Earnings call transcript: MACOM Tech Q3 2025 revenue beats expectations

MACOM Technology Solutions Holdings Inc. (NASDAQ:MTSI) reported its fiscal third-quarter 2025 earnings, meeting analysts’ expectations on earnings per share (EPS) but exceeding revenue forecasts. The company posted an EPS of $0.90, matching the forecast, while revenue reached $252.1 million, surpassing the anticipated $248.85 million. According to InvestingPro analysis, MACOM is currently trading above its Fair Value, with 12 analysts revising their earnings expectations upward for the upcoming period. Despite the revenue beat, MACOM’s stock fell 8.29% in pre-market trading, closing at $136.37, down from the previous day’s $139.03.

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Key Takeaways

• Revenue for Q3 2025 was $252.1 million, exceeding forecasts by 1.31%.
• EPS matched expectations at $0.90, showing a slight increase from the previous quarter.
• Stock price declined by 8.29% pre-market despite strong revenue performance.
• The company launched new products and expanded its operational capabilities.
• MACOM continues to anticipate double-digit revenue growth for FY2025.

Company Performance

MACOM demonstrated robust performance in Q3 2025, with a 6.9% sequential increase in revenue. The company’s impressive 32.6% year-over-year revenue growth and strong financial health, evidenced by a current ratio of 3.56, underscore its operational strength. The company’s focus on innovation and market expansion, particularly in high-frequency and high-power semiconductors, has contributed to its competitive edge. With a gross profit margin of 54.25% and moderate debt levels, the expansion of its RTP fab and the establishment of the European Semiconductor Center further bolster its operational capabilities.

Financial Highlights

• Revenue: $252.1 million, up 6.9% sequentially.
• EPS: $0.90, an increase from $0.85 in Q2.
• Cash flow from operations: $60.4 million.
• Cash and short-term investments: $735 million.

Earnings vs. Forecast

MACOM’s Q3 2025 revenue surpassed forecasts by 1.31%, reaching $252.1 million against the expected $248.85 million. The EPS of $0.90 met analysts’ predictions, reflecting stable performance in line with expectations.

Market Reaction

Despite exceeding revenue forecasts, MACOM’s stock experienced an 8.29% decline in pre-market trading, closing at $136.37. This movement contrasts with the company’s strong financial performance and may reflect broader market trends or investor concerns about future growth. InvestingPro data reveals the stock has delivered impressive returns, with a 45% gain over the past year and strong momentum over the last three months, suggesting resilience despite short-term volatility.

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Outlook & Guidance

Looking ahead, MACOM projects Q4 2025 revenue between $256 million and $264 million, with an adjusted EPS of $0.91 to $0.95. The company anticipates exiting FY2026 with gross margins around 59% and an EPS exceeding $4 at a $1 billion run rate. This outlook aligns with InvestingPro’s analysis, which indicates expected net income growth this year and forecasts the company will maintain profitability, supported by its strong cash flow generation and healthy balance sheet metrics.

Executive Commentary

CEO Steve Daley highlighted the company’s strategic focus, stating, "Our strategy is to enable the highest power, highest frequency, and highest data rate applications." Daley also emphasized the potential of the RTP fab, noting, "We believe we can double this business."

Risks and Challenges

• Supply chain disruptions could impact production timelines and costs.
• Market saturation in key segments like 5G and data centers may limit growth.
• Macroeconomic factors, including inflation and interest rates, could affect consumer spending and investment.
• Technological advancements by competitors might challenge MACOM’s market position.

Q&A

During the earnings call, analysts inquired about the integration of the RTP fab and strategies for margin improvement. Discussions also covered the potential of Linear Pluggable Optics (LPO) in expanding market share and the company’s strength in defense and industrial sectors.

Full transcript - MACOM Technology Solutions Holdings Inc (MTSI) Q3 2025:

Olivia, Conference Call Operator: Welcome to MACOM’s Third Fiscal Quarter twenty twenty five Conference Call. This call is being recorded today, Thursday, 08/07/2025. At this time, all participants are in a listen only mode. I will now turn the call over to Mr. Steve Ferranti, MACOM’s Vice President of Corporate Development and Investor Relations.

Mr. Ferranti, please go ahead.

Steve Ferranti, Vice President of Corporate Development and Investor Relations, MACOM: Thank you, Olivia. Good morning, and welcome to our call today to discuss MACOM’s financial results for the 2025. I would like to remind everyone that our discussion today will include forward looking statements, which are subject to certain risks and uncertainties as defined in the Safe Harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. For a more detailed discussion of the risks and uncertainties that could result in those differences, we refer you to MACOM’s filings with the SEC.

Management statements during this call will also include discussion of certain adjusted non GAAP financial information. A reconciliation of GAAP to adjusted non GAAP results is provided in the company’s press release and related Form eight ks, which was filed with the SEC today. With that, I’ll turn over the call to Steve Daley, President and CEO of MACOM.

Steve Daley, President and CEO, MACOM: Thank you and good morning. I will begin today’s call with a general company update. After that, Jack Kober, our Chief Financial Officer, will review our Q3 results for fiscal year twenty twenty five. When Jack is finished, I will provide revenue and earnings guidance for the fourth quarter and then we will be happy to take some questions. Revenue for the 2025 was $252,100,000 and adjusted EPS was $0.90 per diluted share.

We had a strong quarter of cash generation and ended the quarter with approximately $735,000,000 in cash and short term investments on our balance sheet. Overall, our team did an excellent job in meeting our business and financial objectives this quarter. Revenues by end market were as follows, industrial and defense was 108,200,000.0, data center was 75,800,000.0 and telecom was 68,100,000.0. IND was up 10% sequentially, data center was up 5% sequentially and telecom was up 4% sequentially. Our IND and data center quarterly revenues achieved record results.

Our Q3 book to bill ratio was just over 1.1 to one. As a result, our backlog remains at a record level. Our turns business or orders booked and shipped within the quarter was around 17% of total revenue. We believe our backlog growth is driven by our new products gaining market share, as well as the positive secular trends across our three major end markets. Our ability to provide competitive and leading solutions to our customers is what drives our financial performance.

As a result, we continue to focus on technology differentiation across all our product lines. Simply put, our strategy is to enable the highest power, highest frequency and highest data rate applications within our three core markets, using proprietary semiconductor processes, IC design techniques and package technologies. In addition, over the past six years, our strategy has included strengthening our RF microwave and optical systems engineering capabilities. As a result, we are better able to engage customers early on system architecture discussions, rather than offer a point product solutions after the schematics and block diagrams have been developed. This approach, when combined with the strength of our chip designers and manufacturing capabilities, allows us to have input on the system block diagram, which can translate into larger business opportunities and more cross selling of products from our diverse portfolio.

Industrial and defense remains strong and we continue to see opportunities in The US and European markets. We support a wide range of applications including military space electronics, Milcom, onboard drone electronics and directed energy anti drone defense systems. Electronic warfare has been very active within our IND business. EW systems typically contain complex wideband mimic semiconductors, generally operating at the higher frequency bands. These precision high frequency applications offer require high levels of integration and novel engineering solutions.

Examples include components for radio and radar jamming, as well as optical electronics using conjunction with microwave electronics to spoof radar systems. These requirements within the defense electronics sector play into MACOM’s strengths. Our industrial and multi market product lines had modest improvements in demand during the quarter. Standard product sales are increasing across a wide range of low and medium volume applications. Telecom orders remain solid, specifically in five gs infrastructure, broadband access and metro long haul.

While our lead five gs customers expect limited growth in the global radio access network market, our strategy is to gain market share with new designs that outperform the competition. In support of this goal, over the past eighteen months, we have developed our next generation high power GaN on Silicon Carbide semiconductor process at our RTP fab to support existing and future five gs applications. We call this process GaN four. I am pleased to report products from the GaN four process have been sampled to several of our major customers and we have received very positive feedback on product performance. We believe our GAN4 process will make us more competitive in massive MIMO applications, which we are not currently addressing well.

Our metro long haul and Satcom businesses within the telecom end market continue to perform. Expansion of high speed data transmission and increased ground to satellite and satellite to satellite communications are driving demand for our products, some of which operate at 130 gigabaud data rates and up to 80 gigahertz in frequency. And finally, our data center business continues to grow, driven by the global expansion of this market. Demand remains solid for our high performance connectivity IC portfolio supporting 800 gs and 1.6T deployments. In fact, we believe we will have a record 200 gs per lane product revenue in Q4.

Additionally, we are seeing demand at the lower data rates including 100 gs and 400 gs, supporting expansion links and more traditional data center architectures. As we look at our full year results for the data center, we expect significant growth across almost all data rates and platforms. Even our legacy 25 gs NRZ business is expected to grow year over year. We are also pleased to report our data center product revenue mix is expanding as two new product lines enter production. First, we recently transitioned our 200 gs per length photodiodes or photodetectors also known as PDs into high volume production.

We have a strong market position with 200 gs per length PDs as MACOM is one of the few suppliers who can offer customers both the TIA and photodetector ICs and we can offer a chip scale stacked configuration with four PDs mounted on top of the TIA. Second, we have secured high volume production orders for 100 gs per lane linear pluggable optics or LPO chipsets. Our LPO customer is deploying an 800 gs network in a medium reach application. We believe this production order confirms that the market will continue to evaluate and adopt LPO architectures and roll out LPO solutions at scale. LPO is beginning to spread, which is good for MACOM.

Our R and D, product development and operational execution ramping the PD and the LPO products represent a major technical accomplishment by our teams. We believe these two new product lines will support future revenue growth. Many investors ask us about our ACC or active copper cable business and opportunities. Internally, we refer to these products as linear equalizers. As the data rates increase, we believe passive connectivity will coexist or be replaced with active solutions.

Active connectivity solutions can be organized into three categories, active copper cable or ACC, active optical cables or AOCs, and active electrical cables, AECs. MACOM provides linear equalizers and TIA plus driver chipset solutions for ACC and AOC configurations. We do not support AECs, which are typically retimed DSP like solutions. We believe the trends to electrify connectivity with equalization will continue to expand inside and around the data center, as well as in other applications. As an example, we see some connection protocol in the compute industry moving to higher data rates and therefore away from passive connections to active electrical or optical solutions.

An example would be PCIe seven, to connect disaggregated GPUs, CPUs, and memory together using high speed connections. Disaggregated computing enables the efficient use of compute, memory and storage resources, but it increases the need for fast, low latency connections. MACOM is addressing this high volume application with existing InfiniBand and Ethernet devices and developing ICs with PCIe specific protocol features for plug and play compatibility with existing cabling and multiple connector form factors. We have developed PCIe solutions for both single mode and multimode fiber applications and demonstrated these at recent OFC and ECOC conferences. While MACOM is focused on supporting current generation applications, we are also looking ahead at future applications.

As an example, at the last OFC, we demonstrated a 300 gig per lane PAM six driver IC. As we work on advanced ICs like this, we engage with the industry leaders, so we can properly understand future system requirements. Another example of advanced work includes our active design efforts and product sampling on our 400 gs per lane products, which we anticipate will support revenues starting about two years from now. During Q3, MACOM exhibited at the International Microwave Symposium in San Francisco. This exhibition is a great venue to highlight our latest microwave, millimeter wave and optical technology innovations and to introduce new product lines to our customers.

At this year’s show, MACOM featured 16 live technology demonstrations, showcasing our newest products for electronic countermeasures, radar and SATCOM applications. I want to highlight three noteworthy new products. First, a one kilowatt X band pulsed power amplifier module developed for electronic countermeasures in directed energy applications. This is a great example of the type of high value add system level offerings that I mentioned earlier. Second, a wideband front end module or FEM covering two to 18 gigahertz.

This multi chip transmit receive module solution is ideal for wideband phased array architectures. And third, a new product solution for RF over fiber applications, MACOM’s MAT61M transmit receive module offers up to 70 gigahertz of bandwidth, making it ideal for antenna remoting. The module provides a complete solution for transporting wide bandwidth signals over optical fiber within a compact form factor. I’ll mention a few other noteworthy items. Our RF power business continues to perform well with an attractive mix of defense and commercial applications.

Supporting this activity is our wafer fab located in RTP, North Carolina. On July 25, this fab came under MACOM’s full control, almost six months ahead of the original schedule. We felt it was in our best interest to accelerate the transfer to remove risk given the seller’s bankruptcy situation. The accelerated transfer will create a modest near term gross margin setback, which Jack will review. However, now that we have full control of the fab, we can intensify yield enhancement efforts and optimize performance and operational metrics of the fab.

We have recently executed a plan to increase fab output capacity by up to 30% with the purchase of heavily discounted fab equipment. The equipment installation and qualification will take twelve to fifteen months to complete. Our lead high volume customers are excited for this capacity to come online and we expect that this move will lead to additional high volume program wins starting in 2026. Our business development activities based out of MACOM’s European Semiconductor Center or MESC continues to gain momentum in the market. We believe we are better able to penetrate the major industrial, defense, space and telecom accounts with the design and manufacturing site in France.

Our goal is to be the premier designer and manufacturer of high frequency and high power gas and GaN IC semiconductors in Europe, and I’m confident our talented team in France can make this happen. And last, our six business units continue to engage customers on significant programs at the IC module and subsystem level in all three of our target markets. We continue to strategically expand our workforce with industry leading talent to meet the challenge to be first to market with best in class performance. Jack will now provide a more detailed review of our financial results.

Jack Kober, Chief Financial Officer, MACOM: Thanks, Steve. Our Q3 results are at a record revenue level with strong financial performance, continuing our steady growth in revenue, increased operating income and ongoing cash generation. We have made sustained operational improvements across the business, which have supported our strong balance sheet and cash generation. Fiscal Q3 revenue was a new quarterly record of $252,100,000 up 6.9% sequentially based on growth across all three of our end markets. Our overall book to bill ratio for Q3 was just above one to one.

Adjusted gross profit for fiscal Q3 was $145,200,000 or 57.6 percent of revenue, slightly ahead of prior quarters. As Steve had mentioned, we are pleased to have assumed operational control of the RTP North Carolina fab on July 25, ahead of the original scheduled December transfer date. While we anticipate that the acceleration of this transfer will result in some minor near term gross margin dilution of approximately 60 basis points or about $1,500,000 in Q4. We are excited to have eliminated the business risks of not having the important facility under our operational control. With the facility now under MACOM’s control, we believe we will be able to increase the speed of improvements to the fabs production capacity and yields, which will help to stabilize and improve the fabs performance as we enter fiscal year twenty twenty six.

Total adjusted operating expense for our second quarter was $81,700,000 consisting of research and development expense of $55,100,000 and selling, general and administrative expenses of $26,600,000 The anticipated sequential increase in adjusted operating expenses compared to Q2 was primarily driven by higher R and D associated with employee related costs and foundry expenses, as well as higher variable compensation. As we are scaling the business, we have added new capabilities and resources, primarily within R and D functions. I would like to note that we have remained very focused on controlling our OpEx as we continue to grow our revenue. Depreciation expense for fiscal Q3 twenty twenty five was $6,900,000 compared to $6,800,000 in Q2 twenty twenty five. Adjusted operating income in fiscal Q3 was $63,500,000 up 6.2% sequentially from $59,800,000 in fiscal Q2 twenty twenty five.

For fiscal Q3, we had adjusted net interest income of $6,800,000 increasing $400,000 sequentially from $6,400,000 in Q2. Our adjusted income tax rate in fiscal Q3 was 3% and resulted in an expense of approximately $2,100,000 We expect our adjusted income tax rate to remain at 3% for the remainder of fiscal year twenty twenty five. We are continuing to assess the impact of the U. S. Government’s recent legislation to understand the longer term impact on our income tax rates and associated balances.

Fiscal Q3 adjusted net income increased approximately 6.1% to $68,200,000 compared to $64,300,000 in fiscal Q2 twenty twenty five. Adjusted earnings per fully diluted share was $0.90 utilizing a share count of 75,900,000.0 shares compared to $0.85 of adjusted earnings per share in fiscal Q2 twenty twenty five. We continue to make operational improvements within the business, which can be seen in the sequential increases in our adjusted operating income and EPS over the past eight quarters. Now moving on to operational balance sheet and cash flow items. Our Q3 accounts receivable balance was $129,500,000 down from $131,400,000 in fiscal Q2 twenty twenty five.

The decrease in our AR balance was driven primarily by stronger cash collections. Our days sales outstanding averaged forty seven days, which was below our previous quarter at fifty one days. Inventories were $215,400,000 at quarter end, up sequentially from $209,300,000 largely driven by inventory increases to support existing programs and anticipated future demand across the business. Inventory turns increased to two times from 1.9 times in the preceding quarter. Fiscal Q3 cash flow from operations was approximately $60,400,000 up $21,600,000 sequentially and an increase of more than $11,000,000 over fiscal Q3 twenty twenty four.

The sequential increase was primarily due to increased net income combined with fluctuations in working capital. As I have noted in previous quarters, given the dynamics of our growing business, it’s typical to have variations in cash flow from quarter to quarter. Our business model over the last few years has demonstrated strong cash flow from operations. We believe we are on track for our cash flow from operations to be in excess of $220,000,000 for fiscal year twenty twenty five. Capital expenditures totaled $8,800,000 in fiscal Q3, up $700,000 sequentially.

As a result of our increasing demand from customers during the fourth quarter, we expect to purchase $12,000,000 of surplus equipment at the RTP fab from the previous owner. This will allow us to expand our RTP capacity by up to 30% over the next twelve to fifteen months. Including this $12,000,000 purchase, we expect our total capital expenditures for fiscal year twenty twenty five to be in the range of 40,000,000 to $45,000,000 Next, moving on to other balance sheet items. Cash, cash equivalents and short term investments for the third fiscal quarter were $735,200,000 up $53,700,000 from Q2. Comparing our cash and short term investments to the book value of our convertible notes, we are in a net cash position of more than $235,000,000 as of 07/04/2025.

I will highlight that we expect to pay off the $161,000,000 of our remaining twenty twenty six notes over the next three fiscal quarters as these notes become due under the terms of the original agreement. As we move into our fiscal fourth quarter, we expect revenue and profitability growth and to also maintain a strong balance sheet with ample cash to support our strategic goals. We will continue to carefully manage our discretionary and capital spending to support annualized revenue in excess of $1,000,000,000 while further improving our operational margin, EPS and cash flow. I would like to thank the entire MACOM team for their contributions over the past quarter, including those that supported the planning and accelerated integration of the RTP fab. I look forward to us making ongoing improvements to the business as we complete the remainder of fiscal year twenty twenty five.

I will now turn the discussion back over to Steve.

Steve Daley, President and CEO, MACOM: Thank you, Jack. MACOM expects revenue in fiscal Q4 ending 10/03/2025 to be in the range of $256,000,000 to $264,000,000 Adjusted gross margin is expected to be in the range of 56% to 58%, inclusive of the near term impact of the early RTP fab transfer. And adjusted earnings per share is expected to be between $0.91 and $0.95 based on 76,500,000.0 fully diluted shares. We anticipate 5% sequential revenue growth in data center and industrial and defense. We expect telecom revenues will be slightly down sequentially.

These targets support record revenue and earnings for the company. And finally, I would like to take a moment to announce that Susan Ocampo will be retiring from our Board of Directors effective as of 08/31/2025. Susan together with her late husband, John Ocampo fundamentally transformed MACOM when they acquired the company in 02/2009, setting MACOM on a path of innovation and growth that continues to this day. Over her fifteen years as a director, Susan has been an integral part of MACOM’s journey, providing exceptional guidance through our company’s most significant periods. The Ocampo’s legacy is permanently woven into the fabric of our company, from our corporate values to our commitment to excellence.

Susan has shared with us her plans to dedicate more time to philanthropic endeavors, with a particular focus on supporting engineering students pursuing degrees in RF engineering and related technical fields. This commitment to nurturing the next generation of semiconductor talent reflects Susan and John’s lifelong passion for education and our industry. We’re inspired by Susan’s vision to give back to the industry that has been central to her professional life and we look forward to seeing the impact of our future endeavors in the years to come. On behalf of the entire board and management team, I want to express our gratitude for Susan’s dedication and steadfast commitment to our company’s success. While we will certainly miss her guidance in the boardroom, her contributions will continue to benefit MACOM for years to come.

I would now like to ask the operator to take any questions.

Olivia, Conference Call Operator: Thank Our Our first question coming from the line of Quinn Bolton with Needham and Company. Your line is now open.

Quinn Bolton, Analyst, Needham and Company: Hey guys, congratulations on the nice results and outlook. I guess maybe start with RTP fact conveyance. Steve and Jack, you’d mentioned it’s going be a 60 basis point headwind, but you now have the opportunity to sort of get in there, increase capacity, enhance yields. Wondering if you could give us some sense, when do you think those improvements could turn RTP from a margin headwind into a margin tailwind?

Steve Daley, President and CEO, MACOM: Thanks for the question, Quinn. And maybe I’ll say a few words about the transfer and then Jack can also, add some comments. So number one, we’re very excited to have this, fab conveyance behind us. As part of that conveyance, it included bringing over and onboarding about 180 employees. So we’re now welcoming, the workforce that has been working in the fab and around the fab, that were not technically MACOM employees over the past eighteen months.

So a big hearty welcome to all those employees. Our integration teams have been working very well together over the past eighteen months. We’ve been able to migrate all the IT systems, all of the purchasing, all of the controls that was really at the under the control of the Wolfspeed management team is now fully under MACOM’s control. So what that means is there’s no more a fab operating committee, where, they would be sort of Wolfspeed and AECOM management defining projects in the fab, looking at priorities, all of that goes away and now we have full reign to do what we want, when we want. And of course, the first thing we will focus on is improving yields, efficiencies, cycle times and overall quality and performance of the fab.

And as part of this, I’ll just highlight that we took one of our senior executives that had been running the Lowell fab and he and his family moved down to RTP. And so we have new leadership on the ground that understands how MACOM likes to run its fab. So we’re very excited, to see all the great work from, him and his team. So as we look forward, as we start to move these enhancement programs into financial benefit. We’re modeling as we look out over the next few quarters, anywhere between twenty five and fifty basis points of improvement sort of going forward after Q4.

That’s what our crystal ball says at the moment. And so, when you do that math, you can see that we’re probably a couple of quarters, maybe three quarters away before you start to see a tailwind and then a real contribution. The other thing I’ll highlight, which is really fundamental to the execution of the fab is increasing the output capacity. And so as we said in our remarks, we have made some purchases to bring in more equipment to eliminate single point failures, open up areas where we have pinch points and capacity and that will really allow the fab to run more efficiently, which will also be a benefit to the overall profitability of the operation. So very excited about the transfer, did it about six months before, we had originally planned.

We had always wanted the fab to come over as sort of a gross margin neutral. Clearly, we’re just a little bit behind about 1,000,000 point dollars on a quarterly basis right now. And we think that’s easily managed going forward. And maybe Jack can add some comments around our future plans.

Jack Kober, Chief Financial Officer, MACOM: Great. Thanks, Steve. And Quinn, we’ve had the fab under our full control for all of a little less than two weeks at this stage. So we’re still learning and finding items that are out there. We think we’ve got a good plan to make those improvements from a yield perspective.

We are familiar with running a fab of this size. We have similar capabilities here in Lowell and that extends to some of the suppliers that we have and making sure that we’re linking up our supply base with the supply base that’s down there at RTP. So we’ve identified a number of different opportunities that we think we can work through over the next ninety days that will help improve the margins as we go forward and work our way through fiscal year twenty twenty six. So great effort and look forward to weaving the RTP fab fully into MACOM. But a lot of work was done upfront to make sure we understood what we were working through as part of this transition and a lot of that work had helped us to accelerate it and get it done almost six months ahead of schedule.

Quinn Bolton, Analyst, Needham and Company: Excellent. Thank you for all that color. My second question just wanted to come back to the LPO opportunity. Very encouraging to hear, I think your first customer is starting to go into volume production. Just wondering if you could talk about the pipeline you see for LPO adoption.

Are you seeing a broader number of customers sort of where you’re engaged looking to go to production, fiscal twenty twenty six and beyond? Just any sort of sense of how quickly you could see broader adoption of LPO?

Steve Daley, President and CEO, MACOM: Yes. So, if we take a step back and look at some of the work we showcased at the OFC at the March, of April this year, it’s important to highlight that our demonstration at our booth had an LPO ecosystem being showcased, which included, utilizing switches from two different vendors, servers from three different vendors. And we had 12 different module manufacturers, showcasing their hardware, which was either running at 400 or 800 gig, and both multimode and single mode solutions. And so that really, I think it puts a stake in the ground as to where LPO was, back in March. And so now as we look at where we’re at today, a lot of that hardware is being qualified by end users and we’re starting to see production orders roll in.

And so we’re very happy And so we do believe that over time, we will continue to sign up new customers, for application. And then of course, you might ask why is that? And I think fundamental to the LPO solution is, it’s a solution that eliminates the DSP, which means it’s lower power, lower latency, lower cost, it’s easier to use, and it’s ideal for short links. Now, the challenge of course is the customer needs to work on getting acceptable bit error rate over all of their use cases.

There has to be very clean interop between all the different hardware and you lose some of the creature features of the DSP and the application. And sometimes that is a problem for the end users. So the adoption of LPO is compelling, for the reasons I stated, but it also has its challenges, which means it’s not ideal for all cases. But we are seeing pull, and I would say that that pull is increasing. As we stand here today, I would say that we have signed up one customer for production.

We’re very close to signing up a second and we expect that as we move into 2026, there’ll be more business.

Olivia, Conference Call Operator: Thank you. And our next question is coming from the line of Lane Curtis with Jefferies. Your line is now open.

Lane Curtis, Analyst, Jefferies: Hey, good morning. Thanks for taking my question. I wanted to ask on the Industrial and Defense. You had strong growth in June, and it looks like it continues in September. I’m just kind of curious as it relates to 1.1 book to bill, if you could just talk about industrial and defense trends, what’s driving the strength?

And a lot of people with broader industrial businesses have been kind of people have been worried about whether it’s starting to tail off. Just specifically, anything that you’re seeing in industrial would be great as well.

Steve Daley, President and CEO, MACOM: Yes. Most of the growth in our industrial and defense category is coming from defense. So let’s be clear about that. And that the book to bill of our, IND business has been over one, for at least six quarters, maybe five quarters. So that the category has been doing quite well.

The industrial category for us is a little bit of a catchall and we did start to see some improvement this past quarter, as I mentioned, in our general business. Some of that’s test and measurement related, some of it’s medical related. But generally speaking, it’s the industrial is a small segment for us and our main strategic focus is taking full advantage of the expanding and growing defense market. And so we really put all our resources on that end. So I would just say that the industrial MACOM is not a bellwether for how that market is doing.

It’s a small piece of our business and, it’s a general category and it’s slightly improving today.

Lane Curtis, Analyst, Jefferies: Great. Thanks, Steve. And then I wanted to ask and I feel bad asking the question because it’s been such a good segment since the acquisition. But as we kind of look at you trying to fill this RTP fab, just curious down slightly in September, what’s driving that? And I guess, when you look at this RF business, I think it surprised a lot of people how strong it had been, and you have this great opportunity to gain some share with this capacity.

Maybe just comment on September and then the kind of outlook for the RF business in general.

Steve Daley, President and CEO, MACOM: Right. And we’re very happy that our telecom business, generally speaking, has been growing really since the beginning of the end of our fiscal twenty twenty three and we are running near record levels. And so when you sort of compare our Q3 performance to our Q4 guide, it’s, I would say noise level differences. It’s not meaningful. I think what’s important to note is the secular growth of SATCOM, satellite communications, where we have a very strong position on the ground gateways as well as on the satellites.

We are seeing solid business and we are predicting growth into next year for our five gs business year over year. We are starting to see some improvements in our 10 gs PON business over the last couple of quarters. So I wouldn’t read anything into the modest sequential decline going into Q4. The fact is on a full year basis, our telecom business should grow over 40%. So I think we’re quite happy with that.

Olivia, Conference Call Operator: Thank you. And our next question coming from the line of Thomas O’Malley with Barclays. Your line is now open.

Thomas O’Malley, Analyst, Barclays: Hey, guys. Thanks for taking my question and congrats to the team for reaching that $1,000,000,000 run rate in the June. Know that’s what you kind of started out on this adventure targeting, so congrats on that. I wanted to start off on the data center bucket. So continued strong growth into the back half of this year.

Can you walk through the moving pieces of that bucket? Historically, I think the largest piece had been kind of TAAs and drivers in optical modules and ACC was kind of coming up the curve and now you’re getting some LPO contribution. But in terms of the drivers of what’s continuing that strength here into the back half of the calendar year, maybe spend some time just walking through where specifically you’re seeing the strength in that bucket?

Steve Daley, President and CEO, MACOM: Sure. And, as I said in my remarks, we are seeing broad strength this year across all of the data rates. So I just want to highlight that, to begin with. And I’ll also remind listeners that in 2023, we had about 6% year over year growth, in 2024, we had 35% and now we’re triangulating for 2025 to have about 48% year over year growth. So very, very strong performance.

We’ve had some great success, primarily at the higher data rates, so 1.6T, 800 gig, 400 gig, our business and our positions there have been quite strong. And I’ll highlight what we’re excited about right now is that we’re diversifying the revenue stream and that’s why I wanted to highlight that LPO is coming in. Our PDs are coming online. We see many customers moving to the higher data rates and they’re coming to recognize that, it might be more affordable to use an ACC solution, or to use an LPO solution than a full DSP based module. So there’s a lot of pull there.

We remain focused on analog solutions. We are not even though we do have a DSP in production, we are not spending our R and D dollars on DSP technology. We are spending our R and D dollars on looking forward at the next data rates. And that’s why I mentioned the 300 gig and the 400 gig R and D work that we’re doing. So great work by the team.

Generally speaking, we were engaged not only with the pluggable module, people that are in the market, but also people that are working on CPO, some people call it NPO. So we are working with companies that want to push optics onto the PCBs, onto the switchboards. And from our point of view, it’s an LPO solution without the package. Now, the one last thing I’ll highlight is, our fiscal twenty twenty five was a very good year for our two our linear equalizers for a 1.6T application. And our lead customer there is basically during the course of this year, they ramped up that application and they ramped it down.

And so when we look into our fiscal twenty twenty six, we want to make sure that we are able to add new 800 or 1.6T programs to our business and we are working to that end. So while we do see lots of growth across the product segments, I think the year over year comps on ACC, are still to be determined.

Thomas O’Malley, Analyst, Barclays: Helpful. And then the second one is maybe for Jack, just on RTP. So you gave some of the cadence on headwind turning into tailwind over the next couple of quarters. But I know you guys don’t want to give away your secret sauce here, but I remember kind of early days of that deal, you had talked about potentially bringing some product in house that you had done potentially externally. Could you maybe talk about the product roadmap at RTP?

Is it something where you can bring in compound semis or make any changes to the product that’s coming out of there that also offers a next leg of growth and margin improvement? Just anything that you can offer on strategy longer term with that fab and why it’s so critical for you guys? Thank you.

Steve Daley, President and CEO, MACOM: Yes, maybe I’ll say a few words first, Tom, and then Jack can add some comments. So, when we first acquired the business, we recognized that their mimic portfolio was too small. They had a lot of great foundry business, which we wanted to continue to grow and they had a very good position in five gs. And so when we look at how to improve the margins, obviously looking at adjusting the product mix, are primarily weighing towards mimics, which are generally very high margin products. We wanted to make sure that we had, the best designers in the industry to make use of the processes they have.

And you’ve seen us take actions, with hiring and adding R and D resources to our Mimic design teams, including the recent acquisition of a company called Ingenic, which has design centers in Dallas and San Diego. And so we really feel great about, our design talent, which will drive high value products through that fab. When you specifically asked about sort of in sourcing, and so there was a part of the, RF business, supporting five gs includes, purchasing from external suppliers, things like capacitors and passive devices, we call them IPDs, that might be used in a matched amplifier module. And we have a very active program to in source all of that. And we will in source it, most likely in our low facility, which will also solve the other issue, which is, the utilization issues that we’ve been talking about here at low.

So our strategy for improving the profitability of the products includes, making use of all of the technologies at different fabs. And so some of the insourcing that I think you’re referring to is more insourcing some of the silicon and gas passives that are currently outsourced into one of

Steve Ferranti, Vice President of Corporate Development and Investor Relations, MACOM: our other

Steve Daley, President and CEO, MACOM: fabs. Did you want to add to that, Jack?

Jack Kober, Chief Financial Officer, MACOM: The only thing I would add is that, as we had noted going back over the past year or so, we saw some pretty good strength from our five gs telecom customers. I think a lot of that was a result of MACOM getting involved and they appreciated the relationship with MACOM and themselves. So that helped to expand some of the market share we had and to grow the business. There’s also the IND piece of the business or the defense piece of the business that goes through that fab. It is a trusted foundry similar to what we have here in Lowell.

So we think that’s a strategic capability that we have. And as we’ve mentioned, it takes a little bit longer to get things moving from a defense customer perspective, but we have made great strides over the past year or so with those customers and see that as an opportunity to help support growth. And with the fab under our control, we’ll be able to expand the capacity. We talked about adding some equipment over the next twelve to eighteen months. So we think we’re in a good spot to help improve the overall fundamentals of that fab as we work our way through fiscal year twenty twenty six and beyond.

Olivia, Conference Call Operator: Thank you. And our next question coming from the line of Karl Ackerman with BNP Paribas. Your line is now open.

Steve Daley, President and CEO, MACOM: Yes, thank you.

Tore Sindberg, Analyst, Stifel: Was a lot of good questions already within Datacom and Industrial and the FAPs, I want to pivot a bit to Telecom. Guess why flat growth in Telecom giving ongoing strength in DCI? And similar to that, when do you I guess, when would we expect a pickup in Satcom from some of the breadth of design wins you’ve previously communicated? Does that begin to pick up back in December and end in 2026? Any thoughts on the SATCOM opportunity within telecom would be great as well.

Thanks.

Steve Daley, President and CEO, MACOM: Sure. Thank you, Carl. You’re correct to highlight that our DCI or metro long haul business is doing quite strong. We have lots of programs running in terms of very high data rate for long haul as more and more data centers are being built out. It’s driving the need for hardware that is in some instances coherent based solutions.

So that business is doing quite well. So that’s really not an issue there. I think the quarter over quarter diff you’re seeing in Q4, I would say is more to do with just managing the backlog, generally speaking and working with customers to hit their dates. And again, I do have to remind you, like I mentioned earlier that year over year, our telecom business in the fourth quarter as forecasted is doing quite well. So, the year over year numbers are very, very solid.

So I don’t think there’s anything fundamentally broken there. I think it’s that market has seen some great growth this year and we would expect and we’ve said, and we’ve talked about the fact that the potential within this segment is quite large. And then your last comment about, how are the various satellite programs running? I did provide an update on last quarter’s call that, we were finishing up the mimic design phase. We were building engineering models, that work continues.

And in the near term, we’re looking towards delivering that our major customer for that one large order, engineering models. And then once they go through a review of that hardware, we go through what they call the CDR, critical design review, we locked down the design and then we start production. The timing of that right now hasn’t really changed. We’re thinking, production could start as early as the end of this calendar year or the beginning of next calendar year. It will really depend on the results of the work that we’re doing over the next few months.

Thank you. I’ll see the floor.

Olivia, Conference Call Operator: Thank you.

Quinn Bolton, Analyst, Needham and Company: Thank you.

Olivia, Conference Call Operator: Our next question coming from the line of Tore Sindberg with Stifel. Your line is now open.

Tore Sindberg, Analyst, Stifel: Yes, thank you. Steve, you talked about the photo detector product with the TIA and I think you mentioned the chip scale package. I’m just trying to understand the value proposition there. I mean, it does sound like a little bit integration that perhaps some of your competitors don’t have. And could you talk a little bit about what specific use cases there will be for those TIAs?

And what I mean by that is that sort of intersecting 800 gig or 1.6 or is it more broad based than that?

Steve Daley, President and CEO, MACOM: Great, thank you for the question, Tore. So our photodetector product area is world class in my opinion and our team’s opinion. It’s fundamentally rooted in Epi design and also the chip design itself. The chip design is backed by, Submicron processing that allows us to do very close alignment of all the various layers on these photodetectors. Our products have industry leading dark currents, which means the products are, very stable over time, very reliable over time.

Our products are, what they call self hermetic, which means they can you don’t need to put them in a hermetically sealed, module, so they can be open to the environment and we use a very special processing, to achieve self hermeticity, which is unique, we believe. And we have a very good control over the lens fabrication process, both on the front side and aligning the lens to the backside of the device. And so, a lot of engineering has gone into these designs. MACOM has been known historically for having the most sensitive photo detectors in the industry and historically, our customer base has been test and measurement companies, people that are making optical testers that might have a sort of a gold box optical receiver in the piece of test equipment that we manufactured. And over the last year, we have been focusing very heavily on winning high volume sockets in the data center and in twenty twenty five and twenty twenty six, you’re going to see the results of that effort.

And to do that, I would just add that we have, really set a very nice foundation for high volume testing in manufacturing to meet what really looks like massive step ups in volume for us. So we’re very excited, with the work that the team is doing. It’s been a group effort between our business units, our operations, our applications teams and where these parts are used. So it’s a 200 gig per lane photodetector, so it’s suitable for, an 800 gig, receiver or a 1.6T receiver. So in the case of a 1.6T receiver, it would require eight photodetectors.

So you’re talking about millions and millions and millions of devices.

Tore Sindberg, Analyst, Stifel: Yeah, that’s great color. And as my follow-up, you mentioned, PCIe Gen seven, I assume these are again, PCIe over fiber products and not copper. And again, from to sort of trying to understand the timing of that, would this again try and intersect, I guess the 2027 cycle or could we start to see some revenues even before then?

Steve Daley, President and CEO, MACOM: So yes, you’re right that PCIe seven is optical based and we are, working with some customers as well on, I would say electrical solutions that are that will maybe come online before PCIe seven. PCIe seven is a fairly high data rate bidirectional, lots of different lanes, 32 gigabits per lane, but many, many lanes. So as I highlighted in my comments, the compute industry is really pulling companies like MACOM into their block diagrams, because they need to add equalization as they move high speed data across their computer boards. And so it’s kind of a perfect ancillary solution. And again, all of this would fall under our equalizers.

And yes, to be very clear, we do have equalizers for PCIe that are electrical based, not just optical.

Olivia, Conference Call Operator: Thank you. Our next question coming from the line of Harsh Kumar with Piper Sandler. Your line is now open.

Harsh Kumar, Analyst, Piper Sandler: Yes. Hey, guys. Congratulations, first of all, on yet another solid and fantastic results. Steve, I wanted to understand the headwind with the margins. You got it a little bit earlier than you wanted.

Is that simply it that the revenue isn’t quite where it needs to be? And I want to understand what you can do or what you need to do to overcome this small 1,500,000 or 60 basis points of margin. Are there any functional steps that are needed to be done?

Steve Daley, President and CEO, MACOM: Yes, I think it’s, and maybe I’ll say some comments and Jack can add on, but I think it really comes down to now taking full control of the fab and being able to fix all the things that we’ve not been able to fix to date. And so, operations team is doing an absolutely phenomenal job, moving the needle as quickly as we can. And I’ll just highlight when we first brought the business over, this business was just in a pretty rough state financially. And so it’s been quite transformative, over the past eighteen months and I’ll highlight that even before we closed the acquisition, we effectively worked with the seller to restructure the business, so that the day it came into MACOM, it would be accretive to our earnings and we met that challenge and met that goal. And we also said that this acquisition would effectively pay for itself in three years and we think we’re on track as well.

But as we go forward, it’s looking at critical controls, it’s looking at, areas where we have unacceptable yields, it’s turning the material through the fab faster, which means sort of reengineering the industrial side of how material moves in the fab. So I wouldn’t say or point to any one particular thing. I think it’s 20 different projects that our team has in flight to incrementally improve financial performance. But the one thing I think we should really focus on, which is we can double the size of this business and that is our plan. So when we look at our position in the market in GaN on silicon carbide with this technology set, we have tremendous upside.

And so, it’s an anchor technology that allows us to address major customers across test and measurement, military, defense, telecommunications, where we can not only sell this anchor product, but also all of our other chips around it. So it’s really helping MACOM, get to the next level. And so it’s blocking tackling in the near term. And as we said earlier, 25 to 50 basis point improvements over time, starting beginning of next year. Jack?

Jack Kober, Chief Financial Officer, MACOM: The thing I would add is just, we did not have operational control of the entire fab in terms of the workforce and how we run the equipment, when we run the equipment up until a little less than two weeks ago. We had made some pretty good strides with our fab operating committee with the former owner of the fab. So I think out of the gate, were doing pretty well. Obviously, the past six months, the former fab owner has had a lot going on and there may have been a little bit of a lack of focus. I think that is what drove some of our decision to accelerate the transfer.

And I think we were going to be more than willing to accept that little bit of a temporary margin step back for us to ultimately be able to accelerate some of the improvements that we’re anticipating now that we have full control. So and once again, we’re able to minimize the risk now that we can control it. So hopefully that color helps with regard to that minor margin setback that we referred to.

Harsh Kumar, Analyst, Piper Sandler: No, it does. And thank you for that clarity. I guess my next question is also on the fab because most of the product questions have been sort of asked. I guess, I I wonder if you would be willing to share with us what level of revenues this fab is doing now. And also, you know, we understand it to be a telecom fab, but from a technical competency, what kind of technologies can you have in this fab and what kind of markets can it address?

And then also, I guess, a multipart question. When it’s all said and done and when, let’s say, two years from now I’m talking to you, what could the margins be for this company? Could they be accretive to your corporate gross margins before you bought this or would it fall somewhere in the same range? Sorry for the multipart.

Steve Daley, President and CEO, MACOM: Harsh, these are great questions. And before I answer, or try to answer many of those questions, I’ll also highlight, something that we’re very happy about is as we exit our fiscal twenty twenty five, we’re really running at operating margins that are peaking, really in the last couple of years. So even though we had a little bit of a setback here on the gross margin, 101,500,000 of COGS or 60 basis points. The business and the overall fall through in the operating income of MACOM is growing. And as we look into next year, we believe that the earnings are going to grow faster than the revenue.

So I think we have very good control over a lot of the different moving parts. When you ask about the revenue by the fab, that’s probably a little sensitive to discuss in any level of detail. We did announce when we acquired the fab, what the prior twelve month run rate was, but we really haven’t updated the business since then for competitive reasons publicly. When we look at the strategic value of the fab and I think that it is not just a telecom fab. They have when you look at their core technology, the core technology, it’s essentially, very high power GaN on Silicon Carbide that operates up through X band or around 10 gigahertz on most of their, most of the legacy processes.

Those are ideal for very high power applications. A lot of that technology can replace LDMOS, especially in military applications, where you can achieve higher powers and get better efficiencies. The RTP fab also has a 0.15 micron process for microwave applications and that process operates up to about 20 gigahertz. So now you’re able to capture backhaul radio links, you’re able to capture other telecommunication applications, military applications and it covers many SATCOM bands. SATCOM is one of our fastest growing areas.

We’ve talked a lot about it over the last couple of years with more and more LEO constellations being launched and MEO constellations. The RTP technology is ideal for those applications. And I’ll also add that many of these platforms are now adding direct to cell or direct to device connectivity, which typically run at the cellular bands. And that is where we really have an advantage, where we have a very strong position in five gs and many of these LEO satellites are effectively flying base stations where they need transmitters and receivers and MACOM has great technology to support that. And then the last thing I’ll add is, it is a trusted foundry with a very high MRL level for to support military production programs.

And so that business for MACOM is booming and it’s booming because, we have a very strong amplifier and transmitter design capability. And when you combine that system level capability, engineering capability with the GaN on Silicon Carbide technology at RTP, we’re hard to beat. So we’re very excited about the prospects. And as I said earlier, I’m confident we can double this business, double the revenue of this business.

Olivia, Conference Call Operator: Thank you. Our next question coming from the line of David Williams Your line is now open.

Quinn Bolton, Analyst, Needham and Company: Hey, good morning, gentlemen, and thanks for letting me jump on. I guess maybe first, thinking about the lower speeds, you talked about that are gaining contraction. What is driving that? Is it more of just the expansion beyond the core data center and into maybe edge AI that’s kind of moving out or maybe anything that’s driving the legacy type solutions?

Steve Daley, President and CEO, MACOM: Yes, I think, your thinking is correct there. We believe that as the AI data centers basically begin to expand, there’s sort of a front end, traditional data center, maybe in front of it, looking towards, the Internet. And so we are seeing an uptick across, various product categories that would support that forward looking forward looking equipment. And so we think that the lower data rates are being sort of dragged along because of the build outs and, we believe that’s why our lower data rates are growing.

Tore Sindberg, Analyst, Stifel: Okay, great.

Quinn Bolton, Analyst, Needham and Company: And I would assume that those products probably have a little better margin profile. And then just secondly on that, can you talk is there what the impact is from the utilization or underutilization at the Lowell fab?

Steve Daley, President and CEO, MACOM: Yes. So, well, two things. The lower data rate products are in most of our drivers and TIAs are not processed in MACOM fab. So I want to clarify that. So it’s not necessarily impacting the low utilization.

And then your question about are the margins higher at the lower data rates, we don’t we probably can’t comment specifically on that. In over time as volumes go up, typically prices come down, that’s a general trend. But at the same time, with our yield enhancement programs and working with our supply chain, we’re able to drive costs down. So, it depends on the product, depends on the customer and the application as to whether these lower data rate products are sort of higher or lower margin. Depends.

Olivia, Conference Call Operator: Thank you. Our next question coming from the line of Harlan Sur with JPMorgan. Your line is now open.

Harlan Sur, Analyst, JPMorgan: Hi. Good morning, guys. Great job on the quarterly execution. I know there’s been a lot of questions on the r t RTP fab conveyance, but, you know, I would have thought that there would have been a gross margin step up on the transfer. I mean, you’ve had a supply agreement

I assume that your cost per wafer under the supply agreement, well, was Wolfspeed’s fully loaded costs. Right? Which which includes a lot of the deficiencies and inefficiencies you’ve talked about, yields, etcetera. Right? But then they add a markup.

So now with full ownership, you don’t have that markup, which can imply better gross margin. So what am I sort of missing here?

Steve Daley, President and CEO, MACOM: Yes. So, our goal was always to have the fab come over as neutral or positive. So we clearly missed that goal, it’s coming over and we’re about 60 basis points away from, where we would want it to be neutral. I’m not going to comment on the supply chain agreement or the cost structures on our prior arrangements with Wolfspeed when we were not in full control of the fab. So I really can’t comment there.

I think it’s important to highlight that, as we’ve said now multiple times that as we look forward, we expect to improve the performance of the fab, which will drive gross margins. And remember, MACOM is a complex company. We have a fab in Lowell, we have a fab in RTP, we have one a small fab in France and we have our fab in Michigan. And you combine that with a large business that is effectively a fabless business. There’s a lot of moving parts in our model and our gross margin model.

We like the diversity of our business and our manufacturing footprint. We think it’s a competitive advantage. And, as we review the execution of the acquisition, the integration, the transfer, we give ourselves a very high grade for getting to where we’re at today and we think things will only improve from here.

Harlan Sur, Analyst, JPMorgan: Perfect. Thank you for that. And, a lot of product questions and technology questions already asked, but foundry, it’s always been a part of the MACOM strategy, right? It’s been a while since we caught up on this part of your business, I believe the team offers, I think the most diverse set of three five compounds semiconductor processes in the industry. Right?

I think you guys have something like 20 different process types. You support a number of different device architectures, diode, MOSFET, MESFET, PHEMT. Like what’s the traction been like in attracting foundry programs? How big is foundry as a part of your overall revenue profile today? And maybe your view on the growth outlook for this part of your business?

Steve Daley, President and CEO, MACOM: Harlan, I’m very impressed that you know all our processes. So thank you for that. You’re exactly right. We have a very rich portfolio of processes and I would perhaps, invite investors and listeners to look at our summer newsletter, which we put out and it highlights a few different things. A lot of the work we’re doing with EW systems, BAE award, it talks about a contract we received from the French government.

And it also highlights and summarizes the various processes that we have at our various fabs, whether it’s gallium arsenide, GaN, some of the L gas devices that we use for our limiters, in some of our A and D customers, as well as some of our very high frequency GaN on silicon. So you’re exactly right to highlight that there is a lot of diversity. Our philosophy regarding foundry is to allow customers access to our fabs as foundry customers. MESC has always had a foundry customer base in Europe. We’re continuing to build that.

Here in Lowell, we have, a small number of foundry customers, mostly test and measurement in defense, and we welcome their business and we support that business. And of course, the fab in North Carolina also supports foundry. So our business model is to allow customers to design chips if that’s the way they want to run their business and we welcome their business, as a supplier. We don’t break out the foundry numbers, specifically, just again because of competitive reasons.

Olivia, Conference Call Operator: Thank you. Our next question coming from the line of Tim Summitt with Northland Capital Markets. Your line is now open.

Tore Sindberg, Analyst, Stifel: Hey, good morning. Thanks for squeezing me in. I know we’re running long here. But just a quick question on telecom, which at least came in a little bit stronger than I expected. And I’d be curious, in particular, what you’re seeing in cable networking.

That does seem to be picking up a bit across the industry. And I’ll just ask my follow-up real quick here. With regard to LPO, you mentioned new engagement there. And on the topic of the business diversifying, is that with a new customer or a current large customer? Can you give us a little more color there?

Thanks.

Steve Daley, President and CEO, MACOM: Thank you. Yes, I’ll start by saying our cable infrastructure business is growing. It’s a small piece of the overall telecom number, but it is going, in the right direction and it is growing. So we’re pleased about that. The LPO engagements that we have, are with customers that we previously had done business with on other platforms.

So they’re not foreign to MACOM. We have been supporting them with our other products for some of their pluggable optical modules that are more traditional modules. And as I mentioned in our script, we have one lead customer and we think that the dam is beginning to break and we’ll be bringing on additional customers soon. I’m not sure I covered all of your questions, but I’ll pause there.

Olivia, Conference Call Operator: Thank you. Our next question coming from the line of Richard Shannon with Craig Hallum Capital Group. Your line is now open.

Tore Sindberg, Analyst, Stifel: Well, great. Thanks, guys, for squeezing me in as well here. And my first question would be a quick and simple one, a two parter here just to get a sense of size of revenues here. I’d love to get a sense of the split between I and D, specifically the defense here. It sounds like it’s going very well.

Love to get that. Then also, especially with the close of the RTP fab, and you talked a lot about GaN today, what’s the percentage of sales here is coming from your various GaN processes and products?

Jack Kober, Chief Financial Officer, MACOM: Yeah, with regard to the I and D split, that’s varied over time. I think if you were to go back a number of years, we probably had a majority of our revenue coming through on the industrial side of the business. That’s obviously changed over the past couple of years as the defense piece has picked up and also through some of the acquisitions. So we’re probably closer to a 60 five-thirty five split over time.

Tore Sindberg, Analyst, Stifel: And then on GAN check?

Jack Kober, Chief Financial Officer, MACOM: Yeah, we don’t generally break those pieces out as of our public discussions.

Tore Sindberg, Analyst, Stifel: Okay, fair enough. I thought I’d try that one. My follow on question is, as people are trying to model for 2026, just wanted to get a sense of relative growth by your segments here. And maybe I’ll offer a couple of thoughts here as I was trying to work through this. You’re obviously seeing some tough comparison to telecom business.

In data center, sounds like you’re adding some new products which could continue that growth there and obviously defense is going well. But I know you’re not going to give us much on quantification, but if there’s any relative growth by segments as you offer for next year, that’d be a great outlook. Thanks. That’s all for me.

Steve Daley, President and CEO, MACOM: Yes, thank you for the question. It’s certainly difficult to discuss 2026 at this stage. I’ll just highlight that 2025, we should be over 30% growth, maybe closer to 32% or 33% growth. All of our secular growth trends are intact across our core markets. Our portfolio has room to grow.

We are still a small company relative to the $8,000,000,000 SAM that we sort of stand in front of. I would say at a high level, our revenues are slightly ahead of maybe what we talked about previously in terms of achieving the $1,000,000,000 We talked a lot about the gross margins being slightly behind and we acknowledge that, but our earnings are on track. And I think as we achieve that sort of $1,000,000,000 run rate, we should have earnings of over $4 a share, as we improve the things that we need to improve. Clearly, data centers volatile, we’ve talked about that in the past, that hasn’t changed. Our position in the defense market, telecom market is very, very strong.

I think we touched on some of those. Probably too early to talk about what markets will drive our growth next year. I think that’s more likely a conversation we’ll have on our next call as we wrap up our fiscal twenty twenty five and then look forward into 2026.

Olivia, Conference Call Operator: Thank you. Our next question coming from the line of William Stein with Truist Securities. Your line is now open.

Steve Ferranti, Vice President of Corporate Development and Investor Relations, MACOM0: Great. Thanks for taking my question. I fear I might have misheard the last one and I hope I’m not asking the same question, but there’s been a lot of attention paid today on this call I think to the gross margin effect of the RTP Fab conveyance. We understand there’s one other aspect of the business that’s preventing gross margins from achieving the targets that you established at some point were 60% plus at a $1,000,000,000 run rate and you’re guiding lower than that part. So part of it, I get it, it’s the RTP fab conveyance.

I think the other piece is utilization low. But can you talk about your ability to track towards that 60% level? You discussed improvement in utilization and, performance in RTP. So should we expect perhaps sometime in the middle of next year to hit that, 60% bogey?

Steve Daley, President and CEO, MACOM: Yes, thank you for the question. And so, as we look out into 2026 and I realize it’s early to be doing that, but as we look at the programs that we have in place and all the moving parts, we think we’re more likely to exit 2026, closer to 59% gross margins in that sort of a year from now. And so, that is sort of the trajectory we think we’re on. So I don’t think 60% gross margin is going to happen in our fiscal twenty twenty six. It’s more likely a fiscal twenty twenty seven, event.

Steve Ferranti, Vice President of Corporate Development and Investor Relations, MACOM0: Okay, thank you. A follow-up if I can. You’ve talked a lot about all the moving parts within your data center business. There’s a lot of products there and for some of us the detail is maybe

Tore Sindberg, Analyst, Stifel: a

Steve Ferranti, Vice President of Corporate Development and Investor Relations, MACOM0: little overwhelming. So let me ask a more high level sort of simplified view of this. CapEx is still very strong in that end market. You’re guiding to a level where we should expect something about 48% sales growth this fiscal year. If there were no great movements in products, I wonder what we should expect growth to be next year.

I would assume you don’t want us modeling a similar 48% growth in the coming year as well. That’s quite optimistic. But can you talk about the puts and takes and how you might encourage us to think about growth in that market next year? Thank you.

Steve Daley, President and CEO, MACOM: Yes. And I think you’re right to say that we wouldn’t recommend putting 48% growth into year over year growth for fiscal twenty twenty six, related to the data center segment. When we look at our business, we want to have a business that’s constantly improving its profitability, improving its operating margins, constantly diversifying the portfolio and getting a stronger position in the market and data center is one element of our strategy. Big picture, we think MACOM should be growing double digits on the top line. And so you’ve seen that performance over the past few years, four or five years, we would expect that to continue.

The mix will change every quarter and every year. But because of the things we’ve talked about today, including the heavy investment in the technologies and the products for our core markets, we think we have a very good strategy and a very good team that can execute the strategy. So how that shakes out for the data center, we’ll have to wait and see. We’ll take that sort of one quarter at a time. But I think big picture, which I think you were asking about, it would be our expectation that we are growing our top line by double digits and we’re beating where you have even a higher growth rate on our bottom line.

Olivia, Conference Call Operator: Thank you. And I’m showing no further questions at this time. I will now turn the call back over to Mr. Daley for any closing remarks.

Steve Daley, President and CEO, MACOM: Thank you. In closing, I’d like to thank all of our employees for making these results possible. Have a nice day.

Olivia, Conference Call Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.

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