Semtech: Data Center Backlog Runs Into Fiscal 2028 as CopperEdge and FiberEdge Both Hit Inflection Points
Q2 fiscal 2027 earnings call, August 25, 2026
Semtech delivered a quarter that management itself described as inflecting, with revenue of $342 million, up 33% year-over-year, and adjusted earnings per share of $0.71, up 73% year-over-year, more than double the pace of top-line growth. But the more consequential news for investors is what comes next: a third-quarter guide of $410 million at the midpoint, up 54% year-over-year, built on record backlog that CEO Hong Hou says is now largely booked out through the remainder of fiscal 2027 and already over 70% covered heading into fiscal 2028.
Capacity Becomes the Binding Constraint, Not Demand
The most telling disclosure on the call was not about revenue but about supply. Hou told analysts that the capacity Semtech secured to support this year's ramp "may not be enough in supporting the FY '28, especially second half of FY '28," and that the company is now working with front-end wafer partners and back-end OSAT providers to expand allocation, including prepayments and incremental capital commitments. When pressed by Benchmark's Cody Acree on whether there is room to secure meaningfully more capacity, Hou answered bluntly: "Between 50% and 100%, there's room for that." That is an unusually specific admission that current capacity plans could effectively double, and it signals that Semtech's growth ceiling for calendar 2027 into 2028 is being set by wafer and test capacity rather than by customer demand, a favorable problem to have but one that introduces execution risk around fab and OSAT qualification timelines.
800-Gig Demand Is Not Fading as 1.6T Ramps
Contrary to the market's assumption that 800-gig would decelerate as 1.6T takes share, Semtech says the opposite is happening. Hou noted the industry entered the year forecasting 50 million 800-gig transceiver units for calendar 2026 and is now tracking to 80 million-90 million units, with existing customers "increasing the demand, not decreasing." Data center revenue hit a record $100 million in the quarter, up 91% year-over-year, and management guided to 45% sequential growth in the third quarter, translating to roughly 160% year-over-year growth, with 1.6T CopperEdge and FiberEdge combined expected to exceed 50% of total data center revenue for the first time. Hou attributed the upside less to demand surprises and more to compressed qualification timelines: "When customers need a solution, they go out of the way, they accelerate the pace of new technology adoption... this is really, in a way, it's unprecedented."
Photonics Buildout Extends the Growth Runway to 3.2T
Semtech's HiFO photonics acquisition, closed roughly five months ago, is moving from integration to commercialization faster than the buy-side may have modeled. The company is already shipping gain chips in volume and expects high-power CW lasers and semiconductor optical amplifiers to reach customer sampling within a couple of months, with meaningful transceiver revenue contribution beginning in the first half of fiscal 2028. Management is also adding photodiode array capability through a newly hired design team, aiming to co-optimize photodiodes with its existing TIA franchise. The strategic payoff, according to Hou, is a step-change in content per transceiver: not from high single digits to high teens as some analysts had modeled, but to "high double-digit dollars," which Hou clarified on the call means content approaching 80%-90% of the current base as the industry transitions from 800-gig to 3.2T. Management also disclosed it has acquired an already-facilitized fab near its existing site that will let it triple to quadruple photonics fab capacity by year-end. The 3.2T design window is expected to open in about 12 months, with early volume around 18 months out and meaningful deployment roughly two years away, meaning 800-gig and 1.6T should still have a healthy multiyear runway before 3.2T becomes material.
Gross Margin Structurally Reset by Cellular Module Divestiture
CFO Mark Lin walked through a gross margin bridge that is arguably as important as the revenue story. The divestiture of the cellular module business, under a definitive agreement and expected to close in the fiscal fourth quarter, removes a structurally dilutive segment and lifts adjusted gross margin by more than 500 basis points on its own. Excluding the module business, second-quarter adjusted gross margin was already 59.7%, and the third-quarter guide implies 63.9% on the same basis. Lin called that 64% level "a good starting point post divestiture," with further upside tied to mix as 1.6T, LoRa, and now photonics products such as CW lasers carry gross margins above the corporate average. Separately, Lin said the transaction is expected to be EPS-neutral on a non-GAAP basis, and pricing across the data center portfolio remains firm, with Hou noting the company has been able to pass through rising input costs without customer pushback given current supply constraints.
LoRa Reaccelerates Well Past Its Prior Growth Algorithm
LoRa-enabled revenue hit $58 million in the quarter, up 58% year-over-year and 31% sequentially, and management guided to another all-time high in the third quarter with 65% year-over-year growth, prompting Oppenheimer's Rick Schafer to challenge the company's long-stated 20% long-term growth algorithm as stale. Hou did not disagree, saying growth "certainly matched the 20% ceiling with Q3" and that "year-over-year growth is going to be better than 20% going forward and it's sustainable," pointing to three now-distinct pillars: legacy LoRaWAN industrial deployments, the newer multi-protocol LoRa Plus platform in smart home and security (now 20%-25% of LoRa revenue), and Amazon Sidewalk, which remains a high single-digit percentage of revenue today but is expanding beyond the U.S. into Canada and Mexico, with Europe, Australia, and Japan expected to follow. Investors should note Sidewalk's contribution is still nominal in absolute dollars, meaning the bulk of the near-term LoRa acceleration is coming from the industrial LoRaWAN base and LoRa Plus, not yet from Amazon's mass-market consumer scale.
ACC and LPO Provide Optionality Rather Than Near-Term Scale
On active copper cables, Hou said volume deployment with a lead hyperscaler begins in the fourth quarter, but broader multi-customer adoption is still early, gated more by availability and interoperability than by competitive displacement of existing active electrical cables. Linear-pluggable optics revenue has been present since the first quarter and is growing moderately, but Hou frames its importance less as a standalone product line and more as proof-of-concept validation for linear architectures that will feed into next-generation NPO, CPO, and XPO designs, an emerging area where Semtech says it is now engaged across 10 to 15 module manufacturer programs, some tied directly to hyperscaler end customers.
Semtech is holding an investor day in San Jose on October 15, where management says it will lay out total addressable market sizing, market share by application, and a multiyear financial framework, a session likely to serve as the next catalyst for consensus estimate revisions given how much of today's disclosure was directional rather than quantified.