Q2 2025 Semtech Corp Earnings Call

Speaker Change: Greetings and welcome to the 7th Tech Corporation's second quarter fiscal year 2025 earnings call. At this time, all participants are in a listen only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Operator: At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Operator: A brief question-and-answer session will follow the formal presentation. As a reminder, this call is being recorded.

Speaker Change: A brief question and answer session will follow the formal presentation. As a reminder, this call is being recorded. I would now like to turn the call over to Mark Lin, Executive Vice President and CFO. Thank you, Mark. You may begin.

Mark Lin: I would now like to turn the call over to Mark Lin, Executive Vice President and CSO.

Operator: Thank you, Mark. You may begin.

Operator: Thank you, operator.

Mark Lin: Good day, everyone, and welcome. I'm pleased to be joined today by Hong Hou, President and Chief Executive Officer. Today, after market close, we released our on-audited results for the second quarter of fiscal year 2025, which are posted along with an earnings call presentation toward investor website at investors.semtech.com. Today's call will include various remarks about future expectations, plans, and prospects, which comprise forward-looking statements. Please refer to today's press release and see flight two of the earnings presentation for information on risk factors that could cause our actual results to differ materially from those made on this call.

Hall Hope: Thank you all, Brader. Good day everyone and welcome. I'm pleased to be joined today by Hall, Hope, President and Chief Executive Officer.

Speaker Change: Today, aftermarket close, we'll release our on-order results for the second quarter of fiscal year 2025, which are posted along with an earnings call presentation for investor website and investors.semtech.com.

Speaker Change: Today's call will include various remarks about future expectations, plans and prospects, which comprise forward-looking statements.

Speaker Change: Please refer to today's press release and see flight two of the earnings presentation for information on risk factors. Pickle calls are actual results to differ materially from those made on this call. Let's otherwise note it, all the containment-related financial measures will be non-gap other than that sales.

Mark Lin: Unless otherwise noted, all the constant-related financial measures will be non-GAAP other than that sales. Please refer to today's press release and see slide three of the earnings presentation for important information regarding notes on our non-GAAP financial presentation. The press release and earnings presentation will also include reconciliations of our GAAP financial measures.

Speaker Change: Please refer to today's press release and see slide three of the earnings presentation for important information recording notes on our non-gap financial presentation.

Speaker Change: The press release in our presentation will also include recommendations of our gap and our gap financial measures. With that, I will turn the call over to Paul.

Hong Hou: With that, I will turn the call over to Hong.

Hong Hou: Thank you, Mark. Good afternoon, and thank you all for joining us today. I'm excited to host my first Semtech earnings call.

Paul: Thank you, Mark, good afternoon, and thank you all for joining us today. I'm excited to host my first semi-techno earnings call.

Hong Hou: I would like to take a moment to thank the Board of Directors for giving me the opportunity to release Semtech at President and CEO at this pivotal time. And to thank all our global employees and leaders for the welcome they have given me. Over the past two months, I have visited many of our customers, suppliers, and Semtech global locations and taking great pleasure in talking to many people in person, getting to know them and hearing their comments and feedback. I'm especially proud of the Semtech team denomies a bit in execution and serving the needs of our customers during the leadership transition.

Paul: I would like to take a moment to thank the Board of Directors for giving me the opportunity to lead some tech at President and CEO at the pivotal time. And to thank all our global employees and leaders for the warm welcome they have given me.

Paul: Over the past two months, I have visited many of our customers of suppliers and same-tech global locations and taking great pleasure in talking to many people in person.

Paul: Getting to know them and hearing their comments and feedback.

Paul: I'm a specially proud of the Samtech team, the Namnes of Beat in Exclusion, and serving the needs of our customers during the leadership transition.

Hong Hou: And I also like to share with you a few of my initial observations since taking up my new row, and what I see at the near term priorities. First, we have made solid progress in rationalizing expenses and stabilized our financial foundation. There's still more to do, of course, but this allowed us to go on all sense. And I look forward to capturing significant growth opportunities, given favorable market trends and alignment with our core competencies. Second, we have world-leading technologies and products developed and refined over decades in the analog and the mix signal design. Laura IOT1 and the superb reputation in the mission critical cellular systems and outstanding R&D efforts held by Mike Wilson, our Chief Technology Officer, with an almost 30-year tenure at the Semtech.

Speaker Change: And I also like to share with you a few of my initial observations since taking up my new row. And what I see at the near-term priorities.

Speaker Change: First, we have made a solid progress in rationalizing expenses and stabilized of financial foundation.

Speaker Change: You're still more to do, of course, but this allowed us to go on offense and I look forward to capturing significant griots opportunities, given favorable market trends and alignment with our whole competencies.

Speaker Change: Second, we have world leading technologies and products developed and refined over decades in an analog and mixed signal design.

Mike Wilson: Laura IOT1, and a superb reputation in the mission, critical, cellular systems and outstanding R&D efforts helped by Mike Wilson, our Chief Technology Officer with an almost 30 years annual at the SEMTEC.

Hong Hou: Third, we have world-class management processes and systems and a proven track record of delivering global operations excellence, high quality, and on-time deliveries for our customers. This core method that a key to Semtech's success will hone over time and consistently refine by Assaf Superstain, our Chief Operating Officer, with 25 years in the Semtech Conductory Industry and almost 15 years annually in a company and his team. Fourth, our customers value our core technologies and asking for our partnership in driving collaborative innovations. They believe our innovative solutions can enable them to win and grow their business.

Mike Wilson: Third, we have world-class management processes and systems in a proven track record of delivering global operations excellence, high quality, and on-time deliveries for our customers.

Speaker Change: This core method that a key to some tech success will hone over time and consistently refine by a soft superstand.

Speaker Change: I'll Chief Operating Officer with 25 years in the semiconductor industry and almost 15 years panel in the company and his team.

Speaker Change: Fourth, our customers value our core technologies and asking for our partnership in driving collaborative innovations. They believe our innovative solutions can enable them to win and grow their business.

Hong Hou: Building on this great foundational elements, I view my near-term priorities as follows. First, focus on strategy, rationalize our portfolio, and improve the balance sheet. We continue to believe that some assets in our portfolio are not core to a long-term strategy, and our focus can be sharpened. Both our management and the board are committed and remain focused on balance sheet improvement through reduction of debt. Using asset sale proceeds to reduce debt is our capital allocation priority. Until a potential sale occurred, however, we will continue to invest in the business, both to enhance value and to fully support our customers.

Speaker Change: Building on this great foundational elements, I view my near-term priorities as follows. First, Fox-Long Strategy, Resinalites are portfolio and improve the balance sheet.

Speaker Change: We continue to believe that some assets in our portfolio are not core to a long-term strategy, and our focus can be sharpened.

Speaker Change: Both our management and the board are committed and remain focused on balance-eating improvement in the sole reduction of debt.

Speaker Change: Using assets sale proceeds to reduce debt is our capital allocation priority.

Speaker Change: and Tio of Potential Sayway or Kirit however, we will continue to invite you in the business, both to enhance value and to fully support our customers.

Hong Hou: To maximize potential transaction values, I will respectfully limit further public comments on the topic; for instance, what assets and the status and the timing of the process. Second, accelerate revenue growth and drive margin expansion. You may discuss this with numerous customer senior executives. It is very clear that our customers and target markets are moving towards us. Driving up demand for SEMPAC's world-class portfolio product, technology, and services. Through disappointing investment, innovation and efficiency will develop even more differentiated solutions that underpin the critical business needs of our customers. In so doing, we expect to achieve solid organic growth, SEM expansion, market share gain, and margin expansion.

Speaker Change: To maximize potential transaction values, I will respectfully limit further public comments on the topic, for instance, what assets and the status and the timing of the process.

Speaker Change: Second, accelerate revenue drills and drive margin expansion.

Speaker Change: In my discussions with numerous customer senior executives, it's very clear that our customers and target markets are moving to us.

Speaker Change: Driving up demand for semtex world-class portfolio product, technology and services.

Speaker Change: Through this appointee investment, innovation and efficiency will develop even more differentiated solutions that underpins the critical business needs of our customers.

Speaker Change: In so doing, we expect to achieve solid organic growth, same expansion, market share gain and margin expansion.

Hong Hou: Third, energize our people and elevate our winning culture. I have been hugely impressed with our talented and committed workforce and leadership, but we can do more. We will invest in our people along around a clear vision and focused strategic imperatives to accelerate results with a winning mindset and high-performance culture.

Speaker Change: Third, energize our people and elevate our winning culture. I have been hugely impressed with our talented and committed workforce and leadership, but we can do more.

Speaker Change: We will invest in our people, align around a clear vision and focused strategic imperative to accelerate results with a winning mindset and high-performance culture.

Hong Hou: Director. Moving to our second quarter result, I believe Semtech has executed well to the established strategy and demonstrated by solid second quarter financial performance with the sequencer revenue skills across each of our business units and a favorable outlook for our third quarter that forecast accelerates in up all growth. For the second quarter, infrastructure net sales were 52.9 million, with net sales for data center of 27.2 million, up 28% sequentially and up 37% year over year. In high-verscale data center applications, net sales more than doubled over last year and were well-supported by strong demand for a fiber-edge trans impedance amplifier or TIA and laser drivers for 400 gig and 800 gig optical modules and a tri-edge 50 gig PEMFOR product in 200 gig and 400 gig active optical cables.

Speaker Change: Moving to our second quarter results, I believe some tech has executed well to the established strategy, and demonstrated by solid second quarter financial performance.

Speaker Change: with a sequential revenue career across each of our business units and a favorable outlook for our third quarter that forecast accelerates in our future.

Speaker Change: For the second quarter, infrastructure net sales were 52.9 million with net sales for data center of 27.2 million, up 28% sequentially and up 37% year over a year.

Speaker Change: In High-Verse scale data center applications, not sales more than doubled over last year, and were well-supported by strong demand for a fiber-etched, transient impedance amplifier, or TIA and laser drivers.

Speaker Change: 400 gig, and 800 gig optical modules, and a try edge 50 gig and 104 product in 200 gig and 400 gig active optical cables.

Hong Hou: We have noted the increasing CAPEX targets reported by hyperscalers, and the incrementally AI data center markets are moving towards us. Our analog solutions provide substantially lower power and lower latency, as well as significantly greater value compared to the re-time DSP solutions. My meetings with the Chief System Architects in data center ecosystems since joining at CEO confirmed that the transportation of bits within data center has by far the greatest power optimization opportunities. Lower power consumption and latency reduction for transport are key consider reasons for AI computing. Delivering on this transport opportunities will allow a greater allocation of power to compute and memory, and the SEMTAC team has every intention on delivering our low power low latency solutions through embedded customer engagement and now depth of analog expertise.

Speaker Change: We have noted the increasing tapx targets reported by the hyperscalers, and the incrementally AI data center, Markets, I'm moving to Wells F.

Speaker Change: Our panel of solutions provide substantially lower power and lower latency, as well as significantly greater value compared to the three time DSP solutions.

Speaker Change: My meetings with the Chief System Architects in Data Center ecosystem, since joining at CEO, confirm that might be the transportation of bits within Data Center has by far the greatest power optimization opportunities.

Speaker Change: Lower Power consumption and latency reduction for transport, key considerations for AI computing.

Speaker Change: Delivering on this transferred opportunities will allow a greater allocation of power to compute and memory, and the same tech team has every intention on delivering our low power.

Speaker Change: Low latency solutions through embedded customer engagement and now that's of analog expertise.

Hong Hou: SEMTAC's CAPEX continuous-time linear equalizers have a well-documented application where we partnered with NVIDIA to implement low power, low latency active CAPEX or ACCs for Blackwell, Rex, and POP. For 200 gig CAPEX linear redrivers, we have received the purchase orders from ACC cable manufacturers and expect shipments to start in now fiscal third quarter in limited quantities, a nominal ramp in the fourth quarter, and an acceleration in the next fiscal year. Qualifications are on schedule, and we currently estimate our annual opportunities specific to the single platform exceeds the floor case we provided last quarter. That said, Semtech's ACC opportunities extend beyond a single platform and a single customer.

Speaker Change: Some texts of copyrights, continuous time, linear, equalizers have a well documented application. Where we partnered with Nvidia to implement low power, low latency, active capital capals, OACC's for a black, well-rex and pods.

Speaker Change: for a 200G.

Speaker Change: Copper at Linear Redriver's.

Speaker Change: We have received the purchase orders from ACC cable manufacturers and expect shipments to start in now fiscal third quarter, you limited quantities, and nominal ramp in the fourth quarter, and a celebration in the next fiscal year.

Speaker Change: Qualifications are unscheduled and we currently estimate our annual opportunities specific to the single platform exceeds the floorcase we provided last quarter.

Speaker Change: That said, some texts ACC opportunities extend beyond a single platform and a single customer.

Hong Hou: We estimate data centers currently deploy tens of millions of direct-and-touch copper cables of deck cables per year. This deck cables are passive, and as data reads in cable lines, entries, we expect there will be natural progression from deck cable to ACC to meet signal integrity requirements. The market is moving towards us, and a replacement of only a small fraction of deck cables to ACC will represent a substantial increase to Semtech's SAM. Indeed, Semtech is currently engaged with a number of companies in the AI ecosystem on just such opportunities.

Speaker Change: We asked him a data center currently deployed tens of millions of direct-a-tops copper cables of deck cables for a year.

Speaker Change: This deck cables are passive and as data reads in cable runs, entries, we expect there will be natural progress from deck cable to ACC to meet signal integrity requirements.

Speaker Change: The market is moving towards us, and a replacement of only a small fraction of that cables to ACC will represent a substance or increase to some types of SAM.

Speaker Change: Indeed, some tag is currently engaged with a number of companies in the AI ecosystem on just such opportunities.

Hong Hou: On this front, what would be leave standards bodies in MSAs have their place in this market to promote interoperability and backwards compatibility; the time to develop and approve those standards is inevitably extended time to deploy. We believe the pace of data center innovation is optimized with Semtech's direct engagement with our end customers and allows us to create a purpose-built solution for hyperscalers to address their specific challenges. We are absolutely at the right moment to adopt this approach. I expect that direct engagement will accelerate Semtech's time to revenue and enhance top-line organic growth. It is this top-line organic growth that allows for a prudent investment, and I believe my prior experience growing a business while operating in a elaborate situation, as well as in a highly cost-conscious EMS environment, while in firms my decision-making process in prioritizing disappointing investments.

Speaker Change: On this front, we will believe standards bodies in MSA's have their place in this market to promote interoperability and backwards compatibility.

Speaker Change: the time to develop and improve those standards in an inevitably extended time to deploy.

Speaker Change: We believe the pace of data center innovation is optimized with some texts that direct engagement with our end customers and allows us.

Speaker Change: to create a purpose-built solution for hyperscalers to address their specific challenges. We are absolutely at the right moment to adopt this approach.

Speaker Change: I expect that direct engagement will accelerate some tax time to revenue, and in hence top line organic growth.

Speaker Change: It is this path line organic growth that allows for prudent investment.

Speaker Change: and I believe my prior experience growing in a business while operating in a leverage at situation, as well as in a highly cost-conscious EMS environment, well-informed my system making process, in prioritizing discipline to investments.

Hong Hou: My expectation in this investment must deliver meaningful returns to shareholders. The linear-pluggable optics, based on our engagement with a number of key partners, we believe we have a path to LPO shipments by the latter portion of FY26. Similar to active copper cables, LPO represents an opportunity to deploy a low latency, low power solution in the optical space. With annual optical transfer consumption at approximately 30 million units, a fraction of this market, converting to LPO represents a substantial sum expense into Semtech. A world-class TIA is the key to successful LPO deployment, and I'm certain Semtech's TIA fits the requirement.

Speaker Change: My expectation in this investment must deliver meaningful returns to shareholders.

Speaker Change: The linear plug-able optics based on our engagement with a number of OQ partners, we believe we have a path to LPO shipment by the letter portion of FY26.

Speaker Change: Similar to active copper cables, LPO represents an opportunity to deploy a low latency, low power solutions in the optical space.

Speaker Change: With any optical transfer, consumption at approximately 30 million units, a fraction of this market, converting to LPO represents a substantial expense into some tech.

Speaker Change: A World Class TIA is the key to successful LPO deployment, and I'm certain some text TIA fits the requirement.

Hong Hou: I have first-hand knowledge having selected Semtech as my first choice TIA supplier to support silicon photonics product at a prior company. All class-leading TIA performance on the receiving end, well-positioned sets for LRO opportunities as well. And we recognize there are potential patients where LRO is suited to meet customers into Robbability requirements.

Speaker Change: I have first-hand knowledge having selected some tech as my first choice, TIA supplier to support silicon photonics product at a prior company.

Operator: at this time, all participants are in a listen only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. A brief question and answer session will follow the formal presentation. As a reminder, this call is being recorded.

Speaker Change: All class leading TIA performance on the receiving end, well, positions for LRO opportunities as well. And we recognize, there are potential applications where LRO is suited to meet customers' interoperability requirements.

Operator: I would now like to turn the call over to Mark Lin, executive vice president and CFO. Thank you, Mark.

Hong Hou: Moving to Pong, net sales were 20.4 million, within expectation following a robust first quarter. It was 99% year-over-year. Pong demand, especially the 10 gig, remains strong with a total consumption increase of 41% year-over-year. 50 gig is on the horizon, and we are looking to expand this business on a global level.

Mark Lin: You may begin. Thank you, operator. Good day, everyone, and welcome.

Speaker Change: Moving to Pong, Net Sales were 20.4 million within expectation following a robust first quarter, an up 49% year over a year.

Mark Lin: I'm pleased to be joined today by Hong Kong, president and chief executive officer. Today after market close, we released an unauthored result for the second quarter of fiscal year 2025, which are posted along with an earnings call presentation toward investor website and investors. Semtech.com. Today's call will include various remarks about future expectations, plans and prospects, which comprise forward looking statements. Please refer to today's press release and see flight two of the earnings presentation for information on risk factors.

Speaker Change: Tong Dement, especially the 10-gig remains strong with a total consumption increase 41% year over a year.

Speaker Change: 50 gig is on the horizon and we are looking to expand this business on a global level.

Hong Hou: Regarding other products in the infrastructure end market, wireless net sales declined but remain within expectation. In wireless, we continually in qualification process without triage and fiberage wireless platforms for 5G advanced and are actively engaging with the key partners like Eric Sinanokia. We then ready when this market rebounds. There were a few other small sequencer net sales declines resulting in a 5% sequencer decline, but a data center and a signal integrity segment each grew subsequently. Moving to our high end consumer end market, net sales were 37.1 million as sequencer increase of 7% or up 9% year-over-year.

Speaker Change: Regarding other products in the infrastructure and market, wireless net sales declined but remain within expectations.

Mark Lin: It could cause our actual results to differ maturely from those made on this call. Unless otherwise noted, all the containment related financial measures will be non-gap other than that sales. Please refer to today's press release and see slide three of the earnings presentation for important information regarding notes on our non-gap financial presentation. The press release and earnings presentation will also include recommendations of our gap as non-gap financial measures.

Speaker Change: In wireless, we're continuing in qualification process without try edge and fiber edge.

Speaker Change: Wireless platforms for 5G advanced.

Speaker Change: and actively engaging with a key partners like Ericsson and Nokia, with then ready when this market rebounds.

Speaker Change: Number of few other small sequential net sales declines, resulting in a 5% sequential declines, but a data center and a 6 million tg segment each grail sub-sequizally.

Hong Hou: With that, I would turn the call over to Hong Kong. Thank you, Mark. Good afternoon. Thank you all for joining us today.

Hong Hou: I'm excited to host my first SEMtech earnings call. I would like to take a moment to thank the board of directors for giving me the opportunity to release SEMtech at president and CEO at the pivotal time and to thank all our global employees and leaders for the welcome they have given me. Over the past two months, I have visited many of our customers, of suppliers and SEMtech global locations and taking great pleasure in talking to many people in person, getting to know them and hearing their comments and feedback.

Speaker Change: Moving to our high-end consumer end market.

Speaker Change: Matt sales were 37.1 million as the quinceau increase of 7% up 9% year over a year.

Hong Hou: POS kicked up sequentially, and the increase of 34% year-over-year ahead of what we expect to be seasonally strong Q3. Net sales in high-end consumer TVs grew to 26 million, up 4% sequentially and up 42% year-over-year. Our market share in consumer TVS grew at a double-digit rate compared to last year, and we believe we are winning on technological and operational performance. I am very pleased this growth is brought based as we expand on platforms and applications.

Speaker Change: POS picked up sequentially, and the increase of 34% year over a year, ahead of what we expect to be seasonally strong Q3.

Speaker Change: Net sales in high-end consumer TBS grew to 26 million, up 4% sequentially and up 42% year over a year.

Hong Hou: I'm especially proud of the SEMtech team did not miss a beat in execution and serving the needs of our customers during the leadership transition. I would also like to share with you a few of my initial observations since taking up my new role and what I see at the near term priorities. First, we have made solid progress in rationalizing expenses and stabilized our financial foundation. There's still more to do, of course, but this allowed us to go on all sense and I look forward to capturing significant growth opportunities given favorable market trends and alignment with our core competencies.

Speaker Change: Our Market Share in Consumer TV asks you at a double-digit rates compared to last year, and we believe we are winning on technological and operational performance.

Speaker Change: I'm very pleased this growth is brought based as we expand on platforms and applications.

Hong Hou: The overall ESD threat in very men has been increasing. Higher performance silicon reduces the amount of expensive on-chip real estate available to dissipate surge energy. This trend increases the importance of high performance off-chip protection impact offers. This is yet another example of how markets are moving towards us. We continue to grow our market shares at not only the world largest consumer electronics company but in other North American and Korean companies as well. Indeed, our consumer TVS engagement in Korea reasonably results in design wins in the industrial on the automotive space where this key customer is winning shares.

Speaker Change: The overall ESD threat in very many has been increasing.

Speaker Change: Higher Performance Silicon Reduce is the amount of expensive on-chip real estate available to dissipate the surge energy.

Speaker Change: This trend increases the importance of high-performance off-chip protection, semi-tech offers.

Speaker Change: This is yet another example of how market are moving towards us.

Hong Hou: Second, we have world leading technologies and products developed and refined over decades in analog and mixed signal design. Laura IOT1 and the superb reputation in the mission critical cellular systems and outstanding R&D efforts held by Mike Wilson, our chief technology officer, with an almost 30 years tenure at the SEMtech. Third, we have world-class management processes and systems and a proven track record of delivering global operations excellence, high quality and on-time deliveries for our customers.

Speaker Change: We continue to drill well market years at not only the world largest consumer electronics company.

Speaker Change: but in other North American and Korean companies as well.

Speaker Change: Indeed, our consumer TBS engagement in Korea recently resouted the design wins in the industrial on the automotive space where just key customers' winning shares.

Hong Hou: This is a great example of how our direct customer engagement approach is solving customers' problems across a number of their markets and resulting in increasing the SAM for Semtech. All-class leading per se proximity sensing products continue to perform well with design winds at a key Korean smartphone manufacturer while allowing our customers to meet specific absorption and reach standards. This is a great use case for per se. Gesture controls are a substantial source of demand for this product. Per se's cloud leading 3-D sensing and adult ferret sensitivity is meeting or exceeding customer requirements for gesture control features in variables, mobile audio, and smart glasses.

Speaker Change: This is a great example of how our direct customer engagement approach is solving customer's problems across a number of their markets and resulting in increase of SAM for some tech.

Hong Hou: This core method that a key to Semtech's success will hone over time and consistently refined by Assaf Superstain, our Chief Operating Officer, with 25 years in the Semekonduct industry and almost 15 years annually in the company and his team. Fourth, our customers value our core technologies and asking for our partnership in driving collaborative innovations. They believe our innovative solutions can enable them to win and grow their business.

Speaker Change: All-class leading per se proximity sensing products continue to perform well with design winds at a key Korean smartphone manufacturer.

Speaker Change: While allowing our customers to meet specific absorption rate standards is a great use case for a per se.

Speaker Change: Jessica and Trilos are a substantial source of demand for this product.

Speaker Change: Persons, class leading, 3D sensing, and adult thyroid, sensitivity is meeting, exceeding and customer requirements for gestures, control features, in variables, mobile audio, and smart glasses.

Hong Hou: For the second quarter, industrial net sales worth 125.3 million, up 8% sequentially. Laura enabled solutions have net sales of 28.7 million, a healthy 34% sequentially increase, and a 72% increase over prior year. Laura consumption in industrial applications continue to grow, and I'm pleased that the momentum over a broad range of application from healthcare, smart utilities, in smart city to factory automation, with a recent deployment in automotive facilities. A Laura One expert from Mercedes spent presented his company's success story at a Laura One life event in June. Their implementation resulted in what they characterized at enormous cost savings.

Hong Hou: Building on this great foundational element, I view my near-term priorities as follows. First, focus on strategy, rationalize our portfolio and improve the balance sheet. We continue to believe that some assets in our portfolio are not core to a long-term strategy and our focus can be sharpened. Both our management and the board are committed and remain focused on balance sheet improvement through reduction of debt. Using assets Searle proceeds to reduce debt is our capital allocation priority.

Speaker Change: For the second quarter, the industrial net sales were 125.3 mm, up 8% sequins a week.

Laura Inaevod: Laura Inaevod Solutions has net sales of 28.7mm, how the 34% sequential increase and the 72% increase over a prior year.

Speaker Change: Laura Consumpsing in Industrial Applications, Continued-Ocreaux, and I'm pleased that the momentum over a broad range of applications from healthcare, smart utilities in the city to factory automation with a reasonable amount of automotive facilities.

Hong Hou: Until a potential sale occurred, we will continue to invest in the business, both to enhance value and to fully support our customers. To maximize potential transaction values, I will respectfully limit further public comments on the topic, for instance, what assets and the status and the timing of the process.

Speaker Change: A Lora One expert from Mercedes-Benz presented his company's success story at a Lora One Live Event in June.

Speaker Change: Their implementation resulted in what they characterized at enormous cost savings.

Hong Hou: It gave me great pleasure one that and customer becomes a Laura advocate and demonstrate use cases at a Mercedes are just one reason as to why I'm excited in Laura's future and why Semtech is fully committed to Laura and its continued innovation and the ecosystem expansion.

Speaker Change: It gives me great pleasure, one that end customer becomes a Laura advocate and demonstrate use cases at a Mercedes.

Hong Hou: Second, accelerate revenue growth and drive margin expansion. In my discussions with numerous customer senior executives, it's very clear that our customers and target markets are moving towards us. Driving up demand for SEMPAC's world-class portfolio product, technology, and services. Through disappointing investment, innovation, and efficiency will develop even more differentiated solutions that underpinned the critical business needs of our customers. In so doing, we expect to achieve solid organic growth, SEM expansion, market share gain, and margin expansion.

Speaker Change: are just one reason as to why I am excited in Laura's future and why some tech is fully committed to Laura and its continued innovation and the ecosystem expansion.

Hong Hou: I plan to attend to the Things conference in Amsterdam in late September to meet with the ecosystem leaders and strategize our path to democratize the Laura standard and accelerate a prediffereration. Our IoT systems business recorded the second quarter net sales of 52.3 million, up 8% sequentially and consistent with our analysis that the business has reached a bad rock last quarter. Bookings in the first quarter had healthy sequential growth, and second quarter bookings grew from there. Also, channels and customer inventory levels has overall reached a normalize levels. You know module business we had a number of red cap design wins demonstrating continued trust in some some tax product across a number of core network equipment customers.

Speaker Change: I plan to attend to the things conference in Amsterdam in late September to meet with the ecosystem leaders and strategize our paths to democratize the Laura Standard and accelerate a pre-lifficion.

Speaker Change: Our IOT system's business recorded a second quarter net sale of 52.3 million, up 8% sequinsally and consistent with our analysis that the business has reached a bad rock last quarter.

Speaker Change: Bookings in the first quarter had a healthy sequential growth and the second quarter Bookings grew from there.

Hong Hou: Third, energize our people and elevate our winning culture. I have been hugely impressed with our talented and committed workforce and leadership, but we can do more. We will invest in our people along around a clear vision and focused strategic imperatives to accelerate results with a winning mindset and high performance couch. Director.

Speaker Change: Also, channels and customer inventory levels has over all reach the normalized levels.

Speaker Change: You know, module business, we had a number of red cap design wins.

Speaker Change: Demonstrating continued trust in some text, a product across a number of core network equipment customers.

Hong Hou: that demand near-perfect uptime and performance. Geopolitical consideration remained a tailwind for this business on a number of fronts, and we are experiencing renewed engagement with some customers we believe due to this matters. Our business in asset tracking applications has benefited especially as a government and as security-related users constitute a meaningful portion of this market. Government and users are becoming more educated on risks, especially after realizing their vehicle fleets are being tracked with geopolitically sensitive components. We are pleased to have launched a Canadian instance of airline management service with meets local data's residency requirement, with its particularly important for government and public safety users.

Hong Hou: Moving to our second quarter results, I believe Semtech has executed well to establish the strategy and demonstrated by solid second quarter financial performance, with the sequential revenue skills across each of our business units and a favorable outlook for our third quarter that forecasts the acceleration of our growth. For the second quarter, infrastructure net sales were 52.9 million, with net sales for data center of 27.2 million, up 28% sequentially and up 37% year over year.

Speaker Change: That the manned near perfect uptime and performance.

Speaker Change: Geo political consideration remained a tailwind for this business on a number of fronts, and we are experiencing renewed engagement with some customers we believe due to this matters.

Speaker Change: All business in asset tracking applications has benefited especially at the government and a security-related users constitute a meaningful portion of this market.

Speaker Change: Government and users are becoming more educated on risks, especially after realizing their vehicle fleets.

Hong Hou: In hybrid scale data center applications, net sales more than doubled over last year, and were well supported by strong demand for a fiber edge trans impedance amplifier or TIA and laser drivers for 400 gig and 800 gig optical modules, and a tri-edge 50 gig PEMFOR product in 200 gig and 400 gig active optical cables. We have noted the increasing CAPEX targets reported by hyperscalers, and a incrementally AI data center markets are moving towards us.

Speaker Change: are being tracked with a geopolitically sensitive component.

Speaker Change: We are pleased to have launched a Canadian instance of Air Link Management Service.

Smith: With Smith Local Data Residency Requirement.

Smith: with its particularly important for a government and public safety users.

Hong Hou: The government related the business, its a natural adjacent market with some types of cellular system solutions.

Smith: The government related to business is a natural adjacent market with some taxes, so all the system solutions.

Hong Hou: Lastly, we started production of our own TAA-qualified facility to serve the increased demand for TAA-compliant products. This facility allows us to better support continuity in supply and to elevate our support as we aggressively pursue US federal opportunities. Second quarter net sales for a connected services business were 24.3 million, with noteworthy design wins in remote monitoring, sleep tracking, and health care. Also of note, we collaborated with the Council Connect, a leading network at the service platform, to expand some tax connectivity coverage across the APEC region for our air vantage service. We believe this collaboration underscores the commitment to offer best-in-class network quality.

Smith: Lastly, we started production of our own TA qualified facility to serve the increased demand for TA compliant products.

Hong Hou: Our analog solutions provide substantially lower power and lower latency, as well as significantly greater value compared to the re-time DSP solutions. My meetings with the Chief System Architects in data center ecosystems since joining at CEO confirmed that might believe that the transportation of bits within data center has by far the greatest power optimization opportunities. Lower power consumption and latency reduction for transport are key considerations for AI computing. Delivering on this transport opportunities will allow a greater allocation of power to compute and memory, and the SEMTAC team has every intention on delivering our low power low latency solutions through embedded customer engagement and now depth of analog expertise.

Smith: This facility allows us to better support continuity in supply and to elevate our support. As we aggressively pursue U.S. federal opportunities.

Smith: Second quarter, net sales for a connected service as business were 24.3 million, with note-worthy design wins in remote monitoring, sleep tracking, and healthcare.

Smith: Also, note, we collaborated with Council Connect.

Smith: A leading network at a service platform to expand some tax connectivity coverage across the APEC region for a air-ventage service.

Smith: We believe this collaboration underscores the commitment to offer besting class network quality.

Hong Hou: In the industrial TVS, solutions are required to address increasingly harsh ESD environment as factories increasingly automate. This is where markets are moving towards us. We continue to expand our product portfolio with innovative solutions to address critical customer needs.

Speaker Change: In the industrial TBS, solutions are required to address increasingly harsh ESD environments as factories increasingly automate.

Speaker Change: This is where Mark is, I'm moving to Walsess.

Hong Hou: SEMTAC's copper edge continuous time linear equalizers have a well-documented application, where we partnered with NVIDIA to implement low power low latency active copper cables or ACCs for black well racks and pots. For our 200 gig copper edge linear re-drivers, we have received the purchase orders from ACC cable manufacturers and expect the shipments to start in a fiscal third quarter in limited quantities, a nominal ramp in the fourth quarter, and a acceleration in the next fiscal year.

Speaker Change: We continue to expand our product portfolio with the innovative solutions to address critical customer needs.

Mark Lin: Now, let me turn the call back to Mark.

Mark Lin: Thank you, Hong.

Speaker Change: Now let me turn the call back to Mark.

Mark Lin: For the second quarter, we recorded net sales of 215.4 million dollars, up 4% sequentially.

Mark Lin: Thank you all for the second quarter, we recorded net sales of $215.4 million up 4% sequentially.

Mark Lin: Net sales trend by end market, reportable segment, and geographic region is included on slide 16 of the earnings presentation. Gross margin was 50.4%, up 60 basis points sequentially and up 80 basis points year over year, reflecting favorable mix and cost controlled overhead spending. Operating expenses were $70 million, a 9% year-over-year reduction. This resulted in operating income of $30.5 million and an operating margin of 14.2%, up 200 basis points sequentially and up 60 basis points year over year.

Mark Lin: That's sales trend by end market, reportable segment and geographic region is included on slide 16 of the earnings presentation.

Speaker Change: Gostmarsion was 50.4% up 60 basis points sequentially and up 80 basis points year over year, reflecting favorable mix and cost control over at spending.

Hong Hou: Qualifications are on schedule and we currently estimate our annual opportunities specific to the single platform exceeds the floor case we provided last quarter. That said, Semtech's ACC opportunities extend beyond a single platform and a single customer. We estimate data centers currently deploy tens of millions of direct and tops copper cables of deck cables per year. This deck cables are passive, and as data reads in cable lines, entries, we expect there will be natural progression from deck cable to ACC to meet signal integrity requirements.

Speaker Change: Operating expense for $70 million, a 9% year over your reduction.

Speaker Change: This resulted in operating income of $30.5 million in an operating margin of 14.2% up 200 basis points sequentially and up 60 basis points year over year.

Mark Lin: The interest expense was $24.5 million, in line with guidance. We recorded net earnings per share of 11 cents based on a diluted account of 71.8 million shares. $15.9 million, with working capital changes largely corresponding to revenue and cost of goods sold. Inventories increased $7.5 million or 5% sequentially, in part to support higher expected third quarter shipments and to carry a normal amount of wafer bank supporting active copper cable waters, but are down 13% year over year.

Speaker Change: That interest six months was $25 million inland guidance.

Speaker Change: We recorded that earnings per share of 11 cents based on the alluded to account of 71.8 million shares.

Speaker Change: D.A. was $40.5 million, and adjusted E.A. margin was 18.8%. Up 270 basis points are 0.0.0.0.

Speaker Change: Moving to the balance sheet is that the second quarter with a cash balance of $115.9 million with working capital change is largely corresponding to revenue and cost of goods sold.

Hong Hou: The market is moving towards us and replacement of only a small fraction of deck cables to ACC will represent a substantial increase to Semtech's exam. Indeed, Semtech is currently engaged with a number of companies in the AI ecosystem on just such opportunities. On this front, what would believe standards bodies in MSAs have their place in this market to promote interoperability and backwards compatibility, the time to develop and approve those standards inevitably extend the time to deploy.

Speaker Change: Inventories increase $7.5 million or 5% sequentially, in part to support higher expected third quarter shipments and to carry a normal amount of weaver bank supporting active copper cable waters, but are down 13% year over year.

Mark Lin: Principle outstanding on our debt was $1.2 billion reflected in the equalization completed at the end of the second quarter. Precashable for the second quarter was an $8.4 million use of cash, primarily reflective of working capital changes, and we did not draw on our revolver.

Speaker Change: Principal Outstanding Honor Dead was $1.2 billion, reflecting the commercial acquisition completed at the end of the second quarter. Free cash from a fourth second quarter was an 8.4 million dollar use of cash, primary reflective of working capital changes, and we did not draw on our revolver.

Mark Lin: Now turning to third quarter guidance, we currently expect net sales of $233 million plus or minus $5 million. We expect net sales from the infrastructure and market to increase sequentially, with data center applications leading to growth. Infrastructure is expected to provide the strongest near-term tailwind. We expect net sales from the high-end consumer market to be up, with typical seasonality benefiting the send market. We expect industrial net sales to be slightly up as recovering booking activity from the first quarter carried net to second quarter. Based on expected product mix and net sales levels, close margin expected to be 52% plus from minus 50 basis points.

Speaker Change: Now turning to third quarter guidance, we currently expect net sales of $233,000, plus from minus $5,000.

Speaker Change: We expect net sales from the infrastructure and market to increase sequentially with data-centered applications leading to growth. Infrastructure is expected to provide the strongest near-term talent.

Hong Hou: We believe the pace of data center innovation is optimized with Semtech's direct engagement with our end customers and allows us to create a purpose-built solution for hyperscalers to address their specific challenges. We are absolutely at the right moment to adopt this approach. I expect that direct engagement will accelerate Semtech's time to revenue and enhance top-line organic growth. It is this top-line organic growth that allows for a prudent investment, and I believe my prior experience growing a business while operating in a elaborate situation, as well as in a highly cost-conscious EMS environment, well-informed my decision-making process in prioritizing disappointing investments.

Speaker Change: Wix-Secnet sales from the hired consumer market to be up with typical seasonality benefiting the

Speaker Change: We expect industrial nuts sales to be slightly up as recovering booking activity from the first quarter, carried knit to second quarter.

Speaker Change: is an expected product mix and net sales levels, close margin makes it expected to be 52%. First from minus 50 basis points.

Mark Lin: At the midpoint of guidance, this would be a 160 basis point sequential improvement.

Speaker Change: At the midpoint of guidance, this will be a 160 basis point sequential improvement.

Mark Lin: Operating expenses are expected for $81 million plus or minus $1 million, resulting in operating margin at the midpoint of 17.2%, which would result in a 300 basis point sequential improvement. We expect net interest expense to be 18.8 million dollars, reflective debt reduction and tax rate of 15%. These amounts are expected to result in a net earnings per share at 23 cents plus from minus 3 cents based on a weighted average share count of 70.6 million shares. Adjustment EPA is expected to be 40.7 million dollars plus or minus $2.8 million, resulting in EPA margin at the midpoint of 20.9%, which would equate to a sequential increase of 210 basis points.

Speaker Change: Operating expenses are expected to be $81 million, plus or minus $1 million. Resulting an operating margin at the midpoint of 17.2%.

Speaker Change: which will result in a 300 basis point sequential improvement.

Speaker Change: With Spectenator interest expense to be $18.8 million, we've left a debt reduction tax rate of 15%.

Hong Hou: My expectation in this investment must deliver meaningful returns to shareholders. The linear-pluggable optics, based on our engagement with a number of our key partners, we believe we have a path to LPO shipments by the latter portion of FY26. Similar to active copper cables, LPO represents an opportunity to deploy a low-latency, low-power solution in the optical space. With annual optical transfer consumption at approximately 30 million units, a fraction of this market, converting to LPO represents a substantial sum expense into Semtech.

Speaker Change: These amounts are expected to result in a net earnings per share at 23 cents plus or minus 3 cents based on a weighted average share count of 70.6 million shares.

Speaker Change: Aderson EPDA is expected to be $40.7 million, plus from minus $2.8 million, resulting in EPDA margin at the midpoint of $20.9%.

Speaker Change: which would equate to a sequential increase of two hundred ten basis points.

Mark Lin: Guidance at the midpoint contemplates growth in net sales, improving growth, operating and adjusted EPA margins, and higher diluted earnings per share.

Speaker Change: Guidance at the midpoint contemplates growth and net sales, improving growth, operating and addressing the APTA margins, and higher diluted earnings per share. With that, I now like to turn the call back over to the operator for Q&A.

Operator: With that, I now like to turn the call back over to the operator for Q&A. Thank you. Well, now we can note to you a question and answer session. If you would like to ask your question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. The participants using speaker equipment may be necessary to pick up your hands up before pressing the star keys.

Hong Hou: A world-class TIA is the key to successful LPO deployment, and I'm certain Semtech's TIA fits the requirement. I have first-hand knowledge having selected Semtech as my first choice TIA supplier to support Silicon Photonics product at a prior company. All class leading PIA performance on the receiving end, well-positioned sets for LRO opportunities as well. And we recognize there are potential patients where LRO is suited to meet customers inter-ravability requirements.

Speaker Change: Thank you. Well now we can talk to you in a question and answer session. If you would like to ask a question please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. Let me press star 2 to remove your question from the queue.

Speaker Change: For participants using sugar equipment, and I will be necessary to pick up your hands up before pressing the star keys.

Operator: In the interest of time, we ask the participants to limit themselves to one question. Thank you.

Speaker Change: In the interest of time, we ask the participants, limit themselves to one question.

Speaker Change: One moment please, Paul, we call for questions.

Paul: I'll be back in the next video.

Cody Acree: Our first question is from Cody Acree with the Benchmark Company. Please, Many Hong, if you can talk about your active copper cable expectations, you mentioned a TAM that was larger than the TAM that was given by Paul before his departure.

Paul: Thank you.

Speaker Change: Thank you. Our first question is from Cody Acre with the Benchmark Company. Please for saving your question.

Hong Hou: Moving to PANG, net sales were 20.4 million within expectation following a robust first quarter, an up 49% year-over-year. PANG demand, especially the 10 gig, remains strong with a total consumption increase of 41% year-over-year. 50 gig is on the horizon and we are looking to expand this business on a global level. Regarding other products in the infrastructure and market, wireless net sales declined but remain within expectation. In wireless, we continue in qualification process without tri-edge and fiber-edge wireless platforms for 5G advanced and are actively engaging with the key partners like Ericsson and Nokia, which then ready when this market rebounds. There were a few other small sequential net sales declines resulting in a 5% sequential decline, but a data center and a signal integrity segment each grew subsequently.

Cody Acre: Thanks guys for taking my question and honing congrats on the good first order out of the gate and welcome. Many honing, if you can talk about your active copper cable expectations.

Speaker Change: You mentioned a town that was larger than the the the the town that was given by Paul before his departure, if you could maybe go through the elements of that town.

Hong Hou: If you can maybe go through the elements of that TAM calculation, whether that's a unit volume and ASP basis or just a total available addressable market, would be great. Cody, thank you very much. So thank you for recognizing our position and a row in this very exciting market opportunities. And as I mentioned in the prepared remark, that in the last quarter we gave a floor case based on the number Rex and expected ASP share allocation for a specific use case from a specific customer. Since then, we have expanded our engagement with the customers. And right now we have several customers that are discussing with us on the ACC opportunities.

Speaker Change: Calculation, whether that's a unit volume and ASP basis or just a total available addressable market would be great.

Speaker Change: Cody, thank you very much, so thank you for recognizing our position and role in this very exciting market opportunity.

Speaker Change: and as I mentioned in the prepared remark that in the last quarter we give a floor case.

Cody Acre: Based on the number of wrecks and expected ASP share allocation for a specific use case from a specific customer.

Cody Acre: Since then we have expanded our engagement with the customers and right now we have several customers at discussing with us the ACC opportunities.

Hong Hou: Moving to our high-end consumer end market, net sales were 37.1 million as sequential increase of 7% or up 9% year-over-year. POS kicked up sequentially and the increase of 34% year-over-year ahead of what we expect to be seasonally strong Q3. Net sales in high-end consumer TVS grew to 26 million, up 4% sequentially and up 42% year-over-year. Our market share in consumer TVS grew at a double digit rate compared to last year and we believe we are winning on technological and operational performance.

Hong Hou: And we're very excited about the total availability and total opportunity is above and beyond the floor case we guided. And we will see this ACC opportunities continue to expand. As you know, there are a lot of deck cables in which the passive copper cable in the data center and installation base might be tens of millions. And as the data rate goes higher, as the connection length goes extended, the signal integrity is going to be a challenge. So the progression from ACC, a progression from that deck cable to ACC, is going to be inevitable. So very excited about the opportunities.

Cody Acre: and we're very excited about the total availability and total opportunity is above and beyond the floor case we guided.

Cody Acre: and I will see this ACC opportunities is continued to expand.

Cody Acre: And you know that there are a lot of deck cables in which they pass a couple of cable in the data center and installation days might be tens of millions.

Cody Acre: And as the data rate goes higher, as the connection length goes extended, the 6th now the integrity is going to be a challenge.

Hong Hou: I am very pleased this growth is brought based as we expand on platforms and applications. The overall ESD threat environment has been increasing. Higher performance silicon reduces the amount of expensive on-chip real estate available to dissipate surge energy. This trend increases the importance of high performance off-chip protection impact offers. This is yet another example of how market are moving towards us. We continue to grow while market shares at not only the world largest consumer electronics company, but in other North American and Korean companies as well.

Cody Acre: So the progression from ACC, a progression from that cable to ACC is going to be inevitable. So we're very excited about our opportunities and let's see, you know, we will start.

Hong Hou: And let you know we will start seeing some revenue contribution from Q3 as we guided. And then we'll be ramping from there.

Cody Acre: Seeing some revenue contribution from Q3 as we guided and then we'll be ramping from there.

Cody Acre: Thank you.

Quinn Bolton: Our next question is from Quinn Bolton with Native and Company. Please proceed with your question.

Speaker Change: Thank you. Our next question is from Quinn Bolton with Native and Company. Please proceed with your question.

Quinn Bolton: Hey guys, let me offer my congratulations on a great quarter and very strong outlook. I guess how long just wanted to follow up on Cody's question, just to really just try to clarify that opportunity for the ACC Tam. It sounds like you said your four case at a single platform, single customer you think now exceeds 100 million. I just want to clarify that.

Quinn Bolton: Hey guys, let me offer my congratulations on a great quarter and very strong outlook. If you get home, just want to follow up on Cody's question just to really try to clarify that opportunity for the ACC Tam.

Speaker Change: It sounds like you said you're 4K at a single platform, single customer you think now, it sees 100 million, I just want to clarify that or we're saying that you're seeing engagement beyond that first customer.

Hong Hou: Indeed, our consumer TVS engagement in Korea reasonably results in design wins in the industrial on the automotive space where this key customer is winning shares. This is a great example of how our direct customer engagement approach is solving customer's problems across a number of their markets and resulting in increasing the SAM for Semtech.

Hong Hou: Or were you saying that you're seeing engagements beyond that first customer and you're talking about a TAM of north of 100 million as you start to factor in some of these other ACC opportunities. So if I could clarify that, and then I had a second question, if I could make that up. Thank you very much.

Speaker Change: and you're talking about a tan of north of a hundred million as you start to factor in some of these other ACC opportunities and so if I could clarify that and then I had a second question if I could take that in.

Hong Hou: Now let me first clarify, the 10 I mentioned in the prepared remark is with respect to the single platform, single customer situation. I feel that our actual opportunities is going to be higher than the floor case. In addition to that, we're engaging with the multiple customers in similar connectivity ecosystems for the similar purpose of low latency, low power extended reach applications. And those opportunities are not accounted in what I was saying increased opportunities compared to the floor case.

Speaker Change: Thank you very much. Yeah, let me first clarify, they tam and mention in the prepared Green Mark.

Speaker Change: is with respect to the single platform single customer situation. I feel that our actual opportunities is going to be higher than the floor case.

Hong Hou: Alton Reed's standards is a great use case for Perse, gesture controls are a substantial source of demand for this product. Perse's clouds leading 3D sensing and adult ferret sensitivity is meeting or exceeding and customer requirements for gestures, control features in variables, mobile audio and smart glasses.

Speaker Change: In addition to that, we're engaging with the multiple customers in similar AI connectivity ecosystem.

Speaker Change: for the similar purpose of low latency, low power extended reach applications. And those opportunities are not accounted in the in what I was saying increased opportunity compared to the floor case.

Hong Hou: For the second quarter, industrial net sales worth 125.3 million up 8% sequentially. Laura-enabled solutions have net sales of 28.7 million, a healthy 34% sequentially increase and a 72% increase over a prior year. Laura-consumption in industrial applications continue to grow and I'm pleased that the momentum over a broad range of applications from healthcare, smart utilities in smart city to factory automation with a recent deployment in automotive facilities. A Laura-one expert from Mercedes-Benz presented his company's success story at a Laura-one life event in June.

Quinn Bolton: Perfect. Thank you for that clarification.

Quinn Bolton: The question ahead was about LPO's. You mentioned in the script that you see an opportunity for LPO's to perhaps begin shipments before the end of fiscal 26, wondering if you could go into sort of the use case you see for LPO's. Is that in back end networks for GPU's or AI accelerators? Do you see that in general for infrastructure, or are there other applications where you see? LPO's essentially being adopted. Thank you, Hong.

Speaker Change: Perfect. Thank you for the clarification. This question I had was about LPO's.

Speaker Change: You mentioned in the script that you see an opportunity for LPO's to perhaps begin shipments before the end of fiscal 26th wondering if you could go into sort of the use case in C4LPO's.

Speaker Change: is that in back-end networks for GPUs or AI accelerators, DCs, that in general, switch in infrastructure or there are other applications where you see LPO is essentially being adopted. Thank you, honk.

Hong Hou: Thank you, Quinn. So the LPO IC is more versatile and it can be used to scale out and they can be used to scale up as well because LPO share the same characteristic as the ACC cables, low latency, low power consumption. And when you need extended reach, you go through electrical to optical conversion, transfer, transmit over fiber, than the other, and optical to electrical conversion. That conversion only consumes incremental amount of power. But the power consumption and latency are really similar to ACC. So then LPO can be used to scale out a cluster.

Speaker Change: Thank you, Clint. So the LPO I see is more versatile and it can be used to scale out.

Speaker Change: and they can be used to scale up as well.

Speaker Change: Because LPO shared the same characteristic as the ACC cables, low latency, low power consumption, and when you need extended reach, you'll go through electrical to optical.

Hong Hou: Their implementation resulted in what they characterized at enormous cost savings. It gave me great pleasure, one that end customer becomes a Laura advocate and demonstrate use cases at Mercedes are just one reason as to why I'm excited in Laura's future and why Semtech is fully committed to Laura and its continued innovation and ecosystem expansion.

Speaker Change: Conversion, transfer transmite over fiber, and then the other end optical to electrical conversion. That conversion only consume incremental amount of power.

Speaker Change: But the power consumption and latency are...

Speaker Change: Really similar to ICC, so the LPL can be used.

Hong Hou: I have planned to attend to the things conference in Amsterdam in late September to meet with the ecosystem leaders and strategize our path to democratize the Laura-standard and accelerate appraisal fruition. Our IoT systems business recorded the second quarter net sales of 52.3 million up 8% sequentially and consistent with our analysis that the business has reached a bad rock last quarter. Bookings in the first quarter had healthy sequential growth and second quarter bookings grew from there.

Hong Hou: But in the meantime, when you need the Ethernet scale up, so you scale out, I'm sorry. The LPO can be used to replace the DSP-based re-timed transceivers as well. And you know, right now as you know that every year the industry consume about 25 to 30 million units of optical transceivers is largely based on. DSP re-timed solutions in the LPO can chip away even the fraction of that market. The opportunity is going to be tremendous. So that's why we're very excited about LPO opportunities as well. And, as I mentioned, we've been engaging very closely with the ecosystem partners, and our TIA is commonly considered the best in the industry.

Speaker Change: to scale out a cluster. But again, the meantime, when you need the Ethernet scale out, let's go up. So you scale out, I'm sorry.

Speaker Change: The LPL can be used to replace.

Speaker Change: the DSP based retirement conceivers as well.

Speaker Change: and you know right now as you know that every year the industry consume about 25 to 30 million units of optical conceivers, largely based on DSP retimes solutions.

Speaker Change: and the LPO can chip away even the fraction of that market the opportunity is going to be tremendous.

Hong Hou: Also channels and customer inventory levels had overall reached a normalize levels. You know, module business, we had a number of red cap design wins, demonstrating continued trust in some tech product across a number of core network equipment customers, that demand near perfect uptime and performance. Geo-political consideration remained a tailwind for this business on a number of fronts, and we are experiencing renewed engagement with some customers we believe due to this matters.

Speaker Change: So, that's why we're very excited about the LPO opportunities as well. And as I mentioned, we're being engaging very closely with the ecosystem partners.

Speaker Change: and our TIA is commonly considered the best in the industry and we hope on next.

Hong Hou: And we hope our next refinement spin in the near term of the 200 gigabit redriver will provide the extended performance and the functionality that the industry needs.

Speaker Change: Refinement.

Speaker Change: Spin in the near term of the 200 gigabit re-driver will provide the extended performance and the functionality that the industry needs. And I'm still very confident that in letter part of FY26 we'll be enter into the production with the limited quantities for LPO.

Hong Hou: And I'm still very confident that in the latter part of FY26 will be entered into the production with the limited quantities for LPO.

Hong Hou: Our business in asset tracking applications has benefited, especially as a government and a security-related users constitute a meaningful portion of this market. Government end-users are becoming more educated on risks, especially after realizing their vehicle fleets, being tracked with a geopolitically sensitive component. We are pleased to have launched a Canadian instance of air link management service with meets local data's residency requirement, with its particularly important for government and public safety users. The government-related business is a natural adjacent market with some tax and cellular system solutions.

Tore Svanberg: Thank you. Our next question is from Tore Svanberg with Steeple.

Tore Svanberg: Please proceed with your question. Yes, thank you.

Speaker Change: Thank you, our next question is from Tori Svambar with Steve. Please proceed with your question.

Hong Hou: Welcome on board, Hong, and congrats on the strong results here. I do recognize there's a lot of interest in the signal-tagelet of business, but I was actually more surprised by your recovering the Laura revenue. It was very strong in the quarter. Something the momentum is there is going to continue going forward, so could you just elaborate a little bit more on what's going on there?

Tori Svambar: Yes, thank you. Welcome aboard Hong and congrats on this front results here.

Tori Svambar: I do recognize there's a lot of interest in the signal integrity business but I was actually more surprised by your recovering the lower revenue was very strong in the quarter. Something momentum is going to continue going forward. So could you just elaborate a little bit of more of what's going on there? Is this basically inventory replenishment from?

Hong Hou: Is this basically inventory replenishment from the last few years, or are you seeing some big new programs actually adopting Laura?

Speaker Change: from the last few years, or are you seeing some big new programs actually adopting Laura?

Hong Hou: Torey, thank you very much. Yeah, that's a good question. I would say both. And first of all, the industry demand is resuming after the depletion of the inventory in the channels. And so, as we reported, the POS increases and the inventory in the channel decreases from the last quarter. And it's very natural that this market demand is bouncing back.

Hong Hou: Lastly, we started production of our own TAA-qualified facility to serve the increased demand for TAA-compliant products. This facility allows us to better support continuity in supply and to elevate our support, as we aggressively pursue U.S, federal opportunities.

Speaker Change: Sorry, thank you very much. Yeah, that's good question. I will say both. In first of all, the industry demand is resuming after the depletion of the inventory in the channels.

Speaker Change: and so we are, you know, as we reported, the PLS increases and the inventory in the channel decreases from the last quarter and it's very natural that this market demand is bouncing back.

Hong Hou: Second-quarter net sales for a connected services business were 24.3 million, with noteworthy design wins in remote monitoring, sleep tracking, and health care. Also, note we collaborated with Council Connect, a leading network at the service platform to expand some tax connectivity coverage across the APEC region for an air-vantage service. We believe this collaboration underscores the commitment to offer best-in-class network quality. In the industrial TVS, solutions are required to address increasingly harsh ESD environments as factories increasingly automate. This is where markets are moving towards us. We continue to expand our product portfolio with innovative solutions to address critical customer needs.

Hong Hou: The second part of the reason, the second reason of the Criose, as I talked about, the Mercedes Bench use case. And our development partners are finding new use cases. And because the unique capability of the Laura one, it can translate into tremendous savings and the functionality enhancement in the system design. And I believe this is really our key for Criose, the revenue even beyond the current level, current pace.

Speaker Change: The second part of the second reason of the drill, as I talked about the Mercedes bench use case. In our development partners, finding new use cases.

Speaker Change: and because the unique capabilities of the lower one and it can translate into cementer savings and the functionality enhancement in the system design.

Speaker Change: and I believe this is really our key for Kiyo, the revenues, even beyond the current level, current pace.

Hong Hou: And that's why I'm very excited to attending the things conference in Amsterdam. And I got my days outlined up to meet with the executives of the ecosystems and to mobilize the entire system, creating more use cases like the Mercedes Bench and utilizing the capability that Laura One can offer. So that is a great opportunity for us. And it has been a good engine for Criose.

Speaker Change: and that's why I'm very excited.

Speaker Change: To attending the things conference in Amsterdam and I got my days, I'll lined up to meet with the executives of the ecosystem and to mobilize the entire systems, creating more use cases like the Mercedes-Benz.

Mark Lin: Now, let me turn the call back to Mark. Thank you, Hong. For the second quarter, we recorded net sales of 215.4 million dollars up 4% sequentially. Net sales trend by end-market, reportable segment, and geographic region is included on slide 16 of the earnings presentation. Gross margin was 50.4% up 60 basis points sequentially and up 80 basis points year over year, reflecting favorable mix and cost-controlled overhead spending. Operating expenses were $70 million, a 9% year over year reduction.

Speaker Change: and the utilizing the capability that Laurel One can offer, so that is a great opportunity for us and it has been a good engine for our career.

Tore Svanberg: Thank you, Torey. Thank you.

Speaker Change: Thank you for the call.

Christopher Rowland: Our next question is from Christopher Rowland with Susquehanna. Please proceed with your question.

Speaker Change: Thank you. Our next question is from Christopher Rowland with Susquana. Please proceed with your question.

Christopher Rowland: Hey, thanks for the question, and welcome home. My question was also actually on LPO, and you also mentioned LRO as well. So I just wanted to know the opportunity in LRO was. I assume it's also a high-grade TIA. But putting these opportunities together, do you think this could be a larger opportunity for you than ACC's or copper? And if so, how much better? Thank you. Thank you very much.

Christopher Rowland: Hey, thanks for the question and welcome home. My question was also actually on LPO and you also mentioned LRO as well.

Christopher Rowland: Um, so I just wanted to know what the opportunity in LRO was. I assume it's also a high grade TIA, but putting these opportunities together, do you think this could be a larger opportunity for you?

Mark Lin: This resulted in operating income of $30.5 million and an operating margin of 14.2%. Up 200 basis points sequentially and up 60 basis points year over year. The interest expense was $24.5 million in line with guidance. We recorded net earnings per share of 11 cents based on the diluted account of $71.8 million shares. Address at EBITDA was $40.5 million and adjusted EBITDA margin was 18.8 percent, up 270 basis points sequentially and up 240 basis points year over year.

Speaker Change: then ACC's or copper. And if so, you know, how much better. Thank you.

Hong Hou: And that's a great question. So the LPO certainly is analog on the transmitting side and on the receiving side. And there's some concern in the industry, especially from the cloud service providers of CSPs on LPO. Their primary concern is that if the solution will be providing enough link budget for them to choose the different applicants on the switch site and then choose the different optical transceivers on the optical transport site. And they have been benefiting from that obscenality and multi-source agreement over the last decades because they need a lot of transceivers when they deploy a new data center.

Speaker Change: Yes, Chris, thank you very much and that's a great question.

Speaker Change: So the LPO certainly is analog on the transmitting side and on the receiving side.

Mark Lin: Moving to the balance sheet, we did the second quarter with a cash balance of $115.9 million with working capital changes largely corresponding to revenue and cost of goods sold. Inventory's increased $7.5 million or 5 percent sequentially in part to support higher expected third quarter shipments and to carry a normal amount of wafer bank supporting active copper cable waters but are down 13 percent year over year. Principle outstanding on our debt was $1.2 billion reflected in the equalization completed at the end of the second quarter. Precashable for the second quarter was an 8.4 million dollar use of cash primarily reflective of working capital changes and we did not draw on our revolver.

Speaker Change: and there's some concerns in the industry, especially from the cloud service providers of CSPs on LPO.

Speaker Change: The primary concern is that if the solution will be providing enough link budget for them to choose a different silicon on the switch site and then choose a different optical transceivers on the optical transport site.

Speaker Change: and they have been benefiting from that optionality and multi-source agreement.

Speaker Change: Over the last decades, because they need a lot of transceivers when they deploy a new data center. They need a lot of switches, they don't want it to be, it's locked by once suppliers.

Hong Hou: They need a lot of switches. They don't want it to be just locked by one supplier. So, that has been the primary concerns. They have all recognized that the LPO's provide low latency, low power consumption, and even lower cost, the higher value. They have no denial on that. But it's just not sure the link budget will allow them to exercise this option for multi-source agreement. And when I talk to many key architects and some of them, they say, you know what, we are pretty sure that receiving side, we can do that, but the transmitting side, you know, in the worst case, we do DSP-based return solution on transmitting side.

Mark Lin: Now turning to third quarter guidance, we currently expect net sales of $233 million plus from minus $5 million. We expect net sales from the infrastructure and market to increase sequentially with data center applications leading to growth. Infrastructure is expected to provide the strongest near-term tailwind. We expect net sales from the high and consumer market to be up with typical seasonality benefiting the send market. We expect industrial net sales to be slightly up as recovering booking activity from the first quarter carried net to second quarter.

Speaker Change: So, that has given the primary concerns. They have all recognized that the LPO's provide low latency, low power consumption, and even lower costs, the higher value.

Speaker Change: They have no denial on that, and but it says now sure the link budget will allow them to exercise this option for multi-source agreement.

Speaker Change: and when I talk to many key architects and some of them they say, you know what? We are pretty sure that receiving side we can do that, but that transmitting side, you know, in the worst case, we do DSP based retimes the loose on transmitting side.

Mark Lin: Based on expected product mix and net sales levels, close margin expected to be 52 percent plus from minus 50 basis points. At the midpoint of guidance, this would be a 160 basis point sequential improvement. Operating expenses are expected for $81 million plus from minus $1 million resulting in operating margin at the midpoint of 17.2 percent which would result in a 300 basis point sequential improvement. We expect net interest expense to be 18.8 million dollars reflective debt reduction and tax rate of 15 percent.

Hong Hou: That's still translate into tremendous power savings.

Hong Hou: That's a LRO. For us, either way is a winning for us, because you know, when they do LRO, all LPO, they choose to, they tend to choose the best in class TIA product. I would say at this point, that's some type of product. We'll benefit from both. As for your second part of the question, you know, is LPO going to be representing an even bigger opportunity than ACC? I believe it's a good opportunity out there to replace, as I said, DSP-based re-timer is an opportunity. But ACC, it can replace the deck cable, you know, one, the line read increased to 100 gigabit per second, and you know, connection distance exceeding two meters for 100 gig.

Speaker Change: That's still translating to tremendous power savings, that's the LRO.

Speaker Change: For us, either way, is a winning for us because, you know, when they do L-R-L-L-L-L-P-O, they choose to, they tend to choose the best in class T-I-A product. I would say at this point, that's some tech product. We'll benefit from both.

Mark Lin: These amounts are expected to result in a net earnings per share at 23 cents plus from minus 3 cents based on a weighted average share count of 70.6 million shares. Adjusted EPA is expected to be 40.7 million dollars plus from minus $2.8 million resulting in EPA margin at the midpoint of 20.9 percent which would equate to a sequential increase of 210 basis points. Guidance at the midpoint contemplates growth and net sales, improving growth, operating and adjusted EPA margins and higher deluded earnings per share.

Speaker Change: As for your second part of the question, you know, it's LPL going to be representing an even bigger opportunity than ACC.

Speaker Change: I believe it's a good opportunity out there to replace SSDSP based retirement is an opportunity.

Speaker Change: But ICC, it can replace the deck cable, you know, when the line read increase to 100 gigabit per second and, you know, connection distance.

Operator: With that, I now like to turn the call back over to the operator for Q&A. Thank you. Well now we can note to you a question and answer session. If you would like to ask your question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. The participants using street or equipment and I'd be necessary to pick up your hand set before pressing star keys.

Hong Hou: The deck cable really cannot maintain the signal and integrity needed. So both products are great opportunities in the AI-based connectivity era and has many years of wrong weight. Thank you.

Speaker Change: Exceeding 2 meters for 100 g. The decade will really not maintain the signal and integrity needed. So, both products are great opportunities in AI-based connectivity in many years of wrong way.

Hong Hou: Thanks.

Harsh Kumar: Thank you.

Harsh Kumar: Our next question is from Harsh Kumar with Play for Sandler. Please proceed with your question.

Speaker Change: Thank you, thanks all.

Speaker Change: Thank you, our next question is from Horst Kumar, with Piper Sandler. Please proceed with your question.

Operator: In the interest of time we ask the participants limit themselves to one Thank you.

Harsh Kumar: Yeah, Hong, let me add my welcome to you as well and very strong commentary on the quarters of congratulations and the guide as well. My question is sort of on ACC. Could you help me sort of understand the scope and the size of this business? Are you the leader you think in technology? Are you the sole provider for example to this one large customer that you mentioned? And then my other part of the same question is, you know, technology evolves. This is the first iteration of ACC. What do you think, or do you think something has the goods to stay competitive in this market as other people look to get into the game?

Horst Kumar: Yeah, let me add my welcome to you as well and very strong commentary on the quarter, so congratulations in the guide as well. My question is sort of on ACC. Could you help me sort of understand the scope and the size of this business are you?

Cody Acree: Our first question is from Cody Acree with the Benchmark Company.

Speaker Change: The leader you think in technology are you the sole provider for example to this one live customer that you mentioned and then my other part of the same question is, you know, technology evolves. This is the first iteration of ACC.

Hong Hou: Please may be long if you can talk about your active copper cable expectations. You mentioned a tam that was larger than the tam that was given by Paul before his departure. If you can maybe go through the elements of that tam calculation, whether that's a unit volume and ASP basis or just a total available addressable market, it would be great. Cody, thank you very much. So thank you for recognizing our position and row in this very exciting market opportunities.

Speaker Change: What do you think, or do you think something has the good to stay competitive in this market as other people look to get into the game? And maybe you could just help us get around what's needed to stay in front of this technological change.

Harsh Kumar: And maybe you could just help us help us get around what's needed to stay in front of this technological change.

Hong Hou: Great. Thank you, Harsh. Thank you very much for your question.

Hong Hou: To address your first part of the question, for such a critical application, I think our customers have to use a multi-source and we're one of the two sources as I understand at this point. and certainly the guidance we provide is based on 50-50% allocation, but we have every intention to exercise our technologies differentiation, and more importantly, at this point of time, the operations excellence. So to really provide the customers with shorter lead time, better on time delivery performance, better quality, and that has to be in the whole mark of the operations, you know, that's what I've made the comments and initial observation of the differentiation of Semtech.

Speaker Change: to address your first part of the question.

Speaker Change: For such a critical application, I think our customers have to use the multi-source and we are one of the two sources as I understand at this point.

Hong Hou: And as I mentioned in the prepared remark that in the last quarter we gave a floor case based on the number Rex and expected ASP share allocation for a specific use case from a specific customer. Since then we have expanded our engagement with the customers. And right now we have several customers that discussing with us on the ACC opportunities. And we are very excited about the total availability and total opportunity is above and beyond the floor case we guided.

Speaker Change: and certainly the guidance we provide is based on 50-50% allocation.

Speaker Change: and but we have every intention to exercise our technologies, you know, differentiation and more importantly, at this point of time, they are present excellence.

Speaker Change: So to really provide the customers with shorter lead time, better untimed delivery, performance, better quality.

Speaker Change: and that has to be in the whole mark of the operations, you know, that's what I've made a comments and initial observation of the differentiation of some tech.

Hong Hou: So we hope we will be earning more than our fair share allocation in this, and so far it looks very promising.

Speaker Change: So, we hope we will be earning more than our fair share allocation in this, and so far, it looks very promising.

Hong Hou: And we will see this ACC opportunities continue to expand. As you know that there are a lot of deck cables in which the passive copper cable in the data center and installation base might be tens of millions. And as the data rate goes higher as the connection length goes extended, the signal integrity is going to be a challenge. So the progression from ACC, a progression from that deck cable to ACC is going to be inevitable. So very excited about the opportunities. And let's see, you know we will start seeing some revenue contribution from Q3 as we guided and then we will be ramping from there. Thank you.

Hong Hou: As for the second part of the question, how do we stay competitive? I think this part, the ACC from the beginning of the engagement, the ecosystem was not sure on that we will be able to deliver the performance and signal integrity as needed. Simulation shows good, but when you have that real IC integrated into the real product, it may not deliver the performance and simulate it, but that's already behind us. And right now looking really, really good performance, and we're in the process of finishing system validation and product qualification, so we are preparing ourselves to run.

Speaker Change: At this, that's for the second part of the question, how do we stay competitive?

Speaker Change: I think this part the ACC from the beginning of the engagement.

Speaker Change: The ecosystem was not sure that we'll be able to deliver the performance as signal integrity as needed.

Speaker Change: Simulation shows good, but when you have that real IC integrated into the real product, it may not deliver the performance and simulate it.

Speaker Change: But that's already behind us. And right now looking really, really good performance and where in the process of finishing system validation and product qualification. So we are preparing ourselves to run. As we do that, hand that over to the operations.

Hong Hou: As we do that, and that over to the operations, our R&D team already started to get it in the next generation product, like 400 gigabit per channel.

Quinn Bolton: Our next question is from Quinn Bolton with Native and company. Please proceed with your question. Hey guys, let me offer my congratulations on a great quarter and very strong outlook. I guess how long just wanted to follow up on Cody's question just to really just try to clarify that opportunity for the ACC Tam. It sounds like you said your floor case at a single platform, single customer. You think now it sees a hundred million.

Speaker Change: I'll R&D team already started to get it in next generation product.

Hong Hou: How do we do that? And I think we can all count on the industry will continue to push forward with the higher data rate, lower latency requirements, low power requirement. And this is a sweet spot in the markets moving towards us, and the way continue to innovate, I do believe that best defense for the position is the aggressive development in engagement with the customers to provide the solutions they need, at the time they need. So that's what I do. I have the high confidence that we'll continue to lead in this area for a while.

Speaker Change: like 400 gigabit per channel. How do we do that? And I think we can all count on the industry will continue to push forward with the higher data rate.

Speaker Change: Lower Latency Requirement, Low Power Requirement.

Speaker Change: and this is a sweet spot in the market that's moving to love us.

Quinn Bolton: I just want to clarify that. Or were you saying that you're seeing engagements beyond that first customer and you're talking about a Tam of north of a hundred million. As you start to factor in some of these other ACC opportunities. So if I could clarify that and then I had a second question if I could sneak that in. Thank you very much.

Speaker Change: and the way to continue to innovate, I do believe that best defense for the position is the aggressive development in engagement with the customers to provide the solutions they need at a time they need.

Speaker Change: So that's a way to, I do, I have the high confidence that will continue to lead in this area for a while.

Hong Hou: Yeah, now let me first clarify the 10 and mentioned in the prepared remark is with respect to the single platform, single customer situation. I feel that our actual opportunities is going to be higher than the floor case. In addition to that, we're engaging with the multiple customers in the similar, I, I, the connectivity ecosystem for the similar purpose of low latency, low power extended reach applications. And those opportunities is not accounted in the, in the what I was saying, increased opportunities compared to the floor case. Perfect. Thank you for that clarification.

Hong Hou: Excellent. Thank you so much.

Hong Hou: Thank you, Harsh. Thank you.

Speaker Change: Excellent home, thank you so much.

Scott Sturl: Our next question is from Scott Sturl with Roth Capital Partners. Please proceed with your question.

Speaker Change: Thank you all.

Speaker Change: Thank you. Our next question is from Scott Sorrow with Raw Tapot Partners. Please to see with your question.

Scott Sturl: Good afternoon. Thanks for taking the questions. Hong and Mark, congrats on the quarter in the outlook.

Scott Sorrow: Good afternoon, thanks for taking the questions. Pong and Mark Congrats on the Quarter and the Outlook.

Mark Lin: Mark, real quickly. I was wondering if you could repeat the lower number. I thought I missed that. And then Hong, on the HEC opportunity, it sounds like you're ramping in line to maybe a little bit ahead of expectations with NVIDIA and Blackwell design.

Scott Sorrow: I could hear Mark real quickly. I was wondering if you could repeat the lower number I thought I missed that and then on the HTC opportunity, it sounds like you're ramping in line to maybe a little bit ahead of expectations with Nvidia and Blackwell design. But I wonder if you could talk a little bit about the timeline for some of these other opportunities when you would expect them to commercialize given the current path.

Hong Hou: But I'm wondering if you could talk a little bit about the timeline for some of these other opportunities when you would expect them to commercialize, given the current path. And a lot of the conversation has been around the opportunity versus DAC. But I'm wondering where AEC fits into the equation as well.

Speaker Change: and a lot of the conversation has been around the opportunity versus deck, but I'm wondering where AEC fits into the equation as well. Thanks.

Quinn Bolton: The question ahead was about LPO's, you mentioned in the script that you see an opportunity for LPO's to perhaps begin shipments before the end of fiscal 26, wondering if you could go into sort of the use case you see for LPO's is that in back end networks for GPU's or AI accelerators, do you see that in general for infrastructure or are there other applications where do you see that? LPO is essentially being adopted.

Hong Hou: Thanks. So, after you wanted to go first, Laura the number, Scott netfields for the quarter was $28.7 million. That's up 34% sequentially, up 72% over a year.

Speaker Change: So, Mark, you wanted to go first, and Laura, the Laura number, Scott, and that sales for the quarter was $28.7 million. That's up to 34% sequentially, up 72% over prior year. So, very nice, healthy rebound, and we believe that is sustainable.

Hong Hou: So very nice, healthy rebound, and we believe that is sustainable. Okay, thank you.

Hong Hou: And then I can address Scott your question about the timing of ACC rent. And as I mentioned, that right now we're finishing up the system validation and the product qualification. Those are the last two gates before the volume production. So this quarter, well in Q3 we expected the shipment in the limited quantities, not gated by the demand. But you know there is going to be a cycle time from the FAB. We have already anticipated that, and we got a wafer bank and dive bank built beforehand.

Speaker Change #100: Okay, thank you. Then I can address the question about the timing of ACC Rump.

Quinn Bolton: Thank you, home. Thank you, Quinn. So the LPO IC is more versatile and it can be used to scale out and they can be used to scale up as well because LPO share the same characteristic as the ACC cables, low latency, low power consumption. And when you need extended reach, you go through electrical to optical conversion transfer transmit over fiber, then the other end optical to electrical conversion, that conversion only consume incremental amount of power.

Speaker Change #101: and as I mentioned that right now we're finishing up the system validation and the products qualification. Those are the last two gates before the volume production.

Quinn Bolton: But the power consumption and latency are really similar to ACC. So then LPO can be used to scale out a cluster. But in the meantime, when you need the Ethernet scale up, so you scale out, I'm sorry, the LPO can be used to replace the DSP based re-timed transceivers as well. And right now, as you know that every year, the industry consume about 25 to 30 million units of optical transceivers is largely based on DSP re-timed solutions.

Speaker Change #102: So, this, well, in Q3, we expected the treatment in the limited quantities, now carried it by the demand.

Speaker Change #102: But they, you know, there's going to be a cycle time from the fab. We have already anticipated that.

Hong Hou: So that's the real meaningful ramp is going to be in now Q4 fiscal year Q4. And then throughout the 2026 FY and we expect, you know, pretty healthy demand based on the current PL and forecast. And then you mentioned about the AEC; you're right. So the ACC will probably first and foremost encroach into the AEC market. And that's where the ACC provide the signal integrity requirement, and but reduced power and reduced latency. And then, you know, in the deck cables and a lot of backplane, when the new switch, you know, 100 T switch deployed, they will be having a 224 gigabit service in the port.

Speaker Change #102: and we got the wafer bank and diabank viewed beforehand, so that's the real meaningful ramp is going to be in our Q4, fiscal year Q4.

Speaker Change #102: and then threw out the 226 FY in the way expect, you know, pretty healthy demand, based on the current PO and forecast.

Speaker Change #103: and then you'll mention about the AEC, you're right.

Speaker Change #104: So the ACC will probably first and foremost, you encroach into the AEC market.

Speaker Change #104: and that's where the ACC ProLive.

Speaker Change #104: The signo integrity requirement, and but reduced power and reduced latency.

Speaker Change #105: And then, you know, in the DAX cables and a lot of back playing one, the new switch, you know, 100T switch deployed. They will be having a 224 gigabits service and the ports.

Quinn Bolton: In the LPO can chip away even the fraction of that market, the opportunity is going to be tremendous. So that's why we're very excited about LPO opportunities as well. And as I mentioned, we've been engaging very closely with the ecosystem partners. And our TIA is commonly considered the best in the industry. And we hope our next refinement spin in the near term of the 200 gigabit re-driver will provide the extended performance in the functionality that the industry needs.

Hong Hou: So 200 gig becomes the Ethernet port. I will imagine the scale out there will need a lot of even the backplane connectivity is the ACC cable, which will provide the signal integrity they need and low power consumption they need.

Speaker Change #105: So 200 gig become the internet port, I will imagine the scale out there will need.

Speaker Change #105: A lot of even the back point connectivity is the ACC cable which will provide the signal integrity they need and low power consumption they need.

Hong Hou: Great, but on just for clarification, you've achieved a system-level verification then with the current customer? Yeah, so for the connectivity piece, yes, yes. And, but of course, their system integrates; you know, you involve many other things is way above and beyond just the connectivity. So that is a validation there, do we?

Speaker Change #105: Great, but John just forgot for clarification, you've achieved the system's level verification then with the current customer.

John: Yeah, so for the connectivity piece, yes, yes, and but of course there's system integrated, you know, involved in many other things is way above and beyond just the connectivity. So that is a validation there do we.

Hong Hou: And I'm still very confident that in latter part of FY26 will be entered into the production with the limited quantities for LPO. Thank you.

Scott Sturl: Great, thanks so much, and congrats on the quarter. Thank you.

Scott Sturl: Thank you, Scott. Thank you.

John: Good, great. Thanks so much and congrats on the quarter. Thank you. Thank you, Scott.

Craig Ellis: Our next question is from Craig Ellis with Beer, I Leave Securities.

Tore Svanberg: Our next question is from Tore Svanberg with Steeple. Please proceed with your question. Yes, thank you.

Craig Ellis: Please proceed with your question. Yeah, thanks for taking the question and hung on. Echo the congratulations on a 10 year wall started with the strengths and the picnic guide.

Speaker Change #107: Thank you. Our next question is from Craig Ellis with BRI-Lay Securities. Please for a video question.

Hong Hou: Welcome on board, Hong, and congrats on the strong results here. I do recognize there's a lot of interest in the signal-tagelet business, but I was actually more surprised by your recovering the Laura revenue. It was very strong in the quarter. It sounds like the momentum is going to continue going forward, so could you just elaborate a little bit more on what's going on there? Is this basically inventory replenishment from the last few years, or are you seeing some big new programs actually adopting Laura?

Craig Ellis: Yeah, thanks for taking the question and how long echo the congratulations on a ten year will started with the strengths and the print and the guide. I wanted to see if I could get your help.

Craig Ellis: I wanted to see if I could get your help on sizing one of the businesses that you identified. So it's great that we're doing well with the lead active copper cable customer, and you've framed up how big that business could be. I was hoping that you could give us some scope on how big the engagements with other customers could be next year.

Craig Ellis: One sizing.

Speaker Change #109: One of the businesses that you identified so it's great that we're doing well with the lead active copper cable customer and you've framed up how big that business could be. I was hoping that you could give us some scope on how big.

Hong Hou: Torey, thank you very much. Yeah, that's a good question. I will say both, and first of all, the industry demand is resuming after the depletion of the inventory in the channels. As we reported, the POS increases and the inventory in the channel decreases from the last quarter, and it's very natural that this market demand is bouncing back. The second part of the reason, the second reason of the Criose, as I talked about, the Mercedes Bench use case, and our development partners are finding new use cases, and because the unique capability of the Laura one, and it can translate into tremendous savings and the functionality enhancement in the system design.

Hong Hou: And then to your point on strategy number two that you mentioned in your prepared script. If we were to look at what's possible for these businesses as you exercise some of your own expertise and in how they're directed. If we look out to the three years, how much bigger can the business be than where it will be as we look at it next year.

Speaker Change #110: The engagements with other customers could be next year, and then to your point on strategy number two that you mentioned in your prepared script, if we were to look at what's possible for these businesses as you.

Speaker Change #111: Exercise some of your own expertise in how they're directed. If we look out two to three years, how much bigger can the business be, somewhere it will be as we look at it next year. Thank you.

Hong Hou: Thank you.

Hong Hou: Yeah, Craig, thank you very much. Great talking to you. Thanks for your question. So on the ACC, beyond the specific customer, beyond the specific platform, we're in an early stage of the engagement at this point. But we're excited about, you know, the engagement with the customers. They present their challenges and high value problems. We think that it's right in our alley of the solution we can provide on the ACC. So we are still in the stage of, you know, understanding every requirement and quantifying the opportunities. And it might be a little too early for me to give you a number for the next two, three years, what the opportunity is going to be, but that directionally, I'm very excited about that.

Speaker Change #112: Yeah, correct, thank you very much, great talking to you. Thanks for your question.

Speaker Change #112: On the ACC, beyond the specific customer, the young, the specific platform, where are you in the early stage of the engagement at this point? But we're excited about the engagement with the customers.

Hong Hou: I believe this is really our key for Criose, the revenue even beyond the current level, current pace, and that's why I'm very excited to attending the things conference in Amsterdam, and I got my days outlined up to meet with the executives of the ecosystems and to mobilize the entire system, creating more use cases like the Mercedes Bench, and utilizing the capability that Laura one can offer. So that is a great opportunity for us, and it has been a good engine for Criose. Thank you for the call. Thank you, Torey. Thank you.

Speaker Change #113: They present their challenges in high-value problems.

Speaker Change #113: with his thank you.

Speaker Change #114: That is you.

Speaker Change #114: Right in our alley of the solution, we can provide an ACC, so we are in still, in the stage.

Speaker Change #115: of you know, understand their requirement and quantify the opportunities and maybe a little too early for me.

Speaker Change #115: to give you a number for the next two, three years, what the opportunity is going to be, but that directionally.

Hong Hou: And I think this is right in my alley. I have a really extensive contact and connections in the industry.

Speaker Change #116: I'm very excited about that. And I think this is a great, you and my ally have a really extensive contact and connections in the industry. We're going to continue to expand our reach and engagement with the industry.

Hong Hou: We're going to continue to expand outreach and engagement with the industries, and maybe in the next earnings call, we'll have a better idea on the future opportunities of ACC beyond one platform, one customer.

Speaker Change #117: and maybe in the next earnings call we'll have a better idea on the future opportunities of ACC Beyond One Platform One Customer. Thank you.

Christopher Rowland: Our next question is from Christopher Rowland with Susquehanna. Please proceed with your question. Hey, thanks for the question and welcome home. My question was also actually on LPO, and you also mentioned LRO as well. So I just wanted to know what the opportunity in LRO was. I assume it's also a high grade TIA, but putting these opportunities together, do you think this could be a larger opportunity for you than ACC's or copper, and if so, how much better? Thank you.

Hong Hou: Thank you.

Auguste Richard: Our next question is from Gus Richard with Northland Capital.

Auguste Richard: Please proceed with your question. Yes, thanks for taking the question, and congratulations on the results.

Speaker Change #118: Thank you. Our next question from Dust Richard with Northland Capital. Please pursue your question.

Hong Hou: I just want to ask about the competitive environment; clearly there's ESP versus analogs. And I can think of in five may calm you guys as competitors on the analog side in these high speed interfaces. Is there anybody else coming up that you see? Anybody with, you know, a similar type of capability beyond the companies I mentioned. I'm just trying to get a better handle on the competitive environment.

Dust Richard: Yes, thanks for taking the question and congratulations on the results. I just want to ask about the competitive environment clearly it is.

Dust Richard: ESP versus analogs. And I can think of InPy may come you guys as competitors on the analog side in these high-speed interfaces.

Hong Hou: Thank you very much, and that's a great question. So the LPO certainly is an analog on the transmitting side and on the receiving side, and there's some concern in the industry, especially from the cloud service providers of CSPs on LPO. Their primary concern is that if the solution will be providing enough link budget for them to choose the different silicons on the switch side, and then choose the different optical transceivers on the optical transport side.

Speaker Change #120: Is there anybody else coming up that you see anybody with, you know, similar type of capable boy beyond the companies I mentioned? I'm just trying to get a better handle on the competitive environment.

Hong Hou: Thank you, Gus, for your question.

Hong Hou: I think for the analog expertise, you've got to answer the three companies I will say on the first tier. I'm sure there's a new up and covers, you know, they're excited about the opportunities as well. It takes a while to, you know, establish this capability from the design to testing to many other things. In the ecosystem, so in the operations is another thing. And I think we are at the right point, right? Pine and right place here to capture the enormous opportunities ahead of us. But as for the competitive landscape, that's, you got it right.

Speaker Change #121: Thank you guys for your question. I think for the Analog Expertee, you've got a deserve this three companies. I will say on the first tier.

Speaker Change #122: I'm sure there's the new up and cumbers, you know, they're excited about the opportunity as well.

Speaker Change #122: It takes a while to establish this capabilities from the design to testing.

Hong Hou: And they have been benefiting from that obscenity and multi-source agreement over the last decades because they need a lot of transceivers when they deploy a new data center. They need a lot of switches. They don't want it to be just locked by one supplier. So that has been the primary concerns. They have all recognized that the LPO's provide low latency, low power consumption and even lower cost and higher value. They have no denial on that.

Speaker Change #122: to many other things in the ecosystem. So in the operations it's another thing. And I think we are at the right point, right?

Speaker Change #123: Pym and Wright plays here till capture day and almost opportunities ahead of us.

Speaker Change #123: But that's for the competitive landscape that you got it right and I think both of the companies are very formidable and we can never, you know

Hong Hou: And I think both of the companies are very formidable, and we can never, you know, kind of like a, you know, take it easy.

Hong Hou: But it's just not sure the link budget will allow them to exercise this option for multi-source agreement. And when I talk to many key architects and some of them, they say, you know what, we are pretty sure that receiving side, we can do that. But the transmitting side, you know, in worst case, we do DSP based return solution on transmitting side. That's still translate into tremendous power savings.

Hong Hou: So I told my teams we need to be comfortably paranoid and challenge ourselves, continue to run fast. In the only way to get our unfair share is by the fair performance and superb performance in technology. And they're in operation.

Speaker Change #123: Cedomica, you know, take it easy. So I told my teams, we need to be confidently paranoid and challenge yourself, continue to run fast in the only way to get a unfair share is by the fair performance and superb performance, in technology and in operations.

Garret: Garret, thanks so much.

Operator: There are no further questions at this time.

Garret: Thank you.

Mark Lin: I would like to hand the floor back over to Mark Lin for any closing comments.

Hong Hou: That's a LRO. For us, either way is a winning for us. Because, you know, when they do LRO, all LPO, they choose to, they tend to choose the best in class TIA product. I would say at this point, that's some type of product. We'll benefit from both. As for your second part of the question, you know, is LPO going to be representing even bigger opportunity than ACC? I believe it's a good opportunity out there to replace, as I said, DSP based re-timer is an opportunity.

Garret: Thank you. There are no further questions at this time. I would like to hand the floor back over Mark Lin for any closing comments.

Mark Lin: Alright, thank you everybody for joining and please visit our investor website at investors.semtech.com for list of upcoming financial conferences for SEMTEC will be in attendance. Have a great day.

Thank you for your participation.

Speaker Change #125: This concludes today's conference call. You may now disconnect your lines. Thank you for your participation.

Speaker Change #126: Episode 2

Hong Hou: But ACC, it can replace the deck cable, you know, one, the line read increased to 100 gigabit per second. And, you know, connection distance exceeding two meters for 100 gig. The deck cable really cannot maintain the signal and integrity needed.

Hong Hou: So, both products are great opportunities in AI based connectivity era and has many years of wrong weight. Thank you. Thanks. Thank you.

Harsh Kumar: Our next question is from Harsh Kumar with Play for Sandler. Please proceed with your question. Yeah, Hong, let me add my welcome to you as well and very strong commentary on the quarters of congratulations and the guide as well. My question is sort of on ACC. Could you help me sort of understand the scope and the size of this business? Are you the leader you think in technology? Are you the sole provider, for example, to this one large customer that you mentioned?

Harsh Kumar: And then my other part of the same question is, you know, technology evolves. This is the first iteration of ACC. What do you think or do you think something has the goods to stay competitive in this market as other people look to get into the game? And maybe you could just help us help us get around what's needed to stay in front of this technological change. Great. Thank you, Harsh. Thank you very much for your question.

Harsh Kumar: To address your first part of the question, for such a critical applications, I think our customers have to use a multi source and we're one of the two sources as I understand at this point, and certainly the guidance we provide is based on 50-50% allocation, but we have every intention to exercise our technologies differentiation, and more importantly, at this point of time, the operations excellence. So to really provide the customers with shorter lead time, better on-time delivery performance, better quality, and that has been the whole mark of the operations, you know, that's what I've made the comments and initial observation of the differentiation of Semtech.

Harsh Kumar: So we hope we will be earning more than our fair share allocation in this, and so far it looks very promising. As for the second part of the question, how do we stay competitive? I think this part, the ACC from the beginning of the engagement, the ecosystem was not sure on that we will be able to deliver the performance and signal integrity as needed. Simulation shows good, but when you have that real IC integrated into the real product, it may not deliver the performance and simulate it, but that's already behind us, and right now looking really, really good performance, and we're in the process of finishing system validation and product qualification, so we are preparing ourselves to run.

Harsh Kumar: As we do that, hand that over to the operations, our R&D team already started to get it in the next generation product, like 400 gigabit per channel. How do we do that? And I think we can all count on the industry will continue to push forward with the higher data rate, lower latency requirements, low power requirement, and this is a sweet spot in the markets moving towards us, and the way you continue to innovate, I do believe that best defense for the position is the aggressive development and engagement with the customers to provide the solutions they need at the time they need. So that's what I do. I have the high confidence that will continue to lead in this area for a while. Excellent. Thank you so much. Thank you.

Scott Surrell: Our next question is from Scott Surrell with Roth Capital Partners. Please proceed with your question. Good afternoon. Thanks for taking the questions. Hong and Mark congrats on the quarter and the outlook.

Mark Lin: Mark, real quickly, I was wondering if you could repeat the lower number I thought I missed that, and then Hong, on the HEC opportunity, it sounds like you're ramping in line to maybe a little bit ahead of expectations with Nvidia and Blackwell design, but I'm wondering if you could talk a little bit about the timeline for some of these other opportunities when you would expect them to commercialize given the current path, and a lot of the conversation has been around the opportunity versus DAC, but I'm wondering where AEC fits into the the equation as well. Thanks.

Mark Lin: So, after you wanted to go first, Laura the number, Scott netfields for the quarter was 28.7 million dollars, that's up 34% sequentially, up 72% over a prior year. So, very nice healthy rebound and we believe that is sustainable. Okay, thank you. The system validation and the product qualification, those are the last two gates before the volume production. So, this quote, well, in Q3, we expected the shipment in the limited quantities, not gated by the demand, but they, you know, there's going to be a cycle time from the fab.

Mark Lin: We have already anticipated that and we got the wafer bank and dive bank build beforehand. So, that's the real meaningful ramp is going to be in now Q4 fiscal year Q4 and then throughout the 2026 FY and we expect, you know, pretty healthy demand based on the current PL and forecast. And then you mentioned about the AEC, you're right. So, the ACC will probably first and foremost encroach into the AEC market and that's where the ACC provide the signal integrity requirement and but reduced power and reduced latency.

Mark Lin: And then, you know, the deck cables and a lot of backplane, when the new switch, you know, 100 T switch deployed, they will be having a 224 gigabit service in the ports. So, 200 gig become the Ethernet port. I will imagine the scale out there will need a lot of, even the backplane connectivity is the ACC cable which will provide the signal integrity they need and low power consumption they need. Great, but on just for clarification, you've achieved a system level verification then with the current customer.

Mark Lin: Yeah, so for the connectivity piece, yes, yes. And, but of course, their system integrate, you know, you involve many other things is way above and beyond just the connectivity. So, that is a validation there, do we? Great, thanks so much and congrats on the quarter. Thank you. Thank you, Scott.

Hong Hou: Thank you. Our next question is from Craig Ellis with beer highly securities. Please proceed with your question.

Craig Ellis: Yeah, thanks for taking the question and on the echo the congratulations on a tenure will started with the strengths and the picnic guide. I wanted to see if I could get your help on sizing one of the businesses that you identified. So, it's great that we're doing well with the lead active copper cable customer and you framed up how big that business could be. I was hoping that you could give us some scope on how big the engagements with other customers could be next year.

Craig Ellis: And then to your point on strategy number two that you mentioned in your prepared script, if we were to look at what's possible for these businesses as you exercise some of your own expertise and in how they're directed. If we look out two to three years, how much bigger can the business be than where it will be as we look at it next year. Yeah, correct. Thank you very much. Great talking to you. Thanks for your question.

Hong Hou: So on the ACC beyond the specific customer, beyond the specific platform, we're in an early stage of the engagement at this point. But we're excited about, you know, the engagement with the customers, they present their challenges in high value problems. We think that it's right in our alley of the solutions we can provide on the ACC. So we are in still in the stage of, you know, understanding every requirement and quantify the opportunities in a maybe a little too early for me to give you a number for the next two, three years, what the opportunity is going to be.

Hong Hou: But that directionally, I'm very excited about that. And I think this is right in my alley. I have a really extensive contact and connections in the industry. We're going to continue to expand our reach and engagement with the industries. And maybe in the next earnings call, we'll have a better idea on the future opportunities of ACC beyond one platform, one customer. Thank you.

Gus Richard: Our next question is from Gus Richard with Northland Capital. Please proceed with your question. Yes, thanks for taking the question and congratulations on the result. I just want to ask about the competitive environment clearly this ESB versus analogs. And I can think of in five may calm you guys as competitors on the analog side in these high speed interfaces. Is there anybody else coming up that you see anybody with, you know, similar type of capability beyond the companies I mentioned. I'm just trying to get a better handle on the competitive environment.

Hong Hou: Thank you Gus for your question. I think for the analog expert, you got it. Those are the three companies. I will say on the first tier. I'm sure there's a new up and covers, you know, they are excited about the opportunities as well. It takes a while to, you know, establish this capability from the design to testing to many other things in the ecosystem. So in operations, it's another thing. And I think we are at the right point, right time and right place here to capture the enormous opportunities ahead of us.

Hong Hou: But as for the competitive landscape that you got it right and I think both of the companies are very formidable and we can never, you know, kind of like a, you know, take it easy. So I pulled my teams. We need to be comfortably paranoid and challenge yourself, continue to run fast and the only way to get our unfair share is by the fair performance and superb performance in technology and in operation.

Operator: Thank you.

Mark Lin: There are no further questions at this time.

Mark Lin: I would like to hand the floor back over to Mark Lin for any closing comments. Thank you everybody for joining and please visit our investor website at investors.semtech.com for a list of upcoming financial conferences where Semtech will be in attendance. Have a great day.

Operator: This concludes today's conference call. You may now disconnect your lines. Thank you for your participation.