Semtech’s third-quarter performance drew a negative market response, despite the company meeting Wall Street’s revenue expectations and delivering an adjusted EPS above consensus. Management pointed to strong demand in its data center and LoRa portfolios as key drivers, with CEO Hong Hou citing “record net sales” in the data center segment and momentum from new design wins. However, investors appeared concerned by product mix shifts and ongoing margin pressures, particularly in the company’s IoT systems and connectivity segment, which experienced lower gross margins due to higher cellular module sales.
Is now the time to buy SMTC? Find out in our full research report (it’s free for active Edge members).
Semtech (SMTC) Q3 CY2025 Highlights:
- Revenue: $267 million vs analyst estimates of $266.6 million (12.8% year-on-year growth, in line)
- Adjusted EPS: $0.48 vs analyst estimates of $0.45 (7.9% beat)
- Adjusted EBITDA: $62.7 million vs analyst estimates of $60.14 million (23.5% margin, 4.3% beat)
- Revenue Guidance for Q4 CY2025 is $273 million at the midpoint, above analyst estimates of $265.9 million
- Adjusted EPS guidance for Q4 CY2025 is $0.43 at the midpoint, below analyst estimates of $0.44
- EBITDA guidance for Q4 CY2025 is $56 million at the midpoint, below analyst estimates of $58.79 million
- Operating Margin: 11.6%, up from 7.5% in the same quarter last year
- Inventory Days Outstanding: 134, down from 138 in the previous quarter
- Market Capitalization: $6.86 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Semtech’s Q3 Earnings Call
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Rick Schafer (Oppenheimer & Co.) asked how a lead hyperscaler’s adoption of CopperEdge impacts broader customer validation and future design wins. CEO Hong Hou responded that deployment by a major customer should accelerate industry adoption and design wins with other hyperscalers.
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Sean O'Laughlin (TD Cowen & Co.) inquired about the sustainability of gross margin shifts in IoT and potential foundry constraints. CFO Mark Lin clarified that margin pressure is primarily due to product mix, while CEO Hong Hou outlined strategies for securing foundry capacity and mitigating supply risks.
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Harsh Kumar (Piper Sandler) asked about the market size and competitive positioning of LPO and ACC, as well as integration plans for the force sensing acquisition. CEO Hong Hou described LPO as expanding Semtech’s addressable market and noted the force sensing acquisition broadens its sensor capabilities for smart devices.
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Christopher Rolland (Susquehanna International Group) sought details on customer adoption of linear equalizers and the breadth of LPO design wins. CEO Hong Hou shared that linear equalizer integration is being evaluated by multiple customers for high-volume applications, and LPO interest is now widespread among hyperscalers.
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Tim Arcuri (UBS) questioned the timeline and potential EPS impact of noncore asset divestitures. CFO Mark Lin indicated that any divestiture would likely have a nominal or immaterial effect on earnings, as targeted assets are low-margin.
Catalysts in Upcoming Quarters
Looking ahead, the StockStory team will be monitoring (1) the pace of design win conversions and revenue ramp in data center connectivity, especially for 800 gig and 1.6 terabit solutions, (2) progress on noncore asset divestitures and their impact on profitability, and (3) the mix of high-margin versus lower-margin product sales within IoT and sensing portfolios. Execution on supply chain and capacity initiatives will also be critical to supporting growth ambitions.
Semtech currently trades at $70.82, in line with $70.16 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).
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