Q1 2021 II-VI Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Twosix first quarter F Y 21 earnings call.
At this time, all participants are any listen only mode.
After the speaker's presentation, there will be a question and answer session.
You ask a question during the session you will need to press star one on your telephone please.
Please be advised that todays call is being recorded.
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I would now like to hand, the conference over to Ms., Mary Jane Raymond Chief Financial Officer. Thank you. Please go ahead ma'am.
Thank you Mark and good morning.
Mary Jane Raymond the Chief Financial Officer here to six incorporated.
Welcome to our earnings call today for the first quarter of fiscal year 21.
Segment.
Despite the impact of our fully compliant reactions to the government orders against Huawei weed.
We delivered revenue of 728 million.
At the midpoint of our guidance.
Our acquisition.
And proved our ability to identify and execute on even large opportunities in the market at scale.
Our combined teams went right to work on September 24th 2019, and collaborated with one another while aiming to over deliver on the synergies that we envisioned when we started this historic journey, including addressing the dual challenges of declining revenues and margins that finisar had begun to experience.
Before the acquisition.
I am pleased to declare that so far so good.
In Q2 for us.
I expect that our ability to identify and deliver on on budgeted revenue synergies should allow us to fully mitigate the impact of the loss of that far away revenue to our fiscal year budget, we set out to achieve in.
In fact based on our customer intimacy combined with our operational agility and speed. We expect to continue to serve the continued very strong communications end market worldwide irrespective of how the value chain shifts.
3% was in North America, 22% in China, 19% in Europe, 6% in Japan, and the remainder in the rest of the world.
We've also worked hard on our customer end market diversification and this quarter's results are a good example of our resilience our differentiated semiconductor laser platforms engineered materials and compound semiconductor platforms are valued highly by.
By our customers worldwide and irrespective of how market share of our customers may shift, we are well positioned to sort of increased demand for our products.
Provide technical and business professionals, who think and act like owners.
While there is always much more to be done I'm humbled and proud of the efforts the speed of the progress we continue to make as we work together to build a company, that's not only bigger and better but to enable the world to be safer healthier closer and more efficient among the highest callings of this age.
Finally, with a U S elections, this week and veterans day coming up next week I want to take this moment to thank all of our employees our board members and our shareholders who are veterans for your service.
With that I'll turn it over to our Chief strategy Officer, and President of the compound semiconductors segment, Dr. Giovanni Barroso Joannie.
Thank you Jack I'm pleased to report that do the same thing grew more than 200% year over year.
And over 160% organically.
We believe this is significantly faster than.
The market growth rate.
The combined company <unk> sensing goes sequentially, 20% for the second quarter in at all.
Our chairman fat along with our other T sensing firms operating as planned due to some very solid execution.
We have recently secured a multiple victual design wins for Android smartphones, and laptop applications, which will complement our existing design wins.
Starting in 2016, we invest strategically in our home gallium arsenide AP Fab Assembly test operations in North America, and Europe to create the worldwide fast and we believe only vertically integrated victory manufacturing operations on <unk>.
We did this with the conviction that he would have produced the results that we've been enjoying so far and we believe we will continue to enjoy as treaty functionalities, a further deployed in the consumer electronics automotive and industrial market.
In addition to shipping production quantities of laser light sensing for smartphones will be shipping lasers fall in cabin automotive uses such as driver monitoring and finger navigational for several years now from our <unk>, which are also automotive 75.
We expect these products to be increasingly required for Europe's five-star safety rating over the next three to five years.
A steady expanse beyond smartphones into tablets laptops cost and other products.
We are poised to take advantage of those things not only with our compound semiconductor off the electronic components.
But also with our Brian bold and market leader portfolio, a passive components, including.
There were not previously marketed to external customers.
In Q1, our indium phosphide external components revenue nearly doubled from Q4.
While we continue to support the internal demand, which we believe represent the largest captive volume in the industry.
We are receiving great reviews from our external customers and after just one year, we have a book to bill ratio greater than four.
Aerospace and defense grew 5% sequentially and 25% year over year.
We continue to see good growth in high energy lasers, and contested space applications and the great deal of advanced development in other strategic areas such as Hypersonics.
I know as a transformation of the Chinese economy resumes.
We're seeing extreme passing pressure as China focuses on its domestic infrastructure in the week of a strong economy recovery post Corbett.
This market relies on our components, whether we make them inside or outside of China.
Even as well mostly production expense, we believe that we will remain a key supplier because of our leading edge performance, which we have sustained over time through relentless innovation and we expect to continue to do so.
In addition, we recently announced that our entire for the line of high power semiconductor lasers in now available on <unk>.
At year over year on a pro forma basis in the September thirtyth quarter.
As a reminder, pro forma refers to the full quarter of Finisar revenue in Q1 that slide 20, not just six days so.
So that we can show growth on a comparable basis.
We are now delivering non-GAAP gross margins well above since ours last independently reported non-GAAP gross margin of 31%.
We delivered $80 million of cost synergies in our first 12 months when we expect to reach the 150 million target in 30 months instead of 36.
We spent $32 million to achieve these synergies less than half of our anticipated first year span.
The one year measurement period for purchase accounting for the acquisition ended on September 23rd with no significant changes from the June Thirtyth position.
With respect to consolidated 261 year into the integration we are already exceeding the last standalone legacy to six margins. The margins. We last reported on June Thirtyth 2019.
Our non-GAAP gross margin at that time was 38.2% and the non-GAAP operating margin was 15.7%.
As of today, the consolidated two six non-GAAP gross margin was 39.6% for Q1 of fiscal year 21, 140 basis points ahead of our last independent report the non-GAAP operating margin for Q1 was 19.1% compared.
Fair to our last independently reported 15.7%.
At the segment level, the non-GAAP operating margins were 15.7 for photonics.
And 26.4% for compound semiconductors comp.
I'll pass on these margins improved from Q4 due to strength of three D sensing shipments and increased fab utilization.
Our backlog of 899 million consists of 533 in photonics and 366 million in compound semiconductors. The backlog contains orders that will ship over the next 12 months.
Operating expenses.
What's your restaurant <unk>, plus R&D were $183 million in total excluding the transaction costs of $2.2 million and 153 million further excluding amortization of $20 million.
GAAP EPS was 22.4% of revenue over 500 basis points below the op X percent of the revenue.
Op X percent of revenue prior to the close of the acquisition when it was close to 28% for the two companies combined.
We had a successful public offering of $920 million, netting about $885 million.
We retired the term loan debt of 715 million.
And we paid $25 million to the revolver. In addition to our required quarterly payments of $17 million.
Our outstanding debt at September Thirtyth was $1.6 billion net debt was 0.9 billion and our net debt leverage ratio was approximately 1.3 times.
The interest expense for the quarter was $17 million and the write off of the term loan b debt issuance costs was just under 25 million.
Those costs are included in other income and expense.
We delivered a $100 million of free cash flow in Q1 paid $37 million for the ACA Trot acquisition and ended the quarter with a cash balance of $684 million an increase of just over 190 million from a balance at June Thirtyth 2020.
Quarterly GAAP EPS was 38 cents and non-GAAP EPS was 84 cents with after tax non-GAAP adjustments of 54 million in total.
The share count for the GAAP results was 105 million shares.
In Q1 neither.
Neither the convertible debt nor the preferred stock were dilutive for gap.
For non-GAAP the share count was 123 million stronger earnings resulted in making both the convertible debt and the preferred stock diluted.
The investor presentation on the website present, the EPS calculation.
They also in the last two tables of the earnings release.
For the rest of the year.
We expect the convertible debt to be dilutive for gap and both the convertible debt and the preferred stock to be dilutive for non-GAAP EPS.
Stock comp was $50.5 million stock comp for fiscal year 21 is expected to be about 68 million or approximately $17 million a quarter. So this value may vary with our stock price.
Capital expenditures this quarter were $34 million for the year, we expect capex to be between 180 and $220 million depreciation was $44 million in the quarter and we expect our forward depreciation expense to be about 46 to 50 million a quarter.
The FX loss in the quarter was $4.7 million.
The tax rate in the quarter was 22%, we expect the tax rate to be between 22 and 26 for the year the tax rate to be used for non-GAAP items was 19%.
They ask Itron acquisition closed on August Twentyth, and the preliminary allocation of purchase price accounting is included in the Q1 results.
I know the I'm close on October Onest and will be included in the results of the December 31st quarter.
Those acquisitions will be consolidated into the compound semiconductor segment and the revenue is immaterial.
Who both for fiscal year 21.
Turning to the outlook.
Revenue for the second fiscal quarter ended December 31st 2020, $750 million to $780 million and earnings per share on a non-GAAP basis.
Or 86 cents to 95 cents. This is at today's exchange rate, an estimated tax rate of 24%.
And 124 million shares.
For the non-GAAP earnings per share, we add back to GAAP earnings the pretax amount of $21 million in amortization 17 million in stock comp and 2 million and transaction costs.
The estimated Q2 share count was 116 million shares for GAAP and 124 million shares for non-GAAP.
The actual dollar amount of non-GAAP items, the tax rate and the exchange rates are all subject to change.
Before we get to the Cumin I just as a reminder, our answers today may contain forecasts from which our actual results may differ due to a variety of factors, including but not limited to changes in the product mix customer orders competition changes in regulations and general economic conditions.
We would like to ask that each firm limited's questions to one question and one follow up we expect to conclude this call at 10 o'clock. This morning Marcia.
Porsche you May open the line for questions.
Thank you ma'am as a reminder to ask a question you will need to press star one on your telephone.
To withdraw your question press the pound key please stand by while we compile the <unk> roster.
Your first question comes from the line of Jed Dorsheimer with Canaccord Genuity.
Hi, Thanks, and congratulations on the quarter as well as the integration of Finisar.
Thank you first first question for you guys or I guess [laughter], if I look at the Silicon carbide.
Business pre ask to try and [noise].
The Noveon I'm, just curious you talked about sort of a five to 10 increase of capacity over the next five years has anything changed with respect to that in and is there an update on your thinking now that you have these assets in the business and then I have a follow up.
I drew thanks for your question just move on and no. We've seen no change we continue to.
Oh, you're going to use all though production capacity has required by the market.
And those two up excuses are complimentary to the to go buy group so infrastructure that we have.
Got it thanks, and then just as my follow up I was wondering if you could maybe talk about some of the differences in the Fiveg market.
From a technology perspective between China.
China is well is the U.S. I mean, we're aware that there's differences in tower design and capabilities, what does that mean in terms of chip architecture.
And sort of how are you position with respect to that and what I'm getting at is you know does that for example, a shift in terms of the device in one market.
Versus another how should we be thinking about that is is your product portfolio is set up.
I think the judges Giovanni Thanks again for the question.
When it comes to high performance.
Applications.
Surcharge and Fuji fire GE and eventually in the future CSG I do it's all about physics.
And Oh as far as we know the performance that you can achieve gum archrivals who come on.
Can be achieved with all the material blossoms. So you know of course noncompetitive <unk> technologies.
Our remote mutually exclusive.
So we believe that doubled reimbursement.
Oh I forgot my time soon goodbye to good or we don't Bachman Sumitomo electric device innovations, who tend to be a great opportunity for all our goals.
Oh I thought you said that we do see differences between Ah it'd be China, some oh, yens choices and some other OEM choices. We now can you Oh, we also sold in the United States, but philosophies that so we thought we'd quite far off from what we all.
Chip level.
And as far as we see if I know, we don't see any effect on all well short and long term plan.
Got it thank you.
Good day.
Your next question comes from the line of Paul Silverstein with Cowen.
Cowen.
Good so good you're going I was hoping you could give some incremental color on the hill <unk> com.
Market in demand.
The role we're seeing his comments from roughly 90 days ago. It doesn't sound like you're seeing it in <unk> is really critical weakness, but any granularity but would be appreciated.
I'm, sorry, Paul I, just want to talk about democracy, but you're going to own June communication really I'm talking about Oh Oh.
How it compares to the market.
General and given your comments on but I I'd ask you Oh I'd ask you to address book Telecom and data com.
Yeah, I think they'll both Oh pretty solid I don't think we you know we have seen a a.
And now it's come back a little bit of a number of customers, which I think are they barely normally wouldn't have sidelined during the transaction you know whenever disease.
A seasonal emerge over the Oh the size that we just went through some customers were waiting to see you know the combination and so forth and so those customers are coming back to us.
So there is a social or a you know customer intimacy that we we had reduced cost him is helping a lot of and then I think the general called infrastructural upgrades as well as the you know all of the the telecom infrastructure upgrades to support Fiveg deployment.
Oh, we have been a few people both at the same time, so I think it's a pretty healthy.
Their minds I know.
Okay, and then it would come down soon and so I think last quarter.
Orders not surprisingly you'd referenced relative weakness in the automotive market given what was going on relative to begins in it that markets, obviously picking up where are you starting to see that come back meaningfully.
Looking out over the next.
Oh, sorry, Bose, it's always did I'll, yeah, absolutely bolt is absolutely yes in fact.
I have to say that Oh, I guess, we'd know supply is China is coming goes much faster than than anybody else. So oh, the demand from China Falwell.
Compound semiconductor products as well as no passive optics products is very strong and so it was a it was a very competitive environment. There is a price pressure and as I mentioned in my prepared remarks, I think oh, well the investments.
Particularly on these six each Oh God I must denied production line to a basically a accumulate.
Demand, all Oh semiconductor laser chips, which can go well beyond that.
The mine the intent of the mind of any fiber laser manufacturer that these basically indicated that the mine accumulates I see we can be as competitive no actually more competitive.
With the cost structure, although de Vito troops in other words I got customers that I know vertically integrated.
Benefiting.
Oh, well cumulative demand and to fold in dog food of course talk show as if the opportunity, but that could either because we have such a large scale.
On T. go live in 16, which as I mentioned earlier, we believe we are the only one in the world with such a couple of BT, so going back to the industrial market I think is definitely oh much healthier than it was in the past few quarters.
Great. Thank you.
You're welcome.
Your next question comes from the line of my back ARIA with Banc of America Securities.
Thank you for taking my question and congratulations on the strong results first question, maybe Dan for you you know good to see the Opex discipline Opex around 20, 21% of sales I'm curious what drove this low opex can you maintain this kind of opex intensity.
Right, what what are you thinking about Opex in Q2, and just what would be the puts and takes as we try to model out expenses for the next several quarters.
First of all I think you know we have made the up that a very significant priority for the company as evident in the fact that we delivered in the first year acquisition synergies or that were twice the first year target I do thing.
Is that the correct way to look at Abaxis as a function of the of the sales level.
Because obviously there are some costs that are associated with growing though sales.
But generally speaking you know we would expect to be able to hold as we go forward inclusive of investments that I think are important as we go forward between say 22 and 25% of sales.
Some examples of the investments that we have started this quarter I'm will continue.
Or the investments for silicon carbide modules and devices.
There are a few that we will add for example, the company is going to undertake at least in the United States and I imagine that might expand Coca testing in the company to continue to ensure the health and safety of all of our staff.
Got it and one question for Giovanni or Chuck which is you know as we had at the start of calendar 21, I'm just curious to hear your parts on the one or two things I'm most excited about.
I also want to do things that perhaps concern you and then I'm coming from is that was any part of the growth or the market trends you saw this year versus just there because a covert and you know do they perhaps decelerate next year or what are some of these changes more structural in nature and can actually continue into next year. Thank you.
Okay. Thank you for the question so I.
I think in general it the Oh, what investments you compound semiconductors blossoms.
Ah weather, though gallium arsenide renewables finds who can go by I think it's probably the most exciting movies Oh not only because obviously we are merchant suppliers of components that rely on those bumps on but also we all their direct beneficiaries blah, well sub systems and modules, which are.
Basically integrated at home to stick launches, we have Oh. It is a very oh, very fruitful discussion with double module and sub system designs internally as well as our customers that rely on those blocks most to differentiate the product. So I just wonderful done may be lumpy.
Phil about indium phosphide as I mentioned in my prepared remarks, a we're very excited about it because a we are relying gold and 20 plus years of investments made by feed you saw on the blocks on which we believe is when the world class and it will continue to invest in it so.
As we see in a video of customers really interested in scaling up with a couple of BBB or.
To a level to judge the you know the performance of the individual leases and full dogs did we make a faulty internal demand as well as external demand. So that's probably where we see the greatest upside because were starting from zero. We started from zero when we close and so now that's a growing rapidly and we see that eventually to become.
A major portion of our logo market places in the optoelectronics compound semiconductor technologies.
Thank you.
You're welcome.
Your next question comes from the line of Mark Miller with the benchmark company.
[noise] regulations on your results just wanted a question did you say what the bookings were for the quarter.
We get we haven't reported bookings in the quarter for a while.
Oh, the backlog as I said remains very very strong at 899 and the the rolling 12 month bookings is still over one.
One of your competitors indicated there were seeing some delays in par g. for certain type chips have you seen anything like that but that's in China.
Hey, Mark this is John.
No we have not.
Thank you thank.
Thank you.
Your next question comes from the line of and Barra with loop capital.
Hi, guys. Good morning, Thanks for taking the question and congrats on the on the strong execution I guess, just just two quick ones. If I could can you talk a little bit about what your expectations are for a job for three D sensing.
For the December quarter relative to the September quarter, and congrats on the on the strong performance. There I know you have a quick follow up after that thanks.
And on the news robotics for your question. So we expect the D or the Oh Q2, or three D sensing revenue to be higher than in Q1.
ER and ER I think we'll Oh, we believe we'll continue to gain share in a market, where Oh, you know like we have done for the past few quarters and Oh I'm sorry, what was the second question.
Hi, I actually I didn't I didn't ask you get what you are asking them only give any bad begin to conduct any guys. Any this is not the second one is the following first aid chance you could give some up sounds like you're gaining momentum there I mean would you expect with a staggered rollout.
Certain so that you could be upside potential for it to be up sequentially in March quarter as well.
We'll have to see we have a we have forecasts, but you know we don't have that visibility in terms of orders. So I think we have to see it that way.
Got it and then Mary Jane My follow up is an operating margin how much of the expansion you saw this quarter I was from you know that the work you've talked about within the SAR and and he.
He is a decent amount of meaningful amount from the from the three D sensing ramp as well.
And if there's anything else that type of thing so I would love to know about it.
Sure well, we've talked in the past that anytime we launch a new product that the single biggest driver of change in operating margins, if anything that hasn't really begun ramping so.
So sure. The fact that we are seeing three D. Sensing ramping it is really very very good now a lot of excellent work has been going on at Sherman since the March quarter, but the truth is across all of our operations.
Not the least of which that Sean you talked earlier about the automotive and industrial markets coming back that also leads to a greater fab utilization for example.
And as the work that so all of that I think is really a function of what drove it and three D sensing probably whats the the.
The kind of last one out there to start to move and it did in the March quarter, and that's been very very good but I would take nothing away from the Opex intensity that has been going on in the company since the acquisition closed.
That's really helpful. Thank you guys really appreciate it.
No no no.
Your next question comes from the line of Jim Ricchiuti with Needham and company.
Hi, Thank you. Good morning, I was wondering if you can go back to the earlier comment that you made about yeah.
Yes, I know hopefully I heard this correctly that you were unable to ship at roughly about $40 million of finished.
Finished goods can you elaborate on where what areas and where are you in terms of some of those supply chain challenges.
Hey, good morning, Jim This is Chuck.
Hey, good morning, Jim.
The the bulk of it is isn't a feel contributions.
Goodness.
And.
That's the first part of your question, what's the second part of your question.
Well just in terms of where where are you in terms of those those supply chain challenges is this something that you expect it's going to persist.
I would say that it came up.
I think we did a we did one heck of a job first of all we've been in that even in this quarter our supply chain team global supply chain team is just fantastic.
I think what what began to happen is that as the as the industrial markets automotive markets in the <unk> and the markets in China began to heat up.
And became a you're kinda back onto the track that we're on.
I think the supply chains were generally under pressure.
We were able to mitigate everything that we needed to be able to deliver strongly on this quarter.
But as you could tell from our guidance. We thought there was a possibility that we could hit 750.
And and.
What where are our supply chain people, we've been able to do is not only mitigate the impact in this quarter, but also I'm expecting the impact to Q2 to be immaterial.
Okay. That's helpful and checked the follow up question is just with respect to the announcement on the six inch fab four is the laser diodes for industrial applications I'm wondering what does this do for the customers that you deal with in China on the fiber laser side in terms of their ability.
To perhaps move up markets are higher kilowatt class fiber lasers.
Ah that's pretty simple in the Navy.
Yeah.
Right.
Thank you great. Thank you.
Your next question comes from the line of Sidney Ho with Deutsche Bank.
Okay. Thanks for taking my question a couple of them first question is regarding.
Regarding the inventory a and b into your customers on the supply chain Whats your updated deal Oh on that or in terms of just the supply chain inventory or any pre purchase instead, it's clearly happening, especially given the strength that you are seeing in China.
Sidney if your question can we comment on whether the shipments we've made or going into inventory.
And what customers level of inventories is that.
Yes customer level of inventory in the supply chain.
Well, let me a scenario that we're not going to be able to give you an.
Then a comically precise answer.
Well, let me just comment about about inventory in general I mean.
We are focused on our operating performance at every level.
And in every call.
On our costs on our working capital on a rooms already management.
But the world has just gone through a number of climate faced challenges.
The virus itself.
And our customers and our suppliers or or shifting I think conversations a little more from.
Just in time.
So just in case.
And so we need to stay focused on not because we're expecting to grow.
And and you know, we just we have to be really smart about it and we're engaged with customers, where we're trying to win share serve their their unforecasted needs.
Inventories it is a part of the conversation.
Our ability to produce it our ability to procure it it's a balancing act.
We're not going to get carried away.
But by no means.
We intend to continue to grow in inventory as a strategic part of that equation.
Okay.
Okay.
That's helpful. I'll make my follow up question. Then can you talk about what portion of the RV revenue is coming from three D sensing in from Silicon carbide today.
Well last quarter.
Oh yeah.
[noise] [noise] her heart.
Oh, Oh the company.
Won.
About 7% to seven for some of the total and.
And then the portion that is silicon carbide proper its probably in the neighborhood of a four or five.
Okay. Thanks.
Thanks, and then maybe one last question for me and thank you for the gross margin guidance for the year in the slide deck. I think you guys expect 38% to 42% for the fiscal year. What are the major factors you see driving margins to towards the high end versus low end, recognizing youre already at kind of like the midpoint of that range right. Thanks.
Right well, obviously, you know as as a check in July both Ah commented on you know what in engineered materials company of volume is pretty critical the margins are very affected by the extent to which the grown materials are in demand and so that is going very very nicely right now as Jim.
He commented on the various it's across the board whether that be you say industrial threed sensing et cetera. So that's that's the first one is that.
Second one is from an operating efficiency point of view on the ground. We have worked very hard into sales.
To put capacity and when we need it and to add capacity or by breaking wind bottleneck. So we need a new line. The first thing we do is figure out whether we can make a new line of an old line by breaking bottlenecks and putting in say different metrology equipment. We will continue to do that and if that is further deployed in the combined company that also has.
Can't benefits as well Chuck is correct that the supply chain teams continue to be relentless on the.
Goals that they have taken on for themselves and then I think really finally, the last one is being sure that we're really in lock step with the customer on their timing, what they're taking when what they really need and that we are we're really right there with them on their forward looking.
Strategic goal so that the portions of the you know engineering guys that might come off the line to do the design for Manufacturability is also used to the most efficient extent. So those are the main things that tend to drive the gross margin, but at the end of the day volume is very important.
Great. Thank you sure.
Your next question comes from the line of Richard Shannon with Craig Hallum.
Well good morning, Chuck and Mary Mary Jane Thanks for taking my questions. I think my first one is on the compound semi segment for Mary Jane Here. Your operating margins were up very nicely in the September quarter versus June I Wonder if you could describe qualitatively how much of that is due to gross margins versus versus opex efficiencies and then kind of simultaneous.
Lee here well, you've never given that's a gross margin level, there what kind of opportunity do you see for growth in compounds any gross margins over the next few quarters or a couple of years or whatever timeframe you choose is like.
Right. So couple of things one the operating margins in the segment.
Tend to be a compound semi.
I'd say there they they have with said before their gross margin tends to be above the above the corporate average and insight on it it tends to be slightly below comps any game really is almost won or lost on that on the gross margin because we make every city every gram material, except one in that segment.
All the laser diodes are made in that segment. It is the classic or a situation where the volume and the efficiency of the growth process is really really important so having said that having said that Giovanni has been very very diligent and the opex as we look at for example, where do we make sense at all.
Company has never had a situation where we make a yeah. The same thing and a lot of places, but he does continue to work very hard on really what is the footprint. We have and then that also affects his op ex footprint.
In Photonics photonics. It tends to have you know quite a bit more people in it right and a little bit more assemblies to the supply chain has a huge effect there as trusts already said, they're already doing a wonderful job and in their case just efficiency of life left tends to have the biggest effect. So anyway, you cut it inside the segment the gross margin, it's a big deal.
I see and then second part of your question was do I think <unk> compound semi could go up.
So if you all would have asked me before what I thought the restaurant margin for comps any was I probably would have said between 18 and 21. So then as usual Giovanni just let that out of the water and I do think that they are at a pretty nice level at this point, but at the end of the day. They do have the highest margin products in the company and I think we really need to see how the demand the man.
Develops over time.
How how we see various design shifts going but I'm sure that that that giovanni's on segment have not given up on Ah Ah whatever progress they can make in the segment, but generally I'd say that I'm very proud of them for what they achieved in this quarter and that was not easy.
Great and Virginia, the detail there and my second question is on on Datacom here. Once you could give us a sense of your how long your visibility.
In cloud looks like relative to normal or whatever normal is and also have you seen any potential share gains. It is that the 100 gig speed and whats your position.
And 400 gig so far.
Hi, This is javan again, so as I said earlier.
Is we've seen a nice pickup on on those sales.
And I think it's a combination of as I said over to you know between customers Reengage, who are engaging with the combined team.
We probably took a fall so 12 18 months.
I'm only because we're going to do but also because probably some some deployments where we're kind of slow down. So I think it's both coming back to the mind you know just from the market as well as the customers Reengage ago. So I think we're pretty pretty ER positive about the you know look.
To continue that trend.
And then Oh I'm, sorry, what was the second part.
I'm sure Yeah.
Did you see any potential share gains in 100 gig and where do you sit in terms of like design win share and 400.
Yes, so you know for around but Oh, we all are shipping in volume as I said in my prepared remarks today, we already shipping in volume. We believe that we use you know like cycle and so on but we think that Oh for example, you know until.
20 to 25.
Less than 50% of the market would be a foothold I and a weak I mean, not formally GE. So we have plenty of time to Oh go and do a gainshare a while we continue to be a leader, we think or two on the G.
And of course, the one on the jury.
It's still going to be more than 40% of the total addressable demand on fuel 20 plentiful. So we had to oh multiple blossoms Brady and competitive and I think you know overtime. Eventually 400, G.O. could be will become the largest the dominant.
St segment told them Oscar.
But even the 23, if I was to be maybe 45% of the total still less than 50%. So it's important that we so from all of them and and Ah why we need them to elementary will go to form injury in Pablo.
Okay, great. Thanks for the detail Shibani. Thanks.
You're welcome.
Your next question comes from the line of Tom Diffely with D.A. Davidson.
Oh, yes, good morning, a question on the indium phosphide opportunity.
What is the length of the design cycle or the sales cycle for the components or subsystems in that space.
Oh, Thanks folks expense professional tonys drum on it so.
It's really a dependent on the customer needs.
We have shipped Oh, those which wasn't even qualified so much was that a mindful eye what leases is really oh at.
At least for me.
As is always the first time, you'll like I I just couldn't believe.
So that leaves us with <unk> you know when it will perform on that so we both fios and we should even before the.
You know the qualification cycle was completed I think the old design cycle for some of these devices can be that's.
That's true up to six months.
And as long as maybe 80, so it really depends on the Oh, you know on the application.
But there's no doubt that the Oh, the fact that we made available to a number of customers. So you know a block from which as I said I'm finished so investors for very long time, I think it was really weird attractive to go to settle down and ER and not only.
Pension performance, but I as I said earlier Olson pencil scale right. So we have a cost structure with the baby will you do lot spots between the Fremont, California, Y'all follow Sweden, and we think those five so it went extremely well and so the internal volume helps utilizing those.
And before providing a very competitive lot hone htwo external customers too.
Great. Thanks for the color and then as a follow up what do you see on the E. V market have you seen a near term pause and has your long term what changed.
Not really no I think the way we are proceeding as planned.
You know, how small or more systems, all deployed and operational ultimately the all the standards will span replacements that are the total of the you'll be business, Washington music side, because that's a that's a it's a it's a it's a nice it's the.
Eventually overtime growing the mindful, though for component. So a short time no I don't think we've seen any change into deployment. So I think we are benefiting from the ER incredible need for these tools that I was you know does you know seven years behind it then.
So the problem is the deployment. So everybody is really looking forward to deploying more and more tools.
In the field and it real sole sourced or over one on the peace ball unique box that go into the system. So I think we are well positioned to take advantage of that those deployments will become.
Great. Thank you.
You're welcome.
This concludes the Q and a portion of today's call I'll now hand, it back over to Ms. Mary Jane Raymond for closing remarks.