MACOM's adjusted operating profit jumped 51%. What changed?
A sharp sales increase met almost steady research, sales and administrative spending. The next forecast calls for higher margins despite a larger tax charge.
MACOM got almost exactly the sales it had aimed for. The surprise was how much more profit it could make from them.
The chip supplier reported $424.8 million in revenue for its fiscal fourth quarter, near the top of the $415 million to $425 million range it gave in August. Adjusted earnings of $2.09 a share cleared its $2.03 ceiling. Its next forecast points to another increase in both sales and margins.
The important change is inside the business. Research by Ticker Byline shows that sales rose 24.1% from the previous quarter, while adjusted spending on research, selling and administration rose just 1.6%. With those expenses spread over more sales, adjusted operating profit jumped 50.6%.
MACOM makes semiconductors used in data-center connections, telecommunications, industrial equipment and defense systems. Our MACOM company profile tracks its results and the next targets to test.
More sales, more left over
That relatively steady expense base helped lift adjusted operating margin to 38.2%, from 31.5% in the previous quarter and 25.6% a year earlier. In plain terms, MACOM kept about 38 cents of each sales dollar as adjusted operating profit.
It also earned more before those research and administrative costs. Adjusted gross margin, the share of sales left after production costs, reached 61.3%. That beat the 60% to 61% forecast from August.
The improvement shows up in reported results, too. Operating profit under standard accounting rules rose to $134.2 million from $77.1 million in the previous quarter. The adjusted figure was $162.3 million, mainly after excluding stock-based compensation, acquired intangible amortization and acquisition costs.
Reported net income of $139.4 million also included a $19.4 million investment valuation gain. MACOM removes that gain from adjusted earnings. The operating-margin improvement therefore gives a clearer view of the sales-to-profit change than net income alone.
The next quarter brings a higher tax rate
For the quarter ending January 1, MACOM expects revenue of $450 million to $460 million and an adjusted gross margin of 62% to 63%. It forecasts adjusted earnings of $2.21 to $2.29 a share.
That earnings range already assumes a 6% adjusted tax rate, twice the 3% used in fiscal 2026. MACOM attributes the increase mainly to higher profitability and the use of its remaining historical deferred tax assets. A larger share of pretax earnings will go to tax even as the company expects profit per share to rise.
Cash generation supports the improvement. Operating cash flow for the full fiscal year rose to $357.1 million from $235.4 million. MACOM spent $64.4 million on property and equipment and another $10.7 million on software and licensed technology.
The next result will test whether MACOM can keep that combination working: more sales, a higher gross margin and restrained growth in its research and administrative expense base.