I'm the Communications AIoT and Edge Compute Analyst at Roth. Over the two days of the 30th annual Roth event, we will have 135 fireside chats, 50 panels. There are over 500 companies presenting here, and they're available for one-on-one meetings. If you have not booked meetings, you can go to the one-on-one desk that's upstairs. Please do that at your convenience. Panels and track lineups are electronically displayed, you know, throughout the venue. If you don't know where something is, it should be listed. If not, just please ask someone who's wearing a Roth shirt, they'll help you out. We'd also like to give a special acknowledgement to our conference sponsors and the track sponsor for the promenade here for their technology track, Loeb & Loeb. Thank you.
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Once again, welcome for coming to the ROTH Conference. With that, we're gonna kick off in 30 seconds. Thank you. Hey, good morning. Thank you so much for joining us to kick off the conference of the 30th annual ROTH annual event. This is the first fireside chat of the day, so thank you for joining us here early, 8:00 A.M. on the West Coast time. We got a lot to cover today. Typically, from a fireside chat standpoint, we try and put companies in front of you that there's something different, right? There's something compelling about the story, there's something transformational, and really address some of those topics. With that in mind, very, very excited to kick off the conference with Semtech. Presenting on behalf of the company is Mark Lin. Mark, thank you so much for joining us.
Hi. What a great introduction, Scott. Thank you, everybody, for joining.
Real quickly, right? In terms of Semtech, why we've been excited, it's the data center opportunity. It's still early days, and you're just starting to see some of that emerge. We're gonna dive into that. We're gonna talk a little bit about some other product lines like LoRa, capital structure and some divestitures. There's a lot of ground to cover, and it's really been a dramatic transformation over the past couple of years from a balance sheet perspective, and again, what we're seeing ramp up now from a data center perspective.
So Mark, with that, last week was an incredibly busy week for you guys. You had your fourth quarter earnings and results, which had some very, very strong, powerful numbers in there. You also had OFC. A lot going on with you guys. Why don't we start with the fourth quarter? Give us a quick summary and overview about what happened, what the highlight from the quarter.
Yeah, last week we had our earnings release for our fiscal year, FY 2026, and our fourth quarter of FY 2026. For the fiscal year, we reported revenue of $1.05 billion, up 15.5%. EPS was $1.71, up 94%, so pretty good leverage there. For the fourth quarter, we recorded our eighth consecutive quarter of revenue growth. Nice, steady top line revenue growth along with, you know, EPS and operating margins and gross margins above the midpoint of our guidance range. Pretty strong results. You mentioned transformative, Scott.
One of the areas, you know, I'd like to highlight is in addition to very strong and steady growing P&L results, we also had operating cash flows in the fourth quarter of $61.5 million, free cash flow of $59.1 million in the fourth quarter. That fourth quarter number in FY 2026 exceeded the full amounts, the total amounts recorded in FY 2025. Yes, it was a transformational year. Strong P&L along with strong cash flow generation. I think that makes for a very good foundation for future growth.
Certainly building some momentum. There was one number that really caught my attention in terms of the outlook. You had good results for the data center in the fourth quarter, but looking out to fiscal 2027, the current fiscal year, you're talking about 50%+ growth in data center. Take us through that. That is a huge number, and it's an acceleration from what you guys have been experiencing.
Yeah. This, you know, we're forecasting data center to grow 12% sequentially going into our fiscal Q1. Maybe just coming out of OFC, Optical Fiber Communications conference last week in Los Angeles. The level of customer engagement and the level of incremental orders, the bookings that we received last week, it was quite encouraging. We have growth vectors over you know multiple opportunities. Along with 800 gig optical, 1.6 T copper, our CopperEdge linear equalizers that should be shipping in Q1, 1.6 T optical. I believe we have multiple paths to achieve a 50% year-over-year growth organically in our data center business. In addition to that kind of over 50% growth, we also had a tuck-in acquisition, a company called HieFo Corporation that closed in our just a few weeks ago. That would be incremental in terms of data center revenue as we ramp that particular facility.
Maybe to dig in a little bit more on that front, then we're gonna get into data center in some more details. Also wanna highlight another item that kind of caught my attention. You got 50% organic growth that you're looking for in data center, and we'll dive into that. Also, you're investing a little bit more in OpEx because of the high ROI in terms of that data center investment. Can you just take us through what you're seeing there, some of the thought process for that, and when we start to see some of that returns as we get into, I guess, fiscal 2028 at this point in time?
Sure. Our Q4 of FY 2026 to Q1 FY 2027, we guided OpEx up. That's all R&D. I believe, you know, as we increase our R&D spend, we also increase the rigor in which we monitor our R&D spend. Scott, you mentioned high ROI. I think investing in data center right now is a fantastic opportunity. What I like to see is R&D investment. You know, we have our internal ROI metrics, but another area is customer engagement in terms of when we decide how much and where to invest in our R&D expense, R&D expenditures. What I like to see is customer engagement, and we can see that in a few fronts.
In the data center area, what I like to see is that our customers are also investing in our R&D in a program. We're part of a program for, let's say, an implementation. We're spending money, our partners are spending money, and our customers are spending money. That leads to my belief in a greater chance of success right, a stronger chance of a great return. The other area is in our LoRa business, where it's also customer engagement, but direct customer engagement and through the LoRa Alliance, we get feedback for what customers want to see within LoRa for that development. Again, if you get very clear customer indications, you know, we, our R&D projects, I mean, it's science, but it's not just a science project without a very clear return.
We'll come back to data center in a minute because we want to dive in on OFC and some of the new product cycles. Since you hit on LoRa, that was one of the other numbers that caught my attention, talking about 20% growth, and more recently, you've been talking more 15% plus. Can you take us through the dynamic there of what you're seeing both from a product standpoint, customer demand standpoint, what's driving that opportunity for LoRa right now?
Yeah. LoRa is a great proof point of near-term returns on our R&D investment over the last just couple of years. Within LoRa, we have a few developments. One is LoRa Gen 4, which offers dual band, so 2.4 gigahertz plus sub-gigahertz. What that allows is additional data throughput. Another area is multi-protocol, so LoRa Plus. LoRa Plus, let's say, Bluetooth or LoRa Plus Z-Wave. What that allows is additional expansion into smart home, smart building. Really, those verticals are where I think the customers are demanding some additional features, additional products, and we're really delivering. In dual band, you know, the unmanned aerial vehicle market, so commercial and industrial drones, has seen quite a ramp. LoRa is addressing that market. Smart home, smart building, you know, we're seeing increased automation.
LoRa with dual protocols, multiple protocols. You know, you may control, let's for example, a local door lock using Z-Wave, but in order to communicate remotely from a you know another building, you would use the LoRa protocol. What we provided just recently is that we're working with another company to provide software and silicon integrated into it into one offering.
Let's shift back then to data center, right? It's become a relatively large chunk of revenue stream. Actually, I think when you include data center and LoRa together, I think it's almost 60% of your sales growing at 30% plus combined. A great number. Just to focus on data center for a moment. OFC, take us through the level of engagement and activity that was coming out of the show. It sounds like you guys were very busy. You're demonstrating some new products as we're starting to go from 800 gig to 1.6 T and 3.2 T. Where is the level of engagement, interest, and opportunity with the customer base right now?
I think OFC, honestly, I'm glad we expanded our booth size and the number of conference rooms that we had in our booth because we needed every single one of those rooms for the level of customer engagement in those meetings. It's very strong. Semtech has a very broad portfolio in data center, starting at 800 gig, our FiberEdge product, so our transimpedance amplifiers or TIAs. That's expected to continue to ramp quite strongly, right? That's a very strong market in the transceiver unit growth. Layering on top of that, we had customer engagements at 1.6 T on both optical and copper. Our booth, one side of the booth was 1.6 T copper and optical.
One area was using a Broadcom switch showing LPO retimed optics copper. Another booth was using an NVIDIA Spectrum on both copper and optical. That's the 1.6 T engagement that's just beginning, right? Just starting to ramp this fiscal year. On the other side of our booth, we were demonstrating our products at 3.2 T, 400 gig per lane. It's a multi-year cycle of what we believe to be very strong growth.
Now, the street has really gravitated towards the story around ACC or active copper cable. Can you take us through a couple of the dynamics there? Why is ACC important? How does it compare to some of the other technologies from a power standpoint, from a performance standpoint? And then the level of engagement that you guys have. I think the last number you guys talked about was 20+ customers that you were working with. Kind of give us the update on the ACC front and how we should be thinking about that contribution in fiscal 2027 and 2028.
Sure. Great question, Scott. The ACC or active copper cable for Semtech, it's built upon our CopperEdge linear equalizer. What this allows is another flavor of copper interconnect within a rack. If we go back just a few years, you had basically two choices, direct attach copper, so completely passive copper cable, and AECs or active electrical cables. The AEC uses a DSP, extends the reach of copper, I think, you know, 5 m, 7 m, at 800 gig, somewhere in that frame. It uses quite a bit more power because it has a DSP. At this point, power is critical within a data center, right?
We hear about the data centers now being quoted in power rather than compute. You have a thermal load within a rack. A lot of technical challenges. What ACC provides is something right in the middle. We demonstrated ACC at 1.6 T and at 3 m. What that provides is a nice middle ground. Three meters will cover effectively what's within a rack, so copper scale up within a rack. We're using about 90% less power, up to 90% less power than an AEC, so we're at, you know, 2 watts, and significantly less latency. When you're doing, you know, both. A training cycle, you really want that low, low latency in order for all the GPUs to act as kind of one, kind of a super computer. In that area, we're really seeing a lot of traction because power really matters, right? Yeah.
Mark, in that environment where power does matter, right? The numbers, depending on which study you look at, right, I think data center in 2025 probably consume 4%-6% of electricity in the United States and could be en route to 15%-20% of electricity consumption, becomes a big deal in the data center. If ACC has that power benefit versus other technologies, you're getting up to 3 m. Are all that, the design opportunities inter-rack right now, as you know, so as opposed to scaling out to across the data center, or are you starting to win some of those sockets that extend beyond, you know, the switch within the existing rack?
Right now what we're focused on with our CopperEdge on the ACC with cables is scale up within the rack.
Okay.
Right? That's within that 3 m distance. Usually cables within a rack, you know, you're well under 3 meters. We can really cover that product, that space with our CopperEdge ACCs. I forgot to mention, you know, customer engagement in your last question, right? Just a few quarters ago, we announced that we had been engaged with over 20+ potential customers. Maybe there's a little bit of skepticism on that figure because ACC, it is a nascent technology. Just a few weeks ago, we announced the ACC MSA. If you look at acc-msa.org, there's probably 15 or 16 companies there that are listed.
I think, you know, the 20+ customers, it was meant to represent broad engagement in the industry. Now with the ACC MSA, I think that's a proof point, just a few quarters after we made that initial customer count, that it is broad. We're looking at the MSA, you have all the cable suppliers, right? Basically, we become part of their portfolio. They also recognize that ACC is a winning technology, and they also are able to promote ACCs along with Semtech.
In terms of ACC customers this year, what's the expectation in terms of how many will be in production? Can you give us an idea of what that looks like? I know in the past you guys had framed kind of the opportunity with one customer. How should we be conceptually thinking about the size of the ACC opportunity over the next couple of years?
Yeah. We've announced that we're going to be launching with a hyperscaler with initial revenues starting in our fiscal Q1, so the current quarter, and that we are engaged and we expect design wins later this year. That's the scope of the engagement. I think coming out of OFC, again, very encouraging with the number of engagements and the number of those in the ecosystem that are very interested in supporting ACCs and our CopperEdge linear equalizers on board. Maybe we'll talk about this later, but on a PCB, so it's not just in cable form. In terms of the market size, look, this is a nascent market. At this point, it's growing at quite a good clip. Rather than sizing the market, we're really focused on winning some great opportunities.
Well, it sounds like momentum is there. Again, I'm not sure. This is a tough one to answer, but in terms of market share, like ACC in terms of mix versus other technologies, how do you think about that? Particularly 2027, we're still in a ramp-up phase, but if we look to fiscal 2028, how are you guys thinking about the ACC's position in the market?
Yeah. ACCs we believe have a very firm place in the market. In this leading hyperscaler in which we're ramping, we understand there was somewhat of a bake-off, direct attach copper, completely passive cable, ACC, and AEC. In the end, there's two cable types that are going to be used, direct attach copper and ACC. Due to power use and, you know, latency, AECs were not considered. I think there's a very good place in the market for AECs, but I think this is just a proof point that ACCs will be a very good portion of the market, especially as, you know, line rates go up from 200 gig to 400 gig.
Okay.
Right?
Maybe shifting a little bit to LPOs. We haven't talked about them really directly yet. A lot of design traction that you guys have talked about in the fall time period. How is that ramping up? I think it's tracking expectations, but just give us a quick update on that front.
Yeah. LPO's tracking expectations. In our third quarter earnings call, guiding for Q4, we said that there would be about, you know, mid-single digits starting revenue for LPO. We achieved that, and LPO, we believe, is just another low power analog solution that'll get adopted in the market.
If you look out to fiscal 2028, ACC is bigger than LPOs in terms of your revenue stream?
At this point, we believe our CopperEdge linear equalizer, covering cable form and PCB and CopperEdge on board, will be higher than LPO.
Gotcha. Also, as you indicated in your opening remarks, you acquired HieFo, gives you some indium phosphide capabilities. Can you just take us through what the opportunity set there is? What does it do to your dollar content?
Yeah. Semtech has been on the electrical side, and it's been well known that our CEO is looking for opportunities to expand our market share and the addressable content for Semtech. What HieFo provides is that entrance into kind of photonics. What this allows is as you know, data rates increase 1.6 T, 3.2 T and beyond, you wanna be able to integrate your designs. What HieFo provides is something on the photonics side. Not only do we get you know, a laser, we can develop a modulator. We're currently selling gain chips for DCI. But we also have the TIA side. If you're looking at a module, currently we probably have about high single digits content in an 800G module, basically a transimpedance amplifier or TIA. Going to 3.2T, we have the opportunity for content around $80.
Right.
That's quite a market share.
By the way, 3.2 T, you expect commercial contribution, what, FY 2028 is-
Yeah. It's a little bit up, but 2028 would be a good-
Okay
Good time frame.
Again, the outlook for this year is 50% organic growth within data center, which is an absolutely huge number. It's still early days, right, in terms of a nascent ramp for ACC. How do we think about the longer term growth rate in data center? 'Cause the last couple of years it's been good. We've been in recovery mode. You've been growing 20%+, but now you're starting to layer on some really exciting new opportunity sets, incremental dollar content. How do we think about FY 2028 and beyond?
Yeah. I'd probably say that it's just broad-based growth, right? 800 gig, again, the transceiver market is still booming at 800 gig. That area provides a very nice base layer of growth with for our TIAs. When you move into 1.6 T optical, we have both content on a TIA and also on the laser driver side. So that's incremental content in optical. Then you layer in 1.6 T in copper, both in the cable form and on board. So very nice multiple vectors for growth. Then we move into 3.2 T. I think coming out of OFC, we've demonstrated that, you know, we'll be in that market as line speeds increase. The AI market, you know, just CapEx growth in the data center market is just incredible. It's generational.
By the way, we haven't really talked about the macro environment, but certainly data center is something that's been bucking the trend in terms of the investment as we get to, you know, approaching a trillion dollars in CapEx this year. Is there anything that you're seeing on the margin from a macro standpoint that's given customers hesitation, or particularly on the data center front, are things just plowing ahead?
Things are definitely ramping. I think there is great opportunity. In this area, you know, we're not really seeing any macro impact slowing down the data center ramps. By the way, the other area is I'd say that, you know, that's good for growth is, you know, the demand for data is increasing. You know, right now data centers are at 800 gig. We're just deploying 1.6 T. We're going to go to 3.2 T. These areas, you know, at each kind of speed, Semtech's content increases.
Right.
I can guess that, you know, hazard a pretty good guess that the requirements for data at this hyper scale are gonna grow, right? Today versus three years from now versus five years from now. This is where Semtech's analog solutions really have a great play.
We've covered data center. We talked a little bit about LoRa. Let's move over to divestitures, right? We've been talking about the cellular module business for a while. What's the latest update on that front? How is that progressing? How should we think about that?
Yeah. Our cellular module business, this is a business that has gross margins about 20%, right? It requires some R&D, you know, some overhead. It's just not a great fit for Semtech. We believe it's a great business and a great fit for someone else's portfolio. We've been in an active process to divest the cellular module business. Again, 20% gross margins. If I just kind of look back to FY 2026, excluding the cellular module business, Semtech's gross margins would be very close to pushing 60%.
If you see where our business is growing in data center and LoRa, those are all very margin accretive, so we can get well into the 60s% on a consolidated basis in the near term. In terms of status of the divestiture, we have a preferred acquirer, I would say. But I think what I like to see is that there's actual external dollars being spent by acquirers. You know, that they you would hire a third-party financial services firm to perform some confirmatory diligence. You have legal costs, right? Reviewing contracts, that of that nature. If there's money being spent, I think that's a good sign and leads to some optimism on my part that we'll be able to close the deal.
Let's bring it back and wrap it up with some financials. The last two years you've done a tremendous job in terms of recapitalizing the balance sheet, so that issue has been addressed. Now looking at the P&L going forward, very solid double-digit top-line growth, as we enter fiscal 2027. You're investing a little bit more in R&D because of the high ROI from a data center standpoint. How should we think about operating margins and operating margin leverage, you know, in fiscal 2027, fiscal 2028?
The way we're modeling it at the current point, I think the R&D investment is critical. Time to market is critical. Customer engagement is critical. At this point, I think I'd like to continue, and I expect to continue, investing in R&D in our high-growth areas, data center being one, LoRa another, and then within our sensing portfolio. If things ramp a little better than we expect or things ramp a little faster than we expect, of course, there's going to be operating margin leverage. At this point, though, I think the R&D is very, very well spent and a good use of capital. The other area is, we've demonstrated the ability to have some small tuck-in acquisitions, right?
We had a tuck-in acquisition in our fourth quarter and another one in Q1. The tuck-in acquisition in Q4 expanded our sensing portfolio. It was already on our product development roadmap, so this was a clear example of buy versus make. The HieFo acquisition. The combined consideration of these two acquisitions was less than a quarter's free cash flow. Good use, I believe, of capital that we are entrusted with, R&D, and these tuck-in acquisitions.
Perfect. We've gotten to the end of our 25 minutes, but just any final thoughts that you've got on the way out?
Broad-based paths for growth, both in data center, LoRa, and in our high-end consumer markets.
Mark, thank you very much. Always a pleasure to have you here, and we appreciate you being here. Thank you.
Yeah. Thank you, Scott.