Release Date: June 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Semtech Corp (SMTC, Financial) reported net sales of $206.1 million, up 7% sequentially and above the high end of guidance.
- Gross margin improved to 49.8%, up 90 basis points sequentially and 130 basis points year over year.
- Operating expenses were controlled at $77.4 million, reflecting a 17% year-over-year decline.
- Strong performance in the infrastructure segment with net sales up 42% sequentially and 44% year over year.
- Positive outlook for AI-driven products, with expectations for significant contributions from active copper cables and optical modules in FY26.
Negative Points
- Industrial net sales were down 5% sequentially, indicating some softness in this segment.
- IoT systems business saw a significant decline, with net sales down 26% sequentially and 57% year over year.
- High-end consumer market growth was modest, with net sales up only 8% sequentially.
- Telecom segment remains muted with no immediate signs of recovery in CapEx trends.
- Debt remains high with $1.4 billion outstanding and a net leverage ratio of 9.5, indicating financial constraints.
Q & A Highlights
Q: Paul, can you clarify the active copper cable opportunity and whether Semtech is involved in both vertical and horizontal aspects?
A: Yes, we are involved in both vertical and horizontal aspects. Each rack will have two sets of active copper cables, totaling 36 cables, but not the 5,000 direct attach cables. Horizontal cabling between racks is a larger opportunity, depending on the build configuration. The chipsets are almost the same, with a few ICs differing.
Q: Are you considering deleveraging opportunities now that the business is stabilizing?
A: Yes, we are evaluating capital structure alternatives, including refinancing our debt and potential asset sales at appropriate values. We are focused on reducing the overall debt load and will consider all options available to us.
Q: Can you elaborate on the timing and progress of the 1.6T active copper cable opportunity?
A: We are working with two designated partners for final qualification. The timing remains consistent with previous statements, expecting early revenue in the latter half of this fiscal year and a ramp next fiscal year.
Q: How should we think about OpEx growth relative to sales growth?
A: OpEx levels are stable, and we expect some growth in sales and marketing as revenues grow. The growth rate of OpEx will be about half the rate of sales growth.
Q: What are reasonable expectations for the ACC business in fiscal '26?
A: We estimate a $100 million opportunity, with Semtech potentially capturing around 50% of that market. This is based on a specific program use case and shipping configurations.
Q: What is the outlook for LPOs given the introduction of linear receive DSPs?
A: The jury is still out on widespread adoption, but there is significant interest, especially in GPU-based back-end networks. The motivation to use LPOs is high due to their lower power consumption compared to full retime solutions.
Q: Do you have plans to move into AEC to extend reach beyond ACC?
A: We are open to expanding our product portfolio to meet market needs. We prefer a technology-agnostic approach and will consider different architectures for retimed data transport solutions.
Q: Can you provide a framework for expectations around LPOs?
A: We are working with technology partners and going through lifetime testing. While we are further along with ACCs, we expect to provide more color on 200-gig single lambda products and 1.6T optical solutions in the next few quarters.
Q: What are the drivers for PON, and is the $27 million in net sales a high watermark?
A: The recent uptick is driven by China, but we expect growth to continue due to infrastructure upgrades and government subsidies in rural markets. The $27 million is a healthy number, and we expect growth to continue.
Q: What is the long-term growth rate for LoRa?
A: We expect double-digit growth for LoRa. We are expanding our support for additional protocols and developing tools to simplify deployment, which should drive adoption and growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
