Q1 2021 Infinera Corp Earnings Call
Good day and welcome to the Infinera Corp, first quarter 2021 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one. Please note that this event is being recorded other night now I'd like to turn the call Everytime. It on a tower <expletive> head of Investor Relations. Please go ahead.
Thank you operator, and good afternoon welcome to Infinera as the first quarter of fiscal 2021 conference call for.
A copy of today's earnings on the slides are available on the Investor Relations section on the website. Additionally.
Additionally, this call is being recorded and will be available for replay from our website.
Today's call will include projections and estimates that constitute forward looking statements, including but not limited to statements about our business plans, including our product roadmap sales growth market opportunities manufacturing operations products technology and strategy statements regarding the impact of COVID-19 and industry.
Supply chain challenges on our business plans and results of operation as well as statements regarding future financial performance, including our financial outlook for the second quarter for fiscal year 2021.
These statements are subject to risks and uncertainties that could cause on scenarios or results to differ materially from management's current expectations.
Actual results may differ materially as a result of various risk factors, including those set forth on a annual report on form 10-K for the year ended on December 26, 2020 as filed with the SEC on March 3rd 2021, as well as the earnings release and Investor slides furnished with our form 8-K filed today.
Please be reminded that all statements are made as of today and Infinera undertakes no obligation to update or revise any forward looking statements to reflect events circumstances that may arise. After the date of this call.
Today's conference call includes certain non-GAAP financial measures pursuant to regulation G. We have provided a reconciliation of these non-GAAP financial measures for the most directly comparable GAAP financial measures.
First quarter of fiscal year, 2021 earnings release, and Investor slides each of which is available on the Investor Relations section of our website.
And finally as a reminder.
Allow for plenty of time for Q&A today. So we ask that you limit yourselves to one question and one follow up please.
I'll turn the call over to our Chief Executive Officer, David heard Thanks, Thomas Good.
Good afternoon, and thanks for joining us today I will begin with a brief review of the first quarter results and then turn the call over to Nancy to cover the details of our financial performance and the outlook for the second quarter.
Q1 marked another quarter of strong performance with solid execution across the board revenue came in just ahead of the midpoint of our outlook with both non-GAAP gross margin and non-GAAP operating margin above the high end of our outlook.
Each was up over 900 basis points on a year over year basis during the quarter, we generated $19 million of operating cash flow, which was up over $100 million from the same quarter a year ago from a top line perspective revenue came in as expected as we navigated against the challenging supply.
I changed environment impacted by COVID-19 and industry wide semiconductor shortages and extended lead times, we experienced strong sequential revenue growth with tier one service providers are spending recovered in the United States. Following a weak Q for most other customer segments performed generally in line with our expectations.
On a product basis revenue grew in the double digit percentage range on a year over year basis from our open optic corp portfolio, including compact modular and line system platforms. This growth was driven by network expansions, new customer wins and favorable traffic growth dynamics in the metro include.
Adding international five T bills revenue was up on a year over year basis for our 600 gig gx product as we added several new service provider customers and continued to expand our customer base.
Overall bookings were robust up doubled.
Double digit year over year with broad based strength across customer verticals and regions. We had record bookings for our open optical compact modular platforms and near record bookings for our open optical line systems as service providers and Icp's plan for the rollout of 400 gig in the Metro and eight.
<unk> hundred gig in the core within our subsea segment bookings were up almost 150% year over year as service providers continued with their build outs of subsea routes to handle the enormous traffic growth.
Our recent bookings momentum, especially in line systems reflects ongoing footprint expansion, which we believe is a positive precursor to anticipated future high margin revenue.
The Metro network insertion opportunity continues to drive solid bookings for our metro products and 400 gig service demand is increasing so that effect today, we announced the availability of 400 gig CFP two interfaces to our metro portfolio.
On the 800 gig front I six is now commercially shipping to customers the pace of customer wins accelerated in the quarter and we secured additional purchase orders and design wins are a list of customer wins includes tier one global service providers and ICP across both subsea and terrestrial.
Deployments as we remain on track for a more meaningful revenue ramp in the second half of 2021, we.
We have built a healthy backlog and remain focused on ramping production to meet the strong demand. We are seeing we look forward to sharing additional details on our market traction and longer term growth expectations for 800 gig at our Investor day in a few weeks overall I'm encouraged by a very solid.
Start to 2021 with broad based demand strength across geographies customers and our open optical platforms, while demand indicators are very encouraging across the customer base supply constraints remain a challenge not only for us, but many of our peers and companies across a broad spectrum of industries.
We continue to work closely with our supply chain partners to address these industry wide challenges and are positioning inventory to mitigate the effects of the component shortages and extended lead times.
For the full year of 2021, we continue to expect the optical systems market to grow 2% to 3% year over year and project that our revenue growth rate will be slightly exceed market growth as we ramp our 800 gig solutions and enhance our metro portfolio with 400 gig optical.
Mrs on the ex T M and Gx series.
Complementing our 600 G and 800 G offerings.
I am confident in the long term market opportunities ahead of US I continue to believe this is a great time to be a differentiated supplier of optical technology and there is growing recognition in the market of the value that we provide and the scarcity of our vertical integrated capability.
We see numerous insertion opportunities ahead of us as well as the competitive dynamics with Huawei the rollout for 400 G. In the Metro and the deployment of our high performance 800.
I fixed solution.
Our strategic priorities remain focused on leveraging our core competence in vertical integration and leading high performance optical engines accelerating the shift to open optical and differentiating in next generation <unk> with category defining products like ex our optics this strategic focus.
This should enable us to gain market share ex.
Spanned our addressable market and drive margins towards our long term targets.
We look forward to sharing additional details regarding our strategic priorities portfolio.
Portfolio evolution and financial roadmap at our upcoming Investor day on May 19th.
In closing I want to thank for global Infinera team for their unwavering support dedication and resilience recognizing that the effects of the pandemic remain acute in several geographies, where we operate in particular I wish to recognize the members of the Infinera family in India.
Who are currently facing a very challenging and difficult period. In addition, I would like to thank our customers partners and shareholders for their continued support.
I will now turn the call over to Nancy to provide additional details of the quarter and our second quarter outlook.
Thanks, Darren good afternoon.
I'll begin by covering our Q1 results.
And then provide our outlook for Q2 on my comments reflect our non-GAAP income per euro.
We have posted price for financial details, including our GAAP to non-GAAP reconciliation to our Investor Relations website.
In my commentary.
I am pleased with our performance in the first quarter of 2000 time line.
Q1 revenue was 332 line above the midpoint of our outlook of 320 to 349.
We share in our last earnings call, we expect an approximately $10 million, especially.
National revenue impacts from supply chain.
Okay.
And are.
We estimate that the impact we experienced was nearly double this amount from Q1.
There was 110% customer on a quarter, 48% of our revenue came from the United States as spending in the region recovered from a weak Q4, while international revenue was down sequentially on seasonality and the timing of certain projects.
Gross margin was strong at 37, 6%.
On the high end of our outlook of $34 37 per cent.
On a year over year basis gross margin expanded by more than 900 basis points.
As we benefited from meaningful improvement in our cost structure, which was reflected in higher product margin.
We continue to experience the impact on the industry wide supply chain supply constraints for on semiconductor shortages and higher component on logistics cost on the corner.
Services gross margin decreased from a higher mix from professional services.
For the rollout of new projects and design.
Ultimately these projects wins are a great leading indicator of higher margin rapidly down the road.
Operating profit in the quarter with $1 3 million or 24% operating margin, which was also above the high end of our other.
What's the operating margin almost 1000 basis points year over year.
The year over year improvement and better than anticipated profitability on the corner, where primarily for isn't stronger gross margin and operating expenses of $123 $6 million were generally in line with our expectations.
The resulting EPS in Q1 was a loss of three cents per share representing a 17 cents per share improvement year over year.
Beginning with Q1 'twenty one.
Excluding the impact of foreign exchange gain or loss from our non-GAAP results as we believe it is not indicative of underlying operating for format test.
Cash primarily unrealized yeah, we are unable to provide an outlook since the amount if not for basketball.
Moving on into the balance sheet and cash flow items, we ended the quarter with two months from $50 million on cash and restricted cash.
<unk> cash position benefited from $19 million on a cash flow from operation average.
And $7 million on positive free cash flow after Capex and should also be noted on the repaint and a $77 million principal balance drawn on the ABL at the end of Q4, it's funny and ended the quarter with no amounts drawn against the $150 million credit facility.
We expect to use a modest amount of cash from operations in Q2, as we position our inventory for new product introductions continued growth in the second half and mitigation of the impact on.
Component shortages and extended lead times.
Looking ahead for the second quarter of 2021, we are encouraged from that strong demand profile as evidenced by our double digit year over year growth in Q1, stocking and ending backlog.
However, mindful of the exacerbating supply pressures and have reflected approximately $20 million to $25 million of risks associated with these industry right supply challenges in our range of outlook for Q2 revenue forecasted to be in the range of $345 million plus or minus 10.
Thanks, Alex.
Even with interest it is important to reiterate that customer demand remains strong including demand for our 800 gig product.
He had noted earlier in the call I think for a very strong for our line system for Q1 as customers lay the groundwork for Entergy and 400 gig on the Metro and 800 gig for we anticipate that a meaningful amount of these line system bookings could begin to be recognized as revenue in Q2.
And as a reminder, expect they will come at lower margins. Initially taking this dynamic into account, we're anticipating Q2 gross margin to be in the 35 from 37% range of over 200 basis points year over year at the midpoint.
We are planning for Q2 operating expenses to be between $125 million to $129 million.
But the sequential change primarily driven by an increase in R&D as we invest in continued innovation and new program development.
Given the market opportunities in front of us and our significantly improved financial position from just a year ago. We believe now is the time to lean in and accelerate R&D investments and highly differentiated and value added areas, including optical engine and open up our platform.
These investments are intended to enhance our market position as we take advantage of the transition to higher speeds on the metro and for the rollout of plausible and the competitive dynamics in the industry.
We expect Q2 operating margin to be negative, 1%, plus or minus 200 basis points below the operating income line. We expect other income to be a net expense of approximately $5 million driven primarily by interest charges and taxes are estimated at $3 million.
For the full year consistent with our statements on our last earnings call. We expect optical systems market to grow 2% to 3% over 2020 and for our revenue growth to be slightly above market as we balance the strong demand environment when semiconductor shortages.
We expect second half revenue growth to be driven primarily by the conversion of our backlog.
Continued sales of our new product portfolio, we will continue to take advantage of footprint footprint expansion opportunities as they come our way to drive additional market share gain and at the same time are committed to driving gross margin expansion of 300 for 400 basis points compared to fiscal 2002.
<unk>.
Furthermore, we are still planning for positive non-GAAP operating margin and cash flow from operations for fiscal 2021.
I would like to close by thanking the Infinera team, our customers and partners for their tremendous effort in these challenging and exciting time and our shareholders for their continued support I look forward to seeing you all at our virtual Investor Day on May 19 call I'd like to now open the line for questions.
Thank you Amy will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two and we kindly ask that you. Please limit yourself to one question and one follow up on at this time, we will pause momentarily to assemble the roster.
Yes.
Hi, My first question today will come from Michael Genovese with West per capital. Please go ahead.
No.
Oh, hi, thanks very much.
Thanks for the question.
Hey, Mike.
You know so so so you're talking about preparing for metro for 400, G and preparing the long haul for 800 G. So besides orders kicked you know could you talk some more about different verticals with different order trends you saw on the quarter because it may sound, it's strong and I'm not sure I got everything down but.
But.
Is it just a matter of placing the orders is there is there any product that they are taking first.
And in the second quarter, and then other things will ramp in the back half for the year I'm just wondering what preparing me for ordering and not taking anything or are they actually building networks right now if that makes sense.
Oh, sorry, yes, so we had a we had strong order demand in Q1, maybe we we received purchase orders for products.
And and we shipped some products for revenue and some products that werent for revenue line systems typically gets shipped out first to be able to build that footprint to expand both in subsea decor and in the metro. So our comments our demand is very strong both for our infrastructure product for them.
True as well as the long haul and our tempered comments are really around something that's more industry wide, which is the access to semiconductors and component given longer lead times and shortages in the industry.
So on a couple of just a couple of quantitative follow ups. So so number of I mean can you give us a number of customers or a number of trial members I mean scanners out, giving our customer numbers for the new chip and then secondly, I think you said $20 million revenue, maybe could have been 20 million higher than the first quarter is the risk.
Second quarter number on supply chain number that we expect to be held back by.
Yeah. So on the I 60 tell I'm going to ask you to stay tuned for analyst day, we plan to have a pretty fulsome discussion on the 19th of May and then regarding revenue. Yes. We saw at least on we saw up to 20 million in terms of supply that.
Constrained our ability to ship for revenue in Q1, and with Q2, what I factored into the 345 million mid point is another 20 to 25 million for Q2. So you can think about that as you know we've got the demand. We've got the backlog built we need to get the supply and in debt.
It out for customers.
Great. Thanks, a lot.
Thanks, Mike Thanks, Mike.
And our next question will come from John Marchetti with Stifel. Please go ahead.
Thanks, very much Nancy just following up on your last comment there answering Mike's question for these shortages that you're talking about the 20 million in <unk>. The 20 to 25 and two those are in backlog right. Its not that those are out in the ether someplace. Those are in your backlog is in those order numbers that you referenced as being strong in the quarter.
Yeah, Let me correct. So for Q1, we had built 10 million than when we started the quarter. What we actually saw was 15 to 20 in terms of impact some of that carried over and was moved through in Q2. Some of it wasn't some of it has continued to build and so as we look at Q2, we see another 20%.
$25 million on top of the $3 45, as a midpoint in terms of a risk that we sell 10 for our outlook and John just to kind of clear that those are on some backlog that we don't think will be fulfilled in the quarter because when somebody takes a lead time of apart from eight weeks for 12 weeks to 30 to 50.
Youre not going to be able to fulfill that turnaround side for the first two quarters.
Underlying but it's true that was actually good backlog right. Okay.
Yeah.
And then you mentioned some of the strength in the sequential recovered anywhere in the tier one service provider market in North America. I was wondering if you could just talk a little bit about what happened in in ICP and in sort of the other service provider category, where those were a little bit weaker you said they came in roughly in line with what you were.
Thinking just given the strength that we saw on cable maybe you could just talk through what you saw on some of those markets for us.
Yeah, I mean ICP sector as we've always said is it's very lumpy and so it really is a bookings to revenue story right. So in Q4 one.
One of our top bookings customers with an ICP in Q1, one of our top bookings customer was an ICP.
Yeah, you know the billings did not fall within the quarter. So again, we continue to see strength within the ICP customer segment is lumpy.
We feel good about the overall spend rate going into the back half for the year.
Again, I think we saw a recovery in Asia in terms of the order pattern as well it tended to go weaker in terms of billings, but heavier in terms of bookings on a forward basis.
So if that helps you on.
It did it maybe just last thing like I said on on the cable side Big jump there both sequentially and year over year was that one specific deployment that came through or was there something more broad based on that.
Yeah, I think a couple of call it two.
Two to three customers projects that came in strong.
Okay.
Thank you I appreciate the color.
Actually on.
Yeah.
Okay.
And our next question will come from for HUD, and the job with MK and partners. Please go ahead.
Oh, Thank you I just wanted to.
Got the call a bit based on their books.
So I apologize for asking to repeat yourself.
But can you walk.
On the mind me how much of an impact you saw in the quarter from component shortages.
I heard some comments about backlog moving over the 22 million, but I wasn't I didn't catch up the whole conversation. So if you think of the feed yourself.
Sure for Q1, we saw a $15 million to $20 million in terms of an impact to.
Revenue from the supply challenge and what I indicated is that for Q2, we're anticipating that to be between $20 million to $25 million.
Got it.
Given the lead times I know you.
You know.
For example, when we start talking about well over 40.
40 weeks.
Probably more likely that those orders are bought by people.
So in Q. So can you kind of give us a sense on.
Are you thinking about or how is your visibility like all day.
Total day sharing the order trends or you know.
But that would be for the future and how does that look and if you can quantify that for us. Please.
Yeah. So our customers I mean this is not a this is certainly an industry wide dynamic right. Now so people are being transparent our customers are being transparent in terms of their needs.
Our.
Building and shipping as quickly as we can to fulfill the backlog.
And as I said in my comments, we are still expecting to grow slightly ahead of the market for the rest of the year, but there is that risk still on the supply side with it now, but I don't have tremendous visibility into the back half from the standpoint of the supply piece of it but from a demand piece, we felt very good about the strength.
We're saying.
Got it and one last question if I may on on your eye.
You've obviously got a new purchase order.
For Hyperscale customer if it is can you share with us what type of design wins, you have so far any quantifiable data I believe your competitiveness.
I shouldn't that day.
You know over at all.
500 more than Corp.
Modern ship.
Can you just on your parents.
The order depending on what kind of ramp are you seeing in terms of 800 gig versus your previous.
Generally sales cycle compared to a 100 gig for what kind of.
For example, you've seen with 800.
It's a good question look I think the good news is for 800 gig I think the ramp appears to be quite faster than than previous generations. We think that based on the geometry of the network. It will be a long cycle as well.
We have experienced design wins purchase orders and.
They have just begun commercial shipment of the product.
Across both the ICP and service provider segments across both terrestrial and subsea applications.
Our wins and purchase orders have come from and as Nancy said in just a couple of weeks here on May 19th we tried to give you more of a map of where we see those lands and where we see 800 gig technology going how long that lifecycle really will be what will be the magnitude or size of that.
Over time, and what that does to our business model.
Prefect drugs.
Thanks.
And our next question will come from Cemig Chatterji with J P. Morgan. Please go ahead.
Great.
Thanks for taking the question.
Want to start off with the supply constraints and so sorry to ask on this looking on.
Just any visibility any.
If you can share on what components are the most constrained but again for you go from like the line systems to the compact modular systems to like more of your longhorn systems.
Where does the shortage impacting more and more.
What other constraints, you're seeing and then I have a for Nova as well.
Yeah.
I'd tell you is that it's a pretty broad I mean, this isn't just semiconductors, but microprocessors, which can be on a fan Trey.
Then our product portfolio.
A little bit more profound with some of them more on legacy products because the newer products.
Not only from a procurement standpoint, and what we planned for but just from the aging fab standpoint tend to be the first debt or prioritize so a little bit more on the legacy.
Again, I think it's a broad swath across the industry I think we've got good partnerships going with our contract manufacturers as well as with our supply chain partners. It continues to say why more and more vertical integration and control on your supply chain is strategically important.
And again, we started this activity and in December I would tell you we saw more profound impact in Q1 and it accelerated a bit in Q2, and we provided those numbers as best as we can see them.
Again, we're working on the back half.
Again with.
Longer lead times, you tend to have a little bit more partnering on behalf of our customers as well to partner and reach out. So that's what we're in the process of doing for the back half.
Little early to call.
The second question I had was you mentioned share gains.
In relation to Q, where you're guiding gross margins to be Oh, just like yourself for the <unk> Oh, that's you've deployed it would be line systems.
And maybe I missed this because I jumped on late but which customer segment does that frame really that win.
Share gains coming from and also just going back to your comments for the full year on where you would expecting to outperform relative to the market. Just if you can share.
Later on.
Are you seeing the biggest driver was in total market share wins. This year. So for the near term Q2 with the new well for your commentary just on market share it would be helpful.
Yes. It's good question, so certainly were coming across both terrestrial and long haul networks, so youre going to see long haul on subsea and core metro opportunity as again 400 gig insertion opportunity with our existing platforms.
As well as long haul platforms with 800 gig, there's just less players in the marketplace with open line systems. It has given us an ability to insert quicker on that.
Happening across geographies.
Again, both in Europe, Asia, and North America.
Okay. Thank you.
And our next question will come from Alex Henderson with Needham. Please go ahead.
Great. Thank you.
So I was hoping you could talk a little bit about the.
The nature of the orders that you've received.
Yeah.
Clearly 800 gig products are well into the back half of the year or so.
Would you include the 800 gig orders are for the back half on a product thats not shipping.
That backlog or is the backlog predominantly related to the.
For the existing products that you have available on the marketplace today.
Yeah. So no for the backlog does include 800 gig products.
As well as our existing product set so as we've said for a couple of quarters now.
We're ramping production and that's the biggest piece it's a good good issued a F.
Demand is extremely strong so we expect the backlog that we've accumulated year to date and that we continue to book and when.
To be deployed and then converted into the revenue and cash flow cycle as we get into the back half year.
Within that context.
Your home.
On the other 800 gig competitors stated that they were the only company shipping product.
And they're on their last call I assume that that is not an accurate statement.
Have shipped in limited quantities.
In the pre ramp process is that a fair statement.
Yeah, we have chip again for qualification, we're now shipping for that commercial deployment that again, we would expect to then convert into revenue in the back half, albeit they've shipped more quantities and whereas a few quarters ahead, we feel very very good about the performance.
For the product that we have and it's going to be a long cycle. So.
We continue to be excited about about the rollouts.
And one last question along the same lines can you talk about what portion of your business are in the order book is coming in with respect to open line systems and to what extent your installed base.
What percentage of your installed basis.
Currently open line systems. Thank you.
Yes, good good all good questions, Alex will try to have a little bit more color. We've got that for the analyst day on the 19th but near to say when we say record.
Near record bookings for line systems, when I look at the last three quarters of our line system bookings.
<unk> been profoundly up from.
From prior periods. So it's a it's a meaningful percentage, but it's a good pick up on trying to give you a little bit more quantification on what percentage of the total is that okay.
Okay, great. Thank you very much.
Thanks, Alex.
And our next question will come from George Notter with Jefferies. Please go ahead.
Hi, guys. Thanks, a lot.
Obviously, a big piece of the story here is the margin expansion and where you guys can get to prospectively could you give us a sense for what mix of their revenue comes from products that are vertically integrated.
Yeah and debt per census quarter was up slightly for.
From where we were in Q4, you did see the step up in margin, primarily driven by cost reductions, but an increase in the level of vertical a vertical integration also.
Helps there as we said as that percent growth.
And our objective is by the end of 2022 as we're exiting we will be at our target for gross margin model, which is in the mid forty's.
I would say right now.
That number is.
Certainly the low 50 <unk>.
And not where we want it to be long term, but it is improving quarter to quarter.
Got it Okay, and then I think.
Part of the narrative here was that.
There were a couple of big I guess.
Step functions up in gross margin going.
Going back a ways now I think from that from the conversation, but I think you said there was a 1000 basis points of improvement as you went from for example, 200 gig 600 gig and here I think we're talking about versions of the groove and then another 1000 basis point improvement as you step up to <unk>, just because of the products are more vertically integrated is that still the right math and how you think about.
The organic margins on those products.
Yeah, I think I think.
It's still pretty close and when we talk about our roadmap and the analyst day, we're going to lay out our structure not just for 'twenty, one and 'twenty, two but out beyond <unk>.
And to the 'twenty three 'twenty for timeframe and really walk through how that margin expand and the importance of owning as much as you can have your supply chain and being vertically integrated.
Got it okay. So I guess I'll just ask it this way and sorry to belabor this but.
I assume your viewpoint of the margin structure on I six hasnt changed.
Correct.
Okay and do you think sales I appreciate it.
Oh, sorry, Nancy.
Oh no. That's okay. What we had said I thought I fix as well as a vertically integrated product as you should be able to see 2000 basis points improvement at a product level above a merchant product George but then you have to do the weighted average math. So we will we will shake out for an analyst day, how the vertical integration impacts our.
As a percentage of.
The V I a total product. We're also show you on an annualized basis like we've provided that we expected 300 to 400 basis points of improvement full year this year to last year.
Q1 started out with a reasonable lift to that with the 900 basis lift, albeit on a weaker compare from last year, given the major subsea deployment.
Got it thank you guys very much.
Thanks Julie.
And our next question will come from Simon Leopold with Raymond James. Please go ahead.
Great. Thank you for taking the question I wanted to ask you a little bit about the Huawei backlash opportunity as you see it in.
In terms of what I'm looking at your European business has been good beginning.
Fourth quarter last year, you had a good quarter at the beginning of this year, but we keep hearing about how this being a very long term opportunity.
So I'm asking this question is kind of two parts what do you see happening near term in terms of Huawei backlash opportunity and then how do you see this playing out over the long term. Thank you.
Yeah good.
Good question Simon So if you're asking are we hiding the fact that were secretly winning the huawei opportunities.
Look we've won.
Two or three Huawei opportunities I think are you now.
Small handful of them are being one but quite a few are being bid. So you wouldn't see those in revenue yet.
At best.
We would get into kind of Q4 revenue period, but as we've said prior we really do see this as a longer term 2020 dynamic on the uplift we're seeing when you look at the competitive field for long haul and metro.
And subsea again, an opportunity of insertion.
With Huawei not being allowed to play in many of these circumstances and theyre not being many other competitors the ability to go pick up that share but in many of the metro. So it is re architecture restructure its a lot different than just <unk>.
Point to point links on our long haul network or our subsea network.
So we think 2022 that will begin to pick up steam and our top line and Youll see that on our analyst day, and then as we get into 2023 and 2020 for it.
A big part of our investment curve of our vertical integration penetration as you get to XR and other plausible technology that will improve our margin profile going forward.
And do you have your own Andrew one other on ice sorry, do you have a view on how to size this opportunity we've heard numbers.
Ranging between sort of $1 billion in Europe, if you look sort of globally ex China could be a $2 billion opportunity. How are you sizing the sort of Tam Huawei backlash opportunity.
Yeah look I think when it's all netted out do you see this as potentially a $1 billion in behalf opportunity and thats not going to be eaten all by one supplier. So I kind of think of it as you know.
We've told our sales teams go out and get yourself, a path to a half a billion dollars of Huawei.
Hello, a opportunity.
But again, it's too early.
Yeah. Thanks.
Yeah.
And our next question will come from Rod Hall with Goldman Sachs. Please go ahead.
Hi, This is bala entity on for Rod.
Thanks for taking my questions.
I have no problem follow up if I can.
That's on the 800 gig product that you are currently shipping could.
Could you talk about that.
You feel the product is more or less complete income stuff like Sonic and feature set.
Do you feel like maybe you need to plug that in pool or maybe Mike played.
Well, you'll see at our analyst day, you know rolling out our product and continuing to enhance its performance and feature set will always continue to but for the applications that we're contractually bound to.
For the first shipments.
Products complete, but like all of our product you'll see additional performance gains and feature sets. We tend to build lots of feature functionality into our original product, which is why you see them a little bit later than some of the competition.
Some can argue as to that strategy.
Kind of given our size scale and focus on vertical integration.
That's that's that's our current plan on record.
Okay.
And could you could you maybe provide any help on any comparison between between the isolates and.
On CNS product.
He made the other day takes on the island's day I guess on its own.
Right.
Again, I think everybody's question will be on whats the size of the market opportunity and then in terms of the rollout.
How are we going to compare both performance wise and slope wise in terms of the shape of the ramp.
So we'll go through that.
Best as we can on on May <unk>.
19th.
Okay.
Yes.
And our next question will come from Jim Suva with Citigroup investment Research. Please go ahead.
Thank you very much you know as you sit there as CEO and also CFO and work together.
And we've been through you know first geopolitical Wars, then COVID-19 challenges now chip challenges I Wonder do you look at this business and maybe think is it prudent to keep more inventory keep more chips on order inventory stocking I'm just wondering strategically just seems like one.
Non shock after the other unfortunately, it's been tough for all of mankind and everything but I'm just wondering if you're thinking that maybe structurally it just makes sense to to hold on procure more more chips in inventory in case something happens down the road.
Yeah.
It's a good observation certainly as we got into December.
We began to position ourselves with our contract manufacturers and supply chain partners to begin trying to plan out better over the period Luckily year over year. When you look at our cash consumption last year this quarter and.
Our improved position now we're able to do such.
And it does remind you that the more of your supply chain you can put in your own hands.
This safely you can be but I don't disagree we're in the in the period of that kind of provisioning again, what tends to happen. In these situations is people just call off orders on unexpectedly in terms of.
Our suppliers and that's what we're trying to watch so yeah, having more inventory on hand, it's a great way to combat that and I don't doubt that we face past challenges both as a as a as a world as a country and as a company.
And you know that's what we do and this is just part of our job I think Lucas are coming up on the east coast from what I understand so we're waiting for the next one.
Thank you so much for the details and look forward to the Investor day in a few weeks.
Yeah. Thanks, Tim.
And our next question will come from Jeff <unk> with Wolfe Research. Please go ahead.
Yes, Thanks very much my question is on similar similarly on margins.
I guess I'm wondering to what extent if any.
And he is the.
Semi semi constraints affecting when do you expect to get those margin gains and that might be because.
The components are harder to get and therefore, one has to pay a little bit more or it could be because timing of the shift to internal is a little bit later, but.
Could you could you just can help us with how quickly you'd like to get to those goals and is that changing.
Yeah definitely Jeff. So you saw that we did have a good Q1 in terms of margin coming in ahead of our outlook.
And that really was based on focus cost reductions that we have been driving for some time.
But it was also offset as I mentioned in my comments by them exactly what you're referencing right that the increase in certain component cost the long lead times and as we look out for the year you know part of the reason why we're maintaining the 300 for 400 basis point improvement year over year.
It is because of that level of uncertainty.
We feel good about where we are in terms of margin in Q1.
Q2 with that deployment and the revenue recognition cycle, starting I've, given a little bit lower guide on margin for Q2, but we intend to be able to hit the 300 to 400 basis points for the full year.
Okay.
And then secondly, you were very helpful with a <unk> session a few weeks ago. Thank you for that.
Hi.
Yeah on your being reasonably thoughtful about where you are prioritizing your investment dollars and applicable market.
I'm, hoping you could share with us a little bit of your thinking about what you're excited about.
And what you might be trying to sensibly voids in terms of.
The applicable opportunity.
Yeah, we'll go through a bulk of it said that at the analyst day on May 19th because not many people know what our investment strategy has been and we've been investing for for over a year a year plus now.
In this category because it's essentially part of what we do.
One we put out a 400 gig plausible that we talked about today in the metro that certainly a merchant offering just like we have with 100 gig and 200 gig in the metro product lines.
Most of these markets, both 400 gig and 800 gig.
On a nascent right now and are going to be very very large as you get into what I call the meat of the market.
In 2020 in 'twenty, two 'twenty three 'twenty for that those are going to be big market for.
800 gig and 400 gig. So certainly we have the 800 gig vertical integration we feel good about we've already started our next generation of high capacity architecture for the Nexgen there.
On the 400 gig piece getting more of our own vertical integration.
And those plausible is important.
<unk> on them now.
Again wasn't within our investment horizon, but hitting that need in the market by 2023.
With some of our own content to be able to alere.
Alleviate both the margin and open up some market opportunity with ZR and then having a next generation product that really changes the game on the edge with a point to Multipoint solution and <unk> XR has been our focus and we will go in.
Quite a bit deeper in our investor day to really get through that.
Seth.
Great look forward to it.
Thanks.
Okay.
And our next question will come from meta Marshall with Morgan Stanley. Please go ahead.
Hi, This is Karen for Morgan Stanley. Thank you for the question.
So I know most of this will be saved for the analyst day.
But I guess just at a higher level, how have conversations been with customers on XR optics, XR optics and sort of when do you think there could be more material to contributions.
Yes so.
We are very very good engagement on the customer on behalf. The edge of the network is really driving to <unk> and mobile edge compute and it kind of requires a new architecture to drive agility and kind of cloud elasticity to.
For the edge show the customer reaction to the base technology has been very good.
On the fact that we're making this a.
In open architecture meeting, providing it allowing others to build on it similar to ZR I think has been positively endorsed and in terms of its impact to our business model. If it if it's okay, let's let's say that to the may 19th this discussion.
Yeah that makes sense. Thank you so much.
And once again, if you'd like to ask a question. Please press Star then one our next question will come from Dave King with B Riley. Please go ahead.
Thank you good afternoon.
Sorry.
Got on the call little bit late so I may have missed it but I heard you say thing orders were pretty strong did you disclose what that was or maybe perhaps book to bill.
We did not we just said pretty strong so I think we and we continued to build backlog.
You know as we exited Q4, and then again into Q1, and then I'm looking for that type of per say double digit yeah, sorry double digit growth.
Got it and then Nancy.
So regarding Opex for 127 million for second quarter, usually gave a kind of flavor for out quarters, how should we think about second half.
Yeah, I think for the second half of the range. We've put out for Q2 is probably what we should use for now.
We are focusing our investment dollars are in the key technology areas that we've been highlighting and looking to lean in there a little bit.
Through this year. So in that 125 to 129 range I think is appropriate for the rest of the year.
Got it and my last question is regarding on your gross margin outlook of 36% for June quarter.
Are you baking in sort of like a chip prices.
Increasing.
Yes that would all be included in there in terms of cost increases, but also the impact of the line system deployment that we've been seeing.
Seeing great demand for their start going to start to walk through revenue in Q2, and those tend to have lower margins. Initially and then the margin improves.
Itself. So it's a combination of both.
For your peers, you know they believe that this quarter current quarter debt. We're in will be more challenging as far as chip availability is concerned do you agree with their view.
No I think we think you know I think again, given we put.
A larger degree of risk in this quarter, we just see that accelerating out just based on the math at the lead times.
Okay alright, thank you.
Thanks, Dave.
And our next question will come from Alex Henderson with Needham. Please go ahead.
Yeah.
Came back for another one.
It appears there I'll have dropped out from the queue. So our next question will come from Christian Schwab with Craig Hallum Capital Group. Please go ahead.
Hey, guys I just had one quick question on the on that.
On component constrained volume that you can't ship last quarter, and this quarter and potentially what might even come in Q3.
I just wanted to.
Make sure I understand that you believe that is a long product life.
Order that is sitting there that are debt volume isn't going to be losses, some other competitor who might be able to ship product.
That you can't ship is that fair.
I think.
But it's fair I think so you know we don't know what we don't know right. There may be some you know over time that that shift right now the information that we have from our customers is very strong demand. They are placing bookings, which means we have P. O's and hand, and certainly we're going to watch for any of that.
But right now we're really focused on supplying end and getting the backlog for our customers.
Great no other questions. Thanks.
Thanks.
And this will conclude our question and answer session I would like to turn the conference back over to David <unk> for any closing remarks.
Yeah, No I appreciate all the questions certainly.
We're excited about the opportunity in open optical and about the recent performance of the team in in the last consecutive quarters.
We're also very mindful of the external environment. We're in not just from a macroeconomic perspective, and a supply chain perspective, but from a world challenge perspective and again.
Our family members in India, our thoughts and prayers are really out with you. These are really unprecedented times.
Continue to be humbled by the relentless will to win.
From the Infinera team and very much appreciate the ongoing support with our supply chain partners, our customers and our continued shareholder a shareholder support. So thank you all please be safe and be well.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Your lines at this time and have a great day.
Yeah.
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