MACOM

Phase A — Understand the business

Lens 1 · Company Overview

MACOM designs and manufactures high-performance analog, RF, microwave, millimeter-wave, and photonic/optical semiconductor components — ICs, MMICs, multi-chip modules, diodes, amplifiers, switches, lasers and optical subsystems — that customers drop into larger systems: radar, basestations, optical-network line cards, satellites, test-and-measurement, medical. It is "the analog plumbing of high-frequency signal chains," not a digital-compute company. HQ Lowell, Massachusetts; >70 years of heritage (traces to Microwave Associates).

Three end markets (one reportable segment, but managed and disclosed as three):

• Industrial & Defense (I&D) — FY25 $419.8M, 43.4% of revenue, +19.4% YoY. Military/commercial radar, RF jammers, electronic countermeasures, space, plus multi-market catalog parts.
• Data Center — FY25 $292.8M, 30.3%, +48.0% YoY. Analog ICs + coherent/photonic components for 100G→1.6T→3.2T intra-data-center and DCI links. The growth engine.
• Telecom — FY25 $254.6M, 26.3%, +41.4% YoY. 5G/6G carrier infra, SATCOM, PON/FTTx, metro/long-haul.

Business model. ~6,000 end customers; thousands of catalog + custom parts. Sold via direct sales, independent reps, and distributors. No long-term volume contracts — almost entirely purchase-order and "turns" business (ship from inventory shortly after order), which makes backlog a weak predictor and quarters lumpy. Some products have 5–20-year life cycles (long-tail catalog annuities), others <5 years.

Customer concentration: no single direct customer ≥10%, but two resellers/distributors each exceeded 10% in FY25 — one at 12.4%, a second at 11.2% (these are the channel partners, e.g. the Richardson RFPD / Arrow-type distributors, not end demand). Distributors were 32.3% of revenue (up from 29.3% / 24.0%). Top-10 customers = 56.7%; top-25 direct = 45.6%. International = 56.3% of revenue; China 28.4%, rest-of-APAC 11.5% — meaningful geopolitical exposure.

Lens 2 · Supply Chain

Upstream → MACOM → end customer, named where disclosed:

• Raw inputs: high-purity gallium, aluminum, arsenic, nitride, carbon, silicon; purchased wafers, packages, metals, PCBs from "hundreds of suppliers worldwide," purchase-order basis. Single-source risk is explicit: "wafers procured from merchant foundries for a particular process technology are generally sourced through a single foundry on which we rely for all of our wafers in that process." That is the key chokepoint.
• Fabrication (the differentiator): a fab-lite hybrid — internal compound-semi fabs at Lowell MA, RTP North Carolina, Ann Arbor MI, and Limeil-Brévannes France (GaAs, GaN, InP), supplemented by external foundries. The Lowell fab holds U.S. DoD "Trusted Foundry" accreditation — a structural moat for I&D (a domestic, secure source is often a requirement to win defense sockets). The RTP NC fab was assumed from Wolfspeed on 2025-07-25 as part of the RF-business acquisition, adding GaN-on-SiC capacity.
• Assembly/test: internal (Lowell, Nashua NH, Ann Arbor, Hamilton NJ, Morgan Hill CA, Limeil-Brévannes, Hsinchu Taiwan) + outsourced — "the majority of our contract assembly, packaging and test vendors are located in Asia."
• Downstream: OEMs, contract manufacturers, resellers, distributors → into hyperscaler data-center optics, defense primes, telecom-equipment OEMs.

Chokepoints: (1) single-foundry-per-process external wafer dependency; (2) Asian back-end concentration; (3) China both a 28% revenue market and a sanction/export-control flashpoint (BIS rules of Oct-2022/2023). Mitigants: multi-sourcing where feasible, U.S.-based front-end fabs, in-house Trusted Foundry.

Lens 3 · Competitive Advantages (moats)

1. Trusted Foundry + U.S. compound-semi fabs — domestic GaAs/GaN/InP fabrication with DoD accreditation is genuinely scarce; it locks in defense design wins and is hard/slow to replicate. Real, durable moat for the I&D leg.
2. Process-technology breadth + design-win switching costs — MACOM can pick internal or external process per product, optimizing performance; once a part is designed into a customer's radar or optical line card, qualification cycles run a year-plus and switching is costly. Design-win lock-in is the classic analog moat.
3. Catalog longevity — thousands of long-life parts (some revenue-generating 20+ years) create an annuity base that smooths cyclicality.
4. IP — 729 U.S. + 497 foreign issued patents; 166 U.S. + 269 foreign pending (as of 2025-10-03), though management explicitly says future success rests "more [on] the innovation, technical expertise and management abilities of our engineers… than by patent ownership".

Bargaining power. Mixed. Over customers: weak on the giants (no >10% direct customer, but PO-only relationships mean customers can cancel/defer with little penalty) yet strong where it holds a Trusted-Foundry-only or sole-qualified-source position. Over suppliers: limited (single-foundry-per-process dependence). The honest read: the moat is technology + accreditation + design-win lock-in, not scale (rivals ADI/Broadcom/Marvell are far larger and explicitly "have greater financial resources and scale than us").

Lens 4 · Segments

End-market revenue, FY (in $000s) and latest quarter:

MACOM reports a single operating segment, so segment EBITDA/EBIT by market is not disclosed — n/a at the segment-profit level. Trend read:

• Data Center is accelerating and re-mixing the company — 27.1% of revenue in FY24 → 30.3% FY25 → 34.0% in Q2-FY26, on AI-driven optical/coherent demand (100G→1.6T, now citing 3.2T). This is the lens that re-rated the stock.
• I&D steady high-teens/low-20s growth on defense programs + acquired content — the ballast.
• Telecom decelerated hard in the latest quarter (+7.6% Q2 vs +41.4% FY25) — worth watching; the FY25 number was flattered by 5G/SATCOM + acquired revenue and the 53rd week.

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Phase B — Measure performance

Lens 5 · Earnings Result (latest print: fiscal Q2 FY2026, ended 2026-04-03)

The cleanest way to read MACOM right now: operations are firing; GAAP is noisy from FY25's debt refinancing.

Income statement:

• Revenue $288.96M, +22.5% YoY (vs $235.9M), +6.4% sequentially.
• Gross profit $164.4M, GM 56.9% (record; up from 55.2% YoY). Adjusted GM 58.5%.
• Income from operations 17.6% of revenue (vs 14.8% YoY) — clear operating leverage.
• GAAP net income $46.3M, diluted EPS $0.60 (vs $0.42). Adjusted EPS $1.09, beat $1.07 consensus. The GAAP-to-adjusted gap ≈ SBC + intangible amortization (SBC alone ran $79.4M in FY25).
• H1 FY26 revenue $560.6M (+23.5%); H1 net income $95.1M vs a prior-year $(135.9)M loss — the swing is entirely the Q1-FY25 $193.1M convert-extinguishment charge rolling off.

Guidance (the real catalyst). For fiscal Q3 FY26: revenue $331–339M (mid $335M) and adjusted EPS $1.31–1.37 (mid $1.34) — both well above the ~$306M / ~$1.17 consensus going in. That implies ~+16% sequential revenue and a steep adjusted-EPS ramp.

Balance-sheet flags:

• Cash $98.5M + short-term investments $566.3M = ~$664.8M liquid.
• 2026 converts ($161.2M) repaid in cash in H1-FY26 → only the 0.00%-coupon 2029 converts ($344.3M) remain. Net cash ≈ +$320M (vs converts), still positive even after ~$67M of finance-lease + financing obligations.
• Inventory $252.2M — high, ~1.85× quarterly COGS, and the auditor's critical audit matter (excess/obsolescence judgment). AR $159.6M. Both grew with revenue but inventory bears watching in a PO/turns model.
• H1 OCF $121.6M; capex $26.1M → H1 FCF ≈ $95M.

Market reaction & what was priced in. The Q3 guide drove the stock sharply higher; Barclays raised its target $400→$450 (2026-05-22) and Needham $250→$400 (2026-05-08). The tape says the market now prices MACOM as an AI-optical compounder, not a cyclical RF name. Unusual vs its own history: 56.9% GM is the highest in the dataset; the prior-year H1 GAAP loss is a refinancing artifact, not operational.

Lens 6 · Earnings Calls (sentiment trend)

No transcripts on disk (transcripts=0); this lens is ``/inference from releases and is the dossier's softest. From the FY25 10-K and Q2-FY26 release language, management's consistent focus: Data Center optical (100G→1.6T→3.2T), defense program ramps, design wins, and gross-margin expansion via the RTP fab and mix. The objective signal of rising confidence is behavioral: guiding Q3 ~16% above consensus and repaying the 2026 converts in cash rather than rolling them. Tone has shifted from "cyclical-recovery/integration" (FY24, RF-business + OMMIC + ENGIN-IC integration) to "secular AI/data-center demand" (FY25→FY26). To verify against the actual Q1/Q2-FY26 call transcripts — book-to-bill, lead times, China commentary, and whether the Telecom deceleration is timing or trend.

Lens 7 · Comps

Peer set: AI-optical/connectivity names MACOM competes with on the growth narrative, plus the RF-analog peers it competes with operationally. Multiples are ``, dated; ROE 5-yr averages and several EV multiples are not sourced rather than fabricated.

Read. MACOM sits in a valuation no-man's-land that is actually flattering: at ~54× forward it is far cheaper than the NVIDIA-anchored optical pure-plays (Coherent/Lumentum at 150×+ trailing, each with a ~$2B NVDA strategic stake ) and modestly richer than Credo (~43× forward), yet a 3–4× premium to the RF-analog peers (Qorvo ~15×, Skyworks ~13×) that lack the AI-optical growth. The market is paying MACOM for the data-center optical story while it still carries a defense + telecom base the optical pure-plays don't have. The bull says that diversification deserves a premium to Credo; the bear says 54× already assumes the optical ramp compounds for years.

Lens 8 · Stock-Price Catalysts (what moves MTSI)

Pattern over the last ~5 years and recently:

• Earnings + guidance are the dominant >5% movers — the Q3-FY26 guide (revenue ~9% above Street, adj-EPS ~15% above) is the textbook example; analyst target jumps ($250→$400, $400→$450) clustered on it.
• AI/data-center optical sentiment — MTSI now trades with the optical-interconnect complex (Coherent, Lumentum, Credo, Marvell). NVIDIA photonics headlines and hyperscaler capex prints move the whole group; MACOM rides that beta.
• Defense-budget / program news — the I&D ballast reacts to U.S. defense appropriations and program ramps.
• M&A — MACOM is a serial acquirer (Wolfspeed RF business, OMMIC/MESC, ENGIN-IC, Linearizer); deal announcements and the new April-2026 UK "Investee" stake (£30M equity + £15M convertible notes) are catalysts.
• China/export-control — BIS actions and China-demand swings are downside catalysts given 28% China revenue.
• The historical low-base anchor: non-affiliate market value was ~$5.7B as of April 2025; at ~$29.9B in June 2026 the stock has roughly 5×'d in ~14 months — the re-rate itself is the story, and it raises the bar.

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Phase C — Judge people & books

Lens 9 · Management

• CEO Stephen (Steve) Daly — appointed CEO May 2019, director since March 2015, Chairman since Nov 2023 (combined Chair/CEO — a mild governance flag). Track record is the strongest single qualitative positive: before MACOM he was President/CEO of Hittite Microwave (2004–2013) — a high-margin RF specialist acquired by Analog Devices for ~$2.45B in 2014, widely regarded as one of the best-run RF franchises of its era. He has run the same playbook at MACOM: portfolio focus, margin discipline, bolt-on M&A. Under him, cumulative TSR reached $329.94 on a $100 FY-base by FY2024 vs $234.89 for the PHLX Semiconductor Index — outperforming the SOX.
• Skin in the game: direct ownership only 0.041% ($11M) — modest for a founder-operator archetype; he is a professional manager, not a large owner. Flag: an insider sale of 100,000 shares has been reported — routine for a comp-heavy exec but worth tracking against the run-up.
• Capital allocation: reinvest-and-acquire, not return-of-capital — no dividend, no buyback program (the only "repurchases" are tax-withholding on vested RSUs; the publicly-announced-program column is nil). The signature 2025 move — exchanging/refinancing the 2026 converts into 0.00% 2029 converts + equity, then repaying the 2026 stub in cash — cost a $193.1M GAAP extinguishment charge but left the company with effectively interest-free leverage and a net-cash sheet. Defensible, even shrewd, financing.
• Comp: ~$10.1M total, ~92% variable/equity; say-on-pay 97.5% approval — shareholders are not agitated.
• Archetype: disciplined professional operator with a proven RF-franchise exit. Implication: execution risk is low; the risk is price paid, not management quality.

Lens 10 · Forensic Red Flags

Income statement / balance sheet / cash flow scan:

• GAAP–operations divergence (benign): FY25 GAAP net loss $(54.2)M was driven entirely by the $193.1M non-cash debt-extinguishment loss; operating income was strong ($129.7M, +76% YoY) and OCF was $235.4M. Not an accounting red flag — but anyone screening on GAAP net income/P/E (trailing P/E ~170×) is being misled by a financing artifact.
• SBC is large and growing: $79.4M in FY25 (8.2% of revenue), up from $45.6M/$38.1M; it flatters non-GAAP/adjusted EPS (the $1.09 adj vs $0.60 GAAP gap). Real and dilutive — watch share count creep (basic shares 70.8M→74.0M over three years; ~74.9M at Nov-2025).
• Inventory is the auditor's critical audit matter — $252.2M (Apr-2026), excess/obsolescence reserve is a key judgment in a cyclical PO/turns model. Inventory + AR both growing; AR up to $159.6M. In a turns business, a demand air-pocket would expose this fast. The one balance-sheet line to monitor.
• Goodwill $335.6M + intangibles $67.4M from the acquisition spree — impairment risk if the acquired RF/defense content underperforms; none taken to date.
• Deferred tax asset $202.0M and a partial valuation allowance (a $10.1M allowance on foreign NOLs was added in FY25) — modest judgment area; effective tax rate is volatile (FY25 distorted to (86.8)% by the non-deductible extinguishment loss; FY26 guided ~17.3%).
• Customer/channel concentration: two distributors >10% each (12.4%, 11.2%) — revenue runs through a thin channel; a distributor de-stock would hit hard.

Regulatory findings:

• SEC Litigation Releases: none naming MACOM (2021-06-22 → 2026-06-22).
• SEC AAERs: none.
• 10-K Item 3 / 10-Q Legal Proceedings: the company states it "was not involved in any material pending legal proceedings" during the period; the 10-K describes only ordinary-course IP-indemnity exposure.
• Non-SEC enforcement (FTC/DOJ/FDA/BIS): no material public hits surfaced; the relevant regulatory exposure is prospective (BIS export controls on China, ITAR/EU dual-use for defense parts), not an existing action.
• Conclusion: No material regulatory or legal findings — verified via SEC EDGAR EFTS (LR, AAER), web search, and 10-K Item 3 / 10-Q Note 13 as of 2026-06-22. Auditor Deloitte & Touche since 2010; unqualified opinion incl. ICFR.

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Phase D — Project & stress-test

Lens 11 · Forward Projection (adjusted EPS, fiscal years ending ~early Oct)

Built bottom-up from the latest actuals + the company's own Q3-FY26 guide, into base/bull/bear. All outputs ``; inputs labeled. MACOM's fiscal years: FY26 ends ~2026-10-02, FY27 ~2027-10-01, FY28 ~2027-09(FY28 end).

Anchors: H1-FY26 adjusted EPS ≈ $1.09 (Q2) + ~$1.0x (Q1); Q3-FY26 guide adj-EPS mid $1.34; analyst framing ~+13–14% revenue CAGR, ~+16% EPS growth through FY28. FY25 revenue $967.3M.

Valuation cross-check. At ~$391, base FY26 ~$4.90 ⇒ ~80× FY26 / ~65× FY27 adj EPS — richer than the ~54× "forward" figure the screens quote (the screen is likely blending a higher Street FY27 or a NTM number). Either way the multiple is full: MACOM is priced for the bull path to substantially hit. Forecast NOT logged to forecast.ts — --watchlist breadth rule (log a Brier forecast only on genuine committed conviction, done in /thesis). The honest base case: a high-quality compounder whose fundamentals justify a premium but whose current price already embeds several years of the optical ramp.

Lens 12 · Bull vs Bear

Bull case. Three secular legs rarely found together in one mid-cap: (1) AI data-center optics — the only leg the market is paying for, growing 36–48%, re-mixing the company toward higher-value coherent/photonic content at 100G→3.2T; (2) U.S. defense — Trusted-Foundry-protected, budget-tailwind, sticky; (3) telecom/5G/SATCOM — cyclical but real. Layer on 56.9% record gross margins and a fab-lite + net-cash balance sheet after the convert cleanup, a proven operator (Daly/Hittite), and interest-free 2029 leverage. If data-center optics compounds and telecom re-accelerates, FY28 adj EPS pushes toward $8–9 and the premium is earned. Contrarian view the market underrates: MACOM is the diversified, profitable, U.S.-fab way to own AI optical content — less single-customer-fragile than the NVDA-anchored pure-plays, yet it trades at a fraction of their multiple.

Bear case — what could permanently impair or de-rate:

1. Multiple compression. At ~54–80× forward, MACOM has re-rated ~5× in 14 months. A single soft guide, an optical-capex digestion quarter, or a rotation out of the AI-optical complex (Coherent/Lumentum at 150×+ are unstable) could halve the multiple with no change in the business.
2. China + export controls. 28% of revenue; BIS rules can cut access overnight and seed domestic Chinese competitors MACOM explicitly fears.
3. Telecom deceleration is already visible (+7.6% Q2 vs +41.4% FY25). If that's trend not timing, the "three secular legs" story loses one.
4. Inventory/turns fragility — $252M inventory in a no-backlog PO model; a demand air-pocket triggers write-downs and a margin reset (the auditor flagged exactly this).

Pre-mortem (18 months out, thesis broke). Most likely: AI data-center optical demand "digests" after a hyperscaler capex pause; MACOM misses a quarter or guides flat; the optical complex de-rates from 150×→80×, dragging MTSI from ~54× to ~30× forward — a 40%+ drawdown — even though revenue still grew ~15%. The business is fine; the price was the risk.

Lens 13 · Devil's Advocate (short-seller)

Dismantling the bull case. What structurally breaks the money machine? Revenue concentration sits in the channel, not the logo — two distributors are >10% each and distributors are 32% of sales; a channel de-stock (which the company can't see, by its own admission of "limited visibility into customers' inventories") would crater a quarter. The moat is narrower than bulls think on the growth leg: the Trusted-Foundry/defense moat is real, but in data-center optics MACOM competes head-on with Broadcom, Marvell, Credo, Coherent and Lumentum — far larger, better-capitalized, several NVDA-anchored. MACOM is a content supplier into optical modules, not the architect of the link; it can be designed around. The most dangerous competitor bulls underestimate: Broadcom/Marvell vertical integration in optical DSP + the silicon-photonics push (NVIDIA-funded at Coherent/Lumentum) could commoditize the discrete analog/photonic content MACOM sells. Worst capital-allocation/accounting tells: none egregious, but a serial-acquirer with $336M goodwill, $79M-and-rising SBC flattering adjusted EPS, a combined Chair/CEO, and a CEO trimming 100k shares into the run is a profile that demands scrutiny. What must hold for ~$391: ~15%+ revenue CAGR and a sustained 50×+ multiple for years. If growth disappoints 20–30%: at ~30× a $4.4 bear FY26 EPS, fair value ≈ $130 — a ~65% drawdown from here. Single scenario that permanently impairs: a China export-control regime that removes 28% of revenue and hands the share to subsidized domestic competitors — plausible-but-not-base.

Lens 14 · Management Questions (ordered by information value)

1. Of the Data-Center +36% YoY, how much is new design-win content (1.6T/3.2T sockets) vs. share-of-wallet at existing customers vs. price — and what is the design-win backlog you can't yet see in revenue?
2. Telecom decelerated to +7.6% in Q2 from +41% in FY25 — timing/53rd-week artifact, or a genuine demand roll-over? What's the FY26 exit trajectory?
3. What is current book-to-bill and lead-time trend by end market, and how much of the Q3 guide is backlog vs. expected turns?
4. With 28% of revenue in China, what is your concrete contingency if BIS tightens controls on your RF/optical parts — and how much revenue is already export-license-gated?
5. The two >10% distributors: how much end-demand visibility do you actually have through them, and what's your channel-inventory read right now?
6. Adjusted EPS is ~$0.49 above GAAP largely on SBC ($79M FY25). What's the multi-year SBC-as-%-of-revenue and share-count dilution path?
7. Capital allocation: with net cash and 0% 2029 converts, why no buyback to offset SBC dilution — and what's the M&A vs. return-of-capital priority?
8. Walk through the new UK "Investee" investment (£30M + £15M notes) — strategic rationale, what it gets you, and is this a template for more minority stakes?
9. Gross margin hit a record 56.9% (58.5% adj). How much is mix (data-center/defense) vs. RTP-fab utilization, and where does structural GM top out?
10. Inventory is $252M with no backlog and it's your auditor's critical audit matter — how do you size obsolescence risk in a turns model heading into a possible optical digestion?
11. RTP (ex-Wolfspeed) GaN-on-SiC: utilization, yield maturity, and incremental margin as it scales?
12. CHIPS Act: status of the ≤$70M award and the 25%→35% ITC — quantify the capex/cash benefit and timing.
13. Where are you on silicon photonics vs. discrete optics — is co-packaged/silicon-photonics a threat or an opportunity to your analog content?
14. Defense: which programs drive I&D, what's the multi-year visibility, and how exposed are you to U.S. budget continuing-resolution risk?
15. Five-year frame: which of the three legs is the largest by FY30, and what's the ceiling on data-center as a % of revenue before customer-concentration risk bites?

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