Q4 2025 Semtech Corp Earnings Call
Speaker Change: Good day, and thank you for standing by. Welcome to Semtech Corporation's fourth quarter and fiscal year 2025 earnings conference call. At this time, all participants are in a listen only mode.
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 slide two of the earnings presentation as well as the risk factors section of our most recent annual report from Form 10-K for a number of risk factors that could cause our actual results and events to differ materially from those anticipated or projected on this call.
Should consider these risk factors in conjunction with our forward looking statements.
Speaker Change: Unless otherwise noted all income statement related financial measures will be noncash other than net sales. Please refer to today's press release and see slide three of the earnings presentation for important information regarding notes on a non-GAAP financial presentation.
al: The press release and earnings presentation will also include reconciliations of our GAAP and non-GAAP financial measures with that I'll turn the call over to al.
al: Thank you Mark good afternoon, everyone.
Fiscal year 2025 represented a year of a positive inflexion on many fronts.
al: Each quarter, we reported sequential growth in.
Net sales gross margin operating margin and earnings per share.
Our signal integrity and the analog mixed signal and the wireless segment demonstrated strong sequential growth in each quarter of FY 'twenty five.
Now I O T systems and connectivity segment.
al: Inflicted two sequential trio in the second quarter, if that's slide 25.
al: Aligning to one of our near term priorities of driving margin expansion through disciplined investment innovation and efficiency.
al: On a year over year basis, that's why twenty-five adjusted gross margin improved 200 basis points.
al: Adjusted operating margin improved 570 basis points.
al: Adjusted EBITDA margin improved to 610 basis points and adjusted diluted earnings per share increased.
al: 529%.
al: During FY 'twenty, five we uncovered and aggressively pursue many opportunities through close customer engagement.
al: We were able to prudently shifted investments two R&D programs that were better aligned to major market opportunities and accelerated product development supporting this opportunities.
al: We also executed on our near term priority of balance sheet improvement.
al: Substantially reducing our leverage and cash interest burden.
al: This in turn allowed us to increase focus on operational improvements and the strategic direction.
al: We continue to prioritize divestitures of noncore assets and we believe the reduction in the total leverage during FY 'twenty five and the stronger business fundamentals better positioned some tech you know ongoing portfolio optimization process.
al: We.
al: <unk> focused on elevating our winning culture.
al: And I'm pleased with the marked improvement.
al: Employee engagement metrics.
al: In the new fiscal year, we're intently focused on focusing on three core priorities to position <unk> for future success.
First portfolio optimization and simplification.
al: Driving to a completion the initiatives were started and focus on our core competencies.
al: Second.
Strategic investment in R&D.
al: Accelerating innovation to support broader customer programs, and they're driving sustainable long term goals, while maintaining financial discipline.
Third driving margin expansion.
Enhancing profitability through portfolio optimization.
al: Leveraging AI for efficiency and the productivity and maximizing operational leverage on higher revenue.
al: With the strong progress we made in FY 'twenty five.
al: We aim to deliver even greater value to our shareholders in FY 'twenty six.
al: Yeah.
al: Moving to our end markets.
al: For Q4 infrastructure net sales were $69 $1 million.
al: Up 5% sequentially and up 75% year over a year now.
al: Net sales for a data center, where a record $50 million up 610 per cent sequencer, Lee and up 183% year over a year.
al: And I'm pleased with the growth across our data center portfolio.
Regarding carpet at use in active copper cables.
We are disappointed that the expected volume ramp will not materialize for FY 'twenty six.
Copper that you had a 1.6 T aggregated bandwidth, what's introduced about a year ago, and we believe some tax advancements in low power low til agency solutions will be a significant differentiator in the ecosystem.
al: We remain engaged with over 20 potential customers, including Hyperscale is switch makers and the cable suppliers for a number of use cases and I expect this engagement to result in revenue was from multiple customers and multiple applications.
al: But the latter part of FY 'twenty six.
al: Lastly.
al: Based on continued collaboration with our anchor customer.
al: I expect our copper hedge part portfolio to be included in their future generation rack designs.
al: Yeah.
al: For a fiber edge portfolio net sales what are the regular levels supporting 400 gig and 800 gig re timed optics across a broad market a module manufacturers and the cloud service providers.
al: For linear plausible optics O L. P O and alenia receive optics all L. R. O. We remain and remain confident in the adoption is starting in the latter part of FY 'twenty six.
Pass and the qualifications are progressing as expected at a several module manufacturers for both 800 gig and a 1.6 T applications.
I look forward to the upcoming optical fiber Communications conference Oh, Oh, I see to be held in San Francisco The first week of April.
al: Some tech and all technology partners will have multiple product demos showcasing our T. I E. In the laser driver components in numerous L. P O N L. R O modules.
In addition, we are scheduled to show a 400 gig per channel test chips to support 3.2 T aggregated bandwidth transceivers.
al: I also look forward to participating in the C O panel.
al: The uptake our executive Forum at OFC.
al: Yeah.
al: Moving to our high end consumer end market.
al: Sales for Q4 was $35 $4 million.
al: Up 10% year over a year and for FY 'twenty five net sales were $147 million up 17% year over year.
al: You know high end consumer T V S. All trends in welch's separation product along now.
al: Net sales for Q4 were $24 $1 million.
al: At 610% a year over a year and down 15% sequentially reflective of typical seasonality.
al: FY 'twenty five net sales were 100 industry point $3 million up 33% year over a year reflective of steady contributions from design wins and the market share expansion over the last year at the worlds largest consumer electronics company.
al: And at the other key North American and Korean companies.
al: We believe our customers increasing technical requirements more than market to what our differentiated products.
USB type C high powered charging he's a particular example of their need to increase protection capabilities, while maintaining 6 million integrity USB type C high speed data traces.
al: Yeah.
al: Our class leading per se a person sensing product continue to perform well in the market with a leading position in smartphones to address specific absorption rate or SAR standards.
al: With draft regulations, introducing increasingly stringent requirements.
Per se it continues to gain market share as customers expand their use of some tax Ics.
al: To achieve superior compliance to SAR standards without compromising the last performance.
Okay.
Per se is smart glasses is another key applications, where our technology allows for hyper responsive gesture control capabilities.
al: Critical to accurately its control for call and message content capture and media settings.
A key customer or characterize smart glasses as a potential nextgen are racing compute platform and then I I form factor.
al: Yeah.
Moving to our industrial end market.
For Q4, industrial net sales were $146.6 million up 12% sequentially and up 21% year over a year.
al: Within the industrial end market Lora enabled solutions recorded Q4, net sales of 37 $1 million.
al: 28% sequentially and up 210, 5% year over year.
al: Smart meters are just a one off the applications well suited for Laura and we are pleased with the incremental smart meter wins in France, Germany, the UK and China.
al: For water and gas meters. We believe Lora is a sensitivity with permits robust collection of readings through physical barriers and the ability to extend battery life over multiple years are key differentiators over a competing protocols.
al: Our Lora Gen two and Gen three products had been well received.
al: And the other predominant low rather than volume.
al: They offer a smaller device footprint combined with the improved the radio performance and easier integration, allowing ecosystem partners to reduce time to market.
For example, Laura Gen. Three includes the capabilities to integrate lower when you're inside the modem, which reduces low risk specific design expertise required to integrate lora into a device.
al: <unk> also released the first Gen four a chip in the lower up plus some of the early this week.
al: Laura plus is a single chip solution that addresses the use cases, requiring a robust long distance link combined it with a multiple protocol capabilities.
al: Including Amazon Sidewalk, why Sun F S K and Z wave.
al: The lower up plus transceiver.
al: So supports terrestrial and satcom networks and it increased data rates support audio streaming and image transfer.
al: Oh, I O T systems hardware business recorded Q4, net sales of $69 million.
al: Up 19% sequentially, coupled with another quarter of a sequential increase in bookings.
al: Oh, I O T systems business pipeline benefited from the inclusion of a significant China based market participant on the section 12 68 list in January 2025.
al: And we expect pipeline to convert to bookings throughout the year.
During the same months Europe faced participant announced it it was exiting that sell a lot of Iot market, providing another potential tailwind to the business.
In Q4, we are pleased to have achieved a five G red Kap certification.
A significant milestone in collaboration with a T N T and Qualcomm.
al: This is a T N cheese first five G Red cap certification and we believe this positions us to make sustainable scalable and cost effective solutions attainable for many industries.
al: I O T connect data services net sales were overall stable for this largely reoccurring revenue business.
al: We are pleased that Eric vintage smart sensing has been recognized with the M to M innovation of the year award by Iot breakthrough.
al: Air Vantage Smart sensing offers a turnkey Laura one sensor network solution with a global cellular backhaul.
al: Allowing our customers to efficiently manage that the cyan conflict ration of a secure and scalable.
Scalable sensor network.
al: In summary, I'm very pleased that with some types of execution and performance across all of our businesses.
al: And thank all the employees for embracing our Semtex rising initiative.
al: Which incorporates elements like transparent and frequent communications on our vision and priorities to drive alignment.
al: And leadership and employee development.
al: All of which are aimed at.
Bringing out the best from all employees.
And now I'll turn the call back to Mark for additional details on all financial results and now I'll look for the first quarter at 526.
al: Thank you all for.
al: For Q4, we recorded net sales of $251 million up 6% sequentially.
al: That sales trends by end market reportable segment and geographic region are included on slide 16 of the earnings presentation.
al: Adjusted gross margin was 53, 2% up 80 basis points sequentially and up 430 basis points year over year.
al: Adjusted net operating expenses were $83 $7 million within our guidance range with a sequential increase in research and development for what we believe to be prudent investments to accelerate realization of market opportunities.
al: Adjusted operating income was $49 $8 million, resulting in an adjusted operating margin of 19, 9% up 160 basis points sequentially and up 1070 basis points year over year.
al: Adjusted EBITDA was $57.8 million and adjusted EBITDA margin was 23% up 140 basis points sequentially and up 1050 basis points year over year.
al: Adjusted gross margin adjusted operating margin and adjusted EBITDA margin all sequentially improved in each quarter of FY 'twenty five representing sustained growth.
al: Adjusted net interest expense was $11 $2 million reflective of a approximately two months of savings from a debt pay down.
al: We recorded adjusted diluting earnings per share of <unk> 40 cents up from 26 cents in Q3 and up from a loss of six cents from Q4 of last year.
al: Operating and free cash flow for Q4 were $33 $5 million and $39 million respectively.
al: We ended Q4 with a cash and cash equivalents balance $151 $7 million, which included principal payments of $10 million on our credit facility that were incremental to payments from the equity offering.
al: At the end of FY 'twenty five net debt was $411 million, a reduction of $868 million or 68% from the $1 $3 billion as of the end of FY 'twenty four.
al: I believe we executed well to our previously stated capital allocation priority of reducing leverage.
al: To summarize Benfits centric has an expected to realize from debt reduction.
al: First debt Paydown enables <unk> to focus investment on our core business growth engines.
al: The reduction in debt from the equity offering worldwide annual cash savings of approximately $48 million based on interest rates at the close of the offering which resulted in accretion on a non-GAAP basis.
Third we believe meaningful debt reduction demonstrates a strong commitment to our customers suppliers and partners to improve financial solidity and return focused on operational and strategic priorities, which we expect will lead to increased collaboration and market share gains.
Yeah.
al: Now turning to our first quarter outlook.
al: We currently expect net sales of $250 million, plus or minus $5 million up 21% year over year at the midpoint.
We expect net sales from the infrastructure end market to increase sequentially with data center applications leading to growth.
al: This outlook incorporates the effective corporate related to previously discussed rack architecture changes.
al: We expect net sales from the high end consumer end market to be up slightly reflective of a seasonally stronger first quarter.
al: We expect the industrial end market to be down reflective of seasonality in our Iot portfolio.
al: Okay.
This unexpected product mix and that sales levels. Adjusted gross margin is expected to be 53% plus or minus 50 basis points.
al: Net operating expenses are expected to be $87 million, plus or minus $1 million, resulting in an adjusted operating margin at the midpoint of 18, 2%, a 600 basis points improvement year over year.
al: Adjusted EBITDA is expected to be $53 $3 million, plus or minus $3 million, resulting in an adjusted EBITDA margin at the midpoint of 21, 3%.
Which will equate to a year over year increase of 520 basis points.
al: We expect adjusted net interest expense to be $6 $3 million reflective of leverage based pricing on our credit facility that reduced our term loan interest rate by 200 basis points.
al: Expect a normalized income tax rate of 15% consistent with our FY 'twenty five rate.
al: These are amounts are expected to result in adjusted diluted earnings per share of 37 plus.
al: Plus or minus three cents.
al: Based on a weighted average share count of $90 1 million shares.
With that I now I'd like to turn the call back over to the operator for Q&A.
Thank you.
Speaker Change: At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
al: You May press star two if he would like to remove your question from the queue.
al: We ask that analysts limit themselves to one question and a follow up so that others may have an opportunity to ask questions.
al: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Our first question comes from harsh Kumar with Piper Sandler. Please proceed with your question.
Harsh Kumar: Yeah, Hum and and my God, you guys have done a great job on the balance sheet, but.
Speaker Change: You actually said something on the copper edge portfolio that caught my attention given the controversy around it hung I was hoping that you could expand on your comment around what you're seeing in boards and connectors and also you mentioned your sort of lead customer is <unk>.
Speaker Change: Looking at it looking at components of these products in this technology for future generation, maybe also explain on that and then.
Speaker Change: Sorry for the Multipart question, you said, you expect to be down or lower for a couple of quarters. I think you said three or four but then you expect to pick up so maybe talk about about all of this and why you expect to pick up and what content are you seeing in in these spaces, particularly with your large customer.
Speaker Change: Yes.
Speaker Change: Thank you harsh and have no questions. So the first of all just on the copper etch.
Speaker Change: In Q3, we reported a revenue is the highest single digit millions of dollars and we guided in Q4 to be margin Novo are you incrementally increase.
Speaker Change: We just did that.
And and that's what we are known as the previously in the FY 'twenty Sakes.
Speaker Change: Revenue for our copper etch is gonna be below $50 million.
Speaker Change: So as we reported on the data center revenue on this Q4, the $50 million.
Speaker Change: Copper etch portfolio added into a very broad data center portfolio is a nice addition, so you in the future we do not intend to breakout top of etch contribution to the total revenue off that data center portfolio.
Speaker Change: But as for they are engagement as I reported we have union engaging with over 20 customers. This is a nascent business. It's a new product, it's generating a lot of interest.
Speaker Change: And it was only released about a year ago, but it would take some time for our customers to design them in in a different form factors. So the revenues are to date has been primarily.
Speaker Change: Generated from the applications in the active copper cables.
Speaker Change: We have many use cases for different applications by different customers designing a copper etch product.
Speaker Change: I went to the board are getting their connectors.
Speaker Change: So we do see that at different pace after adoption in a qualification and testing status, but a very we are very confident that before the end of this year, we'll have revenue generated from.
Speaker Change: It's more than one anchor customer.
Speaker Change: In our board and our connector applications.
Speaker Change: But as far the anchor customer and we are happy and you're engaging with them very tightly.
Tightly in the immediate next generation after the current one so we don't have content.
Speaker Change:
Speaker Change: To get her to come back to Rex because it is a single rack loosen budget going forward are we understand that our product is in their design in the form of either not on the board Oh, you and they are you know cable for them.
Speaker Change: As far as this air pocket of three or four quarters.
Speaker Change: It's I mean, the most specifically for that one customer one application.
Speaker Change: Other applications and revenue could come sooner than that.
Speaker Change: Understood and hung sorry for the long winded question, but thank you very very helpful.
And then I just wanted to ask on your core business you've been growing when every other analog company has been down because primarily you entered the correction earlier you started correcting the error.
Do you feel like you have good visibility on being able to call for a call it sequential growth from here on or off.
Speaker Change: Or are you at a point, where maybe just like your industrial business, you're starting to see some.
Speaker Change: Are you starting to see where you have normalized and you you know normal seasonality comes into play or are we still looking at growth from here.
Yeah. That's a good question harsh so certainly we are having been Oh, Oregon index.
Speaker Change: Hey, the attention the tongue ACC, a copper etch and the data center deals by the way do indeed for some tech has a broader portfolio.
Speaker Change: So you know the other businesses and we have been seeing the inflection in the FY 'twenty five you look at their historic numbers and have been we have been able to record quarter over quarter sequential growth.
Speaker Change: We're gonna be guide one quarter at a time and but are we seeing that trajectory. It's Marc gave that details and we will continue to see.
The data center, if you dose even factoring in the.
Speaker Change: The I S. T C L copper copper edge had went.
And are they a consumer are at the high end consumer we will have a tailwind there for just seasonality and but sequentially and now guidance for Q1, a day, our industrial part a will probably see a little decline, but yeah. They trajectory.
We see the business fundamentals is there and is very favorable.
Speaker Change: And we have taken care off the inventories are issues. So I think well whatever we see going forward is going to be the true fundamental from the business I'm very optimistic about that.
Congratulation guys and thank you for your answers.
Harsh Kumar: Thank you harsh.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Tim Arcuri with UBS. Please proceed with your question.
Tim Arcuri: Thanks, a lot I'm wondering if you can help us just on sort of pinpoint the timing on this upcoming step change in the revenue inside a data center I know you know given this pushout in ACC you are though are winning on a couple of other platforms. So I'm. Just wondering if you can help us shape sort of in fiscal 'twenty six like.
Speaker Change: When does that stop paying is going to happen. Thanks.
Speaker Change: Thank you Tim So yeah as I said the data center, we got a pretty broad portfolio copper edge in fiber edge and with Tri edge product and the fundamental off their capex spending by the C. S. P. A stool there wed expect a fiber adds continue to grow.
Speaker Change: The copper etch is gonna be a little bit bumpy temporarily you know we have an air pocket, but once oh they are their customers. They start kind of like a ramping up unit volume will see accelerated growth, but all in all you look at our data center portfolio.
Speaker Change: We do expect quarter over quarter growth as for the timing of the copper etch recovery.
Speaker Change: From that specific anchor customer I think is depend on that next generation racks designed timing that is say you know what I'd like to help one whatever we can but we can't control that timing.
Speaker Change: Right right Okay.
And then I guess the second question is sort of an update on the portfolio rationalization plans.
Speaker Change: Is the current uncertainty in the market obviously, what's happened the last couple of weeks I would assume it makes that maybe a little more challenging and can you speak to sort of how price sensitive you'll be in this I mean is the is the idea just that you want a you want it.
Speaker Change: Rationalized the portfolio not it.
Any price, but I'm, just kind of wondering how price sensitive you'll be given some of the market uncertainty we have seen in the past.
Speaker Change: You know a couple of weeks thanks.
Great. So we don't have a specific timeline as you'd know that our balance sheet had students.
Speaker Change: Politically has strengthened.
Speaker Change: And but from a longer run a strategic point of view, we still would like to rationalize and you don't tend to like to do having that oh portfolio aligned with our strategic vision and our margin profile.
Speaker Change: So the business has inflected.
Speaker Change: And I think you know they did a good buyer they will see the synergy for their site. So I will say this business needs to be bought rather than be sold namely that we don't have to sell it and but if the buyers see the strategic synergy for them and adding to their portfolio.
Speaker Change: Being transformation, though and this can be a great addition to them. So we are patient but.
You know I know their <unk> because they are that you know that.
Speaker Change: In our prepared remark and one industrial persists this participant based in China, what to put on the D. O D. At 12, 60, H list and then another Europe based competitor and exited the cell and module business. So really the demand we're seeing there.
Booking activities has accelerated that's a really good business and it's contributing to positive EBITDA and we're not in dire situation notes have to do the sale was this is not a distressed asset where well come in.
Buyers to see the synergy and two there you know.
Speaker Change: This nice addition to their business.
Speaker Change: And that was the it will be the basic principle for us to run this process.
Perfect Tom.
Tom: Thank you.
Speaker Change: Our next question comes from Quinn Bolton with Needham <unk> Co. Please proceed with your question.
Tom: Yeah.
Quinn Bolton: Hi, Hong and Mark Congratulations on the nice results I guess Hum, maybe just a quick clarification on your data Center comment you mentioned that business growing quarter on quarter. Despite the copper Ridge Air pocket was that a comment specific to the April guide or is that a comment.
Quinn Bolton: You see continuing throughout all of fiscal 2026.
Speaker Change: So it's a nice question a good question. So I will only you gave that guidance Oh, one quarter at a time, that's a specific guide to our April quarter, but in general Waco, where the market trend if the C. S P.
Quinn Bolton: Capex spending continue.
Quinn Bolton: To be strong you know we have been benefiting from that trajectory and they're scored a very strong year over a year geos from FY 'twenty four 'twenty five.
Quinn Bolton: Capex continued to be.
Quinn Bolton: That's it.
Quinn Bolton: Projected and I would not be surprised that it will have a strong year over year as well.
Quinn Bolton: Got it and then.
Quinn Bolton: The question is I'm not sure if you're willing but was wondering if you might be able to give us some sense of the general breakdown of the data Center business. You mentioned it was $50 million in the January quarter. It sounds like copper edge was probably a very high single digit million, maybe approaching 10, but the red.
To the business, probably $40 million plus can you give us a sense how much of that $40 million plus fiber rich just going into DSP based optical modules, how much may be tri edge and then other revenue just just trying to get a sense of what that mix looks like.
Yeah, I think it's important for us to focus on our data center portfolio rather than individual skus.
But I mean, needless to say Theres strong broad based growth across our portfolio. We did mention in our prepared remarks that fiber edge, our net sales for the for our fourth quarter record levels. So definitely a strong market acceptance and work on adoption of the fiber edge portfolio.
Speaker Change: Maybe Marty just a quick follow up.
Could you say is the majority or perhaps the vast majority of the non copper ridge business driven by a 400 800 gig modules or is there a meaningful portion that may be targeting slower speed applications in the data center.
Speaker Change: Trying to get a sense you know, there's pretty strong demand for 400, 800 gig and seem to be one six gig.
Speaker Change: Gig optical modules and just wanted to try to get some sense of how much of.
Speaker Change: Your businesses.
Speaker Change: So those those higher speed optical module.
Speaker Change: When brought broadly a 400 gig 800 gig, yes broadly that's where we have a good sense of growth and then slower speeds as well, but that 400 gig to 800 gig is as a good role for us.
Speaker Change: Got it okay. Thank you that's.
Speaker Change: That's our sweet spot and $1 60 is still early is more in the design phase and low volume. So it's 400 gig and 800 gig and when does the sweet spot of our fiber edge.
The revenue contribution.
Speaker Change: Thank you. Thank you.
Speaker Change: Our next question comes from Christopher Rolland with Susquehanna. Please proceed with your question.
Speaker Change: Hey, guys. Thanks for the questions. Martin My first are on Iot and Laura So I I don't know if you guys can.
Speaker Change: Frame the impact of you blocks in the block on the China list, what what that means for that business and then.
Speaker Change: Laura.
Seems like a lot of upside there that that 37 million number like I E is that just pure Laura like modules or are there like routers and stuff in there. It seems like that was a big uptick and is that sustainable.
Speaker Change: Moving forward. Thank you.
Thank you Chris So let me try to answer your Lora.
Speaker Change: Question first.
Speaker Change: That $37 1 million down or this is all Laura and we do not provide modules way provide lora chips transceiver chips.
Two the module manufacturers and different generations product and just provide additional functionality and the inclusion of different redo protocols to make the ecosystem partners.
Speaker Change:
Speaker Change: You sell a product easier so that we enable provide that level of enablement.
Speaker Change: Most of the Lora devices at this point at the end devices now the gateway devices are these costs that have got a pretty good coverage and a gateway and also there are many different applications.
Speaker Change: Point to point.
Speaker Change: As for the Iot business and certainly you named are you blocks.
European participants yeah. Their announcement this provided a tailwind for us.
Speaker Change: We share the same customers and are we getting the same customers, calling us and asking for our continued support and accelerated delivery. So that's totally helpful.
Speaker Change: And then the China based.
Speaker Change: Company.
Speaker Change: The D O D list certainly provide another level of tailwind and there are some customers in the past they have shifted the effort to design our product into their routers and gateways, but they took us as an approved vendor just.
Speaker Change: Well in case, they couldnt buy from that company they will buy from us, but now we are seeing some tangible shift.
And because you know some of that for example, some of the applications. They can use for commercial applications. They can be installed in the military base.
Clearly they wanted to use the same allergy was for both applications.
Speaker Change: And they wanted to source from a western suppliers like us.
Speaker Change: And we will be benefiting from that even more going forward right now we're seeing more design wins, but those design wins is going to be converted.
Speaker Change: Into orders and bookings throughout the year.
Excellent and sorry for misspeaking on modules versus chips Ah I I.
Speaker Change: I didn't know that but.
Laura: Is is Laura.
Laura: These levels sustainable from here and then as a follow up.
Speaker Change: For some handset related questions on either T V. S. Our proximity sensing you know as you look out you know this year next year.
Speaker Change: How do you view kind of your opportunity set in in these markets moving forward what would you consider them you know better better than market growth or how would you consider them. Thank you.
Yeah. Thank you yeah on the Lora and certainly that Q4 was very strong and there might be some factor in there for kind of like some project based demand and trading in general anyway zoom out a little bit year over a year basis, we have been experiencing various.
Speaker Change: Strong growth.
I will.
Speaker Change: Think based on that momentum based on their customer engagement activities based on the new use cases, we learn from our creative ecosystems and customer base I.
Speaker Change: I am pretty optimistic for the year over year growth from FY 'twenty six two.
Speaker Change: By 'twenty five 'twenty six.
Speaker Change: For they are T V S and per se product for cell phones and smartphones.
Speaker Change: I believe we are gaining shares in that.
Speaker Change: That has been.
Speaker Change: Supported by the year over year, our revenue growth and double digit yeah.
Speaker Change: And certainly that is higher than the smartphone market itself.
Speaker Change: And quarter to quarter basis, you know, you're still going to be seeing a little bit of seasonality impact but in general we.
We are getting more design wins, and we are gaining shares from our competition as well.
Speaker Change: Thanks, so much.
Thank you Chris.
Speaker Change: Our next question comes from Cody Acree with Benchmark Company. Please proceed with your question.
Cody Acree: Thanks, guys and congrats on the progress Mark for you. If you can just talk about your gross margin expectations for the year and maybe also if you can expand on into your opex expectations for the year.
Speaker Change: Okay.
Speaker Change: I will just emphasize we're only guiding one quarter out so.
Speaker Change: Our guide we don't have that much commentary other than we've seen very strong year over year growth in our gross margins and you know given that we're looking at some additional data center growth. We do see that those are typically higher than our corporate gross margin averages so accretive to neutral to total gross margin on opex.
Speaker Change: We've got one quarter out I'll, just say that we are remaining prudent in our R&D spend so R&D as part of our ties to our customer alignment and what we believe will be near term revenue growth.
Yeah, if I can add some color.
Cody Acree: Cody on the Opex side.
Cody Acree: You see the incremental increase in our Q1 compared to Q4.
Cody Acree: We are kind of like a double click on that.
SG&A is it going to be slaves stay largely the same over the year, we wanted to have more.
Facing C and leverage with.
Cody Acree: This revenue and.
Cody Acree: We plan to use I I, you know right now that is a hot topic, but we really see that manifest for some efficiency and productivity improvement. We do wanted to increase the increased R&D spending you know FY 'twenty six compared to FY 'twenty five.
Cody Acree: And over the last three quarters since I took a position.
Cody Acree: And we had conducted multiple critical reviews on the programs.
Cody Acree: The return on the R&D programs, we canceled a number of it and so that way it can make the found available two programs with a better opportunities we did that and that's been largely successful in FY 'twenty six.
Cody Acree: Going forward, we have more opportunities and SASSA by shifting our focus a little bit it may not be enough. So we wanted to increase our R&D spending in this new fiscal year, but as Mark said in a very disciplined fashion. So we definitely wanted to make sure.
Cody Acree: We will review the review unit of return on the investment will review the alignment with the market frequently so that if we need to do any adjustment of course, correct and we'll do it decisively but in general we see many opportunities and we wanted to really tap.
As opportunities to accelerate those so you'll see the R&D spending.
Cody Acree: For the Q1 is going to be increasing a little bit from Q4, but other part of the Opex. We wanted to make sure we can get the efficiency out of them.
Speaker Change: Thanks for that guys hung if he can just continue with that thought then can you elaborate on your product priorities then for 'twenty six.
Speaker Change: Where your R&D spending is going to be focused and where do you think your growth is going to be most derived from.
Cody Acree: Good question Cody, So we certainly want to focus our R&D in that area that we have.
Cody Acree: Demonstrating a very fast act geos and we have a better alignment with our customers and we have opportunities identified.
Cody Acree: Largely in the data center area in a lora area and in some selected Iot areas as well.
Cody Acree: And of course, you know that you need.
Emerging trend, while not an emerging trend so among our portfolio like a person in sensing.
Cody Acree: It's quite exciting because if they do.
The SAR standards requirement is elevating that provide opportunities for us to provide solutions to our customers with our technical differentiation.
Cody Acree: And then are the same products can be used in the gesture control for just smart wearable devices and that is the emerging opportunity and you're in the beginning we were just to kind of like a provides a solution to it but now and that can be if it was ready materialized can be the next generation.
Compute platform with AI form factor.
Cody Acree: And than the robots you know we know our person sensing product has been.
Cody Acree: We incorporated it in many companies are in their robots designed so that is a.
Cody Acree: Pretty exciting opportunities and we will be increasing R&D investment to create a extended bandwidth in addressing the market need.
Cody Acree: For that application.
Cody Acree: Yes.
Cody Acree: Alright, Thank you guys.
Cody Acree: It's very cute.
Speaker Change: Our next question comes from Tristan Garen <unk> with Baird. Please proceed with your question.
Speaker Change: Hi, This is Tyler on for Tristan Thanks for taking my questions, maybe black on Lora could you provide an update on where and Laura inventories or do you think you're shipping back in line with demand and then also if you could help with the timing of the ramp for the Mercedes factories that would be helpful. Thanks.
Yeah.
Speaker Change: Yeah, Tyler not just with Laura but across our portfolio.
Speaker Change: Our monitoring channel inventories, so we try to keep our channel inventories in line with expectations and so that's that.
Speaker Change: It was for Laura too so we're really shipping to what we believe was expected demand.
Speaker Change: Lora deployment across the industrial portfolio.
Speaker Change: You know that example, you provided that Mercedes deployment that that occurred already.
Speaker Change: But right now Laura is being deployed.
Speaker Change: And across a number of Iot applications metering asset tracking and factory automation.
Speaker Change: Great and then maybe for my follow up one on the data center could you just provide a little more color on where you're seeing a L. P O opportunities medium term.
Speaker Change: Yeah, So Tyler the L. P O opportunities near term is going to be primarily on the 800 gig or 100 gig per channel. So we have been providing a T I A's and driver solutions to many optical.
Speaker Change: Transceiver module manufacturers.
Speaker Change: And there are some strong.
S piece at the end user to drive the adoption for it.
Speaker Change: And that's for 1.6 terabyte I think at this point that industry, it's primarily focusing on L. R. O. Some loosen, namely in their trends meeting and they will still use the DSP based <unk> solutions.
Speaker Change: And to receiving and they will use the linear rights solutions. So L. R. O. We will have our T. I E in the receiving end.
Speaker Change: And but we don't have a driver you know drove driver typically come from the DSP side.
Speaker Change: The 800 gig L. P O on the other hand, we will have the T. I a content on the receiving end together weighed that driver of content on their transmitting that.
Speaker Change: So at the OFC youre going to be seeing a multiple demos.
Speaker Change: That he did you know our customers and our partners are using.
Our solutions are two design and and plan to go into the production on the 800 gig L. P O N 160 <unk>.
Speaker Change: Yeah.
Great. Thanks, again for taking the questions.
Thank you.
Our next question comes from Craig Ellis with B Riley Securities. Please proceed with your question.
Speaker Change: Hi.
Speaker Change: Oh for Craig Thanks for taking my question and.
I was wondering if you could.
Speaker Change: Just give a little clarification for that announcement with currently one competitor being placed on the island.
Speaker Change: All right.
Speaker Change: How has that been like materialized, so far in lifting the C&I business and how would that.
Speaker Change: Hi.
Like affect.
Speaker Change: The business strategically.
Speaker Change: Yeah. So stacy thank you for that question.
Speaker Change: One competitor was placed on that 12 six T. H list that means really many of our customer base.
When they have the products used for and do use situation. They did not want to use.
Speaker Change: The Tmall Jews from that a supplier in China. So that's definitely has translated into a significant increase.
In booking so and.
Speaker Change: We as I said that booking a significantly increase in design wins and design wins that you're gonna be translate into the bookings over throughout the year.
Speaker Change: Yeah.
Okay got it thank you.
Final question and the second question I guess is green back to how that design process like how long.
Are these onboarding competencies.
Speaker Change: It can't last and how many AI server generations can that socket leaning.
Speaker Change: I see so they designed for onboard solutions is actually you gotta be shorter than the design in the cable because to Umbro our solutions typically done by the end customers.
Speaker Change: Correct me they don't need to go through a third party supplier.
Speaker Change: So that design cycle.
Speaker Change: You know like anything it typically six to 18 months it depends on the number of Ito reasons they will have.
So you probably will be learning more about the timing in the next week's conference they're gonna be hosting.
Speaker Change: Got it thank you so much.
Thank you.
Our next question comes from Paul Smith with Stifel. Please proceed with your question.
Speaker Change: Hi, guys. This is Kyle on for Torrey at Stifel. Congrats.
Speaker Change: Congrats on two straight quarters of positive free cash flow. So how should we think about free cash flow heading into fiscal 'twenty six and maybe building off of that if you could provide general expectations for both operating cash flow and capital expenditures that would be great.
Speaker Change: Heiko.
Speaker Change: Thanks for the question.
We will say that we're only guiding one quarter out.
Speaker Change: But you can see the strong cash flow generation that we had in Q4 and we had a sequential increases in cash flow generation from Q4 to Q3 definitely strong business fundamentals do help Mike with a growing business, but also with a reduction in debt.
We previously announced you know $48 million in annual cash interest savings and that's definitely a tailwind to our operating cash flow metrics and that operating cash flow. We only had a partial quarter of benefit in our Q4. So you can expect or I expect that there's going to be some incremental cash flow benefits over the year.
Speaker Change: Again, we're only guiding one quarter out, but I think it was.
Speaker Change: Historical Capex is reasonable proxy going forward for our future capex requirements.
Speaker Change: Great. Thank you and as my follow up could you maybe provide an overview of the unbundling trend you're seeing within the T. I a market and do you feel you can capture a majority share within the unbundled TIAA market in the next few years.
Speaker Change: Yeah. So.
Speaker Change: Definitely we can see the prior prior commercial enrichment.
Speaker Change: From the industrial participants.
Speaker Change: Usually leverage availability and shortages of D. S. P's, they wanted to say, Oh, DSP and T. I, a together I think with a more availability of the T. S. T. D. S P supplies and and a number of providers out there there's kind of a bundling practice is no longer.
Speaker Change: In place and that provide great opportunities for us too.
Speaker Change: To play in the level of the market.
Speaker Change: Playing field, so we have been gaining market shares.
Speaker Change: But I I think we still have way to go and good thing is our T. I as has been broadly regarded as the best solution in the industry and serving 200 gig 400 gig 800 gig and 1.6 T. So we have multiple form factors and our eye on.
Dissipate that trend will continue.
Speaker Change: That's on the quarter guys. Thank you.
Thank you.
Yeah.
Speaker Change: Our next question comes from harsh Kumar with Piper Sandler. Please proceed with your question yes.
Yes, hi, thanks for a chance to follow up.
Michael Hong: Curious Michael Hong.
Speaker Change: What is making Laura jump up.
Speaker Change: So significantly so fast are you seeing some kind of new deployments or.
Speaker Change: Activity and maybe you could help us understand what you are what kind of applications without giving us too much specifics.
Speaker Change: Yeah. So that's a great observation, we're really pleased with the results.
Speaker Change: And I think that largely due to their customer focus and we that this isn't an Laura has been auto piloting for a while and now we put a very concerted effort.
Speaker Change: And developing new products and provide enablement support and really engaging with our customers very closely. So it is clear that in Lora diamonds has demonstrated very strong differentiating capabilities compared to other RF protocols.
And our customers are developing different applications. There are a lot of innovation going on there and when people talk about is it an auto more long malware and robots and metering.
<unk>, that's a space and are you in a way you're happy and.
Speaker Change: Demonstrated very strong demand, but there are new applications being developed so I think we are accelerating that.
Speaker Change: Sue neagle product offering and our ecosystem enablement and our customer focus.
Speaker Change: Understood. Thank you, thanks, and congratulations again.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Quinn Bolton with Needham <unk> Co. Please proceed with your question.
Quinn Bolton: Hey, guys just wanted to ask a quick question on the PON business just looking at the overall signal integrity revenue in your comment that data center was up to $50 million. It looks like you probably saw a meaningful step down in the pawn business just wanted to see if you could confirm that.
Quinn Bolton: If that's the case is that just sort of timing between different tenders is that a seasonal effect and then I've got a quick follow up.
Yes, so for our Q4 results was actually year over a year. The pong was growing and as for our guidance are say in the Sip area, There's 6 million integrity of product as well is it going to grow now data center is going to grow so pong and.
The accident of timing thing related to the tender tender offers.
Quinn Bolton: Okay. Okay.
Quinn Bolton: And then I'm not sure if you care to comment, but you're you're growth for our signal integrity or sorry datacenter in particular for the April quarter. Just wondering do you expect the copper age business to be effectively zero in that quarter, because if so it obviously implies some really strong growth outside its the overall.
Quinn Bolton: Bucket is going to grow quarter on quarter, but just wondering if you could just directionally.
Copper edge still.
Quinn Bolton: Several million dollars zero just any help.
Quinn Bolton: You know just just to sort of thinking about growth in <unk>.
Quinn Bolton: Outside of the copper age product.
Quinn Bolton: In our Q1 guide, we still expect to be recording copper ridge net sales coverage.
Quinn Bolton: Copper ridge doesn't go to zero, but it just under R. R.
Quinn Bolton: Our prior expectations at our customer so.
Michael Hong: Hong said there's.
Michael Hong: Theres still design activity, we're engaged with over 20 customers and we expect some revenue to pick up at the latter half of FY 'twenty six.
Speaker Change: Got it thank you Mark.
Michael Hong: Okay.
Michael Hong: Thank you.
Michael Hong: There are no further questions at this time I would now like to turn the floor back over to Mark Klein for closing comments.
Speaker Change: Okay. Thank you everybody for joining and please visit our investor website, and investors, sometimes dot com, where he posts upcoming investor conferences or something that will be in attendance that's great Dave.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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