Harsh Kumar

Harsh Kumar asked for a bookend on Marvell's custom business growth, specifically if the 'at least 20%' for next year could be higher, and sought clarification on the comfort level and visibility for the company's long-term revenue projections extending to fiscal 2028.

Answer

Chairman and CEO Matt Murphy advised modeling the 20% custom growth as a solid base case for next year, noting that the second half and exit rate will be significantly stronger, leading to a doubling of the custom business in fiscal 2028. He attributed the long-term visibility and confidence to the multi-year AI infrastructure build and close customer planning, which now requires R&D and capacity planning to extend 6-8 quarters out.

Harsh Kumar asked for a bookend on the 'at least 20%' custom business growth for next year (FY2027), seeking a sense of a normalized growth rate if everything worked out, and questioned the comfort level and visibility for the long-term revenue targets extending to FY2028, given that companies typically guide only one quarter out.

Answer

Matt Murphy (Chairman and CEO) advised modeling the 20% custom growth as a safe base case for FY2027, noting it's driven by current business and a product transition with the lead customer, with XPU-attached kicking in later in the year. He clarified that the next bigger XPU customer's contribution is mostly for FY228, leading to a doubling from FY2027 to FY2028. He justified the longer-term outlook by citing multi-year AI infrastructure build cycles, investor feedback for ambitious targets, and increased customer visibility and planning requirements (6-8 quarters out) for R&D and capacity.

Harsh Kumar from Piper Sandler Companies asked how many of Marvell's custom silicon programs are currently generating revenue to gauge progress towards long-term targets. He also asked for a general statement on whether design wins are on track, citing investor controversy.

Answer

President & COO Chris Koopmans confirmed that 'several' programs are in production, with the remaining of the 18 sockets ramping this year or next. Chairman & CEO Matt Murphy addressed the 'controversy' by highlighting the company's strong design win momentum across both large and emerging hyperscalers, reinforcing the strategy outlined at their recent AI Day.

Harsh Kumar from Piper Sandler Companies noted investor expectations for faster data center growth and asked for clarification on the growth of the AI business versus potential headwinds from non-AI components like on-prem storage.

Answer

Chairman and CEO Matt Murphy contextualized the growth by highlighting the strong 76% year-over-year increase in data center revenue and the significant sequential step-up in the prior quarter. He explained that the on-prem business is now a small part of the mix and not a significant drag, as spending has overwhelmingly shifted to AI, which is the primary driver of data center growth.

Harsh Kumar from Piper Sandler inquired about the "stickiness" of Marvell's custom ASIC customers and the potential triggers for them to switch partners. He also asked about Marvell's ability to attach its networking products to these custom silicon wins.

Answer

Matthew Murphy, Chairman and CEO, clarified that Marvell has custom engagements with all four major hyperscalers. He explained that customer stickiness is driven by a combination of technology leadership, manufacturing scale, supply chain prowess, and a flexible business model. He also confirmed that attaching networking solutions is a core part of their strategy, as co-architecting compute and I/O provides a compelling value proposition for customers.

Harsh Kumar asked for more detail on the major drivers or products behind the company's strong optimism for its custom ASIC business in the near-term, mid-term, and into next year.

Answer

CEO Matt Murphy explained that the excitement stems from the successful execution of programs that have moved from design wins to volume production. He cited strong bookings, backlog, and capacity planning for next year as tangible reasons for optimism. He emphasized that the conviction from customers on these AI-levered programs is very high, reinforcing Marvell's role as a key partner in their aggressive deployment plans.

Harsh Kumar sought clarification on the potential market size and Semtech's positioning within the LPO business, given its earlier ramp compared to ACC. He also asked whether ACC applications primarily replace AEC solutions or address entirely new use cases, and requested details on the recently acquired Force Sensing portfolio, including its function, intended use, and initial revenue/OpEx impact.

Answer

President and CEO Hong Hou explained that LPO offers an incremental opportunity, increasing Semtech's total addressable market by 150% by adding drivers to TIAs, and will cannibalize DSP-based solutions. He described ACC as a net gain, providing 90% power savings over AEC, encroaching on both AEC and DAC markets, and becoming mainstream for longer than meter reach at 200 Gb/line. Regarding Force Sensing, Hong Hou detailed its complementary nature to capacitive sensing, its strong IP portfolio (175+ patents), successful integration, and expected healthy future contribution despite immaterial current revenue. Executive Vice President and CFO Mark Lin added that OpEx increases support both Force Sensing and data center R&D, with expected strong returns.

Harsh Kumar inquired about the scope and size of the LPO market and Semtech's positioning within it, whether ACC applications are replacing AEC or creating new opportunities, and details on the Force Sensing acquisition, including its product, intended use, and revenue/OpEx impact.

Answer

CEO Hong Hou expressed excitement about LPO's ramp, noting it provides incremental content opportunities (drivers in addition to TIAs), increasing TAM by 150%. He clarified that ACC is a net gain, encroaching on AEC and DAC markets, and is expected to be mainstream for longer than meter reach. Regarding Force Sensing, Hong Hou explained it complements capacitive sensing for smart wearables, computing, and automotive, leveraging 175+ patents. He stated the acquisition was a technology tuck-in with immaterial current revenue but projected healthy future synergy. CFO Mark Lin added that while there's incremental OpEx from Force Sensing and data center R&D, these investments are in core areas and expected to yield good returns.

Harsh Kumar from Piper Sandler inquired about the timing of the Linear Pluggable Optics (LPO) opportunity, contrasting Semtech's Q4 timeline with a competitor's claim of imminent production. He also asked for an assessment of the current data center spending environment based on discussions with hyperscalers.

Answer

CEO Hong Ho confirmed that while some LPO deployments will begin in Q4, Semtech's TIA is already designed into existing DSP-based solutions, so the incremental demand is not immediate. Regarding data center spending, he noted strong CapEx forecasts from U.S. and Chinese cloud service providers (CSPs), with a recent significant improvement in booking activity from China, positioning Semtech for a strong ramp in 2026.

Harsh Kumar of Piper Sandler Companies questioned the outlook for the core data center business over the next 6-12 months and sought reasons for the guided moderation in LoRa revenue after a period of strong growth.

Answer

President & CEO Hong Hou stated that the core data center business (FiberEdge) showed strength in Q1 and he holds a strong conviction for accelerated growth in the second half. EVP & CFO Mark Lin clarified that LoRa's Q1 strength was boosted by a customer's inventory build for a product launch, and the business is expected to normalize to a strong $30-35 million quarterly run rate.

Harsh Kumar asked for an expansion on the CopperEdge portfolio's outlook, including its use in boards and connectors, future plans with the lead customer, and the rationale for an expected revenue pickup after a temporary dip. He also inquired about the visibility for sequential growth in the core analog business.

Answer

President and CEO Hong Hou explained that CopperEdge is part of a broader data center portfolio and will not be broken out separately. He confirmed engagement with over 20 customers for new applications like on-board and in-connector use cases, expecting revenue from these by late fiscal 2026. Hou acknowledged a 3-4 quarter 'air pocket' with the anchor customer due to a rack architecture change but noted Semtech is designed into their next generation. Regarding the core business, he expressed optimism for continued growth, citing strong fundamentals and resolved inventory issues, despite a seasonal dip expected in the industrial segment in Q1.

Harsh Kumar asked for the growth forecast for Active Copper Cables (ACC) in the upcoming quarter and when sales might reach a steady state. He also posed a theoretical question on the long-term viability and interoperability of Linear Pluggable Optics (LPO) and its potential to disrupt the optical market.

Answer

Executive Mark Lin stated that ACC revenue, which was in the high-single-digit millions in Q3, is expected to see a nominal ramp in Q4, followed by a progressive ramp through fiscal year 2026. CEO Hong Hou addressed the LPO question by explaining that improved signal-to-noise ratios in modern switches make LPO more viable than in the past. He believes LPO and LRO (Linear Receive Optics) will take a sizable market share from DSP-retimed solutions.

Harsh Kumar from Piper Sandler questioned the competitive positioning of Semtech's Active Copper Cable (ACC) solutions, asking about their supplier status with a key customer and their long-term technology roadmap.

Answer

President and CEO Hong Hou confirmed Semtech is one of two key suppliers for its major ACC customer, a standard practice for critical components. He expressed confidence in winning a larger share through superior operational execution. To maintain its lead, Hou stated the R&D team is already developing next-generation 400-gigabit products, emphasizing that aggressive innovation and direct customer engagement are crucial for staying ahead of the competition.

Harsh Kumar asked about the expected sequential contribution from Microchip's analog and microcontroller businesses in the December quarter, following the microcontroller's stronger performance in September, and then inquired if the focus on 3-nanometer leading-edge data center products signifies a strategic shift for the company.

Answer

President and CEO Steve Sanghi noted that the growth leadership between analog and microcontroller businesses tends to fluctuate quarter-to-quarter, as seen in previous periods. He confirmed that the focus on 3-nanometer leading-edge products, like the Gen 6 switch, represents a strategic shift towards more advanced nodes, high-performance, market-leading products with a higher growth profile, aiming to elevate Microchip's overall growth trajectory. Corporate VP of Data Center Solutions Business Unit Brian McCarson was introduced as key to this strategy.

Harsh Kumar asked about the expected contribution from Microchip's analog and microcontroller businesses in the December quarter, following September's MCU-driven growth. He also inquired about the strategic shift towards leading-edge data center products, such as the 3nm PCIe Gen 6 switch, and other advanced nodes.

Answer

President and CEO Steve Sanghi noted that growth contributions between analog and microcontrollers fluctuate quarter-to-quarter. He confirmed a strategic shift towards advanced nodes and high-performance products, highlighting the 3nm Gen 6 switch, the new AI business unit, and efforts in the FPGA business unit to achieve higher growth.

Harsh Kumar inquired about the expected growth drivers for the September quarter, specifically asking for a comparison between the automotive and pure industrial end markets. He also asked about the current gap between distributor sell-in and sell-through and how far Microchip is from its optimal inventory level.

Answer

CEO Steve Sanghi explained that the recent 10.8% growth was broad-based across all end markets and geographies, including microcontrollers and analog. CFO Eric Bjornholt specified that distributor sell-through was $49.3 million higher than sell-in, a gap that has shrunk from $103 million in the prior quarter. Regarding inventory, Sanghi noted days of inventory fell from 251 to 214 and are projected to be between 195-200 in September, with a total fiscal year reduction target of $350 million.

Harsh Kumar inquired about the relative growth between automotive and pure industrial markets for the September quarter and asked about the status of the sell-in versus sell-through gap at distributors and progress toward optimal inventory levels.

Answer

CEO Steve Sanghi noted that the recent strong growth was broad-based across all end markets. CFO Eric Bjornholt specified that the distribution sell-in vs. sell-through gap shrunk to $49.3 million from $103 million in the prior quarter. Mr. Sanghi added that on-hand inventory days dropped significantly to 214 and are targeted to be between 195-200 days in September, with wafer starts planned to increase in December to manage the recovery.

Harsh Kumar asked about the demand signals driving the company's recovery, questioning if it could be a 'head fake' from tariff pull-ins, and inquired about the relative strength of recovery across key end markets.

Answer

CEO Steve Sanghi stated that the recovery signals, which began in early January, are driven by genuine inventory depletion and new design wins, not tariff-related pull-ins. He highlighted that the aerospace and defense segment grew significantly to 18% of revenue in fiscal 2025, up from 11% previously, and expects continued strength. Sanghi also noted a broad-based recovery across industrial, automotive, and consumer segments.

Harsh Kumar sought clarification on whether OpEx would decrease in absolute dollars and if the 9-point plan assumes a market recovery. He also asked about the process for gauging correct inventory levels.

Answer

CEO Steve Sanghi confirmed their plan assumes growth from both a business recovery and new design wins. On inventory, Sanghi explained that historically, channel inventory has consistently been around 2.5 to 3 months of sales, a level they expect to return to. CFO Eric Bjornholt clarified this metric refers to months of inventory, not a multiplier of quarterly shipments.

Harsh Kumar asked about the level of pricing pressure the company is seeing when negotiating new contracts. He also sought more color on the 'green shoots,' asking if these demand signals are getting stronger.

Answer

CEO Ganesh Moorthy acknowledged that while there is always pricing pressure, it is not the primary driver of margin pressure; underutilization is. He described their pricing as largely stable and disciplined. On green shoots, he commented they were 'a lot greener 2 quarters ago' and that while expedites are rising, the key missing piece is a return of customer confidence to place more backlog.

Harsh Kumar asked about the specific drivers behind the step-up in MACOM's growth guidance. He also inquired about the timing, current scale, and potential future size of the LEO satellite business, and sought an update on the LPO market and MACOM's position.

Answer

Steve Daly, President and CEO, MACOM, attributed growth to the continued rollout of 1.6T and 800 gig platforms, a rebound in telecom, and sustained strength in defense, noting strong October bookings. For LEO, Mr. Daly stated it's ramping now within telecom, expected to grow significantly over 12-18 months to potentially hundreds of millions, supporting various levels. He confirmed MACOM has tripled its LPO production customers to three, emphasizing its competitive advantage without DSP, but declined to size the market.

Harsh Kumar asked about the specific drivers behind the step-up in MACOM's growth guidance, and sought clarification on the timing, scale, and potential market size of the LEO satellite business, as well as an update on LPO customer adoption and market sizing for fiscal 2026.

Answer

President and CEO Steve Daly attributed the growth primarily to the continued rollout of 1.6T and 800 gig platforms, a bounce back in telecom, sustained strength in the defense business, and strong October bookings. Regarding LEO, Mr. Daly noted it's included in telecom numbers, is ramping now, and could be a market worth hundreds of millions of dollars. For LPO, he confirmed the number of customers in production has tripled to three and is growing, but declined to size the market due to deployment variability.

Harsh Kumar from Piper Sandler sought clarification on the near-term gross margin headwind from the RTP fab. He also inquired about the fab's technical capabilities beyond telecom and its long-term strategic value.

Answer

President and CEO Stephen Daly and CFO John Kober explained the margin headwind is a temporary setback accepted to accelerate the transfer and gain full operational control, minimizing risk. Daly stated improvement will come from numerous projects focused on yields and efficiency. He highlighted the fab's strategic value in high-power GaN on SiC for defense, SATCOM, and 5G, and expressed confidence in doubling the fab's revenue over time, noting the company's overall operating margins are peaking.

Harsh Kumar asked if MACOM is currently shipping ACCs, whether it's a long-term solution, and about other potential uses. He also questioned if the 23% turns business was high given the strong book-to-bill.

Answer

President and CEO Stephen Daly confirmed that MACOM is shipping ACCs and views it as a long-term opportunity, not a fad, with potential to extend into PCIe 6 and 7 applications. CFO John Kober addressed the turns question, stating that the 23% level is consistent with the ~20% range seen in recent quarters and is not considered out of the ordinary, while emphasizing the positive trend of building backlog with a 1.1:1 book-to-bill ratio.

Harsh Kumar asked if the strong Q1 Data Center growth guidance signals a new sustainable level of growth, potentially with double-digit sequential increases for several quarters. He also requested clarification on the $1 billion revenue target and asked about the timeline for normalizing gross margins from the acquired Wolfspeed RF business.

Answer

CEO Stephen Daly tempered expectations, stating that while fiscal 2025 should see very strong double-digit annual growth in Data Center, continuous sequential double-digit growth is not sustainable due to market volatility. CFO John Kober clarified the $1 billion target is a run rate ($250 million per quarter) to be achieved sometime in fiscal 2026. Kober added that while the Wolfspeed acquisition integration is improving the business, there is still more work to do on margin optimization.

Harsh Kumar with Piper Sandler inquired about D-Wave's increasing engagement with the U.S. government, specifically asking if the recent alliance for national security work signifies a shift in attention towards annealing technology from the U.S. government.

Answer

CEO Dr. Alan Baratz clarified that D-Wave's approach with the U.S. government differs from other quantum companies, focusing on delivering value with existing annealing systems for problems like military logistics and resource placement, rather than seeking R&D funding. He noted a growing realization within the government of D-Wave's systems' capabilities.

Harsh Kumar with Piper Sandler inquired about D-Wave's increasing engagement with the U.S. government, specifically regarding national security work, and whether this signifies a shift in attention towards annealing technology by U.S. federal agencies.

Answer

CEO Alan Baratz clarified that D-Wave's U.S. government strategy differs from other quantum companies, focusing on delivering immediate value with existing annealing systems for problems like military logistics and resource placement, rather than seeking R&D funding. He noted a growing realization within the government of D-Wave's systems' value-delivery capabilities.

Harsh Kumar from Piper Sandler Companies asked if D-Wave's new toolkit could enable the company to offer pre-finished, customizable models or libraries, similar to NVIDIA's strategy.

Answer

CEO Alan Baratz confirmed this is possible but stated the current focus is on direct collaboration with customers like Japan Tobacco and Triumph on their specific applications. He noted that offering pre-built templates would require adding domain expertise, a step the company is considering but has not yet committed to.

Harsh Kumar inquired about the Davidson Technologies partnership, its economics, and its relation to previous system sale discussions. He also asked for a comparison of D-Wave's cryogenic control and error correction capabilities versus peers, and later followed up on the U.S. government's stance and the ideal partner profile for D-Wave's blockchain technology.

Answer

CEO Alan Baratz clarified that Davidson is a new partnership focused on U.S. government applications and declined to share economic details. He asserted D-Wave's leadership in operational cryogenic control but noted its error mitigation is specific to annealing. Baratz also expressed cautious optimism about a potential change in the U.S. administration's approach to quantum and explained that potential blockchain partners could be application-focused or service-oriented, extending beyond just cryptocurrency.

Harsh Kumar of Piper Sandler asked about the significance of the Jülich Supercomputing Center integrating a D-Wave system with its JUPITER supercomputer for market validation. He also asked for the CEO's perspective on the system sale versus QCaaS business models and sought clarification on the revenue recognition timeline for the Jülich deal.

Answer

CEO Alan Baratz clarified this is the first time a D-Wave system will be tightly integrated with a supercomputer of this scale, expressing excitement about exploring applications in AI workflows. He stated he values all parts of the business, from R&D to both QCaaS and system sales. He also confirmed no revenue for the system sale was recognized in Q4; the system was installed in Q1, with revenue recognition beginning then and continuing with future upgrades and maintenance.

Harsh Kumar asked about Skyworks' content at its largest customer, noting that revenues were holding up extremely well despite previous prognoses of content loss. He inquired whether this outperformance was due to units, share, or traction in other areas. He also asked about the streamlining of sales and its benefits.

Answer

Phil Brace, CEO and President of Skyworks, explained that the stronger-than-expected mobile results were a combination of better unit sales from the latest phone models and a richer product mix favoring Skyworks' content. He acknowledged the difficulty in predicting these factors several quarters out and confirmed that future guidance incorporates previous content comments. Regarding sales streamlining, Phil Brace detailed the recruitment of a new executive and the structural change of moving traditional product marketing functions back into business units to align engineering and product roadmaps, allowing the sales team to focus on revenue generation and customer acquisition.

Harsh Kumar inquired about Skyworks' unexpected strong revenue performance, despite earlier telegraphing a loss of content at its largest customer. He asked what factors, such as units, market share, or traction in other areas, contributed to this outperformance. He also followed up on the streamlining of sales and marketing teams, asking about the specific changes made and their benefits to the business.

Answer

Phil Brace, CEO and President, attributed the strong mobile results to better-than-expected unit sales, positive uptake of the latest phone models from both large and Android customers, and a favorable product mix. He noted that future guidance already accounts for previous content comments. Regarding sales streamlining, Mr. Brace explained the recruitment of a new executive for fresh perspective and the reintegration of product marketing functions into business units to align engineering and product roadmaps, allowing the sales team to focus on revenue generation and customer acquisition.

Harsh Kumar asked about the implications of a new modem at a large customer, viewing it as an opportunity for content shifts and inquiring how Skyworks is positioned to capitalize on this change.

Answer

CEO Philip Brace acknowledged that while baseband changes can create incremental content opportunities, the broader tailwind is the secular trend of increasing RF complexity in smartphones. He emphasized that the company's focus is on execution and delivering the best parts to win business, as the canvas for content growth is already expanding.

Harsh Kumar noted Hassane El-Khoury's cautiously excited tone regarding end markets and asked for insights into automotive backlog or bookings to gauge stabilization. He also questioned if the 6% Q3 auto growth was seasonal or better, and what drove it. Additionally, he asked Thad Trent about the revenue threshold required to approach a 40% gross margin, or if it's purely a function of utilization and inventory builds.

Answer

Hassane El-Khoury, President, CEO, and Director, ON Semiconductor, reiterated that Q3 and Q4 automotive performance should be viewed in the context of the second half of the year, with Q2 being the bottom. He emphasized growth closer to demand but no restocking, attributing quarter-on-quarter lumpiness to project ramps rather than market seasonality. Visibility has improved with stabilization, though more work is needed. Thad Trent, CFO, ON Semiconductor, confirmed that gross margin is utilization-driven, with every point of utilization contributing 25-30 basis points of improvement, and utilization will be the primary driver for margins in 2026.

Harsh Kumar asked about automotive backlog and bookings, whether the Q3 6% growth was seasonal or better, and its drivers. He also inquired about the revenue level required to achieve a 40% gross margin, or if it's purely a function of utilization.

Answer

Hassane El-Khoury, President and CEO, reiterated that the Q3 automotive growth reflects stabilization and demand alignment, not restocking, consistent with the Q2 bottom. He noted improved, but still incomplete, visibility and emphasized disciplined company management. Thad Trent, CFO, clarified that achieving a 40% gross margin is primarily utilization-driven, with every point of utilization contributing 25-30 basis points of gross margin improvement.

Harsh Kumar asked if the margin recovery could be fueled by selling previously written-off inventory. He also requested details on the components of the 'Other' business segment beyond the AI data center piece.

Answer

President and CEO Hassane El-Khoury and CFO Thad Trent clarified that there is no recovery benefit from written-off inventory, as such inventory by definition lacks demand. They emphasized that inventory is healthy, with base inventory at 121 days. El-Khoury noted that while the 'Other' segment includes a small amount of client computing, the primary focus and growth driver is the AI data center business, which they are not breaking out in further detail at this time.

Harsh Kumar of Piper Sandler asked for an estimate of how much onsemi is under-shipping relative to true demand and questioned why onsemi's guidance was weaker than a peer's, given the peer supposedly had worse inventory issues.

Answer

CEO Hassane El-Khoury explained that quantifying the under-shipment level is difficult because end-market demand has not stabilized, making it a moving target. He emphasized that onsemi's guidance is based purely on what it can see for its own business, not on peer performance, as every company has a different portfolio and strategy. He highlighted onsemi's discipline in managing its own and its distribution channel's inventory, noting disti inventory was reduced by $55 million in Q4.

Harsh Kumar asked if the mix between automotive and industrial would be flat given the flat revenue guide. He also inquired about customer conversations regarding a market turn, the impact of interest rates, and onsemi's position on CHIPS Act funding.

Answer

CFO Thad Trent clarified that automotive is expected to be up low-to-mid single digits, while industrial will be flattish to slightly down. CEO Hassane El-Khoury noted that customer conversations are focused on preparing for a recovery and that design activity remains strong. He acknowledged interest rates are a factor and stated that while CHIPS Act support is welcome, onsemi will not build unneeded capacity to secure funds.

Harsh Kumar asked why XPU share at the existing three to four customers should not be expected to be bigger than GPU share in the longer term, given the increasing size of AI clusters and the need for differentiation and efficiency.

Answer

Hock Tan, President and CEO, confirmed that it is a logical conclusion that XPU share will be bigger. He explained that as customers gain confidence with each newer generation of XPU and their software stack stabilizes, they progressively increase the usage of XPUs, leading to a higher percentage of their compute footprint being in their own XPUs.

Harsh Kumar asked for a simplified ratio of networking-to-XPU spending and inquired whether Broadcom has a hardware opportunity (XPUs) in sovereign data centers or if that market is limited to merchant silicon.

Answer

President and CEO Hock Tan explained that the networking-to-compute ratio increases as clusters scale, projecting it to grow from 5-10% of AI silicon content today to 15-20% in million-unit clusters. He stated that sovereign data centers, like the broader enterprise market, will rely on merchant silicon due to the immense software and hardware complexity of developing custom solutions.

Harsh Kumar asked about the long-term profitability of VMware, questioning if it could achieve operating margins greater than 70%, similar to Broadcom's historical software businesses.

Answer

President and CEO Hock Tan guided investors to draw their own conclusions by highlighting VMware's Q3 results: $3.8 billion in revenue against $1.3 billion in operating expenses. He added that this trajectory of growing revenue and decreasing expenses will continue in Q4, implying a path to very high profitability.

Harsh Kumar from Piper Sandler Companies inquired about the extent to which unexpected 'turns' orders contributed to the Q2 revenue beat and what level of turns is factored into the Q3 guidance. He also asked for clarification on the primary drivers of gross margin improvement, questioning the relative impact of the M800 product mix versus lower wafer costs.

Answer

CFO Cary Baker explained that while Q2 saw more turns orders than anticipated, the company is maintaining a conservative Q3 outlook by assuming no additional turns at the midpoint of its guidance. For gross margins, Baker confirmed two key drivers: the continued ramp of the higher-margin M800 product and the realization of lower wafer costs from earlier in the year, as the company has now sold through its older, higher-cost inventory.

Harsh Kumar from Piper Sandler inquired about the potential demand impact from tariffs, historical parallels to the current uncertain environment, and the inventory situation with a large customer. He also sought clarification on the growth outlook for the large logistics customer in 2025.

Answer

CEO Chris Diorio described the current environment as 'uncharted waters' but expressed confidence in the company's strong position. He noted that while there's a Q2 'wobble' from geographic production shifts, they are not seeing a major demand fall-off and believe enterprises are currently undershipping consumer demand. CFO Cary Baker added that inlay partners are now strategically holding more inventory for geographic flexibility. Regarding the large logistics customer, Chris Diorio confirmed the expectation for label growth from that end customer in 2025 versus 2024, assuming no major macro changes.

Harsh Kumar asked for specifics on the excess channel inventory, including the number of weeks and its concentration. He also sought to confirm if the change in logistics demand was related to a widely reported deal involving a major e-commerce company.

Answer

CFO Cary Baker stated there are a "few weeks" of excess inventory and confirmed it is more concentrated than typical, largely related to the logistics sector due to a change in demand from a large provider. CEO Chris Diorio added that partner share reallocations also contributed to the inventory build. While not naming the specific customer, management acknowledged that changes in logistics demand are public knowledge.

Harsh Kumar inquired about the single biggest driver for the strong Q3 results and asked for more detail on the adoption ramp of its second major logistics customer. He also sought to understand the interplay between a projected decline in logistics systems revenue and a spike from a European retail customer in Q4.

Answer

CEO Chris Diorio attributed the strong quarter to broad-based industry adoption across supply chain, retail general merchandise, and apparel, rather than a single driver. Regarding the logistics customer, he noted their execution is strong but could not provide specific volumes, stating the Q4 reader IC dip is simply due to project timing. He confirmed the customer's endpoint IC volumes are expected to increase next year.

Harsh Kumar asked for the most significant factor driving the rapid gross margin improvement toward 50%. He also sought clarification on whether the content growth at a key U.S. customer included a new mid-high band PAD win or was primarily from the previously announced ET PMIC.

Answer

SVP & CFO Grant Brown attributed the gross margin gains to a combination of improved product mix, cost reductions from factory optimization, growth in the margin-accretive defense business, and the exit from the lower-margin silicon carbide business. President & CEO Robert Bruggeworth confirmed the 10%+ content growth for the upcoming fall launch and noted that for future programs, both technical execution and commercial factors, such as an expiring supply agreement, create new opportunities without confirming a specific PAD win.

Harsh Kumar sought clarification on whether the new envelope tracking (ET) solution is shared and if the double-digit content increase is due to broader product wins. He also asked about potential demand pull-forwards from the largest customer to avoid tariffs.

Answer

CEO Robert Bruggeworth clarified that the content growth stems from share gains across multiple product categories. He emphasized that the ET PMIC is a sole-sourced solution tied to the customer's internal baseband. Regarding tariffs, Bruggeworth and CFO Grant Brown stated that while there was a new spring phone launch requiring channel stocking, they have not observed any massive or abnormal pull-forwards, describing any related activity as modest and not financially meaningful.

Harsh Kumar from Piper Sandler & Co. sought clarification on management's comment about expecting 'better than normal seasonality' with its largest cellular customer. He also asked for the one or two most significant drivers for the company's projected gross margin expansion.

Answer

CEO Bob Bruggeworth clarified that sales to its largest customer would decline sequentially in the March quarter, but less than in previous years, declining to provide further detail. CFO Grant Brown identified two primary gross margin drivers: the accretive impact of exiting lower-margin mass-tier Android business and comprehensive factory cost optimization, which includes leveraging outsourced suppliers and recent workforce reductions.

Harsh Kumar inquired about the potential product applications for other customers at Fab 25 beyond its current use, such as in industrial and automotive sectors. He also asked for an outlook on the revenue mix between the ATS and Wafer Services segments approximately a year after the acquisition.

Answer

Executive Thomas Sonderman explained that Fab 25's 130nm and 65nm technologies are well-suited for ASICs, PMICs, and microcontrollers, and the acquisition expands their addressable market. Regarding the business mix, Sonderman and Executive Steve Manko clarified that while the Minnesota fab's Wafer Services business is growing with new platforms, the addition of Fab 25's $300 million in revenue will make the company more heavily weighted towards Wafer Services overall.

Harsh Kumar of Piper Sandler questioned management's confidence in calling a cyclical bottom, asking if the recovery could be a 'head fake' given ongoing geopolitical and tariff uncertainties.

Answer

CEO Vincent Roche based his confidence on direct customer conversations and sell-through (POS) data, which indicates stabilization and growth across diverse geographies. While acknowledging that geopolitical turmoil is an incalculable risk that could affect the recovery's pace, he expressed a strong conviction that ADI and the semiconductor sector have entered a new growth cycle.

Harsh Kumar of Piper Sandler sought clarification on whether the sub-$1 billion revenue breakeven target includes start-up and underutilization costs. He also asked if capital expenditures could fall to near-zero in fiscal 2026 and when the underutilization charges are expected to fully dissipate.

Answer

CFO Neill Reynolds confirmed the breakeven target is fully inclusive of all P&L costs, including start-up and underutilization. He projected fiscal 2026 gross CapEx would be at or below the low end of the prior $200M-$600M range, with net CapEx potentially reaching zero or negative after applying 48D tax credits. Reynolds explained that underutilization costs will fade as revenue ramps, with 70% utilization being the approximate point where they become negligible.

Harsh Kumar asked about investor liquidity concerns, questioning the minimum required capital expenditure for The JP facility and requesting a bridge to achieving positive free cash flow by early 2026.

Answer

CEO Gregg Lowe stated that strong productivity from Building 10 reduces pressure on The JP's ramp speed, allowing for a more measured build-out. CFO Neill Reynolds outlined a plan to lower FY25 CapEx, drive operating efficiencies to achieve positive EBITDA in the second half of FY25, and reach positive operating cash flow by early FY26. He also highlighted over $1 billion in future funding from 48D tax credits and a potential CHIPS grant.

Harsh Kumar asked what the primary hindrances are to AMD capturing a larger share of the AI accelerator market. He also requested a framework for understanding how the gross margin for Instinct GPUs, currently below corporate average, could reach parity over time.

Answer

CEO Dr. Lisa Su framed the situation as an opportunity, comparing the Instinct ramp to the multi-generational journey of EPYC, which required time to build trust and familiarity. She noted the Instinct ramp is the fastest she has seen. CFO Jean Hu explained that while the current priority is driving revenue growth and market presence, gross margin is expected to improve with scale. She pointed out that Data Center businesses tend to have above-average margins in the long term.