Semtech Dumps Cellular Business to Double Down on Data Centers

Semtech Corporation (NASDAQ:SMTC) stock rose Wednesday after the semiconductor company reported strong second-quarter results and issued third-quarter guidance above estimates.

Earnings Beat Estimates

Semtech reported adjusted earnings of 71 cents per share, beating the 57-cent estimate. Sales rose 33% year over year to $341.9 million, topping the $328.61 million consensus. Adjusted earnings increased 73% from a year earlier.

The company’s adjusted gross margin expanded 150 basis points sequentially to 54.5%. Adjusted EBITDA increased to $91.1 million from $56.5 million a year earlier. The adjusted EBITDA margin improved to 26.6% from 21.9%.

Operating cash flow rose 55% to $69 million, while free cash flow increased 48% to $61 million. Semtech ended the quarter with $204 million in cash and $503 million in debt.

CEO Hong Hou said stronger bookings and record backlog provide greater visibility into the next fiscal year.

Data Center And LoRa Sales Surge

Infrastructure sales jumped 69% to $124 million, led by record data center revenue. Data center sales surged 91% to $100 million on strong demand for 800G products.

Industrial sales rose 25% to $179 million. LoRa-enabled sales climbed 58% to a record $58 million.

IoT Systems and Connectivity revenue increased 11% both sequentially and year over year to $98 million.

Semtech is divesting its cellular module business to focus on higher-margin data center and LoRa opportunities. The transaction is expected to close in the fourth quarter and remain neutral to adjusted earnings.

Outlook Tops Wall Street Forecasts

Semtech expects third-quarter adjusted earnings of $1.02 to $1.08 per share, well above the 61-cent estimate. It projects sales of $405 million to $415 million, compared with the $324.46 million consensus.

The company forecasts an adjusted operating margin of 31%. It expects adjusted EBITDA of $134 million, plus or minus $4 million, and an adjusted EBITDA margin of 32.8%.

Semtech expects data center revenue to rise 45% sequentially and about 160% year over year. It also expects LoRa revenue to reach another record, increasing about 15% sequentially and 65% from a year earlier.

The company expects its Fiber Edge market share to exceed 50% by the end of fiscal 2027. It also plans to begin generating revenue from high-power continuous-wave laser transceivers during the first half of fiscal 2028.

SMTC Price Action: Semtech shares were up 1.55% at $129.50 during premarket trading on Wednesday, according to Benzinga Pro data.

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