Q4 2023 Coherent Corp Earnings Call
How do we reconcile youre guiding sales down I think about 11% at the midpoint.
And earnings down almost 58% at the midpoint, so what declines a lot more because gross margins from what you're suggesting sort of seemed to be about where they are in fiscal 'twenty unless I'm getting that wrong.
So what are those missing pieces that are driving.
Is it share count like what is making.
The clients so much faster compared to 23.
Revenue.
Revenue alone comparing just to that.
Set of 4700.
$4 7 billion sorry.
The revenue alone is 91 times, so the revenue declining as a significant impact on the earnings.
And then from there.
The taxes make a difference the dividends changed somewhat.
Even though we have the share count.
Converting on the series a.
Any kind.
Dividends also start to get a lot because they are capitalized. So those are probably the major things, but the revenue being below 23 is a primary driver.
Okay. Thanks, I'll follow ups.
Well. Thank you for you Brad.
One moment for our next question.
Yeah.
Our next question comes from Tom O'malley with Barclays. Your line is open.
Hey, Thanks for taking my question.
I just wanted to see what silicon carbide was as a percentage of total revenue in the June quarter in the prepared remarks, you talked about.
The continued supply constraints just from not being able to scale, but you also said it grew nicely could you just give it for the June quarter.
Yes, good morning, Tom.
Just give us a second.
The whole of the wideband gap.
Product line was about 6% of revenue.
Okay. Thank you and then I just wanted to ask just a technical question. Maybe this is in Giovanni's camp. So.
In terms of AI connections that Youre seeing today I thought it was interesting in your in your in your slide deck.
So the biggest growing opportunity between 23 and 28 is the silicon Photonics portion, where you havent going from like $800 to $4 6 billion.
Where are you guys playing in silicon Photonics, and why is that growing so fast in that period of time. Thank you.
Well there are solutions that.
From a power consumption and generally speaking performance standpoint are better suited for suitable photonics you still need.
Certainly the laser for those solutions.
That we see.
I would say those are split suite of one <unk> is not.
In the slide is not.
Identified as not split between short reach and.
In laundry short Cleveland.
Or what we call a shortage of in region. So I would say the split is still the one shortly two thirds long reach and both of them.
Related to the AI.
Yes.
We talked about.
So that's what we're seeing so the growth.
Of course, there is no thats not all of it that is growing fast, but there's also the <unk>, which is also growing very fast and thats unrelated to the single performing spot, but just.
With respect to suitable Photonics center split between.
All the AI what is the split.
One third two thirds.
Short reach long reach.
Thank you.
One moment for our next question.
Our next.
<unk> comes from Jed <unk> with William Blair. Your line is open.
Hi, Thanks, and thanks for taking my question just as a follow up to the previous on Silicon carbide.
Am I looking at this correctly that if I look at the wide band gap and I strip out indium phosphide that silicon carbide, roughly 70% of that.
That business.
And.
Or is there anything else that I need to be aware of in that business.
Chad can you.
To repeat your question.
Finally, I'm trying what I'm trying to get at is the growth in Silicon carbide previously you've said that that was 3% of.
Sales and now Wideband gap is a total of 6% within wide band gap I think the other major component is indium phosphide.
But that seems to be relatively small of about 20% to 30%. So the vast majority of silicon carbide is there anything else that.
It would be it would need to be removed to get back to that silicon carbide, because what I'm trying to understand is the growth year over year of that business. Okay.
Okay Jed Jed.
And our wide bandgap electronics platform.
The majority of the sales are for silicon carbide substrates.
There are no indium phosphide gallium arsenide is nothing of any other compound semiconductors, but.
We do have our ion implantation services.
Business, which includes.
Providing ion implant services for Silicon carbide.
Two.
So customers who are operating fabs.
So it is silicon carbide based.
And that's the focus of our wide bandgap electronics platform.
And.
It is growing it is outpacing the growth of the company.
It's been 4% to 5% for the last several quarters Jeff.
Got it okay.
And then I guess maybe get.
You mentioned that the in the shareholder letter that 40% of the Capex was directed to this business unit.
And then last quarter I think you updated saying that you were looking at a strategic review of this business unit with a lot of Capex for something that's relatively small, albeit growing.
So just how should we think of that percentage in.
In the 'twenty four guide do you expect a linear growth or are you expecting with this capital intensity.
In terms of expansion that would be non linear.
No.
I'm expecting that in FY, 'twenty, four and planning at above 40% to 50% of our capital will be invested in silicon carbide.
Fuel the growth.
Yes.
Sure what I was getting at though Jack.
In a business that you are.
That you're looking at a strategic review.
Which could take different forms that's a lot of capex that you're putting into that business.
Are you expecting non linear growth in that segment. So in other words, if you are at 6% right now alright.
In that forecast is that expected to double as an extract that brought him to justify the capex in that business unit.
Hi, Jamie.
Well, certainly I think as we have seen and talked about probably in prior quarters. The main line vehicles from kind of mainline car suppliers start tentative to electric we absolutely expect that this market well have an inflection point upwards.
And I think we're only seeing just at the beginning of that the growth was very strong in the fourth quarter. It was strong in the third quarter.
And I think we do expect that to continue obviously customers.
Fortunately this business is somewhat more rational than other parts of our business.
But I'd say.
It's important for the capacity to be there for people also to commit to being able to change that over half.
Half of their entire car lines, if not more than that.
Carolina segment, joining would you like to answer.
I'll give you a number of FY2023 'twenty four we expect the growth of at least 40% four <unk> okay.
Okay.
Great.
Okay. Thanks, guys I'll jump back in queue I appreciate the color. Thank you Jen.
One moment for our next question.
Our next question comes from Christopher Roland with Susquehanna. Your line is open.
Christopher Your line is open you can ask your question.
Hi, sorry on mute.
Yes, I was wondering if you guys might people to talk about.
Any kind of non traditional engagements have you guys had any engagements or optical or lasers.
Into things like AI systems or servers or cards.
And perhaps if you could talk a little bit more broadly about the economics for AI just in your transceiver business.
How margins compare to corporate what the opex needs are to support that business et cetera.
Chris.
Could you repeat the first part of your question Nonfinancial Park.
Yes so.
Your competitor for example is starting to talk about custom AI designs that are going into systems not just transceivers.
And I was wondering if any hyper scaler have engaged you.
<unk> AI specific companies have engaged you in custom designs.
Joining me.
Well.
So let me, let me start with our strength in the device technology.
Sure.
Sale.
<unk> devices that actually use internal so we.
While our competitors are actually our customers too as you probably know.
So because of the broad base laser.
<unk> technology platforms that we have both in shaft wavelength short reach and long wavelength.
<unk>.
So we are engaged on some.
Let's say non standard designs with some.
And customers, but.
Even those customization at the end of the day.
So.
<unk> inter operability, they will have to be standardized at some point.
No.
I don't believe there is any.
Any difference in terms of the pulses of standardization that we've seen in the past 'twenty.
20 years in the discipline of course as the people trying to improve performance cost of ownership et cetera.
At all.
Long ways to customize the solution internally I wanted to remind you that at the end of the day all of these <unk> hundred <unk> are all one <unk> optical lens. So all comes down to 100 G anyway, and so some of them are Paolo almost demo different copper approaches multiplex and so far with <unk>.
End of the day is all while energy LP.
Optical lane level, even if that may be.
<unk> electrical lanes coming soon in the.
Future of coastal <unk> optical lanes coming soon but today, that's where we are so there is some level of customization, but.
I don't I don't think it changes the.
Again, our ability to compete is still substantially better than I would say most of our competitors because we as you know we are the most vertically integrated all that which doesn't only.
<unk> improved our ability to.
We were saying earlier to have.
Off the the.
The demand that we see but also the ability to differentiate at the transceiver internal design level. So we are engaged from their perspective. Some of these cost super customer to call. It a customized solution for some of the AI players.
Are you talking with you.
Especially the margin so generally speaking <unk>.
Remember that the communications.
Entire end market the margins tend to be below the corporate average having said that.
The higher data rate and typically more technologically complex products that deliver greater value tend to have margins that are above the average within communications.
To a pretty decent extent.
Great. Thank you very much.
For my second question here.
I know, it's hard to figure this out in inventory at your customers and I know, it's going to take a few more quarters here to work through.
But is there any way to kind of quantify.
What this inventory burn is what you think normalization would have been.
At your customers.
How much more what you have shipped if you're shipping in line with demand.
Any thoughts on that and then any thoughts on perhaps the linearity of how this inventory dynamic plays out thanks.
Okay Chris.
I won't be able to speculate on what it could have been.
It'll be too complex, a function and have great great uncertainty I think.
But.
90 days ago, I said I thought that.
<unk>.
Moderation would persist at least until the end of this calendar year and maybe longer.
And it is still still not possible to call it any better than than the remarks, I made earlier and as it relates to telecom is one as a kind of a primary market, where we were we are affected by it.
I am and I am hopeful for sure.
And looking and engaged in discussions with customers.
I believe that.
We won't see a turn up.
Before the second half.
And I believe that we will begin to see some signs of it by then.
Great. Thank you Chuck thank.
Thank you Chris.
One moment for our next question.
Okay.
Our next question comes from Ananda Baruah with loop capital Your line is open.
Hey, good morning, guys and thanks for taken taking the question.
I guess, two if I could.
In the shareholder letter.
I'll talk about sort of the AI is being more than just AI Chan Seabury and I think the net.
<unk> made an active and passive components high speed lasers and.
I was wondering if you could drill down that I think you gave some context at OFC on this as well, but would love to get kind of takes on that.
Any update on what Youre thinking about that and then I have a quick follow up thanks.
Okay.
Joining maybe just talk.
Visuals MLS and optics.
Yes I.
I guess you are wondering.
I mean, obviously the largest share of the revenue upside that we see in the year due to the surge in demand, which was by the way was a surge because it was unexpected and potential size and timing, but not necessarily unexpected from a market because we don't.
It was going to come at some point, but it caught us a little bit by surprise and Fortunately we had we do have data on the <unk> platform Brady. So it's a small question.
So logistics and supply chain.
Up so.
One note.
But in terms of the.
The split, let's say, let's call it between modules and devices, let's say <unk> and <unk>.
Lasers photo diodes in some cases.
Ics.
Obviously, the transceiver is 90% of the total so that's kind of a split that we see.
Let's say in the next 12 months.
In the fiscal year fiscal <unk> before so thats kind of roughly in isolation revenue wise.
That's helpful.
Appreciate that.
And I guess as the follow up.
Thanks, a lot for the detail on the AI Tracy Mccann and <unk>.
In the slide deck and the go forward any any opinion online.
Like where are you ultimately share wise.
In the various buckets the way you've laid them out and then just sort of bigger picture.
Do you think you are in that position.
To gain share going forward as well.
Text around that would be helpful. Thanks.
And on the <unk>.
We are the <unk>.
The largest transceiver maker in the marketplace.
And as it relates to this 800 G opportunity and more broadly AI, including the generations to come.
Our goal is to be the market leader.
It's early as a starting point.
But even though it's early we've gotten busy.
I believe it in 24, what we have baked into our plan is already.
Super exciting ramp.
And I believe that there will be.
As possible upside of several hundreds of millions even in 'twenty four.
In the back half of 'twenty four.
And I believe that our ability to address the market to serve the market to scale on the market is going to be critical for us to be able to win.
Our goal is to be the market leader.
And Chuck is there anything about how you're sort of going to market.
Thank you very much.
With the <unk> portfolio that you have that you think could increase your advantage in the market.
1000, <unk> et cetera relative to where you are today already I believe there.
Yes, absolutely.
Let me let me repeat.
Our technical laser based technology, both short wavelength and long wavelength.
And the demands on that laser technology, including for 800, but especially for one six.
We will separate us even further.
From the other players in the marketplace because we are.
The only vertically integrated company that has a roadmap.
To support well beyond the 800 genes.
I believe those are among the very strong value propositions that we present to our customer.
Very helpful. Thanks, a lot Jeff.
Thank you.
For our next question.
Our next question comes from Ruben Roy with Stifel. Your line is open.
Thank you Chuck if I can ask you to put a little bit of a finer point on the AI and ml.
Transceiver momentum Youre seeing.
How would you characterize the relative strength today at least in sort of opex going into Infiniband.
AI training clusters versus Ethernet and really what I'm trying to get to is if you can give us a sense of timing.
And qualification cycles for Ethernet deployments at 800 gig and then eventually what 16 would be helpful.
Okay.
I'll ask you wanting to address both.
There is.
Absolutely agnostic to the ultimately the switch architecture of the customers. So if you are talking about.
Maybe the market where the demand is.
Maybe maybe the Liza higher demand from Infineon back.
Then then Ethernet and they're isolated so but.
From just from a hardware standpoint that makes absolutely no difference to us.
Okay.
So are you qualify them for.
I think some of the cloud service providers are talking about moving to.
Ethernet switches 51, two tariff bid et cetera are you qualified.
As those.
Switching to move move out at some point in 2024.
Yes, absolutely.
Okay.
Okay, and then I guess one last question then the.
The FERC Checkers Giovanni you mentioned, 20% of consolidated consolidated revenue.
Fiscal 'twenty three related team.
Would consider AI ml that leaves a pretty big portion of sort of how I would consider legacy transceiver is 200 gig and maybe in lower.
How do you think that plays out.
Yes.
That's going to ramp faster than legacy falls offer legacy sort of hangs in there.
Are you considering that.
Okay.
Ruben Let me let me clarify.
My earlier comment was about 20% of our consolidated FY2023 sales were in Datacom transceivers.
Okay, Let me.
Let me ask if you have any question about that.
No.
Thank you Chuck.
I'm glad we're talking.
As.
As we indicated in the shareholder letter, we had a 10% customer in the communications market that was in the data communications market.
And.
That the demand for those legacy products in my prepared remarks, I alluded to a declining demand.
For certain for certain legacy products from our customers.
That demand in FY 'twenty four is going to roll off.
That is our plan.
As it rolls off as it rolls off.
Betsy.
Even faster than it rolls off I am expecting that inside of the fiscal year 'twenty for that we are able to replace it with 800 G AI transceivers.
At a minimum.
We're aiming aiming to do more than that <unk>.
Absolutely, yes, so thats contemplated I appreciate the detail Chuck Thank you.
Welcome Reuben.
One moment for our next question.
Our next question comes from Dave Kang with B Riley Your line is open.
Hi, Thank you.
Good morning. My first question is regarding your transceiver revenues what was the split between.
Difference be like 100 gig 400 gig last year and now with 800 gig ramping what do you think that mix will be this fiscal year and whats the margin differential between.
100 gig versus 408 hundred gig thank you.
Joining me on it.
I'd say that the 200 to 100 gig and above was about <unk>.
I would say, 30% of the total and the rest was one gig and below however, let me turn to the split between now.
Sure.
<unk>.
Yes.
Sorry, the other way to answer sorry.
And then on the.
Yes.
Just.
Giovanni Colella.
I wanted to go again above was 70% just wanted to make clear, yes, yes, okay. Okay.
So now in terms of the.
The major change in our.
Having to distributions has been if you recall in the past we said that.
One third was <unk>.
Hyperscale is one.
It's a top 20 cloud and then.
And then one.
But it's a enterprise on device.
As a result of the shift to AI and the result of some inventory.
What we did over.
593 that ratio has actually changed now to two third.
He's around AI at least full FY 'twenty before and it's most of it will be 800, G 200, G and above of course, including oncology and then the rest of these.
That's a smaller cloud players and enterprise so the ratio of one third one third one like <unk>.
And then the other one third split between the remaining cloud providers and the.
And the enterprise. So hyperscale is will be a much larger share of the total than in FY 'twenty.
And how does that how does that.
That transition that the shift.
Impact the margins.
So as I noted earlier the margins on that.
Higher data rate more technologically complex products tend to be higher than the average in a given group. So in the case of Transceivers.
Some of these greater than 200, Jay and certainly 800, <unk> would be above the average having said that.
For those parts that are say 100 and below at some point, we become very very very good at making those so that the lower margin tends to.
The lower margin products, our average margin products tend to hold actually.
Because as time goes on also we're almost the only one that makes them. So generally speaking that's how you should think about the margin structure there.
Got it and maybe Mary Jane.
My last question is on your backlog.
$2 7 billion and was wondering if you can.
Provide.
<unk> you or can be divisions and also if you can provide I know you.
Provided operating margins for it can be divisions wondering if we can get gross margins for those three.
So with respect to the backlog for the materials segment of the $2 7 billion its about <unk> 50.
Of the networking segment, it's about one two and the balance would be in lasers.
With respect to the gross margin of the segments. We don't typically give that as you know.
I think that you can imagine that it basically goes and somewhat parallel to the operating margin remembering that.
<unk> materials and laser diodes has the highest margins in the company along with typically our industrial products.
<unk> laser systems are typically slightly above the corporate average.
And that telecom.
Communications margins tend to be below the corporate average.
Sure.
Got it thank you.
Thank you Dave one member for next question.
And our next question comes from Jim Ricchiuti with Needham <unk> Company. Your line is open.
Good morning, Mary Jane I Wonder, if you did you'd be willing to share any targets for debt reduction.
In fiscal 'twenty four.
Yes, maybe it say at the midpoint of your full year guidance, how should we be thinking about that and then I have a follow up.
Well.
Yes.
So we haven't previously talked about targets for debt reduction obviously, we would have.
Strive to be north of 200 on that.
Paying down the debt remains a very very high priority of their very high priority to the point that while the Capex is the first call on the capital structure.
We have been very very aggressive about managing that capex because to some extent the capex naturally moderate and lower into areas of lower revenue.
And then looking at some of the comments you've made in the shareholder letter on the display side of the business I'm wondering if you are you expecting any kind of seasonal pickup in utilization that's going to drive that part of the business in the first half yes, just in light of what we're hearing from one of the suppliers of OLED.
Cereals into the handset market and then on the systems side, you alluded to pick up.
Orders out of China is that.
Deliveries for fiscal 'twenty, four or the bulk of those in fiscal 'twenty five.
Great. Great question is Jim Thanks for your question Mark with your addressable Thanks Chuck.
Hi, Jim Yes, we definitely expect service utilization pick up in the <unk>.
First half of our fiscal year. So over the next six months as you know we get a batch of new smartphone releases from various manufacturers typically in the September October period.
Certainly <unk> got visibility into two having expectations of that driver of service revenue.
And the bookings that we that we mentioned on our new <unk>.
OLED capital equipment.
Shipments are in FY 'twenty four so those shipments are within the fiscal year.
Okay.
That compare with past investment cycles, you've seen in this part of the business.
That's a great question.
I think it's pretty similar I mean, we've.
We love this business to be more linear it's not it tends to it tends to be associated with fab build outs as you know and we've got a limited number of customers six to eight major major customers split between today is pretty much split between China and Korea.
So I think it's I think it's pretty similar tends to go in phases. Each phase is typically three to four systems. So you can imagine that the orders that we've recently collected or in that sort of range.
And we would expect additional phases to be built out as well as.
We've mentioned many times on prior calls and expectation of generation eight five build outs, especially in China. So we see this as reasonably typical.
Great. Thank you.
One what was your question.
Hi, Kevin.
Yes.
Please go ahead.
Next question comes from Tim subjects with Northland Capital markets. Your line is open.
Hi, Good morning couple of questions here, and maybe they're related which is specifically I wanted to focus on.
Trends in the telecom business from a demand standpoint.
You probably have some inventory issues, there as well, but as you look through to end demand.
What can you tell us about what's happening there and kind of related to that if we look at the September quarter guide going down something on the order of 150 million Bucks. If you look across your segments.
What are the main kind of.
Drivers there in terms of.
Puts and takes from a from a sequential standpoint. Thanks.
Okay. Thank you.
Jim.
We had a.
Very strong.
Shipments in communications in the fourth quarter.
I think that that will be down.
And into the first quarter.
I think thats the number one driver and the change from Q4 to Q1.
That accounts for.
Maybe more than half or two thirds of the variation and the rest of it's spread across the other markets or across the other segments.
End markets what was the second part of your question.
Well I guess.
No.
So the point to the extent you are talking about comms being half two thirds of the decline I guess I was trying to get a sense of telecom versus datacom there.
It's a combination.
And.
The.
The moderation that we saw in the March quarter, and the telecom market.
That persisted in Q4.
And that will leak into at least the leak into Q1 as well.
It's a.
A meaningful part of it.
Great. Thanks very much.
Hey, good number for next question.
Our next question comes from Mike Genovese with Rosenblatt Securities. Your line is open.
Thank you.
A couple of clarification first.
We will suffer with customers. The one that was almost 1% from datacom customer I just wanted to clarify it sounds like a web scale on Columbus.
And then the second clarification, when we talk about <unk>.
Who knows.
Also part of that also payables, Apple optical cables and electrical camels as transitory. So I just wanted to check that.
<unk> culture to make sure that cables.
On the way you guys talked about us.
Joining me will be taken.
So.
Hey, Mike. Thanks for the question, yes, absolutely. If we always includes cables, but just to be clear we have no electrical cables.
Our portfolio. So it is all obstacle, but we do include critical it's absolutely and.
Your first question probably was.
In our view very well, but I believe.
You wanted to.
Yes.
When I mentioned, the two things I was referring to hyper scaler I think that was your questions. So we saw.
So if I could clarify that question.
You said you had two large customers where orders were expected to go down one.
Obviously, the consumer electronics customer I just wanted to check.
One the datacom customer the Bob Evans.
Help us.
Okay.
Well one well.
<unk>, the most where the consumer.
Some other comments.
And the communication was data it was.
Large.
Customer for us.
Okay and then.
My question just another quick question.
The 200 gene Cologne lasers, one balloon, we expect those to be shipped.
Hello level.
Unfortunately those.
Or to external customers.
Well right now.
<unk> our internal customer.
Two on the G.
And.
We have design wins with some of our competitors placebo competitors and so will.
There will be meaningful only in the second half of the fiscal year.
Thank you Laura.
Thank you.
One moment for our next question, Kevin Kevin Kevin, we're going to wrap the call okay.
Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation you may now disconnect and have a wonderful day.
Thank you. Thank you.
[music].
Okay.
[music].
Okay.
Okay.
Okay.
[music].
Yes.
Yes.
[music].
Yes.
Yes.
[music].
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
[music].
Yeah.
[music].
Yes.
[music].
Yes.
[music].
Okay.
[music].
Yes.
[music].
Yes.
Sure.
[music].
Yes.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Yes.
Okay.
Okay.
Okay.
[music].
Okay.
Yes.
Okay.
Okay.
[music].
Okay.
Okay.
Okay.
[music].
Yes.
Yes.
Okay.
[music].
Yes.
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Sure.
Yes.
[music].
Okay.
Yes.
Okay.
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
Yes.
Good day and thank you for standing by welcome to the coherent Corp. FY2023 fourth quarter earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session will need to press star one on your telephone you will then hear an automated message advising youre Haynes has raised.
Australia. Your question. Please press Star one again, please be advised today's conference is being recorded I would now like to hand, the conference over to your speaker today, Paul Silverstein. Please go ahead.
Thank you Kevin and good morning, everyone. Thank you for joining our fourth quarter fiscal 2023 earnings call today on the call. We have a chair and CEO , Dr. Chuck Mattera, Chief Financial Officer, Mary Jane Raymond Chief Strategy Officer, and President materials segment, Dr. Giovanni Barbarossa laser segment President Dr. <unk> <unk> as a reminder.
Yesterday after the market closed coherent posted a shareholder letter along with an updated investor presentation.
Can both be found in the Investor Relations section of our website before I turn the call over to Chuck for his opening remarks, I want to call everyone's attention to our shareholder letter and accompanying change in format of this morning's call. The shareholder letter contain some traditional financial statements that were previously set forth in our earnings press releases, along with additional color around our operating performance.
Trends and outlook given the additional disclosures in the letter we plan to devote the bulk of this morning's call to answering questions from the financial community. We've undertaken this change with the goal of providing greater insight and clarity for our quarterly earnings release. We welcome. Your feedback I also want to remind everyone. On this call that we will refer to forward looking statements.
Including all statements of the company will make about its future financial and operating performance growth strategy and market outlook and that actual results may differ materially from those contemplated by these forward looking statements risk factors that could cause actual results and trends to differ materially are set forth in the shareholder letter in the annual and quarterly reports filed with the SEC coherent <unk>.
Assumes no obligation to update any forward looking statements, which speak only as of their respective dates. In addition during this call. We may discuss both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in the shareholder letter unless otherwise stated all financial information referenced in this call will be non-GAAP , our discussion will be.
Limited to those non-GAAP financial measures that are reconciled in the shareholder letter today's conference call will be available for webcast replay in the Investor Relations section of our website for one year with that it's my pleasure to turn the call over to Chuck Chuck. Please go ahead.
Thank you Paul.
Those of you listening in and have had the opportunity to read our new shareholder letter.
In the fourth quarter, the coherent team did a good job.
Executing in the midst of a challenging macro economic environment.
Our revenue of 1.205 billion was above the high end of our guidance.
And non-GAAP EPS of 41.
Was toward the high end of our guidance.
Operating cash flow was $182 million, which mark sequential and year over year improvement.
We invested $93 million in capital equipment.
And we retired $121 million of debt.
When I look back on fiscal year 'twenty three legacy coherent contributed to our resilient business model.
In addition, our track record following our acquisition of finished door. Once again speaks to our ability to successfully effect strategic acquisitions, and thereby create shareholder value.
Two major highlights in fiscal year 'twenty three were related to our acquisition of cynosure.
We demonstrated our unique scale, while generating nearly 20% of our FY2023 revenues from just two customers.
One in communications and one in electronics.
These are good examples of the strength of our vertically integrated platforms, which enable breakthrough solutions and.
Our differentiated ability to scale to meet sudden increases in market demand like those that we are now seeing in AI.
And while we experienced a surge in orders in Q4 and communications for AI.
Macro economic uncertainty that affected some of the industrial and instrumentation businesses.
Our slower than forecasted recovery in China.
And a post COVID-19 deceleration and the communications markets drove the conservative fourth quarter order patterns for some of our customers legacy products.
Recently, some of those customers have taken actions, including reducing orders.
Legacy products in the face of lower demand.
And reducing their inventory levels, while slowing their planned investments in capex.
This setup presents the ongoing challenge of managing through a retooling in fiscal 'twenty four and so we got busy during Q4 to align our costs with market reality.
We view this temporary slowdown in demand as an opportunity to strengthen our foundations.
We remain bullish about the future because many of our largest customers are also resetting their strategies and accelerating their investments in new products that depend on our innovations and our ability to manufacture at scale.
The largest opportunity in FY 'twenty for that we are addressing is for 800 G. Datacom Transceivers for plan artificial intelligence and machine learning build outs.
That demand should help offset the anticipated declines in demand from our traditional data center and Hyperscale customers and data communications in fiscal 'twenty four.
In addition, we continue our review of strategic alternatives for our Silicon carbide business. Another one of our major growth opportunities.
Thanks to our strategy of diversification, we believe that we are well positioned to benefit from any improvement in the macroeconomic environment.
Our outlook assumes that we will not see meaningful signs of recovery before the end of fiscal 'twenty four.
So in short we are prepared for a reset year.
We consider these challenges as a temporary interruption of otherwise powerful secular trends.
Our guidance for the first quarter of fiscal 'twenty four is revenue of approximately 1% to $1 1 billion.
And non-GAAP EPS of approximately <unk> to 'twenty.
153 million shares.
Regarding full year fiscal 'twenty four guidance revenue of approximately $4 five to $4 7 billion and non-GAAP EPS of approximately $1 to $1 50.
On 153 million shares.
With that I will turn the call back over to Paul <unk>.
Kevin If you could open it up for questions. Thank you. Thank you ladies and gentlemen, if you have a question or a 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 again, we will pause for a moment, while we compile the Q&A roster.
Our first question comes from semi Chatterji with J P. Morgan Your line is open.
Hi, good morning, Thanks for taking my questions and thanks for all the details in the shareholder letter.
Useful to get all those deals maybe if I can start with just sort of clarification question on <unk>.
Particularly sort of the inclusion in the guidance are deciding not to put it in the guide sort of maybe if you can sort of walk us through.
Setup to interpret that you are not putting any of those sort of autos in the guide for fiscal 'twenty four or is there sort of some amount of it in the guide relative to what you have more capacity visibility around and you do mentioned sort of capacity ramp is one of the hotels I think in the shareholder letter in relation to fiscal 'twenty four so maybe you could walk us through.
What are you seeing in terms of capacity challenges, what you need to sort of see in terms of milestones to include that in the guide going forward and I have a quick follow up thank you.
Okay. Thank you Sandra.
Take that maybe three points are helpful. But first one is that the.
Q4 bookings that we had it had a surge that we reported that surge was all about AI.
That's number one number two.
We have revenue.
800, <unk> transceivers.
Contemplated inside our guidance in the 45 to $4 seven there's meaningful revenue.
For a delivery of 800 <unk> transceivers.
Those have already started.
In the first half of the year, we will see a ramp from Q1 to Q2.
But the substantial amount of revenue.
We will deliver it will be in the second half of the year.
And what's in front of that is managing our scale and especially managing our supply chain.
And so we see the opportunity for over and above what we have in our plan.
That opportunity will require quite a few more synchronization, including in our supply chain.
As we work our way through in the next few months through the first and second quarter. We will have our eyes set as we work to compete for the greater opportunity that may come inside this fiscal year.
Okay got it. Thank you, Jeff and then you data outlined in the presentation in the shareholder letter three separate opportunities in AI ml <unk>.
<unk> as well as VIX <unk>.
Any sort of thoughts in terms of broader films.
Will you see the most of likelihood of success within those three buckets and where most of these orders are coming in right now that youre seeing in which bucket is that coming in thank you.
Okay well.
I'll start out and then I'll ask youre wanting to finish it off sandvik.
As you know, we're a vertically integrated supplier.
In addition to selling both fixed oil based and <unk> based Transceivers for this application were also a supplier to the merchant market.
And having said that our ability to scale, both high performance and high volume and high quality to be able to meet this ramp is partly the basis on which we're going to continue to win both new orders and to be able to ship joining please.
Robbery.
I would say that roughly right.
It would be like one third shortly short wavelength to long beach long wavelength.
And which obviously because we can support both with our internal devices and we see that kind of ratio being different in terms of volumes because.
Is defined so the volume will be probably 50, 50 and that kind of ratio will probably be the same for the next five years numbers, specifically talking about AI.
So the 800 G and maybe even the in the future of the one six days I'd say that so the calculation will remain in the next few.
Yes.
Got it. Thank you thanks for taking my questions.
Thank you Sandra.
One member for next question.
Okay.
Our next question Simon Leopold with Raymond James Your line is open.
Great and I appreciate you, taking the question and providing all the detail last night.
Gave us a little bit of time to try to digest that.
Maybe.
Couple of aspects around.
The exclusion of the AI related data come from the guidance.
Could you help us understand the rationale for core backing the AI related business. What you describe is worth several hundred millions.
Out of the guidance and help us understand as well if we wanted to include this in our own estimates what do you think the impact would be.
On the EPS and just as a very very quick follow up to this question. What assumption do you have in terms of your market share of 800 gig and above transceivers.
Thank you.
Okay, Simon Simon Let me, let me clarify let me repeat what I said in response to Sami's question.
Our guidance our revenue guidance for the full year.
And for the first quarter, but especially for the full year contemplates a meaningful.
The amount of revenue.
We're shipping 800 <unk> transceivers.
I want to repeat that.
Our plan.
Complete.
Abstention.
Amount of shipments.
I believe that there may be additional upside.
And that additional upside might be as much as $200 million.
But for us to have the confidence to added into our plan.
Need to we need to manage quite a few aspects of our ramp.
And we're going to go for it but I cannot be sure that we will be successful and having everything come together in time to be able to have the confidence to add that $200 million or up to two or $200 million, but we're focused on it.
And if we have anything more to say 90 days from now we will.
With regard to Europe .
Second question.
Our belief is that we're in a market leadership position, it's a competitive market.
There are.
Strengths that we bring and we're going to continue to compete.
On the basis of the strengths that we have in this generation those strengths I outlined.
Were evident in FY 'twenty, three with a rather substantial ramp.
Ramp and Datacom Transceivers.
Year over year from 'twenty, one to 'twenty two to 'twenty three we have the ability to scale.
And we have the laser components for the generations that exist today and the one six T which are coming.
And so on that basis on that basis I think.
It's the first inning.
It's very difficult to be assessing.
What the score will be in the fifth inning in the sixth inning of the game everybody is just getting started.
And we are well positioned to be able to move even further past our own aspirations for our leadership position in this market.
That's very helpful and just to sort of paraphrase it to make sure. It's crystal clear that the exclusion is is because the risk of ramping the production capacity shipping. It is not because you believe it's sort of a one time.
The Pan kind of project at the beginning of a cycle correct.
Alright. This is the first inning of the game.
At the beginning.
I'm not even sure it's a cycle.
It's the beginning of a revolution.
And there is a lot more to come we believe and by the way if 90 days from now I can update you on the.
A possibility of additional revenue that we can add to the guidance. If we are able to operationalize it.
There may be more to come.
Because this is just getting started and we think in 'twenty four rolling into 'twenty five is going to continue to drive our growth.
Thanks for taking the questions Chuck.
Welcome Simon one moment for our next question.
Our next question comes from meta Marshall with Morgan Stanley . Your line is open.
Okay.
Great. Thanks, and maybe just outside of the transceiver business for now.
You had noted that visibility increased during the quarter I just wanted to get a sense of it.
Whether that visibility increase anywhere outside of Datacom Transceivers and then just.
As you look at recovery of the business either late in the second half of the fiscal year into fiscal 'twenty five did what segment Theyre, most likely that kind of recover first outside of Datacom.
Okay, Matt. Thank you for your question.
Well.
The telecom business itself.
Given our position of.
Of our portfolio the strength that we have with a telecom customers I am expecting that the second half of the year.
To be better than the first half of the year and that we will expect.
Do expect to see summary signs of recovery before the end of this calendar year signs of recovery will be.
Follow through on new orders.
And.
Those new orders will be consistent and commensurate with both the launch of some new products, including our hour plug a hole desio modules and and the ramp of those products from a base that we believe we can grow our share meaningfully beginning in the second half of next year.
Second would be one I do think the industrial market.
It's broad based we're diversified.
And I.
I don't want to say that we're at the bottom.
But I do believe that any meaningful increase in macroeconomic activity, we will begin to see it both on laser utilization in our service business and.
The the adopt further adoption of laser technology, including for EV battery welding is just one example, our silicon carbide substrate business is growing is growing.
Super nicely.
And I'm expecting that to continue into 'twenty four.
Maybe I'll start with kind of matter.
A follow up if you like.
Yes.
This is a follow up I mean.
To come back to Datacom transceiver, when you talk about the additional $200 million.
Is the majority of the gating item your capacity or are there other gating item.
A recognition of that.
Every manufacturing line has a first constraint.
And when it's broken and there's one right behind it the second constraint.
Our job.
Our expertise is being able to figure out how to manage multiple constraints at one time managing the supply line, we have critical components that we're dependent on.
And that supply line for the last six months or so has been in a wind down.
Mode with.
With the tide going up.
And the rather sudden adoption in the beginning of the game in this first inning.
<unk>.
Many in the industry by surprise and therefore, we have to manage through certain aspects of the supply line is going.
But but if it were going faster than we'd be able to take on more because we have the capacity to do more and we're aiming to do more I believe that customers want us to do more.
And so in the next.
The next couple of months.
Urgent.
Our approach to managing our entire manufacturing capacity will continue.
And we will give an update in 90 days.
Great. Thank you.
One moment for our next question.
Our next question comes from Vivek Arya with Bank of America. Your line is open.
Alright, Thanks, one more on Datacom all for fiscal 'twenty.
What was your total Datacom transceivers and how much was that in AI ml and I'm curious how are you drawing that line is it anything about 200 gig.
And so that's my first question.
Okay Vivek good morning, Thanks for your question.
Okay. Let me, let me give it to you in broad strokes, because I think that's that'll do it for you.
Our Datacom transceiver sales and 23 were approximately 20% of our consolidated revenues.
And as it relates to AI.
Whereas there may be some applications in sockets that are.
That data ratio to less than 800 for us when we talk about it we're really talking about 800, and you'll hear us talk about our roadmap for one six.
But in FY2023 it was a it was not a material amount we began shipping in the third quarter.
And.
And it's going to step up rather substantially in 'twenty four.
Okay. Thank you and for my follow up I was hoping you are mainly Jan could provide.
The bridge between the sales guidance and then the earnings.
Guidance, what are you assuming for gross margins in fiscal 'twenty, four and the exit Opex in fiscal 'twenty four.
Okay. Thank you Vivek Mary Jane So I think with respect to the <unk>.
Full year.
We're widening our gross margin range to 37% to 42.
And at lower revenues.
Similar to what we have in the guidance.
Given the importance of volume the margins may not be at 40 every quarter. So that's the first thing the second thing is similarly at the same level.
Revenue that we're talking about for the full year guidance.
Opex.
Tends to be a little bit higher percentage of sales not because the dollar value of the opex, we're scaling up but because the revenue was allow ourselves probably in the neighborhood of about 22 or 23, which is the high end of our range of 20% to 23. So that's the way we're looking at it I do think that.
As the year goes on we will probably see the margins improve as the volume picks up.
Surely if some of the outlook that we have that we think covers somewhere between the next.
Two to four quarter starts to recover in the back half of the year.
But how.
How do we reconcile I mean, youre guiding sales down I think about 11% at the midpoint.
And earnings down almost 58% at the midpoint, so what declines a lot more because gross margins from what you're suggesting sort of seem to be about where they are in fiscal 'twenty unless I'm getting that wrong.
So what are those missing pieces that are driving.
Is it share count like what is making.
The clients so much faster compared to 23.
The revenue.
Our revenue alone comparing just too.
Set of 4700.
$4 7 billion sorry.
The revenue alone is 91 times. So the revenue declining is a significant impact on the earnings.
And then from there.
The taxes make a difference the dividends changed somewhat.
Even though we have the share count.
Converting on the series a.
Any kind.
Dividends also start to get a lot because they are capitalized. So those are probably the major things, but the revenue being below 23, a surprise a primary driver.
Okay. Thanks, I'll follow ups.
Well. Thank you for you Brad.
One moment for our next question.
Yes.
Our next question comes from Tom O'malley with Barclays. Your line is open.
Hey, Thanks for taking my question.
I just wanted to see what silicon carbide was as a percentage of total revenue in the June quarter in the prepared remarks, you talked about.
The continued supply constraints just from not being able to scale, but you also said it grew nicely could you just give it for the June quarter.
Yes, good morning, Tom.
Just give us a second.
The whole of the wideband gap.
Product line was about 6% of revenue.
Okay. Thank you and then I just wanted to ask just a technical question. Maybe this is in Giovanni's camp. So.
In terms of AI connections that Youre seeing today I thought it was interesting in your in your in your slide deck, you showed that the biggest growing opportunity between 23 and 28 is the silicon Photonics portion, where you havent going from like $800 to $4 6 billion.
Are you guys playing in Silicon Photonics, and why is that growing so fast in that period of time. Thank you.
Well there are solutions that.
From a power consumption.
Generally speaking performance standpoint are better suited for silicon Photonics, you still need.
Clearly the laser for those solutions.
With that we'd see.
I would say those are split <unk> is not.
In the slides is not.
Identified it's not split between short reach and.
In laundry short Cleveland.
Oh, it will be call. It shortly just one region. So I would say the split is still the one shortly two thirds long reach and both of them.
Related to the AI.
Yes.
We talked about.
So that's what we're seeing so the growth.
Of course, there is a model that's not all.
All of it that is growing fast, but there's also the VIX. So part which is also growing very fast and thats unrelated to the single performing spot, but just.
With respect to silicon photonics that the split between.
Still all the AI plays a split the.
One third two third.
Short reach long reach.
Thank you.
One moment for our next question.
Okay.
Our next question comes from Jed <unk> with William Blair. Your line is open.
Hi, Thanks, and thanks for taking my question just as a follow up to the previous on Silicon carbide.
Am I looking at this correctly that if I look at the wide band gap and I strip out indium phosphide, but silicon carbide roughly 70% of that.
That business.
And.
Or is there anything else that that I need to be aware of in that business.
Jud can you repeat your question.
Finally, I'm trying what I'm trying to get at is the growth in Silicon carbide previously you've said that that was 3% of.
Sales and now Wideband gap is a total of 6% within wide band gap I think the other major component is indium phosphide.
But that seems to be relatively small of about 20% to 30%. So the vast majority of silicon carbide is there anything else that.
That would be that would need to be removed to get back to that silicon carbide, because what I'm trying to understand is the growth year over year of that business, Okay. Jed Jed.
Our wide bandgap electronics platform.
Majority of the sales are for silicon carbide substrates.
There are no indium phosphide gallium arsenide is nothing of any other compound semiconductors, but.
We do have our ion implantation services.
Business, which includes <unk>.
Providing ion implant services for Silicon carbide.
222.
So customers who are operating fabs.
And so it is silicon carbide based.
And that's the focus of our wide bandgap electronics platform and.
It is growing it is outpacing the growth of the company.
Has been 4% to 5% for the last several quarters Jeff.
Got it okay.
And then I guess maybe get.
You mentioned that the in the shareholder letter that 40% of the Capex was directed to this business unit.
Then last quarter I think you updated saying that you were looking at a strategic review of this business unit with a lot of Capex for something that's relatively small, albeit growing.
So just how should we think of that percentage in the in the 'twenty. Four guide do you expect a linear growth or are you expecting with this capital intensity.
In terms of expansion that would be non linear.
No.
I'm expecting that in FY, 'twenty, four and planning that above 40% to 50% of our capital will be invested in silicon carbide.
To fuel the growth.
Yes.
Sure what I was getting at though Jack so in a business that your debt.
You're looking at a strategic review.
Which could take different forms that's a lot of capex that you're putting into that business.
Are you expecting non linear growth in that segment. So in other words, if you are at 6% right now alright.
In that forecast is that expected to double as extract that for them to justify the capex in that business unit.
Hi, Jamie when you look too well.
Well, certainly I think as we have seen and talked about probably in prior quarters.
As the main line vehicles from kind of mainline car suppliers start tentative to electric we absolutely expect that this market will have an inflection point upwards.
And I think we're only seeing just at the beginning of that the growth was very strong in the fourth quarter. It was strong in the third quarter.
And I think we do expect that to continue obviously customers.
Fortunately this business is somewhat more rational than other parts of our business.
Sure.
But it's a.
Yes.
It is important for the capacity to be there for people also to commit to being able to changeover.
A half of their entire car lines, if not more than that.
Giovanni segment, joining would you like to just.
I'll give you a number of FY2023 'twenty four we expect the growth of at least 40%.
Okay.
Right.
Okay. Thanks, guys I'll jump back in queue I appreciate the color. Thank you John .
One moment for our next question.
Our next question comes from Christopher Roland with Susquehanna. Your line is open.
Christopher Your line is open you can ask your question.
Hi, sorry on mute.
Yes, I was wondering if you guys might people to talk about.
Any kind of non traditional engagements have you guys had any engagement or optical or lasers.
Into things like AI systems or servers or cards.
And perhaps if you could talk a little bit more broadly about the economics for AI just in your transceiver business, how margins compare to corporate what the opex needs are to support that business et cetera. Thanks.
Yes.
Chris.
Would you repeat the first part of your question Nonfinancial part.
Yes so.
Your competitor for example are starting to talk about custom AI designs that are going into systems not just transceivers.
And I was wondering if if any hyper scaler have engaged U S.
Any comp AI specific companies have engaged you in custom designs.
Joining would you.
Sure.
So let me let me start with our strength in the device technology, we currently ship.
So.
More devices that actually use it so well.
Our competitors actually our customers too as you probably know.
So because of the above base laser.
Receivers.
Boston was that we had both in short wavelength shortly each of them.
So we are engaged on some.
Lets a nonstop.
Signs with some <unk> and.
And customers, but.
Even those customization at the end of the day in terms of.
Guarantee interoperability they will have to be standardized at some point. So I don't believe there is any.
Any difference in terms of the process of standardization that we've seen in the past.
20 years in the data from both of course as the people trying to improve performance cost of ownership et cetera.
Not at all.
Our ways to customize the solution internally I wanted to remind you that at the end of the day all of these <unk> hundred <unk> are all one <unk> optical lens. So all comes down to 100 G anyway, and so some of them are Paolo some demo different copper approaches multiplex and so far with him.
<unk> is all wildly G optic.
Optical lane level, even if there may be.
<unk> electrical lanes coming soon in the.
Future gross <unk> optical lanes coming soon.
This way we are so there is some level of customization.
I don't I don't think it changes the.
Again, our ability to compete is still substantially better.
Then I would say most of our competitors because we as you know we are the most vertically integrated which doesn't only <unk>.
Improves our ability to.
We were saying earlier.
As for boss.
The demand that we see but also the ability to differentiate at the transceiver internal design. So we are engaged from their perspective. Some of these cost super customer to call. It a customized solution for some of the AI players.
Mary Jane with you.
Actually the margins so generally speaking.
Youll remember that the communications entire end market the margins tend to be below the corporate average having said that.
The higher data rate and typically more technologically complex products that deliver greater value tend to have margins that are above the average within communications.
To a pretty decent extent.
Great. Thank you very much.
For my second question here.
I know, it's hard to figure this out in inventory at your customers and I know, it's going to take a few more quarters here to work through.
But is there any way to kind of quantify.
What this inventory burn is what you think normalization would have been.
At your customers.
How much more what you have shipped if you're shipping in line with demand.
Any thoughts on that and then any thoughts on perhaps the linearity of how this inventory dynamic plays out thanks.
Okay Chris.
I won't be able to speculate on what it could have been.
It'll be too complex, a function and have great great uncertainty I think.
But.
90 days ago, I said I thought that.
<unk>.
Moderation would persist at least until the end of this calendar year and maybe longer.
And it is still still not possible to call it any better than than the remarks, I made earlier and as it relates to telecom is one is a kind of a primary market where we were.
We are affected by it.
I am hopeful for sure.
And looking and engaged in discussions with customers.
Believe that.
We won't see a turn up.
Before the second half.
And I believe that we will begin to see some signs of it by then.
Great. Thank you Chuck thank.
Thank you Chris.
One moment for our next question.
Okay.
Our next question comes from Ananda Baruah with loop capital Your line is open.
Hey, good morning, guys and thanks for taking the taking the question.
I guess, two if I could.
In the shareholder letter.
And also talk about sort of the AI being more than just AI transceiver is and I think the net.
Mentioned made active passive component high speed lasers and.
I was wondering if you could could you drill down that I think you gave some context at OFC on this as well, but would love to get kind of takes on that and any any update on what you're thinking about that and then I have a quick follow up thanks.
Okay. Another.
Maybe just talk.
VIX <unk> AML and optics.
Yes, Sean I.
I guess you are wondering.
I mean, obviously the bus the largest share of the revenue upside that we see in the year due to the surge in demand, which was by the way was a surge because it was unexpected and potential size and timing, but not necessarily unexpected from the market because we don't.
It was going to come at some point, but it caught us a little bit by surprise. Fortunately, we had we do have data on the <unk> platform Brady. So it's a small question.
Logistics and supply chain.
Being up so that's one.
But in terms of the.
The split, let's say, let's call it between modules and devices, let's say consumers.
And.
Lasers photo diodes in some cases.
Ics.
Obviously, the transceiver as this 90% of the total so that's kind of a split that we see.
Let's say in the next 12 months.
In the fiscal year fiscal <unk> before so that's kind of roughly in isolation revenue wise.
That's helpful.
Appreciate that.
And I guess as the follow up.
Thanks, a lot for the detail on the AI Tracy Mccann and <unk>.
In the slide deck and the go forward any any opinion online.
Like where are you ultimately fit share wise.
In the various buckets the way you've laid them out and then just sort of bigger picture and do you think you are in that position.
To gain share going forward as well.
Text around that would be helpful. Thanks.
And on the way.
We are the largest transceiver maker in the marketplace.
And as it relates to this 800 G opportunity and more broadly AI, including the generations to come.
Our goal is to be the market leader.
It's early as a starting point.
But even though it's early we've gotten busy.
I believe it in 24, what we have baked into our plan is already.
Super exciting ramp.
And I believe that there will be.
As possible upside of several hundreds of millions even in 'twenty four.
In the back half of 'twenty four.
And I believe that our ability to address the market to serve the market to scale on the market is going to be critical for us to be able to win.
Our goal is to be the market leader.
And Chuck is there anything about how you're sort of going to market.
Thank you very much.
The <unk> portfolio that you have that you think could increase your advantage in the market.
1000, <unk> et cetera relative to where you are today already in <unk>.
Yes, absolutely.
Let me let me repeat.
Our technet laser based technology.
Short wavelength and long wavelength.
And the demands on that laser technology, including for 800, but especially for one six well.
We will separate us even further.
From the other players in the marketplace because we are.
The only vertically integrated company that has a roadmap.
To support well beyond the 800 G and I believe those are among the very strong value propositions that we present to our customer.
Very helpful. Thanks, a lot Jeff.
Thank you.
For our next question.
Our next question comes from Ruben Roy with Stifel. Your line is open.
Thank you Chuck if I can ask you to put a little bit of a finer point on the AI and ml.
Transceiver momentum Youre seeing.
How would you characterize the relative strength today at least in sort of opex going into Infiniband.
Training clusters versus Ethernet.
And really what I'm trying to get to is if.
If you can give us a sense of timing.
And qualification cycles for Ethernet deployments at 800 gig and then eventually what 16 would be helpful.
Okay.
I'll ask you wanting to addressable and so there is absolutely agnostic to the ultimately the switch architecture of the customers. So if youre talking about.
Maybe the market where the demand is.
Maybe maybe there is a higher demand for <unk>.
And then Ethernet and isolated.
From just from a hardware standpoint that makes absolutely no difference to us.
Okay. So.
So are you qualify them for <unk>.
I think some of the cloud service providers are talking about moving to.
Ethernet switches 51, two tariff bid et cetera are you qualified.
It does.
Switches move move out at some point in 2024.
Absolutely.
Okay.
Okay, and then I guess one last question then the.
The FERC Checkers Giovanni you mentioned, 20% of consolidated consolidated revenue.
Fiscal 'twenty three related to <unk>.
Would consider AI ml.
Leaves a pretty big portion of sort of how I would consider legacy Transceivers 200 gig and maybe in lower.
How do you think that plays out.
Yes.
That that's going to ramp faster than legacy falls offer legacy sort of hanging in there.
Are you considering that.
Okay.
Ruben Let me let me clarify.
My earlier comment was about 20% of our consolidated FY2023 sales were in Datacom transceivers.
Okay, Let me.
Let me ask if you have any question about that.
No.
Thank you Chuck.
I'm glad we're talking.
As.
As we indicated in the shareholder letter, we had a 10% customer in the communications market that was in the data communications market.
And.
That the demand for those legacy products in my prepared remarks, I alluded to a declining demand.
For certain for certain legacy products from our customers.
That demand in FY 'twenty four is going to roll off.
That is our plan.
As it rolls off as it rolls off.
Okay.
Even faster than it rolls off I am expecting that inside of the fiscal year 'twenty for that we are able to replace it with 800 G AI transceivers.
At a minimum.
We're aiming aiming to do more than that exactly.
Absolutely, yes, so thats contemplated I appreciate the detail Chuck Thank you.
Welcome Reuben.
One moment for our next question.
Our next question comes from Dave Kang with B Riley Your line is open.
Hi, Thank you.
Good morning. My first question is regarding your transceiver revenues what was the split between.
Difference be like 100 gig 400 gig last year and now in 800 gig ramping what do you think that mix will be this fiscal year and whats the margin differential between.
100 gig versus 408 hundred gig thank you.
Joining me on it.
I'd say that the 200 200 gig and above was about <unk>.
I would say, 30% of the total and the rest was one gig and below however, let me turn to the split between now.
The.
Yes.
Sorry, the other way to answer sorry invested in them.
Let me just read.
Giovanni.
200 gig and above was 70% just wanted to make clear.
Yes, okay. Okay.
Now in terms of the.
The major change in our.
Turning to distributions has been if you recall in the past we said that.
One third was.
Hyperscale is one.
It's a top 20 cloud and then.
And then one.
Let's say enterprise on the rise so as a result of the shift to AI and the result of some.
Inventory.
What we did over.
593 that Asia has actually changed now to two third.
He's around AI at least full FY 'twenty before and it's most of it will be 800 G 200 gene above of course, including oncology and then the rest of these.
That's a smaller cloud players and enterprise so that Asia, one third one third one third is like <unk>.
And then the other one third split between the remaining cloud providers and the.
And the enterprise. So hyperscale is will be a much larger share of the total than in FY 'twenty.
And how does that how does that.
That transition that the shift.
Impact the margins.
So as I noted earlier the margins on that.
Higher data rate more technologically complex products tend to be higher than the average in a given group. So in the case of Transceivers.
Some of these greater than 200, Jay and certainly 800, Jay would be above the average having said that.
For those parts that are say 100 and below at some point, we become very very very good at making those.
Lower margin tends to.
The lower margin products, our average margin products tend to hold actually.
Because as time goes on also we're almost the only one that makes them.
Generally speaking that's how you should think about the margin structure there.
Got it and maybe Mary Jane.
My last question is on your backlog.
$2 7 billion and was wondering if you can.
Provide.
Split between Euro can we divisions and also if you can provide I know you provided operating margins for it can be divisions wondering if we can get gross margins for those three.
So with respect to the backlog for the materials segment of the $2 7 billion its about <unk> 50.
Of the networking segment, it's about 1.2 and the balance would be in lasers.
With respect to the gross margin of the segments. We don't typically give that as you know.
I think that you can imagine that it basically goes and somewhat parallel to the operating margin remembering that.
<unk> materials and laser diodes have the highest margins in the company along with typically our industrial products.
<unk> laser systems are typically slightly above the corporate average.
And the telecom.
Communications margins tend to be below the corporate average.
Sure.
Got it thank you.
Thank you Dave one moment for our next question.
Our next question comes from Jim Ricchiuti with Needham <unk> Company. Your line is open.
Good morning, Mary Jane I Wonder, if you did you'd be willing to share any targets for debt reduction.
In fiscal 'twenty four.
Yes, maybe it say at the midpoint of your full year guidance, how should we be thinking about that and then I have a follow up.
Well.
Yes.
So we haven't previously talked about targets for debt reduction obviously, we would have.
Strive to be north of 200 on that.
Paying down the debt remains a very very high priority of their very high priority to the point that while the Capex is the first call on the capital structure.
We have been very very aggressive about managing that capex because to some extent the capex naturally moderate and lower into areas of lower revenue.
And then looking at some of the comments you've made in the shareholder letter on the display side of the business I'm wondering if you are you expecting any kind of seasonal pickup in utilization that's going to drive that part of the business in the first half yes, just in light of what we're hearing from one of the suppliers of OLED <unk>.
Cereals into the handset market and then on the <unk>.
<unk> side, you alluded to pick up.
Orders out of China is that.
Deliveries for fiscal 'twenty, four or the bulk of those in fiscal 'twenty five.
Great. Great question is Jim Thanks for your question Mark with your addressable Thanks Chuck.
Hi, Jim Yes, we definitely expect service utilization pick up in the <unk>.
First half of our fiscal year, so over the next six months.
We get a batch of new smartphone releases from various manufacturers typically in the September October period.
We've certainly got visibility into two having expectations of that driver of service revenue.
And the bookings that we that we mentioned on our new.
OLED is capital equipment.
The shipments are in FY 'twenty four.
Those shipments are within the fiscal year.
Okay.
Does that compare with past investment cycles, you've seen in this part of the business.
That's a great question.
I think it's pretty similar I mean, we've.
We love this business to be more linear it's not it tends to it tends to be associated with fab build outs as you know and we've got a limited number of customers six to eight major major customers split between today is pretty much split between China and Korea.
So I think it's I think it's pretty similar tends to go in phases. Each phase is typically three to four systems. So you can imagine that the orders that we recently collected or in that sort of range and we would expect additional phases to be built out as well as.
We've mentioned many times on prior calls and expectation of generation eight five build outs, especially in China. So we see this as reasonably typical.
Great. Thank you.
Good morning, Robert.
Question.
Hi, Kevin.
Yes.
Please go ahead.
Next question comes from Tim <unk> with Northland Capital markets. Your line is open.
Hi, Good morning couple of questions here, and maybe they're related which is specifically I wanted to focus on.
Trends in the telecom business from a demand standpoint.
You probably have some inventory issues, there as well, but as you look through to end demand.
What can you tell us about what's happening there and kind of related to that if we look at the September quarter guide going down something on the order of 150 million Bucks. If you look across your segments.
What are the main kind of.
Drivers there in terms of.
Puts and takes from a from a.
<unk> standpoint thanks.
Okay. Thank you.
Tim.
We had a.
Very strong.
Shipments in communications in the fourth quarter.
I think that will be down.
And into the first quarter.
I think thats the number one driver and the change from Q4 to Q1.
That accounts for.
Maybe more than half or two thirds of the variation and the rest of it's spread across the other markets or across the other segments.
End markets what was the second part of your question.
Well I guess.
No.
Yes.
The point to the extent you are talking about comms being half two thirds of the decline I guess I was trying to get a sense of telecom versus datacom there.
It's a combination.
And the.
The moderation that we saw in the March quarter, and the telecom market.
That persisted in Q4 and that will leak into at least the leak into Q1 as well.
It's a meaningful part of it.
Great. Thanks very much.
Hey, good number for next question.
Our next question comes from Mike Genovese with Rosenblatt Securities. Your line is open.
Thank you.
A couple of clarification first.
We will suffer any customer the one that was almost 1% from datacom.
Just wanted to clarify that.
Sounds like a web scale on Columbus.
And then the second clarification, when we talk about.
Charles who was also part of it also.
Those active optical cables and electrical cables as well so I just wanted to check that.
That nomenclature to make sure that.
Cables.
On the way you guys talked about us.
Joining us today.
<unk>.
Hey, Mike Thanks for the question.
Yes, we always includes cables, but just to be clear we have no electrical cables.
Our portfolio. So it was all obstacle, but we do include critical it's absolutely and I think your first question probably was I Couldnt hear you very well, but I believe.
You wanted to.
Yes.
When I mentioned, the two things I was referring to Hyperscale is I think that was your questions. So we saw it.
So if I can clarify that question.
You said you had two large customers where orders were expected to go down one is that obviously consumer electronics customer I just wanted to check.
Datacom customer the bodies in fact help us.
Yes.
Yes.
Well one well.
Tonics that was where the consumer.
Monarch partners.
And the communication was data it was.
Larger.
Customer for us.
Okay.
My next question just more of a quick question on the.
200, <unk> lasers, when do we expect those to be shipping for revenue.
Unfortunately.
External customers.
Well right now.
Our internal customer anything too on the G.
But we have design wins with some of our competitors placebo competitors.
And so we'll.
There will be meaningful only in the second half of the fiscal year.
Thanks, Tom.
Thank you.
One moment for our next question, Kevin Kevin Kevin, we're going to wrap the call okay.
Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation you may now disconnect and have a wonderful day.