MACOM Posts Record Bookings as Data Center Growth Accelerates Toward 74% This Year, CW Laser Nears "Watershed" 2028 Production Milestone
Q3 FY2026 earnings call, August 6, 2026
MACOM Technology Solutions delivered its strongest quarter yet, with revenue of $342.2 million, up 18.4% sequentially and 35.8% year-over-year, and adjusted EPS of $1.40. The headline number, however, was the book-to-bill ratio of 1.6:1, the highest in company history, signaling that demand is outrunning even MACOM's rapid capacity additions. CEO Steve Daly said all three end markets, Data Center, Industrial and Defense, and Telecom, posted "exceptional bookings," with Data Center standing out. The company guided fiscal Q4 revenue to $415 million to $425 million, implying roughly 35% sequential growth in Data Center alone, and adjusted EPS of $1.97 to $2.03.
Data Center Growth Trajectory Revised Sharply Higher
The most consequential data point for investors is the acceleration curve in Data Center. Daly disclosed that the segment grew 35% in fiscal 2024, 48% in fiscal 2025, and is now tracking toward 74% growth this year, an unusual acceleration for a business of this scale. Extrapolating the Q4 guide into fiscal 2027 implies overall company growth in the 27% to 28% range, with Data Center specifically trending toward 50% year-over-year growth. Daly called this "very much a base case," noting that book-to-bill has stepped up sequentially all year, from 1.3 in Q1, to 1.5 in Q2, to 1.6 in Q3, which he said suggests MACOM enters fiscal 2027 "in a very strong position for growth." Data Center revenue hit $137.6 million in the quarter, up roughly 40% sequentially, driven primarily by 200-gig-per-lane PAM4 products, alongside triple-digit growth in ZR/ZR-light coherent products and strength across legacy 25-gig and 100-gig-per-lane lines.
Indium Phosphide Laser Program Gains Confidence
MACOM's tone on its 75-milliwatt CW laser program shifted notably more positive this quarter. Daly said the company is "well into the back half" of a 5,000-hour high-temperature operating life test, and "the data looks exceptional," adding that "we are building our confidence that we have a winner." While MACOM stopped short of declaring qualification success, management is now scoping capital and fab space for a potential production start in late calendar 2027, targeting a handful of strategic customers. Daly framed the laser opportunity in stark terms: "If we're able to bring a CW laser into production in 2028, that's a watershed moment. That will be a big number that will really drive tremendous growth. You can put the laser market in the billions of dollars of revenue." Separately, the company's 200G photodetectors are already ramping in volume and becoming a "meaningful contributor" to Data Center growth, with a 400G photodetector now sampling with roughly a dozen customers. Management declined to break out photodetector revenue specifically, citing competitive sensitivity, but said the contribution "will grow significantly in the quarters ahead."
Total Addressable Market Reset to $15 Billion for 2027
Following a four-month strategic planning process presented to the board in mid-July, MACOM raised its combined served addressable market estimate to approximately $15 billion for 2027, split roughly $6 billion each for Industrial and Defense and Data Center, with the remaining $3 billion in Telecom. That represents a 20% to 30% increase in the SAM framework from 2026 to 2027. Daly attributed the upward revision to accelerating defense spending, new Data Center architectures such as NPO and XPO, and expansion in indium phosphide capacity. He was careful to note that Industrial and Defense and Data Center now carry similarly sized addressable markets, pushing back on a suggestion that Data Center has become the company's structurally larger opportunity: "The growth opportunity in both of those large markets is quite big... we would expect over the long term, those markets and our revenue to double. There's no doubt about it. It's just a matter of when."
Defense Business Riding Multi-Year Spending Cycle
Defense revenue grew 19% last year and is on pace for approximately 25% growth this year, part of the broader Industrial and Defense segment that posted $133.4 million in quarterly revenue, up 11% sequentially and at a record level. Daly pointed to radar, missile defense, drone and counter-drone systems, and electronic warfare as core exposures, and cited incremental Air Force Research Labs funding for millimeter-wave gallium nitride production as validation of the strategy. On the European side, MACOM's French fab (MESC), acquired from the French government for roughly EUR 38 million, is nearing completion of a 3-inch to 6-inch wafer conversion that Daly said will double capacity and lower costs. He teased what could be "one of the largest orders in MESC's history" from a U.K. defense contractor working on airborne systems, with material European defense revenue expected to build starting around fiscal 2028.
China Transceiver Ban Exposure Framed as Manageable
Asked about potential U.S. restrictions on Chinese optical module makers, Daly said MACOM's Data Center business is driven by U.S. hyperscalers and OEMs that control chip selection directly, and that any share shift among transceiver makers would likely just redirect MACOM's business to different customers rather than eliminate it: "Where the transceivers or the NPO or XPO engines are designed and built is a little bit out of our control... but the hyperscalers recognize MACOM as a strategic supplier." He added that MACOM has no manufacturing in China, employs about 85 people there focused on applications support, and that the vast majority of China-sourced product is ultimately exported in systems destined for the U.S.
Margins Expanding on Utilization, Approaching 40% Operating Margin Target
Adjusted gross margin reached 59.7%, up 120 basis points sequentially, and management guided Q4 gross margin to 60% to 61% with adjusted operating margin around 37%. CFO Jack Kober said the company expects continued sequential gross margin gains into fiscal 2027, though at a more moderate 25 to 50 basis points per quarter as the margin base rises. Daly said MACOM is targeting to "breach the 40% operating margin level" next year. Adjusted operating income hit a record $107.7 million, up 33.9% sequentially and 69.6% year-over-year, with operating margin climbing from 25.2% a year ago to 31.5% in the current quarter. The company's income tax rate, currently 3%, is expected to rise into the mid-single digits over fiscal 2027 as profitability increases.
Telecom Diversifying Beyond LEO Narrative
While investor attention has concentrated on MACOM's low-earth-orbit satellite exposure, management highlighted underappreciated growth elsewhere in Telecom, which posted $71.3 million in quarterly revenue. Cable infrastructure revenue is tracking toward 40% growth this year, and metro/long-haul is up more than 50%, both cited as "bright spots." Daly also flagged an opportunity to more than double 5G revenue by penetrating massive MIMO sockets using the company's newer GaN 4 technology, an area where MACOM currently has minimal share after two competitors exited the market. On LEO specifically, Daly disclosed a new win supporting a next-generation satellite optical communication platform, calling it a win that "establishes MACOM as a strategic partner," with broader LEO-driven growth expected to start ramping in late calendar 2026 and early 2027 across four to five major customers.
MACOM also disclosed it is renegotiating its CHIPS Act funding agreement, originally structured in 2024 for $345 million in North Carolina and Massachusetts investment split with the U.S. government, after picking up discounted equipment from Wolfspeed's shuttered Durham fab and reassessing capacity needs. Daly said certain terms in the government's proposed definitive agreement remain "nonstarters" for MACOM, leaving the outcome unresolved. The company ended the quarter with $663 million in cash and short-term investments, a net cash position of approximately $322.5 million, and disclosed a $61 million strategic investment in IQE that generated a $41 million non-GAAP gain, which management framed as a supply chain security measure for its indium phosphide roadmap.