• Net Sales: $236.8 million, up 10% sequentially.
• Gross Margin: 52.4%, up 200 basis points sequentially and 110 basis points year over year.
• Operating Income: $43.4 million, with an operating margin of 18.3%, up 410 basis points sequentially and 810 basis points year over year.
• Adjusted EBITDA: $51.1 million, with an adjusted EBITDA margin of 21.6%, up 280 basis points sequentially and 760 basis points year over year.
• Net Earnings Per Share: $0.26, up from $0.11 in Q2 and $0.02 in Q3 of last year.
• Operating and Free Cash Flow: $29.6 million and $29.1 million, respectively.
• Cash Balance: $136.5 million, including a $5 million principal payment on the credit facility.
• Infrastructure Net Sales: $65.8 million, up 24% sequentially and 52% year over year.
• Data Center Net Sales: $43.1 million, up 58% sequentially and 78% year over year.
• High-End Consumer Net Sales: $40 million, up 8% sequentially.
• Industrial Net Sales: $131 million, up 5% sequentially.
• LoRa-Enabled Solutions Net Sales: $29 million, up 1% quarter over quarter and 104% year over year.
• IoT Systems Net Sales: $57.9 million, up 11% sequentially.
• Q4 Net Sales Outlook: $250 million, plus or minus $5 million, a 6% sequential increase at the midpoint.
• Q4 Gross Margin Outlook: 52.8%, plus or minus 50 basis points.
• Q4 Operating Expenses Outlook: $82.8 million, plus or minus $1 million.
• Q4 Net Earnings Per Share Outlook: $0.32, plus or minus $0.03.

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

Release Date: November 25, 2024

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

Positive Points

• Semtech Corp (NASDAQ:SMTC) achieved strong Q3 results with net sales, gross margin, and EPS at the high end of guidance, and operating income and margin exceeding expectations.
• The company is increasing investment in data center products, driven by AI demand, which is projected to be a long-term growth engine.
• Semtech's CopperEdge solutions have gained positive attention in the data center ecosystem, with significant customer engagement and technical collaboration.
• The company reported record net sales in the data center segment, with a 58% sequential increase and 78% year-over-year growth.
• Semtech's operational excellence in on-time delivery and quality has contributed to customer supply chain resilience, enhancing its reputation as a reliable partner.

Negative Points

• There are concerns about the potential impact of Blackwell GPU rack design changes on the ACC market, which could affect timing and total addressable market.
• The high-end consumer market is expected to decline in Q4 due to typical seasonality, despite market share gains.
• The industrial TVS market sentiment is cautious, although Semtech remains confident in its growth prospects.
• The company is still addressing channel and end customer inventories, which could mute growth as the market inflects upwards.
• Semtech is mindful of geopolitical risks, particularly in the PON business in China, which could impact future growth.

Q & A Highlights

Q: Can you elaborate on the data center business and the opportunities for ACC TAM, particularly with the Catalina rack and other hyperscaler opportunities? A: Hong Hou, President and CEO, explained that the Catalina rack is a significant platform for deployment in 2025 and beyond. The awareness of ACC's capabilities among CSPs is growing, with several considering using linear equalizers in their designs. This gives confidence that the floor case provided earlier is indeed a floor case.

Q: For CSPs looking to use linear drivers in cables or PCBs, does that ramp in 2025, and what are the applications for LPOs starting to ramp in fiscal year '26? A: Hong Hou noted that applications are in the qualification phase, with contributions expected from mid-2025. For LPO, initial orders have been received, with applications in both scale-up and scale-out scenarios, connecting NIC cards to switches and increasing cluster sizes.

Q: What is the growth outlook for ACC in the January quarter, and when will it reach a steady-state sales format? A: Mark Lin, CFO, stated that ACC was in the high-single-digit millions in Q3, with a nominal ramp in Q4, and it will progressively ramp through FY26. The growth is expected to continue building throughout the year.

Q: How should we think about the free cash flow generation over the next few quarters, and any update on the debt leverage ratio expected exiting next year? A: Mark Lin highlighted that Q3 operating cash flow was $29.6 million, with free cash flow at $29.1 million. Cash flow generation is broad-based, and as cash is generated, it is used to de-lever. The EBITDA reported this quarter can give an indication of where leverage ratios are heading.

Q: With CopperEdge ramping, how should we look at the free cash flow generation over the next few quarters, and any update on the type of debt leverage ratio you expect exiting next year? A: Mark Lin expressed satisfaction with the cash flow generation, which is broad-based across businesses. The company plans to continue generating cash and reducing debt. The EBITDA reported this quarter can provide an indication of potential leverage ratios.

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