Release Date: February 06, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- MACOM Technology Solutions Holdings Inc (MTSI, Financial) reported a record high revenue of $218 million for the first fiscal quarter of 2025, with an adjusted EPS of $0.79 per diluted share.
- The company achieved a strong free cash flow of approximately $63 million in Q1, contributing to a cash and short-term investments balance of $657 million.
- The data center market segment showed significant growth, with revenues up 16% sequentially, driven by strong demand for 800 gig optical products.
- MACOM's book-to-bill ratio was 1.1:1, indicating strong order activity and a record-level backlog.
- The company is strategically positioned to capture market share in its targeted end markets, with plans to introduce new product lines and technologies in 2025.
Negative Points
- Gross margins for the first quarter were below targets at 57.5%, impacted by lower wafer volumes and underabsorbed costs in the Lowell fab.
- The telecom market segment experienced some weakness, affecting overall utilization and contributing to lower gross margins.
- Despite strong growth in the data center segment, there is a potential slowdown in 800 gig demand as customers transition to 1.6T, which could impact future growth rates.
- The company faces challenges in maintaining high utilization rates in its Lowell fab, which is crucial for improving gross margins.
- There is uncertainty regarding the impact of government funding and CHIPS Act initiatives on MACOM's long-term investment plans and financial performance.
Q & A Highlights
Q: Can you update us on the progress with ACC in the data center market and the potential inflection point in mid-2025? Also, what are your thoughts on LPO and its opportunities compared to ACC?
A: Stephen Daly, CEO: The data center market is performing well, with significant growth driven by our optical portfolio, particularly the 800 gig products. We anticipate a slowdown in 800 gig as customers transition to 1.6T. ACC remains a game changer, with interest from a broad customer base, despite some architecture changes. LPO, a solution without DSP, is also gaining interest, especially at higher data rates like 800 gig and 1.6T, and is expected to contribute in late 2025 and 2026.
Q: Could you provide more color on the DoD satellite programs and the revenue opportunity in the satellite communication space over the next few years?
A: Stephen Daly, CEO: We see strong demand from both established and new satellite manufacturers, driven by global broadband services and DoD needs. Opportunities exist in high-frequency bands like E-band, V-band, and Ku-band, where MACOM can provide leading RF and microwave solutions. Our involvement spans analog mixed-signal devices, optical solutions, and linearized SSPAs, with significant growth potential in both commercial and defense sectors.
Q: How do you view the spending expectations in the data center market over the next few years, given industry changes?
A: Stephen Daly, CEO: We remain bullish on data center expansion and capital spending. We support customers with high data rate products and plan to provide more optical solutions. Our strong 200 gig per lane PD and CW laser products will add revenue in 2025 and 2026. We also see opportunities in PCIe 6 and PCIe 7 connectivity, where we offer both electrical and optical solutions.
Q: Can you discuss the impact of the Lowell fab modernization and North Carolina fab expansion on your operations and gross margins?
A: Stephen Daly, CEO: The Lowell fab modernization will improve infrastructure, replace antiquated equipment, and add a small six-inch GaN on silicon carbide line, enhancing yields and capacity. The North Carolina expansion will address capacity issues by installing a six-inch line and an MOCVD reactor for advanced epi. These long-term investments, supported by the CHIPS program, will strengthen MACOM's market position without immediate P&L impact.
Q: What are your expectations for the data center business in fiscal 2025, particularly regarding the transition from 800 gig to 1.6T and the role of LPO?
A: Stephen Daly, CEO: We expect strong growth in the data center market, driven by the transition to 1.6T and continued contributions from LPO and ACC. While 800 gig has been a significant revenue driver, we anticipate a shift to 1.6T in the back half of the year. LPO solutions will also contribute, with interest primarily at higher data rates. Overall, we foresee a record year for MACOM in this segment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
