Release Date: May 27, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Semtech Corp (SMTC, Financial) reported Q1 net sales of $251.1 million, exceeding the midpoint of their outlook and marking a 22% year-over-year increase.
- The company's adjusted gross margin improved to 53.5%, up 370 basis points year over year.
- Infrastructure net sales grew by 30% year over year, with data center sales reaching a record $51.6 million, up 143% year over year.
- Semtech's CopperEdge technology offers significant power savings and extended reach, positioning it as a strong solution for next-generation AI clusters.
- The company has made strides in portfolio optimization and strategic R&D investments, aiming to drive margin expansion and shareholder value.
Negative Points
- The IoT systems hardware business saw an 8% sequential decline in net sales, although it was still up 31% year over year.
- Gross margins in the cellular module business were down both quarter-on-quarter and year-on-year, partly due to a mix shift and a one-time inventory event.
- LoRa net sales are expected to decline slightly in the next quarter, despite strong year-over-year growth.
- The company faces macroeconomic uncertainties that may impact the timing of some portfolio optimization initiatives.
- There was a noted air pocket in demand for CopperEdge due to platform changes with an anchor customer, affecting short-term revenue.
Q & A Highlights
Q: Can you explain the decline in the cellular module business and the impact on gross margins?
A: Hong Hou, President and CEO, explained that the decline was expected due to seasonality in the IoT system product. Despite this, the business is experiencing significant tailwinds from competitors being sanctioned and exits from the IoT cellular business. Mark Lin, CFO, added that the gross margin decline was due to a mix shift towards modules and a one-time inventory event affecting margins.
Q: Could you provide more details on the progress and visibility around AI connectivity, specifically CopperEdge?
A: Hong Hou stated that CopperEdge has been well-received, with over 20 customer engagements. The product offers advantages like low power consumption and low latency. They expect meaningful design wins and volume ramps by Q4 of this fiscal year.
Q: What is the outlook for the LPO and optical business, particularly regarding TIAs and drivers?
A: Hong Hou noted that Semtech's TIA is considered the industry gold standard, with design wins across module manufacturers. The LPO is expected to see deployments in the second half of the fiscal year, with the driver being fully compliant with MSA specifications, leading to additional revenue by Q4.
Q: How do you see the core data center business trending over the next 6 to 12 months?
A: Hong Hou expressed optimism about the FiberEdge product line, which continues to show growth. The company expects accelerated growth in the second half of the year, driven by strong booking activities and increased CapEx spending in the industry.
Q: Can you elaborate on the expected performance of LoRa in the coming quarters?
A: Mark Lin mentioned that LoRa's Q1 performance was strong, with expectations of a $30 million to $35 million quarterly run rate. The slight decline in Q2 is attributed to project-based spending and customer builds for product launches, but the overall business remains robust.
Q: What are the expectations for AI connectivity, specifically CopperEdge, in the coming quarters?
A: Hong Hou indicated that while demand from the anchor customer is lower, engagements with other customers are promising. They expect revenue from these engagements to start in Q4 and ramp up in the next fiscal year.
Q: How is the company addressing macroeconomic uncertainties and tariff impacts?
A: Hong Hou explained that while macroeconomic uncertainties may delay strategic initiatives, the company remains focused on improving business performance and creating shareholder value. Tariff impacts are being mitigated through operational coordination.
Q: What is the outlook for the high-end consumer market, particularly regarding the SurgeSwitch product?
A: Hong Hou highlighted that SurgeSwitch offers system-level protection and is being designed into multiple customer systems. It provides robust protection for Type-C connectors, which are increasingly used across various industries, offering noticeable ASP improvements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
