MACOM Raises Data Center Growth Target to Over 60% as Bookings Hit Record High, But Guides CW Laser Contribution Out to Fiscal 2027-2028
Q2 fiscal 2026 earnings call, May 7, 2026
MACOM Technology Solutions delivered a quarter that beat its own expectations across nearly every metric, prompting management to raise its fiscal 2026 Data Center growth outlook from a prior range of 35% to 40% up to over 60%, a significant upward revision that reflects both broadening AI-driven demand and MACOM's expanding product footprint inside optical modules. Revenue came in at $289 million, up 6.4% sequentially and over 22% year-on-year, with a book-to-bill ratio of 1.5 to 1 that CEO Steve Daly called the largest quarterly bookings total in company history. All three end markets, Data Center, Industrial and Defense, and Telecom, grew sequentially and posted what management described as exceptional bookings.
Data Center Inflection: Broad-Based, Not a Single Catalyst
The standout data point of the quarter was Data Center revenue of $98.2 million, up roughly 14.5% sequentially, with guidance calling for approximately 35% sequential growth in fiscal Q3. When Susquehanna's Christopher Rolland pressed on what was driving the sudden acceleration, Daly pushed back on the premise, framing it as a multiyear trend rather than a single inflection point. "In 2024, we grew our Data Center business by 35%. In 2025, we grew it by 48%, and now we're forecasting over 60%ਂ. I don't know that there's an inflection point rather than a trend," he said, attributing the growth to MACOM's early positioning in 1.6T PAM4 optical products, expanding photodetector demand, and a broadening customer base across scale-up, scale-out, and scale-across architectures. Jack Kober added that legacy 100G and below products have "continued to hang in there," providing an underappreciated layer of stability beneath the higher-profile 1.6T ramp.
Management also flagged a subtler opportunity: as competitors pivot toward high-power CW lasers for silicon photonics, a supply gap is emerging in legacy DFB lasers used in 100-gig modules, a segment where MACOM holds a strong portfolio. Daly called this "a great business for us over the next one to two years."
CW Lasers Still Not Ready, Investors Told Not to Model Before Fiscal 2027-2028
In one of the call's more candid moments, Daly tempered expectations around MACOM's CW laser program, a product line investors have been watching closely as a potential contributor to the silicon photonics buildout. He confirmed the company is still finalizing its "process of record" for its 75-milliwatt laser and has not yet moved into module-level qualification, let alone hyperscaler qualification. "So I would, at this stage, not put your CW laser in your models, certainly not for fiscal '26 or I would say even '27," Daly said, adding the usual qualification cascade "oftentimes doesn't" go smoothly. This is a notably more conservative framing than the "6 to 12 month eval process" language used on prior calls, and it pushes out a potentially material revenue driver by at least a year.
Gross Margin Grinding Higher, But Law of Diminishing Returns Setting In
Adjusted gross margin rose 90 basis points sequentially to 58.5%, with guidance implying another roughly 100 basis points of improvement in fiscal Q3, toward 59% to 60%. Daly said the company is now targeting an exit rate "closer to 60%" versus a prior 59% target, driven by higher fab utilization in Lowell and North Carolina, yield improvements, and a rising mix of Data Center revenue that in some cases (but not universally) carries higher margins. Kober was direct about the diminishing marginal returns dynamic: "It does become a bit more challenging as the gross margins go up to squeeze more savings out of it, but our teams are continuing to work hard."
Defense Business Outperforming, Broadening Beyond the U.S.
Industrial and Defense revenue reached $120.7 million, a record, with Daly noting first-half fiscal 2026 I&D revenue up 22% year-on-year and full-year defense growth now trending above 20%, an upward revision from the "high teens" language used the prior quarter. Notably, Daly disclosed that European and North American defense customers are growing at the same rate currently, a data point that suggests MACOM's defense exposure is diversifying geographically rather than depending solely on U.S. Department of Defense budgets. The company also cited a Defense Manufacturing Technology Achievement Award for its GaN manufacturability work, along with plans to introduce a "wide range" of new GaN MMIC products over the next 12 to 18 months.
On the widely discussed RF power competitor exit (a rival's departure from the RF power market flagged last quarter as a potential share-gain tailwind), Daly was careful to reset timing expectations, noting the benefit "won't happen in '26" and is "best case, a back half of '27 contribution," since design wins take time to convert into shipped revenue.
LEO Satellite Ramp Pushed Into Calendar 2027, Not a Near-Term Step-Up
Responding to Barclays analyst Tom O'Malley's question on LEO satellite launch volumes (citing industry estimates of 7,000 to 10,000 launches over three years), Daly declined to endorse specific figures but confirmed MACOM is engaged with major players across satellite payloads, gateways, and now, notably, user terminals. On timing, he was explicit that investors should not expect a near-term step-up in Telecom revenue from LEO programs: "I don't think you should expect a step-up. You're going to see a ramp-up, and that will happen during the course of calendar 2027," tied to a large program transitioning from engineering modules into full-rate production later this year or early next.
In a modest strategic shift, Daly confirmed MACOM is now opportunistically pursuing the LEO user terminal market, a consumer-adjacent segment the company had previously avoided, though he clarified the company is chasing AESA control products rather than integrated receiver chips, limiting the scope of the pivot.
Supply Chain Security Addressed via IQE Investment
MACOM disclosed a GBP 45 million investment in U.K.-based epitaxial services provider IQE (GBP 30 million in equity for an approximately 11% stake, plus a GBP 15 million convertible note), structured alongside a long-term supply agreement covering indium phosphide and silicon carbide materials. Daly characterized this as a proactive move to "retire risk" around input material availability, an issue that has become more salient as substrate suppliers have signaled pricing pressure. The transaction is pending regulatory approval and a shareholder vote, with closing expected within 30 to 60 days.
Capital Discipline Intact Despite Record Backlog
Despite the record bookings, management reiterated it has no plans for greenfield fab construction, instead expanding capacity incrementally within existing North Carolina, Massachusetts, and French facilities. Capital expenditures are guided to $55 million to $65 million for fiscal 2026, roughly 4% to 5% of revenue, a level Daly said should hold even as the company targets doubling revenue toward $2 billion. Cash flow from operations is now expected to exceed $300 million for fiscal 2026, up from $235 million in fiscal 2025, and the company used the quarter to retire $161 million of 2026 convertible notes, leaving it in a net cash position of approximately $325 million.
Guidance Implies Sharp Acceleration Into Fiscal Q3
For fiscal Q3 (ending July 3, 2026), MACOM guided revenue to $331 million to $339 million, with Data Center expected to grow approximately 35% sequentially, Industrial and Defense approaching 10%, and Telecom low single digits. Adjusted gross margin is guided to 59% to 60%, and adjusted EPS to $1.31 to $1.37, a substantial step up from the $1.09 delivered in Q2. Adjusted operating margin is expected to reach approximately 30% next quarter, up from 27.8% in Q2, a level management said has now increased for three consecutive quarters.
Taken together, the quarter reinforces MACOM's positioning as a key beneficiary of AI-driven data center buildouts and rising defense electronics content, but the CW laser timeline reset and the pushed-out RF power competitor benefit are reminders that not every growth driver is arriving on the schedule investors may have been penciling in.
MACOM Technology Solutions Holdings, Inc. Deep Dive: The Analog Muscle Powering the AI Interconnect Era
The Fab-Lite Analog Engine
MACOM Technology Solutions Holdings, Inc. operates as a highly specialized, Tier-2 supplier of high-performance analog, radio frequency, microwave, and optical semiconductor products. The company’s business model is fundamentally built on solving the most complex physical layer bottlenecks in data transmission and signal processing. Rather than competing in the commoditized digital logic space, MACOM focuses on the analog muscle required to move data across networks and radar systems. In the optical data center market, MACOM does not sell directly to hyperscalers. Instead, it supplies critical components—specifically transimpedance amplifiers, laser drivers, lasers, and photodetectors—to optical module manufacturers who assemble the transceivers used in high-speed switches. In the aerospace, defense, and telecommunications markets, MACOM provides gallium nitride and gallium arsenide power amplifiers and monolithic microwave integrated circuits that form the backbone of radar, electronic warfare, and 5G/6G infrastructure.
The company employs a pragmatic fab-lite manufacturing strategy. It outsources standard silicon production to major foundries while keeping the manufacturing of specialized compound semiconductors strictly in-house. This hybrid approach allows MACOM to maintain tight control over its proprietary process technologies—such as GaN-on-SiC and indium phosphide—which are critical for high-frequency and high-power applications, while leveraging the scale and cost efficiencies of external partners for less differentiated silicon components. This structural discipline has transformed MACOM into a high-margin compound semiconductor powerhouse, generating robust cash flows that are aggressively reinvested into next-generation optical and radio frequency research and development.
Navigating the Tier-2 Ecosystem
As a Tier-2 component supplier, MACOM’s customer base is bifurcated between optical module manufacturers and prime defense/telecom contractors. In the data center segment, MACOM sells to module integrators like Coherent, Lumentum, and Innolight. These companies, in turn, supply the finished optical transceivers to end-customers such as Amazon, Google, Microsoft, and networking giants like Cisco and Arista. In the aerospace and defense sector, MACOM’s end-customers include the United States Department of Defense and prime contractors like Lockheed Martin and Northrop Grumman, alongside major telecom equipment vendors such as Ericsson and Nokia for wireless infrastructure.
The competitive landscape is fierce and highly consolidated. In the optical data center market, MACOM’s primary competitors are Broadcom, Marvell Technology, MaxLinear, and Semtech. Broadcom and Marvell are formidable adversaries, leveraging their dominance in digital signal processors and switch ASICs to bundle optical components. In the radio frequency and gallium nitride markets, MACOM competes directly with Qorvo, Sumitomo Electric, NXP Semiconductors, and Infineon. To insulate itself from supply chain vulnerabilities and secure its raw material pipeline against these well-capitalized rivals, MACOM has taken proactive steps upstream. In April 2026, MACOM led a strategic investment into IQE, a leading global supplier of compound semiconductor wafers, injecting capital as part of an 81 million British pound fundraising round. This long-term supply agreement ensures MACOM has uninterrupted access to the epitaxial wafers necessary for its proprietary compound semiconductor fabs.
The LPO Pioneer and GaN-on-SiC Titan
MACOM’s competitive advantage rests on two distinct technological pillars: its pioneering role in Linear Drive Pluggable Optics and its newly acquired dominance in GaN-on-SiC manufacturing. In the data center, the transition from 400G to 800G and 1.6T optical interconnects has created a severe power consumption crisis. Traditional optical modules rely heavily on digital signal processors to equalize and retime signals. However, at 800G, a DSP-based module can consume upwards of 16 watts, with the DSP alone accounting for roughly 50% of the power and a significant portion of the latency and cost. Recognizing this thermodynamic bottleneck, MACOM collaborated with NVIDIA in 2022 to pioneer Linear Drive Pluggable Optics. LPO completely removes the DSP from the module, relying instead on MACOM’s highly linear transimpedance amplifiers and laser drivers to maintain signal integrity purely through analog continuous time linear equalization. This architecture slashes module power consumption to under 8.5 watts, reduces latency, and lowers bill-of-materials costs. Because Broadcom and Marvell generate massive revenues from selling DSPs, MACOM’s LPO technology serves as a highly disruptive, asymmetric attack on its competitors' profit pools. MACOM’s early mover advantage in LPO has translated into tangible market share gains, with three hyperscalers currently in active production using MACOM’s LPO chipsets.
On the radio frequency side, MACOM executed a masterstroke with its late-2023 acquisition of Wolfspeed’s RF business for a mere $125 million. This acquisition included a 100mm GaN-on-SiC wafer fabrication facility in Research Triangle Park, North Carolina. GaN-on-SiC is the gold standard for high-power, high-frequency defense and telecom applications due to its superior thermal conductivity. Crucially, this facility is an accredited United States Department of Defense Trusted Foundry, a certification that creates an immense barrier to entry for foreign competitors and guarantees a steady stream of high-margin military contracts. MACOM assumed full operational control of this fab in July 2025, six months ahead of schedule, instantly elevating the company to a top-tier player in the global RF GaN market alongside Qorvo and Sumitomo. The integration of this fab provides MACOM with the scale, intellectual property, and sovereign manufacturing footprint required to dominate the defense modernization cycle.
Riding the 1.6T Wave While Navigating the CPO Horizon
The industry dynamics surrounding MACOM are currently defined by the explosive buildout of artificial intelligence compute clusters. As GPU clusters scale into the tens of thousands, the bandwidth required to connect them necessitates a massive volume of optical transceivers. The transition to 1.6T interconnects, which is ramping aggressively in fiscal year 2026, is a major tailwind. Data center revenue for MACOM is projected to grow over 60% in fiscal 2026, driven by the sheer volume of analog components required to support these AI networks. The opportunity for MACOM is to capture a disproportionate share of the 800G and 1.6T analog component market as hyperscalers increasingly adopt LPO and Linear Receive Optics architectures to manage rack power densities that are now exceeding 40 kilowatts.
However, the primary threat to MACOM’s optical component business is the eventual architectural shift toward Co-Packaged Optics. CPO involves integrating the optical engine directly onto the same substrate as the switching ASIC or GPU, completely eliminating the need for pluggable optical modules on the faceplate of the server. If CPO becomes the dominant standard, the traditional pluggable module supply chain—where MACOM currently thrives as a component supplier—could be severely disrupted or bypassed entirely. While CPO offers the ultimate solution to the power and density limitations of electrical traces, it faces significant manufacturing, testing, and thermal management challenges. The industry consensus is that LPO will serve as the critical bridge technology for the next three to five years, giving MACOM a highly lucrative window to monetize its analog leadership before CPO achieves commercial scale.
The Silicon Photonics and Optical I/O Threat
The threat of Co-Packaged Optics is not merely theoretical; it is being actively capitalized by a new wave of well-funded entrants and aggressive incumbent acquisitions. Startups focusing on in-package optical input/output and silicon photonics are working to solve the "memory wall" and bandwidth bottlenecks by moving light directly into the compute package. Ayar Labs, which recently secured massive funding rounds totaling over $870 million with backing from NVIDIA, Intel, and TSMC, is developing optical chiplets that replace copper interconnects at the chip level. Their technology is designed for AI scale-up architectures, directly threatening the long-term viability of external pluggable optics.
Furthermore, the consolidation in this disruptive space is accelerating. In February 2026, Marvell Technology acquired Celestial AI, a pioneer in photonic fabric and optical interconnects, for a base value of $3.25 billion. This acquisition signals that major DSP and switch incumbents are aggressively arming themselves for the CPO era, looking to integrate optical connectivity directly into their silicon portfolios. While these technologies are currently focused on the highest-tier AI accelerator architectures and face steep commercialization curves, they represent a credible, existential threat to the traditional Tier-2 optical component model. MACOM is countering this by advancing its own 1.6T-ready analog front ends and participating in standard bodies, but the company will need to carefully navigate the eventual transition from pluggable modules to integrated photonic fabrics.
Steve Daly’s Masterclass in Capital Allocation
The operational and financial turnaround of MACOM under CEO Steve Daly has been nothing short of exceptional. Since taking the helm, Daly has ruthlessly pruned low-margin, commoditized product lines and refocused the company on high-barrier-to-entry analog and compound semiconductor niches. This discipline is evident in the company's financial profile, with adjusted gross margins structurally expanding to the 60% range and operating cash flows expected to exceed $300 million in fiscal 2026.
Daly’s track record in capital allocation is best exemplified by the Wolfspeed RF acquisition. Purchasing a fully operational, DoD-accredited GaN-on-SiC fab and a portfolio of over 1,400 patents for $125 million was a highly opportunistic and accretive maneuver. Management not only integrated the business seamlessly but also took over the physical fab operations well ahead of the initial two-year transition timeline. Furthermore, the strategic foresight to lock up compound semiconductor wafer supply via the recent £81 million IQE fundraising round demonstrates a management team that is proactively managing supply chain risks in a geopolitically fragmented semiconductor market. Under Daly’s leadership, MACOM has transformed from a struggling, disparate collection of RF assets into a highly focused, highly profitable analog engine perfectly positioned for the AI and defense super-cycles.
The Scorecard
MACOM Technology Solutions represents one of the most compelling, under-the-radar beneficiaries of the artificial intelligence and defense modernization super-cycles. By championing Linear Drive Pluggable Optics, MACOM has successfully weaponized its analog expertise against the DSP monopolies of Broadcom and Marvell, offering hyperscalers a vital lifeline to reduce power consumption in 800G and 1.6T optical networks. Simultaneously, the shrewd acquisition of Wolfspeed’s RF business has cemented MACOM as a dominant, sovereign supplier of GaN-on-SiC components to the US Department of Defense and global telecom infrastructure. The company’s fab-lite model, combined with Steve Daly’s clinical operational discipline, has resulted in a structurally highly profitable enterprise that is currently firing on all cylinders, as evidenced by its record fiscal 2026 bookings and >60% projected growth in data center revenues.
The primary risk to the thesis lies in the long-term architectural evolution of data center interconnects. While LPO provides a highly lucrative bridge for the next several years, the billions of dollars currently being poured into Co-Packaged Optics and in-package optical I/O by the likes of Ayar Labs and Marvell pose a credible terminal threat to the pluggable module ecosystem. MACOM will eventually need to adapt its analog portfolio to serve a CPO-dominated world, which may alter its current Tier-2 economics. However, given the immediate, insatiable demand for 1.6T pluggable optics, the high barriers to entry in the defense RF market, and management's proven ability to execute, MACOM is exceptionally well-positioned to generate substantial cash flows and capture market share over the medium term.