Q1 2020 Earnings Call

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Ladies and gentlemen did the operator for today's call is scheduled to begin momentarily until that time Jordan lines will again be placed on musicals. Thank you for your patience.

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Good day, ladies and gentlemen, and welcome to inside first quarter 2020 conference call.

As a reminder, this conference maybe recorded.

I'd now like to introduce your host for today's conference burned assay senior director of Investor Relations and corporate development you may begin.

Good afternoon, everyone and thank you for joining us today to discuss the financial results for the first quarter 2020.

A copy of today's press release can be found in the Investor relations portions in size website, they didn't buy dot com flash investors.

With me today, then vice President and CEO Ford Tamer, NIM, Bys, Chief Financial Officer, John Edmunds.

On our call I will first provide the safe Harbor, then Ford will give you an overview of our business.

It will be followed by John with the financial results for the first quarter 2020 any outlook for the second quarter 2020, John We'll then open up the call for question and answer.

Please note that during the course of this conference call, we may make projections or other forward looking statements about inphi, putting references to our prospects and expectations for 2020 and beyond forward looking financial information projected growth side.

And strength of our markets, our customers market share performance and successful new products design wins customer demand supply impact of worldwide issues and the success of related contingency plans.

And the integration to be Silicon and acquisition, we closed on January 2020.

Forward looking statements and all other statements made on this call, which are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially.

Forward looking statements speak only as of todays call. We do not undertake any obligation to provide updates after this conference call.

Further information regarding risk factors for our business. Please refer to our registration statement as well as our most recent annual and quarterly reports on forms 10-K, and 10-Q O filed with the Securities Exchange Commission accessible at Www Dot Sep Dot Gov.

Please refer in particular to the sections entitled Risk factors, we encourage you to read these documents.

Also during the course of this conference call. We may make reference to non-GAAP financial information reconciliation of this information is included in the press release, None our company website at Www Dot Inphi Dot Com. This information is not a substitute for gap and should only be used to evaluate the company's result in conjunction with corresponding GAAP measures.

Now the beginner reviews the quarter, let me turn the call over to our CEO Ford Tamer Ford.

Thanks Bert.

And thank you for joining us for Inphi first quarter 2020 earnings update.

Before I begin.

Let me take a few moments to discuss the unprecedented global impact of corporate 90.

First.

Thank the true heroes of the past few months.

[noise] medical professionals.

First responders.

Emergency personnel and law enforcement officers, who put themselves in jeopardy on the front line everyday and every dentists effort to keep the rest of let's say.

Every last one of them is a heal.

And every last one deserves all the gratitude and appreciation we can demonstrate.

We pray for their work being.

We also recognize the many service employees.

Working in our communities.

I think the basic needs for the rest of us.

Like many companies in finding treated.

Yeah very grateful.

Our own critical employees and third the workplace to maintain basic operations to these changes.

Ensuring the safety of our employees and our customers remains our number one priority.

[noise] Inphi mission continues to be global leader in high speed data movement interconnect.

Simply put we are in the bandwidth business.

Never before has only shouldn't be more important.

The lives of everyone impacted by this pandemic.

Well move data, but just for commerce, but also within communities.

Metro areas.

Countries and around to work.

Our cloud and telecom customers have witnessed a large spike in bandwidth demand for their applications.

And despite very extreme dislocations over the past couple of months.

Inphi is enabling them to connect everyone everywhere.

We could dedicated hours walking you through examples of how bandwidth demand has increased due to called it.

And we encourage you to read on blogs accessible from the Inphi homepage at Www Dot in five dot com slash blog.

Some of you know our inphi sites and were on China, and Italy gave US a view of depend demick has already as January.

And we responded immediately.

We set up a corporate task force and began monitoring our employees our customers our production in our supply chain.

I'm pleased to say that these monitoring efforts yielded positive results and feedback.

We always measure I'm pleased proximity and discovered that in some cases.

We should see increased as a result of work from home measures.

Our demand, it's been solid and improving.

Our product pipeline is intact.

And we are increasing our R&D investments and continuing to higher.

To date, we have not experienced any major material disruption.

Nonetheless, we have implemented contingencies and some supply chain areas.

The industry is currently experiencing significantly longer lead times in some areas of the supply chain.

And we have notified our customers all these issues.

We continue to work with our suppliers to meet the increasing demand for our products.

No. That's took about Q1 results in Q2 guidance.

If I had record revenue.

The 139 million daughters into first quarter up 2020.

Which was a 70% increase.

Over last years Q1 revenue of $82 million.

And exceeded our original guidance midpoint of $132 million.

This higher results in the first quarter was due primarily to higher revenue than anticipated from our cloud customers.

Oh, so revenue contribution from our January 10 acquisition of <unk> silica was slightly higher than originally anticipated.

We recorded record non-GAAP earnings per share of 62 cents.

Above the midpoint of our original guidance of 47 cents.

And 88% increase over to 33 cents non-GAAP earnings per share reported one year ago.

This clearly demonstrates the increased leverage in our operating model.

As we look to Q2, the midpoint of our revenue guidance shows a 7.5% sequentially gross.

Further demonstrates the robust demand for our bandwidth business and this time a crisis.

Why do we remain cautiously optimistic for continued growth. We've also worked at very high the sustainability of this new demand.

So please note.

The to account for any presently unforeseen future events.

We are being somewhat conservative in our Q2 revenue guidance.

Oh, so to strengthen the balance sheet in this volatile corporate 19 crisis.

We raised a $506 million converted but not on April 21st, including the underwriters are over allotment.

Okay.

This would provide sufficient funds to pay off all the 209 $30 million convertible note you. This December 2020.

And our $287.5 million convert but not due in September of 2021.

The terms were very favorable given the current environment and John went explained in detail in a moment.

We believe corporate 19 was transformed our business considerably.

Our gross driver at the bandwidth consumption there are accelerating.

Adapting our business model to address these opportunities.

Our original drivers included cloud computing.

Artificial intelligence.

Fiveg wireless.

Social networking.

Commerce.

Virtual and augmented reality.

And internet of things.

The demand for these capabilities and I'd be augmented by multiple new power upward trend.

Work learn collaborate play and socialize from home.

Increased streaming across many devices.

Telemedicine tell it has and virtual fitness.

Shopping food and media delivery.

Security.

And your factory automation and control.

You can find further detail about these changes and our April 22nd blog.

[noise] posted on the Inphi website.

These trends are speeding didn't know a new communication infrastructure.

As dictated by of course founder Dr. Lloyd no one in his new blog published today.

Entitled The rise of Internet 3.0.

Specifically, if I is benefiting in three areas in which we've been investing for the past few years.

First.

The increase in bandwidth of cloud data centers is accelerating and benefiting our inside data Center solutions.

We are seeing a continuous ramp up demand from top you ask Todd vendors for Pam product.

Last quarter, we reported momentum across all of our Pam solutions.

We've seen that momentum continued this quarter.

In our 50 gig Pam DSP Polaris along was 28 Gigabaud T.I. isn't driver.

In 100 gig famine D.S.P. Primo along with 56, Gigabaud T.I. isn't drivers.

And in our Pam Retimer Vega.

We expect that momentum to accelerate in the second half of 2020 <unk>.

These additions U.S. and China Mega cloud vendors transitioning into Pam inside the data center.

Second.

The continued moved to edge computing and increase in Metro access bandwidth.

Has resulted in accelerated adoption of our ZR data center interconnect.

Our D.C.I. for connections between data centers.

The demand for 100 gig colors continues to be a robust across multiple worldwide geography.

The immense benefits built by this news you are architecture are not widely accepted.

Including power.

Density and Opex and Capex reduction.

By getting rid of transfer boxes.

We are also frees up space.

Allowed data centers to populate more servers that can generate topline revenue growth.

Using in fives cutters solution.

Our number one customer has generated hundreds of millions of dollars in cost savings and revenue increased benefits.

As we look toward our recently announced corners to solution for 400 gig ZR.

We are increasingly confident they will capture significant market share and cloud provider accounts.

The problem <unk> form factor technology is much more cost competitive then incumbent technologies.

And third.

Further investments in Fiveg infrastructure, I driving demand for our telecom solutions.

The major China mobile operators about war to tenders to our China based system OEM customers.

As a result, we're seeing a pickup in demand for both our Pam and coherent solutions.

Now, let me turn to the product news.

Well go to covert 19 crisis impacted or see attendance.

We were still busy.

Was virtual meeting with customers partners and investors.

We announced our news pick up 800 gig Pam four electro optics platform.

This is neighbors doubling bandwidth per lane and meets the requirements for 25.6 Terabits per second switch silicon.

This solution is well ahead of competitors offerings and is based at the leading edge seven nanometer process geometry.

We also announced our third generation Perryville was expanded features.

This solutions also but at seven nanometers.

Offers lower power and nor total cost of ownership.

Finally, the E. Silicon integration has gone very smoothly and is now complete.

Their design teams are not part of the Inphi family and are working side by side. It was our team on Inphi specific product roadmaps.

What did even more impressive is that all this has happened in the middle of the changing grew more trucking environment.

Now let me cover two topics that are likely on your minds in this environment.

First the longer term impact of corporate 19 on enterprise business.

Why do we see demand that's possibly bias in this environment. We are of course, our neighbor to predict the overall impact this would have on the global economy.

There's a lot of discussion on the depth of the recession that began in the first quarter on 2020 and is likely to reach its deepest level in the second or third quarter off this year.

Regardless of whether the shape of the recovery is you.

The <unk> and it would still be a changing brought back.

However, it also seems clear the internet bandwidth, we've continued to be critical but we continue to be cautiously optimistic about the short.

Hey, Jim and long term positive impact to enterprise business.

Second.

The impact of potential of already know components.

Let's go to data center, which continued to be an area of investment.

And whether after a certain lag a deeper recession, what impact infrastructure spend.

Why we're very aware of these potential changes on a keeping a close eye on even three.

We expect we expect that Inphi is benefiting from fundamental secular product cycles.

Even better transition to Pam and coherent technology across multiple large cloud and telecom customers.

As a result in size continues to higher.

And invest in the development of differentiated new products.

And to service multiple customers ramps in book value and telecom.

Why do we are fortunate to have good news to share was our investors.

We're also very mindful.

Outdoors less fortunate organizations and individuals.

I have been adversely impacted by corporate.

Indeed, most uncertain times, where is that you the programs.

Through assist our values employees with the changes that may arise for the families.

Their communities and themselves.

And finally also provided financial support to communities in 11 of Inphi sites in nine countries for nonprofit organization focused on medical supplies and food.

Winston Churchill once said.

Never let a good crisis go to waste.

Inphi electro optics data moving solutions are under I'd say.

At the right time to support our customers' needs.

We are optimistic about strategic growth opportunities and are confident will emerge from this crisis as a stronger company.

And with that Robert you John.

Thanks Ford now, let me recap the financial results in the first quarter of 2020, Inphi reported revenue of 139.4 million, which was up 35.5% sequentially and up 70% year over year.

This Q1 result was also 7 million were 5.3% better than the midpoint of our guidance given on February force.

Roughly half the sequential growth and approximately 70% of a year over year growth was organic.

In the balance was due to the silicon acquisition that closed on January 10th.

To address the growth in more detail, our cloud products, including Pam Dsps and Retimers companion T I use and drivers colors and he silicon datacenter pasix comprise 56% of total revenues in Q1. This represented growth of 18% sequentially and 112% year over year.

About 70% of our sequential and 90% of our year over year cloud growth was driven by organic products, both 200 gig and 400 gig Pam inside data centers and colors between data centers.

30% was from the acquired data Center 86 for me Silicon.

Our telco products, including Pam based Fiveg chipsets coherent T I used drivers and Dsps and he silicon Fiveg he six.

Represented approximately 34% of revenues.

This also represented a 37% increase sequentially and 18% year over year.

About two thirds of the sequential growth and one third of the year over year growth was organic telco grew primarily because of trends in fiveg. Both from the Pam DSP T I, a and driver chipset as well as.

As you silicon basic and coherent DSP.

If you were maintaining a model. Please note that we have reclass, a small amount of cloud revenues in the first because each of the quarters of 2019 to the telco grouping due to more attribution of certain pan product configurations as being used in Fiveg applications. Please let us know if you need to help with these adjustments.

The legacy business businesses represented 10% of revenues in Q1 of 2020. This was up 11.4 million from the 2.2 million reported in Q4.

Personally 10 million of this was from the legacy business, a de silicon, which we expect to extend for several years. The other 1.4 million in growth pertains to 40, and 100 gig transport products from the 2014 14 acquisition, which as expected grew slightly in Q1.

In Q1 2020, the GAAP gross margins were 52.9% down from Q4's, 59.9% due primarily to the acquisition to be silicon. The GAAP gross margins. In Q1 include 11.4 million in acquired technology amortization as compared to 7.8 million in Q4. In addition in Q1, there was a step.

Up in inventory values Silicon you silicon inventory.

At added 2.5 million in GAAP purchase accounting related costs. Please see the reconciliations in the press release for more detail.

Gross margins on a non-GAAP basis in Q1 came in at 64.2%.

Expense that are included in the gap number of 35 million.

This was offset by 13.4 million and <unk> and 11.2 million and non gap financing payments for software licenses again. This excludes 4.7 million in gap acquisition related.

Financing payments.

That would be that would be in the gap number.

Combine this resulted in non gap free cash flow of 16.4 million versus the gap number 5.7.

We also spent non gap 202.3 million of cash on acquiring E. Silicon. This includes the 4.7 million and 6 million of Nongaap acquisition related spending adjustments noted above.

We also invested 5 million in an early stage private company equity investment and finally, adding 2 million from financing cash flows which came mainly from employee stock purchase plan net of cash used for stock withholding.

This plus 4.3 million and timing differences in settlement of investment and marketable securities in a change in unrealized loss brings us back to and that use of cash in the core of 185 million primarily.

For the purchase a v. silicon.

Noncat cash flow from operations, and Q1 was 41 million compared to 22 million and Q. for 19, and as compared to 25.9 million in Q1 of 19.

Please note that Q1 20 includes approximately 6 million and non gap acquisition expenses.

I'm sorry, please note that Q1.

Excludes approximately 6 million and non gap acquisition expenses. The increase of 19.2 million was driven by an increase in even a of 10 million and this was improved by a smaller expansion of working capital by 9.1 million.

Capital expenditure expenditures are 13.4 million queue for was slightly up slightly compared to the 12.3 million reported in Q. for.

To further bolser, our <unk> our liquidity on April 24th we closed the new five year convertible note offering for 506 million. This will provide ample cash to retire their principal poorest.

No the to existing notes coming due in December 20, and September 21, the rate on the new note is 0.75 per cent per annum.

Conversion premium was 32.5% up or.

Exercise price of $125 per share. The note also callable at the company's option and after three years, if the price has been consistently 30% or more above the exercise price.

We also entered into a camp called structure to synthetically raise the economic exercise threshold to $188. The I.R.R. on our note was 3.14% this compared favorably to the 3.16% that slack a larger company with a better credit for profile received on their 862 million dollar.

Similar offering and structure about 15 days prior.

Accounts receivable increased by 2.6 million in Q1 Dsos at the end of March were down 13 days to 40 days when the December figure a 53 days inventory at March 31st 2020.

Included a 2.7 million step up and fair value without that step up inventory increased by 21 million and the quarter.

Office amount 23.

Point 4 million was from E. silicon, So <unk> inphi inventory actually decrease by 2.4 million in the quarter. As a result inventory days were down 20 days to 136 days at the end of March from the hundred and 56 days at the end of December Conversely inventory turns went up to 2.6 at the end of March from 2.3 at the end.

December as forecasted the previous build up of inventory is coming to.

You know when you sell through and convert back to cash.

Now, let me recap the business outlook for Q2 2020.

I remind everyone again that the following statements are based on current expectations as of today and include forward looking statements actual results may differ materially we do not planned to update nor do we take on any obligation to update this outlook in the future.

Revenue in Q2 is expected to be in the range of 147.8 to 152 million or approximately 150 million at the mid point.

<unk> reporting and Q2, excluding potential purchased accounting adjustments. We are currently forecasting gap gross margins should be in the range of 51.6% to 53.9%.

Gap operating expense should be in the range of 88.9 to 89.9 million.

Absent nonincome related tax adjustments, we would expect the gap effective tax rate to be approximately a negative 1.4 or 5%.

Gap net loss would then be in the range of 15 to 21.

And point 5 million gap earnings per share with N.B. a loss in the range of 31 sense to 45 cents per basic share on 47.8 million forecasted basic shares a more complete reconciliation of the forecasts of Q1 gap net loss and gross margin compared to the forecasts of non gap are included in the press release.

<unk>. We are currently forecasting gross margins are expected to be in the range of 63.5% to 65.5%, which at the midpoint of 64.5% would be approximately a 30 beps improvement from Q1.

Operating expense should be in the range of 57.9 to 59.9 million. We are currently estimating the non gap effective tax rate to be 6.3% for 2020.

We are confident the these components should done a line, resulting in a non gap operating margin to be in the range of 24.3% to 26.1% or approximately 25.2% at the midpoint.

It should also then lead to non gap net income of between approximately 33.2 and 36.4 million. This would then result in estimated nongaap income per share of between 62 cents and 68 cents based on approximately 53.1 million estimated non gap diluted shares.

We went on to update this outlook during the quarter or until the time of the next quarterly earnings release unless in five publishes a notice dating otherwise. So please ask any questions. You may have today during the general Q. and a period.

Let me add one additional comment Ford and I. Both have 10 B. five one plans that are filed were filed two to five months ago, it's likely that sales from these could be taking place in two two and future quarters. This year.

As full disclosure our intention is to diversify our personal investment risk as individuals and in a way that hopefully does not affect the market.

We both remained fully confident in the outlook of in Fives business and we were also both maintaining substantial stakes in the future the business and have every interest in seeing that continue to grow and now would be happy to take your questions and draft.

[noise] at this time, if you like to ask a question. Please press Star then the number one on your telephone keypad. Once again to ask a question. Please pipe Star then the number one we will pass or just a moment.

Your first question comes from the line Oh, Tom O'malley with Barclays.

Hey, guys things were taking my question and congratulations on ruinous results.

Just wanted to start with the M. opportunity clearly Ford you described environment, which you know spend is robust and the clown can you talk about what you see that T.M. out for 2020 years that expanded and then you're talking about your share of that to him or do you see yourself being more successful than them in in that market than you know say three months ago.

Thank you come so it's early in the year. This pill Q1, so we're not ready to I know from you market size. So we're still going to stick to our 300 or so.

Market size for the year.

Our share is slightly better than we had discussed in the past. So right now we would probably be more confident to discuss the 65% share in that market.

And you know there this amount of market, where you're going to see a source source then there there's a market for going to see multiple competitors is too large for one company and multiple competitors <unk>.

Qualified as we speak so we do expect to maintain majority sure and we're we're we're quite happy with where we are in in our sure.

<unk>.

Great and then the second question is really related to a your caution around you <unk> inventory stocking and such at some of your customers. You know there's some concern that there is some build in China, particularly related with the fire g. product and you're talking about how you're looking at the rest of the year how much that additional five.

Gee I'm from customers like why Wei coming in and you do and then when you're looking at your outlook or you are you taking while way back.

What do you think a a right the right run rate is for them looking want to go forward basis.

Very good question time, so let me.

I thought were to John to offer more detail.

You know.

First I think too.

The things in perspective, five G. right now.

About 10% <unk>.

So if I were five G.'s, obviously right now.

Telecom.

So the the crowd.

How about 10 times the size of the five G. doesn't it was real time so.

Perspective, so <unk>.

Awarding five g. going on it's not gonna be material as compared to the overall crowd numbers that we're seeing for the year.

I would point true.

What happened in 2017 2010.

We you know other than the rest of industry not see the inventory correction coming and 17 early 18. So since then we have instituted very aggressive marketing and said.

Checks, whereas our customer partners customer customers to make sure that we have a good pause on and then three.

We've got a very good view right now what's going on.

Yes, there is a bit affording me and then three build up but nothing to speak off that when you're not going to be able to pick up in the rest of the ramps we pay already.

<unk>.

It's a rat, there's going to take a quite a few years.

Five j. becomes bigger next year, the cloud, there's going to get bigger as we go through the year into next year, because we're going to have some real crowd customers and goes you ask them, China Adam's after that ramp.

So we were very optimistic that the second half be better than the first half and that 2021 be stronger than 2020.

Regarding that why Wei question, I've always been kind of sad from Q. for two Q1, and what we've done in a guidance as we've taken a lot of that out of two two guidance and it would take it a quarter of time so.

You know, we we would take the revenue.

<unk>.

So we feel like we we we've done a good job thing.

On on on our views movie for John do you want to offer more detailed here.

I don't have time time, I think for covered everything that he that is or something else.

You did thanks for coming in from ground shirt.

[noise] next question comes on the line of Harlan here with J.P. Morgan.

The afternoon, guys then congratulations on D. solid execution instrument for US have performance for you know coming into this year you were pretty constant giving you then when pipeline that the team could go court over a quarter every single corridor.

It's certainly playing out that way and I know that there's a lot of uncertainty out there, but at the same kind seems like you up pop fan on hand for continuing to expand into the second half. So police. It today wanted to get your confidence level on sequential <unk>, three and q. for for the entire business.

Given what your senior pipeline and the sickness and pick up in data traffic that leads skiing, you know just to the first <unk> this year.

[noise]. So honest so short answer work off and then I'm going to continue to grow quarter on quarter every quarter. This year.

Great. Thank you and then and I mean, I didn't have to scale customers, making the moved to 200 gig or 400 gig.

The corporate 19 pandemic is actually accelerated the adoption of your solutions, just given a significant step up in compute and data traffic activity as you pointed out in your recent blog.

You had anticipated that the on your to existing clog customers you would have one additional U.S. when additional China customer firing this year with all of the seven top called guys firing next year, but is that still your view or might we see some <unk> some of these deployments.

So do good questions Harlan first.

The the trends we discussed in the blog I publish name for 22nd we have further expand on those I I'd recommend.

If you have a minute to read the wrong published I <unk> about Internet three point no.

We see a.

Bunch, we applications that are being developed that could increase the bandwidth and.

Around the world today.

On the foreign words or customer just.

You know two days ago, and he was talking about the factory to Porno I'll show up people are trying to reinvent you actually have an experience to you and do some of these were true conferences. So a lot of innovation is starting to happen around me applications that we do believe are going to come to market.

Over the next few months that that could reinvent some of the way we do things it doesn't make us.

Even more excited about what Lloyd core Internet three porno.

So.

The best way to increase band is is to increase so fundamentally <unk> do they do exactly that are you too.

Or even a lot more was clear and put a lot more bits pair the same fiber was coherent.

And and so we're seeing it next generation spam and coherent and they're still on track to have the same customers.

A second half this year and mixed you're trying to move these customers faster. It is harder, but the customer is already deploying time are accelerating that departments of time because of the some of them are seeing you need to increase the bed was inside their data center. So we may see a plan.

We don't really to put in right now I think if we continue to grow.

Was another U.S. go through I was trying to customer second half this year and all seven going on the time bandwagon mixture to market pretty grow very nicely for everyone.

Great execution. Thank you.

Thank you <unk>.

You know what next question comes from the line Quinn Bolton with him and company.

[noise] congratulations on the on the nice results.

Challenging environment.

Yeah.

You haven't seen.

Longer lead times.

But you know.

<unk>.

The fact that it's linked in Italy times too as long as six months, obviously there that.

Volume later in the Internet switch market wondering if longer lead times.

Genie availability of some of these high speed data center switches and is that.

Would that have any impacted you looking at the second half on sort of some of the Rams at either existing hyperscalers worse than the new Hyperscalers Arlen just mentioned.

Thank you can we are exactly the same trends the lead times right now are anywhere from six months to toward month.

If you look at the substrate right now is a huge issue where some suppliers. According you 52 weeks to get substrate.

So the lead times are extremely long, we've gave a warning to our customers when they don't give me wanting to customers for the past year month about this.

So yes. The the lead times are are very long, we're working very closely with our suppliers would be worked with our suppliers says Joe in January when we saw the beginning of this crisis.

Good buffer in face a month, but places in the surprising.

So we do believe will do.

Does anybody into.

But it's definitely very big cherish matches for us, but the one industry.

We do not expect it to at this point changed to outlook on the second half.

You know.

We're we're sit on track as far as a as you know the they'd be they'd be changes that we're going to continue to work with customers to overcome those changes now suppliers.

And then I guess maybe.

Everybody in the supply chain is Jean.

I'm stretching.

I've been very strong and maybe that reflects you know this stretch.

Can you talk to us at all about the borders maybe a book.

It sounds like you're trying to be conservative.

The with the second quarter guidance, but I mean, we're orders even much longer than the second second level.

Yeah.

<unk>.

Yeah.

You're not you know you may not be able to fill some of that demand and so it's are naturally resolves itself.

<unk>.

Yeah, I think in general Quinn orders are strong right now and we are you know trying to sort through and and understand.

What's behind those and and make sure that.

This is.

Not double booking or not according per se of inventory, they're not always obvious you know we just we tried to be good suppliers and make sure. We're in a in good close communication with our customers, but you know I think we do see a robust demand and that's reflected I think in the in the guidance, we're giving for the quarter, but.

You know as you <unk>, if we do have good good strong interest in in growth in.

But at the same time, we're trying to you know remain cautious about.

Oh.

<unk>.

Yeah. The next question some don't line up a Roth see more of your bank.

I guess things really questioning congrats on the strong results I I want to stick on that conservatism theme Ford at the end of your comments on this call you mentioned that the the second quarter Guide you you still injecting a healthy amount of conservatism and I think in answering your question on wall way, you said that you were pretty much removing them from the second quarter.

Isn't that the area, where the most conservatism is being injected into them not really ASCII to size. What's your guidance would be if you didn't inject that conservatism, but what are the areas, where you think that conservatism most warranted.

Yeah, I don't take your <unk>, we we haven't really removed one or another one of those vectors I I think we we've injected some conservatism that would allow us to.

You know.

[laughter] then one of those vectors not having somebody so whether ordering or whether.

It it trying to impact or whether double booking or whether another macro unforeseen event.

We put on that in the basket Ross and and took a conservative look on our kids guidance, which we believe is warranted given.

They're very full of time in on certain environment, where current here. So that's really.

It could be considered to be there can be realism, I mean, nobody knows right now right.

Environment. So we we do we were doing the right thing here.

Okay. Thanks for that and I guess is my follow up you'd mentioned those three dynamic that would be changing coming out to.

This Kobe and Nana can you talked about the edge computing site can unions go a little bit deeper into the D.R. and the others to opportunity in that and and and how is edge computing.

Whether it's a dollar item or a competitive dynamic where you're solutions are better just that a little bit deeper into that opportunity because I think it's a a relatively new where evolution for people to think about.

[noise] yeah. Thank her off so given the nature off the applications today.

Where you know there's a lot more.

<unk>, if you wish collaboration streaming or.

You know a metro access and edge computing has seen a.

Big increase in demand.

And that's that's mainly mainly links under 100 kilometers so.

Whereas whereas before some of our customers were more worried about having a.

Transport box, because they had a fair amount off long haul links.

Where you're going to some of these scenarios now where you're gonna be predominantly.

Less than 100 kilometre links.

Newsy, our standard actually called is 420 kilometres which we support we also in that same offering could support up to 400 kilometers and so that's going to take care off the majority, 90% plus off these customers need.

So when you're going to scenario, where 90% of your lids could be fulfilled.

Much more cost effective much lower power.

That is going to free up space in your data center, where you could put some more servers.

Especially in an environment today, where.

The fastest way to add dangerous would be to plug in modules and an existing switch or <unk>.

Applied by your favorite gender or by White box maker in Taiwan.

If you look at these dynamic there's gonna be flavorings yarn, we're seeing a lot more interesting to see our first go with them.

Especially encountered provider type of environment.

Oh, they weren't supposed to telecom kind of come is gonna be so much store two more when there's gonna be still dominated by.

You know the larger transport folks and assign there and we respect their ability to to compete there, but we seen the account moving to see our and I'm bigger way posts covert then pretty quickly.

<unk>.

Yeah next question, how some the line of toys fun bag of people.

[noise] yeah. Thank you in a congratulations on the results forward only 50 gig versus hundred gig Pan market.

Has there been any changes their lately, obviously you have very very high share in Sicily gig you know just just wondering if there's been any changes from your customers decisions to go one way or the other.

There's a couple of changes <unk> the the first one as as a worth three months ago.

There was some controversy on whether 400 gig was going to market or not.

Even though there are numbers there was no doubt.

And there's no controversy anymore that formed a gig has gone production. Okay. So our customers in the crowd are ramping foreigner gig.

And there's no doubt that this was happening anymore. Okay. So numbers don't lie.

As the mix between 200 in Florida, I think is to mmm pretty much equal.

And.

Yeah progress is we'd probably see more customers AD on the 200 to 200 could could end up being stronger and [laughter]. Pam has been one has been more costs on five g. <unk>. So.

End up with.

<unk>, which is the 50 g. being used for bush hygiene applications as well as 200 gig inside the data center, so have a bit of an edge.

But as far as share you know we [laughter].

Well, we said, which was you know and there'd be a couple of other D.S.P. vendors and a former gig that are we going to be competing against uncooperative analog guys. In the 50 50 gig space that we compete against.

But nothing too no changes that this.

Yeah, good and just a follow up on the E.R. question. So I know you're sampling right now you've talked about the are kind of becoming a more material rather than middle of next year.

Is it safe to say that that's not getting a little bit pulled in or or is that still the timeline for for material yeah right.

It's been put then three.

Thank you very much income got together.

Yeah I guess the question comes from the line of defeat our Yeah, I'll think of America's security.

Yeah, Hi. This is Adam involves on her back thanks for taking my question. My first one I was wondering if you can give us a sense for a what your overall China revenue exposure is now and if you see any of the new restrictions issued by the department of Commerce last week at having a an impact your business or.

John.

Yeah, Thanks, Adam so.

We're a generally you know up in 40% range shipping into China, and I think we're slightly higher than we weren't queue for.

And the bulk of that is really four data center actually so it's coming back to Google and Amazon and the while way numbers for instance, or.

Maybe a fifth of that that overall number they're not they're not a big.

<unk> big piece and I've been relatively flat from Q4 to one in terms. Your question about the Commerce Department the.

We're not impacted by the latest new ruling it's primarily.

Focus on R.F. kinds of transmissions and so it doesn't based on what were we our understanding of the new rule. It doesn't look like it it'll impact isn't so.

Just continue under you know under the current.

Export administration regulation rules, so does allow some diminimus shipping and so forth and so for the time being things will continue the way they are.

Great. Thanks, and then I for my follow up on Easter weekend, you know without business coming in I had a of your expectations and a quarter was wondering if maybe you have any change to your outlook for the full year business versus the Rangers identify before.

Well I think we're we're still comfortable with with the I think you're speaking about the the expectation for about 100 million of revenues. This year from you silicon and we're so comfortable with that number where you know we're not looking to to change guidance around that right now it it does look good and robust.

Able to hit that up a particular threshold.

Thank you.

Yeah.

Right next to question comes on line up Richard Shannon Crank Hell.

Okay. Thanks for taking my questions Jamaica question on the guidance here in the <unk>. She talked about looking for both organic and inorganic wrote here wondering if you can kind of discuss from I guess from a dollar growth point of view, whether it's more organic or from you silicon.

We're we're not really breaking the expected growth up I you know I just gave an indication of what we thought d. silicon would be for the year, which is kind of what we've said in the past.

And so yeah, we are.

Thinking that you know have growth potential on both sides of the of the business and.

We're we're I guess bullish about the opportunities in a in both sides.

Okay Fair enough second question swore for for me you talked about the acquisition of each silicon you talked about the need for more custom work here. It's you look out a year or two or whatever time frame you'd like to how important will cost don't work be I know you've done some for for many years in the past, but it's just going to be.

Majority piece of your business within Oh, So you know collectively within cloud and and five G. Slash Teleco networks or you can give us some understanding of of the importance of that dynamic in your business.

Yeah very good question, Richard we already seeing the need for this so we already are working hard at work had delivering some custom D.S.D.

For our customers not or cannot are created equal or not or telecom are created equal them. They all have different architectures.

And so I do need they all have five different peaks inside different features that they'd like to have.

Ability to customize those offerings for them by incorporating some their own I.P. into our offerings.

Divide them and throw a probability was what they haven't paid is becoming a.

Weapon for us to compete.

Yes, we're seeing that made increases and I'm very excited about it and.

Announcement in the future along those lines.

Okay, Great. We look forward here from that that's all my question six yes.

And your final question comes from the line of Joe more with Morgan Stanley.

Oh.

Yeah.

Yeah, I'm, having trouble with that line huh.

Joe we're having a hard time here you.

Okay.

Okay.

Yeah.

Andrew I think I think we can't hear I'm, sorry about that.

And that question has been look Gong I'd like to turn it back over 10, Mister Edmonds for any closing remarks.

<unk> Empire plans on attending the virtual J.P. Morgan conference on May 12th the cow in virtual conference on May 26, The Creek, how impersonal conference on May 27th the Bank of America Merrill Lynch Virtual conference on June 2nd and finally, the Stiefel Virtual conference on June 8th.

For forward in Vernon I look forward to talking with you in the future and a one to thank you for join us today.

[noise]. Thank you for your participation.

Tuesday's call you may now disconnect.

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