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DATE

Monday, March 16, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — Hong Q. Hou
  • Executive Vice President and Chief Financial Officer — Mark Lin
  • Vice President, Investor Relations — Mitch Haws

TAKEAWAYS

  • Net Sales -- $274.4 million for the quarter, up 3% sequentially and up 9% year over year.
  • Annual Revenue -- $1.05 billion, a 15% increase, led by strength in data center and LoRa portfolios.
  • Adjusted Diluted EPS -- $0.44 for the quarter, up 10%; $1.71 for the year, up 94%.
  • Adjusted Gross Margin -- 51.6% for the quarter; total Semiconductor Products gross margin was 61.7%, up 350 basis points year over year.
  • Adjusted Operating Margin -- 18.2% for the quarter; adjusted EBITDA margin was 20.9%.
  • Operating Cash Flow -- $61.5 million, up 30% sequentially and up 84% year over year.
  • Free Cash Flow -- $59.1 million, up 32% sequentially and up 91% year over year.
  • Cash and Cash Equivalents -- $195.2 million at quarter end; debt unchanged at $503 million; adjusted net leverage ratio fell to 1.3.
  • Q1 2027 Guidance -- Net sales expected at $283 million, plus or minus $5 million, representing 13% year-over-year growth at midpoint.
  • Q1 2027 Adjusted Gross Margin Outlook -- 52.8%, plus or minus 50 basis points; Semiconductor Products gross margin at 60.4% due to ramp costs related to the HIFU acquisition.
  • Q1 2027 Adjusted Operating Expenses -- $96.9 million, plus or minus $1 million; adjusted operating margin at 18.6% midpoint.
  • HIFU Corporation Acquisition -- Completed, adding indium phosphide-based optoelectronics; expected to be "accretive to non-GAAP diluted earnings per share within the first year" per CEO Hou.
  • Data Center Net Sales -- $63 million in the quarter, up 12% sequentially and up 26% year over year; annual data center revenue hit $223 million, growing 58%.
  • Infrastructure Net Sales -- $86.3 million in the quarter, up 11% sequentially and up 25% year over year; full-year infrastructure net sales were $310 million, up 27%.
  • LoRa Net Sales -- $39.6 million in the quarter (up 7%); annual LoRa revenue $156 million, up 34%.
  • High-End Consumer Net Sales -- $36.6 million in Q4, down 13% sequentially and up 3% year over year; annual total $155.1 million, up 5%.
  • Industrial Net Sales -- $151 million in Q4, up 3% both sequentially and year over year; $584 million for the year, a 13% rise.
  • IoT Systems and Connectivity -- $89.9 million in Q4, up 2% sequentially, down 3% year over year; full-year $354 million, up 9%.
  • Data Center Growth Outlook -- CEO Hou said, "we expect data center year-over-year revenue growth this fiscal year to exceed 50%."
  • LoRa Long-Term Guidance -- Anticipated long-term growth rate of 20% with quarterly sales expected in the $35 million to $45 million range.
  • Cellular Module Business Divestiture -- Process advancing with potential buyers in late-stage due diligence.
  • HIFU Initial Product -- CEO Hou cited "a gain chip used in tunable lasers" currently in production, with capacity constraints limiting short-term output.
  • CapEx Intensity -- CEO Hou described capital expenditure for the HIFU integration as "moderate" and readily supported by one quarter’s free cash flow.
  • Q1 2027 Expected Tax Rate -- CFO Lin stated, "We expect an adjusted normalized income tax rate of 72% for all of fiscal year 2027, an increase from 15% in fiscal year 2026, due to a geographical shift in pretax profits."

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RISKS

  • CFO Lin stated, "We expect an adjusted normalized income tax rate of 72% for all of fiscal year 2027, an increase from 15% in fiscal year 2026, due to a geographical shift in pretax profits."
  • Management noted capacity constraints for HIFU’s gain chip production, restricting ability to meet industry demand in the near term.
  • CEO Hou explained LoRa quarterly revenue can be "a little bit bumpy due to project-based deployment of demand," signaling variability despite long-term growth projections.

SUMMARY

Semtech Corporation (SMTC +4.89%) set new quarterly and annual records in both revenue and adjusted earnings, supported by robust growth in the data center and LoRa business lines. Management completed the HIFU acquisition, integrating vertically manufactured indium phosphide laser technologies and planning for accretive earnings impact within a year. Strong cash generation enabled capacity expansion and supported recent technology acquisitions, while guidance points to further sequential and year-over-year growth in net sales and operating metrics for Q1 2027. The company is executing on portfolio optimization—including advancing the divestiture of the cellular module business—and expanding its roadmap for next-generation data center interconnect and multi-protocol connectivity solutions.

  • Management expects volume ramps for major data center products such as CopperEdge and 1.6T FiberEdge to accelerate in the second half, benefiting from both new hyperscaler deployments and broadening design win activity.
  • The company is introducing reference designs that bundle newly acquired HIFU optoelectronics with its existing silicon portfolio, aiming to enhance customer adoption and increase solution stickiness in high-speed optical modules.
  • Amazon Sidewalk’s upcoming mass-market launch of LoRa-powered consumer sensors in North America signals expanded mainstream adoption beyond industrial verticals.
  • Adjusted net interest expense fell to $11.5 million for the year, down sharply from $70.6 million in the prior year, attributable to improved capital structure management.
  • Continued investment in R&D is targeted for the core data center, LoRa, and PerSe portfolios, with incremental R&D costs reflected in upcoming quarters due to the two recent acquisitions.

INDUSTRY GLOSSARY

  • LoRa: A low-power, long-range wireless communication protocol used for IoT applications.
  • ACC (Active Copper Cable): A cable technology that uses active electronics to boost signal integrity for high-speed data transmission in data centers.
  • LPO (Linear-drive Pluggable Optics): Optical transceiver modules using a simplified, low-power architecture for high-bandwidth data center networks.
  • NPO (Near Package Optics): An emerging optical transceiver architecture where optics are placed close to high-speed ASICs for improved bandwidth and lower power.
  • XPO (Extended Pluggable Optics): A new MSA defining high-density, low-power optics for switch front-panel connectivity.
  • MSA (Multi-Source Agreement): Industry-driven agreements that create a standard specification for interoperability among products from multiple suppliers.
  • TIA (Transimpedance Amplifier): A key component in optical transceivers that amplifies current from photodiodes for high-speed data applications.
  • PerSe: A Semtech sensing technology utilized in smart devices and wearables.
  • TVS (Transient Voltage Suppressor): A semiconductor device used to protect electronic circuits from voltage spikes.

Full Conference Call Transcript

Hong Q. Hou, our President and Chief Executive Officer, and Mark Lin, our Executive Vice President and Chief Financial Officer. Before we begin, I would like to highlight upcoming investor events, including the Optical Fiber Communications Conference starting tomorrow and the ROTH Technology Conference on March 23. Today after market close, we released our unaudited results for the fourth quarter and fiscal year 2026, which are posted along with our earnings call presentation to our Investor Relations website at investors.semtech.com. Today's call will include various remarks about future expectations, plans, and prospects, which comprise forward-looking statements.

Please refer to today's press release and see Slide 2 of the earnings presentation as well as the Risk Factors section of our most recent Annual Report on Form 10-K for a number of risk factors that could cause our actual results and events to differ materially from those anticipated or projected on today's call. You should consider these risk factors in conjunction with our forward-looking statements. We will refer primarily to non-GAAP financial measures during today's call. We will also be referring to results for our 2026 unless otherwise noted. Please see today's press release and Slide 3 of the earnings presentation for information regarding notes on our non-GAAP financial presentation.

The press release and earnings presentation also include reconciliations of our GAAP and non-GAAP financial measures. With that, I will turn the call over to Hong.

Hong Q. Hou: Thank you, Mitch. Good afternoon to all of you joining today. Semtech closed fiscal year 2026 with significant momentum, achieving a record $1,050,000,000 in net sales, a milestone that reflects the progress we have made and the trajectory we believe lies ahead. We drove strong sequential and year-over-year revenue and earnings growth. We advanced our data center roadmap to capture compelling design win opportunities, and continued to optimize our product portfolio, all while executing on the R&D and expense initiatives we believe position Semtech for an exciting next chapter. Looking at Q4, net sales were $274,400,000, up 3% sequentially and up 9% year over year.

For the year, revenues were $1,050,000,000, representing annual growth of 15% driven by continued strength in our data center and LoRa portfolios. Adjusted diluted earnings per share were $0.44, up 10% year over year. For fiscal year 2026, adjusted diluted earnings per share were $1.71, growth of 94% over the prior year.

In addition to delivering strong revenue and earnings growth, portfolio optimization remains a key focus of execution. As announced earlier this month, we acquired HIFU Corporation, which represents an important strategic building block for Semtech. HIFU is a California-based manufacturer of high-efficiency indium phosphide-based optoelectronic devices, including gain chips and CW laser chips that are critical components in the optical transceivers powering today's data centers. Put simply, HIFU makes the light-emitting building blocks that sit at the heart of high-speed optical interconnects. The strategic rationale is straightforward. As data center architectures evolve to 1.6T and 3.2T, the complexity of optical interconnects increases dramatically.

By bringing HIFU's proven indium phosphide laser technology together with Semtech's industry-leading TIAs and laser drivers, we can co-develop and co-optimize performance across the laser-modulator-driver interface and increase Semtech's content opportunity from high single-digit dollars in an 800G module to about $80 in a 3.2T module. We believe this combination will result in a more integrated, more efficient chipset, one that reduces system power consumption and gives the hyperscaler a differentiated solution for high-bandwidth optical transceiver modules. We have developed a comprehensive investment plan for the Alhambra, California facility to expand domestic capacity and accelerate product development.

Integration of HIFU into Semtech operations is underway, with the transaction expected to be accretive to non-GAAP diluted earnings per share within the first year. We are genuinely excited about the people and technology joining Semtech, and we see significant untapped potential for high-efficiency lasers in different interconnect applications.

Finally, we continue to make progress on the divestiture of the cellular module business, and we are increasingly encouraged by the level of interest and engagement. We remain confident this business represents a compelling opportunity for the right buyer, and we remain focused on bringing this process to a successful conclusion.

Now let me move to a discussion of our end markets. For Q4, infrastructure net sales were $86,300,000, up 11% sequentially and up 25% year over year, strongly supported by our data center business. For fiscal 2026, infrastructure net sales were $310,000,000, growth of 27% over the prior year. For Q4, net sales of data center were a record $63,000,000, up 12% sequentially and up 26% year over year, benefiting from strong demand for our broad portfolio including our market-leading FiberEdge ICs, whose net sales set another record. In Q4, we also started shipping into LPO transceivers, with revenues in line with the outlook we provided on the last quarter's earnings call.

For 2026, our data center revenues were a record $223,000,000, representing annual growth of 58%. Our optical and copper product lines are firmly established with hyperscalers as a differentiated and high-performance offering. Power efficiency has become one of the defining constraints of the modern AI infrastructure. As hyperscalers measure data center capacity in megawatts, the ability to move data faster while consuming less power at the networking layer is no longer just a differentiator; it is an enabler. Our analog solutions address this directly, enabling operators to scale next-generation architectures at 800G, 1.6T, and eventually, 3.2T. Demand for 800G PIA solutions remains strong and broad based, with increasing momentum throughout 2026.

At 1.6T, we are engaged across a wide range of transceiver programs and expect volume ramps to build as hyperscalers roll out their new XPU and switch platforms using reduced-power 1.6T transceivers throughout the year.

On LPO, design wins with several leading U.S. hyperscalers validated our TIA and driver solutions in 800G transceivers. We are very excited to be a member of the new XPO MSA to define specifications and enable high-bandwidth, high-density, and low-power switches. By combining with a low-loss copper interconnect, such as flyover wires or linear redriven PCB traces, some hyperscalers are becoming increasingly bullish on 1.6T LPO instead of using LR0s for the first layer of the scale-up fabrics. We continue to expand our LPO IC portfolio, with 1.6T LPO drivers and TIAs expected to come to market this year.

In supporting further proliferation of low-power linear optics, Semtech, along with other industry leaders, are developing NPO, our Near Package Optics MSA, for low-power, high-density, and high-bandwidth solutions. Successful deployment of 800G LPO transceivers gives hyperscalers confidence in NPO as the next evolution of optical solutions. We are excited by the increased content available to Semtech in NPO deployments.

Active copper cable, or ACC, continues to gain significant traction. Customers evaluating ACC against the incumbent solutions are seeing compelling performance advantages in the form of robust link margin and transformative power savings versus DSP-based solutions. Alongside our cable solutions, customers are increasingly evaluating our copper linear equalizers for onboard integration to enhance signal integrity across high-speed links, an opportunity we are confident we will convert into design wins over the coming quarters. One of these use cases is active backplanes using CopperEdge ICs, which our cable partners will demonstrate at OFC. Finally, we co-authored the ACC MSA, helping establish ACC technology as the leading solution for low-power and high-performance copper links.

Members of the MSA span IC, XPU, and cable suppliers, all in partnership with major hyperscalers. We believe the ACC MSA accelerates the adoption curve for the entire industry. By establishing common specifications, we reduce fragmentation, lower deployment risk for hyperscalers, and make it easier for the ecosystem to develop around ACC as the standard, not just a proprietary solution. That is good for customers. It is good for Semtech.

We look forward to seeing many of you at OFC starting tomorrow. This year, we are showing live demos across several of our key product areas. They tell a clear story about where Semtech is positioned in the data center interconnect market. Starting with copper, we are demonstrating 1.6T ACCs running live traffic to NVIDIA's 224G SerDes. We are also showing next-generation 448G-per-channel CopperEdge chips. As AI clusters scale, the demand for low-power and low-latency copper interconnects continues to grow, and we think we are very well positioned to lead the market. On the optical side, we will be demonstrating NVIDIA's 1.6T DR4 transceivers powered by Semtech TIAs and laser drivers running live in NVIDIA's switch platform.

We will also be demonstrating a 100T Ethernet switch running live traffic over both single-mode and multimode fibers supporting FR0, LR0, and LPO configurations across the Broadcom Tomahawk 6 platform, all built on Semtech silicon. We are thrilled to demonstrate the breadth of our optical portfolio across a multi-vendor ecosystem. We will also be demonstrating our next-generation 448G-per-channel modulator drivers and TIAs, addressing increasing bandwidth demand to support future-generation AI workloads. We are also showcasing our indium phosphide CW laser and gain chip technology for tunable laser applications with outstanding power efficiency, over-temperature performance, and far-field beam profile—products from our HIFU acquisition.

Across copper and optical, and both near-term and next-generation, OFC gives us a tremendous opportunity to show Semtech's position across the full hyperscale interconnect stack.

We believe we are positioned for multiyear growth opportunities supported by our expanded portfolio. We expect to start shipping CopperEdge for the 1.6T ACC hyperscaler deployment this quarter, with demand accelerating throughout the year. We also expect FiberEdge design wins for 1.6T transceivers with a significant ramp in the second half of the year. Additional revenue drivers in the near future are expected from additional design wins for ACC at other hyperscalers, linear equalizers onboard across multiple customers, gain chips and CW lasers in transceivers, and our market-leading 400G FiberEdge and CopperEdge products for 3.2T interconnect solutions.

Given the breadth of our data center portfolio and design-in traction across an expanding set of customers, we expect data center year-over-year revenue growth this fiscal year to exceed 50%.

Now moving to our high-end consumer end market. Net sales for Q4 were $36,600,000, down 13% sequentially and up 3% year over year. Net sales for fiscal year 2026 were $155,100,000, up 5% year over year, driven by both our TVS and PerSe product portfolios. Our consumer TVS revenue continues to ramp well ahead of handset volume growth, and we expect another year of revenue and design win momentum. We expect consumer TVS revenues to increase next quarter, a function of improved seasonality and share gains at a leading handset manufacturer. In addition, PerSe continues to broaden its design win footprint, with adoption expanding across smart glasses and smartphone platforms, supporting both current and upcoming product launches.

The integration of the force-sensing portfolio is progressing well, with initial product shipments already underway. Customer engagement and design win activities continue to build, and we are increasingly optimistic about the cross-selling opportunities this combination unlocks across our combined customer base.

Moving to our industrial end market. Q4 industrial net sales were $151,000,000, up 3% sequentially and year over year, with another solid quarter for LoRa. For the full year, industrial revenue was $584,000,000, 13% growth over the prior year. LoRa-enabled net sales were $39,600,000, in line with Q3 and up 7% year over year, supported by continued expansion across several application verticals such as smart utilities, smart building, smart city, and asset management. For the full year, LoRa revenues were $156,000,000, representing full-year growth of 34%. We had a strong presence at CES this year, showcasing new LoRa application use cases. Four themes highlighted in our presence: EdgeAI integration, multi-protocol connectivity, global network expansion, and the convergence of the industrial and consumer IoT, together reflecting a technology that is broadening its reach across a growing range of markets. EdgeAI emerged as another defining trend, as sensors increasingly process data locally for latency, privacy, and bandwidth reasons. Our collaboration with an ecosystem partner demonstrated how LoRaWAN and EdgeAI work together to enable predictive maintenance in industrial environments. Demand for a solution that combines LoRa with multi-protocol flexibility is accelerating. In order to facilitate LoRa+ adoption, we recently signed an agreement with a technology partner to support software development to activate and support other protocols. We are rolling out Z-Wave first, with Zigbee, Thread, and Matter to follow.

We expect beta units will be available to deployment partners in Q2 of this year. As multi-protocol smart home and security solutions, the market's move toward single-SKU solutions is exactly what LoRa+ is designed to address, reducing complexity for customers while expanding our addressable markets. Customers who purchase our LoRa+ transceivers now get relatively free access to an SDK and development tools—silicon and software together from a single source. Additionally, Amazon and Ring announced a new line of LoRa-powered sensors spanning security, safety, and home control applications, all operating on Amazon Sidewalk. Ring plans to launch these products in the U.S. in March, followed by expansion across Canada, Mexico, Europe, Australia, and Japan.

This demonstrates LoRa's readiness for mass-market consumer adoption at Amazon's scale, a significant evolution from its industrial and commercial roots. The ecosystem continues to scale, now spanning over 125,000,000 LoRaWAN connected devices across 70 countries, well beyond early adoption and into mainstream deployment. With LoRa technology, we now have established three pillars of low-power connectivity: LoRaWAN, LoRa+ with multiple protocols, and Amazon Sidewalk. With these vectors, we believe LoRa's long-term growth rate to be approximately 20% and quarterly sales to range from $35,000,000 to $45,000,000.

Our IoT Systems and Connectivity business recorded Q4 net sales of $89,900,000, up 2% sequentially and down 3% year over year. For fiscal 2026, revenues were $354,000,000, up 9% compared to last year. We continue to bring products to market that address gaps in how industrial customers connect to remote infrastructure. In Q4, we launched the AirLink RX 400 and the EX 400. The Industrial is the first rugged 5G RedCap routers purposely built for mission-critical industrial deployments. These routers deliver 5G performance with less than one watt of idle power, roughly one-tenth of the draw of standard 5G equipment, making solar- and battery-backed deployment practical for the first time.

This allows our utility, oil and gas, and transportation customers to operate in remote locations where grid power is not always available. Customer engagement at the Distributech in February reinforced our conviction that this product is well-timed to address a real market need.

Looking back on fiscal 2026, I am proud of what the team accomplished. We delivered strong revenue and earnings growth through disciplined execution, a differentiated portfolio, and a relentless focus on the customers and the markets where Semtech can win. This was not just a strong year financially; it was a year in which we fundamentally strengthened Semtech's foundation. Looking at where we stand today, I am more confident than ever in our positioning. The AI data center buildout is one of the most significant infrastructure investments in a generation, and we believe Semtech is well positioned with a broad, purpose-built portfolio of solutions designed for 1.6T and 3.2T era. We believe continued investment in our core assets through R&D and acquisitions helps to ensure we are not just keeping pace with next-generation technology; we are helping to define it. And, importantly, we now have the financial flexibility to diligently evaluate and pursue the strategic investments that will accelerate our POs. We enter fiscal 2027 with momentum, clarity of purpose, and with a stronger Semtech than we have had in years. I want to thank our employees, our customers, and our shareholders for their continued confidence in us. We are just getting started, and the opportunities ahead have never been more compelling. Our key focuses for fiscal year 2027 include: one, accelerating business growth by supporting customer ramps with sufficient availability and strong operational metrics as we compete in a capacity-constrained environment; two, intensifying R&D investment to add new drivers and solution differentiation while maintaining diligent governance of R&D investment with a goal of driving customer wins and delivering strong financial returns; and three, transforming Semtech by strengthening our winning culture and making major progress in portfolio optimization. With that, I will now turn the call over to Mark for additional details on our financial results and our outlook for fiscal 2027. Mark?

Mark Lin: Thank you, Hong. For Q4, we recorded our eighth consecutive quarter of net sales growth, with record net sales of $274,400,000, above the midpoint of our outlook and up 9% year over year. For the fiscal year, net sales were $1,050,000,000, up 15% year over year. Net sales trends by end market, reportable segment, and geographic region are included in the accompanying earnings presentation. Adjusted gross margin was 51.6%, above the midpoint of our outlook. Total Semiconductor Products gross margin was 61.7%, up 40 basis points sequentially and up 350 basis points year over year.

Total Semiconductor Products gross margin was above the high end of our outlook range, the result of favorable mix from our LoRa and data center portfolio. We expect gross margin contributions from new data center products from our copper and optical 1.6T portfolio ramping in the second half of this year will be accretive to both our Semiconductor Products and Signal Integrity Products gross margin. IoT Systems and Connectivity gross margin was reflective of mix-related net sales growth in cellular modules, with Q4 at 31.6%. Adjusted net operating expenses were $91,500,000, slightly above the midpoint of our guidance range.

Adjusted operating income was $50,000,000; adjusted operating margin was 18.2%; adjusted EBITDA was $57,400,000; and adjusted EBITDA margin was 20.9%, with all of these metrics above the midpoint of our guidance range. Reflective of capital structure changes, Semtech was in a net interest income position in Q4 at $100,000, which reflects a sizable change from the $11,200,000 of net interest expense reported a year ago. For fiscal year 2026, adjusted net interest expense was $11,500,000 compared to $70,600,000 in fiscal year 2025. We recorded adjusted diluted earnings per share of $0.44, above the midpoint of our guidance, and full-year adjusted diluted earnings per share was $1.71.

Operating cash flow for Q4 was $61,500,000, sequentially up 30% from $47,500,000 and up 84% from $33,500,000 a year ago. Free cash flow for Q4 was $59,100,000, sequentially up 32% from $44,600,000 and up 91% from $30,900,000 a year ago. Operating cash flow and free cash flow for the standalone fourth quarter each exceeded the amounts reported for all of fiscal year 2025, driven by improvements in both our capital structure and operating performance. Strong cash flow generation has allowed us the operational flexibility to invest in R&D projects as well as to invest strategically via tuck-ins. The increased R&D investment in our core data center, LoRa, and sensing portfolio has yielded strong returns.

Aggregate consideration for the force-sensing portfolio we acquired in October 2025 and the laser and gain chip business we acquired in March 2026 is less than the free cash flow we generated from Q4. I believe our balancing of R&D spending along with prudent use of capital for capacity expansion and acquisitions positions us to generate meaningful long-term returns for our shareholders. We ended Q4 with a cash and cash equivalents balance of $195,200,000, and debt was $503,000,000, unchanged from last quarter. Our adjusted net leverage ratio was 1.3 as of the close of Q4, down sequentially from 1.5 and down year over year from 2.3.

Now turning to our outlook for the first quarter of fiscal year 2027. We currently expect net sales of $283,000,000, plus or minus $5,000,000, up 13% year over year at the midpoint. We expect net sales from our Infrastructure end market to increase sequentially, supported by projected sequential data center growth of 12%, including initial CopperEdge production shipments supporting a hyperscaler at the tail end of the quarter. We expect net sales from our High-End Consumer end market to increase about 9% sequentially, or about 13% year over year, benefiting from improved seasonal trends, market share gain in our TVS products, and contributions from the force-sensing portfolio we acquired in the fourth quarter.

We expect net sales from our Industrial end market to be about flat, with LoRa increases offsetting decreases in IoT Systems and Connectivity. Based on expected product mix and net sales levels, we expect adjusted gross margin to be 52.8%, plus or minus 50 basis points. Our gross margin outlook for Total Semiconductor Products is expected to be 60.4%, plus or minus 50 basis points, down 130 basis points sequentially and including initial ramp costs from the HIFU acquisition. Adjusted net operating expenses are expected to be $96,900,000, plus or minus $1,000,000, resulting in adjusted operating margin at the midpoint of 18.6%.

Included in the higher first-quarter adjusted operating expense outlook are R&D costs associated with the addition of the force-sensing business, along with increased investment in support of our growing data center portfolio, including the HIFU acquisition. We have demonstrated strong returns on our R&D investment and expect incremental returns from these investments. Adjusted EBITDA is expected to be $59,500,000, plus or minus $3,000,000, resulting in adjusted EBITDA margin at the midpoint of 21%. We expect adjusted interest and other expense, net, to be approximately $500,000. We expect an adjusted normalized income tax rate of 72% for all of fiscal year 2027, an increase from 15% in fiscal year 2026, due to a geographical shift in pretax profits.

These amounts are expected to result in adjusted diluted earnings per share of $0.45, plus or minus $0.03, based on a weighted average share count of 96,600,000 shares.

Mitch Haws: Thank you, Mark. We can now turn the call back to the operator for the question and answer session.

Operator: Thank you. We will now be conducting a question and answer session. One moment while we poll for questions. Our first question is from Sean O'Laughlin with TD Cowen.

Sean O'Laughlin: Hey, guys, congrats on the solid results and continuing on your strategy. I wanted to ask a question on the HIFU acquisition. I think the strategic rationale laid out is pretty straightforward, but wondering if you could expand on the initial applications you are targeting. It sounds like mostly transceiver side. And then, maybe more importantly, where are you for the indium phosphide-based product in the qualification or design cycles at some of your customers? And what should be our expectations for when some of that starts to fold into the model in a material way?

Hong Q. Hou: Thank you, Sean, for the question. The HIFU initial product right now in production is a gain chip used in tunable lasers. Those are the high-end lasers to support transmission over 80 kilometers and 40 kilometers for metro and data center interconnect applications. By leveraging about four decades of laser design experience, they have been the leading supplier for gain chips for ICLA. This is a product already in volume production, and demand is increasing. Right now, it is capacity limited. This product, for 2027, will probably be contributing roughly about a high-teens level of revenue. We are adding capacity as we speak in the second week as a proud owner of this asset.

We have also demonstrated—we will showcase tomorrow at OFC—the intensity-modulated direct-drive lasers, our CW lasers used in optical transceivers. This laser is really well designed to support high conversion efficiency. For example, wall-plug efficiency at room temperature is 42%. That is much higher than a typical ~25%. Then our temperature performance is outstanding, and the far-field beam profile is outstanding. That makes it much easier to couple into single-mode fiber or silicon photonics waveguides. We do not have enough capacity right now to support the industry demand. After the announcement, you can just imagine we got multiple customers reaching in and asking for samples.

We will be able to provide samples to the key customers to support the evaluation while we are building capacity to support future growth. As for putting it in the model, probably once we have a better understanding of the equipment lead time and the capacity, in a future period, we will provide more guidance on the revenue contribution from CW lasers. Right now, we are planning to intercept at 3.2T transceivers. Of course, it can support 1.6T transceivers as well.

Sean O'Laughlin: Great, thanks, and I appreciate all the color there. If I could just ask a real quick follow-up, maybe for Mark on that topic, how should we be thinking about the CapEx line as you talk about capacity expansions at Alhambra? I guess maybe Hong alluded to the answer to this question in his previous comment about understanding equipment lead times, but everybody in the indium phosphide industry seems to be ramping capacity, and are you guys, for lack of a better term, at the back of the line there?

Hong Q. Hou: The CapEx intensity is moderate, and the fab already has the key capabilities. Right now, we just need to selectively add capacity in some areas. The whole industry is ramping up, and epi equipment and fab equipment are in high demand as well. We will be creative in combining the new and used market to look at the fab and test equipment. The intensity, I will say, of the CapEx can be easily supported with, say, for example, one quarter of the free cash flow as we have demonstrated in the past quarter.

Mark Lin: Yes, Sean. The ramp is over multiple quarters, but I think Semtech's world-class operations team is on it. We really had the planning during diligence. The other good news is all of this CapEx, I believe, qualifies for Section 48 Investment Tax Credit—35%—and then there are some additional government grant programs that are available, especially those intended to strengthen U.S. semiconductor manufacturing capacity.

Operator: Thank you. Our next question is from Tore Egil Svanberg with Stifel.

Tore Egil Svanberg: Yes, thank you, Hong and Mark. Congrats on the results. My first question is on CopperEdge. As that business now starts to ramp in fiscal 2027, can you give us any sense for how big that could be—maybe tens of millions of dollars? And if you cannot give us the size, perhaps you could at least give us the mix between actual ACC cables versus linear equalizers.

Hong Q. Hou: Thank you, Tore, for the question. We are supporting the ramp. We are getting forecasts, and we are getting the materials ready. As we gave the guidance in our prepared remarks, toward the end of this fiscal quarter in April, we will start shipping to the cable manufacturers who are our direct customers to support the rack-level volume ramp in the middle of the year. Everything is on schedule. As for the mix between DAC and ACC, they are in the process right now of doing rack-level testing and system validation. We will get a better idea probably in a month or two.

We are getting the long-range forecasts so that we can get wafer starts in the fab and prepare material readiness. As I indicated, that is a very key focus for our operations. At this point, it is still too early to tell. As for linear equalizer onboard, there are multiple customers supporting our activities, and based on the level of engagement, I do believe some of those will be getting qualified within the coming quarters. On the ACC side, the MSA establishment with 12 founding members is tasked and at work already drafting the specifications. This is still the early stage of ACC. Different customers are experiencing different performance.

It is very important to have this MSA to draft the specification and educate the industry on what to expect with a certain level of reach, gauge, and data rate. With the common understanding of the MSA, I believe this technology is going to proliferate much faster. We have already seen other hyperscalers lining up to get their racks designed using ACC.

Tore Egil Svanberg: That is very helpful, thank you. And as my follow-up and maybe more of a clarification question: you talked about LoRa growing 20% longer term, but then you talked about a $35,000,000 to $45,000,000 quarterly run rate. You just did $40,000,000. What exactly is that $35–$45 range? Are you expecting some volatility this year? If you could just clarify what you meant by that. Thank you.

Hong Q. Hou: Thank you, Tore. Historically, we have seen the overall trend of LoRa revenue increasing, but quarter-to-quarter is a little bit bumpy due to project-based deployment of demand. That is why we give a range of plus or minus $5,000,000, but you see that sliding scale continue to go up with the center point. I have never been this excited about our LoRa strategy. With dual-band to increase the bandwidth to address EdgeAI applications, with LoRa+ to really get multiple applications in one SKU with software and hardware all supported by us, and with Amazon Sidewalk and the mass market, we have multiple growth drivers. That gives us conviction that a 20% growth rate is very doable.

When we can help the ecosystem adopt the LoRa+ protocol faster, we expect the growth rate to accelerate.

Operator: Thank you. Our next question is from Christopher Rolland with Susquehanna.

Christopher Rolland: Hey, guys. Thank you for the question. I guess my first one is on the indium phosphide laser acquisition. First, a clarification: this is all going to be internally manufactured materials? I just wanted to clarify that. And secondly, if you can talk about maybe your go-to-market strategy here, maybe even some revenue synergies with some of your other parts. Are you going to bundle this with FiberEdge? Are you going to perhaps go direct to hyperscalers? How are you going to approach this market? Thank you.

Hong Q. Hou: Thank you, Chris. Those are very good questions. To answer your first question, yes, the fab we acquired is vertically integrated. We do the epi growth of epi wafers. We process wafers, we test internally, and we use the ecosystem on backend packaging to increase capacity. These lasers involve a multi-step regrowth process, so we do that internally. That is how we are able to get the performance in conversion efficiency and over-temperature performance. As for your second question—go-to-market strategy—you are absolutely right. The transition from 100G per lane to 200G per lane already puts stress on the ecosystem, really challenging device designers with performance margin.

When we evolve the data rate to 400G per lane, there is not a lot of margin to give. Co-development and co-optimization are key to getting the best electronic components with the best optoelectronic components. Now we own two sides of the equation, so we will be able to mix and match to provide the best integrated solution. We will provide the chipsets with a reference design to our customer base. This helps accelerate time to market for them, and in return we make our components more sticky. Using our electronic components—like a TIA, a laser driver, a modulator driver—together with our optical components, you will pretty much get a guarantee to work to deliver 400G performance.

That is why we are saying the major turning point we anticipate is 3.2T transceiver modules. It could be earlier than that.

Christopher Rolland: That is great. That is a fantastic strategy. One question I get from investors is around the eventuality of CPO, particularly for scale. Jensen here at GTC was talking a little bit about the coexistence of both copper and optical in the rack. But some pushback I get from investors is around the role of copper the closer that optical moves to the ASIC. Obviously, you are expanding your market with lasers here into the CPO world. Perhaps you could also address that pushback on copper—where you see copper playing a role not only in the next two years, but all the way through 2030, for example, even as you move CPO to the ASICs?

Hong Q. Hou: Great. Thank you, Chris. I listened to Jensen's talk as well. What I have been trying to say over the last year, he clarified very well. Copper scale-up is always going to be there, and CPO scale-up will make more sense in multi-rack systems. For example, he was talking about Alpenglow NVLink 576 across eight racks. Because you are using active copper cable, it is very hard to get eight racks all point-to-point interconnected. You use the first opportunity—the signal out of the XPU—to convert into optical. Optical can interconnect within rack and between racks. The same thing for the Thunder platform—he was talking about NVLink 1152, also an eight-rack system on NVLink 144. In those, CPO scale-up makes sense.

In general, copper scale-up is going to be the mainstream, primarily used within a rack. CPO scale-up is going to be used in multiple racks. So do not put a terminal value on copper yet. The industry is also formulating NPO, Near Package Optics. It is a complement to CPO. CPO is one company’s thing, but NPO can define a specification with specific geometry, layout, the IO pinout, and keep-out zone to leverage the entire ecosystem's innovation to make it more scalable and more affordable. In CPO, we may not have much content except for lasers, but in NPO, we will be all over the place with laser drivers, TIAs, and lasers, and even silicon photonics modulators, as I mentioned.

That is a very natural expansion of our portfolio by internal development.

Operator: Our next question is from Tristan Gerra with Robert W. Baird.

Tristan Gerra: Hi, good afternoon. You have talked about the rising interest from hyperscalers about LPOs. Could you talk about the recent Arista XPO announcement and what it does to the LPO ecosystem, and any way to quantify what the ramp is going to look like medium term, and when you expect the big inflection point in LPO revenue?

Hong Q. Hou: Thank you, Tristan. Arista just released that MSA. We are a very active member of the MSA. XPO defines a high-density, low-power, and high-reliability MSA for front-panel switches—for example, to keep the same relics—but they will be able to collapse the form factor from essentially 4RU into 1RU without giving up any capacity. It basically removes the packaging overhead. Because liquid cooling is available, they can develop the cold plate so that the gradient between the optical transceivers is managed. That is great and really builds confidence in LPO and builds upon the innovation from multiple module manufacturers.

NPO, on the other hand, is a little bit more involved because that involves the development of common specifications on geometry, key parts on the IOs, and the shoreline configurations. Essentially, NPO is, in a way, XPO onboard. XPO is just a high-density package on the front panel of the box. In both configurations, we are going to have a lot of content—lasers, modulator drivers, modulators, and TIAs. We welcome this type of MSA. It is really going in our direction.

Tristan Gerra: Okay, that is great color. For my follow-up, you have mentioned in the past some ACC opportunities onboard. Could you provide a little bit more feedback on what exactly the use case is for that, and how meaningful that could get over time?

Hong Q. Hou: The CopperEdge and linear equalizer onboard use cases are defined by our customers across five to six different use cases, all to utilize the redrive capability to extend the link and improve the link budget. It can be on the switch, on the merchant GPU board, on the ASIC board of hyperscalers, and it can also be on the backplane in an active backplane by our cable partners.

Operator: Our next question is from Nathaniel Quinn Bolton with Needham & Company.

Nathaniel Quinn Bolton: Hi, this is Robert on for Quinn here. Congrats on the quarter. You have been active in doing acquisitions and have expressed intent to increase R&D with some of your capital up to this point, but any updates on potential divestitures? Last we heard, I think, ongoing and roughly in the third or fourth inning. Any update on that process would be great.

Mark Lin: Yes, Robert, thanks for calling in. I am not really good at sports analogies, but I think we are making good progress. I am optimistic of a good conclusion. At this point, incremental from last quarter, the interested parties are spending some dollars on external consultants—so financial due diligence and on legal costs. We are at that stage, and when there is additional skin in the game, that does point towards a successful conclusion of the cellular module divestiture in the near term.

Nathaniel Quinn Bolton: Thanks. And just as a follow-up, it sounds like there are many tailwinds coming across for LPO as well as copper, and last week we heard them ramping in a similar timeframe this year. Can you refresh that for us? It sounds like ACCs could be ramping a little earlier now. Which do you see as the larger revenue opportunity over the coming 12 months?

Hong Q. Hou: We gave the timeline. ACC ramp is on time, on schedule, and then the 1.6T FiberEdge product. Beyond that, as I said, could be linear—the ACC with other hyperscalers—linear equalizer onboard, and the lasers and 400G. We like them all. At this point, it is too early to call which one is the bigger opportunity, but we like them all and they are going to be contributing in pretty significant ways.

Operator: Our next question is from Joseph Lawrence Moore with Morgan Stanley.

Joseph Lawrence Moore: Great, thank you. You talked about 1.6T starting to grow in your TIA business and other places. Can you talk about the line of sight that you have to 800G still growing? I assume it is still growing for now and you are layering in the higher speeds on top of it. How long will that persist, and at what point do they start transitioning over more?

Hong Q. Hou: That is right. We did mention in the prepared remarks that 800G is the foundation. The growth is strong, demand is strong, and broad based. That is a given. That goes very strong at least throughout FY 2027. As the industry rolls out new XPUs and all the IOs go to 200G, they are going to be evolving into 1.6T. In low-power 1.6T optics, we are actually very well positioned, even better than 800G.

Operator: Our next question is from Craig Andrew Ellis with B. Riley.

Craig Andrew Ellis: Thanks for sneaking me in, and congratulations on both the execution and a really strategic-looking acquisition. Hong, I think near the end of your prepared remarks, you commented that you thought data center year-on-year revenue this year could be up around 50%. One, just confirming that I heard that right, and two, can you help us understand what the biggest growth drivers are, or rank the growth drivers that you see driving that degree of growth?

Hong Q. Hou: Thank you, Craig. Yes, you heard it right. Year over year, we expect data center revenue to grow 50% this year. The drivers are ACC with a hyperscaler, 1.6T FiberEdge in the second half of the year, and then there might be linear equalizer onboard contributing to the growth.

Craig Andrew Ellis: That is helpful, thank you. And then, Mark, congratulations on the strength in semis gross margin and what we are seeing in Signal Integrity. It is really nice to see those mid-to-high 60s levels reattained. The comments on accretive second-half products—are we signaling that gross margin for the segment could start with a seven handle later this year or next year, or would you still expect to be in the 60s?

Mark Lin: The new products that we introduced do have accretive gross margins. I am very pleased with that. It is a great return on the R&D that we put into the products, and they do contribute to growing gross margin. But we still also have other products—so at 800G. I am not expecting it to be in the sevens, but firmly in this ZIP code.

Operator: Our next question is from Cody Grant Acree with Benchmark.

Cody Grant Acree: Thanks, guys, for taking my question. Maybe just following up on Craig’s question—you did not mention LPOs among the drivers of that 50% data center growth. Any reason for leaving that out? And can you talk about the breadth of the expansion of your engagements with ACC and LPOs over the last few months and how you expect those to progress over the course of the year?

Hong Q. Hou: Thank you, Cody. LPO continues to grow, and as we said, in Q4 we delivered just as we gave the guidance—mid-single digit—and signaled the first ramp, and it continues to ramp. We categorize them in the FiberEdge product category, so they are included there. LPO adoption is proliferating, and that also builds confidence for the XPO and NPO strategy. ACC is also getting more and more accepted by the industry. I mentioned that one hyperscaler will start ramping midyear, and more hyperscalers are embracing ACC as well. Linear equalizer with multiple customer engagements has been going really strong.

We not only have growth drivers lined up for this year, we have multiple growth drivers lined up for future periods beyond FY 2027.

Cody Grant Acree: Thanks for that color. Mark, any thoughts on your OpEx trends for the year?

Mark Lin: I am pleased that we are able to have the flexibility to invest in the business. Our outlook for next quarter in OpEx growth is really R&D. I believe we have demonstrated strong returns on investment. Our investment in R&D certainly yields stronger returns than interest expense, for example. We remain disciplined in our R&D investments, focusing on our core data center portfolio, on LoRa, and PerSe. The two recent acquisitions do add some incremental R&D, but these are in our core portfolios.

Operator: Our last question is from Scott Searle with ROTH Capital Partners.

Scott Searle: Hey, guys. Thanks for sneaking me in under the wire. Just real quick on LoRa—wondering if you could provide a little bit more color. In the past, China was such a big percentage in the mix. I am wondering how it was in the quarter and the pipeline of opportunities there. We continue to diversify away from the Chinese marketplace, and as part of that, Sidewalk has cropped up from time to time as being a large opportunity. It has been, I think, slow to date. I am wondering if you could calibrate when we might start to see that contributing in a more meaningful fashion.

And as a follow-up, on the protection and sensing side, I think you indicated that there was a large win that kicks into the first quarter. I wondered if you could just clarify that and provide any additional color. Thanks.

Hong Q. Hou: Thank you. LoRa right now is broad based across multiple regions. China certainly is a good driver, and in Europe and in North America the growth is equally strong. It is all benefited from multiple growth drivers out there. Sidewalk certainly had a little bit of a false start several years ago, but at CES in January, they had over 10 product demos, all embedded with LoRa chips inside. They are going to start deploying in March in North America and have a clear plan to proliferate into other countries. We will see this time, but that can be a pretty significant opportunity for Semtech. I will let Mark address the TVS question.

Mark Lin: For TVS, we are seeing growth above a proxy of handset unit volumes. We have a number of good design wins in TVS, and there is also a little bit of a geopolitical tailwind that we believe is sustainable over a number of quarters that is leading to our better-than-seasonal guide for Q1.

Operator: I would now like to hand the call back over to Mitch Haws for any closing remarks.

Mitch Haws: That concludes today's call. Thanks to all of you for joining us today. We look forward to seeing you at various investor events over the coming weeks and at OFC starting tomorrow. Thank you.

Operator: We thank you again for your participation. You may now disconnect your lines.