Macom (MTSI) Q4 2026 earnings review
Macom's chip sales speed up, and factory margins approach 40%
Macom, a maker of optical and radio chips for data centers and defense systems, is growing faster while keeping operating costs nearly flat. Fourth-quarter revenue rose 63% from a year ago to $425 million, and higher factory output lifted operating margin excluding one-offs to 38%. Chief executive Stephen G. Daly issued a first-quarter plan that pushes annual sales growth to 68% at the middle of the range, by our math.
| Revenue | $424.8M +62.7% from a year ago |
|---|---|
| Operating margin, excluding one-offs | 38.2% 25.6% a year ago |
| Profit per share, excluding one-offs | $2.09 +122% from a year ago |
| First-quarter revenue outlook | $450–460M middle of the range: 67.5% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because the first-quarter outlook beats the flat run-rate base case management sketched three months ago and puts the company's 40% operating margin target within reach almost immediately. One caution: Macom doubled its non-GAAP tax rate to 6% for fiscal 2027 as it uses up past tax shields, and the press release alone does not show whether reliance on its largest buyer increased.
The question now is whether this surge comes from broad optical and defense demand or a concentrated order wave from a single data-center buyer. If orders remain broad, the book-to-bill ratio will stay above 1.0 without one customer dominating sales; if concentrated, a pause by that buyer will slow growth once current orders ship. The conference call's order ratio and the annual filing's customer table will tell.
🐂 Bull Case
Sales Growth Speeds Up Again in Q1
Macom designs radio, microwave and optical chips for data centers, defense equipment and telecom networks. Three months ago, chief executive Stephen G. Daly framed fiscal 2027 around a base case that simply held fourth-quarter revenue flat across the coming year, which would have meant 27% to 28% annual growth.
"We had a strong fiscal year 2026 and look forward to continued growth in fiscal 2027," Daly said in the release. Fourth-quarter sales rose 62.7% from a year ago to $424.8 million, landing at the top of the company's $415 million to $425 million target. More importantly, Macom's first-quarter plan calls for $450 million to $460 million in revenue. By our math, the middle of that range represents 67.5% growth from a year ago and a 7.1% step up from the fourth quarter.
Because the new outlook steps up right away, the chipmaker is already outrunning the flat base case Daly sketched last quarter. That acceleration supports the argument that past order backlogs are still turning into shipments rather than stalling after a single build-out wave.
What to watch: the book-to-bill ratio, which compares new orders received to products shipped, on the conference call. A reading above 1.1 would show that customer orders still exceed shipments even at a $1.8 billion annual sales pace.
Factory Volume Lifted Operating Margin Above 38%
Running more semiconductor wafers through Macom's own factories spreads fixed manufacturing costs over more chips, while operating budgets grow much more slowly than sales. Last quarter, management set a target to push operating margin excluding one-offs above 40% during fiscal 2027 and guided to about 37% for the fourth quarter.
The Massachusetts group beat both margin targets in the fourth quarter and guided gross margin higher again for the first quarter.
- Gross margin excluding one-offs: 61.3%, up 4.2 percentage points from a year ago and above the 60.0% to 61.0% plan
- First-quarter gross margin plan: 62.0% to 63.0%, another 1.2-point increase from the fourth quarter at the middle of the range
- Research and development costs: 17.9% of sales, down 6.2 percentage points from 24.1% a year ago
- Selling and administrative overhead: 10.4% of sales, down 4.8 percentage points from 15.2% a year ago
Operating margin excluding one-offs reached 38.2%, up 12.6 percentage points from a year ago, because operating expenses excluding one-offs rose just $1.5 million from the third quarter while sales jumped $82.6 million. At the first-quarter revenue and gross margin plan, Macom stands within two percentage points of its 40% operating margin goal in the very first quarter of the fiscal year.
What to watch: operating expenses excluding one-offs in the first quarter. If quarterly spending rises by the usual $2 million to $3 million, operating margin will approach 40% two quarters ahead of schedule.
Convertible Notes Did Not Dilute Fourth-Quarter Shares
Macom carries $340.7 million of convertible notes due in 2029 on its balance sheet as short-term debt because the bonds met the trigger that lets bondholders exchange them early. When the company retired an earlier batch of convertible notes in the second quarter, settling the premium above face value cost 1.26 million new shares.
For the fourth quarter, management forecast 78.9 million diluted shares, but actual diluted shares fell slightly from the third quarter to 78.3 million. For the first quarter of fiscal 2027, the company plans for 79.0 million diluted shares, just 0.1 million above its prior fourth-quarter assumption.
The lower share count shows that bondholders did not force a dilutive share settlement during the fourth quarter, and the first-quarter outlook assumes only routine employee stock grants. Because the notes remain in short-term debt, the risk of future dilution has faded for now rather than disappeared.
What to watch: the convertible debt footnote in the annual Form 10-K filing. It will disclose whether any bondholders submitted conversion notices after the fiscal year closed on October 2.
Positives this quarter didn't test
Four standing growth drivers were not broken out in the earnings release and await the conference call or the annual Form 10-K filing.
- Data Center revenue share and growth: guided to grow 35% from the third quarter to about $186 million, or 44% of total sales; the call and 10-K market table will give the exact reading.
- Indium phosphide (InP) optical chip ramp: customer adoption of 200G and 400G photodetectors and lasers is only discussed in management's call remarks.
- Industrial and Defense revenue: guided to grow 20% from the third quarter, alongside a large expected airborne defense order at the French wafer factory; the call will provide the segment total.
- Book-to-bill ratio and backlog: after climbing from 1.0 to 1.6 over the prior three quarters, the fourth-quarter order ratio will be shared on the call.
🐻 Bear Case
Higher Taxes and Stock Pay Tap Brakes
Macom highlights profit excluding one-offs, which climbed 65.4% in fiscal 2026 to $435.7 million, or $5.60 per share. To compute that figure, management applies a 3% tax rate and strips out employee stock compensation, while standard accounting profit includes paper gains on outside stock holdings.
In the fourth-quarter release, the company raised its non-GAAP tax rate for fiscal 2027 from 3% to 6%, "primarily as a result of growth in our profitability and the utilization of our remaining historical deferred tax assets". Meanwhile, fourth-quarter GAAP net income of $139.4 million included a $19.4 million paper gain on the market value of its stake in wafer supplier IQE, after a $41.5 million gain in the third quarter.
- Non-GAAP tax rate: doubling from 3% in fiscal 2026 to 6% in the first-quarter plan, trimming about $0.07 per share from first-quarter profit by our math
- Deferred tax assets on the balance sheet: down to $182.3 million from $208.0 million a year ago as past tax shields get used up
- Stock-based compensation: $23.9 million in the fourth quarter (5.6% of sales) and $99.7 million for the full year (7.5% of sales)
- Fourth-quarter GAAP net income without the pre-tax IQE investment gain: $120.0 million by our math, $43.3 million below the headline non-GAAP figure
Doubling the tax rate directly slows per-share profit growth in the first quarter: revenue is planned up 7.1% at the middle of the range, Gross margin expands by 1.2 points, yet profit per share excluding one-offs grows only 7.7%. As Macom burns through its remaining tax shields, its cash tax bill will move closer to its standard accounting tax rate.
What to watch: cash taxes paid in the Form 10-K tax footnote and the pace of deferred tax asset drawdowns across fiscal 2027. A faster drop in the $182.3 million tax asset would force another tax-rate step-up in fiscal 2028.
Risks this quarter didn't answer
Five standing risks around customer concentration, trade exposure and product schedules cannot be checked from the earnings release alone.
- Customer A concentration: one buyer accounted for 23% of sales and 26% of receivables in the third quarter; the Form 10-K customer concentration footnote will show whether fourth-quarter growth depended even more heavily on that single account.
- China billing exposure: 39% of third-quarter sales went to billing addresses in China, where optical module makers assemble parts for US data centers; the Form 10-K geographic table will give the full-year share.
- Continuous-wave (CW) laser qualification: reliability testing and late-2027 production timing are call topics.
- Low-Earth-orbit (LEO) satellite production: whether the two or three major satellite programs remained on schedule for late calendar 2026 or early 2027 requires management's call update.
- CHIPS Act government funding: the release still lists a definitive federal and state funding agreement as an open forward-looking item rather than a signed contract.
💲 Other KPIs
By our math, fourth-quarter free cash flow — operating cash flow minus property and equipment purchases — nearly tripled from $49.3 million a year ago to $138.0 million, or 32.5% of sales. Operating cash flow for the quarter reached $155.5 million, well above management's $100 million floor, bringing full-year free cash flow to $292.7 million.
Working capital grew much more slowly than sales in the fourth quarter, freeing up cash. Accounts receivable (unpaid customer bills) rose 41.0% from a year ago to $209.5 million, and inventories rose 19.5% to $284.3 million — both well below the 62.7% jump in fourth-quarter revenue, with inventory adding just $2.8 million from the third quarter.
Cash and short-term investments rose to $792.4 million from $663.0 million in the third quarter, while total debt (including leases and financing obligations) stayed flat at $406.9 million. By our math, that leaves $385.5 million of net cash at year-end, even after Macom spent $161.2 million in cash to pay off its 2026 convertible notes earlier in the year.
🔮 Guidance
Raised against the prior base-case framing. The plan calls for 67.5% growth from a year ago and 7.1% growth from the fourth quarter at the $455 million middle of the range, stepping above the flat $420 million quarterly run-rate management discussed three months ago. Macom has beaten its revenue midpoint for eight straight quarters, by an average of 1.4% over the last four; if the pattern holds, first-quarter sales would reach about $461.5 million by our math.
Raised above the company's standard quarterly step-up. At the 62.5% middle of the range, gross margin excluding one-offs expands by 1.2 percentage points from the fourth quarter and 4.9 points from a year ago. Management had previously pointed to 0.25 to 0.50 percentage points of margin gain per quarter for fiscal 2027, so factory utilization is lifting profitability more than twice as fast as that baseline.
New. At the $2.25 middle of the range, profit per share excluding one-offs grows 120.6% from a year ago and 7.7% from the fourth quarter. The plan assumes 79.0 million diluted shares and a 6% non-GAAP tax rate, double the 3% rate used throughout fiscal 2025 and fiscal 2026.
❓ Key Questions
What was the fourth-quarter book-to-bill ratio and Data Center revenue?
The earnings release does not break out sales by end market or new order bookings. After a record 1.6 order-to-shipment ratio and 40% Data Center revenue share in the third quarter, those two numbers will show what drove the $455 million first-quarter plan.
Did Customer A grow beyond 23% of total sales?
One direct buyer accounted for 23% of third-quarter revenue and 26% of unpaid customer bills. Investors need the Form 10-K concentration table to see whether the fourth-quarter jump relied even more heavily on that single customer.
How quickly will the remaining $182 million tax shield shrink?
Macom doubled its non-GAAP tax rate to 6% for fiscal 2027 because higher profits are using up its historical deferred tax assets. Management has not said when those tax shields will run out completely or what the cash tax rate will be afterward.
How will Macom settle conversions on the 2029 notes?
All $340.7 million of the 2029 convertible notes sit in short-term debt because bondholders have the right to convert them. No dilution hit the fourth-quarter share count, nor does the first-quarter plan assume a hit, so investors need to know whether Macom plans to settle any future conversion premium in cash or shares.