Memory Caught Up to Them; Peer Perform...

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Memory Caught Up to Them; Peer Perform...

July 22, 2026

Details:

When Will Gross Margins Recover? Memory costs are affecting the business. We believe the company has been buying

memory on the spot market in an effort to get ahead of supply. We presume they ran out of lower-priced inventory

in Q1 – hence, the step-down in Q2 margins. Their Q3 margin guidance implies a Q/Q step down of 280 bps to 52%

(midpoint) -- the lowest margin levels since Q1'23. Looking forward, they expect gross margins to bottom in Q3. We

note that they began passing memory surcharges onto customers beginning in Q2, although they grandfathered Q3

orders in the order book at Q2 surcharge levels. Also, they’re now adjusting surcharge rates monthly based on memory

price movements. We're hesitant to agree that margins will bottom in Q3 – of course, the memory markets have been so

volatile. Also, we note that Calix – historically – has been running the business for market share. They’ve been hesitant

to be aggressive on pricing as we saw during the 2021-2022 supply chain crunch. Also, they haven’t quantified the

mix of their BOM that comes from memory (DRAM & NAND). Of course, it’s had a bigger impact on CPE equipment --

where Calix has larger relative exposure versus the OLT side of the business. One positive note, Software & Services

margins are expected to continue trending higher, although the relatively low mix (~17%) will mute the P&L benefit. As

an offset, Calix is tightening their belt on operating expenses -- which fell to 41.7% of Q2 sales versus 45.3% in Q1.

Operating expense will continue to be a focus going forward – especially if gross margins remain pressured.

About that 2026 Revenue Growth… Calix guided 2026 revenue growth expectations toward the higher end of their