Semtech (SMTC 0.14%), a provider of analog and mixed-signal semiconductors with a growing Internet of Things (IoT) systems business, reported its Q2 FY2026 financial results after market close on August 25, 2025. The company delivered record net sales of $257.6 million (GAAP), outpacing the $215.4 million achieved in the same quarter last year and beating the midpoint of guidance. Non-GAAP adjusted diluted earnings per share (EPS) reached $0.41— ahead of the $0.40 non-GAAP midpoint expectation. Despite these underlying gains, the period showed a GAAP net loss of $27.1 million due to a one-time $42.0 million goodwill impairment charge (GAAP). Operating metrics otherwise reflect continued progress toward growth and profitability targets.
| Metric | Q2 2026(Ended July 27, 2025) | Q2 2025(Ended July 28, 2024) | Y/Y Change |
|---|---|---|---|
| Net Sales (Non-GAAP) | N/A | N/A | N/A |
| Adjusted Gross Margin | 53.2 % | 50.4 % | 2.8 pp |
| Adjusted Operating Margin | 18.8 % | 14.2 % | 4.6 pp |
| Adjusted Diluted EPS (Non-GAAP) | $0.41 | $0.11 | 272.7 % |
| Free Cash Flow (Non-GAAP) | $41.5 million | $(8.4) million | $49.9 million |
Business Overview and Focus Areas
Semtech develops analog and mixed-signal semiconductors, which are microchips that can process both analog and digital signals. Its core business includes products for signal integrity, connectivity, and power management, as well as end-to-end IoT modules, routers, gateways, and services. The company sells to diverse markets, such as industrial, infrastructure, and high-end consumer sectors.
In recent years, Semtech has emphasized expanding its IoT segment, highlighted by the acquisition of Sierra Wireless. This expanded portfolio addresses high-demand areas like industrial metering, asset tracking, and connected devices. Success in these focus areas depends on product innovation, effective integration of acquired businesses, and margin improvement through operational leverage.
Quarter Highlights and Financial Performance
The quarter brought record company revenue (GAAP) of $257.6 million— up 20% from the prior year. Signal Integrity product sales (enabling high-speed data transmission in electronics) were $76.8 million (GAAP). Analog Mixed Signal and Wireless product sales (specialized microchips for electronic communications, signal processing, and wireless connectivity) were $92.0 million. IoT Systems & Connectivity (end-to-end modules, routers, and gateways for internet-connected devices) had $88.8 million (GAAP) in net sales.
Adjusted gross margin rose to 53.2%. This represents a 2.8 percentage point increase from Q2 FY2025. This improvement reflects a higher sales mix from semiconductor products, which tend to deliver better profitability, and ongoing operational efficiencies compared to Q2 FY2025. Adjusted operating margin was 18.8%. The company also demonstrated improved operating leverage compared to Q2 FY2025, converting sales growth to increased non-GAAP earnings and free cash flow.
Non-GAAP adjusted EPS climbed to $0.41—nearly four times the prior-year level and at the high end of company guidance. Free cash flow (GAAP) improved markedly to $41.5 million, up from a negative $8.4 million in Q2 FY2025, supporting further debt reduction. Management pointed to "meaningful sequential and year-over-year increases in our operating and free cash flows" as evidence of continuing progress.
The company reported a GAAP net loss as a result of a $42.0 million non-cash goodwill impairment. Excluding this, adjusted (non-GAAP) profitability trends remain solid. Non-GAAP operating expenses were $88.4 million, up from $77.9 million in Q2 FY2025.
Further, management highlighted that the net leverage ratio improved. Cash and equivalents (GAAP) rose to $168.6 million, while long-term debt (GAAP) declined to $518.9 million.
Gross margin in the IoT Systems & Connectivity segment was 39.5% (GAAP). This segment continues to benefit from investment in new technology and market demand in areas such as metering and asset tracking.
Looking Ahead: Guidance and Considerations
Management issued guidance for Q3 FY2026, forecasting net sales at $266.0 million (plus or minus $5.0 million). That midpoint represents a projected increase of 19% over the same quarter last year. Adjusted gross margin guidance is 53.0% (plus or minus 0.5 percentage points) for Q3 FY2026, and non-GAAP adjusted operating income is expected to rise to $52.2 million with a margin of 19.6% for Q3 FY2026. Non-GAAP adjusted diluted EPS is forecast at $0.44 (plus or minus $0.03) for Q3 FY2026.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
