Q3 2020 Earnings Call
Third quarter fiscal year 2020 financial results conference call.
As a reminder, today's call is being recorded for replay purposes through May 12 2020.
I would I'd like to turn the conference over to Mr., Jim Fanucchi of Darrow Associates. Mr. Finicky. Please go ahead.
Thank you operator, welcome everyone to Lumentums third quarter fiscal 2020 earnings call. This is Jim Fanucchi from Darrow associates, assisting lumentum with its investor relations joining the call today from the company's management team, we have Alan Lowe, President and Chief Executive Officer, Wajid Ali Chief Financial Officer, and Chris Coldren Senior.
Hi, guys president of strategy and corporate development.
Today's call will include forward looking statements, including statements regarding the markets in which we operate including potential market sizes market trends in our position in such markets. The impact of cope at 19 and response of actions there too on our business, our partners and the global economy trends and expectations for our products and technology and.
Including product development and projected new product releases purchasing trends and demands for our products are expected financial performance, including our guidance expenses risks and uncertainties associated with potential disruption caused by cobot 19, as well as statements regarding our business initiatives and the achievements of synergies following.
Our acquisition of Oclaro.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. Lumentum encourages you to review our most recent filings with Securities and Exchange Commission, particularly the risk factors described in our SEC filings, including the company's quarterly report on form 10-Q for the fiscal quarter.
Her ended March 28, 2020 to be filed with the FCC later today and Lumentum annual report on form 10-K for fiscal year 2019 ended June 29, 2019. The forward looking statements provided during this call are based on lumentums reasonable beliefs and expectations as of today.
Momentum undertakes no obligation to update these statements except as required by applicable law. Please also note unless otherwise stated all results and projections discussed in this call. Our non-GAAP non-GAAP financials are not to be considered as a substitute for or superior to financials prepared in accordance with gap.
Lumentums press release with a third quarter fiscal 2020 result is available on its website at Triple W. Lumentum Dot com under the Investor section and includes additional details about our non-GAAP financial measures and a reconciliation between our historical GAAP and non-GAAP results. Lumentums website also contains our latest SEC filings.
And supplementary slides relating to todays earnings release, and the company and encourages you to review. These documents. In addition, a recording of this call will be available by Eleventhirty am Pacific time today on our website.
Now I will turn the call over to Alan for his comments.
Thank you Jim good morning, everyone.
At the outset I want to thank our employees they have been incredible through this crisis, despite each having their own personal challenges living and working in these times.
They are the ones that have put us in such a great position, both financially as well as with our technology and product leadership.
Employees are absolutely the company's greatest asset and my top priority is protecting the health and wellbeing of our employees and their families.
I'd also like to thank the rest of our stakeholders, including customers suppliers and shareholders for their support in partnership.
While everyone is surely facing difficult challenges all have been constructively focused on overcoming these challenges together.
After protecting our employees my next highest priority is ensuring we do everything we can to help our customers.
This is both in the supply of products as well as the execution on new products to ensure future success for our customers in there for us.
Third quarter demand was very strong revenue was within the range of our prior guidance, but on the lower end due to cope with 19 related challenges that rapidly accelerated late in the third quarter as the virus quickly spread outside of China.
Cobot 19 is dramatically impacting our fourth quarter outlook.
We estimate that covert 19 will impact the fourth quarter revenue by more than $90 million as the midpoint of our guidance is more than 20% below what we were anticipating for the fourth quarter before the brunt of our challenges from Cobot 19 began.
It little more than half of this $90 million is the result of our inability to supply communication products due to both component sourcing and production limitations in the balance from reduced consumer and industrial market demand.
We estimate that the cobot 19 related revenue reduction lowers projected fourth quarter earnings by more than 50 cents per share.
Well, we continue to react tactically to address the rapidly evolving and fluid situation coordinating does not change our strategic focus or diminish our long term opportunity.
Our strategic focus since we became an independent public company has been product and technology leadership with close customer partnerships in markets that we expect will have strong growth in will be healthy or long term.
In addition, we have focused keenly on disciplined management over our operations investments and capital structure.
We believe we're seeing the benefits of executing with this focus.
We have attained sustainable technology leadership positions that make us indispensable to the markets we serve.
Additionally, we have become financially strong with industry, leading profitability and a very solid balance sheet.
We believe cobot 19 will accelerate the shift to increasingly digital and virtual approaches to work Entertainment education healthcare, social interaction and commerce around the world.
This accelerating shift will stress the world's communications and cloud networks and should therefore drive the need for higher volumes of high performance optical devices.
We believe this will favorably impact our communication business over the long term.
We also believe this accelerating shift will favorably impact our laser and threed sensing lines of business over the long run.
As more secure devices and other hardware that are easier to interact with more autonomous will be needed to consume produce and communicate digital and virtual content.
Because of these trends, we believe our strategy is even more apt than before.
Further because we believe the markets. We address are driven by accelerating long term growth trends and are critically dependent on the types of products and technology. We supply we're planning to continue to invest strongly in innovation and new customer programs.
By doing this we expect to drive our growth and further our market leading positions.
Our investments will continue to be guided with the strong strategic and financial discipline that has gotten us to this point.
I want to be clear that we are also laser focused on driving increased efficiency and cost savings and all of our operations to further bolstered our financial strength.
As we rely on a highly global supply chain before discussing product line details I think it is valuable to provide you with some details on the status of our operations around the world.
We responded to the cobot 19 outbreak early and rapidly Oliver sites.
We quickly implemented company travel restrictions and cancel participation in the external events like trade shows and conferences in February.
In early March many of our employees started working from home.
We have not laid off or furloughed employees, including those who are not able to perform their work function from home.
We're also helping the communities in which we operate for example, we've used our commercial supply chains to procure and donate personal protective equipment or PE to healthcare providers.
Our employees have been leveraging internal capabilities to produce and donate limited quantities of ERP.
And we've also expanded our charitable donation programs.
In nearly all of our locations around the world local governments have mandated social distancing measures, including shelter in place orders.
We are deemed and essential business by these local governments due to the key role we play in the global supply chains are critical communications and healthcare systems.
As such we have been encouraged and permitted to continue operations.
Regarding our factories in Asia, which perform assembly and test operations.
In China, because we had a large number of employees working through the lunar new year holiday due to strong demand for our products, we were able to quickly ramp up production from our share then factory after the extended lunar new year holiday.
However, our Shenzhen factory was impacted in the third quarter by challenges in obtaining components from third party suppliers inside and outside of China.
While component supply is improving there continues to be some impact in the fourth quarter.
In Thailand, we rapidly implemented employee protective measures in the third quarter.
These measures have not limited output so far a production in Thailand has been impacted by the same challenges that our shift then factory is experiencing with sourcing components.
In Malaysia leaves a contract manufacturing partner for the majority of our telecom transmission revenue.
Output was significantly impacted late in the third quarter two the Malaysian governments, we can control order issued on March 16.
We had no production for several weeks after this but have been slowly ramping production since then.
Over the coming weeks, we expect to return to production level is close to those prior to the government quarter.
Our wafer fabs in the U.S., Japan, and the UK are all operating with some at lower efficiencies than before due to implementing social distancing and other protocols to protect the health of our employees.
Our Japan pad is the source of our Datacom chips are U S fab supplies chips for telecom transport and commercial lasers products and our UK fab supplies chips for telecom transmission products.
The lower efficiency entered Japan, and UK pads is limiting our ability to grow to meet strong and increasing customer demand.
We are hiring and adding capital equipment to increase our capacity, but at this takes time.
We use third party fabs in Taiwan, the U.S. and the UK for Threed sensing and have not seen any impact in our ability to meet customer demand for these products.
Outside of these operations our employees are in general working from home.
Extensively using virtual meetings in digital collaboration tools.
The increase in network traffic, we have created with our virtual meetings.
Where we have added more than 1 million meeting minutes per week since early February.
As an indicator of bandwidth growth in the future is very bright for lumentum.
We continue to make progress and R&D programs, even with the vast majority of our engineers working from home.
We do have a limited number of staff in our labs or operating equipment for those working from home.
We are continuing the development of new wafer.
Designs for next generation products in our Fabs.
All of these essential workers are also following strict social distancing rules and employing other personal protective measures.
Now I'll turn to the product line details.
On our telecom and Datacom product lines.
Before cobot 19 demand was very strong and accelerating driven by global telecom infrastructure upgrades the start of Fiveg deployments and significant cloud data center expansion.
We were already supply constrained on most key product lines.
Despite cobot 19 demand was strong throughout the third quarter Cross telecom transmission transport and Datacom chips.
Bookings for these products expanded by more than 10% sequentially.
Driving book to Bill to over 1.3 up from 1.1 in the prior quarter.
The outbreak however, exacerbated existing supply challenges.
As a result telecom and Datacom revenue decreased 6% sequentially.
In particular, the supply of telecom transmission products from China, Malaysia was significantly negatively impacted late in the third quarter.
Lithium nice gateway for bad it continued to ramp down or U.S. based within night they production.
He had approximate $10 million lithium <unk> revenue in the quarter and we expect this to declined to near zero over the next two quarters as we have highlighted previously.
Telecom transport was approximately flat quarter on quarter.
These product lines are more reliant on Thailand than China for manufacturing operations, but grow up with limited by this quiet key components from third parties in China and elsewhere within Asia.
Yeah. The come chip revenue continues to grow strongly increasing more than 20 per cent sequentially as data center and five g. demand was robust.
Remaining transceiver revenue was approximately $5 million and we'll declined to zero in the next quarter or too as planned.
During the third quarter, we introduced he knew telecom did account products.
These new products leveraged.
Are highly differentiated in <unk>, <unk>, <unk> and I capabilities.
Included.
50, Jeep Ham poor Vic fills in D.M.L. is to enable higher bandwidth.
Uncalled 100, G., Pam port emails to reduce data center power consumption.
And a wide set of new pump laser products that increase efficiently and power well lowering costs.
These address the full range of optical amplifier applications.
Look into the fourth quarter as I indicated earlier telecom of data com demand remains robust and strong bookings continue.
However, we expect telecom and did it comes out of a new growth to be limited by coded 19 related supply constraints.
Reply constraints and telecom transmission in Malaysia are improving but we are not at 100 per cent output yet.
We won't be able to satisfy them more than $100 million of current backlog. We have for these products until the second half of the calendar year.
Telecom transport revenue is expected to be up sequentially due to progress on relieving supply challenges and new product momentum in the market.
Did it come chip revenue is expected to be up sequentially. Once again did it continued strong crowded in five g. market demand, but it's still get it by capacity in our way for pets.
We are optimistic about the long term outlet for our telecom and data com product lines due to expected long-term demand trends are technology and product leadership position.
And improving industry dynamics.
As a highlighted in my initial remarks, the world's experience with Kobe 19 is changing how we do things in all aspects of work in lights.
It's changed directly drives the need for our telecom and data com products.
The market is designing networks around or reading.
X. two enabled scaling to hire capacities.
This is very favorable to us.
Or Indian boss like coherent components in modules enable the higher speed and density needed for higher network bandwidth.
Or hype court counts and M. bite and wrote them technology enables networks to scale capacity.
More efficiently.
And are higher speed or power consumption data come chips.
Critically important to drive network capacity inefficiencies in.
<unk> next generation data center networks.
Turning to industrial and consumer.
Industrial consumer product lines were down 24% sequentially as expected to do seasonal factors, but up 40% relative to the prior year.
You're on your growth was driven by customers incorporating 317 in a higher percentage of their product offerings compared to last year and increase consumer demand for three decency and enabled products.
<unk> steeply ramp volume production of lasers for world facing cameras or light or consumer applications in the third quarter.
We expect to continue to ramp volumes of such lasers throughout the calendar year.
Look into our fourth quarter, our guidance contemplate three d. syncing declining significantly more than 40% due to expectations round consumer demand the potential for smartphones supply chain challenges impact in demand for our products and potential risk around the timing of new customer programs.
We have a range of new products.
Already into ramp in the second half of the calendar year, including additional world facing design that we expect will increase the penetration a world pacey in three d. sensing or lighter in Naples cameras.
It is too early to quantify with confidence any impact consumer bond funds or the timing of new programs due to cope in 19, but we are very closely monitoring the situation.
We believe the 317 market will continue to grow over the long term.
Mobile device manufacturers continue to make progress on their plans to incorporate front facing and world facing capabilities into a wider range of models.
They're engaged with a broad range of customers focused on the consumer industrial and automotive in markets look into at three decent scene or light our capabilities to enable their applications.
Now until lasers.
Third quarter lasers, rather than a decrease to $43.5 million driven primarily by decline in fiber laser sales.
We expect over the next several quarters that are fiber lasers business will soften further as it is tied to gross in global manufacturing.
Are solid state laser rubbing it expanded nicely quarter on quarter <unk> levels not seen in nearly two years.
This was due to strength in certain semiconductor manufacturing in markets, including five g. antenna application.
We expect these trends to continue into the fourth quarter fiber laser declines dean larger than solid state growth, resulting in a laser revenue declining sequentially by approximately 20 per cent.
Throughout my remarks, I've tried to give you much more detailed unusual about the status of our market demand.
For our products, our operations and our ability to supply given the dynamic challenges the rope faces with covert 19.
Before covert 19, we were challenged to satisfy strong custer into that for many of our communications products.
The 19 pandemic has exacerbated the situation.
So our ability to supply these products is getting better catching up on the strong demand will take a few four quarters.
Finally, I tried to highlight that while we are all living through difficult times, our strategy is even more apt and our market position in financial strength, even more important.
I believe we are well positioned both to whether the short term and to succeed in the long term.
With that Oh handed over to watch it.
Thank you Alan.
Everyone.
I too would like to thank our employees for their dedication and perseverance I am absolutely amazed at their strong execution in such challenging circumstances.
Before diving into the details some high level comments as Alan highlighted in his opening remarks covert 19 is impacting our results and our outlook. We estimate the covert 19 is impacting our fourth quarter revenue by more than 20 per cent and our earnings by more more than 35%.
Or approximately 50 cents per share.
Despite these impacts we have made progress and improving our financial model year on year and the third quarter, we achieved 650, and 720 basis points of improvement in Nongaap, gross and operating margins, respectively, and more than 37% improvement and non.
P P.S. despite revenue being down 7%. Our motto improvement is also C.N.N.D. improving margins in our guidance for the fourth quarter, even with a substantially lower top line and less rich revenue mix relative to the prior year.
We continue to make strong investments and new technology in customer programs, it's maybe obscured in the you're on your comparisons where r. and D. spending is down as we have been symbol tenuously attaining already acquisition synergies and cutting investments in underperforming product lines, all while ramping investments in areas with stronger.
Outlooks and returns.
On capital structure as you were aware.
In the second quarter, we issued $1.05 billion inconvertible debt paid off or acquisition related term loan and repurchased $200 million of our stock.
This increased gross cash which is now approximately 1.5 billion.
Reduced our share account and increased our flexibility to further drive strategic initiatives, while reducing the cash cost of our Capitol. We achieved this capital structure in the second quarter not anticipating the covert 19 pandemic. However, as we have often said afterwards, the best time to read.
It's capital is when you don't need it the past two months, it's proof to that adage.
We are well positioned financially with a strong margin model high levels of cash with low interest expense and long maturity financing.
Now turning to the third quarter to numbers.
Revenue for the third quarter was 402.8 million, which was down 12 per cent sequentially and seven per cent year on year. Our prior guidance assumed to cope with 19 with negatively impact revenue by $15 million to $20 million.
However, as Alan discussed we had a larger impact than we assume due to the spread of the virus be on China late in the third quarter. We estimate this additional revenue impact was more than $10 million over our guidance assumptions.
Gap gross margin for the second quarter was 39.2% gap operating margin was 10.6% and gap diluted net income per share was 56 cents.
Third quarter Nongaap gross margin was 45.5%, which was down 190 basis points sequentially, but up 650 basis points year on year.
Sequential decline was driven by lower overall revenues, particularly in industrial and consumer you're on your increase was primarily driven by improvements in the telecom and data com margins as well as acquisition sandwiches.
Nongaap operating margin for the third quarter was 25%, which was down 380 basis points sequentially, but by 720 basis points you're on your.
Sequential and you're on your changes were driven by the same factors as the gross margin improvement.
Nongaap operating expenses totalled 82.7 million or 20.5% of revenue.
S. G.N.A. expense was 38.4 million R. and D. expense was 44.3 million.
Sequential decline and operating expenses was driven by the combination of reduce trade show in travel expenses and the realization of additional acquisition synergies, which were partially offset by higher fringe rates associated with the new calendar year.
Third quarter Nongaap net income was 98 million.
Includes $3.6 million of net interest and other income and $6.3 million of tax expense.
Nongaap diluted net income per share with $1.26 based on a fully diluted share account of 77.5 million.
Now turning to segment details third quarter optical communications segment revenue at 359.3 million decreased 12% sequentially due primarily to three d. sensing seasonality and covert 19 related supply limitations, you're on your optical communications segment revenue reduce.
5% due to lower telecom and data com revenue with the exit of data com modules, and coping 19 supply limitations, which more than offset higher three d. sensing revenue.
Optical communication segment close margin at 45% decreased 300 basis points sequentially due to the revenue reduction and less favorable product mix, but increased 700 pesos points you're on your due to a more favorable mix of products improve telecom and data com margins.
And acquisition centers.
Or lasers segment revenue at 43.5 million decreased 10 per cent sequentially and 21 per cent you're on your primarily due to lower fiber slaves or sales third quarter lasers gross margin increased to 49.7% do do a better product mix and lower manufacturing costs.
On the balance sheet.
We ended the third quarter with 1.4 or $5 billion in cash and short term investments up from approximately 1.3 billion in the prior quarters.
We have 1.5 billion in aggregate principle convertible notes and no term debt.
Of these convertible notes 450 million is due in 2024 and 1.05 billion is due in 2026. The total cash interest expense associated with these notes is approximately $6 million per year.
And now an update on synergies.
Who the third quarter of fiscal 20, we completed auctions that will result in approximately $100 million of annual expense energies. As a reminder, we are targeting a total of $110 million in annual run rapes acquisition synergies, but the remaining $10 million to be attained over the next few quarters.
Turning now to our guidance for the fourth quarter.
The projections, we're providing today are also on a non got basis and are based on our assumptions as of today.
Please note the guidance we are providing today incorporates our current expectations for supply and demand reduction is related to cope with 19, we're providing a wider than normal revenue range to incorporate uncertainty around the impact of covert 19.
We project net revenue for the fourth quarter will be in the range of 325 million to $365 million.
At the midpoint revenue projections includes telecom and data com approximately flat wouldn't growth limited by continuing covert 19 supply limitations. This includes declines from discontinued products, which are estimated to be $6 million to $8 million.
Industrial and consumer decreasing by more than 40% due to expectations around.
Humor spending trends.
[laughter].
<unk>.
[laughter].
[laughter].
Operator, let's begin the question answer session.
Uh huh.
First question comes from these charters.
Wonderful.
Hi, good morning. Thanks.
Well I appreciate all your [laughter] <unk> or <unk>.
Options for true well, but typical booked by Oh, you're thinking about [laughter] recovery will be like <unk> <unk> <unk> <unk>.
Sure.
[laughter] <unk> supply chain or really well.
Good components sourced from.
With this chart shows lower for the two would be similar to show or.
The situation.
Much better with the personnel this quarter was <unk>.
Pretty dramatically and that's certainly our ability to ramp up work hard work, maybe partially mortgage backed up 12% core.
Got it will Oh, well have some production.
The next couple of weeks, what would be but of course broker for sure.
[laughter] or perspective as it comes down to four <unk> com ships or telecom transported transmissions.
So one rig.
We use that as we get back to 100% capacity and we bring on more capital, which we Oh, please long <unk> through <unk>.
The bear.
Is gonna be sustainable well was to grow both or go to calm talk transport and transmission. So first the school and second fiscal quarters.
Okay.
For me.
[laughter], <unk>, Oh, Oh, [laughter], <unk> infrastructure and try though.
<unk> revenue as well.
Last quarter was [laughter] called <unk>.
<unk> <unk> <unk>.
[laughter] execution as it is important.
Okay.
Oh, yes. So so we are seeing certainly we are very strong datacom or chip demand that is increment in part by.
Oh Gee deployments and this quarter has done incredibly strong bookings.
You know, presumably driven by a lot of Fiveg.
Okay can you remind me the second part of your question.
Oh.
I think last quarter <unk> [laughter] <unk> Oscar.
[laughter] <unk>.
Oil and water.
<unk>.
That revenue has declined a bit we don't provide revenue a customer on a quarterly basis, but.
I imagine that is down.
20 put down 20% sequentially.
Okay. Thank you.
Your next question comes from long haul trucks are wonderful.
Yeah, but does that take my question.
What are.
Most people your parts on the daughter and sort of walk through.
The other or not.
I would have lived or.
For the clarification on whether this is why Robert.
Please proceed your parts, but we really love.
And that will users Oh, we push that though still for most of them.
It's all about what's the worst of the telecom and Datacom revenues would have thought but your door or could you just walked up through the other.
Well I was told us that nobody lithobid mature.
Everybody older I think.
Yeah, that's why I think in general.
The man standpoint, you're you're pretty close quickly.
Recurring to use everything you've done a 40% anymore.
The balance of approximately 45 $50 billion <unk> or awarded to support.
Got it.
Majority about comes from Oregon ability to ramp or a reduction in Malaysia first at the school for construct your first quarter.
It was what was the unsecured bonds and so we have waters you have to their customers or.
Really phone calls Loosest, Oh, we prioritize them.
Quadrant for two or more than $50 million is or inability to supply.
Yeah.
Uh huh.
Or capacity would be are aligned with North America, and we would agree producers. So that's worth about culture.
Okay.
So or wanting to build our people call the or dogs, which has been the floors on let's take away uncomfortable for my own Yeah. I know you say you go through all your though when you think you will go through the something wasn't the programs are weighted and continue to listen to your view on how we should be.
About seasonality, there or you don't know yourselves.
No we like leadership for the fourth if there is very good you know just Georgia dome, mainly on the system when you're on adult.
Yeah, Rob.
Really hard to throw anything before I go when they talk soon so I think from your perspective, we already are we.
We ended the quarter.
Oh, good set of chips baby girl waiting for not just one customer, but multiple customers because you know when they're ready to ramp those foreign occasionally do they tell us.
It's a world screens that we can do around the world movies.
So it's you know timeline as to when they do that so it's really more.
Make sure we're ready to go over anything where they actually grow where your job growth.
Yeah, Let me clarify the wallet point.
If you just don't 40% or moved down 20% off does it feel the wellbore depletable mortuary and I don't know regarding what we embark on development wall.
<unk>.
Okay.
Yeah. So.
I would anticipate that roughly the same level.
Good morning, and once we put on 16.
Correct.
Interestingly career.
So the supply constraints number from given the constraints were every month or two group or.
Welcome transport for that matter as well as competition so.
Certainly the mandatory.
Right Okay.
Thanks, guys.
Thank you.
Next question is from.
Well.
Great. Thank you very much so I was hoping it's talking about the competitive.
Circumstances around the TV environment obviously.
It's difficult time when.
Production ramp up for the but have you seen maybe change.
<unk> talked about the Mark talked about.
Picking up some still.
Uh-huh <unk> supply that's still the case, Oh, well have you seen.
Any change in that dynamic.
At this point.
<unk>.
[noise] products.
Oh, no more advanced products on a global.
Platforms. Therefore.
Can you talk show back up.
Yeah, Okay, Phillips and I'd say that it's hard to say exactly what's going on with her and her.
Our focus is making sure.
So the more ensure with our customer as they roll out your products and so I'd say that probably talked about and script the world fishing light or application. We have extremely archon of at least we continue to keep up as well as they do chips.
Grocers more their development quite you're working on moving forward.
I think you're right [laughter], nor do that's that's a virtuous they're just not easy to a catch up and stuff. So you go after three years I think through our competitors are getting it but now we're moving through that.
And just one more question on the operating a wise.
Generally oh <unk> cost benefits too.
It is my travel one way or.
Some of that Oh, it's probably going.
Impact.
Hello.
Given what you're saying about Uh huh.
Margins can you talk about what's going on with the optics.
On a more sustainable basis are you also.
Coming back from costs are there any guidance on.
This additional synergies will be R&D would be helpful.
[laughter].
Hi, Alex I'll also started swatches so on the probably the way to think about kind of problem reduction this quarter to quarter. Oh, you know moving from [laughter] for Q4, we should probably think what are the two to 3 million dollar range or moving from one quarter to the box.
Our expectation is that there won't be song Chromebooks shorts topic, I know, it's true old around although certainly isn't etch remarks ill tell you must have always our operations team.
To get back into normal, especially with the number of capital deployments that Orland Park to both a in his script that with dark warm on specifically our nuclear facility a as lower Carswell. So we would do it oh work in short moving around like that of course.
I think you should think about two to 3 million dollar quarter standpoint.
Well as for a kind of reducing RSV I'm out of the overall level just because you know we're looking out also other covert tend to show rotation out of current I'm more concerned there in terms that we can take a look at our careers website on all American Dot Com, we're actively Harvard.
Our multiple warm shows our specifically on our Oh or direct labor hires in the UK over the next year will probably increase our core hunger folks I'm, just to wrap up where the or transmission products.
Yeah. So you're right now we're just trying to third world hardly globally were trained on everybody wants to would certainly in the modem, leaving us for some additional targeted hires to support or R&D programs and I would like my should be worked hard to get harder. So it's not across the board, but we're certainly being oh.
From that standpoint, because our objective is to stay ahead of the competition of Ms Dawn.
Most of our markets if not all.
I'll answer that one sort of the mathematically if you will see you know some data.
That's just because oh.
Crawl walk away from them.
Sure.
Your next question Charles almost always work was wonderful.
[noise] endorsements with them of course, you and I just wanted to talk a little longer term upper Nols will closed stores will describe some reduction which is good.
Let's go to reach the movies. Your can you don't know what do you got him when are you assuming the blue choose not to <unk> percent.
Oh, I'm, sorry, how long do start really margin pressure kind of the just.
Look we listen to the whole quarters more renewable did you between school.
<unk>.
So.
I think you know we've gotten even go ahead your brain, but our old news for using wouldn't you [noise].
That's helping out.
We expect them to do another week or medium cycle time of the product groups or a change.
We should be close to an obsession but.
Keep in mind, there or central disturbing limitations or make your there's always that with the current headcount so.
Capital area, but I think that you're right.
We should be bad cost where were in February.
Okay great.
Over 11 years.
Focus or is what you've talked about or your true probably hurt your parents.
There's just so much demand that we need to be able to get more wafers out or yields and drive costs things like that.
Im actually what we're focused on flows through but I don't know Crystal ball is doing is hoping to them and what I'd say that we'd probably as we enter into nurture war in August and should be back to normal thing what I can go.
Group.
The oldest used with <unk>.
And it looks like this to customers.
So in Brazil.
Ooh drilling from leaderboards customer, mostly on the books do you know Bruce Nudell into June.
<unk> supply chain stone as well can you talk about just the sheer there drugs you talked about it will boost to boost your existing centers excuse for businesses Sherman <unk> purchase of blog.
The question.
Oh.
Oh, yes or or.
I don't quite know.
Well go ahead, all going to say or or or largest customer.
That's running north of $90 million.
Uh huh.
Going to get any more precise about Oh I got to tell him to talk about sure.
Sorry bigger.
We were comfortable nurse, you're more on that customer.
Thanks.
That's just before our focus is going to get in terms of being able to mature Richard Roberts and that really you broke out are you sure. We oh, we usually do over and over the last couple of years. So that's that's kind of we're focusing extra to report loads picture in Chicago.
Your next question was from a commercial with Morgan Stanley.
[laughter].
Great. Thanks.
I just wanted to dive into kind of the trying to base rather do just what the tenders being granted for a number of the tender kind of being granted over the past couple of weeks can you just because I thought you know how how that should flow through for you on revenue.
Our demand or pipeline or how many of your kind of cost order a few estimate have been kind of getting money personal under $10 and then maybe if I'm a datacom subside. So we consider that out all kind of coming from one customer orders are well his daughter Costamare for those.
<unk>.
Also we had one versus the easy but did you just look at the due to calm customer base, a year and happens, though with the acquisition completed <unk> Barry.
Concentrated on working with customers to go Oh, it's extremely diverse or where we're seeing as we exited the module business customers came to us because we're no longer a threat to compete with them intuition that blogging or customer.
Buildings, and growing sort of customers coming to us, especially on the well existing parts, but with our technology development on the part that talked about in the script.
And also Autobytels, you see really a rapid acceleration.
Customer at school so.
As long as China, you know there is lot of activity today I'm already them on the calls and.
Who issues or linear Bert Chinese customers to be able to supply would be need them up but then again scrum datacom ships to RDM Roadrunners Hardcourt felt modems embargo rules as walls transmission cars, so I'm sure that job.
Yeah. This real product is being deployed is dropping stock borrowed from what we control because I think the construction of the return or your there's going to.
Injured according to their charters, so are getting ready for that.
Got it thanks.
Your next question is from drawn work.
Wonderful.
Thanks very much in just one follow up on your last comment there where you're talking about two major projects scheduled for the second half your some of their degree on new ways around additional trying to sanctions and companies like that way or do you usually do something more to come down the you'd have to whole like you did in may of last year.
What do you think there what you burn bear that you'd be able to continue the supply into China.
Continue deplete our be worse.
And some of those Oh, yes.
Scully.
Well I mean, they think it's hard to speculate on what waiting or if it really comes down we will certainly a bar as part of the walls are used for change.
But even John what what is that as we look to do.
The Minister who.
That's very little of what we could have shipped to them so from that perspective, depending on what changes happen.
That does that limit changes you know to lower number I think we'll probably okay. If it changes to zero, that's a different pattern. So.
It's hard to speculate but of course, we're going to abide by the laws.
Sure.
To your house for customers, but at the same time also.
Do the right thing.
And then maybe just a a follow up to some of that you do have been able to secure supply and our shippers normal do you think the book to Bill in the Telecom and Datacom segment, a better about was just trying to get a sense of what their underlying our initial demand trend looks like.
You know if you've been able to to read that didn't have more.
Working if we didn't we shipped more in the book to Bill would have been lower because food.
The words, we've been hard so.
No I don't think there's a lot of artificial bookings were double booking where we'll see.
See we.
I think we've got a long haul too.
Our board equilibrium between our daughters plywood customers need.
But what did the corn fields so.
I think emerging telecom datacom business.
The your fundamental underlying reasons for we'll figure out of business ignored.
Good.
<unk>.
Oh really are bureau of cigarettes or are you on how we do business versus the others or bigger normal so bandwidth requirements, you're continuing to grow.
I don't know theory that in Minnesota, though.
The next question is George Notter with Jefferies. Your line is open.
Hi, guys. Thanks, very much off I just wanted to ask him from you any view you guys might know of on the long term structure on the market.
We think a girl Theres Cobra 19 experience and we think about maybe some of the smaller competitors in the space do you see.
This will experience driving consolidation is it enhances the lease it drives innovation Michael.
Mortgage or to use like how do you think you'd be looking for opportunities longer term on last year.
No. It entered this victory.
Oh, how it's working as we all agree is what you had highlighted you know eleonore and strong financial.
A business model with a very strong balance sheet allows us to many of them. There. So that's what we're doing youre hiring or be we're investing or we intend to commodity groups.
Even better.
Product differentiation than we were here so.
If you can be very work for the small goes to keep our but we'll see or things you know there will be opportunities.
But I'd say, but also reward we nearly six minute walk evolution. So.
The market where else do is doing a pretty healthy position today. So we'll see what happens, but you know our bookings.
So from our customers investing in new products and technology differentiation. So that are going to come out have you ever going to.
Even better position.
[laughter].
Actually.
Next question is from Simon Leopold referring to James.
Great. Thanks for taking the question.
A couple of things, but I wanted to ask one was Alan in and talked about the 90 million you talked about to over 50 million being supply chain related.
So that implies less than 40 million being demand related.
Could you, maybe unpack that a bit between three and industrial or commercial wagers, the commercial lasers and help us understand what do you think about for the prospect for recovery, particularly given that some of the in markets like auto manufacturing seem like they're they're struggling to kind of price.
So I'd rather just your outlook on the demand aspect of the coconut cream Oh God.
Sure sure or it could just to know we certainly more than product. So we expect that between the suppliers Amanda.
Oh, we could absorb more than Mcgee marine and energy poor.
So like it's probably more than 50 variant of supplying it would it be true to our ramp or seemingly the Malaysian operation. So that's really working or Q4.
But the prospects recovery or two you're right the minimum wages business, we produced several quarters I'm thrilled.
Global manufacturing infrastructure comes back to normal so I think were left.
The lower level per lasers, Oh, we go through the calendar year.
Again, I don't know the Crystal ball, and that's where you feel to it it's really hard to drill rig or focus is making sure were there for a customer with Adidas, especially on the new products, but you know it's hard to hard to know what we levels of unemployment or people going to go up in part our phones window because everything.
Fundamentally people come back and they continue to provide consumers.
Yeah. So.
It's really more more typical for the project that will appear on telecom datacom.
A month by month to month smaller fleet, one worrying about what it refers to the other.
Okay, and just a follow up I wanted to get your thoughts on Lumentums, our prospects and what you think your role would be in the emerging market for the or modules.
Based on this is Chris Yep. So certainly we waterborne motivation. So when we acquired Oclaro was to get the industry leading into your thoughts fight.
Component and module capabilities, and we continue to invest strongly in that capability.
On to our developing those products as well as a whole a wide range of.
Oh DCIO modules side.
What are the 100 gig 200, good foreigner gig and eventually you pause and the underlying supporting components for those customers, who either go modules or online carbs themselves.
We expect that that so the market for 400 gig and and so at the module level will start ramping up.
Let me later this calendar year, so, but you know that could be much more meaningful in India, Oh, following a years, but you know, it's an exciting market for us and we think we're per well positions with our R&D costs by technology.
Your next question is from some show with both on the capital management Your line.
Oh, you're worried.
A question overall.
Telecom Datacom sorry.
Vicki refers to a continuation of strong booking term.
Oh, the true or the school for.
I wonder for Ginger.
No color on there I was just seeing an acceleration.
Our expected them to supply constraints will go to growing.
Oh for more ER Doc or the older.
Similar levels.
It's good to see those orders materialism.
Drivers, namely.
No capacity additions driven by not worked hard for growth.
For the reserve.
Less than a mere versus you know what appears to be.
Pretty strong no hogs current girlfriend Turner.
Yeah. So we saw a continuation [noise].
Oh, good strong bookings, we talk on Datacom.
Didn't change your ability to supply that's for sure but.
Do you think the fundamental drivers or for North America bandwidth Hyperscale.
Deployments as well is conducting.
Older people working from home are.
So virtual are callable in she pools and for a change the play just trying to is it was back in rolling and through building out both the from home backhaul.
Already about got will devote regional <unk> Metro networks would rotary engine transmission part is happening so.
With respect to or don't they don't useful.
It's too.
More agree that up.
The deployment of.
The worst.
The first calendar quarter in charter themselves certain somewhere.
Yes.
Just a follow up quickly you mentioned the hundred million dollar block walking in terms mission.
Arnold slicker to grow at all or wasn't that was calling for interesting.
[laughter] and expectations.
That's likely to sure.
Mccomber second or.
Yeah, so well charter, which included a $100 million backlog in transmission.
His back when we have today that will not be sold as far as reported.
Uh huh.
Right.
So we're going to satisfy our long about what we have today with this won't be satisfied so.
If you look back or or two store transmission business, it's usually a hybrid $220 million a quarter or older with some of the discontinued products. If you go kind of equals book.
So you know real strong Douglas interest in your because we'll be doing so we're going or in the fiscal year with very strong backlog is my projection.
Your next question is much more so on the international funds.
He goes like for the caution a thing and on a part of your <unk>.
Scott you talked about so cool.
Slide our war pre spring product ready to go.
My question is how does the.
Before qualification process.
And then secondly, just reporting the.
I know it's difficult when are you guys are waiting, but there so I'm a drop that the which leads to.
And pull that.
Okay and full capacity.
Thank you.
Well you should we were ramping up production or will producing why go forward from there.
You are typically you don't have much wallboard and so part of their own T trial, then that either.
With this product so its being sold to consumers so.
So I think the.
We will often running about when it will continue to work towards you dropped there so.
You know when you're a billion inventory of the word positions.
<unk>.
There are customers.
Or based customer and or sales team and quality.
Very well aligned on when you need to grow based on their schedule. So I'm not I'm not too worried about it dropped as they are not perspective will be ready.
Great great position relative to our competitors.
[noise] for final questions, which would show that going home.
So.
Well thanks for taking my question I, just troubling finish up you're working on Threed sensing talked a.
Well I mean answers on that topic I think the money merger bid customer really down if you could talk about the impact on your drug or Android customers. So the impact from cobot here in terms of timeframe and the bulls use them implementation of Oh, either from featuring more and more specifically more fishing. Thanks.
Oh, Hi, Richard This is Chris so Android business and in the quarter.
As you can imagine smartphones.
Production in China was was it was down quite a bit I'm. So we saw the according to the other means.
Slowed considerably quarter on quarter with that said are designed in activity and product positioning with Android customers.
This is good and continuing to improve we have a broad range of.
Got it for chronic animal anything to satisfy the Android customer needs and that's one of the advantages so.
Oh, the scale, but we are the businesses or.
Since R&D capacity to be able to.
Customize and develop products for.
All the customers in the Android stage.
Turning to our largest customer so we anticipate the Android.
Design in standpoint.
Continue to progress too.
Broader set of models and at a higher volume.
Next I think as Alan highlighted little difficult to handicap the.
Overall smartphone volumes in the world over the coming here given you know.
Macro challenges, which decreased our consumer demand, but we feel pretty good about both the broadening of the.
Are you sensing in the and good space.
And our position.
And supply much products.
The.
Question answer session.
Cool teams through from the people that goes in the works.
Great. Thank you. So watch this concludes our coal for today quite dependent on one for attending and we look forward to talking with you again in another few months after today.
What is normal.
This conference call you know so thank you.
[music].