Semtech sold a lot more chips and made less money running the business.
Revenue rose 15.9% to $291.0 million in the three months ended April 26, 2026, led by infrastructure and industrial demand. Data-center sales alone added about $20.0 million. Operating income still fell 28.3% to $25.8 million, pulling operating margin down from 14.3% to 8.9%.
Some operating expenses rose alongside that growth. Research and development expense rose 21.1%, while stock compensation climbed from $6.8 million to $26.4 million. Stock compensation is a non-cash accounting expense, but it still lowers reported operating profit and helps explain why sales growth did not translate into operating leverage. Diluted shares also rose 9.4% to 98.0 million.
Management tied the revenue increase to higher sales volume. The strongest receipt was Signal Integrity, Semtech's data-center-heavy business.
"Net sales from Signal Integrity increased $28.5 million in the first quarter of fiscal year 2027 compared to the first quarter of fiscal year 2026, primarily driven by an approximately $20.0 million increase in data center sales, approximately $5.1 million increase in telecommunications sales and approximately $3.3 million increase in broadcast sales."
10-Q 2026-05-27
That gives the top line a concrete engine: data centers supplied most of the increase in infrastructure revenue, with telecommunications and broadcast adding smaller amounts. Gross margin barely moved, from 52.3% to 52.0%, so the main pressure sat in operating expenses rather than the basic economics of the products sold.
The bottom line makes the comparison look friendlier than the operating line. Net income rose 37.3% to $26.6 million, helped by lower financing costs after Semtech repaid its term loans.
"Interest expense, including amortization and a write-off of deferred financing costs, decreased by $4.7 million to $1.9 million for the first quarter of fiscal year 2027, compared to $6.6 million for the first quarter of fiscal year 2026, primarily due to interest savings as a result of the full repayment of the Term Loans"
10-Q 2026-05-27
That is real cash relief, but it is not operating improvement. Interest savings arrive after the business has generated its operating result, which is why net income and operating income are telling different parts of the same filing.
Cash generation improved, with operating cash flow up 30.0% to $36.2 million. It did not keep pace with the accounting profit increase: cash conversion slipped from 1.44 times to 1.36 times. Inventory rose 20.2% to $204.7 million, faster than revenue, while capital spending increased from $1.6 million to $8.2 million. Semtech does not disclose the cause of the inventory increase in the supplied filing receipts.
Semtech's latest annual revenue was $1.0 billion, while its current enterprise value is $11.6 billion, or 11.1 times sales. The market can see the data-center growth; the filing leaves the cost of converting it into operating profit in plain view.
Semtech's next quarterly report will provide the next factual comparison for whether inventory and operating expenses remain elevated as data-center sales continue. For now, the trade-off is simple: more chips through the door, fewer operating dollars left behind.