Semtech Corporation (NASDAQ:SMTC) shares ticked up Wednesday after the chipmaker delivered a solid second-quarter performance and offered a third-quarter outlook that left analysts' estimates in the dust.
The company reported adjusted earnings of 71 cents per share, comfortably beating the 57-cent consensus. Revenue climbed 33% year over year to $341.9 million, also topping expectations of $328.61 million. Adjusted earnings jumped 73% from the same period last year.
Margins are heading in the right direction too. Adjusted gross margin expanded 150 basis points sequentially to 54.5%. Adjusted EBITDA rose to $91.1 million from $56.5 million a year earlier, with the margin improving to 26.6% from 21.9%.
Cash generation is looking healthier as well. Operating cash flow increased 55% to $69 million, while free cash flow grew 48% to $61 million. The company ended the quarter with $204 million in cash and $503 million in debt.
CEO Hong Hou said stronger bookings and a record backlog are giving the company better visibility into the next fiscal year.
The real star of the show, though, is the data center business. Infrastructure sales jumped 69% to $124 million, driven 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, and LoRa-enabled sales hit a record $58 million, up 58%. IoT Systems and Connectivity revenue grew 11% both sequentially and year over year to $98 million.
In a strategic pivot, Semtech is selling off its cellular module business to concentrate on the higher-margin data center and LoRa opportunities. The deal is expected to close in the fourth quarter and should remain neutral to adjusted earnings.
Looking ahead, Semtech's guidance is a clear statement of confidence. The company 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 also forecasts an adjusted operating margin of 31%, adjusted EBITDA of $134 million (plus or minus $4 million), and an adjusted EBITDA margin of 32.8%.
For data center revenue, Semtech expects a 45% sequential increase and about 160% growth year over year. LoRa revenue is expected to hit another record, rising about 15% sequentially and 65% from a year earlier.
On the technology front, the company expects its Fiber Edge market share to exceed 50% by the end of fiscal 2027. It also plans to start generating revenue from high-power continuous-wave laser transceivers during the first half of fiscal 2028.
Semtech shares were up 1.55% at $129.50 during premarket trading on Wednesday.
