Episode Details

Semtech Corporation (SMTC) Q2 FY2027 — Q2 FY2027 (quarter ended July 26, 2026): net sales $341.9m, UP 32.73%, an all-time quarterly record. GAAP diluted EPS $1.59; adjusted $0.71 against a $0.614 bar. Q3 guided to $410.0m and $1.05. Reported AFTER the close Aug 25 (8-K header 16:06 ET); shares closed +10.41% on Aug 26 on 5.17x median volume. Semtech filed the largest quarter in its history - net sales of $341.9m, up 32.73% - and guided the third quarter to $410.0m and $1.05 a share. The shares rose 10.41%. But reported EPS of $1.59 sits ABOVE adjusted EPS of $0.71, which is backwards for a semiconductor company: pre-tax income was $54.7m and the tax line was a $101.4m BENEFIT, 63.34% of net income, on a $112.4m non-cash release of a U.S. valuation allowance carried since fiscal 2024. And twelve days before the print, Semtech agreed to sell 14.07% of its revenue for $62.0m. We value SMTC at $140.07 against $140.80 and rate it HOLD, conviction 3/5. THE CALL: HOLD (3/5, A REAL INFLECTION AT A FAIR PRICE) — base-case value ~$140.07 vs ~$140.8 today. KEY METRICS: - THE ROUND TRIP: $1,240.8m paid for Sierra Wireless; $847.9m of goodwill written off (68.34%); $62.0m agreed sale price to Compal Electronics = 5.00% of the purchase price. - TWO PRICES FOR REVENUE: the disposal group did $48.1m of sales (14.07% of the company) at a 22.66% gross margin. Compal pays 0.322x annualised revenue; SMTC trades at 10.59x - a 32.9x gap. - NO LOSS ON SALE: assets held for sale $132.2m less liabilities held for sale $70.7m = $61.5m net book value against a $62.0m price. - THE TAX ENTRY: pre-tax income $54.7m, tax line a $101.4m BENEFIT (63.34% of net income), from a $112.4m non-cash valuation allowance release. At an 18% rate the quarter earns ~$0.49. - WHAT WORKS: Signal Integrity +64.32% to $126.2m at 65.3% gross margin - 58.6% of the entire revenue increase. Infrastructure +68.70%; IoT +10.70% with gross margin -550bp. - THE GUIDE: Q3 net sales $410.0m (+19.92% seq), adjusted EPS $1.05 (+47.89%), adjusted operating margin 31.0% vs 24.40%; incremental margin 63.73%. - THE TAPE: +10.41% on Aug 26, 5.17x median volume, 3rd heaviest of 256 sessions. +190.49% in twelve months and still 19.42% below the $174.73 closing high of June 22. What to watch: UP: the guided quarter implies a 63.73% incremental adjusted operating margin against a 24.40% base, and Signal Integrity grew 64.32% at a 65.3% gross margin. DOWN: the case spread is 312%, the bear values the company near where it traded twelve months ago, and the divestiture still needs regulatory approval. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.