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SEMTECH CORP (SMTC)·Q1 2026 Earnings Summary

Executive Summary

  • Q1 FY26 delivered net sales of $251.1M (+22% YoY) with GAAP gross margin 52.3% and adjusted gross margin 53.5%; adjusted EPS was $0.38, above S&P Global consensus of ~$0.371, and revenue slightly above ~$250.1M consensus, reflecting disciplined execution and improving demand . Values retrieved from S&P Global.*
  • Adjusted operating margin expanded to 19.0% (vs. 12.2% YoY), and adjusted EBITDA margin to 22.1% (vs. 16.1% YoY), supported by mix and opex control; data center net sales hit a record $51.6M, +143% YoY .
  • Management guided Q2 FY26 net sales to $256M ±$5M, adjusted EPS $0.40 ±$0.03, adjusted gross margin ~53.0% ±50bps, and adjusted EBITDA $56M ±$3M; end-market view: infrastructure up, high-end consumer up slightly (seasonal), industrial flat to slightly down (LoRa moderation) .
  • Balance sheet and cash metrics improved: adjusted net leverage ratio below 2x; operating cash flow $27.8M and free cash flow $26.2M; net debt fell to ~$396.2M with further term loan prepayment ($10M in Q1, +$15M to date in Q2) .
  • Stock narrative catalysts: sustained FiberEdge momentum and expected LPO/ACC ramps in 2H FY26, plus Q2 guidance above prior run-rate; offset by near-term CopperEdge “air pocket” and LoRa moderation from elevated Q1 builds .

What Went Well and What Went Wrong

What Went Well

  • Record data center net sales of $51.6M (+143% YoY) driven by FiberEdge strength; CEO: “We expect our data center business to be a sustainable growth driver” .
  • Margin expansion: adjusted gross margin 53.5% (+370bps YoY) and adjusted operating margin 19.0% (+680bps YoY); CFO noted adjusted net interest expense fell to $5.0M from $11.2M on debt paydown .
  • Strategic progress in AI connectivity and optics: CopperEdge ACC qualification across multiple hyperscalers and enterprises with expected volume ramps before year-end; LPO TIAs securing “lion’s share” with compliant drivers, targeting Q4 ramps .

What Went Wrong

  • CopperEdge demand gap at the anchor customer led to near-term revenue softness; management expects reacceleration with diversified customers and use-cases by Q4 FY26 .
  • IoT Systems & Connectivity margins faced mix pressures and a non-recurring tailwind that benefited Q4 but not Q1; Q1 gross margin for ISC down vs Q4 due to module/router mix and prior one-time benefit .
  • Anticipated LoRa moderation in Q2 from project-based builds in Q1; management targets a ~$30–$35M quarterly LoRa run-rate near term .

Financial Results

Consolidated Performance vs Prior Periods

MetricQ1 2025Q4 2025Q1 2026
Net Sales ($USD Millions)$206.1 $251.0 $251.1
GAAP Gross Margin %48.3% 52.0% 52.3%
Adjusted Gross Margin %49.8% 53.2% 53.5%
GAAP Operating Margin %1.5% 8.5% 14.3%
Adjusted Operating Margin %12.2% 19.9% 19.0%
GAAP Diluted EPS ($)($0.36) $0.43 $0.22
Adjusted Diluted EPS ($)$0.06 $0.40 $0.38
Adjusted EBITDA ($USD Millions)$33.1 $57.8 $55.4
Adjusted EBITDA Margin %16.1% 23.0% 22.1%

Actual vs S&P Global Consensus (Q1 FY26)

MetricActualConsensusSurprise
Revenue ($USD Millions)$251.1 $250.1*+$1.0
Adjusted EPS ($)$0.38 $0.371*+$0.009
Values retrieved from S&P Global.*

Segment Net Sales and Margins

SegmentQ1 2025 Net Sales ($M)Q4 2025 Net Sales ($M)Q1 2026 Net Sales ($M)
Signal Integrity$58.3 $72.5 $73.5
Analog Mixed Signal & Wireless$75.3 $85.4 $90.6
Total Semiconductor Products$133.6 $157.9 $164.1
IoT Systems & Connectivity$72.5 $93.1 $86.9

KPIs and Operating Metrics

KPIQ4 2025Q1 2026
Data Center Net Sales ($M)$50.0 $51.6
LoRa Net Sales ($M)$37.1 $38.9
High-End Consumer Net Sales ($M)$35.4 $35.4
IoT Systems Hardware Net Sales ($M)$69.0 $63.5
Operating Cash Flow ($M)$33.5 $27.8
Free Cash Flow ($M)$30.9 $26.2
Net Debt ($M)~$411.0 ~$396.2

Guidance Changes

Q2 FY26 Outlook (New vs Prior)

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($M)Q2 FY26—$256.0 ± $5.0 New
Adjusted Gross Margin %Q2 FY26—53.0% ± 50bps New
Adjusted OpEx ($M)Q2 FY26—$87.5 ± $1.0 New
Adjusted Operating Income ($M)Q2 FY26—$48.2 ± $3.0 New
Adjusted Operating Margin %Q2 FY26—18.8% ± 80bps New
Adjusted Interest & Other ($M)Q2 FY26—$5.5 New
Adjusted Tax Rate %Q2 FY26—15% New
Adjusted Diluted EPS ($)Q2 FY26—$0.40 ± $0.03 New
Adjusted EBITDA ($M)Q2 FY26—$56.0 ± $3.0 New
Adjusted EBITDA Margin %Q2 FY26—21.9% ± 80bps New
Non-GAAP Diluted Share Count (M)Q2 FY26—90.0 New

Q1 FY26 Guidance vs Actual

MetricQ1 FY26 GuidanceQ1 FY26 ActualResult
Net Sales ($M)$250.0 ± $5.0 $251.1 Above midpoint
Adjusted Gross Margin %53.0% ± 50bps 53.5% Above
Adjusted OpEx ($M)$87.0 ± $1.0 $86.6 Better
Adjusted EPS ($)$0.37 ± $0.03 $0.38 Above
Adjusted EBITDA ($M)$53.3 ± $3.0 $55.4 Above

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY25)Prior Quarter (Q2 FY26)Current Period (Q1 FY26)Trend
AI connectivity (CopperEdge ACC)Anchor customer demand “air pocket” for 3–4 quarters; diversify use cases, >20 customers engaged 800G/1.6T ACC cables delivered to multiple hyperscalers/enterprise for qualification; ramps targeted CY26 ACC samples/qualifications at multiple customers; expect design wins and ramps before FY26 year-end Improving trajectory into 2H FY26
LPO opticsAnticipated adoption latter FY26; OFC demos planned Secured LPO TIA design wins; compliant laser drivers; expect Q4 ramps with 3 hyperscalers (2 US, 1 China) Customer feedback indicates superior TIA performance; drivers released; 2H ramps expected Building momentum
Data center demandRecord $50M; FiberEdge strength offsets CopperEdge gap Record $52.2M; continued strong CapEx tailwinds Record $51.6M; sustainable growth driver Sustained strength
IoT cellular modulesTailwinds from sanctioned China competitor and u-blox exit; bookings strength Bookings +40% YoY; RedCap/NTN roadmap; Verizon Frontline Verified routers Q1 module mix/margin headwinds; outlook for sequential revenue growth and margin expansion Near-term normalization, medium-term up
LoRa$37.1M, +205% YoY; strong smart meter wins $36.9M, -5% q/q; expanding use-cases and dual-band chips $38.9M, +5% q/q; moderation expected in Q2 from project builds Strong but moderating near term
Tariffs/macroPortfolio optimization ongoing; macro uncertainty may delay timing China GPU constraints easing; bookings accelerating “Dynamic tariff policies” navigated; no material pull-ins Managed operationally
R&D executionReprioritized to core growth areas; AI for efficiency Roadmap acceleration in LPO/ACC; 1.6T drivers/TIAs sampling before year-end Ongoing strategic investment in innovation and go-to-market Accelerating in core

Management Commentary

  • CEO framing: “We reported Q1 results… above the midpoint of our guidance… successfully navigated through dynamic tariff policies… facilitating a stable flow of product across the global semiconductor supply chain” .
  • Data center strategy: “CopperEdge enables… delivering… reach extension needed for next-generation AI clusters… reduces power consumption by over 90% vs DSP-based options” .
  • LPO outlook: “We believe we are winning the lion’s share in TIAs… our driver is fully LPO compliant… additional revenue by Q4 this fiscal year” .
  • Balance sheet focus: “Adjusted net leverage ratio below 2… $10M term loan prepayment in Q1 and additional $15M to date in Q2” .
  • Operational discipline: “Adjusted net operating expenses were $86.6M… adjusted operating margin of 19%… adjusted EPS of $0.38 up from $0.06 a year ago” .

Q&A Highlights

  • IoT Systems & Connectivity margins: Q1 margin pressure driven by module/router mix and absence of Q4 one-time tailwind; expect revenue acceleration ahead and margin expansion focus .
  • CopperEdge timing: Air pocket at anchor customer persists; diversification with multiple hyperscalers/enterprises expected to drive ACC revenue starting Q4 FY26, ramping into FY27 .
  • LPO ramp clarity: TIAs broadly designed-in; compliant drivers in qualification; initial 800G deployments anticipated in Q4 across three hyperscalers .
  • LoRa run-rate: Q1 boosted by customer builds ahead of launches; management comfortable with $30–$35M quarterly run-rate near term; medical hearing-aid customer highlighted .
  • Seasonality: High-end consumer aligns with smartphone ramps (Q2/Q3 up); Q4 seasonal down; industrial steady with 5G tailwinds; data center remains growth engine .

Estimates Context

  • Q1 FY26 results modestly beat S&P Global consensus: revenue $251.1M vs ~$250.1M estimate; adjusted EPS $0.38 vs ~$0.371 estimate. Management also guided Q2 FY26 net sales $256M and adjusted EPS $0.40, implying continued momentum relative to recent consensus trajectory . Values retrieved from S&P Global.*
  • Consensus breadth: ~12 estimates for revenue and ~13 for EPS in recent quarters, indicating reasonable coverage depth for SMTC’s quarterly outlook.*
  • Implications: Street may raise out-quarter estimates for data center (FiberEdge/LPO), while trimming near-term LoRa given Q2 moderation commentary; ISC margins likely modeled higher on router mix normalization and debt-driven interest expense relief .

Key Takeaways for Investors

  • Semtech is delivering consistent margin expansion with adjusted gross margin at 53.5% and operating margin near 19%, underpinned by data center mix and opex discipline .
  • FiberEdge remains the core engine; LPO is poised to add incremental content (TIA + drivers) beginning Q4 FY26, a potential multi-quarter catalyst as hyperscaler deployments start .
  • CopperEdge ACC diversification is the swing factor: expect initial revenue in Q4 FY26, with broader ramps into FY27; watch customer qualification updates and ACC design wins for stock catalysts .
  • LoRa strength is intact but normalizing; model ~$30–$35M quarterly near term with upside from new applications (dual-band, LoRa Plus) and medical devices (hearing aids) .
  • IoT cellular hardware benefits from competitor disruptions (sanctioned China supplier, u-blox exit) and 5G RedCap/NTN progress; expect bookings-to-revenue conversion and margin step-ups as mix improves .
  • Balance sheet deleveraging reduces interest expense (adjusted net interest $5.0M in Q1) and supports reinvestment; additional term loan prepayments and undrawn revolver provide flexibility .
  • Near-term trading setup: modest beat-and-raise dynamic with Q2 guide; monitor OFC/LPO deployment milestones, ACC customer ramps, and segment margin disclosures (semiconductor vs ISC) for narrative reinforcement .