Semtech Corporation SMTC used its fiscal second-quarter 2027 earnings call to emphasize a sharper data center inflection, with management pointing to 1.6T adoption, record backlog and rising capacity needs into fiscal 2028.
The call also highlighted a structural margin reset from the planned cellular module divestiture, while LoRa remained another growth engine.
SMTC Sees Data Center Growth Accelerating
Adjusted earnings were 71 cents per share, which topped the Zacks Consensus Estimate of 62 cents. Revenues of $341.9 million exceeded the $328.4 million estimate.
Semtech Corporation Price, Consensus and EPS Surprise
President and CEO Hong Hou said data center revenues reached a record $100 million, up 39% sequentially and 91% year over year, supported by 800-gig strength and the start of the 1.6T FiberEdge ramp.
Executive vice president and CFO Mark Lin guided third-quarter net sales to $410 million, plus or minus $5 million, up 20% sequentially and 54% year over year at the midpoint. Hou expects data center revenues to rise 45% sequentially and about 160% year over year.
Semtech Expands 1.6T Opportunity
President and CEO Hong Hou said 1.6T FiberEdge should exceed 50% market share by fiscal year-end, while CopperEdge linear equalizers already command what management described as the lion's share of that market.
Semtech is broadening its photonics portfolio into gain chips, high-power continuous-wave lasers, semiconductor optical amplifiers and photodiodes. Hou said content per transceiver could rise from high-single-digit dollars to high-double-digit dollars as the industry moves toward 3.2T.
In Q&A, a BMO Capital Markets analyst asked about 3.2T timing. Hou said the design window should open in about 12 months, with early deployments around 18 months and meaningful deployment in roughly two years.
SMTC Moves Early on Capacity
President and CEO Hong Hou said near-term capacity is sufficient for current ramps, but bookings indicate existing capacity may not cover fiscal 2028 demand, particularly in the second half.
Management is working with front-end and back-end manufacturing partners to add testers, qualify additional partners and secure greater capacity. Hou said prepayments and capital support are among the options under consideration.
A Benchmark analyst asked about backlog visibility. Hou said the company's remaining fiscal-year target is fully booked and Semtech is probably more than 70% booked for the next fiscal year.
Semtech Sees Structural Margin Reset
Executive vice president and CFO Mark Lin said adjusted gross margin reached 54.5% in the second quarter, while the figure excluding the held-for-sale cellular module business was 59.7%.
For the third quarter, Lin guided adjusted gross margin to 58.3%, plus or minus 100 basis points, and 63.9% excluding cellular modules. He described roughly 64% as a useful post-divestiture starting point.
A TD Cowen analyst pressed management on margin durability. Lin said the divestiture creates more than 500 basis points of structural improvement, while favorable data center and LoRa mix provide additional support.
SMTC Keeps LoRa Growth Elevated
President and CEO Hong Hou said LoRa-enabled sales reached a record $58 million, up 31% sequentially and 58% year over year.
Hou expects third-quarter LoRa revenues to rise about 15% sequentially and 65% year over year. LoRa Plus accounts for about 20% to 25% of the mix, while Amazon Sidewalk remains a smaller contributor this year.
An Oppenheimer analyst asked whether the prior 20% growth benchmark still applied. Hou said year-over-year growth should remain above 20% going forward, supported by LoRaWAN, LoRa Plus and Sidewalk expansion.
Semtech Sharpens Portfolio Priorities
President and CEO Hong Hou described the cellular module divestiture as part of an ongoing portfolio optimization effort. Executive vice president and CFO Mark Lin said the transaction is expected to be closed in the fourth quarter of fiscal 2027 and be neutral to non-GAAP earnings per share.
Management's broader focus remains on securing capacity, increasing R&D investment and concentrating resources on higher-growth businesses. The October investor event is expected to provide multiyear financial targets and additional data center detail.
Zacks Signals for SMTC
SMTC currently carries a Zacks Rank #2 (Buy), accompanied by a Value Score of F, a Growth Score of A and a Momentum Score of A. Its VGM Score is C. Under the Zacks framework, the strong Growth and Momentum scores indicate favorable characteristics in those styles, while the Value Score points to a comparatively weaker valuation profile. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Rank #2 provides a positive estimate-revision signal, while the C VGM Score reflects a more balanced combined assessment across value, growth and momentum than the individual Growth and Momentum scores alone. Zacks generally views A or B Style Scores as the strongest complements to top-ranked stocks. The Zacks Rank can change as analysts revise their earnings estimates following the newly reported results.
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Semtech Corporation (SMTC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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