Q3 2020 MACOM Technology Solutions Holdings Inc Earnings Call
Good afternoon, and welcome to make them start fiscal quarter 2020 conference call.
This conference call is being recorded today Wednesday July 29 to 2020.
At this time, all participants on the listen only mode.
I'll now turn the call to Mr., Steve Philosophy becomes vice President of Investor Relations Mr. Ferrante. Please go ahead.
Thank you operator.
Good afternoon, and welcome to bake offs third fiscal quarter 2020 earnings conference call.
I would like to remind everyone that our discussion today will contain forward looking statements, which are subject to certain risks and uncertainties.
Under the Safe Harbor forward looking statements contained in the private Securities Litigation Reform Act is actually 95.
Actual results may differ materially from those discussed today.
For more detailed discussions of the risks and uncertainties that can result in those differences, we refer you to make comps filings with the FCC.
Management statements. During this call will also include discussion of certain adjusted non-GAAP financial information.
A reconciliation of GAAP to adjusted non-GAAP results are provided was in the company's press release related form 8-K, which was filed with the FCC today.
With that I'll turn it over the call she Daly President and CEO Maaco.
Thank you and good afternoon.
I will begin today's call with a general company update.
After that Jack Kober, our Chief Financial Officer will provide a more in depth review, our third quarter financial results for fiscal year 20 Twond.
Jack is finished I will provide revenue and earnings guidance for Q4, and then we would be happy to take some questions.
Revenue for our third fiscal quarter was $137.3 million and adjusted EPS was 33 cents per diluted share.
We are pleased with these results and we are pleased that demand for our products continues to increase primarily from the data center in telecom markets.
Equally important as Jack will discuss later, our Q3 gross margins have improved operating expenses were well controlled and the net result was continued improvement in profitability and cash generation.
Notably our operating margins exceeded 20% for the first time since 2017.
Our strategy is to execute on products and technology developments. So that we may take full advantage of the growth opportunities in front of off while also improving profitability.
Q3 revenue by end market was as follows data center was 32.4 million.
Telecom was 56.8 million and industrial in defense was 48 million.
He just center in telecom had sequential growth rates of 21 in 10%, respectively, while our industrial in defense business was essentially flat.
On a geographic basis, approximately 40% third quarter revenue was from domestic customers and 60% was from international customers.
Our book to Bill ratio was approximately 1.4 to one and our church business, what business booked and shipped within the quarter was approximately 25% to total revenue.
Our book to Bill ratio was exceptional driven in part by the current Fiveg infrastructure and data center spending cycles.
We also estimated kobin dicing pandemic motivated some customers to order ahead of end demand due to concerns of future component shortages, what potential supply chain disruptions.
Additionally, we received some long lead time industrial and defense orders in Q3 that will be shipped beyond Q4.
We're all these reasons, we believe that into coming quarters I book to Bill ratio will return to lead more typical level.
We remain in regular contact with our largest customers and we're closely monitoring channel inventory general order activity and long term demand forecast.
For Q3 sequential growth in our data center and market revenue was driven by cloud data center demand pull from domestic and international deployed.
Our Hundredg high performance analog products in our emerging 204 hundredg in like product lines are supporting the growth in this market segment today.
I'll note that our international data center growth is driven by Asia based data center expansion, where we sell both 20 fiveg, yeah hundredg analog products.
We view ongoing demand for bandwidth and associated infrastructure upgrades inside the data centers to be an opportunity for maycom into years ahead, and we see the expansion of one hundredg and the emergence of 204 hundredg to be opportunities to expand our position in the market.
Sequential growth in our telecom and market revenue was driven by demand for Fiveg wireless RF products, Fiveg front haul and bit Hall HD product.
Improvements in the GE, Poland market and market share gains in the metro long haul market from new coherent products.
We view Fiveg infrastructure deployment as a key growth driver for Maycom revenue.
In the coming quarters, we anticipate further expanding our current fiveg portfolio by launching additional optical components more discrete RF components and more high performance analog and mixed signal licenses.
Our industrial and defense end market revenue consists of a variety of end applications, including long term defense programs.
I'd like communication applications no calm in public safety handheld radio applications, he hasn't test and measurement equipment.
We recognize this end market has not been growing for make all over the past few years and we are implementing new strategies to initiate growth.
Including improving our sales channels refocusing on key accounts, increasing cross selling them all technologies into the market and developing additional standard and custom products, which will appeal directly to these customers.
This end market has tremendous growth potential for make off however, we believe that it will take us tied to grow our business and 90, given the long design cycles.
Our next slide to highlight a few corporate initiatives aimed at enhancing our quality standards across may cause.
We have kicked off an effort to certify all our major facilities to the FC Eskey, that's 2020 quality standards and this past quarter four of our me facilities were certified.
This standard is a multi industry standard, which defines control programs to protect SD sensitive components assemblies and equipment.
Our engineering operations in quality staff are doing a great job updating our procedures in order to achieve these certifications and we look forward to additional sites certifications over the next 12 months.
In June we kicked off new efforts to certify maycom on two additional quality standards.
First as a S 91, hundredg, which builds upon the ISO 9000, what standards modified to meet DLD NASA International Aviation NFC a quality standards.
And the second is TS 16 night for nine which is also built upon the ISO 9001 framework and focuses on defect prevention waste reduction in supply chain management for the automotive industry.
Expanding the capability of our quality systems supports our growth strategy to enter new markets and to find new customers and these actions will open up new doors for us in the aerospace and automotive industries.
Broadly speaking may called has a wide range of differentiated products and production today.
A number of these products have extraordinarily long lifecycles and produced revenues years after they've been introduced.
In total we have dozens of different product lines service servicing thousands of customers.
We view this diversity of technology products and market applications as an inherent strength of the company.
Maycom with its 65 year history is known for its RF diodes daily merchandise mix and silicon bipolar power transistors.
We have also taking the lead position in the market with our high performance analog drivers lock in data recoveries circus, or cdrs and Transimpedance amplifiers or T.
Which are amongst the best in class in the industry.
We complement these products with high speed coherent drivers antibodies for next generation Metro long haul optical networks.
And less interest in our proprietary T. laser technology is expanding because of our performance and because of our four inch indium phosphide wafers are giving us a tremendous manufacturing advantage.
We see numerous opportunities to go up to grow our business and we believe that our card portfolio of products should provide a stable foundation for future profit and revenue growth.
Our strategy is to build upon this foundation by developing technologies and new products, which will differentiate may cause and helped drive additional growth, including including gallium nitride organic high performance lasers, Dsps and silicon photonics.
These technologies are compelling and they have the potential to generate significant revenues and profits for the company in the years ahead.
We continue to slowly move these technologies closer to product innovation.
One of the highlights in the quarter was the completion of our first one hundredg Pamfour DSP program.
Want to congratulate our engineering team for successfully finishing the design and our production teams for transitioning this product from engineering to production.
While we do recognize we are entering an established market one hundredg pamfour DSP market is large and growing and we will aggressively pursue opportunities to win market share and maximize our return on invested.
The completion of this project highlights our management team's ability to focus and execute.
I'll also note that this project created a wide range of compelling intellectual property, including high speed logic data converters in high speed Thirtys.
We will leverage the foundational IP into a variety of new product initiatives to maximize our future growth.
I mentioned on last quarter's call that our 20, Fiveg FP fronthaul lasers have been steadily to customers and we have been receiving positive initial feedback.
Our 25, GSP laser lasers work in 300 meter and the more difficult to kilometer fronthaul applications.
Today. This market is supported by our competitors expensive 20, fiveg DFB lasers or in some applications by over driven 10 GTSP lasers.
Now customers will have the option to switch to a May club 20, Fiveg FP laser product, which was designed specifically for this application and one that offers compelling performance superior reliability and supply chain security due to our high volume manufacturing capability.
And our customers have quickly recognized one big advantage that our lasers do not need additional support hardware, which can simplify the overall module design and lower the bond costs.
I would likely team has been achieving strong revenue growth in recent quarters, primarily driven by expanding their portfolio with new laser and photo detector products.
Our silicon Photonics R&D work also continues we are making slow but steady progress on three critical elements needed to launch an LP product, namely won a robust continuous wave or CW laser design.
A silicon photonics, IC and three an active laser light manufacturing process, which miles from one to four lasers on a single silicon photonic I'd say.
This is exciting technology and there is still a lot of work to do before we launch our first product.
As a merchant supplier of IP and maximize our opportunity we have updated our go to market product strategy to include selling so silicon photonic icees without lasers, and selling CW lasers to those that have their own silicon photonics.
Our RF power team has been extremely busy over the past 12 months.
Under our new leadership.
Right and technical leadership, we have learned a tremendous amount above the attributes of our existing Gan on silicon process and we have made significant improvements in both our driver and Doherty amplifier decides.
We do recognize there are limitations of Gan on silicon in certain applications and over the past months. Our RF power design team has made new efforts to incorporate gan on silicon carbide into our portfolio as a priority.
And I'm pleased that in early August time to be coincide coincide with the virtual international microwave symposia or I guess, we will be introducing our first wave of Gan on silicon carbide standard products.
We will be ramping this product line under the May cob pure carbide trademark.
I'll note. The team has already been sampling our first pure carbide products to customers in areas, where silicon carbide as a technical advantage and where it makes sense to do so.
FC continues to work on the installation of capital equipment in their path to support the development of an approved next generation Gan on silicon process. At this moment. It is too early in the development project to discuss schedules.
I'll note that our RF power growth strategy includes winning market share in both the telecom and the industrial and defense markets using our full portfolio of gallium arsenide, Gan and silicon bipolar processes.
We view these two markets as equally rich with opportunities.
We had another strong quarter of new product introductions from all our engineering teams with over 30 products introduced.
Engineering leadership is focused on executing product plants efficiently and we are challenging our designers and technologists to raise the level of innovation with more best in class products.
And our semiconductor technologist preparing to reinvigorate our goal wafer fab by enhancing even adding additional process technologies to the fab.
Our design and applications engineering staff are preparing for both the CMS and the China International Opto Electronic Exposition for CIO, We conference to be held in Shenzhen, China in August in early September respectively.
While I invest will be a virtual trade show CIO is expected to be held in person and our local China based applications and sales teams will host customers and showcased new products across our datacenter fiveg and portfolio.
In summary, we stand in front of multibillion dollar market.
The unique technology portfolio I expect we will experience periods of high growth in periods of low growth and possibly even negative growth, which is normal for our cyclical industry.
For these reasons, we maintain a long term perspective on executing our strategy and we will work to manage our business to be profitable for well all business cycles.
We are confident that we continue to improve our financials and take market share in the months in years ahead.
Jack will now provide a more detailed review of our Q3 financial results.
Thank you, Steve and I hope everyone is having a good afternoon.
Our fiscal Q3 results were another tangible step toward improving may comps overall profitability and cash flow.
We posted sequential improvements in revenue margins and adjusted earnings per share fiscal Q3.
We also reported another quarter of strong cash flow and grew our cash balance.
Revenue in the third fiscal quarter of 2020 was $137.3 million.
On a year over year basis revenue was up 27% from $108.3 million in the third fiscal quarter of 2018.
Which was our lowest revenue quarter over the past four years.
Sequentially revenue was up 9% from Q2.
Sequential improvement in revenue was driven by continuing positive trends in our telecom and datacenter end markets.
Overall industrial in defense demand continues to be healthy despite revenue being relatively flat over the past few quarters.
During the third fiscal quarter of 2020, we had three customers that exceeded 10% of total revenue.
Two of them are located in Asia.
These customers were all channel partners and service multiple end customers.
Adjusted gross profit in fiscal Q3 was $76.2 billion were 55.5% of revenue.
Adjusted gross margin was up 100 basis points sequentially.
As we've discussed in the past gross margin improvement is a corporate priority for us with our sales and operational teams focused on continuing weak continuous improvement opportunities.
Over the past few quarters, we have made incremental progress with improving the efficiency of our manufacturing supply chain and other operations.
As you May know, we have a very diverse product portfolio with varying customer demands in our products generally have long production cycle times.
In an effort to help better optimize our structure, we are expanding our sales inventory in operations planning process known as style.
We believe this improved signup process in other initiatives will help us further improve our cycle times customer response to this inventory metrics and overall profitability going forward.
Another longer term item to highlight the multiyear project, we recently kicked off to help reduce utility costs in our dependency on the local power grid, and our low, Massachusetts fabrication facility.
This is expected to be a turnkey gas fired cogeneration system that will produce uninterruptible power heating and cooling for our little SAB operations.
Once up and running at about 18 months, we expect the system to provide annual savings of approximately $1 million and improve our cash flow primarily to lower utility costs.
Equally important the system is expected to improve our fab resiliency and uptime by eliminating the impact of power grid searches and outages.
And finally, we expect to improve our carbon footprint with estimated savings of carbon dioxide emissions over 8 million pounds per year.
The equivalent removing approximately 800 cars from the road each year.
Total adjusted operating expense was $46.9 billion, consisting of R&D expense of $30.6 million initiate expensive $16.3 million.
Operating expenses were down $2.4 billion sequentially.
Our corporate wide focus on streamlining operating expenses continues to provide positive impacts with further new opportunities for savings being identified in Actioned almost daily.
Our employees are focused on supporting our product development growth opportunities. While also proactively looking for new innovative ways to more efficiently run the business.
The sequential decline in operating expenses was attributable to these continuing efficiency improvements as well as lower travel and promotional expenses in Q3 due to impacts from cobot 19th.
Looking ahead, we expect operating expenses to increase modestly from Q3 levels.
We will continue to balance investments in new product opportunities, while managing our discretionary spending.
Adjusted operating income in fiscal Q3 was $29.3 million up from $19.6 million in fiscal Q2.
Adjusted operating margin was 21.4%.
As Steve mentioned, we view the 20% operating margin we recorded.
In Q3 as a significant milestones.
We expect the combination of topline growth improving gross margins and stable operating expenses provide continued operating leverage through the remainder of the calendar year.
Depreciation expense for fiscal Q3 was $7.1 billion and adjusted EBITDA was $36.4 billion.
I would like to note that our adjusted EBITDA was a $9.5 million sequential improvement over the $26.9 billion, we reported in fiscal Q2.
Fiscal Q3, adjusted net interest expense was approximately $4.8 million down approximately $2 billion from fiscal Q2 2020.
The decline was primarily driven by the reduction of LIBOR rates on our floating rate term loan.
Looking ahead, we expect adjusted net interest expense to remain roughly at these levels.
Our non-GAAP adjusted income tax rate in fiscal Q3 continued at 8% in resulted in expense of approximately $2 billion.
We expect our non-GAAP adjusted income tax rate to remain at 8% for the remainder of the fiscal year.
Fiscal Q3, adjusted net income was $22.7 billion compared to $11.9 billion in fiscal Q2.
Adjusted earnings per fully diluted share was 33 cents in fiscal Q3.
Utilizing a share count 68.6 million shares compared to 17 cents of adjusted earnings per share in fiscal Q2.
Now moving on to cash flow and balance sheet items.
Fiscal Q3 cash flow from operations was $34.1 billion.
Improvements in operating income and inventory management helped to enable strong cash generation per quarter.
Capital expenditures totaled $3.6 million for fiscal Q3.
We remain focused on achieving appropriate returns on capital that we deployed.
We expect overall capital expenditures in fiscal 2020 to come in at approximately half of our fiscal 2018 levels.
Free cash flow was $30.4 billion for the third fiscal quarter and $20.5 billion in Q2.
These fiscal 2020 improvements in cash flow continued to be a result of improved operating income continuing revenue linearity reduce capex and other working capital improvements.
We believe the numerous structural changes in ongoing operational and financial improvement initiatives. We have made and continue to make throughout the organization will further helped to drive positive cash flow going forward.
Our Q3 accounts receivable balance was $60.5 million up from $53 million in Q2.
As a result day sales outstanding were 40 days slightly up from 38 days in Q2, driven primarily by increases in revenue during the quarter.
Inventories were $95.6 million at quarter rate down another $4 million sequentially in spite of our higher Q3 revenue levels.
Inventory turns improved to 2.6 times during the third fiscal quarter, which is the highest inventory turns we've achieved since 2017.
As I noted earlier inventory management remains an area of emphasis can we see opportunities to further improve our metrics going forward.
Cash cash equivalents in short term investments for the third fiscal quarter $265.1 billion up $43.5 million from Q2.
In addition to the strong Q3 cash from operations, we recorded a cash inflow from investing activities of approximately $11 million associated with payment. We received from the sale of assets, which took place over a year ago.
As a reminder, our short term investments are comprised of corporate bonds in commercial paper and are classified as held for sale.
Total debt was $691 billion inclusive of $31 million of finance leases.
Our long term debt of $668 million is covenant light. It has minimal annual principal repayments until its maturity in May 2024.
It's worth noting that our trailing 12 month EBITDA increased significantly in fiscal Q3 more than doubling sequentially.
We believe the combination of growing cash and the balance sheet, coupled with improving trailing 12 month EBITDA will result in declines in net leverage over time.
In summary, we feel Q3 was another period of solid financial performance and we're pleased with the progress our team has been making.
We also understand that there is still much more for us to do in order to achieve our longer term objectives.
I will now turn the discussion back over to Steve.
Thank you Chuck they come expects revenue in Q4, ending October 2nd 2020 to be in the range of $144 million to $148 million.
Adjusted gross margin is expected to be in the range of 55% to 57% in adjusted earnings per share is expected to be between 36, and 40 cents based on 69.5 million fully diluted shares.
Our Q4 revenue projections include expectations that are three at market square growth sequentially, specifically, we believe our revenue growth will be driven by the increase in data center traffic Fiveg network deployments and increasing demand for our RF and microwave products in defense applications.
We are excited about the multiple growth opportunities in front of us and I would now like to ask the operator to take any questions.
Operator, we will take questions when you're ready.
Thank you as a reminder to ask a question you would need to press star one on your telephone.
We are your question press the pound key please standby, while we compile the culinary rosner.
Due to the excess of time, we'd ask that you. Please limit yourself to one question and one follow up.
I sure first question comes from the line of Quinn Bolton from Needham. Please go ahead.
Hi, guys.
John Quinn.
Thanks for taking the question and congrats on solid results and guidance.
So from my first question could you guys provide a little color on how you set your end markets perform in the fiscal fourth quarter.
But which segments do you expect will be leading the growth.
Any color you can get that'd be great.
Sure. Thanks, Michelle so looking into the fourth quarter.
We are expecting.
The strongest growth to come from the data center end market.
We will see.
The strong double digit growth.
Telecom, we believe will also grow close to 10%.
And I envy will probably be mid single digits, maybe 5%.
Okay, great. Thanks, that's helpful.
Then just as my follow up.
We were wondering if you guys give an update on your 25 gig blazer opportunity in the Fiveg front how space.
And where are you in qualification process I know you guys mentioned in your prepared remarks, but.
Just kind of curious when you think that.
Opportunity will start getting into the model.
Right. So I think that we are as we said in the script, making good progress within sampling we're getting good traction.
We do now need to intercept a qualification cycle, which our customers need to go through with the major Oems, we expected that activity to kick off towards the end of this calendar year.
And that should line us up for.
Deployments next year next calendar year.
And the new bids go out for the for the optical modules. So we're hoping to position ourselves.
For revenue with this product line sometime early next calendar year and by the way. So just want to come back to the first question you asked I think I misspoke telecom for Q4, we're expecting sort of.
Three to 4% to 5% in that range I, just want to correct that.
Okay.
Thank you that's that's very helpful.
Thanks again on the.
Congrats again on the great results.
Thanks.
Thank you next question comes from Tom O'malley O'malley from Barclays. Please go ahead.
Hey, guys. Congrats on the really nurse results My first questions about the data center in your prepared remarks, you talked about.
From the international side, most of the demand coming from Asia, and one Hundredg and I think some 200 you applications, but you also mentioned 60% of the demand is international.
Can you talk about what trends you're seeing from China as we move into the second half year. Obviously, you guys are aware of potentially come prebuilding, but what's the confidence that you have.
That portion of the business can keep up clearly datacenters got in a pretty strongly that continue trying to strength or is that other stirring kind of kicking in from elsewhere.
Sure. So there's a there's a few item is there and your question that I will try to address the first is sort of the overall business in China.
It's been strong over the past few quarters that we expect that strength to continue as we enter into Q4 and possibly even Q1 a lot of that strength is being driven by the fiveg infrastructure deployments that I talked about in the script.
That we are able to support those customers primarily with.
Fiveg Fronthaul products for example.
RF.
As our front end modules for the radio boards and also we're supporting Metro long haul.
Equipment that that we also include.
In the segment.
When we think about the data center and the trends associated with that we see we sort of look at things differently number one we're actually picking up new data center customers in China.
Which is sort of an independent activity to what's going on fiveg and what's going on with.
Overall.
Overall strategy in China, and so we see that is a very positive trend and we expect that will provide strengths for make.
Going into next year.
Great and then a follow up is really on the RF portfolio. Congrats on the the pure carbide trademark in your progress there I just I wanted to kind of understand timing you said your sampling to customers but.
Asia is obviously ramping funds you know you're expecting early next year, but north American and European customers are starting to be do you have a timeline for where you are turning to your sucked up product with the ramp obviously, you're hearing from some competitors such as NXP, saying that ldmos isn't really cutting it at the high end.
When do you think that you'll be able to shift up for revenue.
I will let certainly a great question and I'll just highlight that in our and our Gan business. We were really trying to force folks to ask a broader question, which is what's your RF power strategy.
And where we look at Fiveg and the of the opportunities in Fiveg is just one element of rather complex.
Strategy. So when we think it but to answer your question specifically when we think about Fiveg.
There's been a lot of effort over the past few years with Gan on silicon and as I made comments just a moment ago that we are doing more and more work with.
Gan on Silicon carbide not not.
Only for Fiveg applications, but all applications, including Hi, Andy test and measurement.
In other non Fiveg telecom type applications. So.
To look forward in terms of the growth associated with these activities I think we're looking at the back half of 21 at the earliest where we begin to see.
Revenue ramps coming from the new strategy that would be at the earliest.
Great Congrats again guys.
Thank you.
Next question comes from tore Svanberg from Stifel. Please go ahead.
Yes, thank you and congratulations on reaching that 20%, helping in a milestone in such a short time quite quite impressive.
My first question is on your Pam four you mentioned the 100 gig product design is now finished up.
Leveraged a little bit on where you intend to sell that product.
Either by speeds or by segments of the market.
Sure so with that product is targeting the data center first.
So it's a 25, it's a four lane 25, G and ours, the input and a pamfour output.
So that is the fundamental platform, we are targeting D.R. one type applications.
I can tell you that the team has done an absolutely phenomenal job.
Finishing the design going through the qualifications and no.
Transitioning to production we are actually.
I have just started some very initial shipments of our DSP us we're quite excited about that.
As I mentioned, we do feel like we're.
Late to market and it's an issue there are many existing solutions in the market today.
What I would say that customers are looking for alternatives.
And our part is compelling it has integrated an integrated driver its competitive on power.
So we do believe that weekend overtime.
Win market share.
I'll also add that we're not standing still with using this platform and we will go after other applications, including mid hall, which requires a DSP functionality.
Then last I'll add that the project was a multiyear project in it created a really a treasure trove of IP and we have mentioned publicly that we won't be doing.
New dsps that at smaller nodes. However, we will take full advantage of all the IP. We have to go after a variety of markets with new products. So that we maximize the value of this IP.
Great. Thank you for that detailed and that's a follow up.
Maybe a similar question on Silicon Photonics, obviously, this is a bit more longer term, but.
Again, what segments of the market do you intend to to sample those those products as it become available.
We'll probably start with four hundredg.
And work from there. So for example of 400 GDR for type pick might be.
One of the first products, we would probably follow that up with a tough our four type application and product so.
These are these are complex assemblies as I've talked about where we're mounting laser is up to four lasers on a single silicon photonic device.
I can tell you that we've made tremendous progress over the past year, we change our changed our strategy in terms of design approach not only on lasers, but also silicon photonics and we've completely changed up our approach with putting together the eltek. So there's been a lot of change of strategy as it relates to this R&D project.
And so we're feeling very confident that we have a valuable.
Plan, let's say.
But I would just caution everybody. It is early we still have a lot of work to do.
We are working with some lead customers that have done some funding of some of the project. So I think.
This year, maybe early next year, we'll have small amounts of R&D dollars.
Or R&D revenue lets say going out the door to support some of these custom programs.
And so we'll continue to work on this but it is a long term project and once we feel we're getting close to product launches and product introductions, then we'll talk about schedules in product revenue ramps.
Thank you, Steve Congratulations again very impressive.
Thank you. Thank you.
Thank you next question comes from Tom definitely from D.A. Davidson. Please go ahead.
Yes. Good afternoon. Thanks for taking the question. So first question is on the you really strong book to Bill and 1.4 to win and then your comments that you expect that to come back down in subsequent quarters. So I'm curious does that mean that you expect a bit of a slug of revenue to happen in the fourth fiscal quarter as result of this.
Yes, so well what I'd say a few words on that then maybe Jackson.
Also say a few words, so as we highlighted on the call we do.
We had a tremendous bookings.
Period. This past three months and we're very excited about that.
We're seeing new design wins were seeing old customers increased production rate run rates.
And we won some major programs here in the U.S. So collectively we certainly had a very strong book to bill that no. That's not to say that theres, a a bubble coming out in Q4, I think we've given reasonable guidance, we are guiding up.
And we have a good position on our backlog.
We will have to see how things go as we move into Q4 and beyond.
We're as we talked about on the script, we're taking a very careful look at our customers end demand. We're looking at inventory levels in the channel we want to make sure that not only do we keep up with demand for low from an inventory point of view, but we also want to have too much inventory if things start to slow down next year. So.
So.
Check you want to add any comments to that.
Yes, just once again, we obviously don't go out more than more than one quarter in terms of our guidance.
And in some of those orders that we have are reflected in that that forward guidance that we put out from a top line perspective, but just to build upon what Steve was saying we do.
Make sure we stay in contact with our customers and believe that that in demand is there.
The timing of it just just might be pushed out a little bit further.
Okay, one extra cones helpful.
Follow up when you look at the industrial in Defense you talked about a little thing going on is there going to be meaningful cost reduction with that as it strictly just a reorganization of how it's set up.
Well I'm not sure we signaled we're doing any restructuring with high Andy we're not what we're doing as we're changing our strategies and our and our approach to that market.
So you should not expect any restructuring in this end market or any of our end markets or across the business at large.
We've we've recognized that our I'd business has been flat for a number of years.
And so we believe the medicine to fix that is.
Number one.
Really doing a reset on the quality standards throughout the business to make sure that we have the right quality systems in place. So that we can approach tier one Oems.
In the aerospace.
Asian as well as.
Automotive industries and so.
That is a major commitments to those end markets and then second we have to make sure we have the products that these customers want.
That means doing more custom design work it means.
Making sure that the existing products. We have today are being properly cross sells into these end markets. We look at an automobile that we see a tremendous amount of semiconductor content.
We have very little sales to this end market. So.
Yet we have the right technology, we have high speed analog circuitry, we have RF components.
Power products. So we are absolutely doing a reset on the go to market strategy.
But we're not sort of structurally changing.
The way we run the business, it's more of a business strategy change.
Okay I appreciate the clarification and thanks for your time today.
Thank you.
Our next question comes from Tim Savageaux from Northland Capital. Please go ahead.
Hi, good afternoon, and congrats on the results from a question and then a follow up first on the Telecom side, you mentioned a number.
Of drivers for.
10% or sort of sequential growth.
In.
Q3 from.
Front haul to pour into even metro long haul as you look at your guidance for that to move to more of a low to mid single digit sequential growth rate.
Is there anything changing there with regard to the contribution of those various growth drivers.
That.
Kind of propelled Q3 relative to what you expect for Q4, Remy puts and takes they're worth.
Calling out.
Tim there's really not I would say that it's more of a plateau in the growth going into Q3 was very strong as you highlighted and going into Q4 would be in the mid single digits. So nothing nothing no major puts and takes really it's just a matter of.
Revenues catching up to some of the strong bookings we had in the earlier quarters and as you.
Well as we've talked about a lot of this growth is coming from Fiveg, which includes Fronthaul I think crudes includes front end modules.
Which are put on the RF board to some degree it includes middle where we have drivers for the middle applications and the telecom market also as I highlighted has two other.
Pieces to it one is the PON PON PON had a very strong quarter here in Q3.
I think that may have anything to highlight that maybe a little bit.
Weaker going into Q4.
Then the last as Metro long haul, where we continue to win market share with some of our new products.
Thanks, very helpful and your follow up in kind of along the lines under discussion about monitoring.
Inventory levels as you look at the strength on the Datacom side.
Yeah.
And your can you just turn whether youve seen any pull forward and demand.
Whether that's in preparation for transition to 400 gig later on.
Reaction to increased traffic from your work from home.
More any variety of potential drivers.
Yes, as you kind of assess the supply chain.
Or do you think you're just kind of running it.
You know kind of natural demand levels may be enhanced by the.
The pandemic and work from home traffic.
Well I think theres elements of truth to all of those points that you just made so I would agree that at some level. Those are contributing to this strong performance of our business in the data set or end market.
The found I'll just add that the foundation of our business is really one hundredg.
Analog products that are mostly CW deal for type products.
And that we begin to layer on some of the newer products, including four hundredg.
Ill drivers as well as our linear Tia is so.
I would say that it's.
We sort of believe its end demand driven primarily.
And then we'll later on all those factors that you highlighted.
Maybe as a quick follow a follow up.
Higher speed, Scotland, datacom contributing meaningfully going out to your results through your guide we are 200, you're going to burn.
I would say the contributions are beginning to be meaningful at 400 G. More so the 200.
Thanks.
Did you get that Tim.
I did thanks very much okay.
Thank you.
Our next question comes from the line of Richard Shannon from Craig Hallum. Please go ahead.
Well thanks, guys for taking my question I think my personal be on data Center, Steve I think you in your remarks regarding that segment you talked about such a China business. So I don't know for your intention was to signal, it's a bigger share of your datacenter business or not but can you indicate whether there is some sort of share gain going on or just a bigger.
Bigger trends of business going on there can you delineate that please.
Yes, I would say that it's a new color of revenue.
And it's still a smaller piece of the overall business.
Most of it is at 20 Fiveg short reach type applications inside the data center and what we're excited about is the fact that these are new customers using our make on products for the first time.
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Okay.
Are you aware or whether you're gaining share there or core what's what's going on it.
Well I.
Hard to hard for me to say at this moment I think what we see is actually a new build outs. So this is new hardware being built for the first time, so I would probably not categorize it as share gain I would categorize it as a new market.
Okay. That's fair enough my follow on question here is this again.
Inquiring about Timothy inventory builds your I may have missed your.
Prepared remarks around what market sore products that is.
If you can if you can specify what that is and to what degree or you are you.
Seeing that is an issue here are built into your guidance for the quarter.
Yeah, we didn't specifically talked about.
That question in the prepared prepared remarks, but I will say that our book to Bill was very strong.
We've seen tremendous demand across all three markets that we had really.
An extraordinary bookings period, this past quarter and.
Interesting.
Fact is that the our channel inventories actually quite low right now whether it be our buy and resell distributors or whether it be.
The large multinational distributors or whether it be a local reseller that servicing a particular number of customers say in Europe or or somewhere in Asia. So our feeling is the inventory levels are being well managed by they come through on our chain and we get the sense that our customers were also carrying low levels of.
Inventory.
Because the expedite levels are quite high even as we speak today.
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Okay fair enough that it's all the questions from me. Thank you.
Thank you.
I show no further questions in the queue at this time I'll like to turn the call over to Mr., Steve Daly, President and CEO for closing remarks.
Thank you.
In closing Jack and I would like to thank our employees for their extraordinary efforts and accomplishments throughout the past quarter. Thank you and good evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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