Semiconductor company Semtech (NASDAQ: SMTC) met Wall Streets revenue expectations in Q3 CY2025, with sales up 12.8% year on year to $267 million. The company expects next quarter’s revenue to be around $273 million, coming in 2.7% above analysts’ estimates. Its non-GAAP profit of $0.48 per share was 7.9% above analysts’ consensus estimates.
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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: 132, down from 138 in the previous quarter
- Market Capitalization: $6.08 billion
StockStory’s Take
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.
Looking ahead, Semtech’s guidance reflects a mixed outlook, with management anticipating continued growth in data center revenue and incremental contributions from new sensing products. CEO Hong Hou emphasized the impact of ongoing investments in R&D and portfolio expansion, noting that “incremental returns from our future investments” are expected. However, CFO Mark Lin cautioned that gross margin headwinds will persist due to product mix, particularly as lower-margin cellular modules ramp. Management also highlighted the importance of executing on divestitures of noncore assets and ensuring manufacturing capacity to support growth in high-performance markets.
Key Insights from Management’s Remarks
Management attributed the quarter’s revenue gains to robust demand in the data center and LoRa portfolios, while addressing product mix challenges and progress in portfolio optimization.
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Data center momentum: Semtech’s data center business delivered significant year-over-year growth, driven by market-leading fiber edge transimpedance amplifiers (TIAs) and design wins for next-generation optical and copper connectivity. Management noted strong customer demand for 800 gig and 1.6 terabit solutions, with expectations for further acceleration as AI infrastructure spending rises.
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LoRa adoption expanding: The LoRa portfolio saw broad-based growth across smart infrastructure, utilities, and asset management applications. The company’s new Gen 4 LoRa transceivers, integrating multiple wireless standards, are enabling faster data rates and new use cases like real-time drone monitoring, supporting momentum in the industrial segment.
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Product mix weighs on margins: CFO Mark Lin explained that increased sales of cellular modules, which carry lower margins than semiconductor products, contributed to margin pressures in the IoT systems and connectivity segment, even as top-line growth continued.
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Portfolio optimization underway: The company made progress toward divesting noncore assets and completed the acquisition of a force sensing business to strengthen its sensing technology portfolio. Management views these moves as critical to raising long-term profitability and sharpening strategic focus.
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Manufacturing and supply chain actions: Management emphasized efforts to secure foundry capacity for silicon germanium and photonics components, citing close collaboration with manufacturing partners and the qualification of additional sites to mitigate supply and geopolitical risks.
Drivers of Future Performance
Semtech’s outlook is shaped by growth in high-performance data center products and the expanded sensing portfolio, tempered by ongoing margin challenges from product mix shifts.
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Data center and AI demand: Management expects sustained growth in data center revenue, fueled by increasing AI-related capital expenditures among hyperscale customers and the rollout of 800 gig and 1.6 terabit connectivity products. These solutions are positioned as energy-efficient enablers for next-generation infrastructure, with new linear pluggable optics (LPO) and active copper cables (ACC) forecast to gain traction through design wins.
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Margin headwinds from mix: The outlook for gross margins remains pressured by a higher proportion of lower-margin cellular module sales in the IoT systems and connectivity business. While semiconductor products like data center and LoRa drive stronger margins, management highlighted that cellular modules, despite their volume growth, dilute overall profitability.
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Portfolio restructuring and supply chain: Management is prioritizing the divestiture of noncore assets to improve profitability and is focused on ensuring manufacturing capacity for critical components. These actions, combined with ongoing R&D investments, are intended to support both near-term execution and longer-term strategic positioning.
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 $66.76, down from $70.16 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).
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