Q3 2023 Coherent Corp Earnings Call

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Operator: Good day, and thank you for standing by. Welcome to the Coherent Corp. FY '23 third-quarter earnings call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator instructions].

The automated message advising you hey in this race to withdraw your question. Please press star one again.

Operator: Please be advised this conference is being recorded. I would now like to turn the conference over to your speaker today, Mary Jane Raymond. Please go ahead.

Mary Jane Raymond: Thank you, Kevin, and good morning. I'm Mary Jane Raymond, Coherent's chief financial officer. Welcome to our earnings call today for the third quarter of fiscal year 2023. This call is being recorded on Wednesday, May 10th, 2023.

Welcome to our earnings call today for the third quarter of fiscal year 2023.

This call is being recorded on Wednesday May 10 2023.

Mary Jane Raymond: With me today on the call is Dr. Chuck Mattera, our chair and chief executive officer. After our prepared remarks, Chuck and I will be joined by Dr. Giovanni Barbarossa, our chief strategy officer and the president of the materials segment; Dr. Mark Sobey, our president of the laser segment; and Bob Bashaw, our president. They will participate in the Q&A to discuss our strategy, results, and the exciting prospects across our end markets. For today's call, the press release and investor presentation are available in the Investor Relations section of our website, coherent.com.

After our prepared remarks, Chuck and I will be joined by Dr. Giovanni Barbarossa, Our chief strategy Officer, and the President of the materials segment, Dr. Marc <unk>, our president of the laser segment and Bob <unk> our president.

They will participate in the Q&A to discuss our strategy results in the exciting prospects across our end markets.

Today's call the press release and Investor presentation are available in the Investor Relations section of our website coherent dot com.

Mary Jane Raymond: Today's results include certain non-GAAP measures. Non-GAAP financials are not a substitute for, nor are they superior to, financials prepared in accordance with GAAP. A detailed reconciliation of these non-GAAP measures to our GAAP results is included in today's documents. I remind you that during this call, we will make certain forward-looking statements. These include, but are not limited to, statements regarding geopolitical and macroeconomic trends, as well as expectations for our revenue, relevant market trends, and financial performance, including our guidance.

I remind you that during this call we will make certain forward looking statements.

These include but are not limited to <unk>.

Statements regarding geopolitical and macroeconomic trends as well as expectations for our revenue relevant market trends and financial performance, including our guidance.

Mary Jane Raymond: In addition, we will discuss our progress on integration, including our delivery of the projected synergies and certain restructuring matters. All forward-looking statements are based on today's expectations, forecasts, and assumptions. They involve risks and uncertainties that could cause actual results to differ materially from our comments today. Our comments should be viewed in the context of the risk factors detailed in our most recent Form 10-K for the fiscal year ended June 30th, 2022 and subsequent SEC filings.

We will discuss our progress on integration, including our delivery of the projected synergies and certain restructuring matters. All forward looking statements are based on today's expectations forecasts and assumptions. They involve risks and uncertainties that could cause actual results to differ materially from our comments today are. Comments should be viewed in the context of the risk factors detailed in our most recent Form 10-K for the fiscal year ended June 32022, and subsequent SEC filings cohere.

All forward looking statements are based on today's expectations forecasts and assumptions. They involve risks and uncertainties that could cause actual results to differ materially from our comments today are. Comments should be viewed in the context of the risk factors detailed in our most recent Form 10-K for the fiscal year ended June 32022, and subsequent SEC filings cohere.

They involve risks and uncertainties that could cause actual results to differ materially from our comments today are. Comments should be viewed in the context of the risk factors detailed in our most recent Form 10-K for the fiscal year ended June 32022, and subsequent SEC filings cohere.

Comments should be viewed in the context of the risk factors detailed in our most recent Form 10-K for the fiscal year ended June 32022, and subsequent SEC filings cohere.

Mary Jane Raymond: Coherent assumes no obligation to update the information discussed during this call, except as required by law. With that, let me turn the call over to Dr. Chuck Mattera. Chuck?

With that let me turn the call over to Dr. Chuck Mattera Chuck Thank.

Chuck Mattera: Thank you, Mary Jane, and thank you all for joining us today. Coherent Corp. posted third-quarter revenues of 1.24 billion, 6% below the low-end of our guidance, and 8% lower than the midpoint of our guidance. Revenues were up 4% year over year on a pro forma basis.

And thank you all for joining us today.

Coherent Corp posted third quarter revenues of $1 4 billion, 6% below the low end of our guidance and 8% lower than the midpoint of our guidance.

Revenues were up 4% year over year on a pro forma basis.

Chuck Mattera: Organic revenue growth was up 6% year over year. Our non-GAAP EPS was $0.58. Our operating cash flow was 152 million. We invested 97 million of capital equipment. We generated 55 million of free cash flow, and we retired 78 million of our debt. We were intensely focused on controlling costs, managing cash, and continuing our disciplined approach to capital allocation during the quarter. The integration of Coherent continues to go well. Our third-quarter performance was impacted by some of our larger customers requesting us to delay scheduled shipments primarily in the networking segment.

Our non-GAAP EPS was <unk> 58.

Our operating cash flow was $152 million.

We invested $97 million of capital equipment, we generated $55 million of free cash flow and we retired $78 million of our debt.

We were intensely focused on controlling costs managing cash.

And continuing our disciplined approach to capital allocation during the quarter.

The integration of coherent continues to go well.

Our third quarter performance was impacted by some of our larger customers requesting us to delay scheduled shipments primarily in the networking segment.

Chuck Mattera: Our long-term strategy of market, technology, and business diversification is clearly an advantage for us in these market conditions. That diversification, together with continued strong market share performance across our core markets, helped mitigate the impact of the communications market challenges that we experienced in the quarter. Specifically, the solid performance of the materials segment, coupled with the solid performance of the legacy Coherent business, now our lasers segment, provided diversification and stability by exposing us to multiple and different growth markets. Revenues in the quarter by segment were 551 million for networking, 365 million for lasers, and 324 million for materials.

That diversification together with continued strong market share performance across our core markets helped mitigate the impact of the communications market challenges that we experienced in the quarter.

Specifically the solid performance of the materials segment.

Coupled with the solid performance of the legacy coherent business now our lasers segment provided diversification and stability by exposing us to multiple and different growth markets.

Revenues in the quarter by segment were $551 million for networking $365 million for lasers and $324 million for materials.

Chuck Mattera: Turning to the composition of our sales by our four major markets: 35% was into industrial; 44% into communications; 11% into electronics; and 10% into instrumentation. Regarding the distribution of our revenues by region, North America accounted for 53%, Europe was 20%, Japan and Korea were 14%, China was 11%, and 3% went into the rest of the world. In the face of the macro challenges in the quarter, customers are now taking proactive measures to manage inventory and cash. We expect the constrained market conditions to persist into FY '24.

Regarding the distribution of our revenues by region North America accounted for 53% Europe was 20%, Japan and Korea were 14%. China was 11% and 3% went into the rest of the world. In the face of the macro challenges in the quarter customers are now taking proactive measures to manage inventory and cash. We expect the constrained market conditions to persist into FY 'twenty four.

China was 11% and 3% went into the rest of the world. In the face of the macro challenges in the quarter customers are now taking proactive measures to manage inventory and cash. We expect the constrained market conditions to persist into FY 'twenty four.

In the face of the macro challenges in the quarter customers are now taking proactive measures to manage inventory and cash. We expect the constrained market conditions to persist into FY 'twenty four.

We expect the constrained market conditions to persist into FY 'twenty four.

Chuck Mattera: With this temporary slowdown in the market, we've wasted no time in aligning our cost structure with market realities. To this end, we are pulling up the schedule for some of the actions planned as part of our multiyear synergy, integration, and transformation efforts. We have begun the next phase of the Coherent acquisition integration plan, including those actions involving consolidations and moves to lower-cost sites. These moves, alongside our other actions, will keep us on track for delivering the previously announced 250 million synergy plan.

To this end we are pulling up the schedule for some of the actions planned as part of our multiyear synergy integration and transformation efforts.

We have begun the next phase of the coherent acquisition integration plan, including those actions involving consolidations and moves to lower cost sites. These moves alongside our other actions, we will keep us on track for delivering the previously announced $250 million synergy plan.

These moves alongside our other actions, we will keep us on track for delivering the previously announced $250 million synergy plan.

Chuck Mattera: We also undertook a number of actions to align our cost with current market realities as we begin the fourth quarter. We are accelerating the restructuring actions we began in Q3 and announced today. It is focused on workforce reductions to reduce costs and expenses and facility rationalization, including the relocation of certain facilities to increase our resiliency and to lower our costs. We are also planning to implement a multiyear digital transformation that will help enable us to improve our manufacturing productivity and efficiency and to provide lower-cost G&A services.

We are accelerating the restructuring actions, we began in Q3 and announced today. It is focused on workforce reductions to reduce cost and expenses. And facility rationalization, including the relocation of certain facilities to increase our resiliency and to lower our costs. We are also planning to implement a multiyear digital transformation that will help enable us to improve our manufacturing productivity and efficiency. Provide lower cost G&A services.

It is focused on workforce reductions to reduce cost and expenses. And facility rationalization, including the relocation of certain facilities to increase our resiliency and to lower our costs. We are also planning to implement a multiyear digital transformation that will help enable us to improve our manufacturing productivity and efficiency. Provide lower cost G&A services.

And facility rationalization, including the relocation of certain facilities to increase our resiliency and to lower our costs. We are also planning to implement a multiyear digital transformation that will help enable us to improve our manufacturing productivity and efficiency. Provide lower cost G&A services.

We are also planning to implement a multiyear digital transformation that will help enable us to improve our manufacturing productivity and efficiency. Provide lower cost G&A services.

Provide lower cost G&A services.

Chuck Mattera: We expect to realize 100 million to 125 million of restructuring savings on an annual basis by FY '25. Cumulative savings for the period FY '23 to FY '25 will range from 200 million to 300 million. The cost to achieve these savings will be between 150 million and 200 million. The good news is that it's very clear to me that our continued investment in the markets we serve with best-in-class people and technology has earned us a strategic and highly competitive position at a growing number of customers.

Cumulative savings for the period FY2023 to FY 'twenty, five will range from $200 million to $300 million. The cost to achieve these savings will be between $150 and $200 million. The good news is that is very clear to me that our continued investment in the markets, we serve with best in class people and technology. <unk> earned us a strategic and highly competitive position at a growing number of customers.

The cost to achieve these savings will be between $150 and $200 million. The good news is that is very clear to me that our continued investment in the markets, we serve with best in class people and technology. <unk> earned us a strategic and highly competitive position at a growing number of customers.

The good news is that is very clear to me that our continued investment in the markets, we serve with best in class people and technology. <unk> earned us a strategic and highly competitive position at a growing number of customers.

<unk> earned us a strategic and highly competitive position at a growing number of customers.

Chuck Mattera: We've been planning and executing this evolution for a long time, including the most recent acquisitions of Finisar and Coherent. The power of our diversified and larger scale model is very clear to me. Our work is not done, rather it's just beginning. We are confident that our new product portfolio, technology, and manufacturing platforms will be ready as the growth resumes.

The power of our diversified and larger scale model is very clear to me.

Our work is not done.

Rather it's just beginning.

We are confident that our new product portfolio technology and manufacturing platforms, we will be ready as the growth resumes.

Chuck Mattera: I also am confident in our ability to secure new design wins across our key product lines to drive long-term differentiated performance. We are very well positioned to continue benefiting from strong and durable technology trends that we do not see abating anytime soon. With respect to our four end markets and communications, we experienced a near-term slowdown in the datacom market with some hyperscale and enterprise computing customers and with our telecom and cable TV customers, as well as many abruptly shifted their focus in the quarter from managing their supply chain shortages to managing their inventory surpluses. These affected our telecom and datacom businesses about equally.

We are very well positioned to continue benefiting from strong and durable technology trends that we do not see abating anytime soon.

With respect to our four end markets and communications, we experienced a near term slowdown in the datacom market with some hyperscale and enterprise computing customers.

And with our telecom and cable TV customers as well as many abruptly shifted their focus in the quarter from managing their supply chain shortages to managing their inventory surpluses. These affected our telecom and datacom businesses about equally.

These affected our telecom and datacom businesses about equally.

Chuck Mattera: Datacom revenues were 294 million, compared to 332 million in Q3 of FY '22. And telecom revenues were 245 million, compared to 222 million also in Q3 FY '22. We believe this is a temporary interruption in the growth trajectory of these markets that will continue into FY '24. We also believe that the fundamental growth drivers of our communications market are intact, including increasing internet traffic, the proliferation of network devices, and increased broadband and mobile data rates.

In telecom revenues were $245 million compared to $222 million also in Q3 FY 'twenty two.

We believe this is a temporary interruption in the growth trajectory of these markets that will continue into FY 'twenty FY 'twenty four.

We also believe that the fundamental growth drivers of our communications market are intact, including increasing internet traffic the proliferation of network devices and increased broadband and mobile data rates.

Chuck Mattera: While datacom will be partially affected in the short term by the temporary pullback in investments in infrastructure, including the metaverse, it is expected to come back strongly, driven by the deployments of hyperscale computing and for artificial intelligence and machine learning. In fact, we believe that we are at another inflection point in a decade-long megatrend forming with artificial intelligence and machine learning, and we expect these trends to account for more than half of all datacom transceiver shipments by 2028. Despite the current datacom market reset, our industry-leading position in 200G and above remains very strong. Our leadership in this area derives from the vertical integration of our high-speed lasers, optics and electronics and our transceiver modules, and our ability to scale to meet aggressive volume ramps of the world's leading data center operators.

It is expected to come back strongly driven by the deployment of Hyperscale computing and for artificial intelligence and machine learning.

In fact, we believe that we are at another inflection point in a decade long mega trend, forming with artificial intelligence and machine learning and we expect these trends to account for more than half of all datacom transceiver shipments by 2028.

Despite the current datacom market reset our industry, leading position in 200 gene and above remains very strong. Our leadership in this area to rise from the vertical integration of our high speed lasers optics, and electronics and our transceiver modules. And our ability to scale to meet aggressive volume ramps of the world's leading data center operators.

Our leadership in this area to rise from the vertical integration of our high speed lasers optics, and electronics and our transceiver modules. And our ability to scale to meet aggressive volume ramps of the world's leading data center operators.

And our ability to scale to meet aggressive volume ramps of the world's leading data center operators.

Chuck Mattera: In addition to the growth of our 200G and 400G datacom transceivers, we are accelerating our 800G shipments in anticipation of exponential growth beginning in FY '24. In telecom, we are a vertically integrated market leader with our Coherent transceivers and disaggregated solutions. Once the growth resumes, we expect all of these products to continue to grow at double-digit percentages annually. We continue to invest in a broad product portfolio to address evolving requirements of our customers who are focusing their resources on developing new platforms, and we are engaged in intense design and activity in response to multiple new opportunities ahead.

In telecom, we are a vertically integrated market leader with our coherent transceivers and disaggregated solutions. Once the growth resumes, we expect all of these products to continue to grow at double digit percentages annually. We continue to invest in a broad product portfolio to address evolving requirements of our customers who are focusing their resources on developing new platforms and we are engaged in intense design in activity in response to multiple new opportunities ahead.

Once the growth resumes, we expect all of these products to continue to grow at double digit percentages annually. We continue to invest in a broad product portfolio to address evolving requirements of our customers who are focusing their resources on developing new platforms and we are engaged in intense design in activity in response to multiple new opportunities ahead.

We continue to invest in a broad product portfolio to address evolving requirements of our customers who are focusing their resources on developing new platforms and we are engaged in intense design in activity in response to multiple new opportunities ahead.

Chuck Mattera: These opportunities in telecom stemmed from disaggregation and are being increasingly led by hyperscalers who, through their continued build-out of metro, regional and submarine networks, are also driving paradigm shifts in the transport network architecture. With our existing telecom transceiver portfolio and our differentiated DSP technology road map, we plan to launch the first 100G Coherent solution for network edge applications. We expect that the planned $65 billion investment in broadband access from the Infrastructure Investment and Jobs Act will be a major catalyst for our optical communications business. Finally, as space is the new frontier, we are seeing a strong increase in demand for our differentiated products for satellite communications. In industrial.

With our existing telecom transceiver portfolio and our differentiated DSP technology roadmap, we plan to launch the first 100 G coherent solution for network edge applications.

We expect that the planned $65 billion investment in broadband access from the infrastructure investment and jobs Act will be a major catalyst for our optical communications business. Finally, as space is the new frontier we. We are seeing a strong increase in demand for our differentiated products for satellite communications.

Finally, as space is the new frontier we. We are seeing a strong increase in demand for our differentiated products for satellite communications.

We are seeing a strong increase in demand for our differentiated products for satellite communications.

Chuck Mattera: In industrial, our revenues in the quarter were 438 million, down 3% sequentially. However, we saw a sustained strength in semiconductor cap equipment front-end sales, which grew 15% year over year and 8% sequentially and includes our EUV lithography products whose sales grew 30% sequentially. Lasers for both semiconductor wafer inspection and spike annealing set quarterly records and have a strong outlook at least through the rest of the calendar year. Our leading display customers lowered their demand outlook by greater than 35% due to a decrease in factory utilization based on lower demand, the lowest in four years.

However, we saw a sustained strength in semiconductor cap equipment front end sales, which grew 15% year over year and 8% sequentially and includes our <unk> lithography products, whose sales grew 30% sequentially. Lasers for both semiconductor wafer inspection and Spike kneeling set quarterly records and have a strong outlook at least through the rest of the calendar year. Our leading display customers lowered their demand outlook by greater than 35% due to a decrease in factory utilization based on lower demand the lowest in four years.

Lasers for both semiconductor wafer inspection and Spike kneeling set quarterly records and have a strong outlook at least through the rest of the calendar year. Our leading display customers lowered their demand outlook by greater than 35% due to a decrease in factory utilization based on lower demand the lowest in four years.

Our leading display customers lowered their demand outlook by greater than 35% due to a decrease in factory utilization based on lower demand the lowest in four years.

Chuck Mattera: This led to a decrease in our forecasted service business in Korea. In the quarter, a big highlight was that our sales of display spare parts into China surpassed those of Korea for the first time, giving a clear sign of market growth in China even though we see some sluggish demand for mobile devices. We expect these short-term consumer demand and inventory-related headwinds will resolve as we move toward the calendar Q3 release of the next-gen smartphones from industry leaders. Such a trend also aligns with the widely announced new-gen 8.5 fab investments in China that we believe will drive a strong recovery in our OLED business into calendar year 2024.

<unk> in Korea.

In the quarter, a big highlight was was that our sales of display spare parts into China surpassed those of Korea for the first time, giving a clear sign of market growth in China, even though we see some sluggish demand for mobile devices.

We expect these short term consumer demand and inventory related headwinds will resolve as we move towards the calendar Q3 release of the Nextgen smartphones from industry leaders.

Such a trend also aligns with the widely announced new Gen. Eight five fab investments in China that we believe will drive a strong recovery in our OLED business into calendar year 'twenty four.

Chuck Mattera: In the month of March, we set an all-time record for sales into the laser aftermarket in North America. We continue to experience strong welding design wins for our kilowatt ARM fiber lasers and our [Inaudible] beam delivery solutions as a result of the acceleration of EV and battery factories around the world. Instrumentation was up 4% sequentially to 125 million as we continue to set records in this market through strength across the board, led by applications in immunology and laser-assisted procedures. Sales of our ultrafast laser-based advanced imaging systems for neuroscience increased as well, and we had our strongest quarter in scientific since pre-COVID times.

We continued to experience strong welding design wins for our kilowatt arm fiber lasers, and our high beam delivery solutions as a result of the acceleration of EV and battery factories around the world.

Instrumentation was up 4% sequentially to $125 million as we continue to set records in this market through strength across the board led by applications in immunology and laser assisted procedures.

Sales of our ultrafast laser based advanced imaging systems for neuroscience increased as well and we had our strongest quarter in scientific since pre Covid times.

Chuck Mattera: We shipped our 100,000th OBIS mini laser, and we added several new design wins for our light engine solutions where we combine the lasers and optics that form the engine of our customers' products. It is our strategy to enable customers to source the entire laser light illumination side of their systems from Coherent, accelerating their time to market, time to quality, and time to cost. We believe that we can grow our revenue in the years to come well ahead of the market by expanding this addressable market. At the other end of the optical spectrum, we shipped our 50th meter-class optic for the Thirty Meter Telescope with more than 150 units to go before completion over the next several years.

It is our strategy to enable customers to source the entire laser light elimination side of their systems from coherent accelerating their time to market time to quality and time to cost.

We believe that we can grow our revenue in the years to come well ahead of the market by expanding this addressable market.

At the other end of the optical spectrum, we shipped our 50 meter class optics for the 30 meter telescope with more than 150 units to go before completion over the next several years.

Chuck Mattera: Meanwhile, the James Webb telescope continues to send back mind bending images and we are proud of coherent contributions as the prime supplier of the world's most advanced space and terrestrial imaging systems. In electronics, our revenues were $139 million up 121% year over year led by consumer electronics for sensing. Our customer intimacy in this market gives us confidence that the long term opportunity in consumer electronics is much broader than just fixed for three D sensing. However, we expect lower revenue from just under 10% to 3% or less of our annual revenues for the next 18 to 24 months as some design changes take effect.

In electronics, our revenues were $139 million up 121% year over year led by consumer electronics for sensing. Our customer intimacy in this market gives us confidence that the long term opportunity in consumer electronics is much broader than just fixed for three D sensing. However, we expect lower revenue from just under 10% to 3% or less of our annual revenues for the next 18 to 24 months as some design changes take effect.

Our customer intimacy in this market gives us confidence that the long term opportunity in consumer electronics is much broader than just fixed for three D sensing. However, we expect lower revenue from just under 10% to 3% or less of our annual revenues for the next 18 to 24 months as some design changes take effect.

However, we expect lower revenue from just under 10% to 3% or less of our annual revenues for the next 18 to 24 months as some design changes take effect.

Chuck Mattera: We believe that sensing will ultimately become ubiquitous in metaverse hardware and wearables, as well as in LiDAR and other emerging applications. Our strategic engagements are growing across them all. Regarding our outlook that we will discuss today, it reflects a degree of caution around customer buying patterns in the near term. While June was traditionally legacy II-VI's strongest quarter, the macro factors we are experiencing, along with seasonality, will result in lower revenues sequentially.

Our strategic engagements are growing across them off.

Regarding our outlook that we will discuss today. It reflects a degree of caution around customer buying patterns in the near term.

While June was true.

Traditionally legacy <unk> is strongest quarter. The macro factors, we are experiencing along with seasonality will result in lower revenues sequentially.

Chuck Mattera: We will continue to stay focused on cost controls, synergy realization, and cash generation while we align our cost to market realities. We will work to restructure and transform the company and position our product portfolios for sustainability to enable timely resumption of our growth as the market turns up. Our synergy and restructuring plans will further enhance our competitive position by driving greater scale and focus at existing sites and affording increased flexibility and efficiency, product road map alignment, and access to lower cost structures. We have completed a rigorous analysis of these plans, a careful assessment of the effects on our people, and believe that these moves will position us to achieve both short and long-term commitments.

We will work to restructure and transform the company and position our product portfolios for sustainability to enable timely resumption of our growth as the market turns up.

Our synergy and restructuring plans will further enhance our competitive position by driving greater scale and focus at existing sites and affording increased flexibility and efficiency.

Product roadmap alignment and access to lower cost structures. We have completed a rigorous analysis of these plans a careful assessment of the effects on our people and believe that these moves will position us to achieve both short and long term commitments.

We have completed a rigorous analysis of these plans a careful assessment of the effects on our people and believe that these moves will position us to achieve both short and long term commitments.

Chuck Mattera: With respect to our silicon carbide business, it grew more than 40% year over year. This business continues to be one of our top priorities. Therefore, our equipment investments in the silicon carbide platform expansion were again about half of our total capital investment. The market is showing signs of a prolonged period of severe capacity constraints forming.

Grew more than 40% year over year.

This business continues to be one of our top priorities.

Therefore, our equipment investments in our silicon carbide platform expansion, we're again about half of our total capital investment.

The market is showing signs of a prolonged period of severe capacity constraints forming.

Chuck Mattera: We are extremely well positioned as we have steadily gained share in what we believe will be an underserved market for many years to come. We are increasingly asked by our customers to support a continuously increasing demand, and we have also often been asked by investors what our endgame is for this business. Even with the $1 billion investment over 10 years that we announced in August of 2021, the gap between projected supply and demand is accelerating, and so, we now believe that the market leader who emerges will be the incumbent who is able to timely close the gap and serve the market needs. This will require a relentless focus on operational excellence and the results orientation that is a natural part of our company culture.

We are increasingly asked by our customers to support our continuously increasing demand.

And we have also often been asked by investors what our game and game is for this business.

Even with the $1 billion investment over 10 years that we announced in August of 2021 the.

The gap between projected supply and demand is accelerating and so we now believe.

But the market leader, who emerges we'll be the incumbent who was able to timely close the gap and serve the market needs.

Chuck Mattera: This will require a relentless focus on operational excellence and the results orientation that is a natural part of our company culture. And it will also require an even greater commitment to investment. We see a unique opportunity to further accelerate our growth through either accelerated investment and/or deeper strategic partnerships. To that end, we have commenced the review of the strategic alternatives for our silicon carbide business. This review is focused on effectively serving the market at the same time while maximizing long-term shareholder value for our Coherent shareholders by considering a range of potential alternatives.

We see a unique opportunity to further accelerate our growth through either accelerated investment and or deeper strategic partnerships.

To that end, we have commenced the review of the strategic alternatives for our Silicon carbide business.

This review is focused on effectively serving the market at the same time, while maximizing long term shareholder value for our coherent shareholders by considering a range of potential alternatives.

Chuck Mattera: These include a sale, joint venture, minority investment, or simply staying the course with the continued execution of our business plan. We remain firmly committed to our customers, employees, and our shareholders and we will continue to invest in capital, capacity and technology innovations, including expanding our portfolio so as to become a full-line supplier of silicon carbide power devices and modules. We can give no assurances as to the outcome of this process. And following our Q&A session today, we do not intend to make any further public comment regarding this matter until we have a material development to disclose.

Joint venture minority investment, we're simply staying the course with the continued execution of our business plan.

We remain firmly committed to our customers employees and our shareholders.

And we will continue to invest in capital capacity and technology innovations, including expanding our portfolio. So as to become a full line supplier of silicon carbide power devices and modules.

We can give no assurances as to the outcome of this process and following our Q&A session. Today, we do not intend to make any further public comment.

Regarding this matter until we have a material development to disclose.

Chuck Mattera: With that, I'll turn it over to Mary Jane. Mary Jane?

Mary Jane Raymond: Thank you, Chuck. Our backlog of 2.6 billion landed as we expected it would. Our Q3 non-GAAP gross margin was 37.3%, and the non-GAAP operating margin was 17.5%. Supply chain costs were minimal in Q3.

Our Q3 non-GAAP gross margin was 37, 3% and the non-GAAP operating margin was 17, 5% <unk>.

Supply chain costs were minimal in Q3.

Mary Jane Raymond: At segment level, the non-GAAP operating margins were 13.6% for networking, 27.5% for materials, and 14.6% for lasers. During the quarter, with a sudden downturn in revenue, we carried approximately $15 million of underabsorbed capacity, and the gross margin was also affected by $8 million in FX and $7 million due to mix. Our operating expenses, SG&A plus R&D were 19.8% of sales on a non-GAAP basis. The non-GAAP items were 62 million in amortization, 29 million in stock comp, and 16 million of transaction and integration costs.

During the quarter with a sudden downturn in revenue, we carried approximately $15 million of under absorbed capacity and the gross margin was also affected by $8 million in FX and $7 million due to mix.

Our operating expenses SG&A, plus R&D were 19, 8% of sales on a non-GAAP basis, the non-GAAP items, or <unk> 62 million and amortization $29 million in stock comp and $16 million of transaction and integration costs.

Mary Jane Raymond: Total stock comp is expected to be 26 million to 30 million in Q4. Synergies have now reached $66 million on an annualized basis, and we are making good progress in all categories. With respect to further details on our cost savings actions, our 100 million to 125 million of targeted cost reductions are in addition to our 250 million of cost synergies. These cost reductions are expected to be at least 130 by fiscal year 2017.

Synergies have now reached $66 million on an annualized basis, and we are making good progress in all categories.

With respect to further detail on our cost savings actions, our $100 million to $125 million of targeted cost reductions are in addition to our $250 million of cost synergies.

These cost reductions are expected to be at least 130 <unk> fiscal year 2007.

Mary Jane Raymond: The FY '23 through '25 cumulative savings are expected to be between $200 million and $300 million, and the cost to achieve them are approximately 150 million to 200 million, including severance, retention, new net labor costs in the lower cost locations, facility moves, short-term duplicate costs, and lease termination costs, along with IT consolidation. Quarterly non-GAAP EPS was $0.58 against a diluted share count of 141 million shares. GAAP and non-GAAP EPS calculations are on Table 6 and Table 7 of our press release.

And the cost to achieve them are approximately 150 to 200 million, including severance.

Retention, new net labor costs, and the lower cost locations facility move short term duplicate costs and lease termination costs along with consolidation.

Quarterly non-GAAP EPS was <unk> 58.

<unk>, a diluted share count of 141 million shares.

GAAP and non-GAAP EPS calculations are on table, six and seven of our press release.

Mary Jane Raymond: Interest expense in the quarter was $75 million. And for the nine months ended March 31st, interest expense was 208 million. Our total interest cost for fiscal year '23 is expected to be 281 million to 284 million. The March 31st cash balance was $901 million, just 12 million below the 12/31 balance. After paying down 78 million of debt in Q3, our total debt position on March 31st was $4.5 billion.

Our total interest cost for fiscal year 'twenty three is expected to be 250.

$281 million to $284 million.

The March 31 cash balance was $901 million, just $12 million below the 12 31 balance.

After paying down $78 million of debt in Q3, our total debt position on March 31 was $4 $5 billion.

Mary Jane Raymond: Using the trailing 12 months of adjusted EBITDA on a pro forma basis for the combined company at March 31, the gross leverage was 3.5 times, and the net leverage was 2.8 times with the synergy credit. Including the cost savings and the synergy credit of $312 million that is allowed by our credit facility definition, the growth leverage is 2.9 times, and the net leverage is 2.3 times. Note that the 38 million of synergies are already in the results.

The gross leverage was three five times and the net leverage was two eight times with the synergy credit, including the cost savings and the synergy credit of $312 million.

That is allowed by our credit facility definition.

Gross leverage.

Is two nine times.

And the net leverage is two three times.

Note that the $38 million of synergies are already in the results.

Mary Jane Raymond: The total of 312 million and 38 million equals 350 million. The additional 100 million of savings is worth two-tenths of a turn on leverage. Let me just restate the leverage without the synergy credit. As of March 31st, the gross leverage was 3.5 times, and the net leverage was 2.8 times without the synergy credit. With the synergy credit, it's 2.9 times gross and the net leverage is 2.3 times net.

Let me just restate that.

The leverage without the synergy credit as of March 31, gross leverage was three five times and the net leverage was two eight times without the synergy credit with the synergy credit. It's two nine times gross and the net leverage is two three times.

Two three times net.

Mary Jane Raymond: Our effective tax rate in the quarter was 154%, and the non-GAAP tax rate for the quarter was 19%. We expect the tax rate for fiscal year '23 to be between 30% to 32%, assuming the current mix of earnings and no adoption of new or additional tax relief. Turning to the outlook for Q4 FY '23. Our outlook for revenue for the fourth fiscal quarter ending June 30th, 2023 is expected to be 1.125 billion to 1.175 billion and earnings per share on a non-GAAP basis to be $0.33 to $0.43 per share.

We expect the tax rate for fiscal year 'twenty three to be between 30.

To 32%, assuming the current mix of earnings and now adoption of new or additional tax relief.

Turning to the outlook for Q4, FY2023. Our outlook for revenue for the fourth fiscal quarter ending June 32023 is expected to be 112, 5 billion to $1 175 billion and earnings per share on a non-GAAP basis to be 33 to <unk> 43 per share.

Our outlook for revenue for the fourth fiscal quarter ending June 32023 is expected to be 112, 5 billion to $1 175 billion and earnings per share on a non-GAAP basis to be 33 to <unk> 43 per share.

Mary Jane Raymond: On a full-year basis, our revenue outlook is 5.08 billion to 5.15 billion. Our non-GAAP EPS estimate assumes that the preliminary effects of purchase accounting are added back to the GAAP EPS other than the depreciation that is $5 million per quarter. The share count is 142 million shares for the entire non-GAAP EPS guidance range, and both Series A and B are anti-dilutive. This means Series A and B dividends should be deducted from net income, and the share should not be included in the share count.

Our non-GAAP . Estimate assumes that the preliminary effects of purchase accounting. <unk> added back to the GAAP EPS other than the depreciation that is $5 million per quarter. The share count is 142 million shares for the entire non-GAAP EPS guidance range and both series a and B are anti dilutive. This means series ANV dividend should be deducted from net income and the share should not be included in the share count.

Estimate assumes that the preliminary effects of purchase accounting. <unk> added back to the GAAP EPS other than the depreciation that is $5 million per quarter. The share count is 142 million shares for the entire non-GAAP EPS guidance range and both series a and B are anti dilutive. This means series ANV dividend should be deducted from net income and the share should not be included in the share count.

<unk> added back to the GAAP EPS other than the depreciation that is $5 million per quarter. The share count is 142 million shares for the entire non-GAAP EPS guidance range and both series a and B are anti dilutive. This means series ANV dividend should be deducted from net income and the share should not be included in the share count.

The share count is 142 million shares for the entire non-GAAP EPS guidance range and both series a and B are anti dilutive. This means series ANV dividend should be deducted from net income and the share should not be included in the share count.

Mary Jane Raymond: The EPS calculation, including the dividend treatment, is detailed on Table 8 of the press release for the guidance range. This table also shows the earnings at which the Series B preferred stock is dilutive. All of the foregoing is at today's exchange rates. For the non-GAAP earnings per share, we add back to the GAAP earnings pre-tax amounts of 190 to 210, including 95 million in amortization, 27 million in stock comp, and 70 million to 80 million for integration and restructuring.

All of the foregoing is at today's exchange rates.

The non-GAAP earnings per share, we add back to the GAAP earnings pre tax amount of 190 to 210. Including 95 million and amortization $27 million in stock comp and $70 million to $80 million for integration and restructuring.

Including 95 million and amortization $27 million in stock comp and $70 million to $80 million for integration and restructuring.

Mary Jane Raymond: The actual dollar amount of non-GAAP items, the tax rate, the exchange rates, the purchase price accounting, and the share count are all subject to change. As a reminder, our answers today may contain forecasts from which our actual results may differ materially due to a variety of factors. These include changes in mix, customer requirements, supply chain availability, competition, and economic conditions to name a few. With that, Kevin, you may open the line for questions. Actually, let me amend one last thing. In our guidance range, the add-back are 95 million in amortization, 27 million in stock comp, and 70 million to 85 million for integration and restructuring. All right then. Kevin, you can open the line for questions.

As a reminder, our answers today may contain forecasts from which our actual results may differ materially due to a variety of factors.

These include changes in mix customer requirements supply chain availability competition and economic conditions to name a few.

With that Kevin you May open the line.

Actually, let me amend one last thing. In our guidance range, the add-back are 95 million in amortization, 27 million in stock comp, and 70 million to 85 million for integration and restructuring. All right then. Kevin, you can open the line for questions.

Our $95 million and amortization of $27 million in stock comp and 70% to $85 million for integration and restructuring.

Alright, then Kevin you can open the line for questions.

Operator: Ladies and gentlemen, if you have a question or comment at this time, please press star one on your telephone. If your question has been answered or you wish to move yourself from the queue, please press star one one again. We'll pause for a moment while we compile our Q&A roster. 

Operator: Our first question comes from Ananda Baruah with Loop Capital. Your line is open.

Ananda Prosad Baruah: Hi. Good morning, guys. Really appreciate taking the questions here. I guess just to start -- this could be for both Chuck and Mary Jane. How are you thinking -- well, I guess how would you describe sort of visibility as you think about it? And then, also, sort of with regards to backlog, how are you relating to the backlog now? Do you think of it any differently than you did 90 days ago? And then, I have a quick follow-up. Thanks.

Relative appreciate taking the taking the questions here. I guess just to slide this could be for both Chuck and Mary Jane. Are you thinking I guess how are you. Describe sort of visibility. The ability. As you think about it and then also. And you said that with regards to backlog. How are you related to the backlog that you would think of it differently than you did 90 days ago, and then I have a quick follow up thanks.

I guess just to slide this could be for both Chuck and Mary Jane. Are you thinking I guess how are you. Describe sort of visibility. The ability. As you think about it and then also. And you said that with regards to backlog. How are you related to the backlog that you would think of it differently than you did 90 days ago, and then I have a quick follow up thanks.

Are you thinking I guess how are you. Describe sort of visibility. The ability. As you think about it and then also. And you said that with regards to backlog. How are you related to the backlog that you would think of it differently than you did 90 days ago, and then I have a quick follow up thanks.

Describe sort of visibility. The ability. As you think about it and then also. And you said that with regards to backlog. How are you related to the backlog that you would think of it differently than you did 90 days ago, and then I have a quick follow up thanks.

The ability. As you think about it and then also. And you said that with regards to backlog. How are you related to the backlog that you would think of it differently than you did 90 days ago, and then I have a quick follow up thanks.

As you think about it and then also. And you said that with regards to backlog. How are you related to the backlog that you would think of it differently than you did 90 days ago, and then I have a quick follow up thanks.

And you said that with regards to backlog. How are you related to the backlog that you would think of it differently than you did 90 days ago, and then I have a quick follow up thanks.

How are you related to the backlog that you would think of it differently than you did 90 days ago, and then I have a quick follow up thanks.

Chuck Mattera: The backlog is still strong. The customers are definitely changing their ordering patterns, given the shorter lead times, and they work off on inventory. That's not all of them, but that's a general theme. And I'm still feeling pretty good about it at least for the next couple of quarters.

The.

The customers are definitely changing their ordering patterns given the shorter lead times.

Their work off on inventory, that's not all of them, but that's a general theme.

And I'm still feeling pretty good about at least for the next couple of quarters.

Ananda Prosad Baruah: Got it. And actually, I'll make this one my follow-up. Chuck, I guess that is to say you guys have described the backlog for a while now is a high-quality backlog, and so, it sounds like that's still your opinion. And while orders maybe getting moved around, sounds like -- I guess, is it fair to say you're not seeing significant cancellations. It's more like pushouts and reordering of timing of backlog orders? Thanks.

And so it sounds like that's still your opinion and while orders may be getting moved around it sounds like I guess is it fair to say youre not seeing significant cancellations, it's more like push outs.

The timing of the.

Backlog of orders.

Thanks.

Mary Jane Raymond: That's right. We are not seeing any significant cancellations. And in fact, the main thing that is moving in the backlog is, as we mentioned, is that customers are returning to more typical order patterns, so in some markets that maybe 13 weeks visibility or 26 weeks visibility, whereas during the period of intensive supply chain shortages, some customers had visibility for us out as long as a year in order that we could share that with the suppliers.

13 weeks visibility, our 26 weeks visibility, whereas during a period of intensive supply chain shortages, some customers had visibility for us out as long as a year in order that we could share that with the suppliers.

Ananda Prosad Baruah: I got it. Thanks a lot, guys. Super helpful.

Operator: Our next question comes from Simon Leopold with Raymond James. Your line is open.

Simon Leopold: Thanks for taking the question. First one I wanted to ask is more of kind of a philosophical one is given the results today, you didn't choose to preannounce the quarter that was below your guidance. Just wondering sort of how you think about that from a policy perspective. And then, in terms of my follow-up, I'll ask both now because the first one is pretty easy -- is when we think about the trends there, do you think of June as sort of setting a bottom end based on everything you see today? I understand it could change and if it is the bottoming, how long do you think it could last? Thank you.

The results today.

You didn't.

Pre announce the quarter.

Was below your guidance.

Just wondering sort of how you think about that from a policy perspective.

Perspective, and then in terms of.

My follow up I'll ask both now because the first one is pretty easy.

When we think about the <unk>.

Yes.

Do you think of June as sort of setting a bottoming.

But everything we see today I understand it could change.

Hope it is a bottoming how long do you think it could last thank you.

Mary Jane Raymond: So, with respect to the preannounce, we determined that our best message was delivered in connection with the full earnings call and the Q&A, as well as the discussions that we have with many of you. So, we did think about that very carefully, and that was the conclusion we came to. Simon, I'm sorry, was the second part of your question, you were asking how long do we expect the bottom to last. Was that it? More or less yes, I get it.

We determined that our best.

Message was delivered in connection with our full earnings call in the Q&A as well as the discussions that we have with many of you. So we just think about that very carefully and that was the conclusion, we came to Simon I'm sorry. It was the second part of your question you are asking how long do we expect the bottom to last was that it.

Simon Leopold: More or less, yes. I guess it's two parts in that is sort of June setting a bottom? And then, how long do we expect this phase last? Simon.

Chuck Mattera: Well, Simon, as I said, I expect it to last into FY '24. I'm not prepared to say in which quarter in FY '24 do I think an inflection point takes place. We're preparing to have at least this level of demand and probably a little bit of upside that we're working to get for at least another one or two quarters at least.

I expect it to last into FY 'twenty four. I'm not prepared to say. Each quarter and FY 'twenty forward do I think. Collection point takes place. We're preparing to have at least this level of demand and probably a little bit of upside that we're working to get. For at least another one or two quarters at least.

I'm not prepared to say. Each quarter and FY 'twenty forward do I think. Collection point takes place. We're preparing to have at least this level of demand and probably a little bit of upside that we're working to get. For at least another one or two quarters at least.

Each quarter and FY 'twenty forward do I think. Collection point takes place. We're preparing to have at least this level of demand and probably a little bit of upside that we're working to get. For at least another one or two quarters at least.

Collection point takes place. We're preparing to have at least this level of demand and probably a little bit of upside that we're working to get. For at least another one or two quarters at least.

We're preparing to have at least this level of demand and probably a little bit of upside that we're working to get. For at least another one or two quarters at least.

For at least another one or two quarters at least.

Simon Leopold: Thank you.

Operator: Our next question comes from Jed Dorsheimer of William Blair. Your line is open.

Jed Dorsheimer: Thanks. And thanks for taking my question. I guess first one, maybe, Chuck, is a follow-up to that previous. It looks as if everything that's kind of tied to consumer, whether directly or indirectly, is kind of where you're seeing the biggest or the quickest slowdown, i.e., display, OLED. And I guess as you think about the credit markets that have largely seized and unlikely to kind of open and which is probably the visibility, I guess what would -- as you think about shifting priorities within your business, is that how you're thinking about that comment in terms of bouncing off of what maybe at bottom? Or are you anticipating sort of a return in that display side of the business maybe by MicroLEDs? And then, I have a follow-up.

As a follow up to that previous.

It looks is that everything that is kind of tied to consumer.

Whether directly or indirectly is kind of.

Where youre seeing the biggest or the quickest slowdown I E display OLED and I guess is is you think about the credit market that have largely seized in.

Unlikely to kind of open.

It's probably the visibility.

I guess, what would you think about shifting priorities within your business.

Is that how youre thinking about that comment in terms of.

Bouncing off. What may be a bottom. Or are you anticipating sort of a return in that display side of the business maybe by micro Leds. I have a follow up.

What may be a bottom. Or are you anticipating sort of a return in that display side of the business maybe by micro Leds. I have a follow up.

Or are you anticipating sort of a return in that display side of the business maybe by micro Leds. I have a follow up.

I have a follow up.

Chuck Mattera: Okay. Mark, do you want to take that? Okay.

Mark S. Sobey: Sure, Chuck. Can you hear me okay?

Can you hear me okay, yes.

Mark S. Sobey: Yes. So, we definitely saw a softening, as Chuck mentioned, in specifically the -- our service business out of Korea. We do clearly see -- everything we read from other people's quarterly reports is clearly we're seeing some slowing in mobile demand, some display inventory adjustment, both at the end users, as well as at our customers. So, we definitely see that today. We would expect seasonally with most of the leading smartphone manufacturers launched new products in our first quarter in the July to September time frame. So, we would expect to see that come back, and we usually get the pre kind of quality build toward the end of the year. So, I think certainly, on the -- speaking specifically to the display side, we definitely would expect that to recover somewhat in the second half of the year. But your observation that it's tied broader to consumer, I think, is pretty accurate.

Our service business.

Korea.

You clearly see.

Everything we read from other People's quarterly reports, it's clearly we're seeing some slowing in mobile demand.

Display inventory adjustment for the end users as well as at our customers.

So we definitely see that today, we would expect.

Seasonally.

Most of the leading smartphone manufacturers launch new products.

In our fourth quarter and the <unk>. The September timeframe. So we would expect to see that come back and we use kind of. Quality build for the end of the year. I think certainly on the speaking specifically to the display side, we definitely would expect that to come out. Recover somewhat in the second half of the year, but your observation that it is. Broader to consumer I think is pretty accurate.

The September timeframe. So we would expect to see that come back and we use kind of. Quality build for the end of the year. I think certainly on the speaking specifically to the display side, we definitely would expect that to come out. Recover somewhat in the second half of the year, but your observation that it is. Broader to consumer I think is pretty accurate.

Quality build for the end of the year. I think certainly on the speaking specifically to the display side, we definitely would expect that to come out. Recover somewhat in the second half of the year, but your observation that it is. Broader to consumer I think is pretty accurate.

I think certainly on the speaking specifically to the display side, we definitely would expect that to come out. Recover somewhat in the second half of the year, but your observation that it is. Broader to consumer I think is pretty accurate.

Recover somewhat in the second half of the year, but your observation that it is. Broader to consumer I think is pretty accurate.

Broader to consumer I think is pretty accurate.

Mary Jane Raymond: What I would say, Jed, though, is that for the third quarter, the actual largest drop that was -- at least not as we expected, was in communications. We had expected consumer, at least on the consumer electronics side, the smaller electronics, let's call it -- we had expected a seasonal decline in that, but it was actually communications that felt very, very quickly in the quarter.

That was at least not as we expected was in communications, we had expected consumer at least on the.

Consumer electronics side, the smaller electronics, let's call. It we had expected a seasonal decline in that but it was actually communications that felt very very quickly in the quarter.

Jed Dorsheimer: Got it. That's helpful. Thank you for the color. As my follow-up question, just as it relates to the strategic -- your strategic review of the silicon carbide business, I'm curious have you secured strategic -- how should I say this? I guess, materials, like graphite, for example, you have a pretty aggressive build-out plan of the $1 billion over the next 10 years. And I'm just wondering if from a supply chain, you have kind of removed any potential barriers that, as you think about that strategic review, might be helpful? Thanks. Thank you Jed.

A strategic review of the Silicon carbide.

Business Im curious.

Have you. Cured. Strategic. <unk>. How should I say this. I guess materials like graphite for example, you have a pretty aggressive build out plan of the $1 billion over the next 10 years and I'm just wondering from. From a supply chain you. Kind of removed any potential barriers that as you think about that strategic review might might be helpful. Thanks.

Cured. Strategic. <unk>. How should I say this. I guess materials like graphite for example, you have a pretty aggressive build out plan of the $1 billion over the next 10 years and I'm just wondering from. From a supply chain you. Kind of removed any potential barriers that as you think about that strategic review might might be helpful. Thanks.

Strategic. <unk>. How should I say this. I guess materials like graphite for example, you have a pretty aggressive build out plan of the $1 billion over the next 10 years and I'm just wondering from. From a supply chain you. Kind of removed any potential barriers that as you think about that strategic review might might be helpful. Thanks.

<unk>. How should I say this. I guess materials like graphite for example, you have a pretty aggressive build out plan of the $1 billion over the next 10 years and I'm just wondering from. From a supply chain you. Kind of removed any potential barriers that as you think about that strategic review might might be helpful. Thanks.

How should I say this. I guess materials like graphite for example, you have a pretty aggressive build out plan of the $1 billion over the next 10 years and I'm just wondering from. From a supply chain you. Kind of removed any potential barriers that as you think about that strategic review might might be helpful. Thanks.

I guess materials like graphite for example, you have a pretty aggressive build out plan of the $1 billion over the next 10 years and I'm just wondering from. From a supply chain you. Kind of removed any potential barriers that as you think about that strategic review might might be helpful. Thanks.

From a supply chain you. Kind of removed any potential barriers that as you think about that strategic review might might be helpful. Thanks.

Kind of removed any potential barriers that as you think about that strategic review might might be helpful. Thanks.

Chuck Mattera: Look -- and thank you, Jed. Well, you got it. We pay a lot of attention to the supply chain, and it involves both the equipment that we need for the expansion of the crystal growth operation, as well as the critical and strategic raw materials. We have a full court press on that as a matter of course. We've had that for years, and we'll maintain that all the way up the curve.

We need for the expansion of our crystal growth operation as well as the critical strategic raw materials, we have a full court press on that as a as a matter of course, we've had that for years and we will maintain that all the way up. All the way up the curve.

All the way up the curve.

Jed Dorsheimer: Thank you.

Chuck Mattera: Yes.

Operator: Our next question comes from Jim Ricchiuti with Needham & Company. Your line is open. Hi, Thank you.

Jim Ricchiuti: Hi. Thank you. Just a question on the industrial and particularly on the semi cap side. It looks like you're still seeing fairly strong trends in that business, which is a little bit counter to what some other folks are seeing. What's your line of sight as you think about that semi cap portion, Chuck, over the next couple of quarters?

Industrial and particularly on the semi cap side, it looks like Youre still seeing. Fairly strong trends in that business, which is a little bit. Counter to what some other folks who are seeing what's your line of sight as you think about that the semi portion Chuck over the next couple of quarters.

Fairly strong trends in that business, which is a little bit. Counter to what some other folks who are seeing what's your line of sight as you think about that the semi portion Chuck over the next couple of quarters.

Counter to what some other folks who are seeing what's your line of sight as you think about that the semi portion Chuck over the next couple of quarters.

Chuck Mattera: Thank you, Jim. We definitely -- we had a real strong quarter in Q3. We opted even the forecast that we have by a little bit. I think the back end of the line will continue to be moved a little backward and maybe a little bit forward. I think that's the place where we're going to see things slide to the right a little longer. But the front end of the line and our ability to serve it seems to have just a steady demand. I don't see that driving any change to our underlying business for semi cap equipment. So, in summary, front end, full speed ahead, the back end of the line for inspect laser -- wafer inspection. That's the place where I think we could see some softness in the next one or two quarters.

We had a real strong quarter in Q3.

So we update even even of the forecast that we have by a little bit. Think. The back end of the line. We will continue to be. Don't move a little a little a little backward and maybe a little bit forward I think thats the place, where we're going to see things slide to the right a little longer. But the front end of the line. Our ability to serve it seems to have just the steady steady demand I don't see that. Driving any change to our underlying business for semi cap equipment. So in summary front end. Full speed ahead, the back end of the line for inspect laser wafer inspection. That's the place where I think we could see some softness in the next one or two quarters.

Think. The back end of the line. We will continue to be. Don't move a little a little a little backward and maybe a little bit forward I think thats the place, where we're going to see things slide to the right a little longer. But the front end of the line. Our ability to serve it seems to have just the steady steady demand I don't see that. Driving any change to our underlying business for semi cap equipment. So in summary front end. Full speed ahead, the back end of the line for inspect laser wafer inspection. That's the place where I think we could see some softness in the next one or two quarters.

The back end of the line. We will continue to be. Don't move a little a little a little backward and maybe a little bit forward I think thats the place, where we're going to see things slide to the right a little longer. But the front end of the line. Our ability to serve it seems to have just the steady steady demand I don't see that. Driving any change to our underlying business for semi cap equipment. So in summary front end. Full speed ahead, the back end of the line for inspect laser wafer inspection. That's the place where I think we could see some softness in the next one or two quarters.

We will continue to be. Don't move a little a little a little backward and maybe a little bit forward I think thats the place, where we're going to see things slide to the right a little longer. But the front end of the line. Our ability to serve it seems to have just the steady steady demand I don't see that. Driving any change to our underlying business for semi cap equipment. So in summary front end. Full speed ahead, the back end of the line for inspect laser wafer inspection. That's the place where I think we could see some softness in the next one or two quarters.

Don't move a little a little a little backward and maybe a little bit forward I think thats the place, where we're going to see things slide to the right a little longer. But the front end of the line. Our ability to serve it seems to have just the steady steady demand I don't see that. Driving any change to our underlying business for semi cap equipment. So in summary front end. Full speed ahead, the back end of the line for inspect laser wafer inspection. That's the place where I think we could see some softness in the next one or two quarters.

But the front end of the line. Our ability to serve it seems to have just the steady steady demand I don't see that. Driving any change to our underlying business for semi cap equipment. So in summary front end. Full speed ahead, the back end of the line for inspect laser wafer inspection. That's the place where I think we could see some softness in the next one or two quarters.

Our ability to serve it seems to have just the steady steady demand I don't see that. Driving any change to our underlying business for semi cap equipment. So in summary front end. Full speed ahead, the back end of the line for inspect laser wafer inspection. That's the place where I think we could see some softness in the next one or two quarters.

Driving any change to our underlying business for semi cap equipment. So in summary front end. Full speed ahead, the back end of the line for inspect laser wafer inspection. That's the place where I think we could see some softness in the next one or two quarters.

Full speed ahead, the back end of the line for inspect laser wafer inspection. That's the place where I think we could see some softness in the next one or two quarters.

That's the place where I think we could see some softness in the next one or two quarters.

Jim Ricchiuti: Got it. And maybe just a clarification on a previous question, and I just want to make sure I'm understanding this correctly, the improvement that you I think, are suggesting in the display business with utilization in the second half of the calendar year. Yeah. You have a somewhat unique line of sight because you have some line of sight with your consumer electronics customers, and you're having conversations, obviously, on the OLED side with your customers in Korea and China. Is this consistent with what you're hearing from both customers, if you will, in terms of some increase in utilization and some improvement in the second half of the calendar year in that part of the business?

Previous question I, just want make sure.

I understand this correctly the improvement that you.

I think our suggesting in the display business with utilization.

The.

Second half of the calendar year, Yes, you have. Somewhat unique line of sight, because you have some line of sight with your consumer electronics customers and you're having conversations obviously on the <unk>. OLED side with your. Customers in Korea, and China is this. Consistent with what Youre hearing from both customers. You will in terms of some increase in utilization and some improvement in the second half of the calendar year and that part of the business.

Somewhat unique line of sight, because you have some line of sight with your consumer electronics customers and you're having conversations obviously on the <unk>. OLED side with your. Customers in Korea, and China is this. Consistent with what Youre hearing from both customers. You will in terms of some increase in utilization and some improvement in the second half of the calendar year and that part of the business.

OLED side with your. Customers in Korea, and China is this. Consistent with what Youre hearing from both customers. You will in terms of some increase in utilization and some improvement in the second half of the calendar year and that part of the business.

Customers in Korea, and China is this. Consistent with what Youre hearing from both customers. You will in terms of some increase in utilization and some improvement in the second half of the calendar year and that part of the business.

Consistent with what Youre hearing from both customers. You will in terms of some increase in utilization and some improvement in the second half of the calendar year and that part of the business.

You will in terms of some increase in utilization and some improvement in the second half of the calendar year and that part of the business.

Chuck Mattera: Yes. I'd ask Mark to add some color to it, about what we're expecting in the fall.

But what we're expecting in the fourth.

Mark S. Sobey: Yeah. I think the statement was -- I think the way the statement was phrased is accurate. We're certainly getting indications from our customers that would indicate to us that there would be a pickup, certainly in utilization and service demand in the second half of the calendar year or the first half of our FY '24.

And he came to us.

Certainly when we provide those services. Second half of the calendar year. Of course off a R. One four.

Second half of the calendar year. Of course off a R. One four.

Of course off a R. One four.

One four.

Jim Ricchiuti: Got it. Thank you. Okay.

Operator: Our next question comes from Christopher Rolland with Susquehanna. Your line is open.

Christopher Rolland: Hey, guys. Thanks for the question. I know you can't talk too much about strategic plans for SiC, but I did want to know a little bit more about it, just broad strokes, and why you guys want to partner versus going it alone. Is it the sheer amount of capital that's involved? Or is it kind of sharing the load of potential risk involved? Or is it really more looking for like a large captive customer to use the material? Just broad strokes, wondering why the partnership and the change there.

I know you can't talk too much about strategic plans for sick, but I did want to know a little bit more about it just broad strokes. Hi, you guys want to partner versus going it alone. Is it the sheer amount of capital that's involved or is it kind of sharing the load of potential risk involved or is it really more looking for like a large captive customer to use the material just broad strokes wondering why the partnership and the change there okay.

Hi, you guys want to partner versus going it alone. Is it the sheer amount of capital that's involved or is it kind of sharing the load of potential risk involved or is it really more looking for like a large captive customer to use the material just broad strokes wondering why the partnership and the change there okay.

Is it the sheer amount of capital that's involved or is it kind of sharing the load of potential risk involved or is it really more looking for like a large captive customer to use the material just broad strokes wondering why the partnership and the change there okay.

Chuck Mattera: Okay. I'll ask Bob to address it, but I would say we have large captive customers already and more trying to get more of our mind share and our capacity. Bob, would you address the rest of the question, please?

And more trying to get more of our mind share and our capacity.

Would you address the rest of the question. Please yes sure. Thank you Chris.

Bob Bashaw: Yeah, sure. Thank you, Chris. Well, first of all, we are bullish on the silicon carbide market in general. And what we're seeing is that the market demand is not only growing, but it's accelerating. So, the growth is accelerating. We are at an inflection point. And the industry, we believe, is supply constrained today and will remain so.

And what we're seeing is that the market demand is not only growing but it's accelerating so the growth is accelerating.

We are at an inflection point.

And the industry, we believe it is supply constrained today and will remain so.

Bob Bashaw: So, given the increased pace of the market, we think that now is the right time really to look at all of our strategic options. And I'd say a lot of the things that you mentioned are for sure, things that are on our mind, both the amount of capital investment, the opportunity to bring strategic partners to the table to help both with that financial responsibility and with strategic alternatives as we think through where the business is going to go. So, all of those are on our minds. The thing that we are doing now and we think is the right thing to do is to start a formal process and really take a good hard look at all of our options, and then, read and react against those options and do the right thing to serve the market and to address our shareholder value.

That now is the right time really to look at all of our strategic options and I would say a lot of the things that you. You mentioned are for sure things that are on our mind, both the amount of capital investment the opportunity to bring strategic partners to the table to help.

With that financial responsibility and with strategic. Strategic alternatives as we think through where the business is going to go. So all of those are on our minds. The thing that we are doing now and we think is the right thing to do is to. Started a formal process and really take a good hard look at all of our options. And then read and react against those options. And do the right thing to serve the market and two. Address our shareholder value.

Strategic alternatives as we think through where the business is going to go. So all of those are on our minds. The thing that we are doing now and we think is the right thing to do is to. Started a formal process and really take a good hard look at all of our options. And then read and react against those options. And do the right thing to serve the market and two. Address our shareholder value.

The thing that we are doing now and we think is the right thing to do is to. Started a formal process and really take a good hard look at all of our options. And then read and react against those options. And do the right thing to serve the market and two. Address our shareholder value.

Started a formal process and really take a good hard look at all of our options. And then read and react against those options. And do the right thing to serve the market and two. Address our shareholder value.

And then read and react against those options. And do the right thing to serve the market and two. Address our shareholder value.

And do the right thing to serve the market and two. Address our shareholder value.

Address our shareholder value.

Christopher Rolland: Yeah. I think that's really interesting. I'm looking forward to seeing what comes of it. Your inventory is a little elevated around 160-plus days. I was wondering about kind of utilizations or underutilizations. And then, you kind of talked about some footprint consolidation as well. How should we think about that? And how should we think about that affecting overall company utilizations when you're done?

Looking forward to seeing what comes of it.

Your inventory is a little elevated.

Around 160 plus days. I was wondering about utilizations. Utilizations or under Utilizations. And then you kind of talked about some footprint consolidation as well how should we think about that and how should we think about that affecting overall company utilizations when youre talking.

I was wondering about utilizations. Utilizations or under Utilizations. And then you kind of talked about some footprint consolidation as well how should we think about that and how should we think about that affecting overall company utilizations when youre talking.

Utilizations or under Utilizations. And then you kind of talked about some footprint consolidation as well how should we think about that and how should we think about that affecting overall company utilizations when youre talking.

And then you kind of talked about some footprint consolidation as well how should we think about that and how should we think about that affecting overall company utilizations when youre talking.

Mary Jane Raymond: So, with respect to the inventory being somewhat elevated, we have a plan that is very strict and actually led by Chuck to actually get that inventory down. So, we ourselves think the inventory is elevated, and it is very, very important to continue to drive to bring that down. With respect to the footprint consolidation, which, as you're correct, does have -- can have an effect on the inventory level, there is no question that the consolidation of certain sites will help the utilization of our manufacturing floor space to a very, very good extent. That's a very important goal here.

Elevated we have a plan that is <unk>.

Very strict and actually led by Chuck to actually get that inventory down.

We ourselves.

The inventory is elevated and it is very very important to continue to drive to bring that down with respect to.

The footprint. Consolidation. Which as Youre correct does have a can have an effect on the inventory level. There is no question that the consolidation of certain sites will help the utilization of our manufacturing floor space to a very very good extent, that's at a very important goal here.

Consolidation. Which as Youre correct does have a can have an effect on the inventory level. There is no question that the consolidation of certain sites will help the utilization of our manufacturing floor space to a very very good extent, that's at a very important goal here.

Which as Youre correct does have a can have an effect on the inventory level. There is no question that the consolidation of certain sites will help the utilization of our manufacturing floor space to a very very good extent, that's at a very important goal here.

There is no question that the consolidation of certain sites will help the utilization of our manufacturing floor space to a very very good extent, that's at a very important goal here.

Christopher Rolland: Great. Thanks so much. I don't know if you could put any numbers to that or not. But, yeah. Thank you.

Yes. Thank you.

Mary Jane Raymond: I'm not in a position to put numbers to actual utilization just at this point in time. I mean, obviously, with the lower demand for this quarter we have a lower utilization. So, we would be coming off an artificially low base. But that is a good question. I'll think about that and see if we can answer that subsequently.

Obviously with the lower demand for this quarter, we had a lower utilization. So we would be coming off an artificially low base, but. That is a good question I'll think about that and see if we can answer that subsequently.

That is a good question I'll think about that and see if we can answer that subsequently.

Christopher Rolland: Thanks, guys.

Operator: Our next question comes from Samik Chatterjee with JPMorgan Chase. Your line is open.

Samik Chatterjee: Hi. Thanks for taking questions. Just on the first one, most of the demand challenges you're highlighting today on the networking side, we're well aware of the inventory situation on -- in the other segments, there's a bit of consumer demand. So, a lot of them sound cyclical or other industry players have called them out as more cyclical. And I'm just trying to match that up with your restructuring plans, which will obviously be multiyear sort of restructuring efforts and which is more suggestive for structurally low demand that you see for some of the segments. Or should I really be interpreting this as this is a sort of a cost improvement that you needed to enact anyways and what's contemplated? And maybe the macro is just sort of driving or triggering to take those actions sooner than you would have ideally taken them? And I have a follow-up. Thank you. Yes.

The first one. Most of the demand Kevin Disney'll, highlighting today on the networking side of it available it will be inventory situation.

Most of the demand Kevin Disney'll, highlighting today on the networking side of it available it will be inventory situation.

In the other segments, there is a bit of consumer demand. So a lot of them found cyclical or other industry players have got at the moment is more cyclical and I'm just trying to match that up with your restructuring plans, which will obviously be much deal sort of restructuring efforts.

Which is more so just typical structurally lower demand that you see with all of the segments or should I really be integrating this. As a setup of cost improvement that you needed to enact any ways and what's contemplated in maybe the macro is just sort of driving a triggering to take those actions sooner than you would have ideally taking them and I have a follow up thank you.

As a setup of cost improvement that you needed to enact any ways and what's contemplated in maybe the macro is just sort of driving a triggering to take those actions sooner than you would have ideally taking them and I have a follow up thank you.

Mary Jane Raymond: Yes. Samik, your latter point that we were contemplating these all along. And in some cases, were contemplated by the laser segment even before the acquisition, and we've just chosen to accelerate them. So, that is a 100% correct. And I'll do your follow-up.

By the laser segment, even before the acquisition and we've just chosen to accelerate them.

So that is 100% correct. And I'll take your follow up yes.

And I'll take your follow up yes.

Samik Chatterjee: Yes. And the second was -- quick. Essentially, when I think about your synergy plans and then sort of the additional restructuring plans, is it fair to assume that the additional restructuring base savings would be more in the networking in the materials segments and less impactful on a sort of incremental basis to lasers? Is that the right way of thinking about it?

When I think about your. Synergy plans and then sort of the additional restructuring plans is it fair to assume that the additional restructuring. <unk> would be more in the Nic looking at the materials segment and less impactful on a sort of incremental advances can lasers is that the right way of thinking about it.

Synergy plans and then sort of the additional restructuring plans is it fair to assume that the additional restructuring. <unk> would be more in the Nic looking at the materials segment and less impactful on a sort of incremental advances can lasers is that the right way of thinking about it.

<unk> would be more in the Nic looking at the materials segment and less impactful on a sort of incremental advances can lasers is that the right way of thinking about it.

Mary Jane Raymond: I would say that it's actually across all three segments. But given that we already have 250 in the synergies between the laser segment and the rest of the company, then the larger portion of the new restructuring savings, yes, probably does fall on the other two. But the restructuring does affect all three segments.

250, and the synergies between the laser segment in the rest of the company than the larger portion of the new restructuring savings, yes, probably does fall on the other two but the restructuring does affect all three segments.

Samik Chatterjee: Thank you. Thanks for taking my questions.

Operator: Our next question comes from Sidney Ho with Deutsche Bank. Your line is open.

Sidney Ho: Great. Thank you. In the past, you guys talked about backlog normalizing to this $2.5 billion, $2.6 billion level, and it looks like the normalization process is happening faster than, at least, we previously expected. Does that mean in your guidance, you're assuming no more additional work down of this excess backlog? Then, how about we just look at the 12-month backlog because I know some of the orders are more than 12 months?

In the past you guys talked about backlog normalizing to this 252 6 billion level and it looks like the normalization process is happening faster than we previously expected does that mean in your guidance, you're assuming no more additional work download this excess backlog and how about if you just look at the 12 month backlog because I know some of the on the order. More than 12 months.

More than 12 months.

Mary Jane Raymond: So, on the first part of your question, actually, I think what I said is that we expected the backlog to land in the 2.4 to 2.5 range. So, it may well be that it is a little bit faster, but I don't think that we've reached the level that we think could be the running backlog at 2.4 to 2.5. And I'm sorry, Sidney, I did not quite understand your second part.

It may well be that it is a little bit faster, but I don't think that we have reached the level that we think could be the running backlog at 2425, and I'm, sorry, I did not quite understand your second part.

Sidney Ho: Yeah. The second part is I understand this, you have orders in the backlog that are longer than 12 months. So, if I just look at the 12-month backlog, is that already normalizing?

You have you have orders in the backlog that are longer than 12 months. So I would just look at the 12 month backlog is that already normalized.

Mary Jane Raymond: Okay. That's helpful. My follow-up question is on the silicon carbide business. I understand you're going through the strategic review, but one of your large silicon carbide customer has recently announced a supply agreement with the Chinese silicon carbide supplier on 150-millimeter wafers, but also for future 200-millimeter. Can you talk about your view on any changes in the competitive landscape? And maybe does that have anything to do with the timing of the strategic review? Thank you.

Multiple: [Mary Jane Raymond] Well, for sure, the 12-month backlog is already normalizing, yes. But we do have in several markets, several of our end markets, orders that go beyond 12 months. And in fact, I would say in the laser segment, 15 has been more their norm. So, it is actually normalizing already. That is true. But I think the resting place, at least in my present estimate is 2.4 to 2.5 [Sidney Ho] Okay. That's helpful. My follow-up question is on the silicon carbide business. I understand you're going through the strategic review, but one of your large silicon carbide customer has recently announced a supply agreement with the Chinese silicon carbide supplier on 150-millimeter wafers, but also for future 200-millimeter. Can you talk about your view on any changes in the competitive landscape? And maybe does that have anything to do with the timing of the strategic review? Thank you.

Already normalizing, yes, but we do have in several markets. All of our end markets orders that go beyond 12 months. And in fact, I would say on the laser segment 15 has been more of their norm. So it is actually normalizing already that is true, but I think the resting place at least in my part of that estimate is two four to two five.

All of our end markets orders that go beyond 12 months. And in fact, I would say on the laser segment 15 has been more of their norm. So it is actually normalizing already that is true, but I think the resting place at least in my part of that estimate is two four to two five.

And in fact, I would say on the laser segment 15 has been more of their norm. So it is actually normalizing already that is true, but I think the resting place at least in my part of that estimate is two four to two five.

Mary Jane Raymond: large silicon carbide customer has recently announced a supply agreement with the Chinese silicon carbide supplier on 150-millimeter wafers, but also for future 200-millimeter. Can you talk about your view on any changes in the competitive landscape? And maybe does that have anything to do with the timing of the strategic review? Thank you.

So it is actually normalizing already that is true, but I think the resting place at least in my part of that estimate is two four to two five.

Okay. That's helpful. Follow up question is on the Silicon carbide business I understand youre going through district trajectory view, but one of the large floating carmike customer has recently announced a supply agreement with the Chinese film called by supplier. <unk> 50 millimeter wafer you said also feature 200 millimeter can you talk about your view on any changes in the competitive landscape and maybe does that have anything to deal with the timing of the strategic review. Thank you.

Follow up question is on the Silicon carbide business I understand youre going through district trajectory view, but one of the large floating carmike customer has recently announced a supply agreement with the Chinese film called by supplier. <unk> 50 millimeter wafer you said also feature 200 millimeter can you talk about your view on any changes in the competitive landscape and maybe does that have anything to deal with the timing of the strategic review. Thank you.

<unk> 50 millimeter wafer you said also feature 200 millimeter can you talk about your view on any changes in the competitive landscape and maybe does that have anything to deal with the timing of the strategic review. Thank you.

Bob Bashaw: Yes. I'd be happy to take that question, Chuck. Our view of the market is really underpinned across the entire market. It's growing faster, the growth is accelerating, the supply is constrained. And I think in the context of what you're talking about, it's just an example of those things being true. And so, as a result, if you believe that the market is constrained, and it will remain like that for an extended period of time, and it will grow at an accelerating pace, then investing at a greater rate is the right thing to do. And we believe it's both the right thing to do, and we think we have the right products, technology, quality, all the things that we need to serve the market. So, we're bullish on the market, and we remain committed to it. Okay. Thank you.

Our our view of the market is really underpinned across the entire market.

It's growing faster the growth is accelerating the supply is constrained.

And I think in the context of where you are talking about assistant example of those things being true.

And so as a result, if you believe that the market is constrained and it will remain like that for an extended period of time and it will grow at an accelerating pace than investing at a greater rate.

Is the right thing to do and we believe it's both the right thing to do and we think we have the right.

Right.

<unk> technology quality all of the things that we need to serve the market. So we're bullish on the market and we remain committed to it.

Sidney Ho: Okay. Thank you.

Operator: Our next question comes from Meta Marshall with Morgan Stanley. Your line is open.

Meta A. Marshall: Yes, sorry. One question on just whether you're seeing any changes to pricing in datacom in this environment? I know your expectations were that pricing was going to stay relatively stable, particularly at the high speed, but just as demand has softened, are your expectations still for that? And then, maybe just kind of secondarily on that. I know when you guys bought the Finisar business, the idea was you would kind of keep some of that vertical integration that that business had. Does this softening in the market kind of change how you think about that business going forward or just alternatives to production on that business? Thanks.

One question.

Just whether you're seeing any changes in pricing and datacom in this environment.

Your expectations, where that pricing was going to stay relatively stable, particularly at the high speed, but just.

Demand has softened.

Are your expectations for that and then maybe just.

And then secondarily on that.

When you guys bought the finished our business. The idea was hey, you would kind of keep some of that vertical integration that that business that had the softening in the market kind of change how you think about that business going forward or just alternative to production.

Yes.

Chuck Mattera: Giovanni, do you want to take --

Giovanni Barbarossa: Yes, Meta. So, keep in mind that on the datacom side, we are ramping fast and mostly weighted on the 200G and above data rates. And so, in that case, the price pressure is more on the dollar per bit that obviously we need to deliver than actually the individual ASP of the product, right? So, in other words, the focus is on lowering the cost of the traffic -- not necessarily by lowering the price of the product, but the -- by lowering the price of the dollar per bit behind the lowering the dollar per bit that is delivered with the solution. So, that has been going on for quite some time. And fortunately, we are seeing strong demand for the high data rate transceivers. And so, we don't really see anything out of the ordinary right now because we have maybe a couple of quarters of softness. That's not definitely a change in the pricing pattern that we have seen in the past. So, not much difference there.

<unk> data com side.

Ramping fast and mostly.

Weighted on the.

200 and above data rates.

So in that case.

Rice pressure is more on the dollar per bit.

Obviously, we need to deliver and then actually the individual is b of the product line. So in other words the.

Our focus is on lowering the cost of the traffic not necessarily by lowering the price of the of the of the product, but the <unk>. By lowering the price of the dollar per bit. Lowering the dollar per bit that is the lever with the solution. So that has been going on. For quite some time and Fortunately we are seeing. Strong demand for the high density Transceivers. So we don't really see anything out of the ordinary. I know because we have maybe a couple of quarters of softness. That's definitely changing the pies and partner. That we've seen in the past so not much difference there.

By lowering the price of the dollar per bit. Lowering the dollar per bit that is the lever with the solution. So that has been going on. For quite some time and Fortunately we are seeing. Strong demand for the high density Transceivers. So we don't really see anything out of the ordinary. I know because we have maybe a couple of quarters of softness. That's definitely changing the pies and partner. That we've seen in the past so not much difference there.

Lowering the dollar per bit that is the lever with the solution. So that has been going on. For quite some time and Fortunately we are seeing. Strong demand for the high density Transceivers. So we don't really see anything out of the ordinary. I know because we have maybe a couple of quarters of softness. That's definitely changing the pies and partner. That we've seen in the past so not much difference there.

For quite some time and Fortunately we are seeing. Strong demand for the high density Transceivers. So we don't really see anything out of the ordinary. I know because we have maybe a couple of quarters of softness. That's definitely changing the pies and partner. That we've seen in the past so not much difference there.

Strong demand for the high density Transceivers. So we don't really see anything out of the ordinary. I know because we have maybe a couple of quarters of softness. That's definitely changing the pies and partner. That we've seen in the past so not much difference there.

So we don't really see anything out of the ordinary. I know because we have maybe a couple of quarters of softness. That's definitely changing the pies and partner. That we've seen in the past so not much difference there.

I know because we have maybe a couple of quarters of softness. That's definitely changing the pies and partner. That we've seen in the past so not much difference there.

That's definitely changing the pies and partner. That we've seen in the past so not much difference there.

That we've seen in the past so not much difference there.

Mary Jane Raymond: And then, with respect to the question that you are asking on, do we -- have we changed our view on the vertical integration for transceivers?

Chuck Mattera: Let me take that. The short answer is no. We're deriving substantial benefits and advantage by having the model. And then, what we're going to stay focused on is working through any underutilization of the capacity and getting our footprint into the lowest cost structure we possibly can and introducing new components, new lasers, new optics, new electronics. Those in combination with the model that we have for the assembly and testing will sustain our advantage.

The short answer is no. We are deriving substantial benefits and advantage by having no model. What we're going to stay focused on is working through any. Any underutilization of our capacity and getting our footprint into the lowest lowest cost structure, we possibly can and introducing new components to lasers, new optics and electronics. Those in combination with the model that we have. For the assembly and testing will sustain our advantage.

We are deriving substantial benefits and advantage by having no model. What we're going to stay focused on is working through any. Any underutilization of our capacity and getting our footprint into the lowest lowest cost structure, we possibly can and introducing new components to lasers, new optics and electronics. Those in combination with the model that we have. For the assembly and testing will sustain our advantage.

What we're going to stay focused on is working through any. Any underutilization of our capacity and getting our footprint into the lowest lowest cost structure, we possibly can and introducing new components to lasers, new optics and electronics. Those in combination with the model that we have. For the assembly and testing will sustain our advantage.

Any underutilization of our capacity and getting our footprint into the lowest lowest cost structure, we possibly can and introducing new components to lasers, new optics and electronics. Those in combination with the model that we have. For the assembly and testing will sustain our advantage.

Those in combination with the model that we have. For the assembly and testing will sustain our advantage.

For the assembly and testing will sustain our advantage.

Meta A. Marshall: Great. Thank you.

Operator: Our next question comes from Mark Miller with The Benchmark Company. Your line is open.

Multiple: [Mark Miller] Yes. What are you thinking about in terms of taxes for the current quarter and fiscal '24? Will it be a benefit? And in what percent? [Mary Jane Raymond] So, my expectation is that the tax rate is probably in the neighborhood of about 25%. And as you know, for this year, the tax rate is a little bit all over the place with respect to purchase accounting, what's deductible and what's not. So, that's -- but I think overall, for the total year, it should be around 30%.

Yep.

So my expectation is that the tax rate is probably in the neighborhood of about 25%.

And as you know for this year the tax rate's, a little bit all over the place with respect to purchase accounting. What's deductible and what's not. So. But I think overall for the total year it should be around 30.

What's deductible and what's not. So. But I think overall for the total year it should be around 30.

So. But I think overall for the total year it should be around 30.

But I think overall for the total year it should be around 30.

Mark Miller: Okay. And it will be a tax benefit for the current quarter?

Yeah.

Mary Jane Raymond: Against on the losses, yes. Thank you.

Mark Miller: Thank you.

Operator: Our next question comes from Ruben Roy with Stifel. Your line is open. Your line is open.

Ruben Roy: Sorry, everybody. I was on mute. A follow-up for Chuck or Bob on the silicon carbide discussion. As you start the formal review process, Chuck, has anything changed with the way you're thinking about investing? You've been spending 50% of capex on silicon carbide. Do you pause that? Do you accelerate it given what you're seeing in the market? Just I'd love to understand how you're thinking about kind of the near-term spend for SiC?

A follow up for Chuck Chuck or Bob on the Silicon carbide discussion as you start the formal review process Chuck as anything changed with the way Youre thinking about investing you have been spending 50% of Capex on Silicon carbide do you pause that you accelerated given what you're seeing in the market just I'd love to understand how youre thinking about kind of the near term.

Spend for perfect.

Chuck Mattera: Full speed ahead on the business plan.

Ruben Roy: That was easy enough. And then, a follow-up on -- I think you mentioned that datacom and telecom were equally impacted with the near-term demand environment. Just wondering if you could walk us through -- I know there's a lack of visibility as you think about the next couple of quarters, but you did say that datacom should be short term. You've got some markets that are inflecting like AI. Is that something that you have a little bit of visibility into when you might see datacom come back? Is it next quarter or quarter after? Any other detail would be great? Thank you.

You mentioned, the Datacom and telecom were equally impacted with the near term.

The demand environment.

Just wondering if you could walk us through I know.

Lack of visibility as you think about the next couple of quarters, but you did say that datacom.

It should be short term you've got some.

Markets that are inflicting like AI is that something that you have a little bit of visibility into into when you might see datacom come back is it.

The next quarter or quarter after any any other detail would be great. Thank you.

Chuck Mattera: I alluded to intense design-in activity that we have. This AI opportunity, but not only the AI opportunity, the 800G deployments, they are heating up in terms of planning. And that's going to be a focal point in FY '24. And I do believe that we have -- we may have because we're working hard to position ourselves to have maybe a little bit greater opportunity than what we currently have factored into our plans. But it's too early to call that. And I think the next couple of quarters, we're just going to have to watch it carefully. We're working intensely in terms of capacity, getting new products and positioned to ramp. I think we're uniquely positioned to be able to go from zero to 100 miles an hour when it comes to deployments of new systems. And our customers know that. And I believe they're counting on us to be able to do that. We just need a clear sign is to the rate of acceleration, and that's what we're working on.

We.

This AI opportunity, but not only the AI opportunity the 800 gig.

Deployments.

Of our heating up in terms of planning.

Yes.

That's going to be a focal point in FY 'twenty four.

And I do believe that we have.

We may have because we're working hard to position ourselves to have.

Maybe a little bit greater opportunity than what we currently have factored into our plans, but it's too early.

And I think the next couple of quarters, we're just going to have to watch it carefully. We're working intensely in terms of capacity getting new products and positioned to ramp. We are uniquely positioned to be able to go from zero to 100 miles an hour. When it comes to deployment of new systems, and our customers know that and I believe they're counting on us to be able to do that we. We just need a clear signs for us. Two. The rate of acceleration and that's what we're working on.

And I think the next couple of quarters, we're just going to have to watch it carefully. We're working intensely in terms of capacity getting new products and positioned to ramp. We are uniquely positioned to be able to go from zero to 100 miles an hour. When it comes to deployment of new systems, and our customers know that and I believe they're counting on us to be able to do that we. We just need a clear signs for us. Two. The rate of acceleration and that's what we're working on.

We're working intensely in terms of capacity getting new products and positioned to ramp. We are uniquely positioned to be able to go from zero to 100 miles an hour. When it comes to deployment of new systems, and our customers know that and I believe they're counting on us to be able to do that we. We just need a clear signs for us. Two. The rate of acceleration and that's what we're working on.

We are uniquely positioned to be able to go from zero to 100 miles an hour. When it comes to deployment of new systems, and our customers know that and I believe they're counting on us to be able to do that we. We just need a clear signs for us. Two. The rate of acceleration and that's what we're working on.

When it comes to deployment of new systems, and our customers know that and I believe they're counting on us to be able to do that we. We just need a clear signs for us. Two. The rate of acceleration and that's what we're working on.

We just need a clear signs for us. Two. The rate of acceleration and that's what we're working on.

Two. The rate of acceleration and that's what we're working on.

The rate of acceleration and that's what we're working on.

Ruben Roy: Appreciate it. Thanks, Chuck.

Operator: And I'm not showing any further questions at this time. I'd like to turn the call back over to Mary Jane.

Mary Jane Raymond: Thank you very much to everyone for joining us today. We appreciate your participation, and we'll talk to you soon. Bye-bye. Hi.

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

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