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SEMTECH CORP (SMTC)·Q2 2026 Earnings Summary

Executive Summary

  • Record net sales of $257.6M (+20% YoY) and adjusted EPS of $0.41, while GAAP EPS was a loss of $0.31 due to a non-cash goodwill impairment; adjusted gross margin was 53.2% .
  • Data Center net sales reached a record $52.2M (+92% YoY), with management highlighting strong traction in FiberEdge, emerging Linear Pluggable Optics (LPO) drivers, and CopperEdge ACC qualifications across hyperscalers and enterprises .
  • Q3 FY26 guidance: revenue $266M ±$5M, adjusted EPS $0.44 ±$0.03, adjusted gross margin ~53% and adjusted EBITDA ~$60M; high-end consumer expected to be seasonally up, infrastructure to increase, industrial slightly up .
  • Balance sheet strengthened: cash $168.6M, free cash flow $41.5M, net debt cut to $359.1M and net leverage down to 1.6x; interest expense reduced ~80% YoY, enabling more R&D and growth investment .

What Went Well and What Went Wrong

What Went Well

  • Record revenue and broad-based growth with sequential improvement in adjusted operating income and EPS; “record net sales” and continued margin expansion underscore execution .
  • Data Center momentum: multiple LPO design wins, engagement with three leading hyperscalers, expected revenue ramp beginning in Q4; “we believe we have secured the lion’s share of TIAs” and have the “only compliant driver” for 800G LPO .
  • Strong cash generation and deleveraging: free cash flow of $41.5M, optional $25M term loan prepayment, adjusted net leverage at 1.6x, down from 8.8x a year ago .
  • IoT systems hardware bookings up >40% YoY, Verizon Frontline Verified status for key routers (XR60) enabling public safety network SLICE; ecosystem and solution-provider strategy gaining traction .

What Went Wrong

  • GAAP loss driven by a non-cash goodwill impairment of $42.0M related to the Connected Services business, as results did not meet internal earnings forecasts .
  • Semiconductor gross margin declined sequentially (63.7% → 60.7%) on product mix shift (higher telecom and forecasted copper decline); consolidated adjusted gross margin down 30bps QoQ .
  • CopperEdge revenue softness vs prior expectations persists near-term due to anchor customer rack architecture timing; broader ramps expected later and into FY27, adding uncertainty to timing .

Financial Results

Consolidated Performance vs Prior Periods

MetricQ4 FY2025Q1 FY2026Q2 FY2026
Net Sales ($M)$251.0 $251.1 $257.6
Adjusted Gross Margin %53.2% 53.5% 53.2%
Adjusted Operating Margin %19.9% 19.0% 18.8%
GAAP Diluted EPS ($)$0.43 $0.22 ($0.31)
Adjusted Diluted EPS ($)$0.40 $0.38 $0.41

Actual vs Wall Street Consensus (S&P Global)

MetricQ2 FY2026 ActualQ2 FY2026 ConsensusSurprise
Revenue ($M)$257.6 $256.06*+$1.53M (+0.6%) — bold beat
Primary EPS ($)$0.41 $0.40*+$0.01 — bold beat

Values marked with * were retrieved from S&P Global.

Segment Gross Margin and Revenue (Company Disclosure)

SegmentNet Sales ($M)Segment Gross Margin %
Signal Integrity$76.8 62.4%
Analog Mixed Signal & Wireless$92.0 59.3%
Total Semiconductor Products$168.8 60.7%
IoT Systems & Connectivity$88.8 39.5%
Total (Company)$257.6 GAAP GM 52.1%; Adjusted GM 53.2%

End-Market and Product KPIs (Management Commentary)

ItemQ2 FY2026 ValueSeq ChangeYoY Change
Infrastructure Net Sales ($M)$73.4 +1% +39%
Data Center Net Sales ($M)$52.2 +1% +92%
High-End Consumer Net Sales ($M)$41.2 +16% +11%
Consumer TVS Net Sales ($M)$29.9 +22% +15%
Industrial Net Sales ($M)$143.0 Slightly up +14%
LoRa Net Sales ($M)$36.9 -5% +29%
IoT Systems HW Net Sales ($M)$64.8 +2% +24%

Cash Flow and Balance Sheet KPIs

KPIQ4 FY2025Q1 FY2026Q2 FY2026
Operating Cash Flow ($M)$33.5 $27.8 $44.4
Free Cash Flow ($M)$30.9 $26.2 $41.5
Cash & Cash Equivalents ($M)$151.7 $156.5 $168.6
Net Debt ($M)$411.0 $396.2 $359.1
Adjusted EBITDA ($M)$57.8 $55.4 $56.5
Adjusted Net Interest Expense ($M)$11.2 $5.0 $4.1
Net Leverage Ratio (x)n/a<2.0 1.6

Guidance Changes

Q3 FY2026 Guidance Issued This Quarter

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($M)Q3 FY2026N/A$266.0 ± $5.0 New
Adjusted Gross Margin %Q3 FY2026N/A53.0% ± 50bps New
Adjusted OpEx ($M)Q3 FY2026N/A$88.8 ± $1.0 New
Adjusted Operating Margin %Q3 FY2026N/A19.6% New
Adjusted EBITDA ($M)Q3 FY2026N/A$60.0 ± $3.0 New
Adjusted EPS ($)Q3 FY2026N/A$0.44 ± $0.03 New
Interest & Other ($M)Q3 FY2026N/A$5.0 New
Normalized Tax Rate %Q3 FY2026N/A15% New

Q2 FY2026 Outcome vs Prior Quarter’s Guidance (for context)

MetricGuided (Q1 release)Actual (Q2)Outcome
Net Sales ($M)$256.0 ± $5.0 $257.6 In-line/high end
Adjusted Gross Margin %53.0% ± 50bps 53.2% In-line
Adjusted OpEx ($M)$87.5 ± $1.0 $88.4 Slightly higher
Adjusted EPS ($)$0.40 ± $0.03 $0.41 Small beat

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY25, Q1 FY26)Current Period (Q2 FY26)Trend
AI Data Center CapEx & FiberEdgeFiberEdge at record levels; strong 400G/800G demand; CSP CapEx supportive Record data center net sales; continued multi-year cycle; shift to 800G/1.6T; strong FiberEdge TIAs and LPO drivers Strengthening
LPO/LRO AdoptionDemos and specs alignment; 800G LPO and 1.6T LRO in late FY26 800G LPO design wins; engagement with 3 hyperscalers; ramp starting Q4; 1.6T support on TIAs/drivers sampling Ramping
CopperEdge ACCAnchor customer air pocket; broader ACC use cases by end FY26 ACC samples at hyperscalers; 800G/1.6T ACC testing; scale-up first; broader adoption expected 2026 Stabilizing then up
LoRa Momentum$37.1M in Q4; strong gen 2/3, LoRa Plus; broad apps (meters, robotics) $36.9M in Q2; dual band (2.4GHz+ISM); low-altitude economy use cases; record end nodes shipped High, slightly moderating q/q
IoT Systems (5G/RedCap)5G RedCap certification; pipeline tailwinds (competitor exits) Bookings +40% YoY; Verizon Frontline Verified XR60; public safety SLICE support Improving
Consumer TVS & PerSeTVS content gains; PerSe leadership in smartphones & smart glasses TVS +22% QoQ; PerSe adoption across wearables; smart glasses platforms ramp Strengthening
Portfolio & LeverageDeleveraging; portfolio optimization emphasis Net leverage 1.6x; exploring tuck-ins and optimization/divestitures Improved flexibility

Management Commentary

  • “The Semtech team made solid progress again this quarter… record net sales. We also delivered sequential improvement in adjusted gross profit, operating income and earnings per share” — Hong Hou (CEO) .
  • “We believe we have secured the lion’s shares of the TIAs in the most optical transceivers… our 800G LPO laser drivers… only compliant driver in the market… revenues to begin ramping in Q4” — Hong Hou (CEO) .
  • “Adjusted net interest expense was $4.1M, down 80% YoY… allowed us to accelerate investment in strategic high-growth areas… adjusted debt leverage ratio of 1.6x” — Mark Lin (CFO) .
  • “We expect net sales… to increase sequentially, including growth in data center… adjusted diluted EPS of $0.44 ± $0.03” — Mark Lin (CFO) on Q3 outlook .

Q&A Highlights

  • LPO Timing: Management expects initial 800G LPO deployments to begin in Q4, with design wins across hyperscalers and broad module manufacturer engagement; incremental to existing DSP-based TIA content .
  • CopperEdge Adoption: ACC samples across 800G/1.6T lines; scale-up between ASICs first, scale-out as switches (e.g., Tomahawk) become available; broader ramps in late 2025/2026 .
  • LoRa Run-Rate: Management now expects LoRa quarterly revenue range of $30M–$40M vs prior $30M–$35M, citing record end-nodes and new applications (dual-band, low-altitude economy) .
  • Seasonality: High-end consumer (TVS/PerSe) expected to trail down in Q4 seasonally despite content gains; industrial solid; data center remains growth engine .
  • Margins & OpEx: Mix-driven gross margin; investments targeted to near-term growth, prudent R&D increases aligned to customer programs .

Estimates Context

  • Q2 FY26 beats: Revenue $257.6M vs $256.06M consensus*; Primary EPS $0.41 vs $0.40 consensus* — both small beats. Street likely to lift near-term estimates modestly given Q2 beat and Q3 guide above Q2 actuals .
  • Model implications: Mix headwinds from telecom/high-end consumer temper gross margin sequentially, but data center, LPO, and ACC ramps support continued revenue growth trajectory; deleveraging and lower interest expense improve EPS conversion .

Values marked with * were retrieved from S&P Global.

Key Takeaways for Investors

  • Data center remains the core growth driver with record Q2 sales and upcoming LPO/ACC ramps, indicating multi-year AI infrastructure tailwinds continue .
  • Small top-line and EPS beats vs consensus and in-line margins, paired with above-consensus Q3 guide, should support estimate revisions and positive sentiment .
  • Strong FCF and reduced interest expense from deleveraging (net leverage 1.6x) improve capacity to invest in core product roadmaps and potential tuck-in acquisitions .
  • LoRa demand remains robust with expanded dual-band capabilities and record end-node shipments; management increases quarterly run-rate outlook to $30M–$40M .
  • High-end consumer strength (TVS/PerSe) reflects content gains over unit growth; expect Q4 seasonal downtick but sustained YoY share gains .
  • Near-term margin variability reflects product mix (telecom and copper), but structurally accretive data center/semiconductor mix supports medium-term margin trajectory .
  • Watch catalysts: Q4 800G LPO revenue onset, ACC customer ramps, and Q3 execution vs guidance; any acceleration in 1.6T transceiver deployments could further lift 2026 outlook .