolute launch quantities, the company highlights its participation in three areas: satellite payloads, gateways, and opportunistically in terminals. A large LEO program is expected to go into full-rate production later this year or early next, with a ramp-up during calendar 2027, not a sudden step-up.

“I don't think you should expect a step-up. You're going to see a ramp-up, and that will happen during the course of calendar 2027.”

asked by Thomas O'Malley · answered by Stephen Daly

Beyond higher CapEx, what new revenue streams are contributing to the increased Data Center growth target of over 60%?

The expansion of MACOM's product portfolio, particularly the ramp-up of optical components, has driven growth. Focus on 1.6T and 800G continues to show strength. New revenue categories for FY27 include higher data rates like 3.2T, potential coherent light ramp-ups, and CW lasers. The company is also active in providing equalizers for copper interconnects.

“Very much the expansion of our product portfolio. And we have talked about really over the last 12 months, the ramp-up of some of our optical components. And so that has certainly helped drive some of the growth.”

asked by Tore Svanberg · answered by Stephen Daly

Why is MACOM emphasizing teamwork and operations execution now, and is it related to competitors struggling with capacity or planning?

The emphasis is to highlight the employees' work in achieving strong financial results, with the company growing over 30% last year and on track for similar or higher growth this year. Managing multiple technologies ramping simultaneously requires significant coordination. While not directly commenting on competitors, constraints in the Data Center market are creating opportunities for MACOM, including in legacy DFB lasers as competitors pivot to higher-power solutions.

“In terms of sort of opportunities, I'll just note that because there is certainly some constraints within the Data Center market, we believe that's opening up interesting opportunities for MACOM”

asked by Tore Svanberg · answered by Stephen Daly

Can you provide an update on the CW laser opportunity and confidence in its contribution to FY27 growth?

No significant change in the last three months. While optical performance is excellent and validated, the fab is still dialing in the process for reliability. This involves extensive qualification work. Revenue contribution is projected for fiscal '27 or '28, assuming successful qualification. The market demand is strong, but MACOM needs to ensure product robustness before high-volume ramp. Analysts should not model CW laser revenue for FY26 or FY27.

“So when you add all that up and look at the time line, you're really talking about potentially, and this is assuming everything goes well and oftentimes it doesn't, a fiscal '27 or '28 time frame of contribution.”

asked by Quinn Bolton · answered by Stephen Daly

MACOM previously focused on satellite and gateway infrastructure; why the change to address the user terminal market, and what products are involved?

MACOM is being opportunistic in the user terminal market, focusing on inbound requests for control products that fit its AlGaAs diode-based portfolio. The company is not chasing highly-integrated customized chips or SoCs for user terminals, maintaining its focus on infrastructure but selectively addressing specific component needs.

“You're correct to conclude we're not chasing SoCs or receivers or highly-integrated customized chips for user terminals. That is not the case. But we are seeing inbound requests for some of our control products.”

asked by William Stein · answered by Stephen Daly

Given the record book-to-bill, will MACOM need significant capital investments in fabs, or is current capacity sufficient?

MACOM is making moderate, incremental investments in its fabs. The North Carolina fab's capacity is increasing by 30% (for $15M-$16M, completed by end of CY26). The Massachusetts fab is investing in advanced GaN and indium phosphide capacity. The French fab is moving to 6-inch production and installing a new MOCVD reactor. The company aims to reach $2 billion in revenue without building new greenfield fabs, expanding within existing facilities. CapEx is expected to remain disciplined at 4-5% of revenue.

“We don't need to buy a fab or build a fab to do it. What we need to do is expand incrementally capacity within the walls of our existing facilities.”

asked by Karl Ackerman · answered by Stephen Daly