SEMTECH Q2 FY27 earnings call SMTC

Semtech's data center business achieved record revenue of $100 million in Q2 FY27, marking a 39% sequential and 91% year-over-year increase. This growth was primarily driven by continued strength in 800-gig solutions, the ramp of 1.6T CopperEdge, and the initial ramp of 1.6T FiberEdge. The company's FiberEdge TIA driver solutions are in exceptionally strong demand, securing design-ins across all leading hyperscalers and module providers, with some on a sole-source basis. CopperEdge linear equalizer solutions are considered the de facto industry standard, with products up to 1.6T ready for volume deployment and engagements for 3.2T solutions underway.

Semtech has significantly expanded its photonics portfolio, now encompassing gain chips, high-power lasers, semiconductor optical amplifiers (SOAs), and high-speed photodiodes. This expansion, partly through the HieFo acquisition, aims to increase Semtech's content per transceiver from high single-digit dollars to high double-digit dollars as the industry transitions from 800-gig to 3.2T. Customer feedback on high-power CW lasers for 1.6T transceiver applications has been positive, citing differentiating over-temperature performance and power efficiency, with revenue contribution expected to start in H1 FY28. The company has also onboarded photodiode design resources to deliver co-optimized high-performance solutions.

LoRa-enabled net sales reached an all-time record of $58 million in Q2 FY27, representing a 31% sequential and 58% year-over-year increase. This growth is attributed to the LoRa Gen 4 platform, LoRa Plus with multi-protocol flexibility, and the expanding Amazon Sidewalk initiative, which is now moving into international markets. LoRaWAN continues to expand into new use cases, including public safety with AI-based audio verification and industrial predictive maintenance. The company projects another all-time high for LoRa revenue in Q3 FY27, with approximately 15% sequential growth and 65% year-over-year growth.

Semtech is actively reshaping its portfolio, highlighted by the announced sale of its cellular module business, which is expected to close in Q4 FY27 and be EPS neutral on a non-GAAP basis. This divestiture allows for a sharper focus on core growth areas. The company demonstrated strong operating leverage in Q2 FY27, with adjusted diluted EPS of $0.71 growing 73% year-over-year, more than twice the revenue growth. Adjusted gross margin was 54.5%, and excluding the cellular module business, it would have been 59.7%, indicating a significant structural shift and mix-driven improvement.

To support its unprecedented^🌐 backlog and growth opportunities, Semtech is actively securing incremental capacity for FY28 and beyond, including increasing tester capacity and acquiring clean room space for photonics. The company plans to increase its fab capacity for photonics by 3 to 4 times by the end of calendar year 2026. R&D investment is intensifying to accelerate time-to-market for key data center projects, specifically for solution offerings in lasers, photodiodes, drivers, and TIAs for 3.2T coherent light, XPO, NPO, and CPO applications.