Earnings Highlights: MACOM (MTSI) | FY2026 Q3 — Data Center Up 74% YoY, Book-to-Bill Hits 1.6: This "Non-Module" Player Is Capturing the Chips Across the Entire Optical Interconnect Stack

2 days ago

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This article is for technology and industry trend analysis only and does not constitute investment advice.

A record-breaking quarter across the board. Revenue was $342.2M (YoY +35.8%, QoQ +18.4%), adjusted EPS was $1.40, and book-to-bill hit an all-time high of 1.6. All three end markets (data center, industrial & defense, telecom) grew sequentially, with data center up roughly 40% QoQ. MACOM isn't riding a single theme; all three legs are accelerating together.
The core growth engine is its "sell chips, not modules" positioning. From 200G PAM4, ZR light and linear equalizers to indium phosphide (InP) photodiodes and lasers, MACOM has placed itself in the chip layer that every data-center interconnect architecture (pluggable, LPO/LRO, NPO/XPO) has to go through, while deliberately staying out of optical engines and modules. That makes it a supplier to many transceiver makers rather than a competitor.
Next quarter steps up again. Q4 FY2026 guidance calls for revenue of $415M–$425M, adjusted gross margin of 60–61%, adjusted EPS of $1.97–$2.03, and operating margin of around 37%. Management also offered a rare FY2027 "base case": company-wide growth in the mid-to-high 20s percent, with data center up about 50%.

1. Three signals to understand first

First, this quarter wasn't propped up by a single product line. Data center was $137.6M, industrial & defense $133.4M and telecom $71.3M; all three grew sequentially, with data center and I&D both at record highs. When all three end markets rise at once, it isn't a short-term burst in one theme but a lift in the overall demand structure.

Second, order visibility matters more than the revenue figure. Book-to-bill reached an all-time high of 1.6, and turns business (booked and shipped in the same quarter) made up only 11% of revenue. In other words, the vast majority of orders are for future quarters, and backlog keeps building. CFO Jack Kober said outright that this was the company's "highest bookings quarter ever."

Third, MACOM's business model deliberately does not move downstream. Asked about NPO (near-packaged optics), CEO Stephen Daly was blunt: MACOM will not build or supply optical engines; in the data center it acts only as a chip supplier, with no multi-chip assembly or modules. The positioning sounds conservative, but it is the key to serving almost every transceiver and NPO maker at once without competing with its own customers.

2. Revenue and financials

Here are all the hard numbers for the quarter:

Revenue $342.2M: YoY +35.8%, QoQ +18.4%, a quarterly record.
Adjusted gross margin 59.7%: up 120 bps QoQ and 2.1 percentage points YoY. It has risen for several consecutive quarters on higher utilization plus yield and efficiency gains.
Adjusted operating income $107.7M, operating margin 31.5% (25.2% a year ago): YoY +69.6%, QoQ +33.9%, showing operating leverage kicking in.
Adjusted net income $109.8M: YoY +61.0%, QoQ +30.2%.
Adjusted EPS $1.40 ($0.90 a year ago, $1.09 last quarter), on 78.4M diluted shares.

The balance sheet is equally solid: cash and short-term investments of $663M; after the $340.5M convertible notes due December 2029, that still leaves roughly $322.5M in net cash. Operating cash flow was about $80M this quarter, and management expects Q4 operating cash flow to exceed $100M; CapEx was $20.8M this quarter, with full-year FY2026 CapEx at $60M–$65M. MACOM also made a $61M investment in epitaxial-materials maker IQE this quarter, which produced a $41M non-cash valuation gain. That gain is excluded from the non-GAAP figures, and the earnings card uses the figures after this exclusion.

One easily overlooked detail: taxes are going up. The adjusted tax rate is currently just 3%, and management said explicitly that it will gradually rise to the mid-single digits in FY2027 as profits grow — a headwind to build into models now.

3. Data center: behind 74% growth, a whole lineup of chips ramping at once

Data center was the brightest spot this quarter, and the key to understanding MACOM. Daly laid out a three-year trajectory: +35% in 2024, +48% in 2025, and this year heading toward +74%. And it isn't a single product: the main driver from FY2025 to FY2026 is 200G PAM4 (mainly for pluggable optical modules), but ZR light is up more than 100% YoY, 100G per lane (single-mode and multimode) is growing, and even older 25G-per-lane products (serving 100G FR and LR4) are growing in the high double digits. This quarter's book-to-bill was driven mainly by 1.6T and 800G platforms.

The real long-term story is indium phosphide (InP). MACOM's 200G photodiodes (PDs) are already ramping in volume and contributing meaningfully to data-center growth, and its 400G PD is getting very positive customer feedback. On the long-watched 75mW CW laser, management's tone turned noticeably more confident: high-temperature operating life testing (HTOL, typically 5,000 hours) is in its second half with "very good data," and the target is volume production in late 2027 / 2028, which would be a "watershed" growth event. We break down why InP is the deepest bottleneck in the entire industry in "The light engine's supply-shortage map: the wafer even NVIDIA is scrambling to secure" (in Chinese). MACOM's 25G DFB laser demand rebounded this quarter precisely because of an industry-wide InP DFB shortage, with customers coming back to it with rush orders.

As for the market's favorite question, NPO/XPO, Daly gave a pragmatic answer: MACOM has 10–20 NPO development projects and is in contact with almost every NPO maker, but it only supplies chips such as drivers and TIAs, and most NPO revenue won't arrive meaningfully until 2028; some projects may never reach production. That timeline matches our earlier view in "CPO ramp pushed to 2028, but it's not bad news" (in Chinese): the CPO/NPO delay actually extends the shelf life of pluggable optical modules, and pluggables are MACOM's largest growth source this year. For an explainer on XPO, see "What is XPO? The loudest new scale-up standard at OFC 2026" (in Chinese).

Copper hasn't been left out either. MACOM's linear equalizers work in both copper cables (ACC) and on PCBs, and a large hyperscaler is preparing to adopt a copper-cable solution at high volume. We go deeper into this transitional state, where optics advances but copper doesn't die right away, as well as where external lasers (ELS) and scale-up specs are heading, in "Meta, Broadcom and AMD jointly define the OCI 200G line-side spec" (in Chinese).

4. Industrial & defense and telecom: hidden growth overshadowed by data center

Industrial & defense (I&D) was $133.4M this quarter, up 11% QoQ and also a record. Defense grew 19% last year and is expected to grow about 25% this year. MACOM positions itself as the unique "highest power, highest frequency" solution: the X-band front-end module shown at IMS uses GaN ICs to reach 16W transmit power with over 40% power-added efficiency, and it received additional funding from the U.S. Air Force Research Laboratory (AFRL) to mature mmWave GaN-on-SiC for volume production. Industrial is recovering too, with test & measurement, medical and automotive (revenue expected to double this year) all strengthening. Long-term themes include Golden Dome, missile inventory replenishment, and drones and counter-drone systems.

Telecom was $71.3M, up 2% QoQ: the smallest of the three, but with the clearest turnaround. LEO (low-Earth-orbit satellite) and direct-to-device (D2D) demand is strong, and this quarter MACOM won a next-generation optical communication platform at a leading satellite OEM, which Daly said will drive growth over the next 2–3 years. Two more often-overlooked bright spots: cable TV infrastructure is up about 40% this year, and metro/long-haul is up more than 50%; and while the overall 5G market isn't growing, two competitors have exited and Gen4 GaN is entering massive MIMO, so MACOM believes its 5G revenue could "more than double."

Its European footprint is also advancing: the MESC fab in France has begun installing G10 epitaxial reactors and is moving its line from 3-inch to 6-inch wafers (higher quality, lower cost, double the capacity). European defense revenue is expected to ramp from 2028, and MESC may win one of its largest-ever orders (UK airborne defense) "in the next month or two."

5. Management outlook and customer/supply-chain clues

Q4 FY2026 guidance (fiscal quarter ending 2026/10/02): revenue $415M–$425M, adjusted gross margin 60–61%, adjusted EPS $1.97–$2.03 (78.9M shares), and operating margin of around 37%. Sequential guidance by market: data center about +35%, I&D about +20%, telecom low single digits.

More notable is the rare FY2027 base case management gave: annualizing the Q4 midpoint, company-wide growth lands at 27–28% and data center at about 50%, which management stressed is a "conservative baseline as of today." Book-to-bill has climbed from 1.3 in Q1 to 1.5 in Q2 and 1.6 this quarter, backing a strong start to FY2027. SAM was also raised to roughly $15B in 2027 (data center ~$6B, I&D ~$6B, telecom ~$3B), and R&D doubling over three years ($132M in 2023 → about $250M this year) is what gives MACOM the confidence to go after that SAM.

Several customer and supply-chain clues stand out. Customer concentration is falling: two years ago only 8 customers generated more than $10M in annual revenue; now more than 20 do, with a few in the $50M–$100M range, while the top ten customers still account for under 40% of total revenue. The customer base is becoming more diversified even as the company grows, a healthy sign. China risk is limited: MACOM has no manufacturing in China, only about 85 applications and logistics staff. On a possible ban on Chinese module makers, Daly said that if hyperscalers shift share among transceiver makers for regulatory reasons, MACOM will "follow the orders" to other manufacturers, at most shifting its customer mix. In addition, the $61M investment in IQE is meant to strengthen upstream epitaxial supply-chain resilience. On the CHIPS Act, the company has completely rewritten its original five-year, $345M plan (half government-funded) and resubmitted it for negotiation; if approved, it would save substantial CapEx.

Conclusion

This quarter MACOM turned its "sell the shovels, don't dig for gold" strategy into growth across all three markets and expanding profit leverage. It doesn't build modules or optical engines, yet it has made itself the chip supplier that pluggables, LPO/LRO, NPO/XPO, copper equalization, and even InP light sources and detectors all have to go through — a position of "whichever architecture wins, I'm inside it."

From next quarter into FY2027, three indicators are worth watching: first, the volume-production timeline of the 75mW CW laser. This is the watershed that would upgrade MACOM from a "TIA/driver chip vendor" to a "light-source supplier," so any signal on whether it can enter production on schedule by late 2027 is key. Second, whether book-to-bill holds above 1.5, the leading indicator of whether the FY2027 "data center +50%" base case can be delivered. Third, the slope of gross margin above 60% and operating margin past 40%. Management has set next year's target at breaking 40% operating margin, and with the tax rate rising to the mid-single digits, validating the quality of earnings will matter more than the revenue figure.