EPS of $-0.31 increased by 88.1% from previous year
Gross margin of 52.1%
Net income of -27.06M
"At the end of Q2, we have reduced debt by $879 million from the time I started as a CEO, resulting in a year-over-year quarterly interest expense reduction of 80% and a substantial net leverage ratio improvement 1.6x at the close of Q2 '26 compared to 8.8x a year ago." - Hong Q. Hou
Semtech Corporation (SMTC) QQ2 2026 Results — Record Data Center Momentum, LPO Progress, and Strengthening Balance Sheet
Executive Summary
Semtech reported a robust QQ2 2026 with record quarterly net sales of $257.6 million, up 20% year over year, driven by standout performance in data center and a diversified end-market mix. Infrastructure net sales reached $73.4 million ( +1% QoQ, +39% YoY ), underpinned by a data center record of $52.2 million (+92% YoY), aided by FiberEdge momentum and ongoing transitions to higher data rates. Management highlighted progress across core assets—data center, LoRa, and PerSe—plus disciplined portfolio optimization aimed at elevating growth and profitabilityl, supported by a materially improved balance sheet (debt down by $879 million since the CEO tenure began) and a strongly cash-generative profile.
The quarter featured meaningful margin expansion on an adjusted basis (adjusted gross margin 53.2%; IoT/Systems margin expansion to 39.5%), while GAAP results were affected by a noncash impairment charge of $41.9 million in connected services. Management reiterated a constructive longer-term outlook anchored by a data center CapEx backdrop and a multi-year transition to higher-bandwidth, lower-power interconnects (notably 800G and 1.6T designs) with LPO driving incremental TAM. The company also signaled ongoing strength in LoRa and PerSe applications within IoT, as well as a resilient industrial end-market footprint.
Looking ahead, management provided Q3 guidance (net sales of $266 million +/- $5 million; adjusted gross margin ~53%, adjusted EBITDA ~$60 million, adjusted EPS ~$0.44, tax rate ~15%) and stressed that LPO and CopperEdge opportunities should contribute to a higher-growth trajectory into 2026, with data center ramp support confirmed for late calendar 2025 and into 2026. The investment thesis rests on a diversified, high-m-margin product portfolio, a disciplined balance sheet, and a rising contribution from data-center-related interconnectivity technologies.
Key Performance Indicators
Revenue
257.59M
QoQ: 2.60% | YoY:19.61%
Gross Profit
134.11M
52.06% margin
QoQ: 2.14% | YoY:27.16%
Operating Income
-16.19M
QoQ: -145.02% | YoY:-308.44%
Net Income
-27.06M
QoQ: -239.90% | YoY:84.11%
EPS
-0.31
QoQ: -240.91% | YoY:88.12%
Revenue Trend
Margin Analysis
Key Insights
Q2 2026 net sales: $257.6 million, up 20% YoY and 2% QoQ; Revenue YoY growth supported by data center and IoT segments (per earnings metrics: revenue YoY 19.61%, QoQ 2.60%).
Operating performance: GAAP operating income of -$16.2 million; GAAP operating margin of -6.29%. Adjusted operating income $40.6 million; adjusted operating margin 18.8% (up 460 bps YoY).
Net income and earnings: GAAP net income -$27.1 million; net income margin -10.50%. GAAP earnings per share (EPS) -$0.31. Adjusted diluted EPS $0.41 (vs $0.38 in Q1; +$0.30 QoQ); YoY comparison significant given prior impairment and discrete items.
Revenue and profitability:
- Q2 2026 net sales: $257.6 million, up 20% YoY and 2% QoQ; Revenue YoY growth supported by data center and IoT segments (per earnings metrics: revenue YoY 19.61%, QoQ 2.60%).
- Gross profit: $134.1 million; gross margin 52.06% (GAAP). Adjusted gross margin: 53.2% (Q2 results commentary).
- Operating performance: GAAP operating income of -$16.2 million; GAAP operating margin of -6.29%. Adjusted operating income $40.6 million; adjusted operating margin 18.8% (up 460 bps YoY).
- Net income and earnings: GAAP net income -$27.1 million; net income margin -10.50%. GAAP earnings per share (EPS) -$0.31. Adjusted diluted EPS $0.41 (vs $0.38 in Q1; +$0.30 QoQ); YoY comparison significant given prior impairment and discrete items.
- EBITDA: Adjusted EBITDA $56.5 million; adjusted EBITDA margin 21.9% (up 310 bps YoY).
Cash flow and balance sheet:
- Operating cash flow: $44.4 million; free cash flow: $41.5 million (both up materially YoY; sequential improvement).
- Cash and equivalents: $168.6 million at quarter end; net debt $359.1 million; cash usage included $25 million in optional term loan prepayments.
- Leverage: Adjusted net leverage ratio 1.6x at Q2 close, down from 1.9x QoQ and down from 8.8x YoY, reflecting substantial deleveraging.
- Capital allocation: Large debt reduction contributed to a materially improved cost of capital and capital structure for pursuing growth initiatives.
Segment and end-market highlights:
- Data center: Net sales of $52.2 million, up 92% YoY and 1% QoQ; FiberEdge momentum and record optical module bookings suggest ongoing multi-quarter ramp; 1.6T transceiver and 800G TIAs in design with ramp expected in 2026.
- Infrastructure (total): $73.4 million, +39% YoY and +1% QoQ, with fiber optics and data-center components leading the growth; data center capex forecast improving across hyperscalers and enterprises.
- End-market mix: High-end consumer TVS net sales $29.9 million ( +22% QoQ, +15% YoY ); PerSe sensing enabling RF optimization and gesture control across smartphones and wearables; IoT hardware net sales $64.8 million (+2% QoQ, +24% YoY) with strong 5G momentum and 5G RedCap leadership; LoRa net sales $36.9 million (-5% QoQ, +29% YoY) reflecting diversified IoT adoption.
- Impairment: Noncash goodwill impairment charge related to connected services of $41.9 million reported in GAAP results; still, the non-GAAP results exclude this impairment and highlight underlying operating strength.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
257.59M
19.61%
2.60%
Gross Profit
134.11M
27.16%
2.14%
Operating Income
-16.19M
-308.44%
-145.02%
Net Income
-27.06M
84.11%
-239.90%
EPS
-0.31
88.12%
-240.91%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management insights and themes from the QQ2 2026 earnings call:
- Strategy and portfolio: Hong Q. Hou emphasized three priorities—strengthen the balance sheet, rationalize the portfolio toward core assets (data center, LoRa, PerSe), and revitalize culture to drive customer intimacy and execution. Notably, debt was reduced by $879 million since his tenure began, lowering annualized interest expense and achieving 1.6x net leverage at quarter-end.
- Data center momentum and LPO/R&D roadmap: Hou highlighted record data center net sales at $52.2 million and asserted that FiberEdge is driving strong demand while CopperEdge is addressing short-reach and backplane/scale-out opportunities. The company is targeting 1.6T LPO drivers and TIAs for sampling by year-end, with 800G TIAs and LPO solutions engaged with hyperscalers and several module manufacturers. He stated: We are engaging with hyperscalers and expect revenues to begin ramping in Q4.
- Market outlook and CapEx tailwinds: Mark Lin cited a data-center CapEx backdrop supporting continued growth in FiberEdge and the shift to higher data rates, with data-center topology evolving toward 800G and 1.6T. He noted a broad ecosystem engagement (20+ customers) and ongoing qualification with U.S. and China CSPs, while acknowledging some GPU supply constraints in China that have recently improved.
- LoRa, PerSe and IoT expansion: Hou described LoRa as expanding across applications (home security, smart appliances, drone-related uses) and reiterated a target LoRa revenue of 30-40 million per quarter, up from prior guidance; PerSe enabling smarter power management and gesture control in wearables and smartphones, with design activity across smart glasses and smartphones.
- Guidance and next steps: The company provided Q3 guidance and reiterated 2026 growth trajectories tied to LPO adoption, copper-edge solutions, and data-center investments. Management highlighted the potential for small tuck-ins as portfolio optimization continues, funded by a stronger balance sheet and higher R&D investment in core assets.
At the end of Q2, we have reduced debt by $879 million from the time I started as a CEO, resulting in a year-over-year quarterly interest expense reduction of 80% and a substantial net leverage ratio improvement 1.6x at the close of Q2 '26 compared to 8.8x a year ago.
— Hong Q. Hou
We are engaged with three of the leading hyperscalers with our 800-gig LPO solution and expect revenues to begin ramping in Q4 of this year.
— Hong Q. Hou
Forward Guidance
Management guidance for the next quarter (Q3 2026) and near-term outlook highlights the following:
- Net sales target: 266 million USD +/- 5 million, representing ~12% YoY growth at the midpoint, with infrastructure and data center segments contributing to sequential gains.
- Gross margin: Adjusted gross margin guidance of 53.0% +/- 0.5%, implying a modest gross margin expansion vs. the prior quarter and a favorable mix from higher-growth segments.
- Operating expenses and EBITDA: Adjusted operating expenses of about $88.8 million +/- 1, with adjusted operating margin around 19.6% at the midpoint; Adjusted EBITDA of roughly $60 million +/- 3, implying an EBITDA margin near 22.5% at the midpoint.
- Interest and taxes: Adjusted interest/other expense net around $5 million, with an assumed 15% normalized tax rate.
- Diluted EPS: Adjusted diluted EPS of $0.44 +/- $0.03, based on 91.6 million weighted-average shares.
Outlook considerations and risk factors:
- LPO ramp timing remains a key growth catalyst. Management reiterated expectations for LPO revenues to begin ramping in Q4 2025, with broader adoption in 2026 as CSPs’ 1.6T and 800G transceiver programs scale. Any near-term variability in CSP qualification timelines could modulate the pace of revenue realization, though design wins across 400G/800G continue to mature.
- Data center CapEx and mix-driven upside: The data center market is transitioning toward higher speeds (800G, 1.6T) with CopperEdge and FiberEdge as complementary solutions; the strength of data center spend remains a principal driver of Semtech’s revenue trajectory.
- Offsetting risks: Foreseeable challenges include continued GPU/GPU availability constraints in China, FX exposure (as seen in foreign exchange revaluation), and potential delays in non-core asset dispositions or portfolio optimization moves. The company acknowledged a noncash impairment in GAAP results but continues to emphasize strong cash generation and deleveraging.
- Bottom-line trajectory: With leverage at 1.6x and solid operating cash flow, the investment thesis remains favorable contingent on sustained data center demand, continued LPO adoption, and successful portfolio optimization.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
SMTC Focus
52.06%
N/A
N/A
N/A
POWI
53.20%
1.84%
0.66%
204.01%
DIOD
32.40%
3.71%
0.45%
101.19%
MTSI
55.20%
14.80%
2.63%
52.63%
CRUS
52.20%
24.30%
5.30%
15.86%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Semtech enters the QQ2 2026 period with a strengthened balance sheet, a diversified and higher-margin product mix, and a clear roadmap toward data-center interconnect leadership. The data-center cycle remains a primary driver, with FiberEdge and CopperEdge positioning Semtech to capture growth from hyperscalers accelerating CapEx for AI and high-speed interconnects. The company’s LPO initiative, supported by multiple design wins and expected ramp in Q4 2025 and into 2026, offers potential for material upside as 800G and 1.6T platforms scale. LoRa and PerSe provide IoT-driven growth optionality across consumer, automotive, and industrial segments, contributing to margin stability and revenue diversification. The Q3 guidance and 2026 outlook imply continued momentum, though investors should monitor the pace of LPO adoption, CSP GPU supply dynamics, and the potential impact of impairment-related GAAP distortions.
Overall stance: Constructive to moderately optimistic. The favorable leverage profile, strong cash generation, and a visible data-center interconnect road map support a positive longer-term thesis, with upside if LPO ramp accelerates as anticipated and data-center CapEx sustains its multi-year growth trajectory. Valuation should be assessed against peers with similar exposure to data-center interconnect and mixed-signal semiconductor solutions.
Key Investment Factors
Growth Potential
Catalysts include a multi-year data-center interconnect cycle: FiberEdge and CopperEdge expansion; 800G and 1.6T transceivers; LPO driver/TIA ramp with hyperscalers; LoRa/PerSe expansion in IoT and wearables; improved R&D efficiency in core assets enabling faster time-to-value for customers.
Profitability Risk
Key risks include potential delays in CSP GPU availability affecting LPO ramp, reliance on data-center capex cycles, competition from DSP-based transceivers and other silicon photonics players, FX volatility, and the $41.9 million goodwill impairment in connected services impacting GAAP results.
Financial Position
Strong balance sheet with net debt of $359.1 million and adjusted net leverage 1.6x; robust operating cash flow ($44.4m) and free cash flow ($41.5m); disciplined capex and priority on portfolio optimization to support growth investments.
Semtech Corporation (SMTC) QQ1 2026 Results — Resilient Growth Across Data Center, IoT and AI Connectivity with Margin Expansion and Balance Sheet S...