• Net Sales: $251 million, up 6% sequentially.
• Adjusted Gross Margin: 53.2%, up 80 basis points sequentially and 430 basis points year over year.
• Adjusted Operating Income: $49.8 million, with an adjusted operating margin of 19.9%.
• Adjusted EBITDA: $57.8 million, with an adjusted EBITDA margin of 23%.
• Adjusted Diluted Earnings Per Share: $0.40, up from $0.26 in Q3.
• Operating Cash Flow: $33.5 million.
• Free Cash Flow: $30.9 million.
• Cash and Cash Equivalents: $151.7 million.
• Net Debt: $411 million, reduced by $868 million from FY24.
• Infrastructure Net Sales: $69.1 million, up 5% sequentially and 75% year over year.
• Data Center Net Sales: $50 million, up 16% sequentially and 183% year over year.
• High-End Consumer Net Sales: $35.4 million, up 10% year over year.
• Industrial Net Sales: $146.6 million, up 12% sequentially and 21% year over year.
• LoRa Enabled Solutions Net Sales: $37.1 million, up 28% sequentially and 205% year over year.

• Warning! GuruFocus has detected 11 Warning Signs with SMTC.

Release Date: March 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Semtech Corp (NASDAQ:SMTC) reported sequential growth in net sales, gross margin, operating margin, and earnings per share for each quarter of fiscal year 2025.
• The company achieved a 200 basis point improvement in adjusted gross margin and a 570 basis point improvement in adjusted operating margin year over year.
• Net sales for the data center segment reached a record $50 million, up 16% sequentially and 183% year over year.
• Semtech Corp (NASDAQ:SMTC) significantly reduced its net debt by 68% from the previous fiscal year, enhancing financial stability.
• The company is focusing on strategic investment in R&D to drive sustainable long-term growth and maintain financial discipline.

Negative Points

• The expected volume ramp for copper edge products will not materialize for FY26 due to changes in rack architecture, leading to lower demand for 3 to 4 quarters.
• The industrial market is expected to decline in the first quarter of FY26 due to seasonality in the IoT portfolio.
• Copper edge revenue is projected to be below $50 million for FY26, indicating a temporary setback in this segment.
• The company faces challenges in portfolio rationalization due to market uncertainties, impacting strategic alignment.
• Semtech Corp (NASDAQ:SMTC) anticipates a sequential decline in the industrial segment for the first quarter of FY26, reflecting seasonal trends.

Q & A Highlights

Q: Can you expand on the copper edge portfolio and its future prospects, especially regarding boards and connectors? A: Hong Hou, President and CEO, explained that the copper edge portfolio, although currently facing a temporary decline, is generating significant interest and engagement with over 20 customers. The revenue is expected to be below $50 million for FY26, but there is confidence in generating revenue from multiple customers and applications by the end of the year. The company is working closely with its anchor customer for future generation rack designs, which may include copper edge components.

Q: How do you view the growth prospects for your core business, given the current market conditions? A: Hong Hou stated that despite challenges in the copper edge segment, Semtech's broader portfolio is experiencing sequential growth. The company has addressed inventory issues and expects continued growth in the data center and high-end consumer segments, with some seasonal decline in the industrial segment. Overall, the business fundamentals are strong, and the company is optimistic about future growth.

Q: Can you provide more details on the timing of revenue growth in the data center segment, considering the copper edge delays? A: Hong Hou noted that while the copper edge segment is facing temporary challenges, the broader data center portfolio, including fiber edge and tri-edge products, is expected to continue growing. The timing of copper edge recovery depends on the next-generation redesign by the anchor customer, but overall, the data center segment is projected to see quarter-over-quarter growth.

Q: How is the current market uncertainty affecting your portfolio rationalization plans? A: Hong Hou mentioned that while the balance sheet has been strengthened, the company remains focused on aligning its portfolio with strategic vision and margin profiles. The business is not in a distressed situation, and any divestitures will be based on strategic synergy for potential buyers. The company is patient and will proceed with rationalization when it aligns with its long-term goals.

Q: What are your expectations for free cash flow and capital expenditures in fiscal '26? A: Mark Lin, CFO, indicated that while they only guide one quarter out, the company expects strong cash flow generation due to business fundamentals and reduced debt. The $40 million annual cash interest savings from debt reduction will benefit operating cash flow. Historical CapEx is a reasonable proxy for future requirements.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.