MACOM Technology Solutions Holdings Inc. Q2 2023 Earnings Call
Welcome to make them second fiscal quarter 2023 conference call. This call is being recorded today is Thursday may for 2023 at this time all participants on the listen only.
I will now turn to call to Mister <unk>, <unk>, Vice president of strategic initiatives and Investor Relations.
Can you. Please go ahead.
Thank you Olivia good morning, and welcome to our call to discuss May comps financial results for the second fiscal quarter of 2023.
I would like to remind everyone that our discussion today will contain forward looking statements, which is subject to certain risks and uncertainties as defined in the safe Harbor for forward looking statements contained in the private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those discussed today.
For more detailed discussions of the risks and uncertainties that could result in those differences, we refer you to make homes filings with the SEC.
Management statements. During this call will also include discussion of certain adjusted non-GAAP financial information.
Reconciliation of GAAP to adjusted non-GAAP results are provided in the company's press release and related form 8-K, which was filed with the SEC today.
And with that I'll turn it over to call, Steve Daily President and CEO of makeup.
Thank you and good morning.
Will begin today's call with a general update after that Jack Kolber, our Chief Financial Officer will provide a more in depth review of our results for the second quarter of fiscal 2023.
When Jack is finished I will provide revenue and earnings guidance for our third fiscal quarter and then we will be happy to take some questions.
Revenue for our second quarter of fiscal 2000, twenty-three was 169 $4 million and adjusted EPS with 79 cents per diluted share.
Cash flow from operations was approximately $33 million and we ended the quarter with 577 million in cash and short term investments on our balance sheet.
Overall, our team did an excellent job on execution to meet our business and financial targets.
I book to Bill ratio for Q2 was 0.5, which was well below our expectations and our turns business or revenue booked and shipped within the quarter was approximately 9% of our total revenue also lower than expected.
Despite the week Q2 bookings are backlog remains strong as seven of the nine past quarters have had greater than one book to bill ratios in our book to Bill ratio for the full year FY twenty-two was one one.
Given the extraordinarily weak Q2 bookings I thought it would be helpful to discuss the current order trends and address a series of important questions.
First where we surprised with the week Q2 bookings.
As discussed on last on our last earnings call. We had anticipated that bookings would be weakened Q2. However are actual bookings were approximately $40 million below our internal forecast.
So while we expected some softness we did not expect the magnitude of weakness and the number of cancellations that that occurred during the quarter.
What caused the week's bookings, we believe a combination of excess customer and channel inventory as well as pockets of short term and demand weakness.
What markets have the most inventory, we believe our data center networking and five G infrastructure customers and the associated sales channels continue to have high levels of inventory.
Additionally, some of our cable broadband customers have significant significant levels of inventory and they will not be ordering more products for at least a couple of quarters.
Most of these customers placed large orders in FY twenty-one our FY twenty-two to lock in capacity is to minimize the risk of supply chain interruption.
As supply constraints have been resolved many of these customers find.
Find themselves with excess inventory and therefore are delaying new orders are asking to push out or cancel certain backlog.
Or any of our target and markets slowing down.
We believe there is and demand slowdown in certain parts of the data center and telecommunication markets. For example, our customers that manufacturer optical transceivers for the U S. Based cloud Isps are telling us that they expect to receive new volume production orders, but only at 60% to 70% of the.
Prior years levels.
We also believe that China upon market demand is currently weak compared to last year somewhat offset by moderate support for <unk> for the U S and European markets.
We do not see any slowdown to defense opportunities or and demand.
Are there any notable may calm specific issues, causing the week bookings.
With the exception of the timing of D. O D orders, we believe the weakness is excess inventory and or short term and demand related.
It's may come losing market share we do not believe we have lost market share or have lost any major customers or programs.
Most of our design wins are sole-source sockets based on our product performance. Additionally are designing activity is strong and the interest in our newest products very high.
Given the weakness in Q2 bookings what is our outlook for Q3 Q for.
We have identified which major programs and associated orders are delayed reduced in scale or cancelled. We believe it will take time for customer channel inventory to return returned to normal levels. Therefore, we expect bookings to remain relatively weak and the next one or two quarters.
That said, we do expect booking trends will begin to improve in Q3.
Whereas in demand strong for may cost.
Fence medical avionics satellite communications and high performance compute remained strong.
Further we are confident that our growth potential continues to improve we've been expanding our staff and our latest products are compelling the near term weakness should not be confused with the longterm secular growth potential and our three core and markets and.
In summary, the queue to bookings do not reflect the strength and the depth of may comps portfolio and our long term growth potential I hope this extra detail on bookings helps investors understand the current market environment.
Turning to our end markets for fiscal Q2 industrial in defense revenue was $77.2 million flat sequentially Telecom was $53.9 million down 12.3% sequentially and data center was $38.3 million down seven 6% success.
<unk> I'll note that both Ied data data center revenues are up year over year in telecom is down year over year.
Within Telecom North America, China, and Korea have led in five G deployments, thus far.
As the number of five G subscribers increases additional network Densification and capacity expansion will be required to support the associated increase in traffic.
Based on these factors, we do believe five G will remain a growth opportunity over the next few years and we will continue to invest in penetrating this market.
Additionally, within our telecom market fiber based broadband access networks continue to increase globally, displacing copper and coax based networks fiber to the home deployments create a very very large high volume market with a total unit shipments of 2.5 G and <unk>.
Approaching 100 million units annually, representing a sizeable opportunity for may calm over the next few years.
Satellite based broadband networks are seeing a resurgence as a viable alternative or supplement to terrestrial based systems low earth orbit or Leo satellites.
Configured with mesh network architectures are making global broadband coverage of reality.
Constellations announced by Space X, one web Amazon Kuyper, and tell us that will drive demand for thousands of new Leo satellites over the next few years.
To support the systems, New ground station infrastructure is being built along with the associated backhaul fiber networks.
All of these are rapid microwave platforms play directly to make concepts strengths.
Turning to the data center, we see new trends emerging fueled by growing bandwidth demand.
Today Hyperscale operators are in the early stages of 400, G and 800 G deployments and one six T as following closely behind.
The technical challenges for high speed mixed signal Ics and systems designed associated with these higher speed nodes grows more complex with each successive generation.
This has a number of positive implications for our business article artificial intelligence and machine learning are just beginning to be deployed which will drive the next wave of growth within the data center.
Finally, we see the defense market as a growth opportunity for may calm in so many areas.
<unk> communications systems, and electronic warfare requirements across space Airborne Shipborne and ground based platforms can drive significant growth for our type of semiconductor products and.
In summary, our target markets contained significant growth growth drivers and we believe are differentiated technology will provide may calm a competitive advantage to capture market share.
I'd like to review some major accomplishments across the business during Q too.
As previously announced we released to production are one four again on silicon carbide semiconductor process.
Today, we have approximately 20, new mimic designs being processed in the fab.
Initially the target applications will be high volume shipborne, an airborne radar programs and various satcom in telecommunications systems.
On a related note are fab equipment team has recently completed the installation of a new backside via etch tools, and an atomic layer deposition or <unk> tool to support this and other next generation gained processes.
During the quarter, we made our first production shipments from our new bulk acoustic wave or Bath filter product line or.
Our back growth strategy is to focus on high performance applications, and industrial telecommunications and defense applications.
In March our technical team successfully demonstrated the performance of a newly designed high power transmitter sub or a panel. This was an important contract milestone and we will now begin work on the full array.
We expect this program will lead to similar opportunities in the next 12 to 24 months.
Notably this transmitter is designed with almost 100% may cause RF content.
A few trends in the data center market include we are seeing the man at the band declined for NRC products as new systems are moving more and more to pay them for.
Product demand for 100 G aoc's as well as 100 G. CW DM for an L. R. Four is week, we expect this to continue for one or two more quarters.
We are seeing strengthening production demand and growth and 100 G. D. R. One 400, G and 800 G B.
Most of this demand is supporting AI and high performance computer applications.
During the past few months, we have secured numerous design wins for laser drivers and Tia's for 404, 400 Z R and D. R light to support coherent systems for data Center campus applications.
And a few notable items on the RF power products, we have been selected by a tier one defense prior to support in El band radar program with a custom designed amplifiers sub assembly. We expect this large program will begin to ramp production within the next six months.
We expanded our pure carbide portfolio to include products, specifically designed for industrial RF power cooking and heating applications.
And S T micro electronics delivered FET devices from its newly qualified gain on silicon process. This.
This material will enable us to design, our next generation Gander silicon amplifier products to support low power and lower cost R. F amplifier applications.
And during Q2, we received numerous initial orders that has significant longterm revenue potential, including an icy design contract to support a long range automotive F M CW Lidar application.
Pilot order from a tier one base station OEM for a new five G massive mimo front end module <unk>.
And initial diode orders from both Japanese and German customers to support their new tactical radio production programs.
In March we attended the optical fiber conference or OFC, where we highlighted our newest products and hosted eight lives product demonstrations at our booth.
One demonstration, which gained a lot of attention was our linear drive products that support single mode and multimode Pam four architectures at 800 G.
The linear drive architecture enables power savings compared to re time solutions and a significant cost reduction due to the elimination of the DSP chip from the optical module.
Our demonstration showcased 800 G link performance and interoperability with broad calms Tomahawk five switch using OSF P modules designed by E. After a link hi, and cloud light.
The demonstrations confirm to post error free operation with multiple orders of magnitude margin over the standards requirements.
Additionally, we demonstrated in video is 800 G modules, which we believe will be ideal for applications like artificial intelligence machine learning and high performance computing.
The linear drive architecture is protocol independent and can support Infiniband Ethernet as well as other low latency interconnects.
We believe our first to market linear drive products and associated intellectual property position us for growth as this new architecture is adopted.
Before I turn the discussion over to Jack I would like to re review two recent acquisitions.
In early March we completed the acquisition of linear eyes or Communications group, a private company located in Hamilton New Jersey.
Linear iser is expert in microwaves Predistortion Predistortion linearization microwave electronics for satellite payloads, and microwave photonic sub systems or RF over fibre for defense applications.
In your eyes or designs and manufacturers custom products for space Satcom and defense customers. Their customers are primarily U S based and the revenues will be reported as part of our industrial in defense and telecommunications market segments.
I'm excited to welcome the entire linearized, 13th to May calm linearize or as a well run profitable business with great management, great employees, great technology, and customers and a 31 year track record of success.
By combining our proprietary semiconductor technology with their component and subsystem design expertise, we can create even more differentiated solutions for our combined customers and further penetrate the relevant markets together, we make a powerful combination.
And in January we announced a definitive agreement to acquire the assets of Olmec, a semiconductor manufacturer located outside of Paris, France.
The transaction has a few more hurdles to clear and currently we expect to close and our fiscal third quarter.
This acquisition of key manufacturing capabilities and technologies will expand our millimeter wave frequency gas and Gan portfolio increase our wafer manufacturing capacity with an operational three inch and idle six age production line.
Epitaxial growth expertise bolster our European presence and strengthen our mimic semiconductor process and icy design teams.
This acquisition supports our strategic goal to establish a leadership position and very high frequency semiconductor mimic processes and products Jack.
Jack will now provide a more detailed review of our financial results.
Thanks, Steve and good morning, everyone.
Ah results for the second quarter of fiscal 2023 or in line with our guidance for the period.
Revenue for the second quarter was $169.4 million down 6% quarter over quarter.
The sequential decrease was driven mostly by the telecom and market as well as a decrease in the data center market.
On a geographic basis sales to domestic customers represented approximately 49% of revenue flat sequentially.
Sales to China based customers represented approximately 20% down from 23% in our fiscal first quarter.
Sales to Europe based customers over the past four quarters approximate 7% of our revenue and we are focused on growing sales in this region.
Adjusted gross profit was $105.2 million or 62.1% of revenue down 50 basis points sequentially.
Total adjusted operating expense was $48.6 million, consisting of R&D expensive $31.3 million and SG&A expensive $17.3 million.
Total operating expenses as anticipated were sequentially down by $5.3 million due to lower variable compensation professional fees and discretionary spend.
Adjusted operating income and fiscal Q2 was $56.6 million down from $58.8 million in fiscal key one.
Adjusted operating margin was 33.4% for fiscal Q2 sequentially up from fiscal from 32.7% in Q1.
Our higher adjusted operating margin compared to fiscal Q1 demonstrates the flexibility in our operating model as we continued to manage internal investments to changes in business cycles.
Depreciation expense for fiscal Q2 was $5.8 million and adjusted EBITDA was $62.3 million <unk>.
Trailing 12 months adjusted EBITDA was $253 million compared to $244.7 billion in Q1 fiscal 2023.
Adjusted net interest income for fiscal Q2 with $2 million up roughly $1 million from fiscal Q1 on higher investment portfolio returns.
Our adjusted non-GAAP income tax rate and fiscal Q2 remained at 3% and resulted in an expensive approximately $1.8 million.
Our cash tax payments were $1.4 million up from $300000 in the first quarter of fiscal 2023.
We expect our adjusted income tax rate to remain at three per cent for the remainder of fiscal year 2023 and into fiscal year 2024.
Fiscal Q2, adjusted net income was $56.7 million compared to $58 million in fiscal Q1.
Adjusted earnings per fully diluted share was 79, utilizing a share count of 71.4 million shares compared to 81 cents of adjusted earnings per share in fiscal Q1.
Now moving on to balance sheet and cash flow items are.
Our accounts receivable balance was $121.8 million up from $112 million in fiscal Q1.
As a result days sales outstanding where 65 days compared to 57 days in the prior quarter.
The increase in accounts receivable is primarily due to shipment linearity with the majority of our shipments occurring later in the quarter as well as AAR from the Linearize our acquisition.
Inventories or $131.9 million at quarter end up by $10.5 million sequentially, primarily due to additional inventory in connection with the linearized our acquisition.
Inventory turns where two times in Q2 down slightly on a sequential basis from two two times in the prior quarter.
We feel the quality of our inventory remained strong and despite lower customer orders and shortening lead times, we do expect to reduce our net inventory balance as we progress through fiscal year 2023 and into fiscal year 2024.
Fiscal queue to cash flow from operations was approximately $32.5 million as compared to $38.3 million in fiscal Q1 the.
The decrease is mostly a result of the timing of accounts receivable and accounts payable payments during the quarter.
Cash generation continues to be an important priority for us as we manage through changing business cycles.
Capital expenditures totaled $6 million for fiscal Q2 down from $9.6 million in the prior quarter.
Or full fiscal year 2000, twenty-three capex is now estimated to be $35 million.
We are carefully balancing capital spending with the profitability and cash generation of the business.
And maintain our plan to make critical investments and fab capability and processes during fiscal 2023.
Next moving onto other balance sheet items.
During the second fiscal quarter, we utilized approximately $51 million of available cash to close the linearize or acquisition.
As a result cash cash equivalents and short term investments for the second fiscal quarter, where $577.3 million down from $594.7 million in fiscal Q1 2023.
Our second quarter gross leverage remains less than 2.5 times and our net debt is less than $50 million.
Before turning the discussion back to Steve I would like to note a few additional items.
First we are pleased to have closed the linearize or acquisition in March and we are working to integrate the team with May come we expect that Linearize. There will not have a significant short term impact on our revenue and will be modestly accretive to our bottom line.
Over the long term when combined with May comes brand and infrastructure, we believe the business will offer longterm growth opportunities.
We are excited to welcome to Linearize your team to May come.
Second we continue to work toward the closing of ohmic with its differentiated technology and dedicated workforce.
As previously discussed in the short term and following the closing of the transaction. We do not expect that <unk> will have a meaningful impact on our revenue and then it will be slightly diluted to our EPS how.
However over the long term as we invest in the business, we expect it will provide growth and profitability and drive stockholder value.
Additionally, I would like to note that we continue to make progress with our new product introductions and it plans to release 30 per cent more products. This fiscal year compared to last year, which we expect will support revenue growth over the long term.
Also during the June quarter, we are looking forward to updating our five year annual strategic plan, which has historically included a comprehensive plan to expand our Sam <unk>.
Develop our technical capabilities and grow our product portfolio. We view this as an important process, where we develop an in depth plan and set goals across the entire business to build on our strong financial foundation, sending growth profitability and investment targets for the next five years.
And finally, given the current business environment, we plan to carefully manage our expenses during the second half of the fiscal year I will now turn the discussion back over to Steve.
Thank you Jack May.
May come expects revenue in fiscal Q3 to be in the range of $145 million to $150 million. Adjusted gross margin is expected to be in the range of 59% to 61% and adjusted earnings per share is expected to be between 52 and 56 cents based on 71.
$5 million fully diluted shares. This guidance does not include any revenue contributions or financial impact from the plant Ohmic acquisition.
As I have noted we maintain a long-term perspective on executing our strategy our product portfolio is stronger than it was a year ago and we are confident we can meet or exceed our targets.
I would now like to ask the operator to take any questions.
And last time gentlemen to ask a question. Please press star one line on your account.
To be announced to withdraw your question.
Again.
Into consideration.
Police limit.
Question.
Please let me compile it.
Maj Fancy.
<unk>.
Yes. Thank you very much guys them good morning, and thanks for taking my questions I guess the.
First question.
Spend and we appreciate it by the way the the detail on the extra stuff in the script about the near term trends I realize there's a lot going on in the macro so.
What what I'm really interested in is just.
It does not surprise me I guess, given the macro environment that you guys have had some push outs of orders what what I'm really trying to understand is.
The orders that turned into a full on cancellations did that surprise you anything.
Going on there other than just sort of inventory digestion I mean, that's the thing that you make often times a single source then have extremely low obsolescence risk. So I'm just trying to understand that this should we read all of this is just a temporary push out of a whole bunch of programs and things will resume or where they're real program cancellations that we could we should.
Consider and if so in what segment. Thank you.
First I would say that.
We saw most of that in older networking programs that we've been supporting I would say where.
In the period, which is abnormally high it should be you know close to zero on a regular basis. So.
Yeah, we were surprised by those cancellations.
We think over time that number will will drive to zero.
I bet I guess is my follow up question.
You're expecting revenue for the year down 4%, so that would imply I think.
A little bit of bounce.
Bounce back, but not much in the September quarter, So maybe from the 47 and 147 and a half to 150 ballpark.
Is that sort of the right math and then how do we how do you guys think about the.
And if you have any visibility at all there on timing of any recovery Bye Bye segment that would be helpful. I understand that a lot of this is moving quickly and some of the things that happened in order bookings in the last quarter were unexpected, but we're just trying to get a just a ballpark sense of timing to recovery here would be really helpful. Thank God.
Thanks, Matt So I think I'd just like to highlight first that it's very important that we do talk about bookings and.
Jack and I have been reporting the book to build ratios for now about four years and we think that's a.
Probably one of the most important metrics to discuss on these quarterly calls.
What what we've seen over the past four years is certainly a lot of strength in the bookings back in fiscal 2020 or book to Bill ratio is about 1.11 close to what 0.2 and fiscal 21. It was about 1.2 and then last year last fiscal year is one one so all of that suggests that there.
Was growing demand a growing interest in may com's products. It also over that same period allowed us to build a very very strong backlog.
There was a period I think towards the end of Q3, we had a backlog over $400 million and what we've seen and really the first quarter, where we had a 0.9 book to Bill and then the second quarter of 0.5.
We've seen our backlog come down, but it's still around $300 million. So we still have a significant amount of backlog.
And this is high quality backlog within 12 months delivery.
So we have pretty good when we talked about this quarter and even next quarter in light of the week bookings, we still have a lot of confidence in our ability to execute and deliver it hit the targets we want to.
And so we did think it would be helpful to provide some directional information about the fourth quarter to.
To give investors comfort that we are still at a very strong position. So I just wanted to highlight that and by the way is you know the factors that drive bookings are certainly manufacturing cycle times, we've seen those coming down.
Venturi levels that customers as high so they were ordering less.
Smaller orders coming in that are really targeting new programs that will ramp not only towards the end of our fiscal year, but the beginning of next so when we add all of that up and then we look at our sales forecast.
We do think things will slowly improve we don't think it's going to be a rapid return to.
Let's say a strong bookings because we do have to work through the inventory situation that we're currently looking at so.
I think all the comments that I made in my prepared remarks about the trends improving as.
Is probably as far as I want to go we don't know what Q for bookings will be will have to wait and see there is certainly a lot of uncertainty around that.
The markets.
But I I think what's very important for today is investors understand that we're sitting on a very strong backlog and when we apply a conservative book to bill on top of that we think year over year, we should be able to achieve between four and 5% decline in revenue.
Which is not ideal.
But I think it's it's a reasonable outcome given the market environment.
Tom O'malley.
But I just wanted to out I think not just cover the revenue side, but if you do the math on the on the earnings down five implies a pretty good step up in the gross margin for September as well could you get the address one do you think that the June 60% of the bottom from a gross margin perspective, and then just given the.
Fact that that revenue is kind of flattish at that midpoint of 4% to 5%. How do you get that leverage of a couple of hundred basis points going into September from a gross margin perspective. Thank you.
Hey, Tom This is Jack so just as we looked out over Q3, I think the midpoint of the guide is that 60% number and going into Q4, we haven't gotten down to that granular level, but it would probably be somewhat consistent with that at.
At that lower revenue volume and obviously, we've seen a bit of a step down here in the June quarter versus.
Less than 100 meters less than 500 meters.
And to your point companies like in video.
Thanks for the for the color on the.
Understood and then Morris.
Consumption level.
Especially in data center in telecom, because based on my math and sort of Directionally. How you think about the business in the June quarter. It looks like both data sent telecom will be done about 20, 30% sequentially. So.
I think it's just too early to be specific.
And as Jack also highlighted when we were down at these revenue levels back in 2000 fiscal 21 are are gross margins, where lower but we know that the mix is favorable our cost structure is favorable.
Our ability to execute and the efficiencies within our operations are all favorable so even at those same revenue levels were seeing significant improvement in the gross margins and of course, the strength of the portfolio.
Is providing a nice tailwind so with that may be Jack you could be more specific but I think that was helpful summary that you had gone through Steve.
Once again, we're in a much better position than we were a number of years ago in terms of how we manage our costs.
Flexible manufacturing model, where certain of our products are fab it outside.
Less of an impact on our overall gross margin and even the mix that we have through products that are fab, we're not a mega fab, where a dip a slight dip in in revenue can have a more significant impact on the gross margin. So we are somewhat insulated from that perspective versus some of our peers that may be out there that are higher volume.
Operators.
Got it and then just a quick follow up as well just kind of Opex side of things as you kind of just kind of go through second half headwinds, but also prioritise investment in your product lines. I guess can you quantify how you think opex would try and do that in the next few quarters and so forth.
I think if you if you look to the the mid point of our guide we're probably in the 50 ish million, which is a bit of a step up from where we ended this current quarter, which was around $47 million a total opex.
Some of that is linear acquisition coming online for a for a full quarter.
But we will continue to make investments we've talked about our new product introductions as being an important area for us. So we will continue to focus on on making some of those R&D investments, where they where they make sense, but one thing that we've stated many times before will keep a close eye on our operating expenses as we go forward and make sure. We we manage those expenses.
In an appropriate manner.
Next question coming from the lineup, David Williams with benchmark your line or something.
Yeah. Good morning, Thanks for letting me ask a question. So quickly I wanted to see if maybe you had any color around maybe.
<unk> spending plans that you're saying within maybe carriers and service providers are you seeing major changes in the capex or just maybe just some programs that are being shelved here in the near term.
Right. Thanks for the question, so I'm, probably not the best person to ask that question regarding that sort of what the the industries are doing what their capital spending.
We have sort of seeing directionally that there is increased spending with five G. It.
It depends on the country of course, we.
We see that the data centers are continuing to invest I mean, they're they're.
Having massive layoffs on one side of their business, but they are investing heavily and equipment on the other sides of their business and so that capital investment will certainly slowdown to companies like may calm.
So I think it's it's very difficult for us to sort of talk about those higher level of capital spending.
Because it's where we are so far removed from.
How those dollars flow, but I would highlight that there is there are sexual or growth trends that Favre may calm for example, the defense industry is growing and not only here in the U S. But also internationally all of the not all but many if not most of the NATO countries are increasing their <unk>.
Pending on defense equipment, and they want to build that equipment locally and so companies like may comp can support European defense contractors I talked in the script about participating in some tactical radios of for a German customers for example.
And so there's <unk>.
Tremendous opportunity for us in the defense industry with the technology that we have when we think about telecom.
Most of the systems that are being deployed today are moving to higher frequencies. When you start to look at the number of companies that can support those platforms with high frequency semiconductors can pretty much count those companies on one hand, and we are one of those companies and our strategy is to be stronger.
And be a leader with high frequency semiconductor technology. When you layer on top of that are gallium arsenide in Gan gallium nitride again on silicon carbide capabilities at those higher frequencies. It really starts to look differentiated so the telecom market as we believe going to continue to grow.
There's lots of sort of.
Fighting.
Growth opportunities, we've talked about some of the Leo constellations on the on the script.
And the last the data center, you know we want to participate at the highest data rates and as things become commoditized or move to lower data rates. That's when we will step out and we will put our already resources in other areas. So.
While we're not so focused on the capital spending of.
Sort of the end user community.
I would highlight that are three core markets will have secular growth over the next decade, and we're in a great position to take advantage of that.
Okay, great color, there and secondly, maybe for follow up just anything in terms of of China, and the demand that you're seeing there I know, there's you've touched on this a bit earlier, but it just kind of thinking about maybe demand trends or even the inventory issues. There just around that mark it would be helpful. Thank you.
Sure.
China is a very important market for us in the first quarter about 23% of our revenue we're about $40 million was and.
Coming from Chinese customers this past quarter. It was the percentage dropped.
And so now in absolute dollars that's around $33 million.
So it's certainly come down I don't think that these numbers represent the potential of that market.
I would say right now, it's a very muted market.
The sense that five G deployments or even a lot of optical module buildouts, there's a lot of uncertainty around the volumes and sort of what's going to happen next.
I would say generally say generally speaking things are improving.
As COVID-19 is sort of behind.
The local economy and now things are opening up and that's a positive trend for.
For companies like May calm.
And the last thing I'll add this other there's certainly sort of a headwind against U S semiconductor manufacturers selling products into China, and we recognize that and we will make sure that our strategy addresses that.
Thank you and next question coming from.
<unk> ackman would be empty.
Okay.
Yeah. Thank you.
Steve and Jack in your prepared remarks sooner that your optical transceiver partners have said that new orders.
Would be down 30 to 40 per cent from a prior year <unk>.
Is that just specific to your own NRC products and is that waited more towards telecom or is it more way toward data, Sir any color that would be helpful.
I would say that that was a broad statement across all all data rates in N R Z and paying for.
Sort of excluding the higher end paying for products and I would say that that's more heavily weighted towards data center, we think that when telecom turns on not only will we have very strong we have a very strong position with fronthaul.
With our not only our electrical products drivers and Tia's and CD ours, but also optical products, including lasers and photo detectors and then the last thing I'll add is that we do think that metro Metro long haul business is relatively weak right now we think that will start.
To strengthen.
In about one to two quarters.
That's that's very helpful maybe I.
<unk> last part and are you you noted growing design wins for 400 gigs Z R. So I guess I'm not sure. If that's in reference this metro opportunity, but could you discuss your opportunity on on C. R products over the next maybe even year or two as you are starting to when somebody's designs. Thank you.
Yeah, I mean, it's certainly very early but we are what we are seeing is customers developing coherent prov.
Products that will be used in and around the data center.
And so we have with our Metro long Hall technology, which are generally these are generally high end semiconductor processes for long distance applications.
We are seeing sort of a reset on that technology to apply it.
To things like 400.
Or light so.
It's primarily in two product areas it is driver's ntia's.
And generally it's four applications around 20 to 40 kilometers that's sort of how we would classify that segment, let's say.
Mmk I'm showing no further questions in the queue. At this time I will now turn the call back over to Mr. Daly for any closing remarks.
Thank you and closing I would like to thank all our employees for their hard work and dedication which made all these results possible have a nice day.
Ladies and gentlemen.
Can you spot today. Thank you for your participation you may now disconnect.
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[music].
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[music].
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[music].
Okay.