Q1 2020 Earnings Call
Good day, ladies and gentlemen, and welcome to Fabrinets financial results conference call for the first quarter fiscal year 2020.
At this time, all participants are any listen only mode.
Later, we'll conduct a question and answer session and instructions on how to participate will be given at that time.
As a reminder, today's call is being recorded.
I would now like to turn the call over to your hopes Garo Toomajanian Investor Relations. Sir you may begin.
Thank you operator, and good afternoon, everyone. Thank you for joining us on todays conference call to discuss Fabrinets financial and operating results for the first quarter fiscal year 2020, which ended September 27 2019.
With me on the call today are Seamus greedy Chief Executive Officer.
Yes, and Chief Financial Officer.
This call is being webcast replay will be available on the investor section of our website located at the Investor Fabrinets Dotcom.
You just heard to our website for important information, including our earnings press release, and Investor presentation, which include our GAAP to non-GAAP reconciliation.
I would like to remind you that today's discussion will contain forward looking statements about the future financial performance public company.
Well that these statements are subject to risks and uncertainties that could cause actual results could differ materially from management's current expectations.
Yes reflect our opinions only as of the data this presentation.
Undertake no obligation to revise them in that it needs to meet you won't be true parents, except as required by law.
We're description of the risk factors that may affect our results. Please refer to RBC at 55 and in particular the section captioned risk factors Form 10-K filed on August 22019.
You'll begin to called the dark machine in tier one was on time for questions I would now like to turn call over to Fabrinets CEO , Jim is great Jim.
Take a girl and good afternoon, everyone. We delivered a strong performance in the first quarter with revenue and earnings.
All of our guidance.
Demand trends appear to be stabilizing and most of the end markets we serve.
And we're optimistic that we're positioned to deliver strong results in the second quarter.
Revenue in the first quarter was 399 million a slight decrease from the record fourth quarter as expected, but a 6% increase from a year ago.
non-GAAP net income was 86 cents per share exceeded the high end up guidance as gross margins improved 12% in the core.
Looking at her business by end markets.
Optical communications revenue of 300 and to make it was about 2 million from the fourth quarter and represented 76% of total revenue.
Well, then optical communications telecom revenue of 230 million increased 7% from the fourth quarter.
Represented 76% of up to the revenue.
This growth is particularly noticeable considering we had expected telecom revenue to be flat at best.
Further we expect this momentum to continue in Q2.
Datacom revenue was 73 million in the quarter, an expected decrease from Q4, 15%.
Datacom represented 24% of optical communications revenue.
We believe this decline is primarily the result of broader industry trends and not choose to execution our competitive issues. In fact based on anticipated near term demand, we believe datacom trends could be nearing the bottom and we expect datacom revenue to be roughly flat in Q2.
By technology.
Silicon Photonics based optical communications revenue decreased in the fourth quarter to 77 million and represented 25% of optical communications revenue.
Revenue from Qsfptwenty, eight and Qs Ft, 56, Transceivers was 45 million down slightly from the fourth quarter.
My data raised 100 gig programs continue to represent nearly half of optical communications revenue at 147 million.
I'm products raise it at speeds of 400 gig in a both were up strongly from the fourth quarter at $38 million or 13% of optical communications right.
Looking at our non optical communications business revenue moderated sequentially as expected to 97 million from 105 million in Q4.
As anticipated revenue from industry lasers decline from the fourth quarter and was 41 million compared to 53 made in in Q4.
These same demand trends seem to be persisting. So we anticipate industrial laser revenue to be roughly flat in Q2.
Longer term, we remain optimistic about her potential to further penetrate the industry laser markets as more manufacturers inevitably turned to outsourcing to better competes in this global markets. It is in fact larger than the optical communications numbers.
Automotive and sensor revenue for both stable 24 million and 3.5 million perspective.
Finally revenue generated from other non optical applications grew 15% sequentially to 28 million mainly from Fabrinet west.
Looking at West has been a great success for winning business for our offshore volume manufacturing sites.
We have seen numerous programs migrate from early prototyping and Fabrinet west to volume production entitlement.
The same time.
Mid West has been an enabler for us to win business in new markets and with new customers that might have otherwise gone to competitors.
As such we have been focused on establishing a similar moderates to fabrinet west in Israel.
We already have a number of customers there and we believe we have the opportunity to grow our business with these customers as what does attract new ones.
We signed a lease for a buildings and you up nine which is a former semiconductor manufacturing facility.
It is already equipped with most of the infrastructure, we need for a new product introductions central.
Currently in the process and setting up at and T. lines advanced packaging and a failure analysis lab center to what we have to support anti interbank toxicities.
We've heard a general manager fragmented Israel, and we are targeting to be up and running early next year.
In summary.
We believe we're off to a good starts to fiscal year with revenue and earnings that beat our guidance ranges.
And returned to gross margins that are within our target range.
We're optimistic that our telecom strength will continue and the data comm trends appear to be Bonnie.
In addition, we're excited to have achieved important milestones towards establishing a second new product introduction facility at fibers Israel.
Combined with our continued leadership as a contract manufacturer for the most complex products, we're very excited about our future.
Now, let me turn the call over to T. S to discuss the details of our first quarter performance and our outlook yes.
Thank you Sarah and good afternoon, everyone.
I will let you we more diffuse on Oklahoma and Lucky and all financial results for Q1.
So as our guidance for Q2, so fiscal year.
I was in places.
Although I wouldn't you know first quarters, obviously, yes, 2020, well see how does that and 99 point threemillion.
Above the upper end this outlook I know range.
non-GAAP net income was 86 cents per share.
It was also above our guidance range, even after a photo and Chen hit me up 1.9 million in a month to month. They lost interest they saw contracts of 1.7 minutes.
Leased losses accounted for approximately like I said well shifts.
Now turning to the D to solve all piano reconciliations of GAAP to non-GAAP measures is included no owning pressing need any investor presentation, which you're going fine on the website.
We were pleased to see non-GAAP gross margin in the fourth quarter improved to 12%, a 50 basis points increase from the fourth quarter and efficiency more than offset the impact on merit increases.
non-GAAP operating expense was 11.6 mean into first quarter as a result, non-GAAP operating income was 36 like booming then and non get probably they majid lifepoint wants to say that we'd be a full quarter.
[noise], Texas, you know color what to fight told me that.
Normalized effective tax rate well, let the 5%.
We expect our effective tax rate to be 5% to 6% for the full year.
non-GAAP net income was above our guidance range at 32 bitumen in the first quarter or 86 cents per diluted share as I indicated earlier.
Well the get basis, which include share based compensation expenses and amortizations of that teaching call net income for the first quarter, what they five point Ninemillion well 69 cents diluted share also above the high end Silva guide.
Turning to the balance you then cash flow statement.
At the end of the first quarter cash restricted cash and investment well 436.4 million compared to 444.7 million at the end of the fourth quarter.
Operating cash flow you know quarter was 2.6 million and we kept myself six point opinion in free cash flow wasn't outflow of 3.7 million you know slick water.
During the quarter, our working capital increased hired and no more lever in support of a major Neil pulls and Francois.
This will begin to sell correct, you know forget, Florida actually start to consume that sounds like inventory and collect receivables.
We do not report changed any share during the first quarter such 60 to fight to me that you mean, you know share repurchase program.
And we'll continue to evaluate market condition to Oh, Fortunately study, we Patricia when possible.
I'll now like the total guidance for the second quarter fiscal year 2020.
At Seamus described we have purposeful second quarter and anticipate that revenue will be between 400, <unk> and <unk> million and 460 minutes.
From a margin perspective, we are optimistic that we will see efficiency continues to drive incremental improvements in non-GAAP gross margin within our target range I'll tell you tell 0.5%.
From an EPS perspective, we anticipate non-GAAP net income per share in the second quarter to beat in the range at 91 94 cents.
And GAAP net income per share so since before the 77 cents based on approximately 37.7 me then what do you guys the shares outstanding.
In conclusion, we are excited without sort of almost in a quota we.
We remain very positive about how long does close but well continue leadership in the marketplace.
Operator, we'd now like to open the call for questions.
[noise] to ask your question you will need to press star one on your telephone to withdraw your question press the pound key.
Please standby well we've compiled the Q1 a roster.
Our first question comes from a line of John Marshalik, Oh Stifel. Your line is open.
Thanks, very much I. Appreciate you taking my question quick one first off Seamus I was curious it in this quarter. There was any revenue associated with that that transfer program coming in and if there is some of that I I in the guidance for next quarter as well.
Oh, Hi, John Yes, Yes, we had we had some revenue from from the transport program.
As you mean orders from our from our cash we did we did burn cash in the quarter on a hand in large part [noise].
That was due to you know a inventory that we purchased since the early part of the quarter and then our shipments as you can appreciate it with the big transfer like that we did have some revenue, but it was pretty much backend loaded into corker. So.
We have some receivables that that fell into this quarter. So yes, we did have.
Some revenue the corporate and the continued in our guidance for this corpus why do we think it would be probably largely ramps I think about the ended this quarter were little bit ahead of schedule. I know previously we mentioned we thought it would be out into Q3.
We think it would be largely ramped by the end of this Walker.
So just to be clear by the end of this quarter you expected that whatever you're shipping for that program will be actually coming out of your production and not just out of.
Inventory that you purchase.
Yeah, we didnt parts do any inventory you purchase was raw material, we didn't purchase any finished goods or semi finished goods or anything like that so everything that came with everything that was in our revenue last Walker what product we produced.
Okay. Then this quarter's shouldn't that be hopefully that addresses a bit more of it this quarter.
I'd like to be fully ramped up this quarter.
And then if I can switch gears, you had a pretty significant sequential increase in before hungry bugs.
Each segment there I'm wondering if you can talk about if that was with existing customers and there's more demand related if there's some new customer activity mixed in there just any color you can give us behind sort of that ramp Oh, that's fairly steep and that's a 400 and about [noise].
It's it's a it's a combination John of both existing and.
New customers I would say the majority of the hope that revenue came from existing customers.
You know as you can appreciate any any.
Any volume from new customers will be smaller in nature, but the majority of the revenue.
The revenue increased 100 gig orphans chemistry from existing customers.
And then lastly, if I can't just curious about your comments about the datacom business getting a little bit better you know, what's sort of visibility do you have there and I guess, what's changed over the last quarter. So to make you feel a little bit better about that thanks very much.
No from John I think you know we feel I suppose it did come business. We think is maybe buttons out slash flattens, you know would walk down last quarter as we said there as expected our datacom revenue was down and we think it's it's kind of bottoming out for this quarter. We think last quarter was probably a low point and we think it's nothing so we're not.
No exuberance I would say, we're not guiding you know any huge increases on day to come but we do feel I think our telecom business. We think is quite strong or will be opened or datacom business. We think is is.
Still in its been flat I can say.
That's right and that's really based on the forecast in orders we have from our customers. We we have about typically 13 weeks you know rolling visibility. So we have some pretty good visibility into so thats based on on a on the on the visibility we got from our customers John Thank you John Gotti. Thank you.
Thank you. Our next question comes from a line of Alex Henderson of Needham. Your line is open.
Well you talk a little bit about a this program that you're moving over from Berlin.
Obviously.
Given guidance here for the full year fiscal year and 20 that this could be 10% plus of your.
Revenues.
It doesn't sound like in the first half its anywhere near that.
Can you talk a little bit about the cadence of when you think it can achieve or exceed that that.
Full year markets I would assume that at some point is that crossover and be more than 10% to to get to that level for the full year.
Yes, Alex the 10% comment that we've made previously was in relation to infinera as as a customer and totals which would be the combination of the previous if you like existing infinera business that we already have.
The the transferred business from Berlin, So that the 10% comment was not related to the burden business alone.
Wind businesses. In addition to the end to the existing Infinera visit.
So that makes Blaine they.
The disconnect there I'm not sure if that's helpful. So I'm assuming that it's still isn't over 10% at this point in time or anywhere close to it. So it's common still still sense when do you think that that.
Program gets to a point where its.
Driving the type of revenues that would put them into over 10% as a cost what does it can be a second piece that we just report the 10% customers at the end of the fiscal year.
You know, we think we'd be ramps on the transfer business by the end of this Walker and you know that should put us that that.
Not that run rates, we think for the for the full year.
All right. So second question good on the Roadms first is.
Uh huh.
There seems to be a shift a fairly significant shift.
Between what I would call optical switching.
And transmission.
In several companies commentary can you talk to what extent you have exposure to a flattening market in the switching <unk> markets and to what extent you think.
Acceleration in transmission can offset that.
So Alex yes.
Again, no most of these well then we'd be for one customer.
If you listen to the earning call they need.
She did a you know the I think are for the short term is pretty flat.
And in a lot and Vicki you believe that you know you're going to go up. So so basically you know whatever they say a black glass because you only have one customer one that roll them. Okay.
Right, but the question really was to what extent can you use transmission to offset that over the next couple to three quarters.
Do you have enough visibility on transmission and sustain your share.
The business when it shifts between those two segments.
So I think we do I think they you know the shift between let's say transport and transmission. We have we have a you know and number of customers in that space that should help us off says lets you know we don't have visibility to three quarters out. We really just you don't have that kind of rolling 13 weeks visibility, but we you know we should we hope to be able to capitalize on that as the.
Has that shift.
Begins to unfold over the next few quarters, we have we have a good number customers in that space. So we hope to be able to capitalize on that.
One last question, then I'll cede the floor you'd indicated a in past quarters that to you were experiencing some lack of availability on some passive components another.
Fairly low cost, but critical components that are part of your production sets has the supply constraints on those products.
Ameliorated, so that's no longer a drag.
Still absorbing that.
Yeah, I think that.
That's if you like passive.
Supply constraint that was taken the whole industry. If I go back you know, maybe three quarters ago something like that.
It seems to have a basis I mean, you raise at this stage. It's it's a it's pretty much behind as we think there's always you know we start to every quarter with some challenges that our supply chain team have to go and secure but that's just kind of normal course of business, but that overall I think industrywide passive constraint that was there was there you know nine months.
A year ago that seems to have bases at this stage, there's always certain charges here and there, but nothing of any significance.
Great. Thank you very much.
Thanks, Alex.
Thank you. Your next question comes from Samik Chatterjee of JP Morgan Your line is open.
Hi, This is Joe can us on for Sonic Chatterji. So for my first question I wanted to dig in on the gross margins I think last quarter you guys guided for a moderation from Q4 to one Q and so I was just curious if we can double click there and just figured out what has changed or what the variance was then when you guys initially guy.
Dan what changed from what you guys reported in the first quarter.
Hi, This is yes for the fourth quarter. It's in my prepared remarks, we see <unk> more than offset you know maybe increase typically July July August September we start getting married piece for the whole yet. So that's a result that about then be about 20 basis point better than the previous quarter doing.
Water, so Tim quarterly 11.8.
And then moving from trail and moving full at Q2, we don't like both margin, but if you just look back lets wait on the Guy that you show improvement from the 10% Phil. So we're very happy that we are back to the tell and try to help us and range and we'll continue them intended.
Yeah, Let me just to be absolutely you know a lot of the.
Good results, we hadn't gross margin Q1, it's really don't have very tight cost control and efficiency gains from our team you know our our internal team operation seem or supply chain team really do it do an excellent job keeping our costs under tight control and you know realizing.
You should see gains was mostly driven by like I say efficiency gains on cost containment.
And then thank you and then for my second question relative to your commentary around the industrial laser market.
Kind of.
Seems like you guys are suggesting I'm, a little bit more headwind or a continuation of the headwinds that have been impacting that market well one of your biggest customers I know last earnings call just kind of suggested that that market was dropping off its not actually improving so okay. Can you kind of explain what you guys are seeing there you guys expecting.
It's a trough in December and then improvement after their or whatever whatever visibility you can provide would be helpful.
I think that's that's probably fair assessment, you know the <unk> that that industry is going through a tough time right now the no competition is fierce.
Spending seems to be tightening up so that whole industry is going through a pretty pretty turbulent time weve a number of customers. We have we have probably for customers in that space right now.
One customer big thing or bigger one.
You know and really are are you know shape and size in that market is a function of what's going on with their customers. So we're not immune from what's happening with their customers.
It's pretty flat I would say the laser market's pretty flat longer term, we do remain quite optimistic as I mentioned in my prepared remarks.
We do remain quite optimistic about the laser market, because we think that some of the price pressure that's a big companies in that space at the western weren't companies if you like our feeling.
We believe that will turn to outsourcing as a way to offset that pressure on and will outsource more and more because it to a large extent lot of the company is not space. They insource quite heavily in the don't outsource that much. So we think we're very well positioned with the capabilities and experience. We have we think we're pretty well position to capitalize OSAT industry looks to vote.
Sourcing.
But overall demand you know what I'd say short term is kind of flat as some of our customers have indicated.
Uh huh.
Alright, thanks, guys and congrats on the results.
Thank you. Thank you.
Thank you again to ask a question. Please press star one on your touched on telephone again, that's star one on your touched on telephone to ask a question.
Our next question.
So on the line.
Tim Savageaux of Northland capital markets. Your line is open.
Hi, good afternoon and that congrats into results. Thank Tim.
Yeah first question is on the 10% customer side did you do you have any 10% customers outside of your traditional customer and large customer in the quarter.
Well that's the as he said, we only report the 10% customers at the end of the year.
We think we're probably tracking.
We've mentioned Infinera will likely be a 10% customer there's there's a chance there's another one or two who could become a 10% customer for the full year, but it's a it's probably too early to start to start flagging that at this stage, but.
We certainly feel we'll have we'll have to by the end of the year, possibly three outside chance there were before but it's probably more like three or the end of year yeah.
Okay I appreciate that.
And looking at telecom growth from the quarter I'm, especially in the contracts to single Silicon Photonics.
Line, you know down pretty.
A reasonably wonder if you could characterize that 7% sequential growth in telecom.
And I know, so I guess I'd I'd mentioned that in the context of your commentary on 400 gig growing so strongly and be mostly from existing customers but.
Can you can characterize the sequential growth to either in the results or outlook or both.
The context of contribution from new programs, you know your ramp with your new customer versus Uh huh.
Listing.
Business or existing customers.
Yeah, that's another could grow and telecom in the quarter you know a lot of that did come from our new customers a big big portion of didn't come from when you did come from our new customer.
400 gig growth is predominately from existing customer and then the decline in silicon Photonics some of our silicon photonics businesses is telecom related but some of its actually did come related. So the overall did so I suppose the to the two are possible telecom growth and a decline in silicon photonics into sense that.
The decline in Silicon Photonics is mostly.
For the data into Datacom customers Yep.
Right understood and any realizing you don't guide buddies specific segments, but I wonder if you have any kind of anecdotal commentary as you look forward.
To that.
Telecom growth continuing.
Do you have any kind of similar thoughts around what you expect out of.
Silicon Photonics as you head into next quarter in throughout the year.
You expect that to return to growth at some point.
Silicon Photonics, I think a lot of it I think of the telecom side, we think it's going to remain strong and and also on the debt to coincide with several of our customers you know one or two of our customers.
I've experienced a little bit of softness in the datacenter. So that does effective on the silicon photonics site, but overall, we think and again, we only got a quarter tying but overall I think the sentiment out there that we here is the telecom will be quite strong and Datacom is is that has been flat, but we'll continue to be flat we think.
Great. Thanks pretty much all I'll pass it on.
Thank you Tim.
Thank you. Your next question comes from Alexander said enough Needham Your line is open.
Thanks.
Could you give us the GE a geographic a spike.
It does a hsulin no much changes so north America shy of 50%.
And the with US take between China does this all the work Southeast Asia. It's also a big portion you know, we shipped but a bit too Oh is Asia country.
And can you tell me what you said about the growth going forward and telecom again I'm not sure I got it right at my notes so what what what's your expectation for telecom growth sequentially into the <expletive> see why pork.
Why to Q.
Well, we haven't guided specific growth for telecom I guess, the discussion was really more on overall sentiment.
So there's a sentiment where we hear from our customers I think is that telecom will remain we think quite strong datacom is flat, but we haven't given specific guidance for our telecom revenue for what do we think it will do and.
And next quarter.
I see.
Yeah.
One more question if I could around the Israel operation when would you expect to be able to actually generate some revenues from that because somebody a is that you know six nine months out or how far out does that take.
I think would be we're targeting to be you know up and running and are ready ready to rock and roll in the early part of next year. So that kind of January to March timeframe. So we'll be we'd be ready to do business.
But you know it it takes a little bit a time, then too you know when the business grow the business, but I think it should be contributing you know to certain extent in the.
I would say in the June quarter.
Expect to see some some revenue emanating from there in the June quarter, maybe maybe little bit earlier, but that's that's what we're thinking right now what.
So right now we're sitting out we're fitting out the building.
And.
What kind of fortunate that building, we got has a lot of the interest because it was a semiconductor manufacturing facility. Originally it has a lot of the the facilities infrastructure already in place so that that sharpens. The timeline first I'm, we're planning to install the full suite of equipment S&P equipment optical packaging equipment, and very importantly for our customers phone failure analysis capability there.
So we'd replicate albeit on a smaller scale the same set of capabilities that we have in in Bangkok actually.
Do you see that facilities being roughly comparable size to fabrinet west.
It's a smaller facility in terms of square footage, it's smaller than the Fabrinet West facility, It's a great locations a great facility.
You know the building itself is probably a little bit little bit bigger than what we would actually need.
So it's a smaller facility I think in terms of square footage, it's about 20, Dollarstwenty roughly 20000 square feet.
So tonight insight is actually for what we need.
You know and similar to Fabrinet west, it's not going to be a huge revenue generator in of itself. The main purpose of feminists Israel will be to win customers that we then transfer to Bangkok.
So we try and replicate the success we've had in from Midwest in Israel.
I think can you give us any sense of what's going on in terms of your factory utilization.
In your facilities said when you might need to.
Start moving on then the next facility can you give us an update on that.
Yeah. So so we continue to you know creates additional space that are out her main campus and pine harvest.
And win new business and Chonburi.
It's hard to say, Alex really because we've been very successfully we probably surprised ourselves have successfully we've been.
No getting efficiencies and freeing up space and find Hurst.
So we're growing our pinehurst facility, our pain horse revenue on the same footprint.
We're heading our new business into Chonburi.
It's really hard to say at this point when we'll be when we'd be ready to I put it this way if if if everything we haven't the pipeline.
Plans will be will be a we'd be hurrying up.
But you know not everything went on so I think you know we're still very very optimistic I would say.
You know about that did the need for us to grow chonburi.
And I like to say if everything we have in the pipeline Latins, we'd have to get going quickly.
But.
It's very hard to put a days I'm not I'm not being a base interest is quite hard to put a date on it because like I say a lot of the loved the growth with our existing customers will be in pine harvest, whereas chonburi it'll be more for the new newer customers.
One last question if I could since it sounds like you don't have too many in the Q.
400 gig commentary can you talk a little bit about.
Whether that's on the telco side, whether that's 400 gig or 600 gig I assume that that's mostly 600 gig product within that next for telecom is that correct.
It's a mixture of four hundreds.
Datacom, both yeah, it's mostly 400 gig.
And Datacom, that's 400 gave for what about on the telecom side.
Well on the telecom side.
Yeah that would be 400 gig modality for on the game yeah.
So yeah.
Well the excluding the one point, excluding that's the kind that gave at 1.2 terabyte. They say screwed up for the number she went to quota.
All right. Thank you.
Thanks.
Thank you. Your next question a follow up from John Machete of Stifel. Your line is open.
Thanks, very much Seamus if I can just follow up a little bit on that Israel site. It seems a little bit of a departure from the last couple of quarters, where it seemed like you had actually been backing off a little bit on the expectation. There curious if it's something change in the environment or you're just found an opportunity that or even just the site itself that made sense to kind of move forward here Oh that.
It's sort of change to at least what would I perceived to be the trajectory of that business and then just secondarily. If you can comment at all about but the mix expected in there I'm curious if this is.
Mostly non optical type of revenue that you think you're going to go after in this market really fits a similar to fabrinet west will be a little bit of a mix of everything.
Hi, Good question I think on the on the timing you know when the trajectory. We've always been I would say quite quite bullish on on the need for us to bring up a facility in Israel.
The hold up really John was just frankly being able to find the right location.
We we think is was a great location we have.
Three or four existing customers there so we'd be looking to service their needs and also grow grow our business. There. So our customers. We have we spoke to them into very supportive of the idea are our hold off if you like with just.
Literally finding the right location, there's a there's a lot of you know, let's say incentives government incentives to build you know in locations that would not be ideal for us.
We're.
If you look of what we've done and Fabrinet West were right in the Middle Silicon Valley location is very important and it's the same and Israel. So it was really about just finding the right location that we've done that now we've managed to find the right location.
As to the mix I mean are our existing customers.
We just think for a moment are all optical communications companies and the movie theater, Yeah, and mostly data from our existing Israeli customers are all up for communication companies multi did accounts. So we would be looking to obviously.
Okay keyboard business, so companies and add other others communications companies, but also other non communications companies that are at or in our in our technology sluggish.
Okay.
You know precision.
That's something.
This is like our other other.
Applications, we're not limited, we're not limiting ourselves optical.
Our limiting ourselves to high technology complex infrastructure type products that will transfer to side [noise].
It's very much.
Hi, John [noise].
Thank you have a follow up question from Tim Savageaux.
Northland Capital markets. Your line is open.
Thanks, one or two focus back on your commentary on the pipeline and I Wonder if you can give us an update as to.
To what extent kind of.
Customers OEM moving supply chains out of China.
Hi is contributing.
To that pipeline I guess yeah.
Lets call. It would you characterize that as you know a tailwind, but pretty far out I wonder now or not and other than other quarters. So you can give us an update on kind of what kind of what type of up your opportunities you might be seeing from.
There's kind of ships in global supply chain. Thanks.
So that's I would say, that's still a tailwind, but still quite slow to move.
You know some of the pipelines that that I referenced earlier is you know I suppose a function of that but it's it's really more a function of just continuing to grow our business with our existing customers at all and also adding new customers. We have a few big I would say big opportunities in the pipeline.
On some of the things that we're we're quite excited about what are some of the opportunities really moving off the food chain for us moving up into the full system builds full network systems.
You know with the business we've transferred from from Berlin that gives his experience now without full full network system. We have some other business in that same space. So you know, we think we're kind of uniquely positions us well within our industry and Thats were approaching the full system built from the if you like from the bottom up we're producing the most complex.
Hi technology components within the network system. So we think it makes sense for us to move up the food chain.
And produced a the modules and a full system that goes with that.
So that's in large part what we're targeting Tim and you know when I can say, we have some pretty exciting opportunities or that we're pursuing.
If I could just follow up on that quickly.
And your eye I imagine that comment.
In terms of moving up to the full systems level remains focused on optical communications optical transport or they're kinda other parts of the networking universe, where you see those opportunities. If you will see as you set up the optical.
You know.
Infrastructure equipment.
The networking equipment, we're not planning to become.
No I and I feel like a general.
You know large system producer for let's say storage equipment or anything like that that's just not in our sweet spot. It really only makes sense for us when we're producing a large portion of the of the high technology components and content that goes into those systems.
So on and it also makes sense for US you know with let's say it doesn't make sense for us to produce large systems, where we're not producing any of the content. If you know what I mean, so we would not see ourselves I was just in December .
We would see ourselves as a high technology.
Oil producer of the of the industry's most complex technology and components there for it makes sense for us to produce the phone system.
That makes sense Tim.
Sure does thanks very much.
Thank you Tim.
[noise]. Thank you at this time I like to turn the call back over to Seamus gravy for closing remarks, Sir.
Thank you operator, thank you all for joining our call today, we're excited to deliver strong results on a positive outlook as we continue to position the company for continued growth and diversification over the longer term. We look forward to speaking with you again soon thank you and goodbye.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.