Semtech’s Earnings Point to the Next Data Center Bottleneck

Semtech, a California semiconductor company that makes some of the components inside high-speed data-center connections, put a number on demand for its data-center equipment Tuesday. Its data-center revenue reached a record $100 million in its fiscal second quarter, up 91 percent from a year earlier. The company expects it to grow another 45 percent this quarter – about 160 percent year over year.

Its earnings provide a view into a less visible part of the AI buildout: the optical and copper links that turn racks of expensive processors into one working machine.

Without those links, a data center is a collection of computers waiting on one another.

Semtech’s data-center products connect GPUs through fiber and copper lines carrying up to 1.6 terabits of data every second. Faster connections keep GPUs supplied with data, reducing the time they spend waiting.

Semtech does not make the whole highway. It does, however, make some of the components that keep traffic moving.

Its FiberEdge products include transimpedance amplifiers, or TIAs, which take the faint electrical current produced when a photodiode receives light and turn it into a signal a computer can use. Its drivers help create the outgoing optical signal. Its CopperEdge equalizers clean up high-speed electrical signals traveling through copper cables and circuit boards.

At 1.6T, those jobs become harder. Signals move faster, components sit closer together, and manufacturers must control noise, heat and electricity consumption inside a module small enough to plug into a switch.

Semtech says demand is arriving faster than expected. Industry forecasts for 800G transceivers began the year around 50 million units, chief executive Hong Hou told investors this week. The numbers the company now hears are 80 million to 90 million. Meanwhile, 1.6T is not waiting for 800G to fade. Semtech expects its 1.6T FiberEdge and CopperEdge products to account for more than half of its data-center revenue this quarter.

The two generations are ramping together.

Customers are also booking farther ahead. Semtech said its target for the rest of this fiscal year is effectively sold out and that it already has visibility to more than 70 percent of the following year. Hou said customers “want parts tomorrow.”

The supply chain can handle that demand – for now.

Semtech began preparing for the ramp about 18 months ago and says it has enough near-term capacity for planned production and some additional orders. It has secured equipment deliveries for the current fiscal year. But management warned that existing capacity may not be enough for fiscal 2028, especially its second half.

The company is responding in the same way other data-center suppliers have: committing money before the demand arrives.

It is working with a front-end manufacturing partner for more wafer capacity, adding testers and seeking more packaging and testing capacity from outside semiconductor-assembly companies. It is qualifying additional manufacturing partners to reduce geopolitical risk. In photonics, it acquired another equipped facility and expects to increase fabrication capacity three- to fourfold.

Executives say the company is considering prepayments, equipment purchases and other arrangements to reserve that capacity. The factory slot is becoming part of the product.

Pricing shows how tight the market has become. Hou said availability now matters more to customers than price. Semtech expects little near-term price erosion on orders already in backlog and says it can generally pass along modest increases in its own costs.

That does not mean every part needed for a 1.6T connection is scarce. Semtech did not identify a shortage of silicon, optical fiber, copper or another raw material. Its concern is more specific: enough qualified wafer fabrication, packaging and testing capacity to produce the components customers have ordered.

Nor does Semtech’s forecast prove every planned data center will be built. Its growth includes market-share gains, faster customer qualifications and a shift toward more profitable products. Backlog can change. Forecasts can miss.

But equipment orders are harder evidence than announcements measured in hypothetical gigawatts. Semtech’s quarter shows hyperscalers and their suppliers moving beyond plans and into the small, specialized components required to make AI clusters work.

Big Tech has spent years competing for chips, land and electricity. Semtech’s earnings show another contest taking shape inside the building: securing the bandwidth – and the factory capacity – that lets all that computing power operate as one.