Semtech (SMTC) Q3 FY2027 Earnings Call: Q&A Summary

Q: Quinn Bolton from Needham & Company asked how Semtech feels near term about capacity and supporting upside in the data center business.

A: Hong Hou, President and CEO, answered that while near-term capacity is supported, bookings and backlog for fiscal 2028 require expanding tester and fab capacity with manufacturing partners.

Q: Quinn Bolton from Needham & Company asked how Semtech is positioned to support the NPO market as it develops.

A: Hong Hou, President and CEO, stated that NPO is a strong trend to increase bandwidth density, and Semtech is engaging in 10 to 15 different programs with module manufacturers and end customers, leveraging its TIA, laser arrays, and upcoming photodiode solutions.

Q: Rick Schafer from Oppenheimer & Company asked if a 20% growth rate is still the right bogey for LoRa given the stronger guided growth.

A: Hong Hou, President and CEO, responded that Q3 sequential growth is 15% and year-over-year is 65%, driven by LoRaWAN, LoRa Plus, and Amazon Sidewalk, and expects sustainable year-over-year growth above 20%.

Q: Rick Schafer from Oppenheimer & Company asked for color on HieFo progress and how rising CW laser channel densities affect demand for drivers and TIAs.

A: Hong Hou, President and CEO, explained that HieFo capacity is expanding 3 to 4 times by the end of the year through a nearby facilitized fab, and high-power CW lasers are being sampled for 1.6T and 3.2T transceivers, increasing integration challenges and creating co-optimization opportunities.

Q: Sean O'Loughlin from TD Cowen asked about the growth contributors to CopperEdge and TIA share for 1.6T.

A: Hong Hou, President and CEO, reviewed the portfolio expansion, noting CopperEdge as an industry standard, 800-gig FiberEdge market share well over 50%, and 1.6T FiberEdge exiting the fiscal year with over 50% market share.

Q: Sean O'Loughlin from TD Cowen asked how much of the quarter-over-quarter gross margin expansion is mix-related and if those levels are sustainable.

A: Mark Lin, EVP and CFO, explained that the cellular module divestiture adds over 500 basis points of structural gross margin improvement, while sequential increases of 150 basis points in Q2 and 380 basis points in Q3 are driven by mix, establishing 64% as a good post-divestiture starting point.

Q: Christopher Rolland from Susquehanna asked what drove the marginal upside in the data center guide relative to expectations.

A: Hong Hou, President and CEO, answered that upside came from earlier-than-expected qualification timing for 1.6T FiberEdge as customers accelerate the adoption of new technology.

Q: Christopher Rolland from Susquehanna asked for the time frame when new products like high-power CW modules and photodiodes will ship in volume.

A: Hong Hou, President and CEO, stated that gain chips are currently shipping in volume, CW lasers and SOAs will be sampling in a couple of months, and significant content increase will coincide with 3.2T transceivers in about 18 months.

Q: Harsh Kumar from BMO Capital Markets asked about the timing for 3.2T and clarified the content increase description.

A: Hong Hou, President and CEO, clarified that high double-digit means 80% to 90%, and stated that 3.2T design windows will open in about 12 months with meaningful deployment in 2 years.

Q: Harsh Kumar from BMO Capital Markets asked what growth rate to expect for ACC and LPO.

A: Hong Hou, President and CEO, noted that ACC volume deployment starts in Q4 with ongoing cable manufacturer orders, while LPO is evolving into NPO, CPO, and XPO linear architectures.

Q: Joe Moore from Morgan Stanley asked about visibility into 800-gig strength and if there are any optical pricing changes.

A: Hong Hou, President and CEO, stated that industry consumption forecasts for 800-gig rose to 80 million or 90 million units with healthy backlog, and pricing remains favorable with no near-term erosion expected.

Q: Tore Svanberg from Stifel asked how to think about margin contributions from newer products like photodiodes and CW lasers.

A: Mark Lin, EVP and CFO, answered that CW lasers carry data center gross margins that are accretive to the corporate average.

Q: Craig Ellis from B. Riley Securities asked how mix would evolve for 1.6T as a percent of total next year and the nature of customer interactions for backlog.

A: Hong Hou, President and CEO, stated that 1.6T will grow north of 50% in Q3 while 800-gig remains strong, and visibility is driven by product performance, availability, and service.

Q: Cody Acree from The Benchmark Company asked how far into fiscal 2028 the backlog extends and if there is industry room for more capacity additions.

A: Hong Hou, President and CEO, responded that backlog is fully booked for the rest of the fiscal year and over 70% for next year, with room to expand capacity by 50% to 100%.

Q: Cody Acree from The Benchmark Company asked about the breadth of adoption and challenges for ACC beyond lead hyperscalers.

A: Hong Hou, President and CEO, noted that availability and interoperability are primary, with multiple engagements ongoing and broadening over time.

Q: Scott Seller from ROTH Capital Partners asked about LoRa segment mix including Sidewalk contribution and thoughts on router and gateway inclusion post-divestiture.

A: Hong Hou, President and CEO, stated that LoRaWAN and LoRa Plus make up 20% to 25% of revenue, Sidewalk is currently high single-digit, and portfolio optimization remains a continuous journey evaluated after closing the cellular module sale.