MACOM Technology Solutions (NASDAQ:MTSI) reported record fiscal third-quarter results, citing strong demand across its data center, industrial and defense, and telecom markets. The company also issued fourth-quarter guidance that calls for another sequential increase in revenue, margins and adjusted earnings.
For the quarter ended July 3, MACOM recorded revenue of $342.2 million, up 18.4% sequentially and 35.8% from a year earlier. Adjusted earnings per diluted share were $1.40, compared with $1.09 in the prior quarter. Chief Executive Officer Stephen Daly said the company’s third-quarter book-to-bill ratio reached a record 1.6-to-1, while orders booked and shipped during the quarter represented 11% of revenue.
Data Center Leads Growth
Data center revenue totaled $137.6 million in the third quarter, increasing about 40% sequentially. Industrial and defense revenue rose 11% sequentially to $133.4 million, while telecom revenue increased 2% to $71.3 million. Both data center and industrial and defense revenue reached record levels, according to the company.
Daly said data center growth is being supported by demand for 800G and 1.6T PAM4 connectivity products. He said MACOM is seeing growth across several product categories, including 200G PAM4 products used primarily in pluggable optical modules, ZR light products, 100G-per-lane products, and legacy 25G-per-lane products.
During the question-and-answer session, Daly said 200G PAM4 products were the primary driver of data center growth from fiscal 2025 to fiscal 2026, while 1.6T and 800G platforms were the main contributors to data center bookings. He said the company expects its data center business to grow about 74% in fiscal 2026, following growth of 35% in 2024 and 48% in 2025.
The company is also expanding its indium phosphide photonics portfolio. Daly said its 200G photodetectors are now ramping in volume production and becoming a more meaningful contributor to data center growth. MACOM’s 400G photodetectors are receiving positive customer feedback, he said.
MACOM is continuing qualification efforts for a 75-milliwatt continuous-wave laser product. Daly said the company is gaining confidence that it can meet customers’ reliability and performance requirements, but has not yet declared the effort successful. The company is planning for a potential start of laser production in late calendar 2027, including modest capital expenditures and fab-space planning to support a high-volume ramp for strategic customers.
The company also discussed co-packaged and near-packaged optical architectures. Daly said MACOM has between 10 and 20 active near-packaged optics development projects, although he cautioned that some may not reach production. The company expects much of that revenue opportunity to begin in 2028.
Margins Improve as Utilization Rises
Adjusted gross profit was $204.2 million, or 59.7% of revenue, representing a 120-basis-point improvement from the prior quarter. Adjusted operating income reached a record $107.7 million, up 33.9% sequentially and 69.6% year over year. Adjusted operating margin was 31.5%, compared with 25.2% in the same quarter a year earlier.
Chief Financial Officer Jack Kober attributed the margin improvement in part to higher factory utilization, increased volumes, yield improvements and other operating efficiencies. He said MACOM expects continued sequential gross-margin improvement through the remainder of fiscal 2026 and fiscal 2027, though he characterized a 25- to 50-basis-point quarterly improvement as a more measured expectation at higher margin levels.
Adjusted operating expenses were $96.5 million, including $65.3 million in research and development and $31.2 million in selling, general and administrative expenses. Kober said the sequential increase reflected R&D investment and employee-related costs. Daly said MACOM expects to spend nearly $250 million on R&D in fiscal 2026, compared with about $132 million in 2023.
Operating cash flow was about $80 million in the third quarter, and the company expects fourth-quarter operating cash flow to exceed $100 million. Capital expenditures were $20.8 million in the quarter, with full-year fiscal 2026 capital expenditures expected to range from $60 million to $65 million.
MACOM ended the quarter with $663 million in cash equivalents and short-term investments. The company also made a $61 million investment in IQE during the June quarter, which Kober said was intended to strengthen supply-chain resilience and competitive positioning. The investment produced a $41 million non-cash GAAP fair-value remeasurement gain that was excluded from non-GAAP results.
Defense and Telecom Opportunities
Daly said MACOM expects its defense business to grow about 25% this year after growing 19% last year. The company sees opportunities in radar, missile and missile defense systems, drones and drone-defense systems, communications systems and electronic warfare applications.
MACOM also received incremental funding from the Air Force Research Laboratory to support maturation of millimeter-wave gallium nitride on silicon carbide production. In Europe, the company is completing a conversion of production lines at its European Semiconductor Center from three-inch to six-inch wafers, a move Daly said is expected to improve quality, reduce cost and increase capacity.
In telecom, management expects growth from low-Earth-orbit satellite systems, including direct-to-device, optical communications and satellite backhaul applications. Daly said MACOM was selected to support a next-generation satellite optical communications platform and is serving four or five major customers in the LEO market.
Outside of LEO, Daly said MACOM sees opportunities to gain share in 5G massive-MIMO systems, where it currently has limited business, as well as cable infrastructure and metro long-haul markets. He said cable infrastructure revenue is expected to grow about 40% year over year, while metro long-haul revenue is expected to increase more than 50%.
Fourth-Quarter Outlook
For the fiscal fourth quarter ending Oct. 2, MACOM forecast revenue of $415 million to $425 million. The company expects adjusted gross margin of 60% to 61% and adjusted earnings per share of $1.97 to $2.03 based on 78.9 million fully diluted shares.
The outlook assumes approximately 35% sequential growth in data center revenue, about 20% sequential growth in industrial and defense revenue, and low-single-digit sequential growth in telecom revenue. Kober said MACOM expects adjusted operating margin to be approximately 37% in the fourth quarter.
Daly said that annualizing the midpoint of fourth-quarter revenue guidance would imply companywide growth in the mid-to-high 20% range for fiscal 2027, with data center revenue potentially growing about 50% year over year. He characterized those figures as a base case rather than formal fiscal 2027 guidance.
About MACOM Technology Solutions (NASDAQ:MTSI)
MACOM Technology Solutions is a semiconductor company specializing in high-performance analog, microwave, millimeter-wave and photonic semiconductor solutions. Its product portfolio includes amplifiers, switches, modulators, detectors and integrated circuits designed to optimize signal integrity, power management and data transmission. MACOM’s offerings address both digital and optical domains, providing critical building blocks for next-generation communications infrastructure.
The company’s solutions serve a diverse set of end markets, including wireless and wireline telecom, data centers, satellite communications, aerospace and defense, industrial and automotive applications.
