Good afternoon, everybody. Just allow me to convey how truly grateful I am for your attendance, both in person and online. I hope you come away today feeling that this was time well spent. For me, seeing Imran share his passion for signal integrity with all of you is truly gratifying. Imran has done plenty of teachings for me. His team has done plenty of teachings for me. Hong said winning is infectious. Man, to me, signal integrity is infectious. I love this stuff. I also feel privileged to be one of the voices today representing my Semtech colleagues to highlight the results of our accumulated efforts, the financial transformation we've been able to achieve together, and our path for accelerating growth. About 10 quarters ago, we were incurring staggering cash interest costs, which resulted in cash flows that were flowing the wrong way. Today, that picture has changed.
We're in a position to raise our Q3 2027 outlook and provide financial targets extending to FY 2030 that shows Semtech's growth trajectory is closer to the beginning and far from the end. Let's get started. My key messages first touch upon a bit of history aligned to Semtech Rising and moves to our current state of Semtech Transforming and our future state of Semtech Excelling. First, Semtech's financial transformation paved the path for accelerating growth. I believe we first set the company on firm financial footing, and we're primed to capitalize on market tailwinds and accelerate our growth. Second, I believe we've demonstrated consistent execution in meeting our financial targets. A critical track record as we provide targets through fiscal year 2030. Third, we expect a positive step change in margin profile, supported by growth in data center and LoRa, two very high gross margin products.
Fourth, our cash flow generation, portfolio transformation, and disciplined capital allocation enables organic and strategic investment to strengthen our portfolio value. Fifth, our differentiated portfolio of high-performance solutions paired with strong margins and balance sheet stability is expected to compound into revenue, earnings, and cash flow growth, resulting in increased shareholder value. We'll highlight this point through our FY 2030 financial targets. One of the hallmarks of Semtech Rising was to fix the foundation, enhance our capital structure, enhance employee engagement, enhance customer engagement. What I've concluded is that these three items are remarkably linked, and I believe we have meaningfully improved the state of all three. We've de-risked the balance sheet through repayment of high-cost term loans. We've managed debt maturities. We've lowered our cost of capital, and we've improved liquidity.
About 10 quarters ago in FY 2024, the year I joined Semtech, net cash interest cost this company $82 million, and free cash flow was - $123 million. Clearly unsustainable. Today, net cash interest is a contributor to free cash flow, and annual free cash flow as of Q2 of 2027 was $193 million. Likewise, net debt at the end of FY 2024 was $1.3 billion with a net leverage ratio of 10.5x . Also clearly unsustainable. But at the end of last quarter, those figures are down to $299 million and 1.1x . Over-leverage is in our history, but it is history. Within Semtech's ecosystem, including employees, suppliers, and customers, our financial transformation has allowed us to amplify our signal and reduce the noise.
First, in R&D, we've been able to accelerate the pace of investment with a laser focus in our high-growth areas and generate top-line growth and bottom-line return, and certainly better return than we were earning from interest expense. I've been able to witness firsthand this multiplier effect on our engineering teams from our increased but very focused and disciplined investment. After ECOC last month, I made a stop at Semtech's location in Switzerland to visit LoRa development team. Our increased investment has energized this team, and it's not for the spend. It is because this team understands where the market is heading. They're listening to the customer, and now they're able to accelerate the development of the next generation of LoRa.
Our next generation LoRa device really focuses on customer-requested enhancements, substantially lower standby current, which dramatically extends battery life, increasing data transmission rates, and all with SDKs facilitating device deployment. Second, we've been able to contribute to growing EPS as interest savings have resulted in increased earnings. Third, we've been able to substantially increase assurance to our suppliers and our customers, which I believe is critical in today's accelerated product development timelines. Suppliers have increased their credit limits. On the customer side, I have not had a discussion with a supply assurance team to discuss Semtech's financial condition in some time. That's all been taken care of. But more importantly, and I believe most importantly, during customer meetings, our sales and field engineering teams can start a meeting with the customer, those whiteboarding sessions that Imran was talking about.
We can start those meetings discussing and leveraging Semtech's portfolio to assist the customer. Those teams don't have to go into these customer meetings first having to discuss Semtech's leverage. We've demonstrated consistent and predictable execution. Over the last 10 quarters, we've met or exceeded our midpoint revenue and EPS outlook, all while growing revenue in each of those quarters. We met these quarterly targets while growing revenue 66%, adjusted EPS 1,083%, adjusted gross margin 470 basis points, and adjusted operating margin 1,220 basis points. I highlight this track record of execution as I believe it is foundational in giving you confidence in our ability to execute on our multi-year model. Speaking of execution, we're updating our outlook for Q3 of 2027 to the upside. Allow me just to review some midpoint figures for these updated expectations. Revenue at $417.5 million, which would be 56% year-over-year revenue growth.
Consolidated adjusted gross margin at 59% and adjusted gross margin excluding the held-for-sale cellular modules business at 64%. Consolidated adjusted operating margin at a record 33%. Adjusted diluted earnings per share at a record $1.14, up 138% year over year. On the divestiture of the cellular modules business, we continue to expect that the transaction will receive regulatory clearances and that we'll be able to close this transaction in our fourth quarter. On portfolio optimization and moving to a higher margin mix. Growth in our portfolio has shifted dramatically to data center and LoRa. In FY 2024, data center and LoRa each comprised about 7% of total revenue. Moving to our expectations for Q3 of 2027, excluding the cellular module divestiture, data center is expected to climb to 40% of total revenue. LoRa revenue is expected to constitute 19% of total revenue. Translating these percentages into dollars.
For all of FY 2024, data center revenue was $61 million and is now expected to grow to $145 million over a single quarter, Q3 of 2027. LoRa revenue was also $61 million for all of FY 2024 and is expected to be $68 million for Q3 of 2027. Both portfolios are at record levels and contribute amongst our highest gross margins, and growth expectations through FY 2030 for data center and LoRa are the basis for our belief that we can grow beyond this quarter's expected 64% adjusted gross margin excluding the cellular modules business. Semtech's margin performance is highlighted here. I believe it reflects a clear inflection. I will cover historical growth and compare to our midpoint outlook for Q3. Q2 of 2025 to Q2 of 2027, over eight quarters, adjusted gross margin increased 410 basis points.
For Q3 of 2027, over one quarter, we expect a 950 basis point increase in adjusted gross margin excluding the cellular modules business. For Q2 of 2025 to Q2 of 2027, over eight quarters, adjusted operating margin increased 1,020 basis points. For Q3 of 2027, over one quarter, we expect an 860 basis point increase. This is translating to adjusted earnings per share. Q2 of 2025 had the headwind of interest expense, pretty substantial interest expense, and reported adjusted EPS of $0.11. For Q2 of 2027, adjusted EPS was $0.71. Or growth at 9.3x sales growth compared to Q2 of 2025. For Q3 of 2027, adjusted EPS is expected at $1.14, with growth at 2.7x sales growth over a single quarter.
We are returning to gross margins that this company has earned before, but this time with top-line growth several times higher and operating margins and earnings per share above what Semtech has previously been able to deliver. Scale up, scale out, scale across copper, optical, photonics. They have all been contributing to Semtech's scale at the revenue level, providing operating margin, operating leverage, and earnings growth. I would now like to highlight capital allocation as it relates to operating expense spend. The first point is absolute. We focus investment in R&D and allocate resources to high-return projects where we have customer alignment.
I think this is evident in the 27% increase in R&D dollar spend between FY 2025 and the last 12 months ended Q2 of 2027. Our R&D opportunities are vast, but we focus on customer alignment. Our ROI calculations factor where customers have invested resources on the project we are supporting.
We believe these factors result in greater assurance in the quality of our ROI expectations. Even with these opportunities, though, we do maintain an envelope of affordability and have roughly maintained R&D spend as a percentage of revenue over the periods we are presenting here. One way to afford R&D is to watch the efficiency of SG&A, and especially G&A. While R&D investment increased 27% on this chart, SG&A increased 8%, or 30% of that rate over the same period. We are investing in our commercial team. Listening to our customer is important, but you can see as a percentage of revenue, SG&A declined from 18% to 15%. Scale is another factor in affordability. Even with increased R&D investment, our Q3 2027 outlook pegs the midpoint adjusted operating expense as a percentage of revenue at 26%.
That would be down 910 basis points from FY 2025, down 670 basis points from FY 2026, and down 600 basis points from the trailing 12 months ended Q2 of 2027. Turning to the balance sheet, we ended Q2 of 2027 with $503 million of debt against $204 million of cash and cash equivalents for net debt of $299 million. Combined with $357 million of availability on our line of credit, that gives us total available liquidity of $561 million. Our debt maturity schedule is clean. $100.5 million comes due in FY 2028 with no scheduled maturities in FY 2029 or FY 2030, and the remaining $402.5 million is not due until FY 2031.
With expected Q3 trailing 12-month Adjusted EBITDA of roughly $360 million and growing cash generation, our net leverage ratio is expected to move under 1x and toward our maintenance net leverage target of less than 0.0x . We believe low leverage and ample liquidity gives us significant flexibility to drive long-term shareholder value through disciplined capital allocation. This brings me to our go-forward capital allocation priorities. First, organic investment. Customer-aligned R&D focused on our highest return opportunities with the clearest visibility. Second, portfolio optimization. Applying a disciplined framework for opportunistic capability-driven M&A, prioritizing strategic fit and the strongest returns, and staying mindful of our history.
Third, balance sheet strength. Preserving the flexibility to act on operational and strategic opportunities as they arise. Let me ground this in a recent example, our acquisition of Semtech Photonics Products, or HieFo, in March of this year. Semtech Photonics Products, or SPP, expands our AI connectivity portfolio into photonics and adds domestic indium phosphide manufacturing expertise that would have taken us far longer and would have been far more costly to develop organically. The economics are attractive.
SPP's photonics portfolio is expected to generate data center-level gross margins with clear R&D and go-to-market synergies. The transaction was appropriately sized to preserve our balance sheet strength. With capacity expansion, both what we have spent and what we expect to spend within our liquidity framework. This is the model going forward. Opportunistic, capability-driven acquisitions that strengthen our core franchises, not scale for its own sake. Allow me to translate all of today's presentations into our long-term financial framework. Our accumulated efforts in revamping customer engagement, the concerted R&D investment in high return, customer-aligned projects, our continuous portfolio optimization, the multiplier effect from stronger employee engagement, and assurance from our financial transformation together form the foundation of the framework we are calling Semtech Accelerating. We expect revenue to grow at a 38% CAGR from FY 2026 to FY 2030, reaching $3.2 billion.
I want to be precise in the base in that we exclude $166 million of FY 2026 cellular module revenue, the business that we expect to divest in Q4. Data center revenue is to compound at 75% to $2.1 billion for FY 2030. As Imran mentioned, we also expect data center revenue to more than double in FY 2027 versus FY 2026, and then more than double again in FY 2028. Imran showed you why. FiberEdge's differentiated performance. CopperEdge's differentiated performance. Photonics with differentiated performance just starting to contribute to revenue. Content opportunity per module growing at over 10x . A strategic supplier with whom we have had a long-term supply relationship, aligned to supporting multiple definitional customers. All across a SAM that we expect to grow from $3 billion to $15 billion.
LoRa's revenue is expected to compound at 30% through FY 2030, supported by capability enhancements and expanding market verticals, including smart building, security, drone control, edge AI connectivity, and our emerging partnership with Amazon Sidewalk. We expect steady growth from the rest of the portfolio above market growth rates and contributing cash flow and contributing operating leverage. Alongside revenue growth, we expect adjusted gross margin of 70% in FY 2030. For this quarter, excluding the cellular modules business, we expect gross margin of 64%. That remaining six points are contributed through mix with data center and LoRa growth and growing scale of our business. Adjusted operating margin for FY 2030 is expected to range from 48%-50%, with R&D investment as a primary variable. Of course, incremental R&D would follow our same framework of customer-aligned projects.
We also expect our growth to result in healthy cash generation, with free cash flow as a percentage of revenue to be 35% in FY 2030. Together, that drives adjusted diluted EPS CAGR of 64%-66%, or adjusted EPS at $12.40-$13. We've assumed a 20% non-GAAP tax rate based on geographic mix of income and 104 million weighted average diluted shares outstanding. To close, this is our model to compound shareholder value. Winning in high growth markets by aligning investment and our customers' needs. Increasing portfolio value by building a more differentiated, higher margin portfolio. Expanding earnings power by turning growth into stronger earnings. Generating durable cash flow by converting those earnings into durable and sustainable free cash flow. Then reinvesting with discipline to deploy capital to maximize returns. Quality top-line growth, margin expansion, cash generation, disciplined reinvestment.
That's how we intend to compound shareholder value in the years ahead. Thank you.
Please welcome back to the stage Mitch Haws.
Thank you, Mark. At this point, we will open the floor to questions. I would like to invite members of the senior leadership team to join me. Just a couple rules of the road. There are mics in the audience. Before you pose a question, please use a mic for the benefit of those on the webcast. If you could, please state your name and the firm you are associated with.
We do have two additional members of the team who have not presented today, so I thought it might be good if they just made a quick introduction. Jason?
Sure. Jason Green. I am the Chief Commercial Officer, so I lead the customer facing teams and the go-to-market effort.
Okay. Asaf?
Hi, everyone. My name is Asaf Silberstein, and I'm the Chief Operating Officer in the company.
Okay. The first question, Chris, fire away.
Thanks.
Chris, can you excuse me? Before we start the Q&A session, I have a very important announcement. As we were preparing for the Analyst Day, and Mitch was preparing to be a grandfather. Great day today, Mitch became grandfather, and we.....
Thank you. Thanks.
The beautiful grandson was born at 2:30 A.M. this morning.
Yeah. Do we call you Papa?
Yeah.
Still getting used to that.
As some of you know, Mitch Jr., Thomas, was also an IR executive. We have nothing more than that. With respect, Thomas Jr. is going to be an IR executive as well. Sorry about that, Chris.
Far more important than anything I have to say.
I know. Exactly.
I know Thomas, and I guess congratulations to Thomas as well.
Thanks, Chris.
That's incredible. With your youthful appearance, I would not have expected a grandfather.
You are too kind.
Thank you for a great day and really talking about all these opportunities that you have ahead for you. I have received perhaps a couple questions about the long-term model and the way it is structured and the way that growth starts out really robust. Then I think in the last two years, there is implied decel in the growth to much more of a market rate. I think people would like to know basically what is in that assumption in the back half. Is it just uncertainty? Is it something you are seeing in your own businesses and the portfolio and the way it is set up? Is it just conservativism? What would it take to beat that? Thank you.
Yeah. Thanks for the question, Chris. Our long-term growth rates in those outer years are grounded in market CAGR assumptions, market growth assumptions, market levels. If the market can grow faster, if the market is bigger, we will be there to capture those opportunities without a doubt. Let me just ground our model and the framework we use to develop our model. Semtech has an established long-term financial plan and the way we develop our numbers. We applied that framework, we applied those same processes and procedures in developing the long-term model that we showed today. We did not use anything different. We just maybe updated some of the inputs based on the latest market data. That also grounds our belief just maybe applying to data center, right? In FY 2027, we expect data center revenue to more than double. That is grounded in backlog.
FY 2028, our growth rates more than doubling again is grounded in backlog and then maybe layering in design wins that have yet to ramp. We also layer in a bit of customer engagement there, right? Where are our customers headed? We will align to where we are headed. Of course, supply assurance, right, what we can supply. I think the work that Asaf has done with Tower Semiconductor, I think solves for that particular variable pretty well. In outer years, we ground our expectations in what we see in a market CAGR, the market CAGR that we presented today. That leads to some variability in outcomes, but absolutely, if that market CAGR grows beyond what we presented, you can expect that our growth rates will expand beyond what we presented today as well.
Great. Thanks, Mark. Next question. How about Quinn right here?
Thank you. Quinn Bolton with Needham. Thanks for the great presentations. I wanted to follow up on the long-term outlook. You've given us a data center target of $2.1 billion. The current business is mostly scale-out or optical module based. You've talked about NPO. As you look out to 2030, how much of the $2.1 billion do you think could be generated by NPO, CPO, new applications coming to market versus growth in the traditional optical module business? Then I've got a follow-up for Mark.
You want to take that one?
Yeah. Quinn, thank you for your question. We will not be able to provide that detail from the different part of the data center portfolio to contribution. But it's safe to say that all of them is contributing very nicely to the future growth. Again, on the outlook Today, we provide FY 2030 simply follow the framework as Mark outlined. Does not inflect any, say, we sense some deceleration for future years, and we sense mainly because we have the backlog to support this year and next year's conviction. Then, as we go in the future, we will provide more update. If the market continue to go as this way, we absolutely will leave no opportunities unexplored. We're going to be capture all the growth opportunities.
Quinn, you had a follow-up?
Yeah. It was just a question. You went through your capital priorities, obviously continuing to invest in the business. But if you hit your revenue target and your free cash flow target of 35%, it will be generating over $1.1 billion in fiscal 2030. What do you think the opportunities for share buybacks, dividends, just any sort of capital return thoughts as you get out to that model?
I will frame our capital allocation priorities. First of all, investing in R&D, in these high growth projects that we have been able to identify and we believe we will continue to identify through really strong customer engagement. That will be the first use, and I think we have demonstrated a great return, both top line growth and bottom line return from that investment in R&D. M&A is another area. Portfolio optimization is a continuous process. Looking back at our framework, what have we been looking at in M&A? On the acquisition side, capability driven acquisitions that target adjacent markets, fill out the portfolio. We can expect to see more of that, perhaps at various scales. Then third, balance sheet strength. That means having a fundamentally strong balance sheet, getting to that net leverage ratio target over time, a maintenance net leverage ratio target of 0.0x .
Okay. Over here, Joe.
Yeah. Joe Moore from Morgan Stanley. Thank you for the great presentation, and I am excited to hear your grandson is continuing in the tradition of semiconductor IR down the road. Can you talk about active copper? You talked a lot about redriver opportunity persisting for several years. What is the adoption there? Are you seeing, is the slice of it maybe a little smaller than I might have thought a couple of years out? Is that adoption curve looking like what you thought, and is it just that optical is a lot stronger, is that why it is a smaller piece?
Imran, you want to address that?
Sure, I can do so. Thank you for the question. We are less focused on the format, if you like, of whether it is active copper or whether it is a linear redriver on a line card. I would encourage you to think of it the same way. There is no sense in getting hung up on what is the format of these links. What we need to understand, and what I hope came through in my presentation, is that these links need a boost. They need a tailwind, and that is what linear redrivers provide. In all of these applications going forward, as line rates increase, we expect to see exactly that. Some of them will take the form of an ACC, some of them will take the form of a flyover cable with a redriver at the end.
Some will be a redriver instead of a retimer on a line card. Thank you for the question.
Great. How about Sean in the middle here?
Hey, Sean O'Loughlin from TD Cowen. Thanks for the day of presentations, and congrats to grandpa over there. Maybe one for, I do not know whether this is a Hong question or an Imran question, but when we think about the Semtech Photonics portfolio, or the Semtech Photonics Products portfolio, SPP. Right now, I think that you have commented that the gain chips are so wildly profitable that you are continuing to make those and the shift to lasers will come later. When I think about where there are bottlenecks in the industry, a lot of those are in, whether they are pump lasers, whether they are EMLs, whether they are CW lasers.
I guess you were clear on what the roadmap looked like, but I guess what is different about your portfolio that makes maybe those products that you highlighted easier to tackle first than maybe other parts of the broader laser market, if that makes sense? Thanks.
Can I answer that? Great question, Sean. I am awfully familiar with the laser and the capability and the differentiation we developed at the time. The same high power lasers at the time was used to serve the HFC hybrid fiber coaxial market. For those of you who have been around for a while, that was a big market. Today, if you use Xfinity, I would say over 80% of the chance that network is powered by the lasers we design and offered at Emcore days. The differentiation for lasers, the high power conversion efficiency, about 10% higher from 30% to 40%. That is significant. And also the beam profile was designed in such a way that easy to couple into waveguide or fiber. You get a less loss and more laser to get in, and a very low noise and very low bandwidth. What does that translate into?
We are not going to be competing with the commodity type, like a $3 per 30mW lasers for optical transceivers. We are more high value add part. For example, gain chips providing the key elements in tunable lasers for scale across applications. That is a foothold. That is a base. We will continue to strengthen that base by expanding customer base. The second, addressing the adjacent, which is a coherent light, that is going to be emerging scale across applications. Our lasers is ready. Our laser are in qualification cycle. Then we selectively engaging on optical transceiver applications. We are not going to be using eight lasers to serve one optical transceiver. We plan to use one.
Engage with our customers using our very high power laser, 150 to 200mW or 250mW , depends on their loss, to have one laser serve eight channels. That is more value add. Then developing the OCI CPO scale-up lasers. That has been our strategy. This coincide with our capacity expansion plan very nicely. Different opportunities layering in at a different time. We understand the horizon of the different applications, and we plan accordingly.
Great. Over here. Harsh.
There you go. The second row.
Yeah, there you go.
Thanks. Harsh Kumar, BMO Capital Markets. Mitch, congratulations on becoming a grandfather.
Thanks.
For my question, Hong, I wanted to ask you about the importance of your deal with Tower Semi. What does it bring to you that HieFo doesn't have? Maybe you could contrast and help us understand what you're getting out of that deal and what kind of capacity implications it has. Then I had a follow-up.
Yeah. Thank you, Harsh, for the question. If we open the hood, like what we did today on an optical transceiver or MPO or XPO construct, the key components in play are PMDs with a TIA and drivers and then photonic component, you get lasers and modulators and photodiode. We do not do DSP. We are not planning to do DSP as the market is moving into this trend of more DSP less for scale up and scale in, even in many part of the scale-out network. We look at it that laser, we have a strong foothold, and that can be the base to expand. Photodiode, we just added design capability. As I alluded, we plan to demonstrate our 300G photodiode in the upcoming OFC. Okay, you can say, well, what about the modulators? We are working with the partners.
We have many ways to play in from that angle as well. Our goal is to work and co-optimize those components, provide customers with a reference design and known good chipsets. This will help them to accelerate the new product to market.
You got a follow-up, Harsh?
I follow up. Hong, I wanted to ask you about NPO versus CPO timing, of CPO in your opinion. Then there is always this push and pull between investors. When we talk to them, they talk about, hey, there is a risk that the switch ASIC guys will try to take more of the share. What would you say to something like that? Also, maybe you could in the same vein address the photonics fabric that might be coming on couple of years out.
Yeah. This area I happen to know something. We have been working on a CPO since 2018 at Intel. We were a little ahead of time. We delivered working CPO in early 2020, and was fully prepared to showcase at OFC. Then COVID, it then canceled. But the program got slow-rolled primarily is not because of technology. It is because of application. There are no killer app which need that much bandwidth, more importantly, bandwidth density. AI changed the game. So now, there is so much data cranking out from XPUs and people talk about bandwidth limitation, connectivity wall, and also the power wall because you use DSP-based solutions. You are getting the signal, bring them all the way to the front panel.
You burn so much power. The connectivity consume too much power in their eyes, and that has been impediment for them to monetize more compute revenue through the power. We are putting a frontline in solving this issue, these challenges. CPO is going to happen, and there are no fundamental scientific barriers, but more process development maturity. But in between, there is an open system CPO. You can view that way. They call it NPO. Near package, you do not get 100% of benefit, but you get 85% there in power savings. But you leave the socket open and give people the flexibility.
You are dropping in different type of XPUs. So I think the NPO is going to happen. The volume will start pretty much end of next year. And we are at the right place. As I said, we have all the key IPs, which really basically NPO is a highly packed LPO. The TIAs, the drivers we developed for LPO and proven, and that can be used in NPO with the right form factor to match the packaging need. As for CPO, is it going to happen? That will be the Holy Grail. In the past, the concern was mostly about serviceability.
So when we developed that at Intel, a risk that came by several times, saying, "I f this thing does not work, who do I send to? Send to you? Send to Broadcom for switch? Or send to Celestica for manufacturing?" They do not even know how to deal with the fibers. Now you have one neck to grab. NVIDIA, for example, they provide the racks. You can hold them accountable for the rack performance. Google provide the racks. You can hold them accountable. So that is no longer an issue. And CPO, again, is going to be happening, but happening after NPO.
Maybe to the second part of your question, I will just add regarding the competition, and as everybody goes into space, I can share with you that customers really appreciate our focus in on the analog connectivity space. We really come across to them as trusted partners, rather than potential competitors down the road as it gets to CPO and beyond. So I think that is an important point to consider.
Thank you, Jason. We got Rick in the back here.
Oh, thanks, and I'll add my congratulations too, Mitch Haws. Rick Schafer from Oppenheimer. Hong, I've got a question on LoRa. I know we've been talking a lot about data center, but I'm trying to get a sense of how big that market could be. You've taken that from a no-growth business in the last couple of years. It's running a quarter billion dollars, I think now, growing 60%. I know you talked about long-term CAGR around 30%, but I look at just something as simple as Amazon Sidewalk, which seems like it has the potential to be as big or bigger than what your run rate is now with LoRa. I don't know if you agree with that, but I'm trying to get a real sense of basically how big that LoRa opportunity is or that TAM is.
Yeah. Rick, thank you for that question. You were right. You and I, we talked, so LoRa revenue was almost locked at $150 million plus or minus on an annualized basis. This year, we're going to break that, shatter that glass ceiling to $250 million, $260 million a year. The growth is primarily driven by unleashing new application verticals. You mentioned about Amazon Sidewalk. We actually put in a very moderate number in that in our multi-year plan. That can be huge. It's a consumer application, and we rely on their Amazon scale to scale up. But what we have the full visibility and more control over is the value-added application across our different application verticals. One application we did not get a chance to talk whole lot is edge AI applications. LoRa is known to provide robust, wide range, low power, and super sensitive connectivity solutions.
But now we are adding bandwidth in it. In Gen 4, we have 2.4, 2.6Mb per second, compared to 100Kb per second. In Gen 5, Mark talked about stop by our Switzerland design center. I was there, too. We're so happy to hear that our innovators are able to bring that bandwidth to 6.4Mb per second in now Gen 5 with even more sensitivity by 2, 3 dB. 6.4Mb by any imaginations can be called broadband, but it's getting there. What that enabled is a high-fidelity video and audio applications in real time. Imagine you have the robust coverage, long reach, low power, adding high bandwidth. That can unlock a whole range of new applications. You can tell I'm really excited about the future of LoRa. There's just new range of many applications.
That give us the confidence and conviction that we will be able to grow with a CAGR of 30%.
Right here. Craig?
Bring the mic over there.
Yeah, right here.
Please. Thank you.
Yeah, thanks for that. Great presentations, guys. Very informative. Mitch, congratulations.
Thanks.
Hong, I wanted to start with a clarification. I think it was your slide 21 that had that very attractive-looking bar chart with content going above $100 out in the future when we integrate laser. The question is a clarification. To what extent in the $3.2 billion revenue model for fiscal 2030, $2.1 billion for data center, do we realize that kind of content gain, or is that really beyond the forecast period in fiscal 2031 and beyond?
Simply put, a very moderate amount, and we did not really put in even close to what we believe the potential can be in our model. It does need to do a lot to make it happen, but our path is clear, our opportunity is there, and all we need to do is focus on capture these opportunities.
Fantastic. Very helpful. Mark, the follow-up is to you. I did not want to neglect you up there on the panel. The 70% gross margin bogey for fiscal 2030. You said that there was scale and mix that were drivers there. Can you talk a little bit about each of those and their relative contribution, and then the extent to which that is more linear or maybe back-end loaded in terms of getting there from 64%? Thank you.
Yeah. Thanks, Craig. I call it less of a bogey and more of a target that is grounded in the modeling that we do for our long-term financial plan. Again, we do not apply a different framework for how we generate these numbers. We have done five-year plans for quite some time now. That is just part of our standard process. In terms of getting to that 70%, it is six points, right? We are at 64% accelerated modules for this quarter, and you can see where the business is growing, right? Within data center and LoRa. I think most of the people in the audience are familiar with gross margins in this area, but let me just reinforce, these are among our highest gross margin products. Let us call it our highest gross margin products in our portfolio.
So with that growth rate, absolutely, that is driving towards a higher gross margin. Scale, of course, we cannot ignore it either, right? You have seen scale growth, right? You can see how the business is growing just in the past few quarters. Apples for apples. Scale has definitely contributed, but I would say that the driver, that move towards this mix of data center and LoRa, is a really powerful tailwind. We expect that tailwind to continue to exist, to continue to grow. Look, we based these long-term figures on a SAM assumption. If these SAM assumptions will go up, absolutely, we will be there to capture them. That will have intended impacts, positive impacts in our gross margin as well.
Take the mic, Tristan.
Yeah, I know.
Hi, Tristan.
Tristan Gerra, a quick question on FiberEdge. In your slide, you talk about meaningful market share gains, and you are now slightly above 50%. Maybe that is a question for Imran. What is your expectation of share gain going forward? Is that embedded in your guidance, or do you think you stabilize at current levels? Also, if you could talk about the competitive landscape for ACC at 400G per lane. Thanks.
Yeah. Imran, you wanted to answer that? I can chime in later.
Sure. Jason, you might want to jump in here as well. Thank you, Tristan, for the question. As I mentioned, we grew our share from 18% to 50%, and we have no intention of stopping there, not on any of the products. Our ambition, our aspiration, is to deliver what the market wants with the best possible performance, and we believe that we're going to be very successful in doing so. Jason, maybe you want to-
I would just add that we have more visibility than we've ever had before, and that's because we're closer to customers than we've ever been. When we have the customer engagement that we're continuing to grow, having the success with 100 leaves us in a great position. We feel great about where we are with 200G per lane.
As to your question, Tristan, on ACCs, again, as I mentioned earlier, we've stopped looking at those opportunities separately like that. For us, the channel is the channel, whether it ends up being a cable in an ACC format, or whether it ends up being a trace on a PCB. It doesn't really impact our business, if you like. What we're focused on is delivering those linear redrivers at ever-increasing rates with the best performance out there. As I mentioned in the talk, right now, at 336, we seem to be far ahead.
Great. One more question on this side.
Hi. This is Ali from Irrational Analysis. I want to ask about the black magic of analog design. If we take, for example, your linear equalizer, which is really a single-stage CTLE that has only peaking gain adjustment. It is probably 5-10 transistors for the amplifier and 4-6 variable resistors or capacitors with 3 bits resolution each for tuning across process variation. At a schematic level, this is a very simple design. However, it is a very high gross margin part. It is a very valuable part, so there is quite a bit of difficulty in that design. I am curious, where does the difficulty come from? Is Semtech perhaps significantly better than the competition at dealing with silicon germanium process variation? I just want to know some more color on that.
Yeah. Imran, you want me to take this one?
Thank you, and I have a quick follow-up.
What is so hard about it?
That's right. Ali, that's a great question, and I'm really encouraged actually that there's somebody here talking at the transistor level. That's fantastic. I think we can take that question offline. I have my engineering colleagues at the back there who I'm sure would love to discuss that with you in more detail.
Can I ask my quick follow-up question, which will also probably go offline? Normally, in high-speed SerDes on the CMOS, there is a two or three-stage CTLE that has peaking adjustment, peaking location adjustment, a mid-band adjustment, and resistive degeneration that can attenuate from, let's say, zero to 2GHz , and my understanding is Semtech's discrete CTLE, along with the competition, do not have these adjustments, only peaking. In my experience, it's very, very helpful, particularly resistive degeneration, to tune a link and get it working and get that last one or two orders of BER improvement, and I'm curious why Semtech has not implemented that, and perhaps if one of the many R&D spend topics you've discussed, you maybe have that in the pipes. I'll see you afterwards.
Wonderful. Thank you.
Great.
We look forward to it.
That's probably a good point to end the Q&A session. Running out of time. Maybe I'll turn the clock back to Hong for some final comments.
Yeah.
I wanted to thank everyone for coming to this great event. I know it's a long week. You have been walking on the floor in OCP. I know the market has not been very kind. It can be an exhausting week. Thank you so much for sitting through the presentation. If the key takeaways I want you guys to walk away with, this is generational opportunities and connectivity, it's a bottleneck, and connectivity need a high bandwidth, low power, low latency set of solutions that favors to analog as the market is moving towards us. We just drive the inflection, and the company has a strong culture foundation, has a comprehensive product portfolio, have the execution track record. We are very excited to really take on the challenge to outgrow the market and deliver the best results and deliver the best return to our shareholders.
We have proven that we have embarked the journey of the Semtech Transforming and we have been showing you the early proof points, but the best is yet to come. Thank you very much. You still have time to roam around and engage with our senior leaders and some of our board members here as well. Feel free to interrogate them as well. Thank you and have a great day.