昇特 (SMTC) 2027 財年第二季法說會：資料中心營收大增 91%

重點摘要

• 昇特 (Semtech) 公布 2027 財年第二季淨銷售額為 3.42 億美元，季增 17%、年增 33%，創下連續第十個季度營收成長。
• 調整後稀釋每股盈餘 (EPS) 達 0.71 美元，季增 39%、年增 73%。調整後營業利益率擴增至 24.4%。
• 資料中心營收創下 1 億美元的新高，季增 39%、年增 91%，主要受惠於 800G 需求強勁以及 1.6T FiberEdge 和 CopperEdge 產品放量。
• LoRa 相關銷售額創下 5,800 萬美元的新高，季增 31%、年增 58%。在 LoRaWAN、LoRaPLUS 及 Amazon Sidewalk 的支撐下，管理階層預期年成長率可持續保持在 20% 以上。
• 針對 2027 財年第三季，管理階層指引營收為 4.1 億美元（上下浮動 500 萬美元），以中點計算，約為季增 20%及年增 54%。
• 計劃中的蜂巢式模組（cellular module）剝離案預計將於 2027 財年第四季完成。管理階層預期該交易對非 GAAP 每股盈餘（EPS）影響中性，並將使結構性毛利率提升超過 500 個基點。

核心財務數據

業務與營運表現

資料中心帶動基礎設施成長

基礎設施銷售額為 1.24 億美元，季增 25%、年增 69%。資料中心營收占 1 億美元，得益於 800G 持續強勁、1.6T CopperEdge 放量以及 1.6T FiberEdge 開始量產爬坡。

管理階層表示，Semtech 的 800G FiberEdge 市占率已從兩年前的約 18% 提升至 50% 以上。公司預計至 2027 財年底，其 1.6T FiberEdge 市占率將超過 50%。在第三財季，管理階層預計 1.6T FiberEdge 和 CopperEdge 產品合計將占資料中心營收的一半以上。

公司亦在擴展其光子學產品組合，涵蓋增益晶片（gain chips）、高功率連續波雷射（CW laser）、半導體光放大器（SOA）與光電二極體（photodiode）。管理階層預計用於收發器的 CW 雷射初期營收將於 2028 財年上半年顯現。

長遠來看，隨著產業向 3.2T 過渡，管理階層預計 Semtech 在每個光收發器中的價值量將從高個位數美元提升至 80 至 90 美元。管理階層估計 3.2T 的設計窗口可能在大約 12 個月內開始開啟，早期部署大約在 18 個月內，而更顯著的部署則在大約兩年後。

LoRa 營收再創新高

工業領域銷售額總計 1.79 億美元，季增 16%、年增 25%。在 LoRaWAN 部署、LoRaPLUS 導入以及 Amazon Sidewalk 新興機會的推動下，LoRa 相關銷售額上升至 5,800 萬美元。

管理階層表示，LoRaPLUS 約占 LoRa 營收的 20%–25%，而 Amazon Sidewalk 的貢獻仍相對較小。隨著國際部署的擴充，預計本財年與 Sidewalk 相關的營收占比將達到高個位數百分比。

物聯網系統與連線

物聯網系統與連線銷售額為 9,800 萬美元，季增與年增均為 11%。該成長反映了關鍵任務應用對 AirLink 路由器需求，以及 RX 400 與 EX 400 5G RedCap 路由器進入全面量產。

高階消費市場表現參差不齊

高階消費市場銷售額為 3,900 萬美元，季增 2%，但年減 5%。管理階層指出電視需求展現韌性、旗艦手機製造商的產品價值提升，以及防護與感測產品的貢獻，同時也提到全產業面臨與記憶體相關的價格壓力。

管理階層營運指引

針對 2027 財年第三季，Semtech 提供以下展望：

管理階層預計第三財季資料中心營收將季增 45%、年增約 160%。LoRa 營收預計將季增約 15%、年增 65%。

隨著 Semtech 擴充增益晶片與 CW 雷射產能，資本支出預計將會增加，但管理階層大致預期資本支出仍將維持在淨銷售額的 5% 以下，視各季度施工與設備交貨時間而定。

風險與關注領域

• Semtech 表示，目前已獲得的產能可能不足以滿足 2028 財年的需求，特別是在下半年。公司正透過購買設備、預付款項及尋求額外製造合作夥伴，來爭取更多的前段與後段產能。
• 客戶驗證時間仍是新資料中心產品不確定性的來源。管理階層表示，1.6T FiberEdge 比預期更早迎來爆發點，反映了客戶驗證過程加速。
• 蜂巢式模組剝離案預計於 2027 財年第四季完成，因此交易的完成與時間點對於預期的結構性毛利率提升至關重要。
• 管理階層坦言成本小幅上漲。公司已將這些成本大致轉嫁給客戶，而已下訂的光學產品訂單短期轉嫁價格仍維持有利。
• 公司正在驗證額外的製造合作夥伴，以減輕潛在的地緣政治和供應鏈風險。

分析師問答集錦

• 積壓訂單與能見度：管理階層表示，2027 財年剩餘時間的目標已全部接單，且 2028 財年目標已完成 70% 以上，這支撐了對資料中心持續成長的信心，同時也增加了擴充產能的緊迫性。
• 資料中心超預期表現的來源：主要的額外驅動力是 1.6T FiberEdge 比預期更早通過驗證並開始量產。管理階層還提到 800G 需求的持續性，以及 1.6T CopperEdge 的按時推出。
• 800G 展望：管理階層引用的全產業需求量，已從最初估計的 5,000 萬個收發器單位增加至約 9,000 萬個，同時 Semtech 也持續收到來自現有客戶更強勁的訂單。
• NPO 與高密度光學元件：Semtech 正與模組製造商和終端客戶進行約 10 至 15 個 NPO 相關專案。管理階層預計其 TIA 陣列、雷射陣列及規劃中的光電二極體將支持高密度光學架構的未來成長。
• 毛利率的可持續性：管理階層指出產品組合是近期毛利率擴增的主要驅動力。1.6T、800G 與 LoRa 的成長，加上蜂巢式模組的剝離，支撐剝離案完成後的毛利率起點接近 64%。包括 CW 雷射在內的新光子學產品預計將有助於提升整體公司平均毛利率。

法說會逐字稿全文

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完整財報電話會議逐字稿

管理層陳述

Operator

Good day, and thank you for standing by. Welcome to Semtech Corporation's Second Quarter 2027 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to Mitch Haws, Senior Vice President of Investor Relations for Semtech. Please go ahead.

Mitchell Haws

Thank you, and welcome to Semtech's Second Quarter 2027 Financial Results Conference Call. Participants on today's conference call are Hong Hou, President and Chief Executive Officer; and Mark Lin, Executive Vice President and Chief Financial Officer.

Before we begin the prepared remarks, I would like to highlight upcoming investor events, including the Citibank Global TMT Conference on September 8 and the benchmark TMT and JPMorgan Rising Tech Leaders Forum, both on September 10 in New York City. In addition, we hope you'll attend our investor event in San Jose on October 15 and during which we'll provide an in-depth overview of Semtech's strategy, differentiated technology portfolio, key growth opportunities and long-term financial targets. The event will also feature panel discussion moderated by Morgan Stanley with industry luminaries from the 650 Group, Meta and General Catalyst.

A question-and-answer session, product demonstration and opportunities for in-person attendees to engage with members of the Semtech management will also be part of the agenda. Today, after the market closed, we released our unaudited results for the second quarter ended July 26, 2026, which are posted along with an earnings call presentation to our Investor Relations website at investors.semtech.com.

Today's call will include various remarks about future expectations, plans and prospects, which comprise forward-looking statements. Please refer to today's press release and see Slide 2 of the earnings presentation, as well as the Risk Factors section of our most recent annual report on Form 10-K for a number of risk factors that could cause our actual results and events to differ materially from those anticipated or projected on today's call. You should consider these risk factors in conjunction with our other forward-looking statements. We will refer primarily to non-GAAP financial measures during today's call, and we'll also be referring to results for our second quarter of fiscal year 2027, unless otherwise noted.

Please see today's press release and Slides 3 and 4 of the earnings presentation for information regarding notes on our non-GAAP financial presentation. The press release and earnings presentation also include reconciliations of our GAAP and non-GAAP financial measures. With that, I will turn the call over to Hong.

Hong Hou

Thank you, Mitch. Good afternoon to all of you joining today. The Semtech team executed exceptionally well this quarter, delivering righter revenue across our key focus areas earnings leverage that continue to outpace revenue growth and significant progress on portfolio optimization. Revenue was $342 million growing 33% year-over-year, and we delivered strong operating leverage with earnings per share of $0.71 in 73% year-over-year, more than twice as fast as revenue growth. We are at the center of one of the most significant infrastructure build-out in history, and our portfolio plays an essential role.

We are well aligned with the ramp to 160 in complementing 800-gig growth and demand signals that we are strengthening across every part of data center portfolio, copper, fab and photonics. We expect this momentum to carry through the second half of the year and into fiscal 2028. We are also reshaping Semtech with purpose. The announced sale of our several module business is a significant step in our portfolio optimization, allowing us to more sharply focus on our core growth areas. We are drilling in our focus areas, sharpening the portfolio and driving operating leverage with the same goal in mind, building a predictable, high-margin and high return business.

Now let me move on a discussion to our end market. Infrastructure net sales were $124 million, up 25% sequentially and 69% year-over-year driven by outstanding performance in our data center business. Data center revenue was a record $100 million, up 39% sequentially and 91% year-over-year. Supported by continued strength in 800 gig, 1.6 copper edge and the start of our 1.60 fiber edge rep. Our FiberEdge TIA and driver solutions remain an exceptionally strong demand. And we continue to deepen our engagement across all the leading hyperscalers. We are now designing to every module provider in our target markets, several on a sole-source basis, a reflection of technology differentiation and the supply availability we bring across both fully retimed and linear architectures.

We are also seeing increasing engagement from a broader array of customers on emerging technologies like NPO and XPO. As the networking ecosystem looks to us to align and help define the next generation of high-density, low-power optical architectures in our shared technology road map. On copper edge, we believe our leading [ EcoLaser ] solutions are the de facto industry standard. Copper edge product up to 1.60 are solutions that are ready for volume deployment. We are currently engaging across a number of hyperscalers in cable and onboard applications and the design win phase at our bandwidth up to 3.2.

Thanks to leader equalizers compelling advantage in linked margin performance and power savings. Based on strong market demand and a design win momentum, we expect continued revenue growth of 1.6 portfolio with the fiber edge expected to exceed market share by the end of the fiscal year and a coverage already taking the lion's share of the leader Equalizer market. We have made excellent progress in our photonics portfolio. [indiscernible] our customer base in both game chips and high-power CW lasers addressing both high-speed transceivers and CPO scale-up applications. Feedback from customer evaluations of our high-power CW laser for procure light and 1.60 transceiver applications has been very positive, citing differentiating over temperature performance and power efficiency.

We expect revenue contribution of CW lasers for transceivers to start in the first half of fiscal 2028. We're also pleased to help route onboard auto diode design resources added by an industry leader expanding our photonic portfolio to PD raise in the near future. Our combined PD and PIA design team has already engaged with the key customers and we expect to deliver to optimized high-performance solutions. Our photonic portfolio now spans game ship type lasers semiconductor optical amplifiers and high-speed factoids for scale up, scale out and scale of breast data center connectivity applications.

With this expanded portfolio, we are positioned to develop new prescribers and drive content per transceiver from high single-digit dollars to high double-digit dollars as the industry transitions from 800-gig to 3.20, cementing our position as a true solution provider. Our capacity expensing plan, our team executed very well, securing equipment deliveries for this fiscal year and acquiring clean room space to fulfill strong customer demand.

In less than 6 months, we completed a series of photonic acquisitions, procured fab equipment expanded clean room space and onboarded exceptional management and technical talent. We have established a solid foothold in the photonics space and set path for strong future growth. Given record backlog we carry into the third quarter, we project a 45% sequential revenue pie in data center representing approximately 160% over the same period last year.

We expect accelerating year-over-year periods into fourth quarter and continued momentum throughout fiscal 2028. Now moving to our high-end consumer end market. Net sales for Q2 were $39 million, up 2% sequentially and down 5% year-over-year. Our TV business grew sequentially and remains very resilient in light of memory constrained price across the industry. Revenue growth continued to benefit from our strong share at premium brand handset manufacturers where we are expanding our content per device. Third switch our newest [ certain ] protection solution is opening a new layer of TVS opportunity, addressing a GAC as a rugged mobile devices and high-performance portable systems cost towards more demanding power and reliability standards.

Our per se capacity sensor design and pipeline continues to drive its specific absorption rate smart variable and other consumer applications, expanding with the lead customers on a broadening range of applications. The combined capacities and force sensing offerings elevate our value proposition, strengthen customer retention and are pulling through sensors and TVS sales within the same customer base. We expect our design win pipeline to support the long-term growth for this business. Now moving to our industrial end market. Q2 industrial net sales were $179 million, up 16% sequentially and up 25% year-over-year, driven by another record quarter for LoRa.

LoRa enabled net sales were $58 million, up 31% sequentially and up 58% year-over-year, another all-time record. A lower Gen 4 platform will LoraPLUS other RF protocols continues to gain market traction, and we expect it will be a key driver for the future growth. Gen4 also delivers a due brand capability and expand data throughput to 2.6 megabit per second, while preserving the sensitivity multi-protocol flexibility and ultra-low power consumption that defines a lower advantage. This feature set enables new class of edge AI applications while maintaining the long battery life and the extended reach that our customers depend on and opens up incremental application verticals within smartphone and security. We also continue to see LoRaWAN an expansion into new use cases.

In public safety, sensors can now transmit high fidelity audio for AI-based verification rather than simple alert. And in the industrial environment, our work with industry leaders demonstrates how LoRaWAN and edge AI together enable predictive maintenance at a level of the detail that legacy low-power sensors could not support. Amazon side will continue to build momentum.

Following Rain's launch of a new line of LoRa-based sensors in the U.S., [indiscernible] is now expanding internationally, starting with Canada and Mexico, with Europe, Australia and Japan expected to follow. This is a meaningful step towards mass-market consumer adoption at Amazon's scale. Together, our 3 pillars LoRaWAN for industrial and commercial deployments, LoRaPLUs with multi-protocol flexibility for smart home and security and the Amazon Sidewalk for mass-market consumer applications continue to create a solid framework for Pros.

We project another all-time high for LoRa revenue in Q3 with a growth of about 15% sequentially, equating to year-over-year growth about 65%. Our IoT systems and connectivity business recorded Q2 net sales of $98 million, up 11% sequentially and year-over-year. Our air link routers saw strong new business activity across mission-critical applications, driven by drilling engagement with the national carrier partners on 5G stand-alone network slicing. This momentum was reinforced by our RX 400 and EX 400 5G RedCap routers moving into full-scale production this quarter. with wins continue to convert into shipments across a broad range of customers. We also continue to invest in AirLink software platform to provide new security and device management capabilities.

These capabilities are giving missing critical customers greater visibility and control as they manage larger, more complex deployments reflecting our broader commitment to software R&D as a way to deliver more capability and value to our customers over time. In summary, our second quarter results reflect significant progress in Semtech's transformation, including a strong winning culture. But to be clear, the progress we are making is just the foundation, not a finish line. Our priorities for fiscal 2027 remain the same and are straightforward.

First, supporting our unprecedented backlog and the drill opportunities, we are actively securing incremental capacity for fiscal 2028 and beyond. Second, intensifying R&D investment to support customer technology road maps in a rapidly advancing market and adding new drill drivers, specifically in solution offerings for lasers, photo dials drivers and TIAs for 3.2 coherent light, XPO, MPO and the CPO applications. And the third, continuing portfolio optimization. We see this as a continuous journey and there is more work ahead of us as we reshape Semtech. This is such an exciting time for Semtech. The business is just starting to inflect and the opportunities ahead has never been more compelling.

With that, I will turn the call over to Mark for additional details on our financial results and our third quarter outlook. Mark?

Mark Lin

Thank you, Hong. For Q2, we recorded our tenth consecutive quarter of net sales growth with record net sales of $342 million, above the high end of our outlook range. Net sales grew 17% sequentially and 33% year-over-year, reflective of leverage in our operating model. We reported adjusted diluted earnings per share of $0.71, which increased at over 2x the rate of net sales growth on both a sequential and year-over-year basis. Net sales trends by end market, reportable segment and geographic region are included in the accompanying earnings presentation.

Adjusted gross margin was 54.5%, up 150 basis points sequentially and at the high end of our outlook. Total semiconductor products gross margin was 62.8%, up 210 basis points sequentially and above the high end of our outlook, reflecting particularly strong contribution from 1.60 FiberEdge and copper Edge and continued growth from our LoRa portfolio. We announced the signing of a definitive agreement to divest our cellular module business, which is recorded as held for sale on the Q2 balance sheet.

To facilitate comparability for our go-forward business, we added an adjusted gross margin disclosure in our earnings release and earnings presentation that excludes the held-for-sale business. Excluding the [indiscernible] business, Q2 adjusted gross margin was 59.7% or 520 basis points above consolidated gross margin, reflecting the magnitude of the structural shift on top of the 150 basis points of sequential consolidated gross margin improvement. We expect to provide a gross margin outlook, including and excluding the cellular module business until the close of the divestiture which is expected to occur in the fourth quarter of the current fiscal year.

We also expect the transaction to be EPS neutral on a non-GAAP basis. Adjusted net operating expenses were $103 million, below the low end of our guidance range, reflecting timing of project-related expenses. Demonstrating the operating leverage in our business, a number of metrics were favorable to the high end of our guidance range, including adjusted operating income of $84 million, adjusted operating margin of 24.4%, adjusted EBITDA of $91 million and adjusted EBITDA margin of 26.6%. Collective of capital structure changes, Semtech remained in a net interest income position in Q2. We recorded adjusted diluted earnings per share of $0.71, above the high end of our guidance range. up 39% sequentially and up 73% year-over-year.

Operating cash flow for Q2 was $69 million, up 90% sequentially from $36 million and up 55% from $44 million a year ago. Free cash flow for Q2 was $61 million, up 119% sequentially from $28 million and up 48% from $42 million a year ago. CapEx was 2% of net sales and includes expenditures to grow fab capacity supporting gain ships and CW lasers. We expect CapEx to grow as a percentage of sales, but to remain manageable and generally be below 5% of net sales. Though timing of construction and equipment delivery could increase as percentage slightly on a single quarter basis.

Our Q2 ending cash and cash equivalents balance was $204 million and the principal amount of debt was $503 million and net leverage ratio was 1.1. Now turning to our outlook for the third quarter of fiscal year 2027. We currently expect net sales of $410 million, plus or minus $5 million, up 20% sequentially and up 54% year-over-year at the midpoint, with growth expected across each of our segments. We expect net sales from our infrastructure end market to increase sequentially with projected sequential data center growth of 45% or 160% year-over-year with continued strong contribution from our 800 gig portfolio and a meaningful ramp in 1.60 copper edge and FiberEdge.

We expect net sales from our high-end consumer end market to increase, benefiting from seasonal trends, market share gain in our TVS products and contributions from our sensing portfolio, we expect net sales from our industrial end market to broadly grow with or revenue increasing about 15% sequentially and 65% year-over-year. Based on our expected product mix and net sales levels, we expect adjusted gross margin to be 58.3%, plus or minus 100 basis points. At the midpoint, this equates to an increase of 380 basis points sequentially and 530 basis points year-over-year.

Our gross margin outlook, excluding the cellular module business is expected to be 63.9% at the midpoint, an incremental 560 basis points from the midpoint of the consolidated adjusted gross margin outlook. Adjusted net operating expenses are expected to be $112 million, plus or minus $3 million. Included in this outlook is increased R&D spend to accelerate time to market on key data center projects along with SG&A that declines as a percentage of revenue. We have demonstrated strong returns on our R&D investment and believe we remain prudent on SG&A spend.

This results in consolidated adjusted operating margin at the midpoint of 31%, up 660 basis points sequentially and up 1,040 basis points year-over-year. Adjusted EBITDA is expected to be $134 million plus or minus $4 million, resulting in adjusted EBITDA margin at the midpoint of 32.8%, up 620 basis points sequentially and up 930 basis points year-over-year. We expect adjusted interest and other expenses net to be approximately $0.5 million. We expect an adjusted normalized income tax rate of 18%, reflecting geographic mix of income. These amounts are expected to result in adjusted diluted earnings per share of $1.05, plus or minus $0.03, up 48% sequentially and up 119% year-over-year at the midpoint, more than 2x revenue growth based on an expected weighted average share count of 99 million shares.

I look forward to providing our financial framework and multiyear outlook at our upcoming investor event on October 15. We expect the framework will highlight the operating leverage in our business model, namely increasing gross margin, reflecting strong contributions from data center and LoRa. Operating margin that grows with scale and with disciplined spend in G&A hoping to support R&D investment and a structural shift in margins following the cellular model divestiture all of which are expected to support strong EPS, EBITDA and cash flow metrics. With that, I'll turn it back to Mitch.

Mitchell Haws

Thank you, Mark. We can now turn the call back over to the operator for the question-and-answer session.

Operator

Our first question is from Quinn Bolton with Needham & Company.

分析師問答

Quinn Bolton

Congratulations on the strong results. Hong, you mentioned needing to go out and secure capacity for fiscal -- sorry, calendar 2028 and beyond. But the data center business, I think guiding up 160% year-on-year in the third fiscal quarter. It sounds like it accelerates in the fourth fiscal quarter. How are you feeling near term about capacity in your ability to support continued upside in the data center business? And then I've got a follow-on data center question.

Hong Hou

We anticipated a very rapid data center revenue growth. We started about 1.5 years ago, and thanks to that work, we were able to have enough capacity in the near term to support the customer ramp and also some drop in orders. So that allow us to expand our market share. Now with the strong booking momentum and record backlog, we see the capacity we have secured may not be enough in supporting the FY '28, especially second half of '28. So working with our manufacturing partners, both for front end and back end back end means that OSAT from testing to packaging and disease testing, working with the manufacturing partner to increase the capacity. The great news is that we have the financial capability to work with our partners to jointly increase the capacity allocation to some tech

Quinn Bolton

I guess maybe quickly, just Hong, does that -- would you anticipate that requiring wafer pre-purchases or any kind of similar prepurchases of back-end capacity. And then my follow-on question was just -- it seems like there's growing discussion of NPO solutions across the ASIC landscape. And I think even at the largest GPU provider as we look into the next 12 to 24 months, can you just give us a brief outline of how Semtech is positioned to support the NPO market as it develops?

Hong Hou

Yes. Thank you. So yes, the increase of capacity for the back end is primarily increased the tester capacity by adding more testers and also getting additional manufacturing partners qualified to mitigate the potential geopolitical risk. On the front end, we have been working with a leading partner in increasing capacity we are mobilizing all different ways in increasing the prepayment, the CapEx or some other means. But I think though are the same to bring additional capacity to support the growth.

As for your question about NPL, yes, absolutely. That's a strong trend. The primary driver is to increase the bandwidth density. As data -- total capacity increased dramatically, while shoreline space is limited, they need to have the density, high-density packaging. We're going to be benefiting from that, and we're currently engaging, I don't know, 10, 15 different programs with all the module manufacturers and some of them were directly tied to end customers. So net-net, we're going to be benefiting from that.

We are already a leading provider of TIA arrays and on laser arrays, especially linear right version of excellent as well. So I just talked about our initiative to start photodiodes and by co-optimization between TIAs and photodiode bring to our customers even better solutions. So it's a great opportunity for us. That can be translated into a new growth driver for us in the future.

Operator

Our next question is from Rick Schafer with Oppenheimer & Company.

Richard Schafer

I'll add my congratulations to you guys. Great quarter and need a better outlook. If I could, I'll just start a quick one on LoRa. I mean the run rate there was fairly $150 million just a year ago. I mean, we heard your guide on that home. I mean that's close to $60 million a quarter now so well over the 150 just in the last 12 months. So is 20% still a right bogey because I think you're going to be doing about 3x that growth in the third quarter.

Hong Hou

We certainly matched the 20% ceiling with Q3, just the -- we're seeing sequential growth of 15% year-over-year will be translating into 65%. So that is certainly higher than 20%. And we benefited from now 3 pillars of growth not just the traditional LoRaWAN in supporting the industrial and commercial applications, but also LoRaPLUS in security and smart home, smart buildings. And now with Amazon and in the Sidewalk and in strong engagement and their plan to deploy internationally start from North America, expanding into Europe and Australia. We see that is going to be a strong growth driver as well. So I do expect year-over-year, [indiscernible] going to be better than 20% going forward and is sustainable.

Richard Schafer

And if I could, I wanted to just get a little bit more color on FIFO. Obviously, you're investing in capacity there. I think you've talked about tripling that capacity by the end of the year. I don't know if you could level set us on where we are in the process, if there's any symptom of a design funnel or revenue formal or anything you could share on that? And then as part of your answer, I'd be curious, I mean, folks are talking about CW laser channel densities really rising, right, going up. So I'm curious how much does that pull the need or create the need for higher density drivers and TIAs? And then if so, what does that do to the complexity and the barriers to entry there for your competition?

Hong Hou

Yes. So first, we'll start with the HFO acquisition. Certainly, we have been the proud owner of that asset for the last 5, 6 months. We have made tremendous progress in upgrade the line and also getting more wafer start reaching out to the customers and with Semtech behind the asset, the customer confidence level has improved dramatically. So we're not only with the 3 anchor customers increasing their -- they are increasing the demand, but we are able to expand into other key customers on the game chips.

Now we have been, as I mentioned in the prepared remarks, sending high-power lasers to 5, 6 module manufacturers they've been evaluating and really satisfied, really very excited about our best power conversion efficiency in the bean performance and over-temperature performance. Those are pretty ideal in having one CW laser split into 4 channels or 8 channels for high bandwidth transceivers, like 1.60 and 3.2T. We also have the product, we start sampling to customers and semiconductor optical amplifiers.

That's almost like a game chip, you get the tempos currency, you get the amplification. So that is the foundation we are using. And the capacity is limited, as I mentioned, we are going to be increasing capacity by bringing more testers in the back end first. then for the fab capacity, we're just forced it to be able to acquire an already fully facilitize the fab in a close proximity to the current facility. So that allow us to increase the fab capacity by 3x to 4x by the end of the year. So we're on track for that. As for MPO, the high density, certainly, when you do the high density, the spacing between different elements is becomes smaller when you go high speed at the cross top and all the other performance the packaging need is different.

It's representing another new set of challenges, that's why we expand not only from the fiber edge to photonics that will allow us to do co-optimization to improve signal integrity. And definitely, the industry is welcoming our move, and we have increasing engagement with the module manufacturers and hyperscalers because of that expanded capability.

Operator

Thank you, Rick. Our next question is from Sean O'Loughlin with TD Cowen.

Sean O'Loughlin

I'll add my congratulations on, obviously, some really strong momentum across the business here. I wanted to start with just a high-level question on data center strength. Really strong outlook in the forward quarter and talking about acceleration through the back half. But I think in your prepared remarks, both Hong and Mark, you both mentioned the copper edge in a high-volume ramp. I think that aligns with some of your past comments, but maybe you could just talk about how to think about the contributors to growth and how that aligns with some of your commentary on TIA share in -- towards the end of this year on 1.6?

Hong Hou

Yes. Thank you, Sean, and that's a good question. So maybe I will use this opportunity to just review the progress we have made in expanding our portfolio in the data center play. So we certainly -- the reason the investment community over indexing on copper edge is because that's the first time I think the investment community paid attention to Semtech 2 years ago, we developed this redriver, our leader equalizer solution, which that can be embedded in ACC cable to interconnect to adjacent regs. And so that continues to be a really de facto standard for the industry for 1.6, 2.4, 3.20 and going forward. Copper scale-up continues to gain momentum, especially linear equalizer on board.

So we got multiple engagement and some of them will reach the finish line in the near term. [indiscernible] the FiberEdge 2 years ago, 800 gig, we had the market share about 18%. So over the 2 years, we have grown the market share well over 50% for 800 gig. 1.60 is just inflecting. So 1.6%, as I said in the prepared remarks, we are expecting to exit this fiscal year by January with better than 50% of market share. So now you see the FiberEdge area, not only we are gaining shares. The volume has increased dramatically for 800 gig, for example, transceivers from 2 years ago with 20 million units a year to this year, probably 90 million units a year. Regaining shares, we benefit from increased volume and we are expanding the product offerings 800 gig and 160 and drivers.

The driver revenue is to come -- we got a wonderful product in the evaluation will be contributing to the revenue very meaningfully. A few months ago, we acquired [ HiFo ] and mark the beginning of our journey into the photonic area. And we're going to be expanding and having meaningful play in that area as well. So now I'd like to encourage everyone to look at the data center play for Semtech is not just a top edge. Copper at will definitely be a significant part of the data center revenue. But think about the fiber Edge, the leading share of the TIA and drivers and photonics offering from game chip to lasers, to photodiode to SOA. So we're going to be continuing to expanding our portfolio to become a key player in this area.

Sean O'Loughlin

Great. And just if I could ask a follow-up and get Mark into the party here. The gross margin expansion quarter-over-quarter is striking even if you're just looking at the consolidated and not isolating the held for sale business. Just wondering, I guess, a question on how much of that can be thought of as mix? And if data center continues to stay at this percent of revenue, is that something we should expect levels that we should expect to continue? Or is there some onetime thing? And then maybe as part of that, just talk about the capacity expansion. And you've heard some of your suppliers talk about what they're seeing on the pricing side? And what's giving you confidence on the margin sustainability?

Hong Hou

Yes, Sean, I can address that and try to address that. So the sale is cellular module business. I expect will result in over 500 basis points of gross margin improvement. That's the structural change. That's a significant drop change that we see in our gross margin profile. And I provided some details in my prepared remarks, but I think it's helpful to walk through those figures again.

So from Q1 to Q2, our consolidated adjusted gross margins increased from 53% to 54.5%. That's 150 basis points, largely on mix. Q2 adjusted gross margin, excluding modules, was 59.7%, which is an incremental 520 basis point increase. Then we move to our Q3 guide. Our consolidated adjusted gross margins are projected to increase from 54.5% to 58.3%, 380 basis point increase. And then on top of that, we add 560 basis points to arrive in adjusted gross margin guide, excluding the models at 63.9%. So you have the 500 basis point plus gross margin improvement just based on the structural change.

But the 150 basis points to 380 basis points, that's mix. I think a good starting point post divestiture, is that 64% gross margin. And as you're seeing the mix change. I mean mix is quite a powerful broader for Semtech as 1.60 continues to inflect as LoRa continues its strong growth and 800 gig, maybe just to briefly address pricing, right? We're not really seeing price erosion to 800 gig. That all compounds into some very strong mix changes, which is that 150 to 380 basis points that we demonstrated in Q2 and Q3.

Operator

Our next question is from Christopher Rolland with Susquehanna.

Christopher Rolland

Thanks for the question, guys. So this was kind of asked, but maybe more simply, the data center guide or next quarter's guide driven by data center. What exactly are -- like what did you not anticipate that is driving this? Is it the cycle? Is it LPO? Is it really that TIA attach that you're talking about? Or is it copper edge? What kind of drove the marginal upside versus perhaps your expectations or even the Street's expectation guys like me.

Hong Hou

Yes. Chris, that's a good question. So if you look at the data center portfolio, we know 800 gig is going very well. We've got a line share, and we continue the volume increase. We also know the copper edge 1.60 timing that has been largely on track and going with the schedule. If you say upside came from a little bit earlier inflection, for 1.6 fiber edge. We know we are intense engagement with our module manufacturers, as I said, and their customers. So we were just not very sure about the qualification timing, and that's why we're a little conservative in guiding for Q2 at the time.

Now we have all the backlog and the customers want parts tomorrow. So we definitely have a very high confidence and conviction for Q3 and Q4. So if you say what's different from a few months ago, I mean that's just the qualification timing. When customers need a solution they go out of the way they accelerate the pace of new technology adoption. So that is -- I've seen that before. But this is really in a way it's unprecedented from the hyperscalers to module manufacturers to the technology providers, component providers, working all together to accelerate that pace. Does that make sense?

Christopher Rolland

Yes, that may -- that totally makes sense. And then perhaps a follow-up, just as you ramp FOFOs me, and you have all these new products coming into this portfolio, and you talked about getting to high double-digit per transceiver content for you guys -- can you walk us through just a time frame of when you expect these products to ship in volume to the market whether it's these high-power CW modules, photodiodes, SOAs or anything else that, that acquisition will be able to provide?

Hong Hou

Yes. So Chris, we only get into this area, as I said, for 5 months or so. We certainly have a great plan and great ambition. Right now, the ongoing product shipping in volume is a gating chip, and we're going to be having the CW, high-power CW lasers and SLA available for sampling and qualification from the customer side in a couple of months. And -- but the significant increase in content in optical transceivers as we said before, it's more like 3.2. Because we see the ramp of the fiber edge from 1.60, that means the customers are already wrapping up the qualification and getting ready for volume production. If they don't have a solution now, they'll probably be late.

We wanted to catch the next wave. So that's a 3.2T.And good old high-power CW laser work still is the most needed for that application. By then, we wanted to make a photo diode available as well because when the data rate is going higher than 200 gig, and need every bit of help from electronic component and photonic component so the co-optimization allows us to provide a cross-reference design solution to customers. That is also very much needed for 3.2T. So to answer your question, really the significant content increase in one optical transceivers will be coincided with a 3.2 transceiver cut-in.

Operator

Our next question is from Harsh Kumar with BMO Capital Market.

Unknown Analyst

Yes. Hong, Mark and Mitch, congratulations on stellar quarter and Stellar guide. I had a one multipart and then another follow-up. Hung, you talked about 3.2 being the catalyst for your products catching growth. Could you talk about what the timing for 3.2 is as you see it in the field? And then I want to push back on your commentary a little bit as well. You talked about your content going from high single to kind of high double digits. But when I look at all that you have in the pipeline, photodetectors and game chips and drivers, et cetera, I would think the content would be more than teens. Are you just being somewhat cautious here? Or is there any other reason for that commentary?

Hong Hou

As, first of all, thank you for initiating the coverage, and we look forward to working with our new platform. So probably I confused you the high double-digit means 80, 90 instead of 18, 19. So that's the content we're talking about.

Unknown Analyst

No, no. Thank you for that clarification. I appreciate it. And 3.2 timing, Hong?

Hong Hou

3.2 timing, I would say, probably in 18 months or so, but I think the design window will start opening up at about in 12-month period of time. So then the early movers, they probably be 18 months from now. And -- but I think the meaningful deployment will start probably in 2 years. even 800 gig will have a really very healthy runway over the next 2 years.

Unknown Analyst

And then for my follow-up, if I can ask you about ACC and LPO? The reason why I'm asking you, you're coming out as the clear leader in those two technologies. You talked about it, I think, a little bit more positively in this call. Can you help us still give an idea of what we should expect the growth rate to be, let's say, exiting this year or at some point in time next year, what can these 2 businesses do?

Hong Hou

Yes. So the ACC, we definitely have the clear visibility with the leading hyperscaler. We are going to be having the volume deployment start from. But right now, all the cable manufacturers are ordering and increasing quarter-over-quarter. But the inflection is going to be started from the -- then in the meantime, we see so many design activities of linear equalizer on board. The dynamics, we start understanding this emerging market better now. ACC adoption is more coincide with the new platform design.

So they wouldn't be yanking out the AEC currently in use and to put in ACC. But linear equalizers board design is happening on the Board level. So we get a lot of activities. We continue to be very bullish on that market. As for PO, it's almost -- we had a meaningful revenue from Q1, and that has been increasing moderately. But that deployment really get the industry give them the confidence of the linear architecture, and it works really well. So that evolved into NPO in some form then even the XPO is including the LPO form with the linear equalizer -- well, the linear architecture instead of realtime. So I think in the future, the LPO impact not only as a stand-alone transceiver, but also the proof of the concept approval of the technology get incorporated in more integrated form factor like NPL

Operator

Our next question is from Joe Moore with Morgan Stanley

Joseph Moore

Congratulations. Can you talk about the strength in 800 gig. You talked about that persisting for a while. What's your visibility into that? I know 1.60 is the big ramp up. A seems quite strong. Can you talk about that dynamic a little bit?

Hong Hou

Yes. So Joe, we enter into the year for 800 gig, the industry is forecasting 50 million transceiver units to be consumed. Now we are here in the number at 90 million and we have a very healthy backlog for FiberEdge to support 800 gig. And that is continued and we're just getting -- picking to our new booking report this morning. So existing customers, they are increasing the demand now decreasing. In the meantime, the 1.60, it's just starting. And so the Q3 will be the first quarter for us to really have a pretty significant revenue, as I said, between 1.6 fiber edge and 1.6 copper edge, we will have -- they will be surpassing 50% of total data center revenue. So 1.6 is gaining a lot of momentum and gaining momentum fast.

Joseph Moore

That's very helpful. And then can you just discuss like-for-like pricing? Are you seeing any changes really in any part of your business that just particularly on the optical side, any change in pricing there?

Hong Hou

Yes. So pricing, it's very favorable. Typically, as I said before, you offer 2x performance, you may be able to get 10% premium in the beginning, but it settled at a lower level. But right now, availability is more important to the customers and then the pricing is almost. There's no erosion to be expected in the near term and at least not for any orders we booked in the backlog. Our cost is increasing slightly, and we are able to, in most of the cases, work with the customers and pass along the cost to them.

And -- but we are here to build a long-term relationship with our customers, we are very mindful and not being viewed as using the seller advantage to gouge our customers. So we're working with them in a partnership fashion, but we are able to pass along the cost increases. So that's why when Mark talked about the gross margin we're expecting the trend to continue to grow because of favorable product mix in the new product, we have a higher gross margin.

Operator

Your next question is from Tore Svanberg with Stifel.

Tore Svanberg

Yes. And congratulations on the record quarter. Hong, so you're going to be at $0.5 billion run rate in data center next quarter. I'm just curious as we sort of think about $1 billion in data center revenue, how should we think about the mix between FiberEdge, CopperEdge and all the new products that are coming online?

Hong Hou

So that's probably the one we're going to be providing more detail in our October Investor Day because we plan to get the different -- the TAM for the different applications and our market share and so that you can have a more comprehensive view for multiyear model I hope you can come to that event, sorry.

Tore Svanberg

Sounds good. And as a follow-up, a similar question for Mark. So ex modem will be at 64% gross margin. How should we think about the margin contribution from some of the newer products like PB, CW lasers and so on and so forth. Are they going to be at that corporate average or perhaps even above?

Mark Lin

It should be above. So all the areas, it's that you just mentioned, CW lasers, especially. They're the data center gross margin, which is accretive to the corporate gross margin average.

Operator

Our next question is from Craig Ellis with B. Riley Securities.

Craig Ellis

Yes. Congratulations on the stellar performance, and thanks for sneaking me in guys. I wanted to look at the business through the 1.60 lens. So this sort of follows up on part of what you got to with Joe. But can you clarify what you're looking for, as things get going in the third quarter as a percent of mix. And then, Hong, it sounds like we're starting stronger in fiber edge and copper comes along. So how would mix evolve for 1.6 as a percent of total as we look out to next year?

Hong Hou

So Craig, thank you for the question. In Q4 -- Q3, the 1.60 is already surpassing 50%. I can just only imagine that it's going to be continue to grow north of 50%. But the 800 gig continued to be very strong, and we have the Tri-Edge legacy products continue to kicking very strong. So but the trend is going to be growing the percentage of 1.6 is going to be higher and higher.

Craig Ellis

Got it. And then I wanted to go back to your comments where you indicated that beyond the near-term 45% Q-on-Q growth for data center in the third quarter and the 10% year-on-year growth, we could see acceleration. And the comment on backlog just suggests that you've got tremendous visibility out into fiscal '28. Can you comment on where that would be relatively greater. And what some of the interactions are like with customers that are booking out that far? Is it really just you becoming a lot more strategic to the road map? Or is it that supply sufficiency point? Just help us see what you're seeing.

Hong Hou

Yes. Thank you, Craig. I think it's all of above. You see our product performance is great, and we can provide availability and also we are providing excellent services. So that has been the key drivers for us to gain shares.

Operator

Our next question is from Cody Acree with the Benchmark Company.

Cody Grant Acree

And congrats on the progress. Hong, maybe just a follow-up on the last question. With the bookings and backlog accelerating here in the second half. Any quick thoughts on what kind of how long into '28, does that backlog extend? And any thoughts on what kind of growth that might support next year? SP1 So the backlog for the remaining of this fiscal year, I would say, for our targets, it's our booked. And for the next year, we probably over 70% there. And -- but the momentum is so strong. So we are going out to get more capacity secured. And so far, I would say the visibility side for the next fiscal year, we feel very confident about it. Do you think Hong that you have upside to -- with that capacity addition effort. Do you think there's room in the industry for you to secure more and to continue to service upside?

Hong Hou

Yes, between 50% and 100%, there's room for that. And we definitely wanted to be able to provide our customers for the product they need.

Cody Grant Acree

And then lastly, you've had a lot of success with your lead hyperscalers for ACC. Any thoughts on the expansion beyond that lead hyperscaler? How broadly do you think this gets adopted? And maybe what are the some of the challenges left to full adoption? Is it interoperability, support or cable qualifications? So they -- yes, they -- at this point for them, the availability, the interopbility, probably more important for them. We have not seen many activities in driving us to interact with other industry participants. Any thoughts on breadth of adoption?

Hong Hou

So is it going to be more -- what time is going to be broader, and we'll start with the leading one. And there are multiple engagement. It's an ongoing, some of them is going to be reaching to the finish line. So I guess we're at the time, right? But I do encourage I know that we still have some in the queue, but come to our October 15 investors event. So we definitely wanted to provide very comprehensive information on our technology road map, differentiation, TAM, our share and multiyear model, so that will help you to build a multiyear financial model for us.

Operator

Our last question is from Scott Searle with ROTH Capital Partners

Scott Searle

Thanks for sneaking me in. Congrats on the quarter and incredible outlook in terms of data center and lower Data center has been covered pretty thoroughly. So maybe hopping over to lower for a second. Just in terms of -- could you calibrate us quickly, you've been moving away from the China mix. It had been down under 50%. I want to just you have a better idea about how that was progressing in the July quarter. And looking at the growth that you've seen from the first quarter to guidance now in the third quarter, it's up 50%. How big is Amazon now factoring into that? Are they over a 10% customer? And kind of stack ranking the guidance into the third quarter. Is that mostly Amazon? Is it lower plus? Is it something else that what's really driving the outlook?

And lastly, to follow up now on the IoT side of the equation with modules now on the path to be divested. Other elements have periodically been core and then noncore on the router gateway on the IoT platform front. I'm wondering what the current thoughts are in terms of their continued inclusion as a core portion of Semtech going forward?

Hong Hou

Thank you, Scott. On LoRa and the majority of the revenue is still lower on an LoRa start kicking in, probably representing about 20% to 25% of total revenue mix. and site work is still, at this point, is nominal, and this year will probably be high single digit, but to get a lot of potential once we are able to piggy back into the consumer at Amazon's scale. As for the portfolio optimization, as we mentioned, it's a continued journey. And so far, we like the portfolio we have after the divestiture, but we'll continue to evaluate addition or optimization effort. But we are focused on getting the current deal to the finish line, and so which lead to the closing of the sale of the cellular module business.

Operator

There are no further questions at this time. I'd like to hand the floor back over to Mitch Haws for any closing comments.

Mitchell Haws

Thanks, Paul. That concludes today's call. We look forward to seeing you at various investor events during the quarter, including our Analyst Day on October 15. With that, good afternoon, everyone.

Operator

This concludes today's conference.