Semtech's Q3 Earnings Surpass Estimates, Revenues Increase Y/Y

Semtech Corporation SMTC reported better-than-expected third-quarter fiscal 2026 results. It posted non-GAAP earnings of 48 cents per share, which beat the Zacks Consensus Estimate by 4 cents. The bottom line exceeded management’s guidance of 44 cents (+/- 3 cents) and reflected a robust year-over-year improvement of approximately 85%.

The company's impressive bottom-line performance demonstrated the benefits of increased revenues, operational efficiency and effective expense management. Semtech beat on earnings in three of the trailing four quarters and met once, the average surprise being 9.15%.

SMTC’s third-quarter fiscal 2026 revenues of $267 million topped the Zacks Consensus Estimate by 0.13% and came above the midpoint of management’s guidance of $266 million (+/- $5 million). The top line jumped 13% year over year, with solid growth across all of its end markets, particularly in data centers.

Semtech’s Q3 Revenues in Terms of End Markets

The company’s top-line outperformance can be attributed to the impressive year-over-year rise in its end markets.

Sales from the infrastructure market totaled $77.9 million (29% of net sales), exhibiting year-over-year growth of 18%. This was driven by solid demand for data centers and continued investment in CopperEdge.

Sales from the industrial market amounted to $147.2 million (55% of net sales), up 12% year over year.

Sales from the high-end consumer market totaled $41.9 million (16% of net sales), up 5% year over year. Strong 5G momentum as IoT transitions from 4G accelerate, driven by growth in bookings and design wins, along with expanding router and gateway partnerships, supports top-line growth.

SMTC’s Q3 Revenues in Terms of Product Lines

Signal Integrity (31% of net sales) sales totaled $81.6 million, up 14.1% year over year. Analog Mixed Signal & Wireless (36% of net sales) sales amounted to $92 million, which rose 17.1% year over year.

IoT System and Connectivity (37% of net sales) sales totaled $88.3 million, up 7% on a year-over-year basis.

Semtech’s Margins Expand Year Over Year

The non-GAAP gross margin of 53% expanded 60 basis points (bps) on a year-over-year basis but contracted 20 bps sequentially.

Adjusted operating expenses of $86.5 million increased 7.3% year over year but declined 2.1% sequentially. As a percentage of revenues, operating expenses dropped to 32.4% from 34.3% in the previous quarter and 34% in the year-ago quarter.

Non-GAAP operating income surged 26.5% year over year to $54.9 million. The non-GAAP operating margin improved to 20.6% from 18.3% reported in the year-ago quarter. On a quarter-over-quarter basis, non-GAAP operating income increased 13%, while margin improved 180 basis points.

Semtech’s Balance Sheet & Cash Flow

As of Oct. 26, 2025, cash and cash equivalents totaled $164.7 million, down from $168.6 million as of July 26, 2025.

The long-term debt amounted to $490.5 million, down from the previous quarter’s reported figure of $518.9 million.

During the third quarter, Semtech generated operating cash flow and free cash flow of $47.5 million and $44.6 million, respectively. In the first three quarters of fiscal 2026, it generated operating and free cash flows of $119.7 million and $112.3 million, respectively.

Semtech Initiates Impressive Q4 Guidance

For the fourth quarter, Semtech expects net sales to be $273 million (+/- $5 million). The Zacks Consensus Estimate is pegged at $263.5 million, indicating a year-over-year rise of 5%.

Semtech expects infrastructure end-market net sales to increase sequentially, driven by data center growth of approximately 10%, partially offset by a 3% decline in high-end consumer sales. Industrial end-market sales are anticipated to remain flat sequentially.

The non-GAAP gross margin is expected to be 51.2% (+/- 50 bps). The non-GAAP operating margin is anticipated to be 17.8% (+/- 80 bps).

Non-GAAP earnings are expected to be 43 cents (+/- 3 cents) per share. The consensus mark for earnings is pegged at 43 cents per share, indicating a year-over-year rise of 7.5%. The figure has remained unchanged over the past 60 days.

SMTC’s Zacks Rank and Other Stocks to Consider

Currently, Semtech carries a Zacks Rank #2 (Buy).

Cirrus Logic CRUS, FormFactor FORM and Lam Research LRCX are some other top-ranked stocks that investors can consider from the broader Zacks Computer and Technology sector. Cirrus Logic, FormFactor and Lam Research each carry a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Cirrus Logic’s fiscal 2026 earnings has been revised upward by 6.6% to $7.58 per share over the past 30 days and suggests a year-over-year increase of 0.5%. Cirrus Logic shares have jumped 17.3% year to date.

The Zacks Consensus Estimate for FormFactor’s 2025 earnings has moved upward by 2 cents to $1.17 per share in the past seven days, indicating a 1.7% year-over-year increase. FormFactor shares have soared 17% year to date.

The Zacks Consensus Estimate for Lam Research’s fiscal 2026 earnings has been revised upward by 16 cents to $4.79 per share over the past 30 days, suggesting a year-over-year increase of 15.7%. Lam Research shares have surged 109.1% year to date.

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This article originally published on Zacks Investment Research (zacks.com).

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