Q4 2020 Fabrinet Earnings Call
Good day, ladies and gentlemen, welcome to Fabrinets financial results conference call for the fourth quarter fiscal year 2020. At this time all participants are in listen only mode. Later, we'll conduct a question and answer session and instructions on how to participate will be provided at that time as reminder, today's call is being recorded.
Now, let's turn the call over to your host Scarlets in Virginia in Investor Relations.
Thank you operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinets financial and operating results for the fourth quarter fiscal year 2020, which ended June 26 2020.
With me on the call today are Seamus greedy, Chief Executive Officer, Java, Chairman and Chief Financial Officer. This call is being webcast a replay will be available on the investor section of our website located at Investor Dot Fabrinet Dot com.
Please refer to our looks like for important information, including our earnings press release, and Investor presentation, which include our GAAP to non-GAAP reconciliation.
I would like to remind you that today's discussion will contain forward looking statements about the future financial performance on the company.
Because they are subject to risks and uncertainty they could cause actual results could differ materially from management's current expectations. These statements reflect our opinions only as of the presentation. We undertake no obligation to revise them in light of new information or future events, except as required by law.
For a description of the risk factors that may affect our results. Please refer to our need to RCT, Bobby you could kick in the distinction caption risk factors in our form 10-Q filed on May five 2020.
We will begin the call these remarks from shale drop off.
My time for questions.
I'd now like to turn the call. It a cabinet CEO Jim is great shape.
Thank you Carl and good afternoon, everyone.
During the fourth quarter, we demonstrated the flexibility of our business model as we generated financial results that exceeded our guidance ranges. What do we continued to strictly observed enhanced measures to monitor and mitigate the potential impact of covert 19 on our employees customers and operations.
I'm very proud of our team and I'm grateful for their efforts and helping us achieve these excellent results.
Revenue in the fourth quarter was 405 million or 5 million above the high end up or guidance range.
Driven by less severe supply constraints and contemplated in our guidance.
Coupled with stronger than expected telecom demand at the end of the Walker.
From a profitability perspective, as we anticipated our fourth quarter gross margin fell short of our target close to 12.5% what improved for the third quarter at 11.8%.
Continued efficiency gains more than offset the slight headwind that we continue to see from efforts to mitigate the potential for covert 19 infection.
That said, we remain fully committed to returning to our target gross margin range of 12, 12.5% unexpected do so during fiscal 2021.
From an operating perspective, we continue to run very tight ship with SGN expenses coming in just under 3% of revenue in the quarter.
We continue to expect SGN expenses to be a lever for operating margin improvement over the longer term.
As a result revenue upside in the fourth quarter, largely FFO to the bottom line, resulting in non-GAAP net income of 96 cents per share.
In the fourth quarter, we produced a substantial 46 million in operating cash flow and 31 billion in free cash flow.
We anticipate the cash flows would remain very healthy as we look ahead.
For the full fiscal year, we produced record revenues of over 1.64 billion a non-GAAP net income of three daughters, and 73 cents per share.
Total operating cash flow for the year was a record 151 million and free cash flow was 108 man.
Looking at some of the details the corporate played out as much as anticipated.
Sequential revenue growth in both telecom and Datacom, while the industry laser and automotive markets showed sequential declines.
As a result of these dynamics optical communications grew to 78% of total revenue was 22% coming from non optical communications.
Optical communications revenue of 315 million also represented slight growth from the third quarter.
This includes the anticipated impact of an inventory correction one of our customers as we discussed on last quarter's call.
Within optical communications Telecom revenue was 229 million up more than 5 million from Q3.
On Datacom revenue was 86 million up 1 million sequentially.
We believe the inventory issues that impacted our telecom business in Q4, we'd be largely over the fiscal first quarter, which when combined with the increasing demand. We so at the end of the fourth quarter.
Should contribute to strong telecom growth in the first quarter.
Biotechnology Silicon Photonics based optical communications revenue increased 4% from the third quarter 290 million R. 22% of total revenue.
Revenue from Qsfptwenty, eight and Qsfptwenty 56, Transceivers also continued to grow and was up 6% from the torque Walker and 18% from a year ago at 54 million or 13% of total revenue.
Hi, David arrays revenue from 100 gig programs of 159 million was down slightly from 161 million torque Walker.
Products raise it at speeds of 400 gig and above grew by nearly 50% sequentially to 43 million.
We expect revenue from 100 gig products to remain strong our those at 400 gig and foster data rates should continue to trend upward.
Looking at her non optical communications business revenue of 90 million moderated as expected from 103 million as a target Walker due primarily to anticipated sequential declines in revenue from the industry laser and automotive markets.
Industry laser revenue was 41 million compared to 46 million as its hardcore.
The motor revenue was 27 million compared to 31 million because its hardcore.
Sensor revenue was 3 million into fourth quarter consistent with the prior quarter and other revenue was 19 million, representing a 3 million sequential decrease.
As we look to non optical communications drivers into first quarter.
We expect to see continued softness in industry lasers, and automotive reflecting broader market conditions.
However.
We remain optimistic about opportunities in these markets over the longer term as to covert 19 impact settles down. We also believe the current ramps of new automotive products such as light our sensors from Teledyne would soon begin to offset some of the weakness in the traditional automotive markets.
As we look ahead.
New product introduction or NPR capabilities will continue to be an important factor for winning new business.
By partnering with customers during the design process, we can provide a quick turnaround prototyping services.
The improved design for Manufacturability and enable them to accelerate time to market before we begin volume manufacturing.
We provide these npis services in Thailand, as well as closer to our U.S. customers in Silicon Valley and now also in Israel.
Our Israel operation is up and running as well as being fully ISO 9001 qualified.
When we completed our first revenue shipments to customers in the fourth quarter.
We're seeing good traction with your customers in Israel.
We're excited about this additional onramp to volume manufacturing in Thailand, which we expect to replicate the success, we've seen at Fabrinet West in Silicon Valley.
All in all.
We remain optimistic about the markets, we serve and in particular the demand trends as we see for the products, we're producing for our customers. Despite the covert 19 headwinds.
Our optimism is also reflected in our increased customer penetration and diversity.
As measured by the number of customers contributing more than 10% to our total revenue, which we disclosed annually.
We had 310% customers in fiscal Twentytwenty compared to just won in 2019.
The increase in the diversity of our major revenue sources.
Lumentum represented 19% of revenue.
Revenue from Acacia and Infinera each increased in 2020 to represent just over 10% of revenue for the here.
Our top 10 customers overall represented 79% of revenue.
Our ability to quickly transfer on ramp complete network systems was illustrated by our successful transfer of Infineras network systems products in Twentytwenty.
We expect further evidence of the success of our proven transfer capabilities to be demonstrated with the transfer of Osisko products currently underway at our Chonburi campus.
This program remains on track to ramp at the end of the calendar year.
We continue to monitor the increasing demand from existing customers for additional capacity and consequently have begun the next to capacity expansion of our pine harvest campus.
We have begun to process of relocating some existing office space in order to expand our manufacturing footprint at pine Hurst, enabling existing customers to further expand capacity at that site.
We expect this expansion to adds approximately 100000 square feet of manufacturing space Pine Hurst, an increase of 10% from our current manufacturing footprint at this campus.
Even with these investments in growing our business, we anticipate generating significant free cash flow again in fiscal 2021.
When combined with a record cash balance of nearly 500 million at the end of fiscal Twentytwenty, we're very favorably capitalized entering the new fiscal year.
Such our board has increased our share repurchase authorization opt to 100 million.
This expanded buyback program reflects our commitment to returning value to shareholders, while continuing to invest in our long term growth.
In summary.
We delivered a strong fourth quarter with revenue this was above our guidance and we're confident that we can deliver an even stronger performance in the first core.
We ended the fiscal year with 310% customers on record cash balances stuff in combination with our expectation that we will continue to generate significant cash flows.
Our enabling us to step up our share repurchase activity on the chart additional value to our shareholders.
We enter fiscal Twentytwenty, one with investments already underway to expand or manufacturing footprint in support of growing demand.
And with our new facility in Israel, now contributing to our growth.
Well I remain vigilant and keeping our employee safe, we're very proud of the excellent results we delivered in fiscal Twentytwenty.
Our track record demonstrates that our strategy is working and we're more optimistic than ever about the future.
Now I'd like to turn the call over to Java for additional financial details under our guidance for the first quarter fiscal Twentytwenty one Java.
Thank you shameless and good afternoon, everyone.
I will provide you with more details when our financial results for the fourth quarter and our guidance for the first quarter fiscal year 2021.
Even in very pleased to the legal or financial results that exceeded our guidance changes in the water.
I'm sorry in the quarter, well you do a smaller than anticipated will be the impact.
He assumed in our guidance.
I like on demand grew faster than anticipated towards the end of the quarter.
As a result, and then you must 5 million above the high end to file or guidance change at 405.1 million.
This results also include any back to fundamentally connection particular customer, which must remind me, though what expectations approximately 15 million.
He believed this correction largely behind us at this point.
Now turning to the details of our piano.
Reconciliation of GAAP to non-GAAP measures is included in our earnings press release, any mr. representation, but you can find on our best site.
We continue to follow stick safety procedures in our facilities to keep our customers employees and their families seats duty independently.
By the cost associated with these out a slight hadn't been to gross margin.
Other efficiencies, we were able to drive a sequential improvement from 11.2% to 11.8% into fourth quarter.
We remain committed to gross margins either angel smelter at some 0.5% and believe that continued efficiency f. Once we can return to that changed during fiscal 2000 to anyone.
Non-GAAP operating expense during the quarter at about 11.9 million.
8.9, Percentof revenue, resulting in a non-GAAP operating income of 26.1 million or 8.9 Percentof revenue.
Yeah, I expect that the improvements you can generating gross margin going forward you largely be reflected in improving operating margins as well.
Axis in the fourth quarter, and zero point, Sixmillion and our normalized effective tax rate was 4.1 person.
Non-GAAP net income was 36 million or 96 cents per diluted share a four cents increase from the third quarter. Despite lower revenue due primarily to our improved gross margins.
For the full year revenue was one point 64 billion non-GAAP gross margin was 11.7% and operating expenses about 2.9% of revenue, resulting in non-GAAP net income citypoint $72 and diluted share.
Well against basis net income for the fourth quarter was 28 million or 75 cents per diluted share.
In addition to share based compensation expenses amortization of debt issuance costs. Our GAAP results for the fourth quarter included a nonrecurring goodwill impairment expense and other expenses.
Turning to their balance sheet and cash flow statement.
At the handled the fourth quarter cash restricted cash and investments in Iraq War at 495.5 million, an increase of approximately 20 million from last quarter.
Operating cash flow was 46.2 million and its capex. So 14.8 million FICO National was 31.4 million in the fourth quarter.
I would guess what sort of 40 years, but also strong.
Operating cash flow was a record 150.7 million and seek additional 108.3 million.
You did not repurchase shares during the fourth quarter at the end of the year, we had 41.5 million remaining in our share repurchase program.
Well, if he's got money to money you deeper Jason.
Just 55000 shares at an average price of 58.3 $7, what I've done well don't catch tells me it was 20.7 million.
From a capital allocation perspective, our first priority remains maintaining sufficient funds for working capital and maintenance Capex closely followed by these mitigation, which includes FX hedging and maintaining balance. These nephew believe will carry us through unanticipated reis like natural disasters prolonged economic downturns.
Our current cash balance sufficiently covers this operational safety and security priorities as well as in the locations would've what can you speak M&A.
You expect to continue to generate strong cash flows into use Uh huh.
We now believe weekend leverage cash generated in a balanced me mighty investing in growth, but also much more aggressively returning value to shareholders.
As such our board has increased the size of our current stock repurchase authorization from the remaining 21.5 million to up $200 million.
In addition to our open market share repurchase program do you view that valuate implementing a tenbfive one program to enable us to repurchase shares automatically even during periods that our open market program has been restricted.
He believed that this overall capital allocation strategy, which is focused on maintaining corporations and risk mitigation and also what are you investing in growth and returning value to investors ideally centers, all of our stakeholders, including employees customers and shareholders.
I would now like to throw into our guidance for the first quarter fiscal year 2021.
We are encouraged by growing demand trends in optical communications. That's you believe you more than offset the current softness youre seeing in other markets you expect the stronger it felt like on demand that you saw at the end of the fourth quarter to continue into first quarter.
You expect Datacom and industrial laser revenue slightly decrease and be believes traditional automotive revenue softness you will continue I.
Partially offset by growth from advanced automotive technology programs.
We expect total revenue into first quarter, two being a range of 400, and Dan and 430 million.
Yeah, I don't can you speak that you can drive continued efficiencies in gross margin even be seasonal costing fees is that typically face into first quarter.
From an earnings perspective, we anticipate non-GAAP net income per share in the first quarter two being a range of 92 cents to one dollar.
GAAP net income per share 77 to 84 cents based on approximately 37.7 million fully diluted shares outstanding.
In conclusion.
Very pleased to have exceeded our guidance changes for the fourth quarter and to deliver record results in number of key metrics for the full year.
The optimistic that stronger demand trends in telecom do more than offset headwinds in other parts of our business and the I don't see them Duffy can't continue to deliver a stone value to shareholders.
[music].
Operator, we're now ready to open the call for questions.
Thank you as a reminder to ask a question you'll need to press Star then one on your Touchstone telephone to withdraw your question from the Q. Please press the pound key.
Please stand by what we can power the culinary roster.
Our first question comes from Samik Chatterjee with JP Morgan Your line is now open.
Hey, guys. Thanks.
Question, if I could just started off with.
The Q <unk> deletion.
Bassett mutations and quite a strong.
And you're seeing strength across your businesses.
You customers come to getting to you in terms of capacity additions required the.
21 and.
We did see your capex pick up a bit here so.
I mean looking forward.
Do you really increasing capex in fiscal <unk>.
Have you already said good boss the Capex additions that you needed.
For your customers.
Thank you.
Yeah, I think a high sneak I think that'd be a fair fair assessment you know the Capex increase that you saw was additional capacity we've been adding throughout the year and then as they've communicated in our prepared remarks C 100, roughly 100000 square feet of manufacturing space that we're adding at the pain horse campus, where where we are relocating.
Number of office spaces into into one location and then effectively building a new building and converting existing office space into manufacturing space stuff with dealers you said about a 100000 square feet of additional capacity as we've said previously that our existing customers for the most part.
No who are who are into pine horse compass, they really want to stay in find her so at their business expands we have to expand our footprint somehow and pine Hurst I'd, rather than trying to force the customers to relocate to John brings to really Chonburi is aimed at capacity additions for new customers.
But you know we were quite I would say quite optimistic about the demand trends, we're seeing in the marketplace not notwithstanding let's say to covert impact from from our perspective I think.
They were thinking about covered right now is it's it say we're in it went into new norm situation now so be factored then we've taken into account.
And the demand that we're seeing is really what's driving the increase in capacity that your that you're seeing as I talk about here.
Oh, just following up on gross margins here you did mentioned that you expect to be back in the long range, but Goodman off.
21, just help me think about outside of the revenue Oh, well as it kind of as we go through the Youre probably would have seen good growth in revenues as we go through the yield but.
Dr.
Oh.
Drivers here because I think you mentioned most of the coal would in fact, you should be seeing Oh second caused that in the first quarter et cetera. So what are the other drivers to think about timing when you get back right.
Hi, sorry. This is shallow so if we divested our gross margin projections for the next next fiscal year fiscal quarter, obviously as we mentioned in our prepared remarks said he'd like to think that'd be equally 19 impact is becoming part of follow or existing business mono now so honored and that's the main.
Turning up the cost if you are spending on employee safety and all their social distancing related expenses, which we anticipate to continue.
Anticipating to all said that he had the operational efficiencies. If you look at our performance in Q4 of you know they go to increase our gross margins by about 60 basis point from continuous efficiency improvements so.
Typically in the first quarter, you see a bill headwinds from the annual merit increases that obviously to be ongoing expenses that you foresee from albeit 19, and we are working hard to intelligently to offset those by productivity and efficiency improvements so such as automation and all those productivity.
Okay.
Improvement actions that bad the operations is driving through so other than to revenue and operating leverage and we are working hard to improve the efficiency. So again, the we'd like to thing to cobiz related headwinds.
I'm going to be offset.
In the longer term and we can return to our target said gross margin range during he's got thanks Lenny.
Yes, I could just maybe add to that or some because if you take our you know the headwinds and tailwinds that we're looking at right now so the headwinds.
Obviously as Chuck mentioned to covert headwinds.
There are no just part of the normal you know the normal way that we do business and that's probably.
20 to 25 basis points of a headwind, that's where additional costs were carrying with all of the protocols to do with Covance.
Secondly, we have the merit increase that we implemented a yearly.
So you know even though we're in a corporate situation, we want to make sure we take great care of our of our employees. So we have implemented merit increases for our employees that presents a headwind mostly in Q1 and this quarter and then the Tailwinds, obviously, you're going to check I mentioned the efficiency improvements that we've been able to generate.
Thank you very tight cost containment and cost control, we keep our costs under very tight control.
Our Opex for example, it's 2.9% of revenue I don't think there too many other your best companies with that kind of of Opex. So therefore that the leverage we guess as we go the company you know a lot of the incremental gross margin drops to the bottom line. So we got the leverage there. So again a combination of all of those factors. We we feel we're in quite a.
Quite a good place in that sense that the headwinds we know about them be factor. The man I mean, we've managed to fall back to the bulk of it so that we can improve.
Gross margin as we go forward.
Thank you thanks for taking my question.
Okay. Thank you SMIC.
Thank you. Our next question comes from John mortality with Stifel. Your line is now open.
Thanks, very much Trimas I was wondering if you could go back and talk a little bit about the strong telecom demand that you saw that came in towards the ended the quarter curious if that was across multiple segments. If it was you know really geared towards geography is that maybe we're starting to come out of cold it a little bit earlier than some others or any kind of color.
Now that you can provide would be helpful.
Yes, so the telecom telecom revenue growth that we saw was really a combination of the maybe the inventory correction that we had seen in the prior quarter. A you know coming back as we had expected coming back last quarter and then you know we did see some some growing demand at the end of Q4 and into Q1.
I can say with the with the effects of that inventory correction and also at some of the higher I would say the higher speeds the higher rated products. So the higher end products.
Let me start coming back on B, we do look into Q1, we do see.
Telecom being continued to be quite strong actually.
I'm not sure Chubb, a few dispute on anything to that.
No as Jim mentioned, Seamus, it's been pretty much across the board. So telecom was pretty strong again, we see an uptick demand into higher data rate programs. John So that's what he has seen again, it's hard to tell whether it's a particular geography or particular customer that we feel.
Good about D is trending in the telecom demanded so and you expect to continue that.
Excellent.
Got you understood and then maybe on the supply chain size here, unless you talked a little bit last quarter and through the quarter about some of the challenges on the supply chain side, and making sure that that was Oh, you know being adequately plant, but we're just curious where that stands now it sounds like from your remarks, the bulk of that is behind you.
And you feel like their supply chain is also getting back to normal just wanted to make sure that did I read that correctly.
Yeah, I would say the supply chain challenges John you know, where we are all was.
I would say borderline paranoid about supply chain, because you know if you're missing that last.
Resistor you catch it. So we're all was completely paranoid and on remain very very vigilant on supply chain I think the way I would characterize that John as we have a good feel for what's going on we feel we ever arms around us, but I wouldn't say, it's behind US we always starts every quarter with a big.
Big nut to crack in terms of the they the challenges and supply chain challenges. We haven't than we have you have just you know we believe I would say the best supply chain team in the industry. We just go after it every every quarter every every day not every quarter every day.
And we did go after those those are those challenges to make sure. We we get our fair share and in some cases are unfair share of the parts that are out there in the process run on occasion in some cases.
It's a little bit different to may be prior supply chain and changed if you go back a couple of years will you have the M. A C. C situation right in at this time around it's more widespread which makes it a bit more of a challenge you know you could look at that a couple of ways you could say when it's spread across multiple commodities. Therefore, you know no. There's no one commodity there's going to become a go.
Got you, but you always there really are still I would say a number of challenges we feel ever arms around us and the biggest impact we feel right now is maybe less to do with with leaving revenue on the table and more to do with with revenue and I know put being non linear so we will be a little bit more backend loaded than we'd like to be we'd like to produce in it.
Linear fashion, so that we can produce you know the quarter. If you look at our at our production our operations, we'd like to be kind of flat loans for the quarter not all of its possible. When we started to target to be to be level orders. This quarter, we feel were little bit more backend loaded so little bit of an impact on on the NDRC more so than on a on actually one of course, if that makes sense.
[music].
Yes, I mean, just a follow up on that Seamus I mean, obviously got that has a little bit of an impact on margins, but do you see customers are you asking customers that took place orders with a little bit longer lead times. Just so you can make sure that you have your arms around that supply chain or is it.
Customers still pretty much behaving the same way out in the order side.
Yeah, I know that sets and if it didn't hit the nail under hedge on you know that's exactly what we're doing we're working with customers to make sure. We we go beyond the normal component lead time, because if in the end of you know when when components are twice once when components plays type.
Whoever whichever you know.
Customer makes a commitment to the supplier to you know to order beyond the component lead time would typically they got the parks. So we're working with our customers to make sure because as you know once once reorder beyond lead time.
We can't be financially responsible for that we have to make sure that our customers. If you like underwrite that so that's really what we're working on right now is to make sure we have that arrangements in place that kind of a three way understanding with our customers.
You know if you like underwriting any orders we place beyond the component lead time, and then to suppliers honoring that that they see value. The components of pairs. We do you see value and you know when we're able to give them orders.
And as a component lead times. So that's really the challenge we have right. Those are worked through all of that to make sure. We we secure our share in parts.
Thanks very much.
No problem pick it up.
Thank you and our next question comes from Alex Henderson with Needham. Your line is now open.
Thank you very much a just a couple of mundane ones to start off with if I could.
Give us some sense of what's going on your tax rate.
Obviously.
It's moving around a lot because of the exchange rate moves in the government I think it's talked about giving some discounts. So can you give us some guidance on what we should be using for 25 21.
So I highlighted this is Jeff so basically if you see our tax rate was slightly down.
In year in its got plenty plenty our effective tax rate came in at about a four point 14%.
Which was slightly below last year again, as you mentioned certain movements around so in the longer term for modeling purposes still anticipate a tax rate to be around 5% change and below 5%.
5%, great. Thanks, and then second one I wanted to ask a more more points.
Is it around these systems business clearly, it's a pretty big not a coming down the pike.
You have to.
Potential customers impacting the numbers first one.
Obviously had an inventory correction that should be falling out sequentially.
But I don't think it's fully falls out until the December quarter, and many of them second customer coming in in the December quarter.
Should we be thinking about that as a material contribution in this december quarter from that additional customer or is that.
Really going to be.
Metastasizes revenue driver starting in the March quarter.
The June quarter, how do we think about those feathering in.
So we've actually started some of that transfer.
It's not meaningful in terms of revenue this quarter, we actually do have some of that transfer activity going on and it's more of the you connect transfer and qualification type activity that's going on.
And we'll be ramping dash over Q2 in Q3.
And I was in took into Q4 actually I think.
It will be company not relevant this quarter did you mean, the June quarter, the September quarter, I'm not sure what you Matt.
I mean the September quarter.
Good.
Yes, it's not particularly meaningful.
Meaningful in the sense. That's you know we'd have a number of programs in part numbers and you know in the qualification loop in the qualification process, but not particularly meaningful in terms of Actuant ship revenue quarter, I think you not the December quarter.
Yes, it will become it will start to become mainly fun I think into December quarter, but it's probably really more out into the March and June quarter that it becomes quite significant quite meaningful.
The other customer that you mentioned you know they from our perspective, we think the inventory corrections are largely behind us we understand they may have to nave inventory corrections 10 going on.
But they have more more suppliers than than just fabrinet. So it may be affected goes on the surcharge, we're not quite sure and then of course, there's other system companies and it's really an important part of our strategy. We're not trying to target every company that word but there are you know a handful of companies you know who we feel would be a really good fits where we can you know we're currently supplying let's say that the optical.
Components to those companies that even if you know even if why way gets kicked out of of networks around the world. Those other companies when we'll benefit from that and the and then come back to our optical component suppliers to get those optical components and so we should end up.
You know if you like being neutral from that point of view and then they the upside for US is as those companies then start to hopefully pick up while they business around the world and become customers and Fabrinet for system to other business. You know were quite hopeful that it should represent an opportunity for us to <unk> to grow our business in the system space.
Just just to fine tune it a little bit so is it is sufficient.
Positive sequentially from the December quarter into the March quarter, offset normal seasonality is that's the right way to think about.
The magnitude of it.
I think that'd be good way to think about it yeah I think domestically.
Thank you very much I'll cede the floor.
Okay. Thanks.
Okay. Thank you and as a reminder to ask a question you'll need to press Star then one on your touched on telephone to withdraw your question from the Q. Please press the pound key our next question comes from Tim Savageaux with Northland Capital. Your line is now open.
Thanks, and good afternoon.
HM.
Congratulations on the results I.
You'd mentioned combination of factors from it looks like.
Currently the telecom business to decline.
And then it looks like it's up about.
20 million relative to where my expectations might have been.
And then you mentioned a couple of factors, one kind of less supply headwinds to accelerate a telecom demand looks to be on them.
400, 600 gig side towards the end of the quarter.
We look at what you might have expected entering the quarter and how it ended up its primary kind of in the range here, where you expect to telecom down it was up pretty nicely and how would you a portion.
Yep side by are those two factors are less supply issues versus increased demand.
[noise]. So I think you know we had anticipated that covance would impact as to the tune of about 25, Turkey, making the quarter.
That's that's what we had factored into our guidance and.
No. The actual impact was was probably much smaller than that it was in the 10 to 15 million range thereabouts.
So I think it's it's a combination of a number of factors I think that's a big big factor.
Also the customer as you mentioned with whom we had the inventory correction for the most part that has a self correcting this past quarter I'm about to two you know where where we would like it to be.
So a couple of a couple of factors and then as you said you know the the higher higher bandwidth hires the.
Products, we did see an uptick in demand there towards the end of the quarter. So a few a few factors.
Impacting the telecom goals there.
No we're comfortable term.
Kind of quantify that could impact question on the Datacom side, I guess for results and guidance given.
Some pretty broad based strength, we're seeing in cloud hundreds or did it come modules in particular kind of across the eco system from the module level down to I see level.
Yes.
Satish flat to down as I think a little surprising in that context I Wonder if you could talk about dynamics on the Datacom side. When you did see an uptick and Im curious S.P. here.
In the June quarter.
We look likes expect after ticked down a little bit I Wonder if you could talk about what's impacting the datacom, yes, Oh look yes, a couple of things.
So first of all I think some of that kind of historical pricing maybe price erosion that we had seen the it kinda outsized price erosion that we've seen historically, that's kind of settled down that we're back to I would say normal dozens of a price erosion and a into datacom space for us.
We do have a couple of I would say customer specific.
Program transition things going on where maybe had an existing program is tapering off.
I had a particular customer where you know that didn't you the new generation product is beginning to ramp but hasn't fully ramped.
To the extent to that's offsetting the declines in the and the the proven thus ending if you follow me. So that's that's really what we see going on in Datacom overall, we're quite optimistic about does it come I would say.
We haven't we don't believe we've lost any share or anything like that it's more of a like I say a customer a program transition thats going on for one particular product is ramping down as another one ramps up.
Okay. Thanks very much.
No problem. Thank you Tim.
Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to Seamus Grady for any closing remarks.
Thank you operator, thank you for joining our call today, everyone. We're pleased to have exceeded our guidance in the fourth quarter.
Our track record of success demonstrates that our strategy is working.
We have never been more optimistic about our future. We look forward to speaking with you again next time until then to bite and stay safe.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect.
[music].