EPS of $0.22 increased by 161.1% from previous year
Gross margin of 52.3%
Net income of 19.35M
""CopperEdge enables a significant paradigm shift in connectivity, delivering the signal integrity and rich extension needed for next-generation AI clusters. Compared to DSP-based options, CopperEdge reduced power consumption by over 90%."" - Hong Hou
Semtech Corporation (SMTC) QQ1 2026 Results — Resilient Growth Across Data Center, IoT and AI Connectivity with Margin Expansion and Balance Sheet Strength
Executive Summary
Semtech reported a strong start to fiscal year 2026 (quarter ended April 27, 2025) with a record net sales of $251.1 million, up 22% year-over-year. Adjusted gross margin rose to 53.5%, and adjusted operating margin reached 19% as the company continued to optimize its portfolio and invest in R&D to expand margins. The quarter showcased meaningful progress across multiple end markets, with data center activity posting robust year-over-year growth (+143%) and infrastructure delivering $72.8 million in net sales, while the IoT ecosystem and LoRa-enabled solutions continued to strengthen. Industrial net sales grew 24% year-over-year to $142.8 million, underscoring Semtech’s exposure to the expanding industrial IoT and 5G-adjacent opportunities. In parallel, the company reduced net debt to $396.2 million and expanded its revolving credit facility to $455 million, signaling improved liquidity and financial flexibility amid a volatile macro environment.
Management highlighted several catalysts that underpin the medium-term growth trajectory: (1) data center copper/copper-edge solutions (CopperEdge and ACC) addressing AI compute and power/thermal challenges, with design wins and multiple customer engagements expected to ramp in the second half of fiscal 2026; (2) LPO deployments and 1.6T optical transceivers driving opportunities in the data center optics stack; (3) LoRa-enabled solutions expanding into new verticals such as hearing aids, robotics, and smart building applications; and (4) increasing 5G module adoption within the IoT portfolio. The company reaffirmed its commitment to debt reduction and maintaining a lean operating structure while investing in strategic initiatives to drive profitable growth.
Guidance for the second quarter (non-GAAP metrics) shows continued revenue growth and margin expansion: net sales of $256 million +/- $5 million (up ~19% YoY at the midpoint), adjusted gross margin of 53.0% +/- 50 basis points, adjusted operating margin around 18.8%, and adjusted EBITDA near $56 million with a 21.9% margin. The company also guided for a normalized tax rate of 15% and a diluted EPS of $0.40 +/- $0.03, based on ~90 million shares. Taken together, Semtech’s QQ1 results reflect disciplined execution amid macro uncertainty and position the company for meaningful 2H26 contribution from AI-connectivity products, optical LPO ramp, and LoRa-enabled growth.
Key Performance Indicators
Revenue
251.06M
QoQ: 0.02% | YoY:21.81%
Gross Profit
131.29M
52.29% margin
QoQ: 0.60% | YoY:32.23%
Operating Income
35.97M
QoQ: 69.35% | YoY:564.58%
Net Income
19.35M
QoQ: -50.52% | YoY:183.53%
EPS
0.22
QoQ: -54.17% | YoY:161.11%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $251.06 million, up 22% YoY and 0.02% QoQ. GAAP gross margin was 52.29%; adjusted gross margin was 53.50% (YoY +370 bp, QoQ +30 bp).
EBITDA: $45.18 million (GAAP EBITDA); adjusted EBITDA $55.40 million, up 68% YoY, with an adjusted EBITDA margin of 22.1% (YoY +600 bp).
Net income: $19.35 million, up 183.5% YoY and down 50.5% QoQ; net income margin 7.70%; diluted EPS $0.22 (GAAP and non-GAAP). Weighted-average shares (diluted) 89.58 million.
Cash flow and liquidity: Net cash provided by operating activities $27.82 million; free cash flow $26.24 million; capital expenditures $2.18 million; net debt reduced to $396.20 million; cash and cash equivalents $156.47 million; undrawn revolving facility of $452 million (after amendment to increase total capacity to $455 million).
Financial Highlights
Revenue and profitability snapshot:
- Revenue: $251.06 million, up 22% YoY and 0.02% QoQ. GAAP gross margin was 52.29%; adjusted gross margin was 53.50% (YoY +370 bp, QoQ +30 bp).
- Operating income: $35.97 million, up 564.58% YoY and 69.35% QoQ; operating margin (GAAP) 14.33%; adjusted operating margin 19.0% (YoY +680 bp).
- EBITDA: $45.18 million (GAAP EBITDA); adjusted EBITDA $55.40 million, up 68% YoY, with an adjusted EBITDA margin of 22.1% (YoY +600 bp).
- Net income: $19.35 million, up 183.5% YoY and down 50.5% QoQ; net income margin 7.70%; diluted EPS $0.22 (GAAP and non-GAAP). Weighted-average shares (diluted) 89.58 million.
- Cash flow and liquidity: Net cash provided by operating activities $27.82 million; free cash flow $26.24 million; capital expenditures $2.18 million; net debt reduced to $396.20 million; cash and cash equivalents $156.47 million; undrawn revolving facility of $452 million (after amendment to increase total capacity to $455 million).
- Balance sheet health: Total assets $1.431 billion; total liabilities $863.14 million; total stockholders’ equity $568.82 million; total debt $542.64 million; net debt $386.17 million; adjusted net leverage ratio below 2x at quarter-end.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
251.06M
21.81%
0.02%
Gross Profit
131.29M
32.23%
0.60%
Operating Income
35.97M
564.58%
69.35%
Net Income
19.35M
183.53%
-50.52%
EPS
0.22
161.11%
-54.17%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management insights and quotes from the QQ1 2026 earnings call:
- Strategy and margins: "Semtech's Q1 results ... above the midpoint of our guidance. focus on portfolio optimization, strategic investment in R&D, and driving margin expansion" (Hong Hou).
- Data center and CopperEdge: "CopperEdge enables a significant paradigm shift in connectivity, delivering the signal integrity and rich extension needed for next-generation AI clusters. Compared to DSP-based options, CopperEdge reduced power consumption by over 90%" (Hong Hou). Management emphasized multiple 200/800G demonstrations and active engagement with anchor customers and hyperscalers, with ramp expected by Q4 and into FY27.
- LPO and TIAs: "the feedback from our customers indicate Semtech TIA for LPO offers superior performance" and LPO drivers becoming fully compliant; ramp expected in 2H26 with design wins translating to revenue in Q4 and beyond (Hong Hou).
- Data center and FiberEdge: "fiberEdge product ... strong demand; we expect LPO to contribute meaningfully in the second half of the year" (Harsh Kumar line of questioning reflected this expectation).
- LoRa and IoT: "LoRa remains strong with $38.9 million in LoRa-enabled solutions; we expect a comfortable $30–$35 million quarterly run rate going forward" (Mark Lin/Hong Hou). Management highlighted LoRa Plus enabling multi-protocol interoperability and expansion into medical and robotics.
- Tariffs and macro: "we do not believe our Q1 net sales reflect material pull-ins due to tariffs"; management framed macroeconomic uncertainty as a variable that could delay portfolio initiatives but reaffirmed execution discipline.
"CopperEdge enables a significant paradigm shift in connectivity, delivering the signal integrity and rich extension needed for next-generation AI clusters. Compared to DSP-based options, CopperEdge reduced power consumption by over 90%."
— Hong Hou
"Net sales were a record $251.1 million, above the midpoint of our outlook and up 22% year-over-year."
— Mark Lin
Forward Guidance
Financial outlook and catalysts for the balance of FY26:
- Q2 outlook: net sales of $256 million +/- $5 million; adjusted gross margin ~53.0% +/- 50 bp; adjusted net operating expenses near $87.5 million +/- $1 million; adjusted EBITDA around $56 million with ~21.9% margin; adjusted diluted EPS of $0.40 +/- $0.03 on roughly 90 million shares; normalized tax rate 15%.
- Growth drivers: data center (FiberEdge), LPO ramp in 2H26 driven by 800G/1.6T transceivers, and CopperEdge expansion beyond anchor customer programs into additional hyperscalers and enterprise deployments; LoRa expansion into hearing aids and robotics; PerSe and SurgeSwitch contributing to high-end consumer protection and IoT devices.
- Risks and watch points: tariff volatility and broader macro uncertainty that could delay portfolio optimization; potential cadence variability in LPO/TIA-driven revenue; supply chain constraints; currency fluctuations (FX revaluation losses observed in Q1).
- Assessment: The guidance implies continued top-line growth and margin expansion, supported by a broader portfolio mix and improving leverage. The primary near-term risk is execution cadence of CopperEdge/LPO in 2H26, but the company has signaled multiple design wins and a path to ramp beginning in Q4 FY26 and into FY27.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
SMTC Focus
52.29%
N/A
N/A
N/A
POWI
55.20%
6.37%
1.19%
81.68%
DIOD
31.50%
0.39%
-0.25%
-112.79%
MTSI
53.70%
8.04%
-14.60%
-14.83%
CRUS
50.50%
12.50%
2.28%
40.51%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Semtech is transitioning from a historically diversified, margin-resilient analog/mixed-signal supplier to a growth-oriented player anchored by AI-connectivity innovations and data-center optics. The QQ1 2026 outturn demonstrates solid top-line execution with a 22% YoY revenue gain, a meaningful gross margin expansion to 53.5% (adjusted), and a lean cost structure supporting a 19% adjusted operating margin. The forthcoming 2H26 ramp in CopperEdge/ACC and LPO, combined with the LoRa expansion into healthcare, robotics and smart building, provides a multi-year growth runway beyond the core data-center optics growth. The balance sheet exhibits improving liquidity and deleveraging momentum, which should facilitate continued investments in R&D and strategic initiatives without sacrificing cash flow generation.
Key catalysts to watch: (1) CopperEdge deployment and scale-up across additional CSPs and enterprise customers, with Q4 FY26 ramp potential; (2) LPO-driven growth as 800G/1.6T deployments become common; (3) LoRa Plus-enabled product launches in new medical and industrial applications; (4) AI-ready PerSe and SurgeSwitch penetration in consumer electronics and automotive markets. Investors should monitor the pace of ramp in data center demand (FiberEdge, Tri-Edge, PMD integration), gross margin trajectory as product mix evolves, and the health of the SG&A/R&D spend cadence relative to revenue growth. Overall, Semtech presents an attractive risk-adjusted growth opportunity with a strong balance sheet and a multi-year, diversified AI-connectivity thesis supporting medium-term earnings expansion.
Key Investment Factors
Growth Potential
Growth drivers include a multi-threaded data center opportunity (FiberEdge, LPO, Tri-Edge), AI connectivity enhancements (CopperEdge and ACC), LoRa adoption in new IoT verticals (healthcare, robotics, smart building), and PerSe/ SurgeSwitch expansion in protection-focused high-end devices. The 2H26 ramp in CopperEdge and LPO, plus the IoT cellular portfolio, represent meaningful upside beyond the core data center optics growth.
Profitability Risk
Key risks include macroeconomic uncertainty delaying strategic portfolio optimization, tariff policy volatility, reliance on anchor customers for CopperEdge adoption, potential mix-shifts that pressure IoT/module margins, and cadence risk around LPO/AOC deployments and 1.6T transceiver rollouts.
Financial Position
Solid liquidity with an amended revolving credit facility of up to $455 million and undrawn capacity; net debt reduced to $396.2 million with a net leverage ratio below 2x; positive free cash flow generation ($26.2 million in Q1) supports ongoing debt reduction and R&D investments. The company maintained a disciplined capital allocation framework with continued debt paydown and investment in strategic initiatives.
SWOT Analysis
Strengths
Diversified analog/mixed-signal product portfolio with leading signal integrity (CopperEdge) and protection (SurgeSwitch) offerings.
Strong data center exposure with record quarterly revenue in data center (~$51.6M) and materials poised for 2H26 ramp via FiberEdge and LPO.
Robust IoT portfolio (LoRa, IoT systems hardware and fixed revenue lines) with expanding multi-protocol capabilities (LoRa Plus).
Prudent balance sheet management: debt reduction, liquidity expansion via revolver amendment, and substantial free cash flow generation.
Weaknesses
Near-term reliance on a few anchor customers for CopperEdge adoption and LPO visibility; potential programmatic delays in hyperscaler deployments.
IoT module margin exposure due to mix (modules vs routers) and one-time inventory events observed in Q1.
Moderate sensitivity to macroeconomic cycles and tariff policy, which could impact project timing for portfolio optimization.
Opportunities
CopperEdge/AIC connectivity solutions gaining traction with potential high-volume qualification and ramp in Q4 FY26 and FY27.
LPO adoption driving 800G/1.6T transceiver demand as CSPs upgrade infrastructure.
LoRa Plus enabling cross-protocol interoperability expands total addressable market in healthcare, robotics, and smart buildings.
PerSe and SurgeSwitch expansion into consumer electronics and automotive/Tethered devices, increasing ASPs and protection revenues.
Threats
Tariff fluctuations and supply chain disruptions impacting timing and mix, potentially delaying portfolio optimization and CAPEX cycles.
Intense competition in high-end protection and data-center optics segments could pressure margins if pricing or mix shifts occur.
Longer investment cycles for AI connectivity components may introduce quarterly volatility in reported growth.