Semtech Corporation

Good day and thank you for standing by. Welcome to Semtech Corporation's second quarter fiscal year 2026 earnings conference call. At this time, all participants are in a listen-only mode. After management's remarks, there will be a question and answer session. Please be advised that today's conference call is being recorded. I would now like to hand the call over to Mitch Hawes, Senior Vice President of Investor Relations for Semtech. Thank you. Please go ahead.

Thank you and welcome to Semtech's second quarter 2026 financial results conference call. Participants on today's call are Hong Ho, our President and Chief Executive Officer, and Mark Lin, our Executive Vice President and Chief Financial Officer. Before we begin the prepared remarks, I would like to highlight upcoming investor events, including the Deutsche Bank Technology Conference on August 27th, the Benchmark TMT Conference on September 3rd, the J.P. Morgan Rising Tech Leaders Forum on September 4th, and the Piper Sandler Growth Frontiers Conference on September 10th. Today, after market close, we released the run audited results for the second quarter fiscal year 2026, which are posted along with an 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 slide two 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 or actual results in advance to differ materially from those anticipated or projected on this 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. Please see today's press release and slide three of the earnings presentation for important information regarding notes on our non-GAAP financial presentation. Pressure rates and earnings presentation also include reconciliations over GAAP and non-GAAP financial measures. With that, I will turn the call over to Hong.

Thank you, Mitch, and good afternoon to all of you joining today. The SunTech team made solid progress again this quarter with a sequence of increases across each end market leading to record net sales. We also delivered sequential improvement in adjusted gross profit, operating income, and earnings per share, strengthening our financial profile while executing on the R&D roadmap that we believe establishes a foundation for long-term growth. I completed my one-year tenure as Suntec CEO, and reflecting on the three priorities I outlined in our earnings call a year ago, we have made tremendous progress. First, on strengthening the balance sheet, at the end of Q2, we have reduced debt by $879 million from the time I started as a CEO, resulting in a year-over-year quarterly interest expense reduction of 80% and a substantial net leverage ratio improvement, 1.6 times at the close of Q2 26, compared to 8.8 times a year ago. This strong improvement to our financial foundation allows us to focus on growth drivers for our business. Second, in rationalizing the portfolio and increasing investment in the core assets, I'm happy to report that the core assets we have delineated namely data center, LoRa, and Persei, each strongly contributed to our net sales momentum throughout the year. With increased R&D enlistment into these core areas, we anticipate further acceleration of our momentum. Third, revitalizing our winning culture. This is an area of progress of which I'm most proud. By strong engagement with employees, through frequent site visits, interactive information sessions, small group and one-on-one meetings, as well as regular and transparent communications, we provided much-needed clarity in the company's vision, strategy, and priorities, calling a call to action. By instilling a culture of customer intimacy, operational discipline, and a strong execution, We believe we have made great progress on achieving roadmap alignments with our key customers through significantly improved customer engagement, securing new product design wins, and delivering strong financial performance. I'd like to extend my sincere gratitude to the senior leadership and all of our fellow employees for their resilience, dedication, and commitment to Suntec's rising initiative. Going forward, the priority of portfolio optimization is further elevated. We have managed our non-core assets back to a growth trajectory, and combined with the market tailwinds, we believe this asset represents a very compelling business to the red shooter. We believe we are well positioned to further transform SunTech into a higher growth and more profitable company. Now, let me move the discussions to our end markets. For Q2, infrastructure net sales were $73.4 million, up 1% sequentially and up 39% year over year. Infrastructure revenue growth benefited from record revenues in our data center business. Net sales for data center reached a record $52.2 million. up 1% sequentially, and up 92% year-over-year, benefiting from our broad portfolio. Fiber Edge products achieved record net sales, offsetting the Copper Edge air pocket from the initial RAC deployment at our anchor customer. Based on Q2 performance, we expect continued strong opportunities for Fiber Edge demand for the remainder of calendar year 2025 and beyond from our optical module customers serving North America cloud service providers of CSPs. This conviction is supported by our direct ecosystem engagement, which correlates with increases in the data center capex forecast from multiple hyperscalers, solvent operators, and enterprises. During Q2, bookings and forecasts from optical module customers serving China-based CSPs were generally causeless due to limits on GPU availability. That said, we have started seeing accelerated data center bookings over the past several weeks for this market. Looking ahead to the next several quarters, We expect the data center market to continue with the multiyear growth cycle. The market is shifting to higher data rates to support increased compute and network internet bandwidth, resulting in strong demand for a fiber edge 800 gig TIAs moving rapidly from 400 gig. Beyond 800 gig, we are supporting multiple customers on their 1.6G transceiver designs. with both TIAs and drivers. We currently expect volume ramps to start in the first half of 2026, commensurate with the broad deployment of 1.6T switches. While the shift to higher speed to achieve high bandwidth is a given, it is increasingly important to deliver this bandwidth using low power and a low latency network interconnect. Semtech's analog expertise allows CSPs to deliver high-performance compute, and it increases storage capacity while constraining our budget for networking. On the optical side, we have secured several LPO design wins with our TIAs in 400-gig and 800-gig transceivers. We believe we have secured the line shares of the TIAs in the most optical transceivers. Our 800-gig LPO laser drivers were specifically designed to comply with our LPO MSA requirements, and we believe it is the only compliant driver in the market. Several optical module customers are conducting design in and testing of our drivers on their transceivers. We are engaged with three of the leading hyperscalers with our 800-gig LPO solution and expect revenues to begin ramping in Q4 of this year. We are accelerating our R&D roadmap and are targeting making 1.6 TLPO drivers and TIAs available for sampling before the end of the year. Another high bandwidth and low power solution is a copper edge for ACC and onboard linear equalizer. During the quarter, we delivered 800 gig and 1.60 ACC cables to multiple hyperscaler and enterprise customers for testing and qualification. Those customers are seeing benefits of strong signal integrity. lower latency, and importantly, much lower power consumption, as much as 90% below competing DSP-based AEC solutions, while offering lighter and more flexible cables, as well as significantly longer reach compared to direct-attached copper cables. We continue close engagement with our entry customer for their future RAC platforms using CopperEdge and 1.60 optical transceivers using our FiberEdge product. We are on track and expect to launch ACC with U.S. hyperscaler customers during calendar year 2026. Currently, we are enabling all the major cable suppliers, all of which have begun initial qualification at the multiple hyperscalers. As data center topology continues to evolve, we see copper remaining a foundational element of next generation data center interconnects, particularly for short reach links where its cost, power efficiency, speed, and reliability are unmatched. With the bandwidth requirements increasing from 400 gig to 800 gig, 1.60, and beyond, advances in active copper technologies are extending the reach and offering significant power savings, making copper an essential complement to optical solutions. In high-performance computing and AI clusters, copper enables low latency, energy efficiency connections at a rack and row level where optics address longer reach needs. By leveraging our 20 plus years of experience in analog data center solutions, we are helping our customers achieve the performance, efficiency, and the scalability demands of today's and tomorrow's data center with a comprehensive product portfolio addressing line speeds from 10 gig to 400 gig with a line count from one to eight channels. Moving forward, the momentum in fiber edge combined with our emerging copper edge and LPO opportunities, all supported by the strong data center spending positions our data center business for strong growth. Now moving to our high-end consumer end market. Net sales for Q2 were $41.2 million. up 16% sequentially and up 11% year-over-year. Net sales in consumer TVS were $29.9 million, up 22% sequentially and up 15% year-over-year. Consistent with the seasonality associated with the smartphone unit ramps and our strong content across multiple customers, This growth exceeds overall growth in the handset volumes, aligning with our belief that Semtech is gaining content and market share, stemming from our market-leading performance and supply chain excellence. Designed for ultra-high capacitance sensitivity and fast response times, This device is safeguard displays as well as high-speed interfaces such as HDMI, USB, and display ports without compromising signal integrity or performance. This makes them ideal for use in smart TVs, game consoles, laptops, wearables, and mobile devices. Leading global consumer electronics brands integrate some types of TVS technology into their products to ensure device performance, durability, and reliability. In addition, our per se sensing technology is being increasingly deployed across a growing range of applications from consumer electronics to automotive and industrial markets. In devices such as smartphones and laptop computers where specific absorption rate standards are becoming more stringent, CERCEI enables intelligent power management by detecting proximity and optimizing RF performance to meet regulatory requirements without compromising the user experience. In addition, Persei enables precise gesture control with ultra-low power consumption, both of which are highly valued for wearables such as a headset and smart glasses. We are actively engaged in design discussions with a broad range of customers in both smart glasses and smartphone platforms, supporting both existing designs and new launches over the coming quarters. Moving towards industrial end market, Q2 industrial net sales were $143 million, up slightly sequentially in line with our outlook and up 14% year-over-year. Within the industrial, net sales of LoRa-enabled solutions were $36.9 million, down 5% sequentially, and up 29% year over year, supported by continued expansion across several end markets and in multiple applications. LoRa offers a unique combination of long-range connectivity, low power consumption, and robust performance in challenging environments. Its ability to transmit data over several kilometers while operating for years on a single battery charge makes it ideal for predictive maintenance, asset tracking, energy management, and the smart city infrastructure. It also enables cost-effective and secure monitoring and control of equipment, infrastructure, and the environmental conditions over large areas. We are seeing growth in applications including home security systems, smart appliances, pet and personal treasures, and community-based environmental sensors. In addition, our recent generation LoRa chips offer dual-band capability, 2.4 gigahertz and ISM frequencies to enhance bandwidth. This capability is supporting a new generation of connected devices that require reliable low-power communication without the complexity and expenses of traditional networks. U-band capability is facilitating LoRa's adoption in emerging low-altitude economy, including drone delivery, aerial surveying, and emergency rescue. LoRa is especially well-suited for this environment as it combines long-range communication, low power consumption, and a strong signal resilience, three factors critical for aerial operations. LoRa technology is used to provide a reliable telemetry and sensor data transmission even beyond the visual line of sight. This allows operators to gather real-time insights without relying solely on high bandwidth, short-range video links. Our IoT systems hardware business recorded Q2 net sales of $64.8 million, up 2% sequentially and up 24% year-over-year. Bookings in our hardware business continues to be strong. over 40% year-over-year due to both the broad market recovery as well as our position as a leading North American supplier. We see strong 5G momentum as IoT transitions from 4G with a growth in both bookings and . We believe we hold a leadership position with the 5G red cap and are progressing well in launching Qualcomm-based platforms in the coming year. We continue to lead in 5G LPWA, advancing satellite IoT through non-terrestrial network, or NTN, which opens up new opportunities for global connectivity. For router and gateways, our partnership ecosystem continues gaining momentum. As announced in June, several of our products, including our flagship XR60 5G router, achieved Verizon frontline verified status. We now support Verizon's frontline network slice, a dedicated 5G highway for the first responders. This opened up significant opportunities in public safety where mission critical connectivity is paramount. In July, we hosted an Airlink Partner Summit in Dallas. We shared our product roadmap and showcased a range of compelling use cases in public safety, public transit, utility, oil and gas, as well as government applications. Our various partnerships represent fundamental steps as we evolve from a product vendor to a solution provider of choice for mission critical applications. In summary, We delivered another quarter of strong financial performance in Q2, reflecting both the strength of our core business and the disciplined execution of our strategy. At the same time, we continue to invest in our R&D, which will fuel future growth, ensuring our technology remains at the forefront of the market requirement and the customer expectations. With that, I will now turn the call to Mark for additional detail on our financial results and our outlook for the third quarter of FY26. Mark?