Q2 2022 II-VI Inc Earnings Call

Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome to the 26 Incorporated FY22 second quarter earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to turn the call over to your host, Mary Jane Raymond. You may begin. Thank you, Kevin, and good morning. I'm Mary Jane Raymond, the chief financial officer here at 26 Incorporated. Welcome to our earnings call today for the second quarter of fiscal year 2022. With me today on the call are Dr. Chuck Matera, our chair and chief executive officer, and Dr. Giovanni Barbarossa, our chief strategy officer and the president of the compound semiconductor segment. This call is being recorded on Wednesday, February 9th, 2022. Our press release and our updated investor presentation are available on the investor relations tab of the website, ii-vi.com. As a reminder, we are not a member of the

Ladies and gentlemen, thank you for standing by the $2 60, corporate in FY 'twenty two second quarter earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there will be.

And answer session to ask a question during the session need to press star one on your telephone if you require any further assistance. Please press star zero.

And I'd like to turn the call over to your host Mary Jane Raymond you may begin.

Thank you, Kevin and good morning, I'm, Mary Jane Raymond Chief Financial Officer here at two six incorporated.

Welcome to our earnings call today for the second quarter of fiscal year 2022.

With me today on the call our Doctor Chuck Mattera, our chair and Chief Executive Officer, and Dr. Giovanni Barbarossa, our Chief strategy Officer, and the president of the compound semiconductor segment.

Call is being recorded on Wednesday February 19 2022.

Our press release and our updated Investor presentation are available on the Investor Relations tab of the website that should be I dotcom.

As a reminder, our remarks today may contain forward looking statements.

These remarks are given in the context of today only.

They are subject to various risk factors and subject to change possibly materially.

We do not undertake any obligation to update these statements to reflect events subsequent to today, except as required by law.

Material risk factors can be found in our Form 10-K for the year ended June 30th 2021.

Gather with our subsequent filings with the SEC.

Our remarks today do not constitute an offer to sell nor do they constitute a solicitation of an offer to buy any securities.

Now offering securities shall be made except by means of a prospectus meeting the requirements of section.

In the United States Securities Act of 1933 as amended.

Finally, with respect to todays call.

We will also present, some non-GAAP measures for which the reconciliation to GAAP.

Speaker 1: at the end of each document that includes those measures, such as the press release or the investor presentation. With that, let me turn the call over to Dr. Chuck Matera. Chuck? Thanks, Mary Jane. Good morning, everyone, and thanks for joining. During the quarter, we were once again able to look beyond the well-known challenges of the day and got the job done. Clearly, our application-specific materials, components, and subsystem technologies underpinning multiple growth drivers intersected perfectly with the sustained demand that resulted from the strong market momentum. We delivered a solid second quarter as we helped our global customers accelerate their additions of capacity and enable the availability of new features for mobile, intelligent, and electric infrastructures. Among those drivers, we are underpinning the convergence of communications, computing, and connected consumer and automotive devices. These are revolutionizing how we interact with each other at work, at leisure, and while learning through the Internet of Things and the metaverse. I will have more to say about how we are enabling the electrification of transportation, as well as our vital contributions to the resolution of the IC shortages later in my remarks. Now, to provide further color on the quarter, for the first time in our history, we booked over $1 billion in orders. Our backlog grew 58% year over year to a record $1.7 billion and was up $300 million sequentially and $600 million year over year. This backlog is supported by our capacity additions along with the planned launches of new products.

At the end of each document that includes measures such as a press release.

The investor presentation.

That let me turn the call over to Dr. Chuck Mattera.

Thanks, Mary Jane and good morning, everyone and thanks for joining.

During the quarter, we were once again able to look beyond the well known challenges of today and got the job done.

Clearly our application specific materials components and subsystem technologies underpinning multiple growth drivers intersect perfectly with a sustained demand that resulted from the strong market momentum.

We delivered a solid second quarter as we held our global customers accelerate their additions of capacity and enable the availability of new features for mobile intelligence and electric infrastructure.

Among those drivers we are underpinning the conversions of communications computing and connected consumer and automotive devices.

Speaker 1: Among those drivers, we are underpinning the conversions of communications, computing, and connected consumer and automotive devices. These are revolutionizing how we interact with each other at work, at leisure, and while learning through the Internet of Things and the Metaverse. I will have more to say about how we are enabling the electrification of transportation, as well as our vital contributions to the resolution of the IC shortages later in my remarks. Now, to provide further color on the quarter, for the first time in our history, we booked over $1 billion in orders. Our backlog grew 58% year-over-year to a record 1.7 billion.

These are revolutionizing, how we interact with each other and work and leisure and while learning through the internet of things and the meta.

I will have more to say about how we are enabling the electrification of transportation as well as our vital contributions to the resolution of the IC shortages later in my remarks.

Now to provide further color on the quarter for the first time in our history, we booked over $1 billion in orders.

Our backlog grew 58% year over year to a record $1 7 billion and was up 300 million sequentially and $600 million year over year.

Speaker 1: and was up 300 million sequentially and 600 million.

This backlog is supported by our capacity additions along with the planned launches of new products from both segments.

Speaker 1: This backlog is supported by our capacity additions, along with the planned launches of new products from both segments.

This gives us confidence in our double digit growth projections beyond this fiscal year that we will refer to in today's call.

Speaker 1: This gives us confidence in our double digit growth projections beyond this fiscal year that we will refer to in today's call.

Our revenues were 807 million within our guidance.

Speaker 1: Our revenues were $807 million within our guidance.

Speaker 1: And but for increased supply line and COVID related constraints that accelerated throughout the quarter, we would have cleared the high end of our revenue.

And but for increased supply wine and COVID-19 related constraints that accelerated throughout the quarter.

It would have cleared at the high end of our revenue guidance.

The two largest drivers of the revenue gaps where from rodents and transceivers.

Speaker 1: The two largest drivers of the revenue gaps were from rotors and transceivers.

Our non-GAAP EPS of <unk> 90 to <unk> was at the top end of our guidance.

Speaker 1: Our non-gap EPS of 92 cents was at the top end of our guide.

This was enabled by a strong focus on controlling cost increases and on ratcheting up factory utilization and output.

Speaker 1: This was enabled by a strong focus on controlling cost increases and on ratcheting of factory utilization and output.

Speaker 1: This cost control in turn required a continuous optimization of the supply chain, including building inventories as strategic points along our vertically integrated supply chain.

This cost control in turn required a continuous optimization of the supply chain, including building inventories at strategic points, along our vertically integrated supply chain.

This resulted in our inventory levels, increasing again in the quarter as we continued our focus on serving our customers in the face of Covid and to mitigate the impact of the extended lead times and other related disruptions from the supply chain.

Speaker 1: This resulted in our inventory levels increasing again in the quarter as we continued our focus on serving our customers in the face of COVID and to mitigate the impact of the extended lead times and other related disruptions from the supply chain.

Speaker 1: In communications, we experienced increased demand for datacom transceivers and open line systems driven by the cloud and large enterprise cost.

In communications, we experienced increased demand for Datacom Transceivers and open line systems, driven by the cloud and large enterprise customers.

Speaker 1: We continue to make inroads into serving the hyperscalers with our exceptional progress on 200G and 400G output and our early ramps for 800G for very large and growing strategic customers.

We continue to make inroads into serving the Hyperscale is with our exceptional progress on 204 hundred G output and our early ramps for 800 G for very large and growing strategic customers.

We also saw a strong increase in demand from the telecom equipment customers.

Speaker 1: We also saw a strong increase in demand from the telecom equipment customers and a clear sign of the start of a Rotem Demand ramp that we expect will accelerate during calendar year 22.

Clear sign of the store of eroding demand ramp that we expect will accelerate during calendar year 'twenty two.

As the increased availability of Ics materializes from legacy supply lines.

Speaker 1: as the increased availability of ICs materializes from legacy supply lines and nuins that we are collaborating with closely along with our customers to accelerate qualification.

And new ones that we are collaborating with closely along with our customers to accelerate qualification.

The beginning of a multiyear upgrade of the U S cable TV infrastructure provided for a large and long term contract.

Speaker 1: The beginning of a multi-year upgrade of the US cable TV infrastructure provided for a large and long-term contract.

And this also among our exciting growth drivers based on major fiber deep initiatives to improve rural broadband access in the U S.

Speaker 1: And this also, among our exciting growth drivers, based on major fiber deep initiatives to improve rural broadband access in the US.

Turning to the rest of the business. We believe that we are still in the early part of a broad and multiyear adoption cycles across all of our other end markets too.

Speaker 1: Turning to the rest of the business, we believe that we are still in the early part of broad and multi-year adoption cycles across all of our other end markets too.

Increasingly our customers are leveraging our breakthrough solutions are a large and resilient footprint and our manufacturing expertise at scale.

Speaker 1: Increasingly, our customers are leveraging our breakthrough solutions, our large and resilient footprint, and our manufacturing expertise at scale.

Speaker 1: Our ongoing investments in R&D facilities, expansions, and capital equipment reflect our confidence in the long-term nature of our opportunity, and our relentless focus on tying together our strategy with our execution.

Our ongoing investments in R&D facilities expansions and capital equipment reflect our confidence in the long term nature of our opportunity.

And our relentless focus on tying together our strategy with our execution.

Our capital allocation of R&D and Capex. This year is more heavily weighted to the compound semiconductor segment.

Speaker 1: Our capital allocation of R&D and CAPEX this year is more heavily weighted to the compound semiconductor segment.

Given our growth aspirations for FY 'twenty, three and 'twenty four.

Speaker 1: Given our growth aspirations for FY 23 and 24.

Now in industrial again this quarter, we experienced sustained increases in orders and demand for our laser components, including foreseeable two lasers and fiber lasers.

Speaker 1: Now, in industrial, again, this quarter, we experience sustained increases in orders and demand for our laser components, including for CO2 lasers and fire-related.

We experienced explosive increases in orders from the semi cap equipment ecosystem.

Speaker 1: We experienced explosive increases in orders from the semi-cap equipment ecosystem, including from equipment OEMs and their TAR1 supplier.

Quoting from equipment Oems and their tier one suppliers.

Speaker 1: Our differentiated position met accelerated demand from the OEMs and the semi-cap equipment front end and back end away from Fabin. And laser-based inspection platform.

Our differentiated position med accelerated demand from the Oems and the semi cap equipment front end and back end of the wafer fab and laser based inspection platforms.

Speaker 1: These expansions have spurred further increases in our already large manufacturing capacity investments, and these will accelerate throughout calendar year 22.

These expansions have spurred further increases in our already large manufacturing capacity investments in.

These will accelerate throughout calendar year 'twenty two.

We maintain intimate partnerships with leading companies up and down this ecosystem, where we are providing unique and vital components, which are sourced solely from two six including and especially for the UV lithography tool supply chain.

Speaker 1: We maintain intimate partnerships with leading companies up and down this ecosystem where we are providing unique and vital components which are sourced solely from 26, including and especially for the EUV lithography tool supply chain.

This is helping the leading IC producers have confidence in the returns on their investments as they expand the much needed capacity in order to eventually clear the current IC supply chain shortages.

Speaker 1: This is helping the leading IC producers have confidence in the returns on their investments as they expand a much needed capacity in order to eventually clear the current IC supply change shortage.

Let me spend a minute on our recent success qualifying 200 volt silicon carbide MOSFET for automotive applications, using our substrates and the device technology, we licensed from GE.

Speaker 1: Let me spend a minute on our recent success qualifying 1200 volt silicon carbide MOSFETs for automotive applications using our substrates in the device technology we licensed from GE.

I'm excited about this important milestone that we met our head of an aggressive schedule.

Speaker 1: I'm excited about this important milestone that we met ahead of an aggressive sketch.

I am pleased that we also entered into a new agreement with GE to deepen our relationship.

Speaker 1: I am pleased that we also entered into a new agreement with GE to deepen our relationship in order to accelerate the adoption of our Silicon Corbide technology and product.

Order to accelerate the adoption of our silicon carbide technology and products.

We will continue to focus on shortening our time to market.

Speaker 1: We will continue to focus on shortening our time to market and underpinning this platform with capacity and diameter expansions to help position our company as a market leader.

And underpinning this platform with capacity and diameter expansions to help position our company as a market leader.

Speaker 1: The electrification of transportation will contribute substantially to the world's net zero sustainability goals. And as part of our corporate social responsibility, we are proudly positioning ourselves to substantially contribute to it.

The electrification of transportation will contribute substantially to the world's net zero sustainability goals and as part of our corporate social responsibility, we are probably positioning ourselves to substantially contribute to it.

Looking ahead, we expect the totality of the company's investments to contribute to the sustained growth in FY 'twenty two.

Speaker 1: Looking ahead, we expect the totality of the company's investments to contribute to the sustained growth in FY22, and we expect to significantly drive our target of double-digit organic growth in both 2023 and 2024 by a combination of continued market growth and share gains across our photonic solutions and on selling,

And we expect to significantly drive our target of double digit organic growth in both 2023 and 2024 by a combination of continued market growth.

<unk> share gains across our photonics solutions and compound semiconductors customers.

We will continue to work tirelessly.

Speaker 1: We will continue to work tirelessly to mitigate the impact to our customers and differentiate ourselves with capacity additions while we maintain a good balance with our short-term cash management objective.

To mitigate the impact to our customers and differentiate ourselves with capacity additions, while we maintain a good balance with our short term cash management objectives.

Speaker 1: We expect the stress on our supply chain to continue to constrain our output and will have the effect of increasing some of our costs.

We expect the stress on our supply chain to continue to constrain our output and will have the effect of increasing some of our costs.

Therefore, we have a major initiative across the company to increase prices at least as a partial offset.

Speaker 1: Therefore, we have a major initiative across the company to increase prices at least as a partial loss.

Speaker 1: Finally, on the pending acquisition of coherent.

Finally on the pending acquisition of coherent.

Nearly a year ago.

Speaker 1: Nearly a year ago, we announced that our analysis pointed to the long-term value of acquiring coherent.

We announced that our analysis pointed to the long term value of acquiring coherent.

Speaker 1: This was part of a strategy to accelerate our penetration into new markets and sustain our profitable revenue growth.

This was part of our strategy to accelerate our penetration into new markets and sustain our profitable revenue growth.

Speaker 1: We envisioned a combined company that would have access to complementary growth drivers, a broader endowment of innovations in scale, and productivity and efficiency gains captured as going forward synergy.

We envisioned a combined company that would have access to complementary growth drivers.

Broader endowment of innovations in scale and productivity and efficiency gains captured as going forward synergies.

This is only one part of the rewards that I believe lie ahead.

Speaker 1: This is only one part of the rewards that I believe lie ahead.

Speaker 1: Pre-closing planning has proceeded nicely, and we are working the final details necessary for a successful integration.

Pre closing planning is proceeding nicely and we are working the final details necessary for a successful integration.

Speaker 1: of pending acquisition of coherent has received the approval or indication of imminent approval from three out of four global antitrust regulatory authorities, which approvals are conditions to the closing of the transaction.

The pending acquisition of coherent has received the approval or indication of imminent approval from three out of four global antitrust regulatory authorities, which approvals are conditions to the closing of the transaction.

In China, the remaining jurisdiction to six in coherent are continuing to work constructively with the state administration for market regulation or Sammy and we now anticipate closing the acquisition by the middle of the second calendar quarter of 2022.

Speaker 1: in China, the remaining jurisdiction, two-six in Coherent, are continuing to work constructively with the State Administration for Market Regulation or Samar, and we now anticipate closing the acquisition by the middle of the second calendar quarter of 2022.

It is a time of great anticipation and responsibility for us.

Speaker 1: It is a time of great anticipation and responsibility for us.

And we are ready and set to go as we gear up to start our engines.

Speaker 1: and we are ready and set to go as we gear up to start our engine.

Speaker 1: With that, I will turn it over to Dr. Giovanni Barbarossa. Giovanni.

With that I will turn it over to Dr. Giovanni Barbarossa Giovanni.

Speaker 2: Thank you, Chuck. Our revenue in the industrial market grew 47% over Q2 FY21 and 6% sequential.

Thank you Chuck.

Revenue in the industrial market grew 47% over Q2, FY 'twenty, one and 6% sequentially.

Speaker 2: We saw strong growth across all industrial applications, particularly in Silicon-Cabide Power Electronics and Fibolids.

We saw strong growth across all industrial applications, particularly in silicon carbide power electronics and fiber lasers.

Speaker 2: In the quarter, we shipped about 100 MW of pump laser power for fiber laser.

In the quarter, we shipped about 100 megawatts of pump laser power for fiber lasers.

Speaker 2: Setting a new quarterly output and utilization record for our 60 inch wether plug.

Setting a new quarterly output and utilization records for our six inch wafer platform.

We were excited to receive the 2021 supplier award from Han's laser.

Speaker 2: We were excited to receive the 2021 Supplier Award from Hans Laser in recognition of our World Class Products for Fibre Laser Applications, which we continue to drive our growth, particularly after the merge with Korea.

Coordination of our World class products for fiber laser applications, which will continue to drive our goals, particularly after the measurement coherent.

Speaker 2: Our communications revenue grew 6% year over year with most of the growth from data.

Our communications revenue grew 6% year over year with most of the growth from data com at.

Speaker 2: and most specifically from our identityamsim. so

And most specifically from our high data rates on seamless.

Our datacom business experienced exceptional growth and 9% sequentially and our consumers two omelet 408 hundred gigabit per second grew 25% sequentially and now represents 30% of our Datacom revenue from about 2% a year.

Speaker 2: Our data con business experience exceptional growth and 9% sequentially and our transceivers at 200, 400, and 800 gigabits per second grew 25% sequentially. And now, represent 30% of our data con revenue from about 2% a year ago.

Go.

Speaker 2: a clear spine of share gain across all height data rate and transfer.

A clear sign of share gain across all high data rate from Cmos.

We're very excited to be able to best support our customers with higher data rates.

Speaker 2: We are very excited to be able to best support our customers with higher data rate.

Speaker 2: particularly hyperscalers in their build out of AI super clusters. In a market which industry analysts are projecting to grow by 20% in calendar 22, and to continue to experience double digit growth for at least another three to five years.

Particularly hyperscale us instead of a build out of AI superclass. This in a market, which industry analysts are projected to grow by 20% in calendar 'twenty, two and to continue to experience double digit growth for at least another three to five years.

Speaker 2: In the same market, we are pleased to report our first design win and revenue from our differentiated clock and data recovery IC.

In the same market. We are pleased to report our first design wins and revenue from our differentiated clock and data recovery IC.

It's clear sign of the competitiveness of our captive IC platform, which we made available to the metro market as part of our integration I'll finish up.

Speaker 2: clear sign of the competitiveness of our captive IC platform, which we made available to the merchant market as part of our integration of finance.

Speaker 2: With regard to transport networks, last quarter we announced our engagement with wind stream wholesale.

With regard to transport networks last quarter, we announced our engagement with Windstream wholesale.

Speaker 2: And this quarter, we are pleased to report the initial shipments of our 400G ZR Plus digital coherent optics in the Kursaf PDD from FAC.

And this quarter. We are pleased to report the initial shipments of our 400 ZR plus digital coherent optics in the course of PDD form factor.

Speaker 2: The first of its kind to enable IP over DWDM thanks to its zero DBM output power performed by our India FOSFIED component technology. Our consumer market...

The first of its kind to enable IP over <unk>, thanks to its zero DBM output power.

<unk> bye, all while indium phosphide components technology.

Our consumer market.

Revenue grew 23% sequentially.

The competitiveness of our <unk> platform continues to be a winning factor in the market and we are pleased to report a third consecutive quarter of zero defect parts per million shipped.

Speaker 2: The competitiveness of our vixer platform continues to be a winning factor in the map.

Speaker 2: And we are pleased to report the third consecutive quarter of zero de facto parts per million shipped, a world-class quality performance achieved by our team in Sherman Tech.

At World Class quality performance achieved by our team and Sherman, Texas.

On the sensing technology front, we've always emphasized advantages of indium phosphide gallium arsenide for some application specific opto electronics products and we believe we are leading the consumer electronics and automotive market development with significant customer commitments.

Speaker 2: on the sensing technology front, we've always emphasized that bandages of Indian phosphide over gallomacinide for some applications-specific optoelectronics products.

Speaker 2: And we believe we are leading the consumer electronics and automotive market development with significant customer commitments and investment to date in our annual first flight path.

And investment to date in our indium phosphide fabs.

Speaker 2: In the emerging metaverse of virtual and augmented reality applications, customer engagements are gaining momentum, opening up exciting opportunities for our broad spectrum of technology plots.

In the emerging meta vessel virtual and augmented reality applications kozlova engagements are gaining momentum opening up exciting opportunities for our broad spectrum of technology platforms.

Specifically, we are very pleased to report that a new customer for VR applications as committed to fund us with about $50 million for the development and production.

Speaker 2: Specifically, we are very pleased to report that a new customer for AR VR applications has committed to fund us with about 50 million dollars for the development and production of a broad range of new products including lasers, defective optics and advanced materials.

The range of new products, including lasers, the Factive optics and advanced materials.

Speaker 2: Several strategic customers are beginning to realize the unique value of the one-stop shop offering we provide with the death and breadth of our portfolio and the promise of our long-range roadmap.

Several strategic customers are beginning to realize the unique.

<unk> of the one stop shop, offering we provide with the depth and breadth of our portfolio and the problem is of our long range Road maps.

Speaker 2: Our revenue in the semiconductor capital equipment market grew 34% year over year.

Our revenue in the semiconductor capital equipment market grew 34% year over year.

The demand for our products is strengthening as we expected because of the massive investments underway in new semiconductor wafer fabs worldwide.

Speaker 2: The demand for our products is strengthening as we expect it because of the massive investments underway in new semiconductor weather farms worldwide.

The industry realized strongly on our highly differentiated materials, including polycrystalline diamond.

Speaker 2: The industry relies strongly on our highly differentiated materials, including polycrystalline diamond, reaction-bounded ceramics, a metamatic composite for extreme UV and diffubilitography, as well as wafer stages and chucks for front and fabric equipment, and specialty thermal management components enabling advanced packaging and testing capabilities.

Actual unbounded ceramics, and metal matrix composite for extreme UV and the deep UV lithography as well us.

Wafer stages and Chuck's for front end fab equipment.

And specialty terminal management components, enabling advanced packaging and testing capabilities.

Our silicon carbide revenue grew 11% both year over year and sequentially.

Speaker 2: Our Vasinigong Cabay Revenue grew 11% both year over year and sequential.

Speaker 2: We saw very strong demand for power electronic applications with revenue doubling sequentially and increasing by an order of magnitude compared to the same quarter in FY21.

We saw very strong demand for power electronics applications with revenue doubling sequentially and increasing by an order of magnitude compared to the same quarter in FY 'twenty one.

As Chuck mentioned earlier, our investments in Silicon carbide 100 weight, and then compensate by highest of applications and vertical end markets.

Speaker 2: As Chuck mentioned earlier, our investments in Silicon Carbide are underway and encompass a variety of applications in vertical and marked.

We expect to see our subsea business continued to grow and I'm proud to report.

Speaker 2: We expect to see our substrates business continue to grow. And I'm proud to report that we started pre-production of GALONI Trident Silicon Capite amplifiers on our 16 substrates in our Warren, New Jersey fab. With full production planned.

We have started production of gallium nitride on silicon carbide amplifiers on our 16 subsidies in our wall, New Jersey Fob with full production planned by the end of March.

Speaker 2: Last but not least, we are pleased to have recently the kickoff and exciting partnership with Element 6 to complement our world-leading polycrystalline diamond platform with a single crystal capability that we considerably broaden the range of advanced applications we will be able to set. With that, let me dive it over to Mary Jane Rayman. Mary Jane?

Last but not least we are pleased to have recently to kick off an exciting partnership with element six to complement our will lead in polycrystalline Diamond platform with a single crystal capability that will considerably broadened the range of advanced applications, we will be able to say with that let me turn it over to Mary Jane is eight months.

Hey, Jamie.

Thank you Giovanni and good morning.

Speaker 3: Thank you, Giovanni and good morning. The end market and geographic breakdown of our 807 million of revenue can be found on the fourth page of the investor presentation.

End market and geographic breakdown of our $807 million of revenue can be found on the fourth page of the investor presentation.

Our Q2, non-GAAP gross margin was 43% and the non-GAAP operating margin was 19, 7%.

Speaker 3: Our Q2 non-gap risk margin was 40.3% and the non-gap operating margin was 19.7%.

Speaker 3: In fly chain costs and COVID costs, a total of $9.5 million are not excluded to arrive at non-GAP results.

Ply chain cough and cold it costs, a total of $9 $5 million.

Are not excluded to arrive at non-GAAP results at.

Speaker 3: at the segment level. The non-gap operating margins were 14.6% for photonics and 29.2% for compound sending conduct.

At the segment level. The non-GAAP operating margins were 14, 6% for photonics at 29, 2% for compound semiconductors.

Speaker 3: Our record backlog of $1.7 billion consists of 1.22 billion for photonics and for

Our record backlog of one $7 billion.

Consists of one point to 2 billion for photonics.

At $484 million for compound semiconductors.

As we have stated this increase in backlog is a function of demand.

Speaker 3: As we have stated, this increase in backlog is a function of demand, particularly from the industrial and market and across the communications and more.

Particularly from the industrial end market and across the communications end market.

GAAP operating expenses SG&A plus R&D.

Speaker 3: GAP operating expenses SGNA plus R&D were $213 million in QTIV, excluding 10 million of amortization.

We're $213 million in Q2.

Excluding $10 million of amortization.

$17 million of stock comp.

$10 million and startup costs.

Speaker 3: and 10 million of M&A and integration costs.

And $10 million of M&A and integration costs.

Speaker 3: Non-GAP OPX was 166 million or 21% of revenue.

non-GAAP opex was $166 million or 21% of revenue.

Cost synergies for the <unk> acquisition of <unk>.

Speaker 3: cost synergies for the Finisar acquisition, originally targeted at $150 million, have now reached nearly the 200 million stretch target six months early. Savings in both a cost of sales and ob-X contributed to our over delivery and contributed to the margins this year so far.

Generally targeted at $150 million have now reached nearly $200 million stretch target six months early.

Savings in both cost of sales and Opex contributed to our over delivery and contributed to the margins this year so far.

Speaker 3: Quarterly Gap EPS was $0.44 and NonGap EPS was $0.92 with after-tax NonGap adjustments of $57 million in total.

Quarterly GAAP EPS of <unk> 44 cents and non-GAAP EPS was <unk> 90, Tucson with after tax non-GAAP adjustments of $57 million in total.

Speaker 3: The increase in non-gap adjustments compared to last quarter includes the initial debt costs largely related to the completion of the placement of the financing for the coherent transaction.

The increase in non-GAAP adjustments compared to last quarter and cliff the initial debt costs largely related to the completion of the placement of the financing for the coherent transaction.

Speaker 3: The diluted share count for gap results was 116 million shares and for non-gap, the share count was 125 million shares.

The diluted share count for GAAP results with 116 million shares and for non-GAAP .

The share count was 125 million shares.

The GAAP and non-GAAP EPS calculations are in the ending tables of the press release.

Speaker 3: the gap and non-gap, EPS calculations are in the ending tables of the press release. For the non-...

For the non operating income or expense the company has $2 million of nonoperating expense this quarter largely due to a $2 million write off of the supposed equipment.

Speaker 3: The company has $2 million of non-operating expense this quarter, largely due to a $2 million rate-off of disperse equipment.

This we still expect.

The normal run rate non operating income or expense to be $1 million of non operating income going forward.

Speaker 3: The normal run rate non-operating income or expense to be $1 million of non-operating income going forward.

Pretax interest expense was $17 million. This includes $10 million of our underlying interest and $7 million of interest and fees on the debt for the transaction.

Speaker 3: Free tax interest expense was $17 million. This includes 10 million of our underlying interest and $7 million of interest and fees on the debt for the transaction.

Speaker 3: Cash flow from operations in the quarter was $188 million, and free cash flow was $133 million, including CAPACS of $55 million, and a strategic inventory build of $50 million in the quarter. $100 million for the first half of the fiscal year.

Cash flow from operations in the quarter was $188 million and free cash flow was $133 million, including capex of $55 million.

Our strategic inventory build a $50 million in the quarter $100 million for the first half of the fiscal year two.

To support our growth beginning in the second half of fiscal year 'twenty two.

Speaker 3: Support our growth beginning in the second half of fiscal year 20-2.

For fiscal year 'twenty, two we now expect capex to be 325 million to $375 million driven largely by our expansion of silicon carbide in indium phosphide to address the growth in power devices communications and consumer.

Speaker 3: For fiscal year 22, we now expect CAPEX to be 325 million to 375 million, driven largely by our expansion of silicon carbide and indium phosphide to address the growth in power devices, communications, and consumer applications.

Locations.

We paid down $30 million of our debt in Q2.

Speaker 3: We paid down $30 million of our debt in QTIF, retired the remainder of the Finisar 2036 notes, and our net cash position is 329 million.

Retired the remainder of the finish our 2036 notes and our net cash position is $329 million.

Speaker 3: company's liquidity at December 31st was $3.1 billion.

The company's liquidity at December 31.

$3 $1 billion.

Speaker 3: The effective tax rate in the quarter was 15% due to ongoing benefits of R&D tax credits and other investment credits.

The effective tax rate in the quarter was 15% due to ongoing benefits of R&D tax credits and other investment credits.

Speaker 3: We expect the tax rate to be between 18 and 20% for fiscal year 20.

We expect the tax rate to be between 18, and 20% for fiscal year 'twenty two.

Turning to the outlook for Q3 FY 'twenty two.

Speaker 3: Turning to the Outlook for Q3 FY20.

Speaker 3: Our outlook for revenue for the third fiscal quarter ending March 31, 2022 is expected to be 785 million to 825 million and earnings per share on a non-gap basis at 75 to 9.

Our outlook for revenue for the third fiscal quarter ending March 31, 2022 is expected to be 785 million to $825 million and earnings per share on a non-GAAP basis at 75 to 95 cents.

The share count is $116 million for the low end and $125 million for both the midpoint and the high end.

Speaker 3: The share count is 116 million for the low end and 125 million for both the midpoint and the high end.

Speaker 3: The EPS calculation, including the dividend treatment, is detailed on table eight of the press release for the low, mid, and high points of the guide.

The EPS calculation, including the dividend treatment is detailed on table eight.

The press release for the low mid and high point of the guidance.

Speaker 3: This is at today's exchange rate and an estimated tax rate of 19.

This is at today's exchange rate and an estimated tax rate of 19%.

For the non-GAAP earnings per share, we add back to GAAP earnings the pretax amount of $20 million in amortization 20 million and stock compensation and 21% to $26 million in transaction integration and other related costs.

Speaker 3: For the non-GAP earnings per share, we add back to GAP earnings the pre-tax amounts of $20 million in amortization, $20 million in stock compensation, and $21 to $26 million in transaction, integration, and other related costs.

The transaction costs are expected to be higher as we accelerate the planning for coherent compete.

Speaker 3: the transaction costs are expected to be higher as we accelerate the planning for coherence.

Complete the final year three synergies for furnace are including our startup costs.

Speaker 3: complete the final year three synergies for FinisR, including our startup cost.

Speaker 3: the actual dollar amount of non-gap items.

The actual dollar amount of non-GAAP items.

The tax rate the exchange rate and the share counts are all subject to change.

Speaker 3: tax rate, the exchange rates, and the share counts are all subject to change.

Before we go to the Q&A.

Speaker 3: Before we go to the Q&A, 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 next, customer changes, supply change shortages, both upstream and downstream, competition, changes in regulations, COVID-19 protocols.

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 mix.

Customer changes supply chain shortages, both upstream and downstream.

Competition changes in regulations COVID-19 protocols.

Speaker 3: and general economic conditions. We welcome your questions and expect to end this call, not later than 10 a.m. You may open the line for questions.

And general economic conditions, we welcome your questions and expect to end. This call not later than 10 I am you may open the line for questions.

Speaker 4: The ladies and gentlemen, if you have a question or a comment at this time, please press the star then the one key on your touchtone telephone. If your question has been answered, you should move yourself from the queue, please press the pound key. Our first question comes...

Ladies and gentlemen, this do you have a question or a comment at this time. Please press Star then the one key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key.

Our first question comes from a borrower with loop capital.

Hey, good morning, guys.

Speaker 5: Hey, good morning guys. Happy New Year and thanks for taking the questions. I guess, too if I couldn't.

Happy new year, and thanks for taken taking the questions I guess, two if I could.

Speaker 5: The first one, Chuck, is to your long-term organic growth rate, kind of provision, I don't know if it's quite a guide, but the commentary and thanks for that. Is that, does that include clearly it's sort of two six-minute current structure, but does that also include double digit post-closing of coherence, let's call it organic apple? And then I...

First one Chuck is too.

Our long term organic growth rate.

You know kind of provisioning I don't know if its quite a guy but the commentary thanks for that.

Is that does that include clearly it's sort of.

She has taken its current strategy, but does that also include.

Double digit post the closing of coherent let's call it organic apples.

And then I had a quick follow up.

Good morning, and thanks for your question and my commentary is based on and as referenced to the organic growth rate of two six as it's configured today.

Speaker 1: Good morning, Ananda. Thanks for your question. My commentary is based on, and is referenced to, the Organic Growth Rate of 26, as it's configured today. We'd like to add to that.

We'd like to add to that actually.

Okay.

Cool.

And then my follow up is on the.

Speaker 5: from the transceiver business, really good progress, getting to a third of revenue on greater than 100G. It sounds like you're constrained there still as well.

The transceiver business.

Really good progress getting to a third of our revenue on greater than 100 days.

It sounds like sounds like you are constrained there still as well.

Aye.

Speaker 5: you know but in spite of that and here's really the question um... is i believe that your goal was to get to

But in spite of that and he is really the question.

I believe that your goal was to get to.

A third of revenue by mid year. This year. So is it also accurate that you're over achieving your goal.

Speaker 5: for her herd of revenue by mid-year this year. So is it also accurate that you're over-achieving your goal and you mentioned market share gain. So we just love to get some contact.

And you mentioned market share gains so would just love to get some context.

Speaker 5: around what you're seeing there and is it accurate that you're kind of like tracking stronger than you had thought uh... previously the greater than a hundred and also any any any contact guys on the on the hundred you market because we've been hearing that that might

Around what Youre seeing there and is it accurate that you're kind of like tracking stronger than you had thought.

Previously a greater than 100 gig and then also any any any contact guys on the on the 100 gig market because we've been hearing that that might kind of be where more into constraints, you're taking place industry wide. So would love any context on how your geos.

Speaker 5: kind of be where more of the constraints you're taking place, just industry-wise. So with love and the context, not 100, do you also think?

Speaker 2: Hi, Ana, this is Joran, thanks for your question. So let's, let's say that the supply chain has not impaired by any mean our ability to get new design wins and get traction for this higher speed by a data rate transceiver.

Hi, Ananda this is Giovanni thanks for your question. So, let's say that the supply chain is not impaired by any mean, our ability to get new design wins and good traction for these higher speed data transceivers.

Transceivers so of the two.

Speaker 2: So the two are definitely decoupled in a way that

Definitely decoupled in the way the older.

Speaker 2: all depends ultimately on the differentiation and the, you know, performance, power consumption, so forth.

All depends ultimately on the differentiation in the fall months power consumption and so forth.

Speaker 2: advantages that we offer to the customer for this higher data rate can see. But so even if there is clearly a market-wide constraint on the supply chain,

Advantages that we offer total cost for these higher data rates placebo. So even if the disease are clearly a market wide.

Constrained on the supply chain.

Customers you will see the.

Our BD team.

Of two seeks to provide a broader offering to them.

Speaker 2: 26 to provide a broader offering than most can and they see that they are available. So that explains our ability to get to a third of the total for high data retranceiver faster, you know, I had of a lot.

Most can and does he didn't say available so that explains our ability to get with the all of the total for the redundancy that foster.

Oh blah blah flattens.

And then yeah I mean, the one on the <unk>.

Speaker 2: And then, I mean, the 100 G's is as any other speed.

Any other speed is definitely affected by the supply chain, but there isn't really.

Speaker 2: steply affected by the supply chain. But there isn't really, as you know, the market for energy substantial is still dominant. And so clearly from a dollar perspective in, you know,

As you know the.

The market for a while they do substantial still dominates it so clearly from a dollar perspective.

Proportionately.

But.

I think the.

Speaker 2: I think the good news is that, as I said, the ability to gain share in such a complex...

Good news is that.

As I said the ability to gain share in such a.

Such a complex situation from a supply chain standpoint, I think.

Speaker 6: comes long way demonstrating our, uh, the spring for our platforms. That's super helpful, Giovanni. Thanks. Thanks, guys.

So long way the most leading all the strengths of our platforms.

That's super helpful. Giovanni Thanks, Thanks, guys.

Our next question comes from meta Marshall with Morgan Stanley .

Great. Thank you.

Speaker 7: Great, thank you. I could grab on the corner. A couple of questions. One, Mary Jane, if you could just give some context for the add-back of the startup costs and just what that related to an end rationale for backing that out of non-gap. And then second, you guys had mentioned that you were putting into place some pricing increases. Could you just give a sense of whether those are across the board or where those pricing increases are being applied and when we should expect to see some of that impact? Thanks.

Congrats on the quarter.

Couple of questions one Mary Jane if you could just give us some context for that add back of the startup costs and just kind of what that related to and rationale for kind of backing.

Backing that out of non-GAAP .

And then second you know.

Guys had mentioned that you were putting into place some price increases could you just.

Give a sense of whether those are across the board are or where where are those price increases are kind of being applied and when we should expect to see some of that impact. Thanks.

Sure. So let's take the second part first so price increases probably has a couple of different flavors.

Speaker 3: Sure, so let's take the second part.

Speaker 3: So price increases probably have a couple of different slaves.

Speaker 3: As Giovanni said, both this quarter and last quarter in the semi cap.

Giovanni said, both this quarter and last quarter in the semi cap.

Speaker 3: equipment market our components for that are obviously in very high demand. And so that's one area, more due to demand and the rapid acceleration of designs there. And then in the industrial space, in some of the end markets of our industrial end market, we have had pricing ability for many, many years. So there is the typical.

Equipment market our components for that are obviously in very high demand and so that's that's one area more due to demand.

And the rapid acceleration of designs there and then in the industrial space.

Some of the end markets of our industrial end market, we have had pricing ability for many many years. So there is a sort of typical.

Speaker 3: pricing ability that the company is able to exercise and in some cases is doing so. The second flavor is actually...

Pricing ability that the company is able to exercise and in some cases is doing so the second flavor is actually related to.

Speaker 3: more in communications where we are incurring additional cost for purposes of...

More on communications, where we are incurring additional costs for purposes of.

Trying to get components are.

Speaker 3: to meet our customers needs. In that case, I would say that what the company is actually doing is really trying to achieve best value with customers. So in other words, we are not whole cloth passing through those price increases. We are working with each customer individually, and in some cases working with customers to actually get more share of wallet of their business rather than pass along a price increase for today.

To meet our customers' needs in that case, I would say that what the company is actually doing is really trying to achieve best value with customers.

In other words, we are not whole cloth passing through those price increases we are working with each customer individually and in some cases working with customers to actually get more share of wallet of their business rather than pass along our price increase for today. So when I say, we are looking to achieve the best value creation with our customers that's what I mean.

Speaker 3: So when I say we are looking to achieve the best value creation with our customers, that's what I mean. It's not...

It's not really ever a simple matter of we incurred this much to therefore, we're taking prices up to customers there's much.

Speaker 3: really ever a simple matter of we incurred this much so therefore we're taking prices up to customers uh... this much uh... and i think that actually that has served us very well uh... during this time for the efforts we've had now for over a year and trying to secure short part

I think that actually that has served us very well.

During this time for the efforts we've had now for over a year and trying to secure short parts.

Speaker 3: with respect to the question on the startup costs. So the company...

With respect to the question on the startup costs. So the company.

Is starting up new products in the UK fat and those are being excluded from non-GAAP , because they're all being excluded to achieve the non-GAAP because they are also expected to be short term.

Speaker 3: is starting up new products in the UK Fab and those are being excluded from non-GAF because they're being excluded to achieve the non-GAF because they're also expected to be short term. Giovanni mentioned that we expect to start to ship those products somewhere in the middle of the year. So that's the rationale on that. Great, thank you.

Giovanni mentioned that we expect to start to ship those products somewhere in the middle of the year. So that's.

That's the rationale on that.

Great. Thank you sure.

Our next question comes from Summit Chatterji with J P. Morgan.

Okay.

Your line is open you can ask your question.

Did you want me to go ahead and move onto the next question.

Speaker 3: Did you want me to go ahead and move on to the next question? Sure. Sam, we'll come back to you if you're having a little technical problem. Sam, ex-analysts, name is Joe. Joe, if Joe's on joke and also ask, Joe are you wanting to ask? Otherwise we'll circle back to you.

Sure Sonic will come back to you if you were having a little technical problem.

I'm excited last name is Joe <unk>.

As long as you can also ask Joe are you wanting to ask.

Otherwise, we'll circle back to you.

Our next question comes from Paul Silverstein with Cowen.

Thanks, Mary Jane I apologize I think you said it during the call, but can you repeat what was the impact on both revenue and on margins of supply chain and more importantly, any thoughts you can share with us.

Speaker 8: Thanks, Mary Jane, I apologize. I think you spent it during the call, but can you repeat what was the impact on both revenue and on March?

Speaker 8: of supply chain and more importantly, any thoughts you can share with us?

Speaker 8: as you look forward more differently into the future in terms of where margins can go.

As you look forward more significantly into the future in terms of where margins can go.

So with respect to.

The effect of revenue on the supply chain actually it was Chuck.

Speaker 3: The effect of revenue on the supply chain, actually it was Chuck, if we had not had the supply chain constraints that we did in the quarter, we think we would have been able to clear the top end of the guidance. So if you look at the top end of our guidance, having been a 40, you can pretty much back into roughly what was the same number last quarter in the mid 30s. With respect to the margin, well, certainly we would have lost the margin on that, that volume, but the additional

If we had not had the supply chain.

Strange that we did in the quarter. We think we would have been able to clear at the top end of the guidance. So if you look at the top end of our guidance having been a 40 you can pretty much back into roughly what was the same number last quarter in the mid.

It's 30.

With respect to the margin.

Well certainly we would have lost the margin on that volume, but the additional cost to secure parts that are still sitting in the margin just that costs for supply chain shortages, five and a half million dollars. So it's about a three quarter 75 basis points in round numbers.

Speaker 3: to secure parts that are still sitting in the margin just that cost for supply chain shortages is $5.5 million. So it's about three quarters, 75 basis points in round number.

With respect to the question of going forward.

Speaker 3: With respect to the question of going forward, what do we expect?

What can we expect to see.

Speaker 3: Let me just answer the margin question for that and then Giovanni and Chuck can probably talk about supply change generally.

Let me just answer that.

Margin question for that and then Giovanni and check can probably talk about supply chain generally, but with respect to where margins can go you can already see looking at the segment margins and then saying their effect either with constrained supply chain and Covid and all that jazz.

Speaker 3: But with respect to where margins can go, you can already see, you know, looking at the segment margins and then seeing their effects.

Speaker 3: even with constrained supply chain and COVID and all that just

The company, achieving 40% that is largely because of the ongoing strength out of Giovanni's segment, which is really three D sensing silicon carbide.

Speaker 3: you know the company achieving 40 percent that is largely because of the ongoing strength out of jivani segment which is to really 3d sensing silicon carbide

Speaker 3: So as we've said for a while now.

So as we've said for a while now those markets, which are really in their infancy. They carry very nice margins.

Speaker 3: those markets which are really in their infancy, they carry very nice margins. So the growth in those markets tends to be a creative to margin. I'd say in addition, we've also, we said last year, don't discount industrial. Industrial is a very strong margin and market for us. And.

The growth in those markets tends to be accretive to margin.

I'd say in.

In addition, we've also we said last year don't discount industrial industrial has a very strong margin end market for us.

And.

Speaker 3: is also contributing very, very well. I think as we continue to have the higher speed transceivers.

Is also contributing very very well I think as we continue to have the higher speed transceivers.

Speaker 3: make up more of our transceiver content. We have the benefit of those early higher margins as well there. And as the component shortages, let's-

<unk> make up more of our transceiver content, we have the benefit of those early higher margins as the wells there.

And as the component shortages worsen.

Speaker 3: on rodents, which is probably the highest margin group of products inside of photonics.

On road, which is probably the highest margin group of products inside of Photonics that was also come back so while the company's margin range is still 38 to 42, you know as I've said before we're looking for forward to Big 40, sustainably and then going up from there. So I think ultimately.

Speaker 3: those also come back. So while the company's margin range is still 38 to 42, you know, as I've said before, you know, we're looking forward to big 40 sustainably and then going up from there. So I think...

Speaker 3: Ultimately, we've probably all talked about this in the past. The highest gross margin the company ever reported was 45. And there is not a soul in this company that has ever forgotten.

Probably I'll talk about this in the past the highest gross margin the company ever reported was 45 and there is not a soul in this company that has ever forgotten that.

Speaker 8: Mary Jane, just to be clear, given when you just articulated, in the fact that you're currently at 40% and have been for the past sub reporters.

Mary Jane just to be clear given what you just articulated. The fact that you are currently up 40% and have been for the past several quarters. Once those higher margin young early products that are not contributing very much today, but will contribute more in the future.

Speaker 8: One goes higher margin young early products that are not contributing very much today, but we can contribute more in the future. Why would that drive up side to that 40%?

Why would that drive upside to that 40%.

Speaker 3: Oh yes, I'm sorry, I do think there is upside to the 40%. I'm just not, you know, exactly sure what quarter exactly that will land in. And I do think that the one notwithstanding that we are already getting that and that's achieving in the 40s, the pressure on the road inside from a short part's point of view, the road in parts.

Oh, yes, I'm, sorry, I do think there is upside to the 40% I'm just not.

Exactly sure what quarter exactly that will land in and I do think that notwithstanding that we are already getting that and that is achieving in the forty's. The a pressure on the road side from a short parts point of view the Rota parks.

Speaker 3: Do carry a nice margin in photonics and I think that 3D sensing and in the silicon carbide still are really only in the first inning So oh, yes indeed. I do think there is positive upward movement in our margins I just would not say it's quarter on quarter on quarter, but I do think that we will see that You know probably you know an improvement or a good sustaining over the next say 18 months as those markets come into their own

Do carry a nice margin in photonics, and I think that three D sensing on India and the Silicon carbide still are really only in the first inning. So oh, yes. Indeed I do think there is a positive upward movement in our margins I just would not say its core around quarter on quarter, but I do think that we will see that.

You know probably an improvement or.

A good sustaining over the next say 18 months as those markets come into their own.

I appreciate that one follow up talking to your body any insight you can share with us on what's going on in your telecom business, that's simply supply constraints for the lack of growth or is there something else going on there.

Speaker 8: I appreciate that one follow up, talking to you about any insight you can share with us on what's going on in your telecom business. Is that simply supply constraints for the lack of growth or is there something else going on there?

Good morning, Paul Thanks for your question.

Speaker 1: Good morning, Paul. Thanks for your question. Paul, it's exactly dominated by supply chain dinning.

Well its exactly dominated.

Dominated by supply chain dynamics.

And then the health of the business and the launch of the new products.

Speaker 1: and the health of the business and the launch of the new product.

The desire for more of what we make is all very clear.

Speaker 1: They desire for more of what we make. It is all very clear.

Our dashboard is lit up across the board on demand.

Speaker 1: Our dashboard is lit up across the board on demand, and we're working the constraints as they relate to the supply chain.

And we're working the constraints as it relates to the supply chain.

That is.

That's what I would've expected given the strong demand in the market. Thanks, Chuck I appreciate it.

Speaker 8: That's what I would have expected given the strong demand in the market. Thanks Chuck, appreciate it.

Our next question comes from Mark Miller with the benchmark company.

You posted a very impressive increase in your backlog yet mid point of your guidance for sales for the March quarter. It was kind of flattish with the December I'm. Just wondering how does that backlog is it in terms of shipping is that a more back end in terms of shipments on your backlog.

Speaker 9: You posted a very impressive increase in your backlog yet midpointing with guidance for sales for the March quarter is kind of flatish with December . I'm just wondering how does that backlog is in terms of shipping? Is it a more back-end in terms of shipments on your backlog?

I think this is the way you want to think about it mark, especially given the 1 billion of bookings for this quarter.

Speaker 3: I think this is the way you want to think about it, Mark, especially given the 1 billion bookings for this quarter. You know, we have some significant increases in demand from customers. In order for us to...

We have some significant increases in demand from customers in order for us to make the commitment to build out our capital and frankly the engineering.

Speaker 3: build out capital and frankly the engineering. We are increasingly asking customers for not only longer term views of their strategy, we are asking them for longer term orders.

We are increasingly asking customers for not only longer term views of their strategy. We are asking them for longer term orders and that is what we are seeing here. Consequently, the answer to your question is yes. It is more back end loaded that if you were to assume.

Speaker 3: And that is what we are seeing here, consequently. The answer to your question is, yes, it is more back and loaded than if you were to assume that the bookings of one quarter are immediately revenue in the next quarter. That's actually not in the case.

That the bookings up one quarter, our immediately revenue in the next quarter, that's actually not been the case from from US for a year as you already know I would say that we are looking at that backlog certainly being timed across the year, It's probably fair to say that you know more.

Speaker 3: from us for a year as you already know. I would say that we are looking at that backlog, certainly being timed across the year. It's probably fair to say that, you know,

Speaker 3: more than half of it is in the next six months, but a non-trivial amount is still in that later six months. And if you then think about that in the context of our CAPEX, they kind of go together right because that is what's allowing us to see that we need to. And we have the ability with the customer backing to put that cap.

More than half of it is in the next six months, but a non trivial amount of its still in that latter six months and if you then think about that in the context of our capex. They kind of go together right because that is what's allowing us to see that we need to and we have the ability with the customer backing to put that capital in place.

My second question I was wondering if you can comment about pricing in both transceiver or the high end transceiver and also the virtual markets.

Speaker 9: That's my second question. I wasn't wondering if you can comment about pricing in both transceiver or the high-end transceiver and also the VIXIL market.

Yeah.

Oh, Hey, Mark this is Giovanni Thanks for your question.

Speaker 2: I marked this, Draven, thanks for your question. We have not seen any unusual, you know, SP pressure. I've been seen in the past. I mean, it was pretty much the similar competitiveness.

We have not seen any any of.

Unusual.

The pressure.

As we've seen it in the past I mean, it was pretty much the Simi law.

Compared to do this.

Speaker 2: around all of the data rates, the major difference, of course, is that.

Oh.

All of the data rates. The major difference of course is that as you can.

Speaker 2: As you go up in the rage, you go to the higher speed transceivers.

Go off and do that as you go through the holidays speeds on C was.

Speaker 2: There is a substantially less Christ's pressure than for the one hundred and let's see the legacy.

The Liza substantially less cost pressure then for the one onwards, and let's see the legacy.

Speaker 2: So that's pretty much the environment we're in. So pretty much the same that we've seen in the past few years. So the constraints of the supply chain have not changed the outflow contents or SP changes over time.

All of that so that's pretty much the debottleneck and.

So when you watch the same that we've seen over the past few years.

There'll be constrained so their supply chain and all changed the outlook in terms of always be.

Oh.

Changes over time.

Thank you.

Our next question comes from Tom O'malley with Barclays.

Good morning, guys. Thanks for taking my question. My first question is on the cadence of Capex in the back half of the year.

Speaker 10: My first question is on the cadence of CapEx in the back half of the year. You're sticking with your guidance for, I believe, 325 to 375 for the entire fiscal year, but coming off a December quarter, where you did, I think, around 60 million or so, that implies a big acceleration to back half. Could you give a little color on the cadence of that? Is that evenly spread across the March and June quarter? And then how do you think of that in terms of free cash load just given the midpoint of guidance in March? It looks like with that CapEx been free cash load.

Youre sticking with your guidance for I believe $3 25 to $3 75 for the entire fiscal year, but.

Coming off a December quarter.

Where you did I think around $60 million or so.

Why the big acceleration in the back half could you give a little color on the cadence of that is that evenly spread across the margin June quarter, and then how do you think of that in terms of free cash flow just given the midpoint of guidance in March it looks like with that Capex spend free cash flows.

Speaker 10: you know potentially negative would you see the free cash or the negative or just any color on the cadence of that cat x right so first of all

Potentially negative would you would you see the free cash flow going negative or just any color on the cadence of that Capex right. So first of all.

Capex in the cash flow statement right. It's the capital that's already been paid for so we probably have on it if we just talk about the capital itself being in place, we probably have about another $50 million of perceived equipment, where the bills are a N. A P. Right now so that comes through the operating cash flow I think.

Speaker 3: the cash flow statement, right, is the capital that's already been paid for. So we probably have on a...

Speaker 3: If we just talk about the capital, it's self-being in place. We probably have about another $50 million of received equipment where the bills are in a AP right now, so that comes through the office.

Speaker 3: I think it is a little bit more back-and-loaded because

We it is a little bit more backend loaded because it was planned that way actually I mean, we were looking for getting a long lead times out there getting the capacity in place.

Speaker 3: It was planned that way, actually. I mean, we were looking for getting a long lead times out there, getting the capacity in place. Is it possible that...

Is it possible that in one quarter that is a free cash flow could go negative and it potentially could but I'm not sure that we would I'm pretty sure we're working pretty hard not to have that be the case, but at the end of the day.

Speaker 3: cash flow could go negative it potentially could but I'm not sure that we would I'm pretty sure we'd be working pretty hard not to have that be the case but at the end of the day we are looking to be shipping off some of this capital relatively shortly in the back in the middle of the year which could technically span the last quarter of fiscal year 22 the first quarter of 21 and we're looking forward to being able to get those products delivered.

We are looking to be shipping off some of this capital relatively shortly in the back in the middle of the year.

Which could technically span of the last quarter of fiscal year 'twenty to the first quarter of 'twenty, one and we're looking forward to being able to get those products delivered to customers.

Speaker 10: that helpful. And then this one's for you, Giovanni. You obviously some really exciting growth in the high speed transceivers. On the last call, I believe you mentioned some additional investment potentially in digital silicon. Are you still pursuing that roadmap? Is digital silicon important for you guys at higher speeds? And is that something that you think that you need to have in the future as we move to higher speeds? I Tom, thanks for the question. Absolutely.

Helpful. And then this one for Giovanni you, obviously, some really exciting growth in our high speed Transceivers on the last call. I believe you mentioned some additional investment potentially and digital Silicon are you still pursuing that road map is digital silicon important for you guys at higher speeds and is that something that you think that you need to have in the future.

As we moved to higher speeds.

Thank you.

Tom Thanks for the question absolutely.

Do you want to do with you know Tom go ahead.

Speaker 1: Do you want to do it? No, Tom, go ahead. The answer is yes, but was there something else you wanted to ask about it? No, it was going. Just if that was something that you're continuing to invest in. So I guess with absolutely there's continued investment there. Tom, we absolutely are. And we have some very major mile posts and they're exciting, and we're right on track. Thanks, Chuck.

It was yes it was.

Was there something else you wanted to ask about it no. It was go ahead. Yeah. Just just just if that was something that you are continuing to invest in so I guess with absolutely Theres continued investment there.

Tom.

What we are and we have some very major milepost in their exciting and we're right on track.

Thanks Chuck.

Our next question comes from Simon Leopold with Raymond James.

Thanks for taking the question first a quick clarification and then my question on that.

Speaker 11: Thanks for taking the question. First, a quick clarification and then my question. On the start-up cost that you excluded from the pro forma this quarter.

<unk> cost that you.

Excluded from the pro forma this quarter.

Speaker 11: I just wanted to check back whether this was related to the expenses you talked about on the August earnings call. You had mentioned a $60 to $70 million investment in R&D related primarily to Silicon Carbide. I want to see if this was the same topic. That's my clarification. In terms of the trending question, I'd like to see if you could elaborate a bit on your hyperscale exposure given.

I just wanted to check back whether this was related to the expenses you talked about on the August earnings call you had mentioned.

Ah 60 to 70 million investment in R&D.

Related primarily to silicon carbide I wanted to see if this was the same topic. That's my clarification in terms of.

The trending question I would like to see if you could elaborate a bit on your hyperscale exposure given.

Speaker 11: the really impressive numbers, the one third, the Transceivers, Datacom Transceivers coming from 200 to 800 gigs.

But really improve.

Impressive numbers. So the one third of the Transceivers Datacom Transceivers coming from 200 to 800 gig.

Speaker 11: I'm assuming that's heavily biased towards hyper scalars. If you could confirm that assumption and discuss how you see that trending for the full calendar year, I'd like to hear that. Thank you.

I'm, assuming that's heavily biased towards hyper scaler.

If you could confirm that assumption and discuss how you see that trending for the full calendar year.

I'd like to hear that thank you.

Speaker 3: So I'll answer the first one. So first of all, no, it is not related to it. So in the first quarter, in the June quarter, we talked about roughly 60 to 70 million for silicon carbide.

So I'll answer the first one.

So first of all.

No it is not related to it so in the in the first quarter.

The June quarter, we talked about roughly $60 million to $70 million for silicon carbide.

Speaker 3: By the time we got to reporting the 930-quarter, it said if being about 20 million a quarter in engineering, it was actually closer to 10. That is actually a function of how we were able to use the time of the manufacturing engineers.

By the time, we got to reporting at the 930 quarter.

Instead of thing about $20 million a quarter in engineering. It was actually closer to 10 of that is actually a function of how we were able to use the time of the manufacturing engineers.

Speaker 3: that do the design for manufacturability. When we were estimating that cost, we thought we would be taking those guys out of their jobs pretty much full time. And as it turned out, we were able to use their time a lot more efficiently than that. And they could continue to cover off other manufacturing that they were doing. But we do use our, on the shop floor manufacturing engineers to do design for manufacturability in the new product. So for silicon, carbide, that numbers moderated to something more like.

Do the design for manufacture ability when we were estimating that cost we thought we'd be taking those guys out of their jobs pretty much full time.

And as it turned out we were able to use their time, a lot more efficiently than that and they could continue to cover off other manufacturing that they were doing but we do use arm on the on the shop floor manufacturing engineers to do design for manufacture ability and a new product so for silicon carbide that numbers moderate as something more like.

Speaker 3: you know, 35 or 40 and that is still the run rate and that is inside the op-X, it's not excluded. The exclusion of the startup cost is really for one of the last synergies really with PhenysArt, which is the expansion of the NTM Fossified Line for other more.

35, or 40 and that is still the run rate and that is inside the opex. It's not excluded the exclusion of the startup cost is really for one of the last synergies really with finished which is the expansion of the indium phosphide line for other markets.

And then for Hyperscale or as Giovanni has got that.

Speaker 2: And then for the hyper-scalers, Giovanni's got that. Yeah, high-signal needs Giovanni. Yeah, definitely. Hyper-scalers are for sure a focus.

Simon This is Giovanni.

We've got the scale is a though.

For sure a focus on driving.

Speaker 2: the demand for this higher data rate transceivers. And I want to emphasize that we're not done yet in the sense that there is still one or two where we have to keep working and penetrate those accounts where over the past few years, maybe for a number of reasons.

The demand for these higher data rates since he was and I want to emphasize that we're not done yet in the sense that there is still one or two where we have to keep watching it.

Bennett.

Penetrate those accounts with over the past few years.

Maybe for a number of reasons.

Isn't a bad attention to them and I think the.

Speaker 2: We had a bad tension to them and now I think with the team we...

The team is really focused on.

Speaker 2: penetrating those accounts where we are not, we don't really have a large share of these products. So that's going to be a focus. What I'm trying to say is that we can see that number easily. I mean the percentage of the total easily increasing.

Penetrating those accounts, where we all know we don't want to have.

As all of the Oh. These oh that so that's going to be a focus what I'm trying to say is that we can see that number easily.

The percentage of the total easily increasing beyond one third of the total with the higher data rates.

Speaker 2: On the other hand, of course, we disrequires substantial investment from our study.

And of course this requires substantial investments from our side because we we respect we expect those higher data rates to continue to drive the growth and then at some point.

Speaker 2: We expect those higher dataries to continue to drive the growth and then...

But you're saying obviously the.

Speaker 2: the largest portion of the total. And so we're continuing to invest, but on the other hand, we know that there is a supply.

The largest portion of the total and so we're continuing to invest but on the other side, we know that the Liza supply chain challenge that will mean will somehow make.

Speaker 2: challenge that will make that girl a little bit more challenging than maybe we will write.

The growth will be more challenging than maybe we realized but just.

Just to summarize answer to your question definitely Hyperscale is particularly those that are building. These.

Speaker 2: summarize answer to your question, definitely. I, for scalers, particularly those that are building these AI super-classpers really focused on our data rates. They fit very well in their architectures for next generation.

Superclass dose really focused on how to do that.

Whether it be architectures conviction adhesion.

Do those centers.

Speaker 11: And that would put it in excess of 15% of total revenue if I'm doing my math correct. Is that right?

And that would put it in in excess of 15% of total revenue if I'm doing my math correct is that right.

Yeah.

Let's see I think yes.

Speaker 2: Let's see, I think, yes. Just a second.

Just a second.

Yes.

Yes.

About about 18% actually.

That was my guess thank you.

So I've been thinking.

Our next question comes from semi challenging with J P. Morgan.

Okay, great. Thank you and sorry about earlier.

Speaker 12: Thank you and sorry about earlier. I guess I wanted to just, if I can ask you about the 1200 volt silicon carbide MOSFET product platform and if you can sort of walk me through how the road map in terms of getting the product now.

Hum.

I wanted to just.

If I can ask you about the 1200 volts.

Silicon carbide MOSFET product platform and if you can sort of walk me through how the road map in terms of getting the product to different customers. It looks like in the mid to the getting this on a vehicle is it now that you are qualified I know it typically.

Speaker 12: that time, qualified. I know a typical vehicle takes about like five years to design and get it out on the road, but is this now a catalyst for you to go meet customers with this product? Or also are you looking for more partners outside of G so just maybe lay out the road map for me about in terms of how do we get from here to actually seeing material revenue from this and I have a quick follow. Thank you.

So more like five years to design and get it out on the road, but is this now a catalyst for you to go meet customers with this product also are you looking for more partners outside of G. So just maybe.

Roadmap for me in terms of how do we get from here to actually seeing with revenue from this and I have a quick.

Pablo Thank you okay. Thank you Sandra for your question.

Speaker 1: We have a, on the basis of achieving this milestone, we've really ratcheted up the effort that we have, the agreement that we just announced with GE, brings additional resource to the table for us to be ready to address the customer, the qualification and the application engineering that will be required.

We have a on the basis of achieving this milestone we've really ratcheted it up.

The effort that we have the agreement that we just announced with GE brings additional resource to the table for us to be ready.

To address the customer qualification and the application engineering that will be required.

I'm fully expecting that as a result of the increase in the number of fab starts.

Speaker 1: I'm fully expecting that as a result of the increase in the number of fab stores.

Speaker 1: the work that we're doing now to shake out the overall process capability and process control.

The work that we're doing now to shake out the overall price.

This capability and process control.

Speaker 1: getting this sigma's tie down to where we need them to be, that will have the ability.

Getting the Sigma is tied down to where we need them to be.

That will have the ability by the end of the calendar year.

Speaker 1: surely as we head into the second half of 23, we should be in a real good position to be entering as a launch point into the marketplace. And we will go to those places.

Surely as we head into the second half of 'twenty three we should be in a real good position to be entering as a launch point into the marketplace and we will go to those places where number one.

Speaker 1: where number one is a real value proposition for high voltage high reliability.

A real value proposition for high voltage high reliability devices.

Speaker 1: And whereas we will have a longer term approach to the automotive market, we will also be targeting other applications early on, as well as the automotive applications that we know will take us a little more time.

And whereas we will have a longer term approach to the to the automotive market. We will also be targeting other applications early on as well as the automotive applications that we know will take us a little more time, and but I'm fully expecting that the revenues will begin to accrue.

Speaker 1: But I'm fully expecting that the revenues will begin to accrue.

In the early part of 2023 based on our our design ins design wins that will target in the second half of this calendar year I hope that helps you.

Speaker 1: early part of 2023 based on our design ends and our design ones that will target in the second half of this calendar year. I hope that

Speaker 12: Yep, no, great, thank you. And just a quick follow up, just want to see what you're seeing in the pipeline for industrial lasers, what have recent trends been, and how are you thinking just in terms of how, sort of think about how long the cycle is on the industrial laser side, particularly do we get to a point where this can be a materially stronger growth business, given higher use of optical equipment across manufacturing.

Yep.

Thank you and just a quick follow up just wanted to see what are you seeing in the pipeline for industrial lasers.

Trends being in how much are you how are you thinking just in terms of how.

Sort of think about how long the cycle is.

Neither side, particularly do we get to a point, where this can be a materially stronger growth business given the higher use of optical equipment across manufacturing. Thank you.

Hi, This is Giovanni thanks for your question So first of all the.

Speaker 2: Hi, Samic. This is Giovanni. Thanks for your question. So, first of all, the welding, badly welding is a substantial driver for our industrial demand. Whether we participate directly with our bin delivery systems, or we participate to the market indirectly with the sales of pumps and other optics for our father, Liza.

The welding the welding he's a substantial driver follow industrial demand, whether we participate directly with our beam delivery systems or <unk>.

But dissipate to their market and directly with the sales of pumps and.

The optics for our fiber laser customers. So it's a really really strong market right now and as you know it was just the beginning.

Speaker 2: So it's a really, really strong market right now. And as you know, it's just a very beginning, you know, considering...

Beginning, but considering the the planes in the mindful, though by the lease that we see.

Speaker 2: the brains in the mind for either is that we see in the next.

The 10 20 years is gonna be monotonically go and we see that those applications will be really driving a lot of demand.

Speaker 2: be monotonically going we see that those applications to be really driving a lot of the man.

And.

So that's one that with regard to the we've introduced Colgate could literally a 100 megawatts.

Speaker 2: So that's one, we regard to the, you know, we reach this, kind of record really, of one on the megawatt.

Speaker 2: And that's a farm laser shift, right? And that's when you cross all of the applications and they go to a very broad set of further laser cuts.

And that's oh of pump laser shifts.

That's when the cost of all of those applications.

They go through a very broad set of fiber laser customers and.

Speaker 2: And I would like to put that in perspective. We think that the leaders in the market for Father Lays.

I would like to put it in perspective, we think that the.

The leaders in the market for fiber lasers.

Speaker 2: Typically, would consume no more than one of the megawatts in a year of pump power. So that gives you an order of magnitude of the scale of our pump supply that is required to support the, you know, pains of Father Lisa Kastner's global.

Typically would.

Consume normal then one on the megawatts in the year bump.

Bump all of them. So that gives you an order of magnitude of the skill of our pump supplies that is required to support tens of fiber laser customers globally.

Speaker 2: most of which are actually in China, so this is a really extremely good market for us. As we emphasize, the supplier works.

Most of which are actually in China. So these wishes really extremely good market for us.

We emphasize the supplier award from Han's laser.

Speaker 2: the demonstration of the competitiveness of our platform. There are in from scale, there are in from the wave size. We will leave there the only one. The only supplier six inch by most are four, some are at three, some are at four inch.

Mostly some of the competitiveness of our bloxom did audit from scale that audience on the wafer size, we will lead the only one the only supplier of six inch wide. Most are for some of them most of it through some of that fall in.

Speaker 2: And then of course the fact that we utilize a fact that works also on data convicts or the works on telecom pumps and other parts is very well utilized. Perhaps makes us incredibly competitive for a dollar per watt.

And then of course, the fact that we utilize a five that works also on data going back so that works on the.

Telecom pumps and other parts of the world utilized Bob's makes us incredibly com.

Competitive from a dollar per watt perspective, so the trends are better.

Speaker 2: So the trains are butter welding and cutting. So we're incredibly strong.

The welding and cutting.

Strong demand.

Alright, we know we have several or do you wait and we'll try and see if we can all do that before we close go ahead for the next question.

Speaker 3: All right, we know we have several of you waiting. We'll try and safely call you at the before we close. Go ahead for the next question.

Our next question comes from Richard Shannon with Craig Hallum.

Hey, Thanks, guys for taking the questions I guess two quick ones here first of all I'm just trying to characterize the sales guidance for the March quarter here and I apologize I got two.

Speaker 5: Well, thanks, guys. For taking the questions, I guess two quick ones here. First of all, I'm just trying to characterize these sales guides from the March quarter here. And appalled as I got dropped off the lines. And maybe the questions asked here. But maybe you can characterize the amount of supply constraints affecting sales here relative to the affected yardish on the December quarter. And we can characterize that. It's pretty consistent. Maybe it's actually the highest $50 million. So it's probably at least the highest the last two quarters, which is in the mid 30s and it's high.

Dropped off the line. So maybe the question was asked here, but maybe you could characterize the amount of supply constraints affecting sales here relative to the effect that you already saw in the December quarter anyway, you can characterize its pretty consistent maybe it's actually as high as $50 million. So it's probably at least as high as the last two quarters, which is in the mid thirties and as high as 50.

Okay perfect. Thanks, Mary Jane Second question is in the Photonics group here looking at your EBIT and EBIT margin here, it's been kind of flat to maybe it's actually slightly down the last couple of quarters. It kind of a two part question. Here is is it fair to assume that most of the margin impact from supply constraints. The expedites et cetera has been in the photonics business and then as we look.

Speaker 11: Okay, perfect, based managing. Second question is in the Fetonics group here, looking at your EBIT, Nebitt margin here, it's been kind of flat to maybe, it's just slightly down the last couple of quarters. Kind of a two-part question here, is it fair to assume that most of the margin impact from supply constraints, the expedited, et cetera, have been in the Fetonics business? And then as we look a little bit longer term, is this the business you think can get to the higher teens or even 20% in a non-supply constrained environment?

A little bit longer term is this a business you think you can get to the higher teens or even 20% in a non supply constrained environment.

Speaker 3: Well, first of all, yes, they are the ones who are enduring most of the supply issues. And as we said earlier, we are not taking those out and getting to their adjusted margins. So that's five and a half. I would also say that they probably are carrying the larger portion of the four that is for COVID. If I know other reason than they have more people. In terms of getting to the 20s.

Well I first of all yes. They are the ones who are enduring most of the supply issues and as we said earlier we.

We are not taking those out and getting to their adjusted margin. So that's five and a half I would also say that they probably are carrying a larger portion of the four that is for COVID-19 .

No other reason than they have more people.

In terms of getting to the twenties.

Speaker 3: We have never held that we thought photonics actually would be in the 20s. I think in some demands schemes that could be possible, but generally I do think that they have the ability to be in the middle, upper teens, so to speak, and have been before, but again, as you hit it correctly, it's really the effects of the supply chain and most of the COVID costs, which has got to be, more than about 125 points of margin for them and rotum is the most affected, so we're also losing the rotum margin.

We have never held that we thought photonics actually would be in the 20th I think in some in some demand schemes that could be possible, but generally I do think that they have the ability to be in the mid <unk>.

In the middle upper teens, so to speak and have been before but again as you heard it correctly, it's really the effects of the supply chain and most of the Covid costs, which has got to be you know more than about 125 points of margin for them and wrote them. This are the most affected so we're also losing the broader margin.

Perfect. Thanks, Mary Jane.

Yes.

Speaker 3: Next question comes from Jim. Operator, we'll try and finish all the questions before we end the call. Go ahead. Our next question comes.

Our next question comes from Jim.

Operator, we'll keep you all we will try and finish all the questions before we end the call go ahead.

Our next question comes from Jim Ricchiuti with Needham <unk> Company.

Thanks, Good morning could.

Speaker 13: Good morning. Did you provide a percent of revenue that you generated from the quarter in Silicon Carbide? I may have missed it and a quick follow up.

Did you provide.

The percent of revenue that you generated from the quarter and Silicon carbide I may have missed it and Joe quick follow up.

Ask your second question I will give you the number in a second here okay.

Speaker 13: After your second question, I'll give you the number in a second here. Okay, thanks. Okay. Chuck, thanks for that commentary about organic growth, double digit fiscal 23, fiscal 24. We'll talk about if you would, what you see as the biggest drivers to getting to those growth rates.

Chuck Thanks for that commentary about organic growth double digit fiscal 'twenty three fiscal 'twenty. Four you talk about if you would what you see as the biggest drivers to getting to those.

Growth rates.

Presumably your silicon carbide being one of them yeah. Good morning, Jim Jim The answer to your first question was.

Speaker 1: Presumably, so it can be carbide being one of them. Yep, good morning, Jim. Jim, the answer to your first question was...

Speaker 1: just between 4 and 5% in that range.

Between four and 5% in that range okay.

Speaker 1: Yep, as far as the drivers go, well, we have in both of the seconds.

Okay as far as the drivers go.

Well.

We have in both of the segments, we have a lot of interesting opportunities and in the Photonics solutions segment, which is driven by communications I think Giovanni has provided great color here. This morning with his dialogue with other analysts to give you a sense for where we're headed.

Speaker 1: We have a lot of interesting opportunities and in the Botanic Solution segment, which is driven by communications, I think Giovanni's provided great color here this morning with his dialogue with other analysts to give you a sense for where we're heading.

Speaker 1: in the compound semiconductor segment, I'll turn to Joanne and just let him make.

And the compound semiconductor segment I'll turn it to July and just let him make a making.

Speaker 1: and overall a broad-based comment about the opportunities that he sees there, which are really exciting for which we're investing both R&D and capital this year to drive. Yeah, that...

Overall, a broad based comment about the opportunities that he sees there which are really exciting and for which we are investing in both R&D and capital this year to drive.

Thanks, Jim for the question, so definitely see that won't come back as you mentioned is gonna be a driver for the for the years to come we are investing capital both for the subsidies as well as our ability to make devices.

Speaker 2: for the question. So definitely zero-one-card buy, as you mentioned, is going to be a driver for the years to come. We are investing capital, both for the substrates as well as our bid to make the buy.

Speaker 2: you know, starting with the AP up to making the vice eventually. So we're investing and I think this will drive growth. We have talked many times about our belief that Inium for Spide is a very important platform in a number of applications.

Starting with EAP up to making device. Eventually so we're investing and I think this will drive growth we have talked many times about our belief that indium phosphide is a.

A very important platform in a number of applications and both communications and sensing whether it's essentially pulled a motive sensitive for consumer.

Speaker 2: and both communications and financing, whether it's a fancy, for automotive, fancy, for consumer.

Speaker 2: a sensible industrial and that's for sure with one very strong diver. The last one, the another one which it represents a substantial increase versus last year is really in the semi-cappy equipment world. So we make a lot of parts. I mean, we have over 100 source-source parts in the EU.

Essentially for industrial and social.

Socially so one of our very strong driving the loss would be another one which is.

It represents a substantial increase versus last year is really in the semi cap equipment world. So we may come along the path I mean, we have over one envelope social sparse in the UV tool.

Speaker 2: and those tools, the demand for those tools.

And those those tools the demand for those tools.

It keeps increasing and we are very happy to support that growth, but it does require investments, which explain also the capital.

Speaker 2: and we are very happy to support the coast, but it does require investment.

Speaker 2: and explain also the capital needed that the manager in talked about. And so semi-capic equipment with parts, with subsystems, primarily parts that go into tools, whether it's for inspection, whether it's for fabrication, whether it's for packaging, there is a very broad demand, there's a very health environment, customers offer us price increase.

Neither.

So maybe Jean talked about.

So semi cap equipment with box with the sub systems, primarily thoughts that go into tools, whether its for the inspection of whether these for publication with is for packaging.

But it's a very broad demand is a very health environment customers offer us price increases to get products. As we are sold out its a really really healthy growth go for us and last but not least.

Speaker 2: get products as we are sold out. It's a really, really healthy growth for us. And last but not least, I think the

I think the.

The general communication as a component supplier.

Speaker 2: from the general communication as a component supplier. My larger customer is still signing my friend signing leading the portante.

My largest customer is still suddenly.

My first assignment, leading the photonics segment, but we also sell to a lot of transceivers in the telecom suppliers, along the wall lasers optics and photo diodes, and so forth. That's also very very healthy as we.

Speaker 2: But we also sell to a lot of transceivers and telecongears, suppliers around the world, lasers, optics, and photodias and so forth. That's also very, very healthy as we continue to drive the growth in the global economy.

The year to drive the growth.

Indeed.

Global Communications business.

Thank you.

Our next question comes from harsh Kumar with Piper Sandler.

Yeah, Hey, Chuck I had two questions first on Silicon carbide I was hoping you could explain to us.

Speaker 14: Yeah, hey, Chuck, I had two questions. First on SiliconCab, I was hoping you could explain to us, you know, commercialization by the end of the year versus I think in the commentary you mentioned that you're basically getting to production by end of March. And so I guess I wanted to understand what the difference was and then I had to follow up.

<unk> by the end of the year versus I think in the commentary you mentioned that you're basically getting to production by end of March.

So I guess I wanted to understand what the difference was and then I had a follow up.

Speaker 1: I'm not sure what part of the commentary may have been misunderstood. So we have been with our own press release now designed.

Portion I'm not sure what part of the commentary.

You may have.

And I misunderstood so we have been.

With our own press release now design.

Speaker 1: What I was referring to in my earlier comments was number one, let me just repeat what I said. We're in the process now of doing the final manufacturing shakedown so that we can have high confidence in our customers can as well. In our quality, our reliability, and as measured by all the details of a manufacturing line, that work is going on in with a huge increase in effort right now.

I was referring to in my earlier comments was number one let me just repeat what I said, we're in the process now of doing the final manufacturing shake down so that we can have high confidence in our customers can as well and our quality.

Reliability and as measured by all the details of our manufacturing line that work is going on in with.

With a huge increase and effort right now.

Speaker 1: I'm expecting that the prototypes and the models that we are already beginning to build will be available in the second half of this calendar.

I'm expecting that the prototypes in our models.

That we're already beginning to build will be available in the second half of this calendar year.

Speaker 1: to be going directly to customers with and engaging them in design end and design win activity.

To be going directly to customers with.

And engaging them in design in and design win activities.

I think that will take us.

Speaker 1: I think that will take us knowing the process and the back and forth that has to go on. That's gonna be an ongoing process.

Knowing the process in the back and forth that has to go on that's going to be an ongoing process. It's already started by discussion, but I think the models and prototypes that we will generate in the second half of the year should be sufficient for us to begin to generate enough enthusiasm to have orders so that.

Speaker 1: It's already started by discussion, but I think the models and prototypes that we will generate in the second half of the year should be sufficient for us to begin to generate enough enthusiasm to have orders so that we can begin shipping in the first half of the calendar year next year.

We can begin shipping in the first half of the calendar year next year.

Speaker 1: we'll try to go fast but that's the the

We will try to go faster.

But that's that's the that's the plan.

Hey, Thanks, Chuck that that clarifies that situation and then my second question was on price increases.

Speaker 14: Hey, thank you Chuck, that clarifies that situation. And then my second question was on price increases. At this point is the plan just to pass on the cost increases or you guys, you think you can select the way like race prices above and beyond the cost that you're seeing to be able to help in market.

At this point is the plan just to pass on the cost equation is are you guys. You think you can selectively raise prices above and beyond the cost that youre seeing.

To be able to help and margins well I think I answered that before in some markets. We do have pricing power in our exercising.

Speaker 3: Well, I think I answered that before. In some markets, we do have pricing power and are exercising it. That's not new to today. We've probably had that in the past. And so in that case, we are in cases where the question is relating to, and that's probably across our end markets, in cases where the question is relating to the past through of these excess spludging.

That's not new to today.

We probably had that in the past and so in that case, we are in cases, where the question is relating to and that's probably across our end markets in cases, where the question is relating to the pass through of these excess supply chain costs, we are looking to achieve.

Speaker 3: We are looking to achieve the best outcome with customers which in some cases could be trading off a price increase for greater share. Got it. Thank you so much. Thank you, Ars.

The best outcome with customers, which in some cases could be trading off a price increase for greater share.

Got it. Thank you so much sure. Thank you harsh.

Our next question question comes from Sidney Ho with Deutsche Bank.

Thanks for squeezing me in a couple of questions on just follow up on the Silicon Carbide question earlier I understand it takes time to design and production ramp and whatnot. What is the realistic Redmond targeted we should be thinking about over the next two to three years. So maybe whatever timeframe you want to talk about and how is the revenue profile going to change over time in <unk>.

So substrates versus versus module well.

Speaker 3: Well, speaking to the larger question, I think what we've said is as we make these investments in Silicon Carbide, Silicon Carbide-based products, which would include the substrates, in say, over the next four or five years, is probably the business that has the most ability to change its percentage of our revenue. So if it's about four today, it would probably start to exceed, let's just say for the second discussion, possibly 10% of the revenue, something like that. So it will move as a percentage.

Well speaking to the larger question I think what we said is as we make these investments in silicon carbide Silicon carbide based products, which would include the substrates in say over the next four or five years is probably the business that has the most ability to change as a percentage of our revenue. So it's about four today it would probably start to it.

Let's just say for the sake of describe discussion, possibly 10% of our revenue something like that so it will move as a percentage of revenue.

Speaker 3: And then the second part of your question was, what is the split between substrates and devices? It really depends on how the market develops. And so I'm not sure that that's a clear prediction we could give right this minute. But the substrate is quite essential for the device being good. And we are very, very good at the substrates, so we do not intend not to keep making that. In other words, we will always...

And then the second part of your question was what.

What is the split between substrates and devices it really depends on how the market develops.

And so I'm not sure that that's a clear production, we could give right. This minute, but the substrate is quite essential for the device being good and we are very very good at the substrates that we do not intend not to keep making that in other words, we will always make the substrate.

Speaker 1: I would just add, Sydney, that has it relates to our FY 23 capital investments in this business.

I would just add a city that that as it relates to our FY 'twenty three.

Capital investments.

This business.

Speaker 1: They are 80% or more focused on increasing our capacity for substrate growth and fabrication. And then right on the heels of that, for facilities to allow us in the next fiscal year to be adding in MLCVD capabilities so that we can begin adding to the portfolio epitaxial wafers in addition to our... ...and then we can add in the portfolio epitaxial wafers in addition to our...

They are 80% or more focused on an increasing our capacity for substrate growth.

Fabrication and then right on the heels of that facilities to allow us in the next fiscal year to be hiding in ml CBD capabilities. So that we can begin adding to the portfolio epitaxial wafers. In addition to.

Our power electronic devices.

Okay.

Speaker 5: That's helpful. Really quick one. On the consumer business, it has grown sequentially in the December quarter, but not as much as a year ago. Can you give us a little bit of color on that? Was that business also supply constraint? And how should we think about seed andality impacting the next couple of quarters? Thanks.

That's helpful.

Really quick one on the consumer business. It has grown sequentially in the December quarter, but not as much as a year ago can you give us a little bit of color on that was that this is also a supply constrained and how should we think about seasonality impacting the next couple of quarters. Thanks.

Yeah.

Speaker 2: Yeah, so I said it is Giovanni. Thanks for your question.

Yeah. So I said it is javan and thanks for your question.

When we say consumer as you know the bust of the greatest portion of the consumer is same thing and is it a portion of the sense of using <unk> sensing.

Speaker 2: where we take consumers, you know, the vast, the greatest portion of the consumer is the strength and the greatest portion of the strength.

Speaker 2: Actually, we like to look at the calendar year because that's where...

Actually.

We like to look at the calendar year, because thats, where the typically the cycle of the products.

Speaker 2: the cycle of the products, are linked to it, so we go by calendar year. We had an ASP decline in 3D sensing, which we kind of discussed in the past due to shrinkage.

A link to it so we'd go by calendar year.

Well.

We had the <unk>.

Speed decline.

Three D sensing, which can we kind of discussed in the past due to a shrinkage of Oh.

Speaker 2: you know, die size. However, you know, when we couple three days...

Die size.

However.

We coupled to the same thing with sensing.

Speaker 2: Actually, the calendar year 20 to 21 was flat. So we were able, as you know, the last quarter calendar to be won.

Actually the calendar 'twenty to 'twenty, one was flat so we will enable.

As you know the last quarter of calendar 'twenty one of these.

Q2, our fiscal Q2 for 22.

Speaker 2: to our fiscal Q2 for 22. We actually saw it's pretty, pretty flat. The matter.

We actually saw.

Whether you are flat.

Demand intensive units.

Speaker 2: But because of the SP decline, we saw only a 10% decline, dollar-wise, calendar to calendar, which is actually remarkable, in my opinion, considering...

But because of the ASP decline, we saw only a 10% decline dollar wise calendar to calendar, which is actually remarkable in my opinion considering.

What maybe others were expecting.

Speaker 2: And then the sentence in general was actually, as I said, totally pencil revenue was actually flat. So in other words, if we had non-predicensing to sensing,

And.

<unk>.

And then the three D sensing in general.

Was actually Oh.

As I said, you know totally potential revenue was actually flat. So in other words, if we had known pretty sensing sensing.

Which as I said this is the vast majority of the consumer.

Speaker 2: the calendar was actually flat, which is again, is remarkable considering the ASB the client due to a diet shrinkage.

Colorado, Colorado was actually flat, which is again is remarkable considering the ASB declined due to die shrinkage.

Okay. Thank you.

Sure.

Next question comes from Vivek Arya with Bank of America.

Yeah.

Thanks for taking my questions I had that too is that so I believe maybe John you mentioned, there's about $100 million strategic inventory build.

Speaker 15: Thanks for taking my questions. I had that too as well. So I believe, Mary-Gen, you mentioned there's about a hundred million of strategic inventory build to support growth in the back-out of the demean, in the back-out of the calendar year, you know, how much growth and importantly, where will inventory days go over the next several quarter?

Support growth in the back half did you mean in the back half of the calendar year, how much growth and importantly, where the inventory days go over the next several quarters.

Speaker 3: So I don't know that we can speak about inventory over several quarters, but generally speaking, I would say that this build of inventory is really effectively waning on these short parts. We would expect to see that inventory start to ship out over the next few quarters. But the company, for other reasons, on other products may decide that it will build some strategic inventory, but generally speaking, what we are really trying to do is be very, very prepared to shift to our customers when these short parts and integrate.

So I don't know that we can speak about inventory over several quarters, but generally speaking I would say that this build in inventory is really essentially waiting on these short parts, we would expect to see that inventory start to ship out over the next few quarters.

But the company for other reasons on other products they decided that it will build some strategic inventory, but generally speaking what we are really trying to do is be very very prepared to ship to our customers. When these short parts and integrated circuits commitment.

Yeah.

But I thought I heard there was some.

Speaker 15: But I thought I heard there was some growth coming in the back. How did you mean in the back half of the calendar year? Like for example, could we see two, six potentially exiting this calendar year at the double digit kind of growth rate that you alluded to?

Growth coming in the back half did you mean in the back half of the calendar year like for example, could we see two six potentially exiting this calendar year at checkout at the double digit kind of growth rate that you alluded to.

We are expecting to see growth in the back half of the year I am not.

Speaker 3: And I do think that we will see some good growth, but I'm not sure whether or not that will achieve double digit for the entire year, just from this inventory. But generally speaking, we are expecting growth to accelerate as the year goes on.

And I do think that we will see some good growth, but I'm not sure whether or not that will achieve double digit for the entire year just from this inventory, but generally speaking we are expecting growth to accelerate as the year goes on.

Okay. Thank you.

Our next question comes from Christopher Roland with Susquehanna.

Hey, guys. Thanks for squeezing me in the first is a clarification on the question.

Speaker 16: Hey guys, thanks for squeezing me in. First is a clarification and the question. In the press release, you had 90 cents as the high end of March EPS, but Mary Jane, you mentioned 95 cents on the call. So just some clarification there. And then secondly,

In the press release, you had 90 cents as the high end of March EPS.

But Mary Jane you mentioned 95 cents on the call.

Just some clarification there and then secondly.

Speaker 16: for the VRAR opportunity that you mentioned on the call. I think you also mentioned a 50 million, I don't know if it was a prepayment or an NRE or a pre-order. I don't know exactly what that 50 million was.

For the B R. A R opportunity that you mentioned on the call. I think you also mentioned a 50 million Ah I I don't know if it was a prepayment or ordinary or a preorder I don't I don't know exactly what that $50 million was.

Speaker 16: I'm assuming it's for vixels or time of flight and perhaps you can talk about either what's different in the architecture that it would require an NRE and also any timing on the product launch would be great too.

I'm, assuming it's for VIX holds our time of flight and you know, perhaps you can talk about either what's different in the architecture.

That it would require an in Ari and <unk>.

And also any timing on the product launch would be great too.

Thanks, Chris for the questions. This is giovanni here so.

Speaker 2: Thanks Chris for the question. This is Giovanni here. So yeah, we didn't say an array, by the way. So I just want to make sure that there's a $50 million includes a number of funds. And I, as I said in my prepare mark is for an AR VR application. Well, I want to emphasize, as I said in the prepare mark, is not just about lasers, it's not just about the fact of this includes materials.

Yeah, we didn't say that hey by the way so I just want to make sure that there's a $50 million includes a number of our funds.

Funds.

And I.

<unk>.

As I said in my prepared remarks for the all of.

We are application, but I wanted to emphasize as I said in the prepared remarks, it's not just about lasers is not just about the factor of optics includes materials and that's what we offer and.

Speaker 2: And that's what we offer. And I think it's probably time that the customers, several customers are recognized.

I think it's probably.

Volume the customers several customers are recognizing.

Speaker 2: how unique in a way is the breath of the product, what for it that we offer. So it goes well beyond laser, it goes well beyond de facto law.

How unique in a way.

The press.

The part of the portfolio that we offer so it goes well beyond laser it goes well beyond the fact, it optics and so forth. So you need to put together several of our competitors to come up with the same type of offerings that we have.

Speaker 2: so forth. So you need to put together several of our competitors to come up with the same type of offering.

Speaker 2: And it's very exciting because it's a new customer, it's a large customer and...

And it's a very exciting because it's a new customers a large customer and.

It's for all of your applications are I cant go into the details, but it's very exciting.

Speaker 2: for ARVR applications, I can't go into the details, but it's very exciting. It's gonna take some time for revenue to materialize, but we think it's a very large.

Take some time for revenue to materialize, but we think.

It's.

It's a very large opportunity.

In the future for us.

And thanks for pointing out the type of Chris It's 75 to 95 in the table in the back is the same way so we'll fix that.

Speaker 3: And thanks for pointing out the tape, Oak Riss, it's 75 to 95 on the table in the back is the same way so we'll...

Speaker 16: Thank you. And then on the CDR comment, is this a new product for you guys? I haven't heard you talk about this before. When might that come to market? Or is this the type of CDR that would compete with, let's say a SEMTEC, for example, and how big do you think that opportunity could be?

Thank you and then on the C D R.

Comments is this a new product for you guys I haven't heard you talk about this before.

When might that come to market or is this the type of CVR that would compete with <unk>.

Let's say some tech for example on and how Big do you think that opportunity could be.

Just Chris just to be clear is in the market now where the.

Speaker 2: That's just a precious bit here. It's on the market now where, what we say in the escape, we are selling it, we're recognizing revenue, and it's a product.

What we said in his script, we are selling is well recognized in revenue.

It's a product which finished so I mean, so it is a platform to finish ahead for very long time, the one well setting as you know is the new design.

Speaker 2: I mean, sorry, it's a platform that Finnser had for a very long time. The one we are selling is a new design. And we're selling it to the Metro market. And it's part of the portfolio of ICs, which were kept captive for the entire lifespan of Finnser. And we decided to strategically make available on the Metro market as part of our integration with...

And we're setting into the metro market and it's.

As part of a portfolio of Ics with which with.

Kept captive.

For the entire lifespan, they'll finish, though and we decided to strategically make available on the metro market is talked about our integration with <unk> with.

Speaker 2: with Finisah. We Finisah, correct. So it's a product. So really there, we're setting it. We are recognizing revenue is the first design win or hopefully over a very long list because we have also drivers with TIAs. We have complex ICs that we are trying to design in around the globe with transceivers and even for example in the two cents.

With the with finish though.

Correct. So it's a product so really the we're setting it.

Revenue was the first design win Oh, hopefully over a really long place because we have also drivers with Tas.

It's complex.

Ics that.

We are trying to design in.

Around the globe with currency was and even the even for example in the <unk> sensing world So anyway.

Speaker 2: So anywhere there is a need for IC to drive lasers, to amplify the detected signals and so forth, we're trying to penetrate the market. And yes, the competitors pretty much those, that mentioned.

Need for IC to drive lasers to.

<unk> detected signals in so far as we're trying to penetrate the market.

The competitors are pretty much those.

Yeah.

Awesome. Thank you.

And I'm not showing any further questions at this time elektron the call over to our host for any closing remarks.

Speaker 4: And I'm not showing any further questions this time. I like to hear in the call over Torhost where he calls in the mark.

Speaker 3: Alright, thank you so much for joining us today. Thanks for hanging in there for a few extra minutes. And we hope you all have a good day. See you.

Alright. Thank you so much all for joining us today and thanks for hanging in there for a few extra minutes and we hope you all have a good day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Speaker 4: Ladies and gentlemen, so that's concludes today's presentation. You may now disconnect and have a wonderful day.

Yeah.