Lumentum (LITE) 8 Nov 222023 Q1 Earnings call transcript

Good day, everyone, and welcome to the Lumentum Holdings First Quarter Fiscal Year 2023 Earnings Call. All participants will be in a listen-only mode. Please also note, today’s event is being recorded for replay purposes. [Operator Instructions] At this time, I'd like to turn the conference call over to Kathy Ta, Vice President of Investor Relations. Ms. ahead. go please Ta,

Welcome is Fiscal President Kathy Relations. operator. Earnings of Quarter Call. This Ta, to you, First Lumentum's XXXX Investor Thank Lumentum's Vice

the margin me this expectations those by in Today's and regarding this Senior and our today. Vice undertakes required NeoPhotonics, Chief forward-looking call the and statements, and of XXXX. Chief statements July law. are for guidance trends, X, President Form for year macroeconomic market Chief Joining statements expected continuing regarding operating well including to business customers trends and slides superior our current combined fiscal our website that market projections in as financials unless our our could Corporate financials and results the filings. products with otherwise as expectations you our regarding financial results report model and financial our Lumentum's future our Lumentum's includes factors and our a quarter the Officer; of include and and this obligation operate. expectations results President section. XX-K our opportunity based XX-Q at Alan strategies This results our be Development Please filings first our on forward-looking uncertainties and Wajid for risks GAAP risk available to of all described between www.lumentum.com from beliefs and actual the uncertainty not described including materially X, XXXX stated, in including recent supplemental except non-GAAP as expectations filed and turn to under Non-GAAP for, note, in SEC, Officer. non-GAAP targets. fiscal to subject and our performance, that, details Financial Coldren, or acquisition impact accordance encourage Officer; prepared no markets, will Ali, a With the our to Lumentum GAAP. as Investors and measures Chris in with discussed financial accompanying about results. and and call with Strategy in are on risk company October press technology, today factors accretion, are additional call regarding synergies opportunity, call differ the to ended most historical in and SEC these XXXX, quarter reconciliation and on to the revenues, particularly cause applicable which and of customers as I'll The Executive and our our to Lowe, over quarterly the The expectations, also release COVID-XX recent Alan. We are financial and statements expected on update reasonable regard, considered benefits are during are provided statements non-GAAP. be to including the substitute financial review ended These the we markets statements,

good and Thank you, morning, Kathy, everyone.

share of execution, Our quarter. team I operating our end at revenue operational first of which we first midpoint margin was range, excellent, for and to guidance, high like quarter revenue our thank earnings our and achieved and the quarter a their guidance. would financial the above performance above record global solid drove per

center and our business. the two well positioned The Optical our cloud We customers. further serve closure recent portfolio to most have strengthens now term. acquisitions photonic are industry's We long Communications comprehensive the networking for data of product

infrastructure. demand drivers fundamental see to continue We for strong network

to handle reporting are order reported backlog optical are Leaders need new levels. bandwidth. unrelenting record record fiber have customers who the in fiber for seeing demand strong We shipments from our of

Our fiscal Difficulty]. In same QX products well to [Technical compared and telecommunication are the occurring. to now aligned inflections market capabilities

a foundation exposure architectures. been have to lines commercial through trust our product network infrastructure we markets as stronger. our revenue proven years, the of communications Over differentiated customer built and been Lumentum's solutions has lasers Also, have never within

expect of revenue discussed in and markets consumer that the will infrastructure is fiscal outside come recent We previous from greater of share XX% than calls investments. normalization in to This strategic 'XX. consumer company-wide due on

more into team. excited technology expertise of now products the recent high have to As quality our am I we are integration global three of that the months and about we our the acquisitions, the even added

advanced several Last we to full-year outlook shortages not growing In developments in we our our we confidence our gave our revenue landscapes. in combined capitalize to expect 'XX. the R&D strength in an more We market. accomplishing even quarter, 'XX on and and an the tool throughout these us demand to enter financial infrastructure Since in upon goals. help technology telecom business. fiscal our and our Networking, supply expand progress teams, overall These position share benefit look quickly product sharing are offerings supply fiscal with We higher of now our IC We business, as plan in Communication more to forward our in Communications, markets our on anticipated. investment in belt. then, have improving scale synergies previously closing adjacent networking adjacent have Telecom, position as in executing manufacturing realize these accessible to hardware of expand and in shortages tools a Optical volume the acquisitions, excellent greater model and been with markets are gate us to the with upcoming long-term community We now trends our to to accelerate in higher there plan. strategic acquisitions Since quarters. are

and others, now cloud our demand are end-market In we addition, incrementally seeing many from customers. like lower consumer

applications, demand detail to transitioning our technologies, products wavelength these in fiscal networking especially 'XX advanced new and for Overall which modules and remains Taken discuss Telecom higher-speed Wajid are revenue, later. result tunable changes products. transport will strong, together, a for components outlook in edge which in

speed to play these of the All networks. above into industry's and XXXG transition

me first let detail revenue quarter XX% Telecom some year-on-year our up with provide Telecom and organic year-on-year. XX% was on up Datacom and Datacom results. Now,

chain IC shortages team work to to supply for on as to continues gap chip robust fulfill demand work Our the diligently close products. our

we expect coherent quarter. cards. leadership the revenues for and and We modules first $XX the to shortages tunable for record of that in the of networking approximately products the quarter, revenue of line three first applications, edge these will transmission chip end similar quarterly tunable areas, be impact million high-speed the at narrow-linewidth lasers, quarter, components product achieved In coherent second

team Our our I the in deep talent tunable to the laser performed added the business bench have of narrow-linewidth quarter. acquisitions. to with our expectations am we recent with that impressed

and teams tunable ultra-narrow-linewidth the expansion DSPs are lasers, excited coherent photonic external R&D photonics, integrated very of circuits. toolkit coherent our components, modules, cavity Our in about leading-edge high-bandwidth RF silicon

focused growing Regarding DSPs, enable and our to we ZR in ZR+ significant coherent reduction tape-out module production of are business. on our a cost capable XXXG DSP

bandwidth for that deep applications XG products wireless tunable Our metro expand network applications. capabilities fronthaul and edge in have help fiber access, unique to

last will and doubled increase further wafer XX% capacity by to our fab are both, capacity quarter test year expansion next and We in our another these the the of and assembly same serve phase applications. to growing QX We coming our revenue quarters XXX%. manufacturing from back-end expanding front-end the

increase, to uniquely a we the set and data customers. wireless network are edge As positioned growing rates serve of diverse from cable demand networking

coherent coming above record and from new in XXXG a with approximately Our reached XXXG components applications. one-third also revenue the quarter

revenue robust access new MxN grew product to XX% about critical a modules. excited very as XXXG increase quarter above strong the year pipeline also XX% our over next-generation the due sequentially area are better to closed XX% to continued grew we and of and ROADMs communications. in of and scalability components We new the need quarter, contentionless fiber of opportunity with to for the sequentially quarter, lasers deployments. from along satellite Shipments pump ROADM ICs. same handle next-generation demand, last significant In In networks

a softer for demand continued next fourth demand blades distancing decline subset the including The from competitors. quarter. due of operators, a began to to revenue and We was hyperscale customers. next the EML saw in leading product ROADM generation 'XX. generation by further lower lead has continue record anticipate WSS decline In to of revenue our architectures we products, ourselves In transport node-on-a-blade center from industry MxN of from our lowered We innovation. we outlook a fiscal shipping of and sequential Datacom, the Datacom which cloud quarter, customers, data our balance contentionless the transport

the applications. Datacom of We phase our for continue X.X with next per EMLs to XXXG map road industry drive terabit second per lane the

design-in we these activities we exit these expect with production We chips. as multiple in fiscal are and engaged to customers leading-edge 'XX, enter for

VCSELs. copper and we with XXX addition, transition data center enabling In per about fiber the excited from lane optical applications are our to gig

product ramp 'XX. We fiscal this expect line to during

Turning QX due to product Industrial the was & up from Consumer. new to launch. smartphone QX

XD normalization QX half As level. expected, caused share last sensing revenue approximately of to our year's be

same automotive sensing to revenue our applications, applications to from the we quarter, Underscoring serving first business Fiber Lasers year. last same markets quarter quarter in XX% was applications this IoT grow industrial Commercial this, quarter, significantly from automotive and from X% up the industrial the expect sequentially We In ramp. years. $X as in XD year. in about last XX% approximately and we and million are first optimistic begin in the coming and revenue recognized the Lasers grew

introduction with in us, generating set and a products, of applications processing. have laser the cell new for solar new We such battery of growing customers EV as is which

a revenue has have our I'd In to the which CSR quarter, the moment laser we we take our toward achieving made progress toward the Looking initiatives. responsibility a significant to in we social future. ahead quarter-on-quarter. to published report, goals second corporate to grow outlines team expect made our second September, share again like excellent ESG low-carbon progress

X% Our percentage electricity has poised this renewable of XX%, use expanded are again we and from year. to increase this to company-wide

capitalize our all We've unique the We in very on communication, and beyond. vision with global established R&D we our We environment, in current new measurable the 'XX, extremely and markets. execute call, look term. believe existing employee line in I'm long position advanced and we technologies, thank opportunities position will which to inclusion our well in machine consumer and retention. of fiscal have 'XX invest training consistent initiatives development Lumentum prior grow would for fiscal the their over win profitability benefits strategy about beyond. investments our and To a 'XX year's of X.X fiscal the accelerate of this communication all in diversity, portfolio, groups belonging growth us strategy, during put that, and expand sites. is and and top are extended end to include earnings I competitive our and like and Wajid. work cloud increasing to to over grow trends markets positioned our the product at mentorship Industrial in employee I'll world has With markets adjacent career program and and hard in employees great for realizing these computing, to turn around it in to excited forward resource that award-winning and networking Lumentum's resilience edge industrial our today. our to such

revenue. income million, Alan. X.X%, was quarter loss midpoint and up was and operating you, $X.XX. in first the the XX.X% share up for for GAAP and margin quarterly was per record first GAAP revenue revenue a of was quarter gross XX% net range of our a GAAP which Thank was guidance exceeded $XXX.X was sequentially margin the net Net year-on-year. Net diluted XX.X%,

and non-GAAP expected. sequentially NeoPhotonics down was First which primarily gross XX.X%, including revenue year-on-year, by was quarter mix, as product driven margin

as our incurred we from customer acquire brokers from gross quarter, $X.X filings. margin IC satisfy non-GAAP demand. extraordinary These charges in to the the were During charges to components incremental in million various excluded disclosed

our above First quarter due decreased high our acquisition investment XX.X%, of sequentially with was margin and and and including which to range. guidance end operating the the year-on-year was DSP mix, NeoPhotonics Telecom product non-GAAP IPG

quarter EBITDA operating non-GAAP and $XXX.X $XXX.X was income was adjusted million, First million.

basis. revenue. expense million. and totaled million expenses was or net operating of R&D non-GAAP million. quarter on million $XX.X SG&A XX.X% $X income expense First income was was of non-GAAP $XX.X $XXX.X a a other Interest

non-GAAP last end our our the was quarter was income non-GAAP on diluted X provided high which range net $XXX. share per $X.XX, First and million was of call. at net guidance income

share Our the XX.X shares non-GAAP first on was basis. quarter for fully count diluted million a

XX.X%. at remains rate tax non-GAAP Our

and Moving to the balance sheet. quarter investments. cash We $X.XXX with short-term the in ended billion

million. During our for we XXX,XXX the quarter, repurchased of shares $XX.X

quarters, for of Lumentum As our $XXX.X reflecting million shares last growth. purchased of we the the million over end the first of six quarter, a long-term confidence have total X.X in

to Turning details. segment

Optical our Communications addition to robust gross million due decreased of to year-on-year, in Optical XX.X% sequentially Telecom primarily at and segment $XXX.X due segment XX.X% sequentially NeoPhotonics demand quarter NeoPhotonics. revenue. First and mix revenue business at and the increased Communications margin product

quarter $XX.X up was at first revenue and Segment X.X% up Our year-on-year. XX.X% million Laser sequentially

First was quarter but up sequentially Lasers down, gross year-on-year. of XX.X% margin

Before to to we like would add turn to some our outlook said guidance, regarding what I Alan 'XX. for fiscal our color

experience anticipated expected as as to previously supply IC not are fiscal 'XX. improving quickly continue to We revenue now which shortages gate and our throughout are

from addition, still like we of our 'XX. $X.X factors, consumer reduction customers. At August billion. and these In on billion fiscal than this our XX% lower greater to a now growth and approximately from revenue $X.XX is new many from X% outlook, expect is outlook the market-driven others, cloud our Based demand end is midpoint,

the ICs Our range of to of in fiscal fiscal of the our annual The is in XX% and number to the both and we R&D initiatives, markets. of share. and small outlook reducing range in $X.XX 'XX markets spending a while of $X.XX delay existing lower improvement XX% this within new the is the supply is 'XX operating outlook. EPS areas investments largest in outlook, discretionary increasing per factor in are Within growth margin our

the work gross operating we the term. our of begin IC accelerated to and to to in XX% in and margin benefits financial As expect return investments, we we on realize target shortages longer acquisition and down R&D execute XX% synergies model margin the from supply

Now, me a based our of of our guidance on which to for second the is non-GAAP on as basis fiscal quarter and move let is 'XX, assumptions today.

revenue be the to of $XXX net range 'XX million. expect of the in million to for We second quarter fiscal $XXX

be net QX income of this, revenue of to impact on Our incorporates per the the third-party to shortages components. share XX%, quarter be to driven XX% second guidance to $X.XX share. range Based range of operating project approximately diluted of in by $XX per to we in million margin $X.XX and

based annual of guidance EPS XX.X%. shares. quarter is non-GAAP effective on assume Our a approximate share for projections an These count of XX.X second the tax million rate non-GAAP

With back to hyperscale the by start continued and lower outlook, expect I'll data turn sensing supply now a XD stronger be IC our seasonality spending high to Q&A QX, constraints, we the Given QX session. down a single-digit center in revenue the followed embedded from to QX. that, Kathy? percentage call Kathy

Thank you, Wajid.

session, help I question the everyone get Q&A one session. the let's question-and-answer allotted like would ask the Operator, start possible begin keep our as to participants end we Before us as to to and one follow-up. before of should many This time. to

Instructions] Chatterjee Morgan. Our [Operator Samik from comes question JP of first

full my Thanks bit first for delve for the one, Hi. you. Yes. taking Thank you the a into I more. questions. can if guide year guess

so You're consensus sort and the fiscal headwinds to least $XX sort and million, greater of year look though, in guiding F of The only the does it full down shortfall about at was become $XXX at when I the relative by compared what was million. consensus, thinking I XQ. XQ think second to about quarter imply

how for about further demand do well wondering one of of That's break that as lower insights the So sensing how risk just down some of on million demand you sort to the the sort sort can cloud maybe much break you I'm on well. question we as as down if that lower of well can And as highlighted, is share lower that I'm pieces XD $XXX demand. versus us? supply you getting the the if into think as cuts

a after the this. for here. I question follow-up And have quick sorry long

Samik. Thanks, Great

you So, look couple of can it a ways. I at think

the expectation fiscal is the biggest remarks, the and our prepared in through that reduction will chip As the of the of impact shortage the Wajid 'XX. year, continue said into beginning

about impact. full have that's of million we biggest of customers range that the the is year I'd $XXX the part So, sensing customers say mind, the in subset in outlook. hyperscale probably the still of and same the guide. keep combination XD or But reduction of

potential So, potential only our and to wide range and To a guide. economy, second that's what's there's going a half that look ball have business know to no we that why still upside we crystal at have the your and future how certainly impact. shifts of happen we to given as there's lot in uncertainty in the in point,

uncertainty continues as we certainly to So very gain markets for think Lasers and Commercial some there. But business we're I new very, enter Telecom strong demand confident the as our outlook the in extremely share and there. grow is

look So, I'd kind guide. moving year say, the those full pieces are we the as of at

back particularly the in overall, companies up getting, -- of date, based are follow of again, could year other at the on get expected? supply reported in here that point? not investors about seeing that bit of what supply sort it sort headwinds guide in FXQ supply to full surprised in sort your chain we're than previous been hearing What's and till worsening you're maybe you The question sort at And It's are or of that supply so for what better is on half definitely the improving, the worse. sort just drive I'm have that line terms point? so come insights in the more this on seeing shortages headwinds, you're and some of baking that this share what here, of the implied for XQ all to sort greater a to and quarters in landscape

as certainly, and our I growth growth telecom forecasted you telecom is QX better, in in QX. supply mean, getting our Yes. saw from

is demand. better, up the catching with it's but situation not getting So in growth

million our we And QX, as shortages that's are when same QX. or of about As at be end expected $XX some. the exited we minus talked plus the to

as the pretty is our just output. as demand same the we're strong strongly. So, At time, growing growing Telecom

So, demand components chain few are with we're and supply suppliers components not needed shortages. up the is time, at same And that product. catching we're given it those that But ship fewer chasing. fewer to

And with meet that of we're couple still so, our handfuls very of suppliers restricting telecom ability that to constrained parts say this by a of I'd strong demand. handful a are very,

of comes James. question from Simon next Our Leopold Raymond

nuanced. be My may a question bit

clear. don't basically me, they So the of. I'm to than softer It's guess is described. what impression line hairs, And help are demand struggling But some me And specific of versus And everything the cloud enough demand, cloud I trying have in understand you've out. called trying softer one demand have I tell been my the of it. rebalance you not that they chips it’s different could get that, I'm what plenty inventory with splitting of. on apologize understand to But operators if you're of trying you. to sounds if short maybe us you to if not softer so. I'm it's Thank just things what

Okay. showing it's driving -- not hard say talked certainly, it's of I'd that of were for EML this them center. subset, softness, data we extremely Simon, where the rebalancing softness. your the a combination inventory, a I when And point, do they think all to inside about the hyperscale are chips

they to demand that at So, time, the rebalancing but softer leads they on us. have think inventory. rebalancing, I are do same

up, to demand in burn end believe so year fiscal we your on will down expect we next the fiscal back question, answer their point, and of burn that 'XX, So, and suppliers, that that they'll up. as through Simon? of the these into we that they expect your get that that those at would into demand the inventory chips we quarters of pick Does couple but to there is us inventory, pick as

be quarter? And there's NeoPhotonics It the not affected wondering particular, or out that. to what if does. related you by contribution and disproportionately just appreciate were would It products, break the this. lasers able ZR And in whether to does. both transceivers -- was No, I

Yes. Hey Simon, this is Chris.

executing to moving company, synergies. and not -- we've already So going one forward, we're we're on started

forward. mentioned for It's to Neo if days. going you lines us versus out this right? trouble will. We moving break product the at Neo revenues, We're grow. So, one Lumentum point said, even continue company, if That in we we're get not to early ZR company like very inside in

I that to, think, been mature quite as you Alan shipping more will, product seeing while. of if alluded inventory this we've a we're lines, on more an correction for

Thank you very much.

of Morgan next comes from go Marshall Stanley. Our question Please ahead. Meta

me. Great. for Maybe question first

shortages Just it's a your Just into joint buy that deliver, that just in aren't all has terms me. to ability the that wanted for or seeing that your to customers of then ability slowing demand? things that shortages of of sure Lumentum cross-sell trying restricting how or supply not to the verify your customers? how question And been make kind are just that joint that some and of of the kind necessarily process chain between you're second and of kind products that they NeoPhotonics IC IC are cross-sell kind these would maybe the kind going? have communication process of just and can to -- -- process of customers, portfolio their

Sure, Meta.

our were supply. the ability that's unable So, our we $XX talk we as supply But QX, impact that's the having to $XX at to whole and when challenges demand, end customers million the having shortages, as challenges of to quarter. end they in at about to satisfy million customers. customers about our our the Certainly, what the of getting need on supply QX we are talk to when industry the well chain the

we're the go to the far when portfolio we able having of customer a As will cross-selling, as with benefit that portfolio. our see that we broad to broad have now,

made of acquisitions just bring I does the think portfolio with as and about product and some certainly, say, should and excited qualification our the back see we've to the technology in product the to that above gig market. are the time so expect XXX half take and customers we and year. of go quarters that the takes we But that component future are happy very and we

of Notter comes question next George Jefferies. from Our

And areas R&D I wanted to also, guys plan you you're was I that, looking I wondering guess what the curious know I I investment. was the plan then that of specifically increase invest in. to on the about was development DSP to Photonics to program. grow R&D I I that IPG in ask your guess, business division guess about acquired.

I $XX R&D I'm number right you to one million that's just investment if think said million to guys point, think the about. there. $XX in wondering at still

Sure. Thanks, George.

in say are the is increase R&D I'd of products core is a of our continuing one the couple So, areas, which have differentiated in that best business. to

that as the complete in integration I of the XXX ZR very ZR+ to working DSP. should us gig the also market. where the so, R&D and new been general, our we're development as for the photonics with capitalize ongoing development to our and on point, look Telecom product we And your area And are on that's have then vertical in remarks, is enter in full really ZR+ that we're DSP prepared DSP efficiencies and And gig focus say to best-in-class product our have those drive technology in talented expect. investing growth give for cost I'd said our in and tape-out XXX the we IPG cost the could a the R&D componentry that specifically very, increasing ZR production acquisition at we doing markets R&D line, emerging be now for that markets, that been that transmission able and as we of we had are ZR, to technology that markets. team

to is those continue growing continuing. We're we investments. excited make and progress. The great. that team about that's We're So the team

that's As in next-generation far of then $XX technology DSP going we're looking with as yes, that complete map. at continue to invest say our the what in in the we're we're But million, DSPs to that. developing ballpark I'd road to

Arya America. Vivek of from comes Bank question next Our of

is you. This for Blake Hi. on Friedman Thank Vivek.

Just guide. a mix you but the some there's mentioned to looking in the you acquisition, margins, issues. at realize NeoPhotonics synergies gross one quick have on I know

year as of you well gross kind half with we Thanks. half-over-half? provide progress kind was the back revenue trajectory the in on projected can commentary of forward, decline as margins, So, I maybe high-level any the of specifically hoping to of

Yes.

if So, off can and start Alan on Chris they'd I'll in and answering this, like. jump

quarter-on-quarter, than So quite into seeing XX% greater going sensing yes, XD QX on negative our so into QX, that's business, we're moving versus dropping QX. seasonality certainly

cloud gross customers And that our business, a that so, an already seeing is that's talked the chip or has a business. business certainly on margins. also some that customers. about we're a And our that challenges Alan subset impact cloud given with chip of our of

so, on a our gross through and impact well we negative And as that's QX. margins fiscal as having move QX

With we'll also throughout lower see revenue fiscal the manufacturing overall overhead our negative absorption levels, year. some

that, year. well we offsetting communicated side takes of out we of as standpoint as facility are that consolidation fiscal the well. as of some you from all had expense with acquisition, well Now our synergies very doing operating part the a to the as The on the both on facilities consolidation outside of

for we're embedded that this of half that, fiscal. that operating and it's QX fiscal in most to we'll that first already of see our so, of within the outlook and benefit in But some and QX And for of starting 'XX. more certainly expenses, fiscal we'll see benefit provided year, the we've of see

is heard of a confirm side higher-than-anticipated in XD we've quick results. just resilient that also wanted and exposed kind just outlook just to issue because sensing of to some more the then lower vendors And you. your on to some that area share unit less like of kind the loss. Thank follow-up related Helpful. of largest a have I customer smartphone relatively

several had outlook based given on share expectations past of reminder, XD years. we Blake. a high are of Hi, our a had Chris. today. as very the And as our that we certainly, obviously, year-over-year sensing Yes, over This is expecting Yes. change, -- business is a large

a change year. So, the largest share normalization. driver year-over-year transition of it's is And our

including expect We assumption, build are obviously term, the overall around the nearer dynamics environment. expectations and as impact and ahead. upon demand we disruptions business there that world into that we ecosystem look other manufacturing our our chain the But around to play supply that normalized and

production bring your any in outlook. caused our of capacity of in that adjustment to And bit changing sort line with a lower variable? that's on new timing [Technical this So, targets time of updated other you coming more the or anything Difficulty] demand? little are

Thanks, Alex.

ability in is hyperscale burning our a would have it grow existing prepared fab not said off of XX business. I impact on takes customers our our to months XX as say, So, an production our wafer production subset investments and that remarks, chips. changing targets to we the our this We're and given inventory of to

line. generation investments on those made lane the XXX-gig us, on couple product the I'd last gig they're DMLs. for XXX which So, of track are right And the EMLs as we've that say lane years per per with that of well as next with over coming is aligning

so, we we 'XX at need fiscal growth we that expect capacity And look beyond. continued as as and

disappointed Datacom. with innovation not in I'm So, engine our

exciting, subset I us air a customers our off telling think are and the demand more say of with inventory and exciting. burning I'd to lowering six-month that of a respect pocket it's it's on us. hyperscalers are

the to portfolio I And So, photonics, we in us access think business excited long-term we're broad about that Datacom for we think our business. long-term all that for growth still DML, a confident the make EMLs, silicon, business that's us. have

the wanted underneath price second competitive no to there's in in And sensing. that? ask clear, an on be XD question to dynamics erosion Just is or then I the change

are at your Your I very still we risk substantially. you downside didn't then, in further primary any come think this or with You we you is mention didn't additionally, disruption -- demand, just there in share? And on do point? Is pricing share are mention, is competitor, under you declines. pricing? it mean, it has change pricing. Is to the steep Where very down Thanks. the splitting is -- are share pressure? said XD, these -- there but this

we're and is and pricing ask dynamic get XX competitors, as Chris the our our But with dynamics in -- demand I'd XD therefore, impacted to as it's at seeing existing all there is that of there some of pricing competitors years, competitive that's has over But year to with overall pressure. past. the been fiscal of second markets the inventory the hyperscalers. for in catch 'XX certain say it consolidation participate not much that outlook as the subset of and off the a take the sensing pricing of third question. of I'd business. I'll Datacom degree competitive the you. Datacom in our or very what our say different burn markets into is product, the dynamics, industry has in you -- your past the up take and we And there's than in, lower

as are forward, costs compelling product go shift our to have look that's we competitive pricing gig where very to as today. that at terabit to economically their say and above going a be for compared will will I'd at to, down X.X XXX very, very they EMLs, customers So,

Chris, So, say I'd you get XD take we're reset and pricing, to from about you a want that question? there. perspective, our do progress excited very in sensing the

Sure, sure.

numbers you chips if down a it you I good comment do I come is new been Hey think can't was that more it that say -- normalized, than much the would safe I So in if that morning. of it equitable year-over-year. on Alex, past. And is will. But specific share. year, now is recall there assumption a introduced, lot of last Prices has

steepest the year after of year-over-year a the new the happens so, price part typically And down chipset. you introduce second

standpoint. from really a pricing So, anything seeing not unusual we're

In now terms focused end to the overall the we the about XX% the outlook happened question. question, this and answers our which comments the come talking incremental our you that of -- had that hope given that last versus to relative we're we're in your changes of demand I that's that higher demand of quarter have revenue, changes down environment. would highlighted was and if at XX%, in will, the quarter envelope to disruption, earlier the on quarter really last around incremental that

pricing clear, -- To no pricing there's pricing. change the The in declining, issue be schedule. it's declining was no but on

I competitor a a mix, we're moving in way saying year. not but accelerating think not Datacom, major year-over-year, that's seeing time certainly declines are anything unusual of don't throughout his it. forward at with the year, the pricing to factor be that, the comment seeing unusual and or that Yes, the current adds to the and Alan that expect up, that remainder in this highlighted really catching competitor good chips about we're second that as of anything in new fiscal

O'Malley Barclays. from Our Tom next question of comes

little to dive a into year the further I guide. just wanted fiscal bit

given talk going I the business you're get talking given the single with high term. mix had mix in guess, the to was top question guys given Is getting Neo, back mix Neo XX% margin the taking Telecom model then margin the that line the thought Thank question just that it of given causing one is, new but ever two are business structure and in what's longer just the of telecom the the Can you business prior But to back inherently assumption? to you. greater you XX%. than grow new structure, -- that the that? still gross just down the is, more Clearly, to what Datacom you side. you're away XX%. business? to seeing is contribution, So digits, you a down almost taking adding guys will about you're think margin mix just there's realistic operating towards And

Yes.

are off and and Chris then Alan jump Here, Yes. start welcome I'll to in.

So, we business. growth see in our are continuing to telecom

of so, holds. figure XX% mentioned than you And still the greater

Telecom business adding seeing side down look the outlook, But about that, as coming that in side, of versus mix, had in already impact demand having sensing August some margins we're overall the NeoPhotonics both chip-based business. the on the XD Our a Datacom we talked our growth product than to that's to addition conference because which mix is negative coming on businesses of our call. in in and the in at we the on of more just product operating

margin just our operating invest within declines, see Like remarks, in said we're in pressure. Datacom that's with and to prepared business the that QX so our we'll manufacturing adding some combined of R&D. overhead continuing some in we QX, And

not back shortfalls. we're of temporary cutting so, And on we demand be that deem to because what some

operating what that's had XX% outlooked of which so, August. in is seeing back we XX%, you're why margin below well to outlook an And

continuing talked Datacom Alan invest capacity business. us our to took far is add in we're the longer-term as Datacom. XX Now, to months to as XX goal it about the in that fact

operating profile. is asked, are going one to in about of questions Synergies the months overall thesis synergies businesses. to does around XX And of see IoT, was that do. automotive And spoke that that so, secular as are We're the facilities business longer in NeoPhotonics holds. in around, -- our is consolidation in our growth margin to those we take part and than chip-based should turns both I and so the something earlier invest portion that the that continuing our of improvements happen still in of

And that so, we that see all of through, tailwind. with a or as us you as will some see flow provide also

we And so that's model overall is the those around haven't target our because all have things. three of reason really confidence we moved

could I just more sneak in. if And Helpful. one

and Datacom the of to just I'm before, more the I business, -- On clarity. asked but side got little trying get this a

pockets on change really think of guys you. to You board. to talk eyes, some is guiding strength started first you talking you mentioned turnaround. weakness, data saw guys, Can during timing are certain because Could a going peers means the Thank about the seeing Alan not which, customers the across because capacity potentially this just side, continued your my from pretty some the about we're give when declines center when Just sequential constrained I weakness? deterioration. that but inventory, demand that just the is hearing of of you actually time just about you in are quarter material

know infrastructure the three us inventory, don't hard say. customer the months had whether ago, different specific investments I mean, in were our but than I they to are I'd they told date Yes. that say

the think it's -- I more I'd of we think, receive inventory I an -- balancing than did the because else of this a say one other called analysts inventory is balancing anything orders. large

And Datacom we book-to-bill think didn't huge. to were that added were demand. our going able able And be customer fulfill to I we ago, that. year do capacity, a remember to our on we was as you maybe think If

that, did down respect they up, and with their took we as So future product. the to showed this inventory demand

change is I don't demand. this again, So a fundamental think in overall

it's inventory of think a an customers. correction I our subset at

very Datacom And be strong. say so, us is that going long-term for business I'd to very,

comes question Christopher from Rolland of next Our Susquehanna.

through was broker just Meyers need on products [ph] This And wanted versus follow-up I of And no Chris. think on was do premium ASP there, be from longer curious you brokers IC these purchases. is from FPGAs? for you purchasing your directly then, to as what kind I Matt the brokers? a customers. this when to for ask is buying

also what Chris, really varies. Yes. go it into. it And upon depends products they

for to Xx for doesn't lower to asking no, do ASP it make given into at say of ASP the typically a And the from we goes broker for the it anything XXXx see a is and price, component. us all sense if product we because XXXx any that. So,

it's not say be. FPGAs much necessarily as as I'd used So, to in it

more one need bean that's the This area But jelly and seen the ICs we're for that So that on. power we stuff brokers. and again, we've seeing analog improvement is stuff typical paying outlook for improving, getting don't six our don't fiscal resolved into incorporated and -- new we it months, over but that's why see next we 'XX. it's -- see it the our see this

Loop question Baruah next of Capital. Our from comes Ananda

ones quick could. if Two I for Yes. me,

of that. much to proportionately, how follow-up then OpEx? is And operating reduction, is how and outlook Thanks. have from a it the margin, I year it On of some quick much fiscal gross margin incremental

Yes.

QX changed mean, ramp above hasn't really operating view above operating to expenses investment our -- our So, digits throughout expenses R&D up we're QX on materially. single continuing will expenses. quarters that operating be our probably the fiscal and I our high

of we fiscal the reduced mix as XD well talked that of the much utilization are Datacom gross factory of year. the in so, And decline simply line back had of with seeing as we in the matters margin earlier sensing, because the is some that half about product

playing P&L the seeing throughout we're quarters. how that's the out So,

add two we months had we expenses QX. one extra in to and QX, in whereas just to Wajid's comment only month Yes, the about QX. So of operating have acquisition in IPG NeoPhotonics

for going key is the up that's to one drivers be why OpEx of QX, So in

gross touch is you’d just is a change... on leverage Wajid, and year, begun on -- how the much follow-up, how much mix to in quick margin. And Proportionately, is the change revenue or fiscal utilization it,

Yes.

it most XX% So factory is then bit just Probably very more is product the of product remaining high utilization. is mix. little than level, mix probably and a

you. Thank

of from go please Securities. next ahead. Michael Michael, Rosenblatt Our question comes Genovese

I it of mean, I revenue just And reads in outlook there is analog current line beginning it change demand is Great. the I'll in two me be and older the change just vendors timing lines of that this supplies any directly, this for change things the like you guide? one. with in telecom solving of want well is new are converters that's of questions solve up seeing what's terms and that the adding and this problem, mid-calendar getting And Thanks to telecom that to terms power you demand? it's 'XX, and 'XX ask expectation. new will the that ask sort problem, guys fiscal going wondering, then need, to or sounds in to for in fabs of very Thank why supply going me, A-to-D here. because like like like the stuff, but is. at the I'm in any you. like seems that's

Telecom customers. right, continues get from I'd Yes. and say you're I Thanks, be to executives Michael. to continue calls our demand the escalated phone strong. very

build. inventory it's that and me not tells real demand it So, necessarily

the to So, drivers Telecom demand fundamental for and continue solid. outlook think very be I

I'd that product a products remains of a say set -- us. good for So

see adding capacity the our are of business. their other and suppliers as a for far softening expectations yes, I'd areas problem, supply capacity some say freeing especially As as chain our it's they us, combination in up of that

to takes in And they new line come our new time them and 'XX. ago for are that capacity. that to So, over a year wafers, over add products start transition these just as they on investments started calendar will or

as in through we we cycle of impact So, continued up well. our year. balance that's the why production a mind, fiscal kind time with have And of keep of line

in by need we April our order impact to shipments. chips So, get in June to the

impacted, that's and to expected our going to that's is to we demand as that continue visibility, especially believe so, grow. we're to be And why continue

from final Dave Our question of Riley. comes B. Kang

XDS for you that expedite how My much December being quarter, previous first update quarter? do is OFC was million for current And And projections think it my baking fees, it quarter. in us? the first is flat, What you need at are I about quarter? the second you $X question that regarding to question was provided

Yes.

take can and question first take second I'll Chris one. So, the then the

in So, IC higher -- think was this quarter. quarter the prior. on It charges, was -- the actually it million I significantly $X.X higher was it yes,

take on a You at to reported see we filings to that. look our have what

fiscal in we're QX, of through purchased inventory into some QX. Going burning the that we

on impact that It so, results. on the quarter will next operating a within our of Chris? because it at an end we'll guidance. report reconciling our pull not It And we have non-GAAP out of will do item that. be

Yes, sure.

sensing, we a So, CAGR. right, X% talked on XD the three-year about minus X%, to plus

down than $XXX a simple and or a XX% years, XX% was more up over next $XXX the on million little XD at expectations business math, So time. three the that to million sensing

than share expected. seen we think normalization what is we I -- had faster perhaps happen the we've So,

new a and a deeper of the and believe customers of strong the base normalized, is in sort we multiple that now business, upon will, growth is particular, build this we and share is applications. shape to upon that building or a of curve if that with U So, continue shape, V the the can new standpoint business sort from but you

necessarily back not point. we're numbers at So, walking this those

the get to the incremental opportunity be I add think range. still revenue to remains into able that to

think I Thank And much, our last you that was Dave. so question.

remarks. So, I'd to like over concluding for to Alan back pass the call some

XG thoughts as ahead inflections. data with AI, tremendous computing you about I leave to market and we opportunities the bandwidth serve we as am requirements like call. us excited cloud wrap I'd the very Kathy. up in of exponential the you, the Thank a few for

products proven playbook to with win and best-in-class technologies. on a how have We our

We we today with in strongly you. find committed a that, and With website. I for investor our also manufacturing events, again talking to deliver would you opportunity future. posted and to the in everyone in the attending, scale are thank unique capability forward needs Thank upcoming we will industry, on which drive look manufacturing capacity, to during on and both, to you have invest and customer photonic to innovation and like

for joining. Thank This you concludes call. today's

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