Just some of my notes from $SMTC Q2 earnings: TLDR: Like $AAOI, it's all about Semtech expanding capacity - CEO said the capacity they've secured "may not be enough" for FY28... 1. Q2 upside is from 1.6T qualifying early - Pretty shocking (in a good way) how compressed the qualification timelines have become. - Hyperscalers and everyone upstream are pulling timelines forward so quickly rn. - We saw with $LITE, $COHR, $AAOI especially that demand is just bulldozing any qualification barriers. Now seeing the same with Semtech. 2. FiberEdge is quite underappreciated - I agree w/ mgmt that people are "overindexing on CopperEdge" - the better business is probably TIA/driver. - 800G TIA share has gone from ~18% two years ago to well over 50%, and they expect >50% share at 1.6T by January. - Impressive... - Industry 800G units: they entered the year on a ~50M forecast and are now hearing 80-90M vs. ~20M two years ago. - Impressive again... 3. Content per transceiver - goes from high single digits to $80-90 at 3.2T. - Quite funny - one analyst assumed that "high double digit" content meant teens. CEO corrected him with $80-90 lol. That's ~10x! - Photonics fab capacity goes 3-4x by year-end (they picked up a fully facilitated fab next to the existing one). - I don't think the market has modelled any of this. Even at half the claimed content, DC revenue stops scaling w/ transceiver units + starts scaling w/ units times content. - And every merchant InP line being tripled is another pointer that InP demand is way ahead of supply. - Which is the same signal $AAOI sent by clearing its HQ building for InP wafer expansion. 4. More capacity needed (obviously) - Secured capacity "may not be enough" especially 2H FY28. - Semtech are negotiating prepayments + joint capex with front/back-end partners, and qualifying additional OSATs to spread geopolitical risk. - Pricing: no erosion expected near term and none in the booked backlog. Cost increases are being passed through. Just what you wanna see :) 5. Gross margins are pretty insane - 54.5% in Q2 -> 58.3% guided -> 63.9% excl. the cellular module business being divested (closes Q4). - CFO framed ~64% as the post-close starting point. - I actually think 64% is the margin floor, not the target. Pretty sure they know they can do more lol. No reason to send out such a high target to the market otherwise. CEO also said that "we have the financial capability" to fund the FY28 capacity push": Looks like that's the case based on quick napkin maths: - FCF was $61M in Q2 - Q3 EBITDA guided to $134M - I'd say roughly $300M+ annualized FCF exiting the yr - Add $204M cash + $62M coming from Compal for the cellular module unit closing in Q4 So would be surprised to see any more dilution on top of what they already did a year ago. Overall though - pretty good earnings.