Q1 2026 Semtech Corp Earnings Call
Operator: Good day, and thank you for standing by.
Good day, and thank you for standing by.
Operator: Welcome to Semtech Corporation's First Quarter Fiscal Year 2026 Earnings Comp Fiscal Year 2026 Earnings Comp At this time, all participants are in a listen-only mode. After management's remarks, there will be a question and answer session. Please be advised that today's conference call is being recorded.
Welcome to some tech corporations first quarter fiscal year 2026 earnings conference call.
At this time all participants are in a listen only mode. After management's remarks, there will be a question and answer session.
Please be advised that today's conference call is being recorded.
Mark Lin: I would now like to hand the conference over to Mark Lin, Executive Vice President and Chief Financial Officer. Please go ahead. Thank you, Operator. Good day, everyone, and welcome.
Speaker Change: I'd now like to hand, the conference over to Martin Litt, Executive Vice President and Chief Financial Officer. Please go ahead.
Speaker Change: Thank you operator, good day, everyone and welcome conditioned to Hong Kong, President and Chief Executive Officer, I'm thrilled to be joined by mid course, senior Vice President of Investor Relations.
Mark Lin: In addition to Hong Hou, President and Chief Executive Officer, I'm thrilled to be joined by Mitch Hawes, Senior Vice President of Investor Relations. Many of you know Mitch, given his breadth of semiconductor experience at AMD, Skyworks, and Freescale, and now Semtech.
Mitch: Many of you know Mitch given his breadth of semiconductor experience at M. D Sky works and Freescale and now some check with that I'll turn the call over to Mitch.
Mitch Hawes: With that, I'll turn the call over to Mitch. Thanks, Mark. I'm very happy to join the Semtech team and look forward to engaging with all of you in the months and quarters ahead.
Mitch: Yeah.
Mitch: Thanks, Mark I'm very happy to join the <unk> team and look forward to engaging with all of you in the months and quarters ahead.
Mitch Hawes: Today, after market close, we released our run audited results for the first quarter of fiscal year 2026, which are posted along with an earnings call presentation to our 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 slide two of the earnings presentation as well as the risk factors section of our most recent end report on Form 10-K for a number of risk factors that could cause or actually result in events to differ materially from those anticipated or projected on this call.
Mitch: Today after market close we released our right now that the results for the first quarter of fiscal year 2026, which are posted it along with an earnings call presentation to our investor website at investors <unk> Dot com.
Mitch: Today's call will include various remarks about future expectations plans and prospects, which comprise forward looking statements.
Mitch: 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 on Form 10-K for a number of risk factors that could cause our actual results and events.
Mitch: To differ materially from those anticipated or projected on this call you.
Mitch Hawes: You should consider these risk factors in conjunction with our four lucky savers.
Mitch: You should consider these risk factors in conjunction with our forward looking statements.
Mitch Hawes: Unless otherwise noted, all income statement related financial measures will be non-GAAP other than net sales. Please refer to today's press release and see slide 3 of the earnings presentation for important information regarding notes on our non-GAAP financial presentation. The press release and earnings presentation also include reconciliations of our GAAP and non-GAAP financial measures.
Mitch: Unless otherwise noted all income statement related financial measures will be non-GAAP other than net sales.
Mitch: 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.
Mitch: The press release and earnings presentation also include reconciliations of our GAAP and non-GAAP financial measures.
Hong Hou: With that, I will turn the call over to Hong. Thank you, Mitch. Welcome aboard. Good afternoon, everyone. We reported Q1 results with net sales, adjusted gross margin, adjusted operating margin, and adjusted diluted earnings per share, each above the midpoint of our guidance. These results illustrate the resiliency of our business and offer another proof point of our operational excellence. Semtech's Q1 ended on April 27th, so we closed the last month of the quarter during an extremely turbulent period. But we successfully navigated through dynamic tariff policy. Superb coordination among our operations, sales, compliance teams was instrumental in mitigating the tariff situation for Semtech and our customers, facilitating a stable flow of product across the global semiconductor supply chain.
Mitch: With that I will turn the call over to home.
Speaker Change: Thank you Mitch welcome aboard and good afternoon, everyone.
We reported Q1 results with net sales adjusted gross margin and substitute operating margin and adjusted diluted earnings per share each up off the midpoint of our guidance.
Speaker Change: These results illustrate the resiliency of our business and offer another proof point.
Speaker Change: Operational excellence.
Speaker Change: <unk> Q1 ended on April 27th So wait closed the last months of the quarter during an extremely turbulent period.
Speaker Change: But do we successfully navigate its true dynamic tariff policies.
Speaker Change: Superb coordination among our operations sales compliance teams, what's the instrumental in mitigating that tariff situations for some tech and our customers' facilitating a stable flow of product across the global semiconductor supply chain.
Hong Hou: I extend my heartfelt thanks to these teams and recognize their efforts in helping us achieve our Q1 results and support our conviction for the quarters ahead. Semtech's Q1 results also reflect our focus on core priorities, including portfolio optimization, strategic investment in R&D, and a driving margin expense. Well, uncertainty in the market may impact the timing of some of our portfolio optimization initiatives. We have strong conviction that we can operate these businesses to grow the top line, expand profit margins, and improve overall financial metrics. We believe this will create more value for our shareholders.
Speaker Change: I extend my heartfelt thanks to this team's and recognize their efforts in helping us achieve our Q1 results and supports our conviction for the quarters ahead.
Speaker Change: <unk> Q1 results also reflect our focus on core priorities, including portfolio optimization strategic investment in R&D and they're driving margin expansion.
Speaker Change: While uncertainty in the markets may impact the timing of some of our portfolio optimization initiatives.
We have strong conviction that we can operate this business is to grow the topline expanding profit margins and improve overall financial metrics.
Speaker Change: We believe this will create more value for our shareholders.
Hong Hou: moving to our end market. For Q1, infrastructure net sales were $72.8 million. up 5% sequentially and up 30% year-over-year. Net sales for data center were a record $51.6 million, up 3% sequentially, and up 143% year-over-year. Our expectations for a short-term demand gap in copper edge remain consistent. That said, we expect our data center business to be a sustainable growth driver, especially given recent indications of capital expenditure growth by hyperscalers, as well as from innovations in our copper and optical portfolios. AI data centers face critical power and thermal challenges, which will grow exponentially as compute workloads increase.
Speaker Change: Moving to our end markets.
Speaker Change: For Q1 infrastructure net sales were $72.8 million up 5% sequentially and up 30% year over a year.
Speaker Change: Net sales for data center were a record $51 $6 million up 3% sequentially and up 143% year over a year.
Speaker Change: Yeah.
Speaker Change: Our expectations for short term demand gaps in copper etch remain consistent.
Speaker Change: That said, we expect our data center business to be a sustainable just driver.
Speaker Change: Especially given recent indications of capital expenditure Geos by hyper scalar is as well, it's so from innovations in the copper and the optical portfolios.
Speaker Change: I I data centers face critical power and thermal challenges, which will grow exponentially as compute workloads increase.
Hong Hou: Our analog solutions are well suited to address these challenges. Coverage enables a significant paradigm shift in connectivity. delivering the signal integrity and rich extension needed for next generation AI clusters. Compared to DSP-based options, Copper Edge reduced power consumption by over 90%, and also enables a significantly longer reach than the direct-attached copper or DAC cables. At OFC, we demonstrated a number of copper edge driven ACC applications. all with a bit error rate well below acceptable ranges. At 1.60, we successfully run traffic across a 3-meter, 27-gauge cable using two 24-gig 30-sports. Our launch application at our Anker customer last year was a 1.1 meter cable.
Oh analog solutions are well suited to address this address this challenges.
Speaker Change: Copper that enables a significant paradigm shift in connectivity.
Speaker Change: Delivering the signal integrity and to reach extension needed for next generation AI clusters.
Mitch: Compared to a D. S. P based options copper etch reduce power consumption by over 90% and also enables a significantly longer reach than the direct attach copper cables.
Hey, Bose.
At OFC, we demonstrated a number of our copper etch driven ACC applications.
Mitch: I'll wait a bit error rate well below acceptable wrenches.
And at 1.6 T. We successfully run traffic across our three meter 27 gauge cable was using 224 gig Saturday sports.
Mitch: Oh lunch application at all I'm clear customer last year, what's a 1.1 meter table. So this demonstration highlighted the high performance capabilities, and then rich I felt copper etch ic's.
Hong Hou: So this demonstration highlighted the high performance capabilities and the reach of our CopperEdge IC. At 800 gig, the dominant read of data center traffic, we demonstrated an extended reach 5 meter ACC connected to Broadcom Tomahawk 5 switch. A prospective customer requested this configuration for use as a replacement to deck cables. Also connected to the Tomahawk-5 switch was an ultra-thin, 3-meter, 30-gauge cable.
Mitch: At 800 gig that dominate the readout data center traffic Wade demonstrated our extended reach five meter ACC.
Mitch: Connected to a broadcom tomahawk five switch.
Mitch: Our prospective customer requested this conflict recent for us at the replacement to deck cables.
Mitch: Also connected to the Tomahawk five switch what's the ultra thin three meters 30 sake, it's 30 days cable.
Hong Hou: that had significant benefits in airflow and bending radius.
Mitch: That has significant benefits and airflow and bending radius.
Hong Hou: Both characteristics valued by rec architects. We remain closely engaged with our Copper Edge Anker customers for applications in their future generation racks. In addition, hyperscalers, switch vendors, and cable manufacturers continue to show interest in copper-edged ACCs. We have delivered ACC cables for testing and qualification to multiple customers and expect meaningful design wins at hyperscalers and enterprise customers, leading to volume ramps before the end of this fiscal year.
Both characteristics valued by Rex architects.
Speaker Change: We remain closely engaged with our copper etch anchor customer for applications in their future General recent Rex.
Speaker Change: In addition, hyper scalar is switch vendors and the cable manufacturers continue to show interest in copper etch Acc's.
Speaker Change: We have delivered ACC cables for testing and qualification to multiple customers and they expect the meaningful design wins at a hyperscale and enterprise customers leading to volume ramps before the end of this fiscal year.
Hong Hou: On the optical side... Our LPO demonstration at OFC generated significant interest. and our expectation of deployments in the second half of this fiscal year remains unchanged. We are pleased that the feedback from our customers indicates Semtech TIA for LPO offers superior performance. And we believe we are winning the lion's share in TIAs. We also released our LPO laser drivers last quarter and are generating design interaction at multiple module suppliers.
Speaker Change: On the optical side.
Speaker Change: L. P O demonstration at OFC generated significant interest.
Speaker Change: And now I expect tasting of deployment in the second half of this fiscal year remains unchanged.
Speaker Change: We are pleased that the feedback from our customers indicate some tech T. I a for L. P O offer superior performance and we believe we are winning the lion's share of getting T. I. As we also released our L. P O laser drivers last quarter and now generating design in traction.
Speaker Change: And the multiple module suppliers.
Hong Hou: Moving to our high-end consumer end market, net sales for Q1 were $35.4 million. flat sequentially and up 3% year over year. Net sales in Consumer TVS were $24.5 million in line with our outlook for Q1 and up 2% sequentially.
Speaker Change: Moving to our high end consumer end market.
Speaker Change: Net sales for Q1 were $35 $4 million.
Speaker Change: Flat sequentially and up 3% a year over a year.
Speaker Change: Not to say it was in consumer T V. S were $24 $5 million in line with our outlook for Q1 and up 2% sequentially.
Hong Hou: We expect a pattern of smartphone unit ramps fairly consistent with the past years, with an increase in the second quarter and a successive increase in the third quarter. Within Consumer TVS, we believe our innovation continues to result in increased content.
Speaker Change: We expect a pattern of smartphone unit rents fairly consistent with our past years with the increase in the second quarter and des successive increase in the third quarter.
Speaker Change: Within consumer T V. S. We believe well you know basin continues to result in an increased content.
Hong Hou: I'm pleased to highlight extended design and activity of SearchSwitch, a system-level protection device across a number of manufacturers and platforms. SearchSwitch has a capability to simultaneously address an expanded dimension of threats from ESD, or electrostatic discharge, or EOS. or electrical overstress across a wide operating temperature range. Final process geometry in advanced nodes for IC fabrication have increased the demand for the type of rigorous off-chip system level protection offered by surge switch.
Speaker Change: I'm pleased to highlight our expanded design in activity of search switch a system level of protection device across a number of manufacturers and platforms.
Speaker Change: So, let's switch hats I kept the ability to simultaneously address expanded dimension of threat from E. S. D O electrostatic discharge or E O S.
Speaker Change: Oh, he likes the electrical overstress across a wide operating temperature range.
Speaker Change: Find their process geometry in advance nodes for IC fabrication have you increased the demand for that type of rigorous off chip system level of protection offered by search switch.
Speaker Change: Yeah.
Hong Hou: For our per se or person sensing products, we have discussed use in smart glasses. and application we believe has a strong potential to be next generation AI interface platform. We have a growing field of opportunity and are actively engaged with a broad range of customers on both existing designs and on new launches. In smartphones, Percy addresses the increasingly stringent specific absorption rate, or SAR, standards and is currently deployed on devices at the most leading manufacturers. Per Se offers meaningfully lower power, improved sensitivity, and best-in-class noise rejection. Percy's use of Semtech's novel packaging expertise also results in smaller footprint.
Speaker Change: For a per se a person sensing products, we have discussed UC and smart glasses.
Speaker Change: And application, we believe has a strong potential to be next generation I I interfacing platform.
Speaker Change: We haven't really even field of opportunity and are actively engaged with a broad range of customers on both existing designs and new launches.
Speaker Change: In smartphones per se addresses the increasingly stringent specific absorption rate or so.
Speaker Change: Saar senders and its currently deployed on devices at the most of the leading manufacturers.
Speaker Change: Per se offers meaningfully lower power improve the sensitivity and best in class noise rejection.
Speaker Change: Firstly, it's a use of some tax a novel packaging expertise also would result in smaller footprint, that's allow us and our customers to develop a slicker form factors.
Hong Hou: That allows us and our customers to develop a slicker form factor.
Hong Hou: Moving to our industrial end market, for Q1, industrial net sales were $142.8 million. down 3% sequentially, in line with our outlook, and up 24% year over year. Within the industrial end market, net sales of LoRa-enabled solutions remained strong at $38.9 million. up 5% sequentially and up 81% year over year.
Speaker Change: Moving to our industrial end market for Q1, industrial net sales were $142 $8 million.
Speaker Change: <unk>, 3% sequentially in line with our outlook and up 24% year over a year.
Speaker Change: Within the industrial end market net sales of Lora enabled solutions remained strong at $38 $9 million.
Speaker Change: Up 5% sequentially and up 81% year over a year.
Hong Hou: Demand supporting new product launches and deployments remained robust.
Speaker Change: Demand supporting new product launches and deployments remained robust.
Hong Hou: We recently announced that Sanova, a world leader in innovative healthcare solutions, chose Semtech as a technology partner to create an ultra-small, ultra-low-power wireless radio and power management IC. LoRa technology highlights Semtech's deep expertise in ultra-low-power RF with a clear match for battery-operated devices, including hearing aids. Robotics and unmanned aerial vehicles are also an emerging market for LoRa. LoRa's ability to operate in dual-band 2.4 GHz and ISM frequencies offers enhanced bandwidth, which is well suited for this application. In addition, LoRa's modulation scheme now paired with multiple protocols. provided a capability of LoRa Plus allows manufacturers to extend the end applications, including safety, security, as well as smart building.
Speaker Change: We recently announced that so Nova a world leader, you know very deep health care solutions.
Speaker Change: Some tech as a technology partner to create a ultra small ultra low power wireless redo and the power management IC.
Speaker Change: Lora technology highlights some taxes, Deepak Chopra T and ultra low power RF with a clear match for a battery operated devices, including hearing AIDS.
Speaker Change: Robotics and I'm in the Aero vehicles are also our emerging market for Lora.
Speaker Change: Laura the ability to operate again do bands two four gigahertz and I S. M frequencies offer to get enhanced bandwidth, which is well suited for this applications.
Speaker Change: In addition, lower resin modulation scheme now paired with the multiple protocols.
Speaker Change: <unk> provided a capability of Lora plus.
Speaker Change: Allows manufacturers to extend.
Speaker Change: The end applications, including safety security as well as smart beauty.
Hong Hou: Our IoT systems hardware business recorded Q1 net sales of $63.5 million. down 8% sequentially, but within expectation of our outlook, and up 31% year over year. Bookings in the first quarter for this business increased for the seventh consecutive quarter.
Speaker Change: Oh, I O T systems hardware business recorded Q1, net sales of $63 $5 million.
Speaker Change: Down 8% sequentially, but within expectations.
Speaker Change: Outlook and up 31% year over a year.
Speaker Change: Bookings in the first quarter for this business increased for the seventh consecutive quarters.
Hong Hou: Pipeline also increased substantially in Q1, attributable to both the inclusion of a significant China-based competitor on a sanctioned list and the strong indications of a broader market recovery. We expect continued growth and improved profitability in our IoT cellular portfolio based on stronger pipelines and bookings. Growing 5G adoption rates, particularly in North America, is benefiting our hardware business. with the current deployments utilizing the first and second gen modules. In Q1, we launched the 2nd, 3rd Gen 5G module. a cost-optimized solution supporting broader 5G adoption for value-focused applications, and a performance-optimized solution supporting 5G advanced to enable next-generation edge-based AI applications.
Speaker Change: Pipeline also increased substantially in Q1 attributable to both the inclusion of a significant China based competitor.
Speaker Change: And list.
Speaker Change: And the strong indications of a broader market recovery.
Speaker Change: We expect a continued gels and improve the profitability you know I O T cell our portfolio based on stronger pipeline and bookings.
Speaker Change: Growing five G adoption rates, particularly in North America, it's benefiting our heart, where our business with the current deployments utilizing the first and second Gen modules.
Speaker Change: In Q1, we launched the two third Gen five G mall juice.
Speaker Change: Cost optimized solutions supporting browser five G adoption for value focused applications and performance optimized solution supporting five G advanced to enable next generation edge based AI applications.
Hong Hou: IoT-connected services net sales were overall stable for this largely recurring revenue business. Our connected service business is a great example of Semtech's deployment of AI tools. As an example, anomaly detection highlights abnormal network activities and notifies our operating center, and we believe this improved detection capabilities have prevented security incidents for our customers.
Speaker Change: Iot connected services net sales were overall stable for this largely reoccurring revenue business.
Speaker Change: Our connected services business is a great example of some tax deployment of AI tools.
Speaker Change: As an example anomaly detection highlights abnormal network activities and notified so operating center.
Speaker Change: And we believe this improve the detection capabilities have prevented a security incidents for our customers.
Hong Hou: In summary, we have made significant strides in strengthening Semtech's financial foundation over the past year. which allows us to sharpen our focus on improving profitability and investing in innovation and capabilities that position us for long-term business growth. Our Q1 results reflect disciplined execution.
Speaker Change: In summary, we have made significant strides in strengthening seven tax the financial foundation over the past year.
Speaker Change: Which allows us to serve and our focus on improving profitability and investing in our innovation and capabilities that position us for long term business growth.
Speaker Change: Yeah.
Speaker Change: Our Q1 results reflect our disciplined execution.
Hong Hou: At the same time, we recognize that there is still much work ahead of us to fully unlock the value of our unique technologies and to deliver sustainable long-term returns for our shareholders. We must continue to solidify a winning culture, accelerate innovation, and leverage our technology leadership and execution. All of which position us to deliver enhanced value to our shareholders with increased revenue and expanded margins.
Speaker Change: At the same time, we recognize that there is still much work ahead of us to fully unlock the value of our unique technologies and to deliver sustainable long term returns for our shareholders.
Speaker Change: We must continue to solidify our winning culture accelerating innovation, and then leverage our technology leadership and execution.
Speaker Change: All of which position us to deliver again enhance the value to our shareholders with the increased revenue and expanded margins.
Mark Lin: I now turn the call to Mark for additional details on our financial results and our outlook for the second quarter of fiscal 26.
Speaker Change: And now I'll turn the call to Mark for additional details on our financial results and our outlook for the second quarter, our physical 26.
Speaker Change: Mark.
Mark Lin: Thank you, Hong. For Q1, net sales were a record $251.1 million, above the midpoint of our outlook and up 22% year over year. We do not believe our Q1 net sales reflect material pull-ins due to tariff. Net sales trends by end market, reportable segment, and geographic region is included on slide 16 of the earnings presentation. Adjusted gross margin was 53.5%, up 30 basis points sequentially and up 370 basis points year over year. Adjusted Net Operating Expenses were $86.6 million below the midpoint of our outlay. Adjusted operating income was $47.6 million, resulting in an adjusted operating margin of 19%, up 680 basis points year-over-year.
Speaker Change: Thank you all for.
Speaker Change: For Q1, net sales were a record $251 $1 million above the midpoint of our outlook and up 22% year over year we.
Speaker Change: We do not believe our Q1 net sales reflect material pull ins due to tariffs.
Speaker Change: Net sales trends by end market reportable segment and geographic region is included on slide 16 of the earnings presentation.
Speaker Change: Adjusted gross margin was 53, 5% up 30 basis points sequentially and up 370 basis points year over year.
Speaker Change: Adjusted net operating expenses were $86 $6 million below the midpoint of our outlook.
Speaker Change: Adjusted operating income was $47 $6 million, resulting in an adjusted operating margin of 19% up 680 basis points year over year.
Mark Lin: Adjusted EBITDA was $55.4 million, up 68% year-over-year, and adjusted EBITDA margin was 22.1%, up 600 basis points year-over-year. Addressed net interest expense was $5 million, down sequentially from $11.2 million. The decrease was primarily reflective of a full quarter of savings from our Q4 debt paydown. We recorded other net non-operating expenses of $2.8 million, substantially reflective of foreign exchange revaluation losses. This amount stemmed from a weaker U.S. dollar, most notably in the month of April. We recorded adjusted diluted earnings per share of $0.38, up from $0.06 a year ago. Operating and free cash flow for Q1 were $27.8 million and $26.2 million respectively and these amounts reflect variable compensation payments in Q1.
Speaker Change: Adjusted EBITDA was $55 $4 million up 68% year over year and adjusted EBITDA margin was 22, 1% up 600 basis points year over year.
Speaker Change: Adjusted net interest expense was $5 million down sequentially from $11 $2 million. The decrease was primarily reflective of a full quarter of savings from our Q4 debt paydown.
Speaker Change: We recorded other net nonoperating expenses of $2 $8 million substantially reflective of foreign exchange revaluation losses.
Speaker Change: This amount stemmed from a weaker U S dollar most notably in the month of April.
Speaker Change: We recorded adjusted diluted earnings per share of 38 cents up from six cents a year ago.
Speaker Change: Operating and free cash flow for Q1 were $27 $8 million and $26 $2 million, respectively, and these amounts reflect variable compensation payments in Q1.
Mark Lin: At the end of Q1, net debt sequentially decreased $14.8 million to $396.2 million and comprised of approximately $171 million in term loan and $382 million in convertible notes. offset by $156 million in cash and cash equivalents. Along with debt reduction, strong business performance contributed to an adjusted net leverage ratio below 2 as of the close of Q1. We continue to prioritize debt reduction with a $10 million term loan prepayment in the first quarter and an additional $15 million to date in the second quarter.
Speaker Change: At the end of Q1 net debt sequentially decreased $14 $8 billion to $396 $2 million and comprised of approximately $171 million in term loan and $382 million in convertible notes offset by $156 million in cash and cash equivalents.
Speaker Change: Along with debt reduction strong business performance contributed to an adjusted net leverage ratio below two <unk> as of the close of Q1.
Speaker Change: Yeah.
Speaker Change: We continue to prioritize debt reduction with a $10 billion term loan prepayment in the first quarter and an additional $15 million to date in the second quarter.
Mark Lin: On our revolving credit facility, I am pleased we successfully amended the facility to increase our total borrowing capacity by $117.5 million for a total revolving credit facility size of $455 million. No financial covenants or material terms were modified as part of this amendment. As of today, the revolving credit facility remains undrawn except for previously outstanding letters of credit totaling about $3 million.
Speaker Change: On a revolving credit facility I am pleased we successfully amended the facility to increase our total borrowing capacity by $117 $5 billion for total revolving credit facility size of $455 million.
Speaker Change: No financial covenants or material terms were modified as part of this amendment.
Speaker Change: As of today, the revolving credit facility remains undrawn, except for previously outstanding letters of credit totaling about $3 million.
Mark Lin: Now turning to our second quarter outlook. We currently expect net sales of $256 million, plus or minus $5 million, up 19% year-over-year at the mid-term. We expect net sales from our infrastructure and market to increase sequentially, including growth in data. We expect net sales from our high-end consumer and market to be upsidely reflective of typical seasonality.
Speaker Change: Now turning to our second quarter outlook.
Speaker Change: We currently expect net sales of $256 million, plus or minus $5 million up 19% year over year at the midpoint.
Speaker Change: We expect net sales from our infrastructure end market to increase sequentially, including growth in data center.
Speaker Change: We expect net sales from our high end consumer end market to be up slightly reflective of typical seasonality.
Mark Lin: We expect net sales from our industrial end market to be flat to slightly down with moderation and LORA offsetting growth in our IoT cellular business. Based on expected product mix and net sales level, we expect adjusted gross margin to be 53.0%, plus or minus 50% based on expected gross margin. a 260 basis point improvement year-over-year at the bid price. Addressed net operating expenses are expected to be $87.5 million, plus or minus $1 million, resulting in an adjusted operating margin at the midpoint of 18.8%, a 460 basis point improvement year-over-year. Adjusted EBITDA is expected to be $56 million, plus or minus $3 million, resulting in an adjusted EBITDA margin at the midpoint of 21.9%, a 310 basis point improvement year-over-year.
Speaker Change: We expect net sales from industrial end market to be flat to slightly down.
Speaker Change: With moderation in Lora offsetting growth in our Iot business.
Speaker Change: Based on expected product mix and that sales level, we expect adjusted gross margin to be 53.0% plus or minus 50 basis points each.
Speaker Change: 260 basis point improvement year over year at the midpoint.
Speaker Change: Adjusted net operating expenses are expected to be $87 $5 million, plus or minus $1 million, resulting in an adjusted operating margin at the midpoint of 18, 8%, a 460 basis point improvement year over year.
Speaker Change: Yeah.
Speaker Change: Adjusted EBITDA is expected to be $56 million, plus or minus $3 million, resulting in an adjusted EBITDA margin at the midpoint of 21, 9%, a 310 basis point improvement year over year.
Mark Lin: We expect adjusted interest and other expenses net to be $5.5 million, reflective of leverage-based pricing on our term loan, that reduces our interest rate. Another benefit of our lower leverage ratio. We expect an adjusted, normalized income tax rate of $15,000.
Speaker Change: We expect adjusted interest and other expenses net to be $5 $5 million reflective of a leverage based pricing on our term loan debt reduce our interest rate.
Speaker Change: The benefit of a lower leverage ratio.
Speaker Change: We expect an adjusted normalized income tax rate of 15%.
Mark Lin: These amounts are expected to result in adjusted diluted earnings per share of $0.40, plus or minus $0.03, based on a weighted average share count of 90 million shares.
Speaker Change: These amounts are expected to result in adjusted diluted earnings per share of <unk> 40.
Speaker Change: Plus or minus <unk> <unk> based on a weighted average share count of 90 million shares.
Mitch Hawes: Thank you, Mark. We can now turn the call back over to the operator for the question and answer session. Thank you.
Speaker Change: Thank you Mark we can now turn the call back over to the operator for the question and answer session.
Speaker Change: Thank you.
Operator: Ladies and gentlemen, if you would like to ask a question... Star 1 on your telephone keypad. Confirmation Tone Press star 2 if you would like to remove.
Speaker Change: Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: And a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove your question from the queue.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Operator: In the interest of time, we ask that you ask only one question and one follow-up. One moment.
Speaker Change: Due to the interest of time, we ask that you ask only the U S.
Speaker Change: Only one question and one follow up.
Speaker Change: One moment, please pull for questions.
Quinn Bolton: Next question comes from the line of Quinn Bolton with Hey, guys. I wanted to start off with a question on the cellular module business. I was, I guess, a little surprised to see that down, I think, after six quarters of increased bookings and Q1 being the seventh quarter. So I wondered if there was anything specific to call out in the cellular module business in April. And thank you for the additional gross margin disclosure in today's press release. But it does look like the gross margin on the cellular modules also came in down meaningfully both quarter and quarter and year on year.
Speaker Change: And our first question comes from the line of Quinn Bolton with Needham and company. Please proceed.
Quinn Bolton: Hey, guys wanted to start off with a question on the solar module business I was I guess, a little surprised to see that down I think after six quarters of increased bookings in Q1 being the seventh quarter. So wondering if there was anything specific to call out in the cellular module business in April and.
Speaker Change: Thank you for the additional gross margin disclosure in today's press release, but it does look like the gross margin on the cellular modules also came in down meaningfully both quarter on quarter and year on year. Just wondering if you could explain what happened on the margin side of cellular module business.
Quinn Bolton: I just wondered if you could explain what happened on the margin side of the cellular module business in the first quarter.
Speaker Change: In the first quarter.
Hong Hou: Yeah, Quinn.
Speaker Change: Yeah, Hi, Thank you for your question, yes, so from our Q4 guidance, we expected some level of seasonality on our Iot system product.
Hong Hou: Hey, thank you for your question. Yes. So from our Q4 guidance, we expected some level of seasonality on our IoT system product And, uh, but you are right, this business is experiencing pretty significant tailwind as a, uh, uh, I provided during the prepared remarks because of the sanctions list for our competitor based in China and also the exit of U-blocks into the IOT cellular business. This tailwind is very evident from our booking activities and so we do expect this business is going to be revenue is going to be accelerating in the quarters forward. But Q1 was a little low, and we expected that from the guidance of the Q4.
Speaker Change: And but you are right. This business is experiencing pretty significant tailwind.
Speaker Change: Yeah.
Speaker Change: I I provided during the prepared remarks because of the sanction list for our competitor based in China and also they are exit.
Speaker Change: <unk> blocks into the Iot cellular business.
Speaker Change: This tailwind is very evident from our booking activities and so we do expect this business is gonna be revenue is going to be accelerating and yet the quarters forward.
Speaker Change: But Q1 was a little low and we expected that from that guidance after Q4.
Hong Hou: And Quinn, just to address gross margins, this also came in with an expectation. We had guided a little bit lower gross margin, or we expected a little bit lower gross margin from the ISC business, but within this business, you also have a little bit of mix between modules and routers affecting the gross margin that we reported. So you saw a mix shift more to modules away from routers, and that's why it came in lower than, say, the prior quarter or prior year? That's correct. And there is also a one-time event on the inventory on the module side.
Quint: Quint just address.
Speaker Change: Gross margins. This also came in within expectations, we had guided a little bit lower gross margin up or we expect a little bit lower gross margin from the IFC business.
Speaker Change: But within this business you also have a little bit of mix between modules and routers affecting the gross margin that we reported.
Speaker Change: So you saw a mix shift more to module is away from routers and that's that's why it came in.
Speaker Change: Lower than say the <unk>.
Speaker Change: Higher quarter of prior year.
Speaker Change: That's correct.
Speaker Change: Or is that also a one time event Oh no inventory on the module side, so that I'd say kind of like a you know they are in.
Hong Hou: So that is kind of like impacting the overall IoT system margin adversely. But that's a one-time event. Yeah, so there's a write-off of obsolete or excess inventory and that, something like that, that was a further drag. Patrick, when it was more in Q4, we had a little bit of a tailwind that didn't recur in Q5. Ah, okay.
Speaker Change: Impacting the overall I O T system margin adversely that as that's one time.
Speaker Change: Event.
Speaker Change: Got it so you're saying a write off of obsolete or.
Speaker Change: Excess inventory or something like that.
Speaker Change: Was that was a further drag.
Speaker Change: Patrick when it was more in Q4, we had a little bit of a tailwind that we didn't recur in Q1.
Speaker Change: Oh, okay.
Quinn Bolton: Thank you. I'll get back in queue.
Speaker Change: Thank you I'll get back in queue.
Christopher Rolland: The next question comes from the line of Christopher Rolland with Susquehanna and Hey guys, thanks for the question. So, mine is just around AI connectivity. It sounded like there was some progress here, maybe on the Copper Edge side with engagements and revenue by the end of the year.
Speaker Change: The next question comes from the line of Christopher Rolland with Susquehanna International Group. Please proceed.
Christopher Rolland: Hey, guys. Thanks for the question. So mine is just around the AI connectivity. It sounded like there was some progress here.
Speaker Change: Maybe on the copper edge side.
Speaker Change: With engagement and revenue by the end of the year, perhaps you could expand on that and just more broadly talk about where we are in visibility around AI connectivity for you guys overall.
Christopher Rolland: Perhaps you could expand on that and just more broadly talk about where we are in visibility around AI connectivity for you guys overall.
Hong Hou: Yeah, Chris, thank you for that question. You know, our CopperX product, we trailblazed that product into the market through the engagement with the Anchor customer. Since then, we have reached out to more than 20 customers and having very close engagement with many of them. And it is really very encouraging to see that they finally recognize the unique advantage that ACC offers compared to AOC or AEC in terms of low power consumption, low latency. And a number of them are taking our product prototype samples for qualification and testing. And so the use cases are going in for a scale up of the A6 interconnect and also for a scale out, especially the first level of the switch fabric from neck to top of the rack.
Chris: Yeah, Chris Thank you for that question.
Chris: You know our hopper product, we trail blaze did that product into the market through the engagement with the anchor customer.
Chris: Since then we have reached out to more than 20 customers and having very close engagement with many of them.
Chris: And it is really a very encouraging to see that they finally recognize.
Chris: The unique advantage that ACC offers compared to eight O C. O E. C. In terms of low power consumption low latency and a number of them are taking our product prototype samples and for qualification and testing.
Speaker Change: And so the use cases are going in for a scale up of the Asics interconnect and also for our scale out, especially the first level of the switch fabric from Nick to the top of the rack.
Hong Hou: And our demo at OFC, it's use-style bias in that it really shows and gives a lot of confidence for our customers. They come in, see and kick the tire, you know, wiggle the cables and see the bid error rate well below the acceptable limit. And so for, say, 200 gigabit, they could see our product can transmit over three meters with a 30-gauge cable. That is really very desirable. So, as I said, we expect a number of the customers we're engaging is going to be finished through qualification and start ramping by Q4 this year. Excellent. Thank you, Hong.
Speaker Change: And our demo at OFC, it's use stopped by a sit in that and it really shows and gave them a lot of confidence for our customers they come in see and kicked the tires.
Speaker Change: You know, our Waco day at K boats, and see a debate of error rate well below the acceptable limit.
Speaker Change: And so for say 200 gigabit they could.
Speaker Change: See our product I can transmit over three meters wait 30 days cable that is really a very desirable. So as I said, we expect a number of the.
Speaker Change: Their customers wage engaging is gonna be finished still qualification and start ramping by Q4 this year.
Speaker Change: Excellent. Thank you hung a my second question is around a L. P O and optical more more generally for you guys. If you could describe what you're seeing there in terms of like T. I as drivers you know for maybe regular optical and then four.
Christopher Rolland: My second question is around LPO and optical more generally for you guys. If you could describe what you're seeing there in terms of like TIAs, drivers, you know, for maybe regular optical and then for LPO and how that might ramp through the air. That would be great.
Speaker Change: For L P O and how that might ramp through the year that that that'd be great. Thank you guys.
Hong Hou: Thank you, guys. Yeah, thank you.
Speaker Change: Yeah. Thank you. So as you know there's some tech T. I E is considered the gold standard for the industry for traditional re timed O L. P. O R. T. I E has been designed in almost in every module manufacturers.
Hong Hou: So as you know, that Semtech TIA is considered a gold standard for the industry. For traditional retimed, all LPO or TIA has been designed in almost in every module manufacturers. And the LPO coming out of the OFC, you know that MSAs, they finalized the specification. So now the suppliers, the customers, the cloud service providers, they're all on the same sheet of music and having the same expectation on performance. And there's no longer any argument. Now it's really about the timing and what platform they start a deployment. So this is tremendous progress compared to a couple of years ago.
Speaker Change: And L. P O are coming out of day, Oh, I see you know that MSA as they finalize their specification. So now the suppliers and our customers the cloud service providers, they're all on the same sheet of music and having the same expectation on performance.
Speaker Change: And there's no longer any argument now it's really about the timing and what platform. They start at deployment. So there's a tremendous progress compare to a couple of years ago and it's you know this industry and tracking for a long time.
Hong Hou: As you know, this industry and tracking for a long time, we're seeing 800 gig. LPL links of 100 gigabit per second is going to be used first by multiple cloud service providers. And we're designed in for MLTIAs. Our driver is a little bit late compared to our competitors, and by the way, released the last quarter. And our driver, because of late reduction, did incorporate the specific requirements that MSA dictated or authored. So I would say our driver is a fully LPL compliant driver, and we are working with multiple module manufacturers in incorporation and qualification. So that will bring additional revenue, say, by Q4 this fiscal year.
Speaker Change: What are you seeing 800 gig.
Speaker Change: L. P O links all of our 100 gigabit per second is gonna be a use the first by multiple cloud service providers and we're designed in for I don't know T. I a S. R.
Speaker Change: Our driver is a little bit late compared to our competitors and by the way released last quarter and our driver because of late reduction did incorporate the specific requirements that are MSA dictate it all Oh third so I would say our driver it's a fully L. P.
Speaker Change: A P O compliant driver and we are working.
Speaker Change: With multiple module manufactures in incorporation in qualification so that will bring additional revenue say in Pi I always say by Q4 of this fiscal year. So in general all fiber etch product and a pretty broad applications of different data.
Hong Hou: So in general, our fiber edge product had a pretty broad application, different data rates and different applications, and we are benefiting from the increased CapEx spending of the industry, but also I believe we're gaining some market share. So that will continue to be a driver for our data center and overall revenue growth.
Speaker Change: Right.
Speaker Change: And different applications.
Speaker Change: And we are benefiting from the increased capex spending of the industry, but also I believe weight, gaining some market share so that and it will be a continued to be a driver for our data center and the overall revenue growth.
Hong Hou: Thanks for the call, Arham. Thank you.
Speaker Change: Thanks for the color home.
Speaker Change: Thank you.
Speaker Change: Yeah.
Harsh Kumar: The next question comes from the line of Harsh Kumar with... Yeah. Hey, guys.
Speaker Change: The next question comes from the line of harsh Kumar with Piper Sandler. Please proceed.
Harsh Kumar: Welcome, Mitch. Good to talk to you again.
Matt Good: Yeah, Hey, guys welcome Matt Good to talk to you again.
Harsh Kumar: Hong, I had a quick question. I was curious if you could talk about your data center business, the core business, excluding, you know, Futuristic Outlook for LPO and maybe ACC, just your plain vanilla core data center business, how you see that business trending over the next, call it, six to 12 months. And then I had a follow Good.
Matt Good: How long I had a quick question I was curious if you could talk about your data center business the core business excluding <unk>.
Speaker Change: Futuristic outlook for <unk> and maybe ACC just your just your plain vanilla core data center business, how you see that business trending over the next call. It six to 12 months and then I had a follow up.
Hong Hou: Thank you, Harsh. So, you know that we disclosed their air pocket in demand on ACC, so from the anchor customer. But the very fact that we delivered a sequence of growth in Q1 versus Q4 on our data center product is due to the strength of our fiber edge product. So, the LPO certainly is in a design win stage. It has not contributed to meaningful revenue yet. And based on the booking activities and based on our conversation with our customers, we hold a strong conviction for the second half of the year that the fiber edge and the plain vanilla, as you put it, PMDs, we call physical media devices, will continue to experience growth, maybe accelerated growth.
Speaker Change: Okay. Thank you harsh.
Speaker Change: You know that <unk> disclosed that they're at air pocket in demand on ACC.
Speaker Change: So from the anchor customer, but the very fact that await delivered a secret sell geos in Q1 versus Q4, I don't know data center product is due to the strength of our fiber etch product. So the L. P. O certainly it's in a design win stage, it's not me.
Speaker Change: Tribute that to meaningful revenue, yet and are based on the booking activities and based on they are you know all conversation with our customers. We hold a strong conviction for the second half of the year that the fiber etch and dep plenty plain vanilla.
Speaker Change: Got it.
Speaker Change: P M D. As we call it physical media devices will continue to experience an experience Oh, maybe accelerated growth.
Hong Hou: I'm really optimistic about that.
Speaker Change: I'm really optimistic about that.
Harsh Kumar: Great.
Harsh Kumar: Thank you, Hong. And then I was curious about Laura.
Hong: Great. Thank you Hong and then.
Speaker Change: I was curious about Lora Lora I think in your guidance Mark you said, Laura will be off a little bit.
Harsh Kumar: Laura, I think in your guidance, Mark, you said Laura will be off a little bit. This is coming on the heels of some very strong growth over the last several quarters. You talked about some new end markets, automotive, robotics, hearing aids, et cetera. I was curious if you could help us understand why Laura is going to be off just a little bit. Is it just small stuff like timing or just coming off of hot growth? Or is there something else?
Speaker Change: This is coming on the heels of some very strong growth over the last several quarters.
Speaker Change: You talked about some new end markets automotive robotics hearing AIDS et cetera. I was curious if you can help us understand why Laura is going to be off just a little bit is it just small stuff like timing or just coming off of a hot growth or is there something else and then when do you see these new markets materializing and I'll get back in line. After this.
Harsh Kumar: And then when do you see these new markets materializing? And I'll get back in line.
Mark Lin: Sure, thanks for the question, Harsh. So, Laura, in Q1, we reported $38.9 million, up from $37.1 million in Q4. So, very nice sequential growth. Last quarter, we were cutting Laura into the, call it the $30 million to $35 million range. So, that's where we believe the market will kind of fall out in the next few quarters. We do believe that in our first quarter, there was a little bit of additional build. We've said that Laura has some project spend. Also, we had a customer build additional units in anticipation of a product launch. So that's where Laura is.
Speaker Change: Sure. Thanks for the question harsh so Laura in Q1.
Speaker Change: We reported $38 $9 million up from $37 $1 million in Q4, so very nice sequential growth last quarter, we were cutting lora into the call. It the 30 million to $35 million range. So that's where we believe that the market will kind of fall.
Speaker Change: Fall out in the next few quarters, we do believe that in our first quarter. There was a little bit of additional build we've set that Laura has some project spend.
Speaker Change: Also we had a customer build additional units for an anticipation of a product launch.
Speaker Change: So that's where we're lora is a we believe that lower next quarter will be coming down a little bit, but still quite a strong business $39 million was still up 81% year over year.
Mark Lin: We believe that Laura next quarter will be coming down a little bit, but still quite a strong business. You know, $38.9 million is still up 81% year over year. on this.
Hong Hou: Thank you, Mark. You know, Harsh, just on Laura, we do expect a comfortable $30 to $35 million quarterly run rate. As Mark said, we disclosed a medical customer is ready to launch a new product in Q1. There are some additional orders from them to support a new product launch.
Speaker Change: Hi.
Speaker Change: Oh, Laura we do expect that comfort about $30 million to $35 million quarterly run rate as Mark said, we disclosed a medical customer is ready to launch new product in Q1, there are some additional orders from them to support the new product launch.
Harsh Kumar: Thank you guys.
Speaker Change: Understood. Thank you guys.
Timothy Arcuri: The next question comes from the line of Timothy Arcuri with UBS. Thanks a lot. I also wanted to ask about the update on AI connectivity. I assume that CopperEdge pretty much is zero in July and October, and then sounds like you get a pretty big step up in fiscal Q4 because of all these, you know, all these engagements. Is that the right way to think about it?
Speaker Change: The next question comes from the line of Timothy Arcuri with UBS. Please proceed.
Speaker Change: Thanks, a lot I also wanted to ask about the update on AI connectivity I I I assume that copper edge pretty much zero in July and October and then.
Speaker Change: Sounds like you get a pretty big step up in fiscal Q4 because of all these.
Speaker Change: All of these engagements is that the right way to think about it.
Timothy Arcuri: So Tim, that's a good question. You know, we talked about the air pocket in demand due to the platform change with the Anchor customer. That is unchanged, but we continue to engage with them for future generation, either, well, in both cable form and chips on board type of linear equalizer applications. That relationship continue to be very tight, but the demand from them was lower, a lot lower than we, you know, already expected. But the engagement with other customers for the application of the Copper Edge product is really very, very exciting and encouraging. There are four or five different application and use cases go beyond just the scale up interconnect between different racks are materializing and some of them are.
Tim: So Tim it's a good question.
Speaker Change: You know, we talked about the air pocket in demand due to the platform change with an anchor customer that is unchanged and by the way continue to engage with them for future generations, either well in both cable for them and chips on board at type.
Speaker Change: For linear equalizer applications that.
Speaker Change: Relationship continue to be very tight, but it didn't demand from them.
Speaker Change: Well as a lower a lot lower than we are you know already expected.
But the engagement with other customers for the application of the copper etch product and it really is very very exciting and encouraging there are four or five different applications and use cases go beyond just a the scale up.
Speaker Change: Magna between different racks are materializing and some of them are.
Timothy Arcuri: completing the qualification and just waiting for the deployment in their next generation platforms. We do believe the revenue from other customers will come in Q4 time frame and start renting from there. Thanks a lot.
Speaker Change: <unk> the qualification and just waiting for that deployment in their next generation platforms. We do believe that revenue from other customers will come.
Speaker Change: In Q4 time frame and start ramping from there.
Speaker Change: Thanks, a lot and then mark.
Mark Lin: And then Mark, can you talk? I mean, this is kind of a knit, but revenues up like 5 million sequentially and gross margins down 50 bits. What's is that just mixed? Yeah, so Semtech is largely mix-dependent, so the guide reflects what we believe the current mix will be. So 53.0% in Q2, it's a 260 basis point improvement. So, you know, in our financial – in our press release, in our earnings presentation, we do now break out our semiconductor products groups. That consists of our signal integrity and our analog signal and wireless segments. So we brought that disclosure in from our 10Q.
Speaker Change: Can you talk about.
Speaker Change: I mean, this is kind of a nit, but revenues up like 5 million sequentially in gross margin is down 50 bps, which is that just mix.
Speaker Change: Yes.
Speaker Change: Sometimes it is largely mix dependent so to the guide reflects what we believe the mix will be so 53.0% in Q2, it's a 260 basis point improvement.
Speaker Change: So.
Speaker Change: Our financial.
Speaker Change: In our press release and our earnings presentation, we do not breakout.
Speaker Change: Our semiconductor products groups that consists of our signal integrity and are analog mixed signal and wireless segments. So we bought that disclosure in from our 10-Q, we felt it would be helpful for investors to see it also in our earnings release and our earnings presentation. So within semiconductor products was 63, 7% gross margin.
Mark Lin: We felt it would be helpful for investors to see it also in our earnings release and our earnings presentation. So within semiconductor products, it was 63.7 percent gross margin, up 720 basis points year over year. But largely mixed dependent. Thanks a lot.
Speaker Change: 720 basis points year over year, but largely mix dependent.
Speaker Change: Thanks, a lot.
Joe Moore: The next question comes from the line of Joe Moore with Morgan Stanley. Great, thank you. There was a line in your prepared remarks, you sort of said when uncertainty in the market may impact timing of some of the portfolio optimization initiatives. Can you just talk about you know, what you mean by that? And kind of, you know, it doesn't sound like you guys are overly impacted by tariffs. You know, what kind of uncertainty is that creating for you? I see.
Speaker Change: The next question comes from the line of Joe Moore with Morgan Stanley. Please proceed.
Speaker Change: Great. Thank you there was a line in your prepared remarks, you sort of said when uncertainty in the market may impact timing of some of our portfolio optimization initiatives can you just talk about what you mean by that and kind of.
Speaker Change: It doesn't sound like you guys are overly impacted by tariffs what kind of uncertainty is that for you.
Hong Hou: So, Joe, thank you for the question. What I mean by that is not about the tariff related, but it's just the overall macroeconomic uncertainties. As you know, the deal flow and people thinking about strategically is probably get a little bit deferred. But we continue to hold our strategic initiatives as a high priority. But because of the overall industry get distracted and getting focused on how to mitigate the tariff risk and activities on the strategic initiative is going to get delayed. So, that's what we mean. But we do provide more visibility in our gross margins from our earnings release so that you can see that we own the business.
Speaker Change: I see so Joe. Thank you for the question what I mean by that is not about the tariff related but it's just the overall macro economic uncertainties.
Speaker Change: No that deal flow and people were thinking about strategically is probably get a little bit deferred.
Speaker Change: But we continue to hold our strategic initiatives at a high priority.
Speaker Change: But because of the you know the overall industry get distracted and getting focused on how to mitigate the tariff risk and activities on the strategic initiative isn't gonna be get delayed. So that's what we're what do they mean and but we do.
Speaker Change: Ill provide more visibility in all geos margins from them.
Speaker Change: Earnings release, so that you can see that we own the business and as long as we own. It will continue to work hard to improve and deliver a better result, that's the best way to create.
Hong Hou: And as long as we own it, we'll continue to work hard to improve and deliver better results. That's the best way to create a shareholder's value. We control what we can control. We can't do much on things we can't control. So, that's the macroeconomic environment. Okay, thank you.
Speaker Change: Shareholders' value we control what we can control we can't do much on things we can control so that is the macroeconomic environment.
Speaker Change: Got it okay. Thank you.
Tore Svanberg: The next question comes from the line of Tore Svanberg with Steve Yes, thank you, and welcome on board, Mitch. Hong, I had a question about the per se proximity sensor for with the glasses. You talked a little bit about that, but how should we think about that business ramping? Would that happen second half of fiscal 26, or is there gonna be more of a fiscal 27?
Torrey Svanberg: The next question comes from the line of Torrey Svanberg with Stifel. Please proceed.
Torrey Svanberg: Yes, Thank you and welcome on Board Mitch.
Speaker Change: Thank you and I had a question about the.
Speaker Change: Per se a proximity sensor for.
Speaker Change: For the glasses you.
Speaker Change: You talked a little bit about that.
Speaker Change: How should we think about that business ramping would that happen second half of fiscal 'twenty six or is that going to be more of a fiscal 'twenty seven events.
Hong Hou: Hector, that's a good question. So we're really excited about the PerSe product. And as you know, traditionally, that product has been designed for the SAR standards, specific absorption rate reduction. So it comes in really handy due to its low power and high accuracy, and also the noise rejection capabilities for smart variables.
Speaker Change: Hey, Terry that's a good question. So we're really excited about that per se product and it's you know traditionally that product has been designed for the SAR.
Speaker Change: Anders a specific absorption rate reduction.
Speaker Change: So it come in really handy due to its low power and high accuracy and also the noise rejection capabilities for our smart Wearables.
Hong Hou: I bought a Meta Reven smart glasses. It was absolutely phenomenal. It's just a. taking pictures and recognize the different locations and do the translation in real time. And we're seeing probably five, six of other customers we are engaging for similar devices. So from the get-go, you know, I think accumulated, we have supported over a million smart glasses using this gesture control capability. Just imagine how many variable devices it can have out there and using the smart glasses as an AI interface to link into the infrastructure. So we're very excited about that market perspective. We do believe, again, in the second half of this year, there are going to be more than matter jump on that bandwagon to provide smart glasses.
Speaker Change: I bought a.
Speaker Change: Meta revenge AR smart glasses, it was absolutely phenomenal.
Speaker Change: Just.
Speaker Change: Taking pictures and recognized at different locations and do the translation in real time, and we see them probably five six other customers we are engaging for similar devices.
Speaker Change: So from the get go you know I think accumulated error, we have supported over a million smart glasses are using this.
Speaker Change: Gesture control capability, just imagine how many variable devices it hadn't been have out there.
Speaker Change: And using the smart glasses edge AI interface to link into the infrastructure.
Speaker Change: So we're very excited about that market perspective, we do believe again in the second half of this year, they're going to be more than matter jump.
Speaker Change: Jump on that bandwagon to provide smart glasses.
Tore Svanberg: Yeah, that's great, Collar.
Speaker Change: No that's great color and then my follow up and specifically on lower you mentioned, the medical customer or perhaps customers.
Hong Hou: And as my follow-up, and specifically on Laura, you mentioned... medical customer or perhaps customers, is this still only going to be the hearing aids or are you seeing Laura perhaps penetrate other types of medical applications? For now, it's just the hearing aids we're talking about, but I wouldn't be surprised that the people start using LoRa for other medical device applications. The beauty of that is just the very low power consumption and very robust connectivity.
Speaker Change: Is this still only going to be.
Speaker Change: The hearing AIDS or are you seeing lower up perhaps penetrate other types of medical applications.
Speaker Change: For now it's just the hearing AIDS, we're talking about but I wouldn't be surprised that the people start using lora for other medical device applications.
Speaker Change: Beauty of that is just the very low power consumption and very robust.
Speaker Change: Connectivity. So you know for example that robotics is a new application and that now is being proliferated pretty widely and using the lower us to interconnect at different robotics, and robots and to be built and that worth.
Hong Hou: So for example, the robotics is a new application, and that now is being proliferated pretty widely in using the LoRa to interconnect to different robotics and robots and to build a network. Very helpful, thank you.
Speaker Change: Very helpful. Thank you.
Tore Svanberg: Thank you, Tore.
Terry: Thank you Terry.
Speaker Change: Yeah.
Cody Acree: The next question comes from the line of Cody Acree with the Benchmark Company. Yeah, thanks guys for taking my questions and congrats on the progress. Guys, could you talk about your expectations for seasonality into the second half across your various market Yeah, hey, Cody, thank you for the question. The seasonality for our TVS product, that's a high-end consumer, you know, we know that it coincides with the smartphone release schedule. Other than that, I think the seasonality for at least for the next two, three quarters, we don't see the obvious seasonality. We do see industrial side, the broader market recovery.
Speaker Change: The next question comes from the line of Cody Acree with <unk> Company. Please proceed.
Speaker Change: Yes, thanks, guys for taking my questions and congrats on the progress.
Speaker Change: Hey, guys could you talk about your expectations for seasonality into the second half across your various markets.
Speaker Change: Yeah, Hey, a.
Speaker Change: Thank you for the question the seasonality for our TV product that has a high end consumer we know that it's coincide with that.
Speaker Change: The smartphone release schedule.
Speaker Change: Other than that I think the seasonality for at least for the next two to three quarters.
Speaker Change: We don't see the obvious seasonality, we do see industrial side that broader.
Speaker Change: Market recovery, we see in the data center side, everyone was concerned about the capex spending.
Cody Acree: We see in the data center side, everyone was concerned about the capex spending in the AI area. But now, you know, many of the CSPs and also the industry participants in the broader ecosystem all show the strong confidence that the second half, the capex spending is going to be accelerating. We're seeing that from our booking activities. Laura's side is the only one, I wouldn't call it a seasonality, and it's just this project-based spending of, you know, they need more material for Q1. But the end notes numbers are increasing, and we are shipping records. Every quarter, we're creating a new record for the number of end notes.
Speaker Change: You know I I area, but now you know many of the CSP and also the necessary persists participants in that.
Speaker Change: Router ecosystem I'll show the strong confidence that the second half.
Speaker Change: Capex spending is going to be accelerating we've seen that from a booking activities.
Speaker Change: Laura side is the only one I wouldn't call it seasonality and they assessed Ah.
Speaker Change: They said that this project based.
Speaker Change: Spending out you know they need more material for our Q1 and but no. The end nodes numbers are increasing and we are shipping records number every quarter, we're creating more new record for the number of end notes.
Cody Acree: The new applications being discovered, a new product, Rigi offers LoRa+, with LoRa+, in addition to LoRa protocol, we support other RF protocols. The significance for that, for example, BLE, the Bluetooth enhanced is that some applications, they wanted to use LoRa. But they wanted to have the back-end compatibility on their installed and deployed base. So with this compatibility of LoRa+, allow us, allow the integrators to offer a product, offer the back-end compatibility with the existing protocol, but going forward, they can take advantage of the LoRa protocol. So LoRa+, is still to us as LoRa-centric. That will unlock a range of new applications.
Speaker Change: The new applications are being discovered a new product a ricky offers a lower a plus with a lower a plus I mean in addition to lower our protocol we support other RF protocols. This significance for that for example, P. L E. The Bluetooth enhanced.
Speaker Change: Is that some applications they wanted to use lora.
Speaker Change: But they wanted to have that back kind of compatibility on there to get installed and deployed base.
Speaker Change: So what is compatibility are lower up plus allow us allow the integrators to offer a product offered the backend of compatibility with our existing protocol, but going forward. They can take advantage of the Lora protocol. So Laura plus is still to us is Laura centric.
Speaker Change: That's a well a lock.
Speaker Change: New applications I feel that even though the Q2 revenue compared to Q1 will be slightly down, but it's that's not a seasonality.
Cody Acree: I feel that even though the Q2 revenue compared to Q1 will be slightly down, but that's not a suddenality. Excellent. Thanks for the help there.
Speaker Change: Yeah.
Speaker Change: Excellent. Thanks for the help there and then just thoughts on your gross margin and Opex drivers in the second half and what kind of trends can we expect.
Mark Lin: And then just thoughts on your gross margin and OPEX drivers in the second half and what kind of trends can we expect? Hey, Cody. So, I think we've talked about product mix between our three end markets. That will largely drive our gross margin into the second half. And for OPEX, just note, for gross margin OPEX, we're only guiding out one quarter. But for OPEX, I believe we're making some very good investments in R&D. So, we continue to focus on project spend and monitoring our product spend with R&D. That has not changed quarter over quarter. We believe we have some great opportunities in front of us.
Speaker Change: Yes Cody.
Speaker Change: So I think we've talked about product mix.
Speaker Change: Our our three end markets that will largely drive our.
Speaker Change: Gross margin into the second half and for Opex.
Speaker Change: For gross margin and Opex were only cutting out one quarter, but for Opex I believe we're making some very good investments in R&D. So we continue to focus on.
Speaker Change: Project spend and monitoring our product spend with R&D.
Speaker Change: That has not changed quarter over quarter. We believe we have some great opportunities in front of us.
Mark Lin: Other areas of OPEX growth, we're kind of filling out our commercial team, and that commercial team is like a technical sales force, right? So that team allows us to get some better information, better information exchange with our customers, and then better aligns our R&D spend to what our customers need. All right, thanks for the help.
Speaker Change: Other areas of Opex growth, we're kind of filling out our commercial team and the commercial team.
Speaker Change: Like a technical sales force so that team allows us to get some better information better information exchange with our customers and better aligns our R&D spend to what our customers need.
Speaker Change: Alright, thanks for the help.
Craig Ellis: The next question comes from the line of Craig Ellis with B Riley Securities. Yeah, thanks for taking the question.
Speaker Change: The next question comes from the line of Craig Ellis with B Riley Securities. Please proceed.
Speaker Change: Yes, thanks for taking the question and Mitch great too.
Craig Ellis: And Mitch, great to be back in touch and having you on board the Semtech team. Guys, I wanted to start just by getting a better understanding of what you're expecting within data center in the back half of the year. So it seems clear that we've got two significant things happening. We've got AI connectivity that seems to be coming up and coming back on multiple customer wins away from your key customer. And then we've got LPO that's starting to ramp up. The question is, can you help us dimension those two items as we exit the year, which will be the bigger driver?
Speaker Change: <unk> be back in touch and having you onboard the <unk> team guys I wanted to start just by getting a better understanding of what you're expecting.
Speaker Change: Within data center in the back half of the year. So it seems clear that we've got two significant things happening, we've got AI connectivity that seems to be coming up and coming back on.
Speaker Change: Multiple customer wins away from your key customer and then we've got L. P. O. That's starting to ramp up. The question is can you help us dimension those two items as we exit the year, which will be the bigger driver and you should look at the arc of what's happening with each can you.
Craig Ellis: And you should look at the arc of what's happening with each. Can you help us by characterizing what we should expect as those programs go from initial ramps to more meaningful volume?
Speaker Change: US by characterizing what we should expect as those programs go from initial ramps too.
Speaker Change: Two more meaningful volume.
Hong Hou: Thank you, Craig. Yeah, so As you know, we have a pretty broad product portfolio for our data center connectivity. We've got FiberEdge, which is the TIA and the drivers. We've got CopperEdge with the linear equalizers, and then we've got TriEdge, the CDRs, and basically integrated with PMD. So this diverse portfolio does help us, even when we experience a little bit of air pocket in CopperEdge with the anchor customer, and the growth in FiberEdge and TriEdge, you know, overweight, the drop or the decrease in demand on the CopperEdge. But as I said, you know, we expect a lot of good things happening in the later part of this fiscal year, with more than the anchor customer demand for CopperEdge that's going to be materialized, LPO, that's incremental opportunity, is going to materialize.
Craig: Thank you Craig Yeah. So.
Craig: As you know are we are we have a pretty broad product portfolio for our data centers connect.
Speaker Change: Connectivity, we've got fiber edge, which is a T. I E. No drivers, we've got a tougher edge with a linear equalizers and then we got to Tri edge.
Speaker Change: C D r's, and basically integrated where the PMD.
Speaker Change: So this diverse portfolio that's help us even when we experienced a little bit the air pocket in copper edge with an anchor customer.
Speaker Change: And geos in fiber etch and their tri edge.
Speaker Change: Wade.
Speaker Change: That drop out and the decrease in demand on the copper edge, but as I said.
Speaker Change: We expect a lot of good things happening in the later part of this fiscal year.
Speaker Change: With more than the anchor customer demand for copper that's going to materialize L. P. O. That's incremental opportunity is going to materialize one day as customers start deploy one six T optical transceivers they likely to you.
Hong Hou: When the customers start deploying 1.60 optical transceivers, they're likely to use drivers for lasers and modulators. And because traditional 100 gig or below, they could use the integrated driver from DSP to drive EML. It looks that... to perform in order to get a link very robust, they need an external driver. So that's incremental opportunities for us. So if I have to take a step back, look at the fiber edge, it's a strong product line in itself, provide a very high level of demand. And then, you know, when this tailwind start coming in, playing in, and that's all incremental on top of it.
Speaker Change: Use the drivers for lasers, and modulators and because the traditional 100 gig all below they could use to integrate a driver from DSP to drive MAU and looks that.
Speaker Change: The pro forma in order to get that link.
Speaker Change: Very robust they need the external drivers so that's an incremental opportunities for us.
Speaker Change: So if I have to take a step back look at the fiber at <unk>.
Speaker Change: A strong product line itself provide a very high level of demand and then you know when there's tailwind start coming in play again, and that's all incremental on top of it and the fiber adds weight benefits from as I said that capex spending from the CSP side.
Hong Hou: And the fiber edge would benefit from, as I said, that capex spending from the CSP side. And also, I believe we're gaining some market share in there. So you get a strong growing base, and you get three incremental opportunities superimposed on top of it. And this really, we feel like a broader portfolio to help to mitigate the exposure, the air pocket we described before.
Speaker Change: So I believe we're gaining some market share in there. So we've got a strong drilling base and you've got three incremental.
Speaker Change: Opportunities superimposed on top of that and this really does feel like a broader portfolio to help to mitigate the exposure.
Speaker Change: On the air Pocket away described before.
Craig Ellis: Okay, so very broad-based as we exit the year and participation from three key parts of the portfolio.
Speaker Change: Okay. So very broad based as we exit the year and purchased patients from.
Speaker Change: Three key parts of the portfolio.
Craig Ellis: The follow-up question was around a product that you spoke to in your prepared remarks on. You talked about SurgeSwitch as being an integrated product that is more system-level protection. I want to understand what types of products is that getting designed into and how does the dollar content for that product compare to what we would typically expect with protection and how should we think about that product's ability to drive visible growth within that part of the business and high-end consumer.
Speaker Change: Follow up question was around the product that you saw.
Speaker Change: Spoke to in your prepared remarks, you talked about search, which as being an integrated product.
Speaker Change: It's more system level protection I wanted to understand what types of products is that getting designed into and how does the dollar content for that product compared to what we would typically expect with protection and how should we think about that product's ability to drive visible growth.
Speaker Change: Within that part of the business and high end consumer Thank you.
Hong Hou: Thank you. Yeah, Craig, so on SurgeSwitch, you're right, it is an integrated device, so it's... It provides additional protection and additional features. So we've launched this in multiple customers. System level design does require a lot more customer intimacy. So we're very happy with the amount of engagement that we have with customers. And it does have some noticeable or some improvement in ASPs. But again, I think Semtech's TVS products are not just commodity type products. So we've already been enjoying, or deserving, I should say, higher ASPs based on our technology. So SurgeSwitch, though, it protects against electrical overstress, in addition to electrostatic discharge, over a wider temperature operating range.
Speaker Change: Yeah, Greg So odd months search switch youre right. It is an integrated device so.
Speaker Change:
Speaker Change: It provides additional protection.
Speaker Change: It's real features so we've launches in multiple customers system level design does require a lot more customer intimacy. So we're very happy with the amount of engagement that we have with customers and it does have some noticeable or some improvement in asps, but again I think semtex TBS products are not just commodity.
Speaker Change: Hi.
Speaker Change: <unk> products, so we've already been enjoying.
Speaker Change: Or deserving I should say.
Speaker Change: Higher Asps based on our technology, so search switch though.
Speaker Change: It protects against electrical Overstress. In addition to our electrostatic discharge over water temperature operating range. So that's the benefit that our users are users get when they design in search which.
Hong Hou: So that's the benefit that our users get when they design a SurgeSwitch. And then also, you know, it's kind of like they used to protect the Type-C connectors. Now the Type-C is used everywhere. It's not only in the smartphone, it's in the automotive, it's in a telecom, in many different charge ports. So the circuit switch just provides a lot more robust protection capability. Okay, so it's nicely sem-expansive for you over... Exactly, yeah. Got it.
Speaker Change: And then also kind of like they used to protect the type C. Connectors now the type C. It's used everywhere is not only in the smartphone is in the automotive is in a telecom.
Speaker Change: Many different.
Speaker Change: Charge ports.
Speaker Change: So the circuit switch set to provide a lot more robust.
Speaker Change: Protection capabilities.
Speaker Change: Okay. So it's nicely Sem expense for you over time.
Speaker Change: Exactly yeah.
Speaker Change: Got it.
Scott Searle: Thank you guys.
Speaker Change: Thanks, guys.
Scott Searle: Thank you.
Speaker Change: Thank you.
Scott Searle: And the last question will come from the line of Scott Searle with Roth Capital Partners. Afternoon. Thanks for taking my questions. Hey, maybe to just follow up quickly on the data center front, I was wondering if we could get calibrated, if we put LPOs to the side, starting to ramp up in third and fourth quarter, and some ACC traction starting by the end of this year and ramping into fiscal 27. The portfolio outside of that, what sort of normalized growth rate do you think we should see over the next couple of years? It sounds like in the near term we're starting to continue to drive that.
Speaker Change: And the last question will come from the line of Scott Searle with Roth Capital Partners. Please proceed.
Scott Searle: Good afternoon. Thanks for taking my questions Hey, maybe to just follow up quickly on the data Center front I was wondering if we could get calibrated.
Scott Searle: If we put <unk> to the side starting to ramp up in third and fourth quarter and some ACC traction starting by the end of this year and ramping into fiscal 'twenty seven.
Scott Searle: The portfolio outside of that.
Speaker Change: What sort of normalized growth rate do you think we should see over the next couple of years. It sounds like in the near term, we're starting to see <unk> continue to drive that I'm wondering if you could help us understand what that that normalized expansion looks like and your comfort level that customer inventories are at a pretty good level.
Scott Searle: I'm wondering if you could help us understand what that normalized expansion looks like and your comfort level that customer inventories are at a pretty good level so that we don't see any sort of air pockets or big drawdowns in the next couple of quarters, and I'll call it core data center before we get to LPOs and ACC. Great. Thank you, Scott. So the normalized drills read, you know, I think we can track basically all the research reports, you know, on the CapEx spending. Then, you know, for a number of research, market research reports, they even call out more specific optical transceivers.
Speaker Change: So that we don't see any sort of air pockets or big Drawdowns in next couple of quarters and I'll call. It core data center before we get to <unk> and <unk>.
Speaker Change: Great. Thank you Scott so the normalized growth rate.
Speaker Change: We can track basically out of the research report.
Speaker Change: Our Capex spending then you know for a number of for research market Research report, they even call out more specific optical transceivers.
Mark Lin: As I said, our data center product, the main thing is fiber edge. If you track the volume increase of data center transceivers, and as I think our growth rates would track that pretty well and probably higher than that, the LPO adoption will bring incremental capability, incremental revenue for us because of the driver, because the premium on TIA side. And copper edge, you know, right now with the anchor customer is not zero, but it's lingering and until the next generation, but with other customers, it's going to be start contributing meaningfully in Q4 and ramping in the next fiscal year.
Scott Searle: As I said, our data center product and the main thing is fiber edge.
Scott Searle: If you track the volume increase of datacenter transceivers.
Scott Searle: And I think our geos rates to attract that pretty well and probably higher than that the L. P O adoption will.
Scott Searle: Bring incremental capability incremental revenue for us because of the driver because the premium on Ti au site.
Scott Searle: And copper etch, you know right now where the anchor customer it's not zero, but it is lingering and then to the next gen.
Scott Searle: Generation, but with.
Scott Searle: With other customers is going to be start contributing meaningfully in Q4 and youre ramping in the next fiscal year.
Mark Lin: Then they try Tri-Edge product, which is a CDR, we designed with the major CSPs for the reasons beyond our control. They delayed the deployment, and now they seem to be resuming. So that's why it gave us a strong conviction that all these factors compounded together. I do feel, barring the rapid adverse change of the tariff policy or something else beyond our control, we do feel the second half of the year, we are very well positioned. Okay, very helpful.
Scott Searle: Then they try.
Scott Searle: Tri edge product, which is a C D R alright.
Scott Searle: We designed in.
Scott Searle: It's a major with a major csp's for the reasons beyond our control they delay the deployment of it now and they seem to be resuming. So that's why you know it gave us a strong conviction to I'll just factors compounded together.
Scott Searle: I do feel borrowings you know.
Scott Searle: The rapid adverse change off the tariff policy or something else beyond our control, we do feel the second half of the year, we are very well positioned.
Speaker Change: Okay very helpful and if I could conclude just on the on the.
Scott Searle: And if I could conclude just on the solar module front, seasonally down quarter, you know, gross margins with utilization under a little bit of pressure, but you know, given Cracktel's headwinds within the North American markets and increasingly I think in European markets, what we're seeing with the exit of U-blocks as well, I wonder if you could talk a little bit more about the bookings, when you would expect that to And really, realistically, what target gross margins could look like in that environment, given that some of your competitors are going to be facing pretty high bars in terms of tariff headwinds.
Scott Searle: So their module front.
Speaker Change: Suddenly down quarter gross margins with utilization under a little bit of pressure, but.
Speaker Change: Even given <unk> headwinds within the North American markets and increasingly I think in European markets, what we're seeing with the exit of view blocks as well I'm wondering if you could talk a little bit more about the bookings when you would expect that to inflect and we start to see that more in the P&L and really realistically what target gross margins could look like in that environment.
Speaker Change: Given that some of your competitors are going to be facing pretty high bars in terms of tariff headwinds. Thanks.
Mark Lin: Thanks.
Mark Lin: Hey, Scott, I'll take that one. So we, as we reported, we've had seven consecutive quarters of bookings growth. So I think that's long term kind of sustainable bookings. We did have a down quarter in Q1, but again, that was in line with our expectations and we got it for Q2, the IOT cellular business to increase in revenue. Gross margins, we should see step-ups in gross margins. We are managing this business for margin expansion along with our other businesses. Great, thanks so much. Thank you.
Speaker Change: Hey, Scott I'll take that one so.
Speaker Change: As we reported we've had seven consecutive quarters of bookings growth.
Speaker Change: So I think that's long term kind of sustainable or bookings, we did have a down quarter in Q1, but again that was in line with our expectations and we guided for Q2's.
Speaker Change: Iot cellular business.
Speaker Change: The increase in revenue.
Speaker Change: Gross margins and we should see step ups in gross margins. We are managing this business for margin expansion along with our other businesses.
Speaker Change: Great. Thanks, so much.
Speaker Change: Okay.
Speaker Change: Thank you.
Operator: This concludes the question and answer session.
Speaker Change: This concludes the question and answer session.
Mitch Hawes: And I'd like to turn the call back to Mitch Hawes for closing. Thanks Joe.
Speaker Change: I'd like to turn the call back to Mitch Haws for closing remarks.
Speaker Change: Thanks, Joe that concludes today's call. Thanks to all of you for joining us today.
Operator: That concludes today's call. Thanks to all of you for joining us today.
Speaker Change: Okay.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your...
Speaker Change: This concludes today's conference you may disconnect your lines at this time.
Speaker Change: You for your participation.
Speaker Change: Okay.
Speaker Change: No.
Speaker Change: Uh huh.
Speaker Change: Yeah.
Speaker Change: Hum.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Mhm.
Operator: Okay.
Operator: Hum.
Operator: Hum.
Speaker Change: Mhm.
Speaker Change: [music].