Q2 2024 Lumentum Holdings Inc Earnings Call
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Operator: Good day, everyone, and welcome to the Lumentum Holdings second quarter fiscal year 2024 earnings call. All participants will be in a listen only mode.
Speaker Change: Good day, everyone and welcome to the Medicine Holdings second quarter fiscal year 'twenty 'twenty four earnings call. All participants will be in a listen only mode. Please also note that todays event is being recorded for replay taxes that will be a Q&A on today's cool to register a question. Please press star followed by one on your kind of thing he part.
Operator: Please also note that today's event is being recorded for replay purposes. There will be a Q&A session on today's call. To register a question, please press a star followed by one on your telephone keypad. If you change your mind, please press a star followed by one.
Speaker Change: If you change your mind. Please press star followed by two at this time I would like to turn the call over to Kathy talked Vice President of Investor Relations. Mr. Haack. Please go ahead.
Kathryn Ta: At this time, I would like to turn the call over to Kathy Ta, Vice President of Investor Relations. Ms. Ta, please. This is Kathy Ta, Lumentum's Vice President of Investor Relations. Joining me today are Alan Lowe, President and Chief Executive Officer, Wajid Ali, Executive Vice President and Chief Financial Officer, and Chris Coldren, Senior Vice President and Chief Strategy and Corporate Development Officer. Today's call will include forward-looking statements, including statements regarding our expectations and beliefs regarding recent acquisitions, including Cloudlight and Neophotonics, financial and operating results, macroeconomic trends, trends and expectations for our products and technologies, our end markets, market opportunities, and customers, and our expected financial performance, including our guidance, as well as statements regarding our future revenues, financial model, and margin target. Thank you.
Speaker Change: This is Kathy Utah, the Benjamin Vice President of Investor Relations. Joining me today are Alan Lowe, President and Chief Executive Officer, Wajid Ali Executive Vice President and Chief Financial Officer, and Chris Coldren, Senior Vice President and Chief strategy and corporate development Officer.
Kathryn Ta: Today's call will include forward looking statements, including statements regarding our expectations and beliefs regarding recent acquisitions, including wildlife and Neo Photonics financial and operating results macroeconomic trends trends and expectations for our products and technologies are end markets market opportunities and customers.
Kathy Utah: And our expected financial performance, including our guidance as well as statements regarding our future revenues to natural model and margin targets.
Kathryn Ta: We appreciate it. However, these statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations, particularly the risk factors described in our SEC filings. We encourage you to review our most recent filings with the SEC, particularly the risk factors described in the 10-K for the fiscal year ended July 1st, 2023, and our 10-Q that will be filed soon. The forward-looking statements provided during this call are based on Lumentum's reasonable beliefs and expectations as of today. Lumentum undertakes no obligation to update these statements, except as required by applicable law. Please also note that, unless otherwise stated, all financial results and projections discussed in this call are non-GAAP. Non-GAAP financials are not to be considered as a substitute for or superior to financials prepared in accordance with GAAP.
Kathy Utah: These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations, particularly the risk factors described in our SEC filings.
Kathy Utah: We encourage you to review our most recent filings with the SEC, particularly the risk factors described in the 10-K for the fiscal year ended July <unk> 2023, and our 10-Q that will be filed soon.
Kathy Utah: The forward looking statements provided during this call are based on momentum as reasonable beliefs and expectations as of today.
Kathy Utah: <unk> undertakes no obligation to update these statements except as required by applicable law.
Kathy Utah: Please also note that unless otherwise stated all financial results and projections discussed in this call are non-GAAP non-GAAP financials are not to be considered as a substitute for or superior to financials prepared in accordance with GAAP.
Kathryn Ta: Lumentum's press release with the fiscal second quarter results and accompanying supplemental slides are available on our website at www.lumentum.com under the Investors section. With that, I'll turn the call over to Alan. Thank you, Kathy, and good morning, everyone.
Kathy Utah: You mentioned the press release with the fiscal second quarter results and the accompanying supplemental slides are available on our website at www dot momentum dot com under the investors section.
Kathy Utah: With that I'll turn the call over to Alan Thank you Kathy and.
Alan S. Lowe: And good morning, everyone.
Alan S. Lowe: Lumentum stands at the leading edge of photonics innovation, partnering with customers to enable the future of data centers and the networks that connect them. We equip our customers with the industry's most comprehensive photonics portfolio, enabling them to unlock unparalleled performance and efficiency. From pluggable high-speed transceivers to enabling customers AI-optimized architectures with industry-leading transmitters and photonics, we are at the forefront of data centers' needs. Together, with our cloud customers, we are shaping the future of data transmission through pioneering technologies such as chip-scale photonics and advanced data transmission protocols, as well as highly efficient and automated manufacturing at scale. It has been just three months since we acquired Cloudlight, and we are thrilled with the team that has joined us and the many opportunities that lie ahead.
Alan S. Lowe: Momentum stands at the leading edge of photonics innovation partnering with customers to enable the future of data centers and the networks that connect them.
Alan S. Lowe: We equip our customers with the industry's most comprehensive photonics portfolio.
Alan S. Lowe: When them to unlock unparalleled performance and efficiency.
Alan S. Lowe: For applicable high speed transceivers to enabling customers AI optimized architectures with industry, leading transmitters in photonics, we are at the forefront of data centers needs.
Alan S. Lowe: Together with our cloud customers, we are shaping the future of data transmission through pioneering technologies, such as chip scale photonics and advanced data transmission protocols as well as highly efficient and automated manufacturing at scale. It is.
Alan S. Lowe: It's been just three months since we acquired cloud light and we are thrilled with the team that has joined us and the many opportunities that lie ahead.
Alan S. Lowe: In this brief period, we have had meaningful traction with customers on new data center opportunities, which we expect will drive significant additional growth as we complete the development of the new products and receive customer qualifications. The market opportunity is accelerating, and we expect broader customer adoption of 800G technology as these qualifications are finalized. Additionally, the initial ramp-up of 1.6 terabit products by early technology adopters is creating a lot of pull from customers, and we expect to have a first-to-market advantage, given our vertical integration and test results from our lab. Cloudlight Transceiver shipments were very strong in the December quarter, contributing $59.5 million during the approximately eight weeks after the acquisition.
Alan S. Lowe: In this brief period, we have had meaningful traction with customers a new data center opportunities, which we expect will drive significant additional growth as we complete the development of the new products and receive customer qualifications.
Alan S. Lowe: The market opportunity is accelerating and we expect broader customer adoption of 800 G technology as these qualifications finalize.
Alan S. Lowe: Additionally, the initial ramp up of one six terabyte products by early technology adopters is creating a lot of pull from customers and we expect to have a first to market advantage given our vertical integration and test results from our labs.
Alan S. Lowe: Sounds like transceiver shipments were very strong in the December quarter, contributing $59 5 million during the approximately eight weeks after the acquisition.
Alan S. Lowe: We expect our shipments will be even stronger in the March quarter. Given a mid-calendar year product transition planned by our largest data center customer, we expect revenue from data center transceivers to temporarily dip in the June and September quarters and then grow significantly through the end of the year and into calendar year 25, as this transition completes and other new customer programs start to ramp. Given the surging data demands of AI data centers and our strong traction on new transceiver opportunities, we are strategically expanding our leading-edge transceiver manufacturing capacity. As a key part of this expansion, we are investing in state-of-the-art production lines at our manufacturing facility in Thailand. Our TIE factory has proven Flutonic's manufacturing capabilities and has received numerous customer accolades, giving us confidence in our ability to ramp rapidly.
Alan S. Lowe: We expect our shipments will be even stronger in the March quarter.
Alan S. Lowe: Given a mid calendar year product transition plan by our largest data center customer we expect revenue from data center Transceivers to temporarily dip in the June and September quarters, and then grow significantly through the end of the year and into calendar year 'twenty five as this transition complete and other new customer.
Alan S. Lowe: Programs start to ramp.
Alan S. Lowe: Given the surge in data demands of AI data centers and our strong traction on new transceiver opportunities, we are strategically expanding our leading edge transceiver manufacturing capacity.
Alan S. Lowe: As a key part of this expansion we are investing in state of the art production lines at our manufacturing facility in Thailand.
Alan S. Lowe: Our Thai factory has proven photonics manufacturing capabilities and has received numerous customer accolades, giving us confidence in our ability to ramp rapidly. This capacity will come online. This summer and we expect to lead the first wave of one six terabyte transceivers for multiple customers at this site.
Alan S. Lowe: This capacity will come online this summer, and we expect to lead the first wave of 1.6 terabit transceivers for multiple customers at this site. In addition to this new capacity expansion in Thailand, we will be leveraging Lumentum's components in a new cloud-like transceiver design. We believe the combination of our established history of customer partnership, proven manufacturing leadership, and unrivaled breadth of differentiated photonic component capabilities puts us in an excellent position to accelerate top-line revenue growth and margins in this rapidly growing cloud transceiver market. However, while cloud data centers are forecasting double-digit CapEx growth in calendar 24, we are navigating challenging market conditions in other parts of our business. Based on sluggish carrier CapEx spending and our latest customer discussions, we now expect customer inventory digestion to extend through the balance of fiscal 24.
Alan S. Lowe: In addition to this new capacity expansion in Thailand, we will be leveraging momentum to components and new cloud light transceiver designs.
Alan S. Lowe: We believe the combination of our established history of customer partnership.
Alan S. Lowe: Manufacturing leadership.
Alan S. Lowe: And unrivaled breadth of differentiated photonic component capabilities puts us at an excellent position to accelerate top line revenue growth and margins in this rapidly growing cloud transceiver market.
Alan S. Lowe: While cloud data centers are forecasting double digit capex growth in calendar 'twenty four we're navigating challenging market conditions in other parts of our business.
Alan S. Lowe: Based on sluggish carrier Capex spending and our latest customer discussions, we now expect customer inventory digestion to extend through the balance of fiscal 'twenty four.
Alan S. Lowe: Nevertheless, we are highly confident in our market position and the ultimate recovery and growth of this business. As fiber transmission reaches its physical capacity, network providers increasingly recognize the value of technologies like ours that enable continued network scaling, reinforcing our long-term confidence in this business. Moving to our industrial tech section.
Alan S. Lowe: Nevertheless, we are highly confident in our market position and the ultimate recovery and growth of this business.
Alan S. Lowe: As fiber transmission reaches its physical capacity network providers increasingly recognize the value of technologies like ours that enable continued network scaling reinforcing our long term confidence in this business.
Alan S. Lowe: Moving to our industrial Tech segment, we are very excited about our traction on new products, serving new applications, particularly for our ultrafast lasers.
Alan S. Lowe: We are very excited about our traction on new products serving new applications, particularly our ultra-fast laser. These are ramping up, and they are adding to our customer and market diversification in our industrial tech segment. That said, we do expect a period of lower demand over the coming quarters driven by typical seasonality in our consumer business and by macro softness in the industrial market, along with elevated customer inventory levels at one of our large laser customers. We expect the industrial laser inventory to be corrected over the next six months, around the same time frame as the seasonal uptick in our consumer business.
Alan S. Lowe: These are ramping up and are adding to our customer and market diversification in our industrial Tech segment.
Alan S. Lowe: That said, we do expect a period of lower demand over the coming quarters, driven by typical seasonality in our consumer business and by macro softness in the industrial market along with elevated customer inventory levels at one of our large laser customers.
Alan S. Lowe: We expect the industrial laser inventory to be corrected over the next six months around the same timeframe as the seasonal uptick in our consumer business.
Alan S. Lowe: This, combined with our wins at new customers in new markets, should lead to an industrial tech segment recovery during the second half of the calendar year. Moving on to fiscal second quarter results, second quarter revenue and EPS results were above the midpoints of our guidance ranges, with revenue of $366.8 million and EPS of $0.32.
Alan S. Lowe: This combined with our wins at new customers and new markets should lead to an industrial Tech segment recovery during the second half of the calendar year.
Alan S. Lowe: Moving onto fiscal second quarter results.
Alan S. Lowe: Second quarter revenue and EPS results were above the midpoint of our guidance ranges with revenue of $366 8 million and EPS of <unk> 32.
Alan S. Lowe: I'm very excited about the contribution that our Cloudlight acquisition had on the quarter and will have in the future given the technology and capability of the combined companies to address the rapidly growing AI and ML photonics market. We have continued to drive acquisition synergies to drive down our fixed costs, and Wajid will provide more color on this shortly. The combination of these lower fixed costs and the rebound in revenue will result in an accelerated expansion of our margins during fiscal 25.
Alan S. Lowe: I am very excited about the contributions that our cloud light acquisition had on the quarter.
Alan S. Lowe: And we'll have in the future given the technology and capability of the combined companies to address the rapidly growing AI and ml photonics market.
Alan S. Lowe: We have continued to drive acquisition synergies to drive down our fixed costs and Wajid will provide more color on this shortly.
Alan S. Lowe: The combination of these lower fixed costs and the rebound in revenue will result in an accelerated expansion.
Alan S. Lowe: And our margins during fiscal 'twenty five.
Alan S. Lowe: Cloud and networking revenue was up 25% sequentially, driven by strong cloud data center demand and the contribution from the Cloudlight acquisition, but down 25% year on year, given broad-based softness across most of our telecom networking product lines due to the continued inventory correction at our network equipment customers. The future is bright for our cloud technology roadmap. In the second half of calendar 24, we expect to qualify the industry's first power-efficient 800G transceivers that employ 4 by 200 gigabit lanes of traffic using silicon photonics technology.
Alan S. Lowe: Cloud and networking revenue was up 25% sequentially driven by strong cloud data center demand and the contribution from the cloud light acquisition, but down 25% year on year, given broad based softness across most of our telecom networking product lines due to the continued inventory correction at.
Alan S. Lowe: Our network equipment customers.
Alan S. Lowe: The future is bright for our cloud technology roadmap.
Alan S. Lowe: In the second half of calendar 'twenty four we expect to qualify the industry's first power efficient 800 G. Transceivers that employ four by 200 gig lanes of traffic using silicon Photonics technologies.
Alan S. Lowe: As I mentioned earlier, we expect to ramp capacity. This summer at our campus in Thailand, and expect to lead the first wave of one six terabyte transceivers for multiple customers in this facility.
Alan S. Lowe: These ultra high speed Transceivers provide additional bandwidth needed for AI workloads, while also alleviating data bottlenecks with lower power consumption and latency as customers move to 200 gig per lane technology.
Alan S. Lowe: As I mentioned earlier, we expect to ramp capacity this summer at our campus in Thailand and expect to lead the first wave of 1.6 terabit transceivers for multiple customers at this facility. These ultra-high-speed transceivers provide additional bandwidth needed for AI workloads while also alleviating data bottlenecks with lower power consumption and latency as customers move to 200-gigabit-per-lane technology. We expect that 200-gig per lane optics, using not only silica tectonics technology but also our vertically integrated EML lasers will be the workhorse of the next generation of hyperscale data centers once these new products are qualified at leading cloud and cloud infrastructure customers, we have been receiving. positive customer feedback about our 100-gigavixel performance for short-distance data center applications, and we expect to start ramping production in the second half of calendar 24.
Alan S. Lowe: We expect that 200 gig <unk> optics, using not only <unk> photonics technology, but also our vertically integrated emo lasers will be the workhorse of the next generation of Hyperscale data centers. Once these new products are qualified at leading cloud and cloud infrastructure customers.
Alan S. Lowe: We have been receiving.
Alan S. Lowe: Positive customer feedback about our 100 gigabit so performance for short distance datacenter applications and expect to start ramping production in the second half of calendar 'twenty four.
Alan S. Lowe: We will qualify our visuals and cloud lights active optical cables and transceiver platforms in the coming quarters.
Alan S. Lowe: We are also working closely with cloud infrastructure providers on novel components and modules that leverage our unique technology capabilities to enable new future AI hardware architectures for higher bandwidth lower power density and low latency optical interconnects essential for training and <unk>.
Alan S. Lowe: We will qualify our Vixels in Cloudlight's active optical cables and transceiver platforms in the coming quarter. We are also working closely with cloud infrastructure providers on novel components and modules that leverage our unique technology capabilities to enable new AI hardware architectures for higher bandwidth. Lower Power Density and Low Latency Optical Interconnects Essential for Training and Inference Applications, with the rapid build out of AI and ML data centers connecting those data centers at high speed.
Alan S. Lowe: <unk> applications.
Alan S. Lowe: With the rapid build out of AI and ml datacenters connecting those data centers with high speed.
Alan S. Lowe: And cost efficient interconnects is becoming even more important.
Alan S. Lowe: To that end, we continue to have success in our 400 gig ZR module business, where in Q2, we grew over 30% sequentially.
Alan S. Lowe: Additionally, we.
Alan S. Lowe: We are receiving positive customer feedback on our 800 gig ZR modules and we are on track to be first to market with customer samples this year.
Alan S. Lowe: Power and cost-efficient interconnects are becoming even more important. To that end, we continue to have success in our 400 gigabyte ZR module business, where in Q2, we grew over 30% sequentially. Additionally, we are receiving positive customer feedback on our 800 gigabyte ZR modules, and we are on track to be first to market with customer samples this year. These modules will enable even higher-speed extended-reach data center interconnects to help keep pace with rapidly expanding data center infrastructure.
Alan S. Lowe: These modules will enable even higher speed extended reach datacenter interconnects to help keep pace with rapidly expanding data center infrastructure.
Alan S. Lowe: Our coherent transmission products outside of the data center are receiving positive customer feedback and traction on our next generation 130, and 200 gigabyte data rate technologies that enable next generation coherent applications at 800 G. One <unk>.
Alan S. Lowe: And 116.
Alan S. Lowe: These high speed products are available in both discrete and integrated form factors to enable enhanced performance in next generation Metro and long haul applications.
Alan S. Lowe: Our coherent transmission products outside of the data center are receiving positive customer feedback and traction on our next generation 130 and 200 gigabyte data rate technologies that enable next-generation coherent applications at 800G, 1.2T, and 1.6T. These high-speed products are available in both discrete and integrated form factors to enable enhanced performance in next-generation metro and long-haul applications. As we move through calendar 24, we believe we are at the forefront of 200-gigabit optical technology with our first-to-market and first-to-volume products. Turning to industrial tech, Cisco Q2 was down 9% sequentially, as expected, driven by seasonality in our 3D sensing business and inventory consumption at one of our large industrial laser customers.
Alan S. Lowe: As we move through calendar 'twenty four we believe we are at the forefront of 200 gigabyte optical technology with our first to market and first to volume products.
Alan S. Lowe: Turning to industrial Tech fiscal Q2 was down 9% sequentially as expected driven by seasonality in our <unk> sensing business and inventory consumption at one of our large industrial lasers customers.
Alan S. Lowe: Industrial Tech was down 35% year over year, primarily due to increased competition for market share on a certain <unk> socket that we have discussed previously and overall macroeconomic softness.
Alan S. Lowe: We expect revenue of three D sensing for consumer applications to contribute approximately 5% or less of company revenue in Q3, and Q4 of fiscal 2000 and for <unk>.
Alan S. Lowe: As the shift to industry, four <unk> and 5.0 drives demand for greater automation and precision manufacturing our laser products are well positioned to address evolving industrial needs.
Alan S. Lowe: Industrial Tech was down 35% year over year primarily due to increased competition for market share on a certain 3D sensing socket that we have discussed previously, and overall macroeconomic software. We expect revenue from 3D sensing for consumer applications to contribute approximately 5% or less of company revenue in Q3 and Q4 of fiscal 24. As the shift to Industry 4.0 and 5.0 drives demand for greater automation and precision manufacturing, our laser products are well positioned to address evolving industrial needs. With precise control and pulse parameters, beam quality, and stability, we are seeing growing opportunities for our ultrafast and solid-state lasers across key micromachining applications in semiconductor, EV batteries, PCBs, and SolarCell Manufacturing. Growth in new micromachining applications will help to partially offset the near-term headwinds I mentioned earlier.
Alan S. Lowe: With precise control and pulse parameters beam quality and stability, we are seeing growing opportunities for our ultrafast and solid state lasers across key micro machining applications in semiconductor EV batteries displays.
Alan S. Lowe: <unk> and solar cell manufacturing.
Alan S. Lowe: Growth in new micro machining applications will help to partially offset the near term headwinds I mentioned earlier.
Alan S. Lowe: To summarize high speed data center demand is skyrocketing, and we are accelerating product development and production to capture this growth.
Alan S. Lowe: Armed with long standing customer partnerships industry, leading manufacturing and an unmatched portfolio of advanced photonic components, we are positioned to capture market share in the surging cloud transceiver market driving significant top line and margin growth for the Mentum.
Speaker Change: Before turning it over to Wajid I would like to thank our employees and our customers around the world for their focus and dedication as they continue to collaborate and partner with momentum.
Alan S. Lowe: To summarize, high-speed data center demand is skyrocketing, and we are accelerating product development and production to capture this growth. Armed with long-standing customer partnerships, industry-leading manufacturing, and an unmatched portfolio of advanced photonic components, we are positioned to capture market share in the surging cloud transceiver market, driving significant top line and margin growth for Lumentum. Before turning it over to Wajid, I would like to thank our employees and our customers around the world for their focus and dedication as they continue to collaborate and partner with Lumentum. With that,
Wajid Ali: With that well.
Wajid Ali: Jed.
Jed: Thank you Alan as Alan mentioned, we are confident about our market position and growth opportunities across our served markets. We are focused on lowering our fixed cost base. So that as revenue recovers operating margin dollars will expand faster than revenue.
Wajid Ali: To this end we've made significant progress on manufacturing synergies by hitting key milestones on closing two new photonics factories in China. This past December the.
Wajid Ali: Thank you, Alan. As Alan mentioned, we are confident about our market position and growth opportunities across our served markets. We are focused on lowering our fixed cost base so that as revenue recovers, operating margin dollars will expand faster than revenue. To this end, we've made significant progress on manufacturing synergies by hitting key milestones on closing two neophotonics factories in China this past December.
Wajid Ali: The benefit will accrue to our financial position as we ramp production of most of those products at our Thailand facility.
Wajid Ali: Additionally, our Japan wafer fab consolidation plans are progressing well and we expect to execute this plan by the first half of fiscal 'twenty, five, allowing us to attain significant additional synergies in both manufacturing and operating expenses beginning in the fiscal third quarter.
Wajid Ali: Order of 2025.
Wajid Ali: The benefit will accrue to our financial position as we ramp production of most of those products at our Thailand facility. Additionally, our Japan wafer fab consolidation plans are progressing well, and we expect to execute this plan by the first half of fiscal 25, allowing us to attain significant additional synergies in both manufacturing and operating expenses beginning in the fiscal third quarter of 2025. As well, we continue to see incremental synergies and efficiency opportunities within our operating expenses. Consequently, we are increasing our synergies attainment expectations to $100 million, up from the prior target of $80 million. To date, we have achieved approximately $60 million in annual run rate savings and expect to achieve the remaining $40 million as we execute against our plan.
Wajid Ali: As well, we continue to see incremental synergy and efficiency opportunities within our operating expenses. Consequently, we are increasing our synergy attainment expectations to $100 million.
Wajid Ali: From the prior target of $80 million to date, we have achieved approximately $60 million in annual run rate savings and expect to achieve the remaining $40 million as we execute against our plan. We will provide you with further updates as we achieve critical mass.
Wajid Ali: Millstones.
Wajid Ali: As I have mentioned previously we had prebuilt inventory of Neo photonics products to enable these factory transitions in Q2, we reduced momentum overall inventory levels by approximately $20 million sequentially, excluding the increase in inventory related to cloud.
Wajid Ali: In addition, despite incorporating the operational expenses of our recent acquisition of cloud late in Q2, our tight financial discipline drove companywide operating expenses down by $4 million on a year over year basis.
Wajid Ali: We will provide you with further updates as we achieve critical milestones. As I have mentioned previously, we had pre-built inventory of neophotonics products to enable the factory transition. In Q2, we reduced Lumentum's overall inventory levels by approximately $20 million sequentially, excluding the increase in inventory related to Cloudlight.
Wajid Ali: We're confident that our combined efforts on manufacturing efficiency inventory management and cost control will pave the way for continued improvements in gross and operating margins as telecom revenue recovers and our cloud revenue continues to grow.
Wajid Ali: Net revenue for the second quarter was 366 $8 million, which was up 15, 5% sequentially and down 27, 5% year on year.
Wajid Ali: In addition, despite incorporating the operational expenses of our recent acquisition of Cloudlight in Q2, our tight financial discipline drove company-wide operating expenses down by $4 million on a year-over-year basis. We're confident that our combined efforts in manufacturing efficiency, inventory management, and cost control will pave the way for continued improvements in gross and operating margins as telecom revenue recovers and our cloud revenue continues to grow. Net revenue for the second quarter was $366.8 million, which was up 15.5% sequentially and down 27.5% year-on-year.
Wajid Ali: As Alan mentioned during the quarter, we recognized $59 $5 million in revenue from a partial quarter of cloud like the majority of this revenue came from 800 G transceiver shipments.
Wajid Ali: GAAP gross margin for the second quarter was 17, 4% GAAP operating loss was 28, 7% and GAAP diluted net loss per share was $1 47 with a large portion of the GAAP net loss due to acquisition related charges and amortization.
Wajid Ali: Second quarter non-GAAP gross margin was 32, 6%, which was down sequentially and down year on year, driven by product mix and factory Underutilization.
Wajid Ali: As Alan mentioned, during the quarter, we recognized $59.5 million in revenue from a partial quarter of Cloudlight. The majority of this revenue came from 800G transceiver shipments. Gap gross margin for the second quarter was 17.4%, Gap operating loss was 28.7%, and Gap diluted net loss per share was $1.47, with a large portion of the Gap net loss due to acquisition-related charges and amortization. Second quarter non-gap gross margin was 32.6%, which was down sequentially and down year-on-year, driven by product mix and factory underutilization. Second quarter non-gap operating margin was 3.5%, which was up sequentially and down year on year. Second quarter non-gap operating income was $13 million, and adjusted EBITDA was $39 million.
Wajid Ali: Second quarter non-GAAP operating margin was three 5%, which was up sequentially and down year on year second quarter non-GAAP operating income was $13 million and adjusted EBITDA was $39 million.
Wajid Ali: Second quarter, non-GAAP operating expenses totaled $106 $7 million or 29, 1% of revenue up $6 6 million from Q1 due in part to the acquisition of cloud light and down $3 $6 million from the year ago quarter.
Wajid Ali: <unk> due to tight expense controls and continued synergy attainment Q.
Wajid Ali: Q2, non-GAAP SG&A expense was $38 $4 million non-GAAP R&D expense was $68 3 million.
Wajid Ali: Interest and other income was $12 3 million on a non-GAAP basis due to interest earned on our cash and investments second quarter non-GAAP net income was $21 7 million and non-GAAP diluted net income per share was 32 cents.
Wajid Ali: Second quarter non-GAAP operating expenses totaled $106.7 million, or 29.1% of revenue, up $6.6 million from Q1, due in part to the acquisition of Cloudlight, and down $3.6 million from the year-ago quarter due to tight expense controls and continued synergy attainment. Q2 non-GAAP SG&A expense was $38.4 million, and non-GAAP R&D expense was $68.3 million. Interest and other income was $12.3 million on a non-GAAP basis due to interest earned on our cash and investments. Second quarter non-GAAP net income was $21.7 million, and non-GAAP diluted net income per share was $0.32. Our fully diluted share count for the second quarter was 67.4 million shares on a non-gap basis. Our cash position decreased by $720 million during the quarter to $1.22 billion.
Wajid Ali: Our fully diluted share count for the second quarter was 67 4 million shares on a non-GAAP basis.
Wajid Ali: Our cash position decreased by $720 million during the quarter to one point to $2 billion. This was primarily due to the $705 million and cash used for the purchase of cloud light. In addition, we incurred approximately $8 million.
Wajid Ali: Of normal course expenses associated with the transaction.
Wajid Ali: Turning to segment details second quarter cloud and networking segment revenue at $286 $7 million increased 24, 8% sequentially and was down 25, 1% year on year cloud.
Wajid Ali: Cloud and networking segment non-GAAP reporting profit at 10, 1% decreased sequentially and year on year.
Wajid Ali: Our second quarter Industrial Tech segment revenue at $81 million was down eight 9% sequentially and down 34, 9% year on year second quarter Industrial Tech non-GAAP reporting profit of 15, 9% was down sequentially.
Wajid Ali: This was primarily due to the $705 million in cash used for the purchase of Cloudlight. In addition, we incurred approximately $8 million of normal course expenses associated with the transaction. Turning to segment details, second quarter cloud and networking segment revenue at $286.7 million increased 24.8% sequentially and was down 25.1% year-on-year; cloud and networking segment non-GAAP reporting profit at 10.1% decreased sequentially and year on year. Our second quarter industrial tech segment revenue at $80.1 million was down 8.9% sequentially and down 34.9% year on year. Second quarter industrial tech non gap reporting profit of 15.9% was down sequentially and year on year.
Wajid Ali: And year on year.
Speaker Change: Before I move to our guidance I would like to add some context to an impact to our revenue related to export regulations.
Speaker Change: Last year, we were notified by certain critical IC suppliers that service the industry broadly that their products do not comply with the latest export regulations. Consequently in December we stopped the majority of our product shipments to the largest networking equipment.
Wajid Ali: <unk> and China. Our assumption is that these export regulations will continue indefinitely and result in an approximate $40 million to $50 million reduction in calendar year 'twenty for revenue from our prior expectations longer term, we believe geopolitical factors could pose.
Wajid Ali: The benefit to our revenue opportunity given our larger product footprint within other customers, who are expected to be end market share gainers overtime.
Wajid Ali: Before I move to our guidance, I would like to add some context to an impact on our revenue related to export regulations. Late last year, we were notified by certain critical IC suppliers that service the industry broadly that their products do not comply with the latest export regulations. Consequently, in December, we stopped the majority of our product shipments to the largest networking equipment manufacturer in China.
Wajid Ali: Now, let me move to our guidance for the third quarter of fiscal 'twenty, four which is on a non-GAAP basis and is based on our assumptions as of today.
Wajid Ali: We expect net revenue for the third quarter of fiscal 'twenty forward to be in the range of $350 million to $380 million. This Q3 revenue forecast includes the following assumptions cloud.
Wajid Ali: Cloud and networking to be up driven by strong cloud demand and a full quarter of cloud light despite more than a $10 million impact from the export regulations just mentioned.
Wajid Ali: Our assumption is that these export regulations will continue indefinitely and result in an approximate $40 to $50 million reduction in calendar year 24 revenue from our prior expectations. Longer term, we believe geopolitical factors could pose a benefit to our revenue opportunity given our larger product footprint within other customers who are expected to be end market share gainers over time. Now let me move to our guidance for the third quarter of fiscal 24, which is on a non-GAAP basis and is based on our assumptions as of today. We expect net revenue for the third quarter of fiscal 24 to be in the range of $350 to $380 million.
Wajid Ali: And industrial tech to be down nearly $40 million sequentially at the midpoint due to <unk> sensing seasonality and share dynamics as well as industrial laser customer inventory digestion that Alan mentioned earlier.
Wajid Ali: Based on this we project third quarter non-GAAP operating margin to be in the range of 2% to 5% and diluted net income per share to be in the range of 20 to.
Wajid Ali: To 35.
Wajid Ali: Our non-GAAP EPS guidance for the third quarter is based on a non-GAAP annual effective tax rate of 14, 5%. These projections also assume an approximate share count of 67 8 million shares.
Wajid Ali: This Q3 revenue forecast includes the following assumptions, to be up driven by strong cloud demand and a full quarter of cloud light, despite more than a $10 million impact from the export regulations just mentioned, and Industrial Tech to be down nearly $40 million sequentially at the midpoint due to 3D sensing seasonality and share dynamics, as well as industrial laser customer inventory digestion that Alan mentioned earlier. Based on this, we project third quarter non-GAAP operating margin to be in the range of 2% to 5% and diluted net income per share to be in the range of $0.20 to $0.35. Our non-GAAP EPS guidance for the third quarter is based on a non-GAAP annual effective tax rate of 14.5 percent.
Wajid Ali: With that I'll turn the call back to Kathy to start the Q&A session.
Kathy: Cathy thank.
Kathy: Before we start the Q&A session I would like to ask everyone to keep to one question and one follow up this should help us get to as many participants as possible before the end of our allotted time.
Kathy: Now, let's begin the Q&A session.
Kathy: We will now start today's Q&A portion of the call. If you would like to ask a question. Please press star followed by one on your telephone keypad now.
Kathy: <unk>. Please press star followed by <unk>.
Kathy: First question today comes from Simon Leopold from Raymond James Your line is now open. Please go ahead.
Kathryn Ta: These projections also assume an approximate share count of 67.8 million shares. With that, I'll turn the call back to Kathy to start the Q&A session. Can I see?
Simon Leopold: Thank you very much for taking the question.
Simon Leopold: I will try to keep to that one.
Simon Leopold: So I just wonder if you could maybe talk a little bit about your customer mix customer concentration in this quarter.
Kathryn Ta: Thank you, Wajid. Before we start the Q&A session, I would like to ask everyone to keep to one question and one follow-up. This should help us get to as many participants as possible before the end of our allotted time. Now, let's begin the Q&A session. We will now start today's Q&A portion of the call. If you would like to ask a question, please press start followed by one on your telephone keypad now. If you change your mind, please press start followed by two.
Simon Leopold: I'm wondering if you did.
Speaker Change: Have a new 10% customer.
Speaker Change: And how you see that particular.
Kathy: Concentration changing or evolving.
Kathy: Both sequentially and then longer term and then I've got a quick follow up.
Speaker Change: Yes, Thanks Simon.
Speaker Change: Yes, we did have a new 10% customer.
Speaker Change: Primarily due to.
Speaker Change: Cloud by in addition to revenue to that customer.
Speaker Change: And I'd say that as we talked about on the on the scripts.
Speaker Change: We expect that diversification around our transceiver business will grow rapidly towards the end of this calendar year and into 'twenty five as move.
Alan S. Lowe: Our first question today comes from Simon Leopold from Raymond James. Your line is now open. Please go ahead.
Alan S. Lowe: Thank you very much for taking the question. I will try to keep to that one. So I just wonder if you could maybe talk a little bit about your customer mix, customer concentration in this quarter. I'm wondering if you did have a new 10% customer and how do you see that particular concentration changing or evolving both sequentially and then longer term. And then I've got a quick follow-up. Yeah, Simon.
Speaker Change: 800 gig and one <unk> products.
Speaker Change: Qualified with other hyperscale as well as AI infrastructure company. So we're very excited about that and the diversification of the customers around our transceiver business.
Speaker Change: Say that one of the things we did talk about was the less dependency on our consumer business and Thats why we gave specifics around 5% or less of our revenue in the next two quarters.
Speaker Change: And I think thats.
Speaker Change: A healthy place to be with with our consumer business.
Speaker Change: That answer your questions.
Speaker Change: And then.
Speaker Change: It does and you sort of teed up my follow up nicely in that in the deck.
Alan S. Lowe: Yeah, we did have a new 10% customer, primarily due to the Cloudlight addition to revenue for that customer. And I'd say, as we talked about in the script, we expect that diversification around our transceiver business will grow rapidly towards the end of this calendar year and into 2025 as new 800 gigabit and 1.6T products are qualified with other hyperscalers as well as AI infrastructure companies. So we're very excited about that and the diversification of the customers around our transceiver business. I would say that one of the things we did talk about was less dependency on our consumer business. And that's why we gave specifics around 5% or less of our revenue for the next two quarters. And I think that's a healthy place to be with our consumer. Does that answer your question, Simon?
Speaker Change: <unk> mentioned that industrial Tech is expected to decline approximately $40 million sequentially and I'm still sort of adjusting to this new segmentation.
Speaker Change: And I, just wondering whether that implies three D is essentially dropping to zero I know you said less than 5% of zero is also less than 5% or whether there is a.
Speaker Change: A significant portion of that $40 million coming out of this inventory adjustment product cycle angle on your industrial lasers, just looking for a little bit more help how to split that $40 million yeah. Thank you.
Speaker Change: Yes, I would say that we're pretty confident that five ish percent for consumer in Q3. So the balance would come from what we mentioned on the call around the inventory reduction efforts.
Wajid Ali: Thanks. It does, and you sort of teed up my follow-up nicely in that, in the deck, the footnote mentions that industrial tech. Thank you. Thank you. So, we're in the middle of a pandemic, and we're expected to decline by approximately 40 million sequentially, and I'm still sort of adjusting to this new segmentation. And I'm just wondering whether that implies 3D is essentially dropping to zero. I know you said less than 5%. Zero is also less than 5%.
Speaker Change: Efforts by one of our largest laser customers.
Speaker Change: You can kind of split up about $40 million.
Speaker Change: Thank you.
Speaker Change: Thanks, Dan Thank you Simon.
Speaker Change: Our next question comes from Alex Henderson from Needham. Your line is now open.
Alex Henderson: Great. Thanks, I wanted to dig into the cloud like business, a little bit and understand.
Alex Henderson: Some of the dynamics there, but I also wanted to understand.
Alan S. Lowe: Or whether there's, you know, a significant portion of that 40 million coming out of this inventory adjustment product cycle angle on your industrial lasers, just looking for a little bit more help on how to split that 40 million. Yeah, I would say that we're pretty confident that five ish percent for consumer in Q3. So the balance would come from what we mentioned on the call around the inventory reduction efforts by one of our largest lasers. So that's how you can kind of split up that. Thank you. Thanks Simon. Thank you, Simon.
Alex Henderson: Cloud lights.
Alex Henderson: Technology and selling Transceivers has changed the dynamics around your chip sales.
Alex Henderson: Two other transceiver companies at all.
Speaker Change: First question is.
Speaker Change: 800 gig products that you were talking about ramping in <unk>.
Speaker Change: Is there.
Speaker Change: At 1.6 terabyte products coming down the Pike.
Speaker Change: For that because we just heard from a fabric that they are expecting.
Alan S. Lowe: Our next question comes from Alex Henderson from Needham. Your line is now open. Great, thanks. I wanted to dig into cloud light. Go to www.
Speaker Change: Some impact on their business because of a product transition I would assume that.
Speaker Change: Yeah.
Speaker Change: That is in the Aoc segment, because they don't really do much in the <unk>.
Alex Henderson: <unk> segment.
Alex Henderson: I'm not aware of anybody having a 200 gig.
Alan S. Lowe: FEMA.gov for more information, The dynamics there, but I also wanted to understand The Bulletproof Executive 2013, Technology in selling transceivers has changed the dynamics around your chip sales to other transceiver companies at all. The first question is... The 800 gig products that you're talking about ramping up in vixels, is there a 1.6 terabit product coming down the pike for that? We just heard from Fabrinet that they're expecting... http://TheBusinessProfessor.com Because of our product transition, I would assume that... That's that. AOC segment.
Alex Henderson: Victual product.
Alex Henderson: Ramp so could you talk about whether you that technologies out there and whether thats something thats in your cards on the Aoc side.
Alex Henderson: Yes.
Speaker Change: Let me address your first question first which is around the dynamics of our chip sales.
Speaker Change: I would say.
Speaker Change: Certainly.
Speaker Change: Chip customers.
Speaker Change: Had some concern around us being a competitor, but we assured them that we are their partners and we really treat those two businesses very separately with.
Speaker Change: A wall between our chip development team and our transceiver team. So theres no cross contamination or concerns and I think we've alleviated a lot of those concerns to the point where I.
Alan S. Lowe: That's an advanced segment. I'm not aware of anybody having a 200 gigabyte card on the AOC side. Yeah, let me address your first question first, which is around the dynamics of our chip sales. And I would say, certainly, our chip customers had some concerns around us being a competitor. But we assured them that we were their partners, and we really treat those two businesses very separately, with a wall between our chip development team and our transceiver team. So there's no cross-contamination or concern.
Speaker Change: I am sold out on Datacom chips today and through next quarter, and we're adding capacity to meet the demands of our email business and.
Speaker Change: And bringing up our CW laser business and a rapid way on the <unk>, we talked about the 100 gig mix will have been released.
Speaker Change: Second half of this year.
Speaker Change: Positive results just going through final qualifications.
Speaker Change: And that would be more of an 800 gig aoc or 800 gig.
Speaker Change: S R Multimode transceiver.
Alex Henderson: As far as 200 gig pixels.
Speaker Change: That's a little bit out for us and I think for the industry.
Speaker Change: So at 116 would be more of a silicon photonics or <unk> based.
Alan S. Lowe: And I think we've alleviated a lot of those concerns to the point where I am sold out on Datacom chips today and through next quarter. And we're adding capacity to meet demands of our EML business and bringing up our CW laser business in a rapid way. On the Vixels, we talked about the 100 gigabyte Vixels being released in the second half of this year with very positive results just going through final qualifications.
Speaker Change: <unk>.
Speaker Change: Transceiver, but I'll, let Chris talk a little bit more about it.
Christopher Coldren: On 200 gig.
Christopher Coldren: <unk> great.
Christopher Coldren: Yes.
Christopher Coldren: As you alluded to Alan we are focused initial products alone six terabyte will be silicon photonic based the.
Christopher Coldren: The industry is however, developing 200 gig pixels on our roadmap developing other third party suppliers developing 200, <unk>. So those will feather in.
Alan S. Lowe: And that would be more of an 800 gigabit AOC or 800 gigabit SR multimode transceiver. As far as 200 gigabit Vixels go, that's a little bit out for us and I think for the industry. So 1.6T would be more of a silicon tonics or EML-based transceiver. But I'll let Chris talk a little bit more about his thoughts on 200 gigabit Vixels or 1.6T. Chris?
Speaker Change: Over time as well.
Speaker Change: And the cloud placed transceiver platform.
Speaker Change: <unk> has multimode transceivers single mode Transceivers, So we're well positioned to participate in both opportunities.
Speaker Change: So just that I understand.
Speaker Change: If there was a one six terabyte product coming in the June quarter. It would have to be 16 lanes of 100.
Christopher Coldren: Yeah, I mean, as you alluded to, Alan, we are focused on initial products of 1.6 terabits will be silicon photonic based. The industry, however, is developing 200 gigapixel pixels on our roadmap, developing other third party suppliers developing 200 gigapixel pixels. So those will feather in over time.
Speaker Change: Because I mean, there is clearly a qualification that theres something of that sort of coming down the pike in the June quarter.
Speaker Change: Other People's commentary is that not true.
Speaker Change: I can comment on what.
Christopher Coldren: And the Cloudlight transceiver platform has multimode transceivers and single-mode transceivers, so we're well positioned to participate in both. So, just so that I understand... If there is a 1.6 terabit product coming in the June quarter, would it have to be 16 lanes of 100? I mean, there's clearly an implication that there's something of that sort coming down the pike in the June quarter, based on other people's commentary. Is that not true?
Speaker Change: Our plants are which involved.
Speaker Change: Allison Photonics based approaches.
Speaker Change: We also have alluded to on the call that 200 gig per lane technology is also.
Speaker Change: On the horizon, let's say and we'll be coming out over the next year. So I think you can put those facts together.
Speaker Change: Okay. Thanks, Yeah, but just just just just to be clear we have one terabyte silicon photonics in the labs today, and we have 200 gig <unk> that we have qualified internally that are ready to go.
Alan S. Lowe: I can comment on what our plans are, which involve silicon photonics. I think we also alluded to on the call that 200 gigabit per lane technology is also on the horizon, let's say, and will be coming out over the next year. So I think you can put those in. Thanks.
Speaker Change: And waiting for both internal qualifications at the transceiver level as well as our customers Transceivers.
Speaker Change: Vacation using 200 gig MLS.
Speaker Change: I think we will.
Speaker Change: Come out later this year.
Speaker Change: Just for clarification that would then be independent band related product not <unk> right.
Alan S. Lowe: Yeah, but just to be clear, we have 1.6 terabit silicon photonics in our labs today, and we have 200 gig EMLs that we have qualified internally that are ready to go and waiting for both internal qualifications at the transceiver level as well as our customers' transceiver qualifications using 200 gig EMLs, which I think will come out later this year. Just for clarification, that would then be a Nintendo Band-related product, not... Well, it'd be either Ethernet or InfiniBand. However, how customers use our Datacom chips is really up to them. And we kind of don't really care whether it's InfiniBand or otherwise.
Speaker Change: Well it would be either Ethernet or infiniband, however, customers use our.
Speaker Change: Datacom chips is really up to them and we're kind of we don't really care whether it's.
Speaker Change: Infiniband or otherwise so.
Speaker Change: Chris do you have any other comments on infiniband.
Christopher Coldren: Okay. Thanks.
Christopher Coldren: That certainly we have those capabilities both.
Christopher Coldren: Both in development.
Speaker Change: Our next question today comes from Cemig chastity from Jpmorgan. Your line is now live. Please go ahead.
Alan S. Lowe: So Chris, do you have any other comments on InfiniBand? Okay, thanks. Nothing to add that certainly we have both capabilities, so, our next question today comes from Samik Chatterjee from J.P. Morgan. Your line is now open. Please go ahead.
Cemig Chastity: Hey, guys. Thanks for taking my question.
Cemig Chastity: Maybe just not to sort of keep quinlan datacom, but just make sure I'm not confused.
Cemig Chastity: You've talked about the product transition that your primary customer there for cloud later.
Cemig Chastity: Maybe you can confirm that no debate in Europe alone was worth to transition more curious to hear what sort of visibility in terms of market share with the customer. We're following that transition any thoughts or any color on whether you expect any changes in relation to market share and then I have a quick follow up thank you.
Alan S. Lowe: , , , , ,.. , , ,. ...
Alan S. Lowe: The Bulletproof Executive 2013, product run, and Fresh. Thank you. The Bulletproof Executive 2013, thoughts or any color. Yeah, I'll comment on product transition certainly, be a little careful with customer sensitivity, but you can imagine that as 800 gig is launched, there are subsequent generations of 800 gigabytes, whether that be a different form factor or transitioning from 100 gigabytes to 200 gigabytes per lane. So there are a range of changes as you get further into technology maturity to reduce power Power Density, challenge.
Speaker Change: Yeah, I'll comment on product transition certainly.
Speaker Change: It can be a little careful customer sensitivity, but you can imagine that is 800 gig is launched.
Speaker Change:
Speaker Change: There are subsequent generations of 800 gig whether that be different form factor or transitioning from 100 gig 200 gig per lane. So there are a range of.
Cemig Chastity: The changes as you get further into technology maturity to reduce power consumption.
Cemig Chastity: And power density chat.
Cemig Chastity: Challenges in your systems.
Alan S. Lowe: I think with regard to market share, we're very excited and believe that we have lots of opportunity to gain share, and that's why, as we talked about in our prepared remarks, we're http://TheBusinessProfessor.com so that we can come out and really accelerate growth later this calendar year. Thanks for that. And...
Cemig Chastity: With regard to market share we're very excited.
Cemig Chastity: Believes that we have lots of opportunity to gain share and that's why.
Cemig Chastity: As we talked about in our prepared remarks that we're expanding capacity very significantly so that we can.
Cemig Chastity: Come out and really accelerate growth later, this calendar year and into calendar 'twenty five.
Cemig Chastity: Okay.
Speaker Change: Thanks for that and maybe.
Cemig Chastity: Maybe just for my follow up on the Telecom segment your.
Alan S. Lowe: The Bulletproof Executive 2013, try to address that, or is this sort of an area where you... Yeah, Samik, there are deployments about to happen in China that we're part of through non-Huawei customers. And we're, in a meaningful way, a very large part of the share of non-Huawei in China network equipment manufacturers. And in fact, that's one of the areas of strong strength. You know, we stopped shipping due to the need to follow regulations, obviously.
Cemig Chastity: Well.
Cemig Chastity: Primary competitor peer companies, calling out a recovery in demand in China, which I am assuming you are not able to capitalize on because of the trade regulations, but just curious if this is a situation where you would just sort of.
Cemig Chastity: Just.
Cemig Chastity: Rework the product and get through some of the supply chain reorganization to still try to address that market with a different customer or.
Cemig Chastity: Is this sort of an area where you used to.
Cemig Chastity: We really don't have an option to go around and capitalize on that demand recovery between the months.
Cemig Chastity: Yes.
Cemig Chastity: There are deployment about to happen in China that were part of through.
Cemig Chastity: Non Huawei.
Cemig Chastity: Customers and were.
Cemig Chastity: In a meaningful way very large part of the share of non Huawei in China network equipped.
Cemig Chastity: Equipment manufacturers and in fact, that's one of the areas of strong strength.
Cemig Chastity: We stopped shipping due to the need to follow regulations obviously.
Alan S. Lowe: And, you know, I think that'll trickle down eventually to the point where share will shift from network equipment manufacturers, and we have a higher share of wallet on that, over the long term, we believe will be a tailwind for us. Thank you. Thanks, Samik. Our next question today comes from Christopher Rolland from SIG. Your line is now open. Please go ahead.
Cemig Chastity: I think that'll that'll trickle down eventually to the point where share will shift from network equipment manufacturers that.
Cemig Chastity: But we have a higher share of wallet on that over the long term, we believe will be a tailwind for us.
Cemig Chastity: Okay.
Speaker Change: Thank you thanks for taking my questions.
Speaker Change: Thanks Tommy.
Speaker Change: Our next question today comes from Christopher Rolland from <unk>. Your line is now open. Please go ahead.
Christopher Coldren: Hey guys, thanks for the questions. Mine is about Cloudlight. So first of all, you talked about maybe the end of a program and a dip in June and September. If you could kind of describe why that program just ends and why there isn't something fluid into, you know, the next segment of AI or what have you.
Christopher Adam Jackson Rolland: Hey, guys. Thanks for the question.
Christopher Adam Jackson Rolland: Mine is about cloud light.
Christopher Adam Jackson Rolland: So first of all you talked about maybe the end of <unk>.
Christopher Adam Jackson Rolland: Program and a dip in June and September if you could kind of describe why that program just ends and why there isn't something fluid into.
Christopher Adam Jackson Rolland: The next segment of AI or what have you and then you talked about a broadening.
Christopher Coldren: And then you talked about broadening to new customers. How many are you thinking and how large do you think they may be compared to your primary customer? Thank you. Yeah, Chris, I mean, we do, as you are alluding to, have a degree of... customer concentration in the Cloudlight business. So, you know, the customer that's driven a lot of 800 gig growth over the past several quarters, there's a time to ramp down on the current generation of products and take time to ramp up the next generation of products. So while there are other customers, and other customers are growing, they're not sufficient to offset that product transition, if you will.
Christopher Adam Jackson Rolland: Into new customers.
Christopher Adam Jackson Rolland: How many are you thinking and how large do you think they may be.
Christopher Adam Jackson Rolland: Versus your your primary customer thank you.
Speaker Change: Yes, Chris I mean.
Christopher Adam Jackson Rolland: Yes.
Speaker Change: We do as you are alluding to have a degree of.
Speaker Change: Customer concentration in the card business so.
Speaker Change: The customer that's driven a lot of 800 gig growth.
Speaker Change: Over the past several quarters.
Speaker Change: As a time to ramp down.
Speaker Change: The current generation of product and it takes time to ramp up the next generation of products. So while there are other customers and other customers are growing theyre not.
Speaker Change: Efficient to offset.
Speaker Change: That product transition, if you will and as Alan alluded to we are through the capacity expansions as well as new product.
Christopher Coldren: And as Alan alluded to, we are through capacity expansions, as well as new product activities, expanding the number of sockets that we have with multiple customers so that such product transitions, which, you know, do occur time to time, will be more smoothed out as revenue grows in diversity. In terms of the magnitude of other customer opportunities, certainly, as we talked about when we announced the acquisition of Cloudlight. I mean, this is a very large market. And so, the opportunity to add multiples of current revenue in the coming years is certainly well ahead of us and very well positioned. Both the cloud-like capabilities, then you add what Lumentum brings to the table.
Christopher Adam Jackson Rolland: Activities.
Christopher Adam Jackson Rolland: Expanding the number of sockets that we have.
Christopher Adam Jackson Rolland: With multiple customers, so that such product transitions, which.
Christopher Adam Jackson Rolland: Occur time to time, we will be more smoothed out as the revenue base.
Christopher Adam Jackson Rolland: <unk> grows and Diversifies in terms of the magnitude of other customer opportunities certainly.
Christopher Adam Jackson Rolland: As we talked about when we.
Christopher Adam Jackson Rolland: Announced the acquisition of quantified I mean, this is a very large market and so the opportunity to add multiples of current revenue in the coming years is certainly well ahead of us and we're very well positioned with.
Christopher Adam Jackson Rolland: Both.
Christopher Adam Jackson Rolland: Cloud like capabilities, then you add momentum brings to the table.
Christopher Coldren: Customers, to date, are very encouraged by the possibilities and are working closely with us to bring that to a reality. You know, the coming year, we have to, you can't develop a product, qualify it, and ramp it up in a few quarters. That does take a little bit of time, and so that's why we're talking about having significant capacity additions and revenue growth. And Chris, maybe I can add to that as well.
Christopher Adam Jackson Rolland: Customers.
Christopher Adam Jackson Rolland: To date are very encouraged by.
Christopher Adam Jackson Rolland: The possibilities and are working closely with us to bring that to a reality over.
Christopher Adam Jackson Rolland: The coming year.
Christopher Adam Jackson Rolland: You can't develop a product qualify it and ramp it in a few quarters that does take a little bit of time and so that's why we're talking about having significant capacity additions and revenue growth later in this calendar year.
Christopher Adam Jackson Rolland: Yes.
Alan S. Lowe: Thank you, Chris. Yeah. Yeah, just to add to that, I think, you know, given that we're a U.S.-headquartered company and now investing heavily outside of China, we are a very attractive alternative U.S. partner to all of the cloud customers, as well as the cloud infrastructure companies. And so that's what's really got our traction with, I'd say, every one of the customers. And that's why we're investing strongly in Thailand and will continue to invest to meet the needs of the demands that our customers are asking for. Because when they say go, they want to make sure we have the capacity in place.
Speaker Change: I appreciate that as well.
Speaker Change: Yes.
Speaker Change: Yes, just to add to that I think.
Speaker Change: Given that we're a U S headquartered company and now investing.
Speaker Change: Heavily outside of China.
Speaker Change: Very attractive.
Speaker Change: Alternative use.
Speaker Change: Partner to all of the all the cloud customers as well as the cloud infrastructure companies and so that's what's really got.
Speaker Change: Our traction with the I'd say every one of the customers.
Speaker Change: And that's why we're investing strongly in Thailand, and we will continue to do that.
Speaker Change: To meet the needs of the demands of our customers are asking for because when they say go they want to make sure. We have the capacity in place and so that's what gives us confidence in why we're investing so strongly.
Alan S. Lowe: And so that's what gives us confidence and why we're investing so strongly. Thank you, Alan. Maybe as a follow-up, just to understand some of these changing product dynamics, when will 100-gigabyte VXLs be meaningful for you in terms of revenue? And then it sounds like you don't have a roadmap for 200-gigabyte VXLs. You'll have a hard cut to SIFO or EMLs for 200 gigabytes, and that will be going into Cloud Lite products as well. Did I get that transition correct?
Speaker Change: Thank you Alan.
Speaker Change: Maybe as a follow up just to understand some of these moving product dynamics.
Speaker Change: When will 100 gig VIX holes being meaningful for you in terms of revenue and then it sounds like you don't have a roadmap for 200 gig pixel so you'll have a hard cut.
Speaker Change: FIFO or.
Speaker Change: Ml.
Speaker Change: For 200 gig and that will be going into cloud light products as well did I get that transition correct.
Alan S. Lowe: Sort of. I would say today our 100 gigapixel pixels have received a lot of positive feedback. We'll start revenue in the second half of the calendar year. It will be meaningful in calendar 25, both from an AOC standpoint as well as a multi-mode SR transceiver. We do have 200 gigabytes on our roadmap. We are doing development work, and the progress that we made over the last year on 100 gigabytes gives us a lot of confidence that we will have 200 gigabytes at the right time. And that's probably the end of 25 and into 26.
Speaker Change: Sort of I would say today, our 100 gig <unk> have.
Speaker Change: A lot of positive feedback will start revenue in the second half of the calendar year will be meaningful in calendar 'twenty five both.
Speaker Change: From an Aoc standpoint, as well as multiple.
Speaker Change: Multimode MSR transceiver.
Speaker Change: We do have 200 gig on our roadmap we are doing development work and the progress that we've made over the last year on 100 gig gives us a lot of confidence that we will have a 200 gig at the right time.
Speaker Change: And Thats probably.
Speaker Change: End of 'twenty, five and into 2600 gig vehicles have had a very nice runway.
Alan S. Lowe: So 100 gigabyte pixels have a very nice runway through 25. And I think our confidence in our 200 gigabyte roadmap is very strong. So we will have both Silicon Photonics and EMLs that will hit first. It will hit Silicon Photonics first, EMLs as well around the same time at the 200 gigabit per length, and Vic Foltz at 200GIG will come out. Thanks, Alan. Thanks, guys. Thanks, Chris. Our next question comes from Meta Marshall from Morgan Stanley. Your line is now open.
Speaker Change: 225, and I think our confidence in our 200 gig roadmap is very strong.
Speaker Change: So we will have both so thanks, Alex that'll hit first.
Speaker Change: Silicon photonics burst emails as well around the same time at the 200 gig <unk> line and then the mix of those 200 gig will come after that.
Speaker Change: Thanks, Alan and thanks, guys.
Speaker Change: Thanks, Chris.
Speaker Change: Our next question comes from meta Marshall from Morgan Stanley. Your line is now open.
Alan S. Lowe: Great, thanks. It's been touched on in a couple of questions, but just wanted to kind of narrow down into kind of the process or timeline of bringing your lasers into the Cloudlight portfolio, just kind of what the timing of that vertical integration would be. And then maybe just as a second question, more on the 3D sensing side of the portfolio, you know, there are new types of devices out from your major customer, just anything in terms of kind of contextualizing how big that opportunity either is or could contribute to the year. Yeah, so the timing of our lasers into Cloudlight's portfolio in the lab, certainly they're already there in, you know, the short period that we've been one company, So then it's just a matter of, you know, customers don't want to make changes to an existing product.
Meta A. Marshall: Great. Thanks.
Meta A. Marshall:
Meta A. Marshall: It's been touched on a couple of questions, but just wanted to kind of narrow down into kind of the process or timeline of bringing your lasers into the cloud portfolio just kind of what.
Meta A. Marshall: The timing of that vertical integration would be and then maybe just as a second question more on the <unk> side of the portfolio. There are new devices out from your major customer just anything in terms of kind of contextualize, how big that opportunity.
Meta A. Marshall: Either is or could contribute to me here.
Meta A. Marshall: Okay.
Meta A. Marshall: Yes, so the timing of our lasers into club portfolio.
Meta A. Marshall: The lab certainly they're already there in the short period that we've been one company.
Meta A. Marshall: Both on how to get the tools as well as AML.
Meta A. Marshall: So then it's just a matter of.
Meta A. Marshall: Customers don't want to do changes in existing product and so.
Alan S. Lowe: And so it'll come up as we get new product qualifications and new customers and new opportunities. And so I would say that is all dependent upon how fast those qualifications happen. But I would say that that would be really the second half of calendar 24 and into 25 in a more meaningful way.
Meta A. Marshall: It will come up as we get new product qualifications, and new customers and new.
Meta A. Marshall: New opportunities and so I would say that it's all dependent upon how fast those qualifications happen.
Meta A. Marshall: But I would say that that would be really a second half of calendar 'twenty forward into 'twenty five in a more meaningful way.
Alan S. Lowe: 3D sensing new devices, you know, they're very secretive. We believe we are in some of their new devices, but quite frankly, the volumes of those devices are very small relative to the volumes of handsets. So I don't think you should model any meaningful contribution on those new devices in the short term. Great, thank you. Thanks, Meta. Our next question today is from Karl Ackerman from BNP Paribas. Your line is now open; please go ahead. Yes, good morning. I have a question for Alan and one for Wajid.
Meta A. Marshall: <unk> new devices.
Meta A. Marshall: They are very secretive, we believe we are in some of their new devices.
Meta A. Marshall: But quite frankly, the volumes of those devices are very small.
Meta A. Marshall: Relative to handsets. So I don't think you should model any meaningful contribution.
Meta A. Marshall: On on those new devices in the short term.
Speaker Change: Great. Thank you.
Speaker Change: Thanks Peter.
Speaker Change: Our next question today is from Karl Ackerman from BNP Paribas. Your line is now open. Please go ahead.
Karl Ackerman: Yes, good morning, I have a question for Alan and one parent Rajiv.
Alan S. Lowe: Wajid, you know, within telecom, 130 and 200 gigawatts and coherent, which, eventually, your own coherent DSPs that appear to be growth drivers for you. But where do you think your customers are on Digesting inventory? You know, I know you indicated it may not recover until the September quarter. But have you seen the book-to-build trough in that area of the business?
Karl Ackerman: Rajiv within Telecom, 130, and 200 gigawatt and coherent optics.
Karl Ackerman: With eventually your own coherent DSP appear to be growth drivers for you.
But where do you think your customers are on digesting inventory I know you indicated it may not recover until September quarter.
Karl Ackerman: But have you seen book to Bill trough in that area of the business any color on that would be helpful. As we think about the recovery in telecom.
Alan S. Lowe: Any color on that would be helpful as we think about the recovery in telecoms. Yeah, so on the high gigabaud products, those are constrained by our ability to meet customer demand today. And you're right; I think the combination of 130 gigabaud, 200 gigabaud, and our own DSP is a real winning solution to meet the needs of next-generation VR products, as well as the long haul and metro products. So today, our 200 gigabit and 130 gigabit are going into more metro and long haul applications, just as prior products and prior generations, as they cost reduce over time and get into a smaller form factor So that is off to the races.
Speaker Change: Yes, so on the on the <unk>.
Alan S. Lowe: Hi, gigabyte products.
Speaker Change: Those are constrained by our ability to meet customer demand today.
Alan Lowe: And Youre right I think the combination of 130, gigabyte 200, gigabyte and our own DSP.
Alan S. Lowe: As a real winning solution to meet the needs of next generation VR products.
Alan Lowe: As well as the long haul and metro products.
Alan S. Lowe: Today, our 200 gig about an 130 gigabyte or going into more metro and long haul applications just as the prior products in prior generations.
Alan S. Lowe: They cost reduce overtime and get into a smaller form factor into VR products. So that that is often to the races and it feels like the old times. The number of E. Mails I get some executives asking us to ramp up faster and work with our suppliers to get product to them when they need it. So that's a very very strong pause.
Alan S. Lowe: And you know, it feels like the old times, the number of emails I get from executives asking us to ramp up faster and work with our suppliers to get products to them when they need them. So that's a very, very strong positive. As far as digestion is concerned, I'd say that, you know, we have a lot of single-source or primary source products that, during the pandemic, are in short supply where customers ordered in anticipation.
Alan S. Lowe: As far as digestion is concerned I would say that.
Alan S. Lowe: We have a lot of single source or primary source products that during the pandemic.
Speaker Change: We are in short supply where customers ordered.
Alan S. Lowe: For example, our tunable laser that came from Neophotonics is the workhorse of the industry, and there's inventory at many of our customers of those products as the anticipation of VR demand is very, very strong. And it will become less so over the horizon.
Alan S. Lowe: Dissipation for <unk>.
Alan S. Lowe: Example, our tunable laser that came from Neil Photonics.
Speaker Change: Is the workhorse of the industry and their inventory at many of our customers of those products.
Alan S. Lowe: The anticipation of ZR demand was very very strong and it became less so.
Alan S. Lowe: So inventory needs to be digested for tunable lasers. And when that goes away, and we believe that'll take, you know, another quarter and a half or so, those products will ramp back up. So I think, you know, putting aside the short-term inventory glut, we're very well positioned on existing products and new products. And, you know, the new product demand is very strong. So I think from that perspective, we're very confident in our position and our share market share today and going forward. Thank you for that, Alan.
Speaker Change: Over over the horizon, so inventory needs to be digested out tunable lasers, and when that goes away and we believe that will take.
Alan S. Lowe: In the quarter and a half or so.
Alan S. Lowe: That those products will ramp back up so I think.
Alan S. Lowe: Putting aside the short term.
Alan S. Lowe: Inventory glut, we're very well positioned on existing products on new products and the new product demand is very strong. So I think from that perspective, we're very confident in our position and the share market share today and going forward.
Speaker Change: Thank you for that Alan maybe a follow up you know you indicated how you are.
Alan S. Lowe: Maybe a follow-up, you mentioned how you are expanding production capacity in Thailand for high-speed laser components. At the same time, there seems to be quite a strong willingness by your customers to accept that. Are you seeing a willingness across the supply chain for your customers to co-invest in your capacity as they ready some of these very high-capability products? Really, four AI clusters and next generation AI networks as they're ready for that demand?
Alan S. Lowe: Expanding production capacity in Thailand for.
Wajid Ali: High speed.
Alan S. Lowe: These are components at the same time, there seems to be quite a strong willingness by customers to accept that so.
Alan S. Lowe: Are you seeing a willingness across the supply chain.
Alan S. Lowe: For your customers to co invest in your capacity as they ready.
Alan S. Lowe: Some of these very high capable.
Alan S. Lowe: Products.
Alan S. Lowe: Really for AI clusters in next generation networks.
Alan S. Lowe: Thank you. I would say on existing capacity and short-term growth of capacity, that's on our dime, and our customers are encouraging us and will reward us over time with orders. They're investing in their R&D and engineering resources to qualify our products in the short term. I would say that we are getting co-investment on development projects to develop unique alternatives to transceivers. So for the long term, I think we have a share of mind with some of the AI infrastructure companies around what the next generation of Datacom or Optical Interconnect or GPUs, etc., will look like. And they're willing to help us make those investments that will turn into revenue a little bit further out. But they're clearly partnering with us because they see the breadth of technology and capabilities that we have. So I'd say that's kind of the answer both in the short term as well as in the longer term. Does that answer your question, Carl? Yes, it does.
Alan S. Lowe: They are as they are ready for that demand. Thank you.
Speaker Change: I would say on it.
Alan S. Lowe: Existing capacity.
Alan S. Lowe: In short term growth of capacity, that's on our dime and our customers are encouraging as well.
Alan S. Lowe: We will reward us over time with.
Alan S. Lowe: With orders they are investing their R&D and engineering resources to qualify our products in the short term I would say that we are.
Alan S. Lowe: We're getting co investment on development projects.
Alan S. Lowe: To develop unique alternatives to transceivers, so affordable long term I think we have share of mind.
Alan S. Lowe: With some of the AI.
Alan S. Lowe: AI infrastructure companies around what the next generation of Datacom or optical interconnect or Gpus et cetera, what does it look like and they are willing to help us make those investments.
Alan S. Lowe: That will turn into.
Alan S. Lowe: Revenue.
Alan S. Lowe: A little bit further out, but they're clearly partnering with us because they see the.
Alan S. Lowe: The breadth of technology and capabilities that we have.
Carl: So I'd say, that's kind of the answer propylene the short term as well as longer term.
Speaker Change: So to answer your question Carl.
Alan S. Lowe: Thank you. Thank you, Carl. Our next question comes from Dave King from B Reilly. Your line is now open. Thank you. Good morning.
Carl: Yes. It does thank you.
Alan S. Lowe: Right.
Dave Kang: Thank you Kyle.
Alan S. Lowe: Our next question comes from Dave King from B Riley. Your line is now might take.
Dave Kang: Thank you good morning, just more question on Datacom.
Alan S. Lowe: Just more question on the Datacom segment. So with that pause or dip in June and September, how should we think about Datacom revenue for those two respective quarters? Yeah, Dave. I think it's go ahead. Okay, yeah, let me take that.
Dave Kang: Segment, so with that Paul or dip in June and September how should we think about the datacom revenue for those two respective quarters.
Dave Kang: Yeah, Dave.
Speaker Change: I think it's a window.
Dave Kang: Okay, Yeah, let me take that I'd say it.
Wajid Ali: I'd say it, we're still working on what that dip looks like, and clearly, our customer is working to help us smooth that dip. And so I would, I would think from a modeling standpoint, you know, it could be down, 30% through that transition period.
Dave Kang: We're still working on what that looks like and clearly our customer is.
Speaker Change: Working to help us smooth that dip.
Speaker Change: And so I would I would think from a modeling standpoint.
Wajid Ali: It could be down.
Wajid Ali: 30%.
Wajid Ali: Through that transition period, but again, that's a matter of sort.
Wajid Ali: But again, that's, that's a matter of still working through it, and then, you know, can we pull in the new products into the September quarter that would, you know, make that the June quarter the low? And I think that's probably the case, as we have made tremendous progress on the new products. And the demands for those new products are strong. So I'd say you can model kind of a dip in the June quarter with a slight pickup in the September quarter. But you know, that's a little bit of time. I got it.
Wajid Ali: We are working through and then can we pull in the new products in the September quarter that would make that that June quarter, the low and I think that's probably the case as we have made tremendous progress on the new product.
Wajid Ali: The demand for those new products are strong. So I'd say you can model kind of a dip in the June quarter with.
Wajid Ali: A slight pick up in the September quarter, but that's a little bit dynamic.
Wajid Ali: Yeah.
Wajid Ali: And then my second question is on telecom. Just wondering, you talked about tunable lasers. Just wondering how big that business is and also can you give me any update on the Rotem segment? Yeah, Dave, we don't break those products out specifically. But you know, I think maybe a key point, as Alan highlighted on the call or in a previous question, is both of those products are ones where there is more inventory out there, given the position we have and the criticality of semiconductors or ICs to our customers and the supply challenges around semiconductors or ICs a year ago or so. That's an area where inventory was built quite heavily.
Speaker Change: Got it and then my second question is on the Telecom just wondering you talked about.
Wajid Ali: Lasers I'm, just wondering how big that business is and also can you.
Wajid Ali: Any update on the wrote them.
Wajid Ali: Segment.
Speaker Change: Yes, Dave.
Speaker Change: Break those products out specifically, but I think maybe a key point as Alan highlighted on the call.
Wajid Ali: Alright.
Wajid Ali: Previous question is is both of those products.
Wajid Ali: Or are ones, where there are more inventory.
Wajid Ali: Out there given given the position we have and the criticality.
Speaker Change: To our customers and the supply challenges around semiconductors are Ics a year ago or so.
Wajid Ali: It's an area where inventory was built quite heavily so for example, as our ZR modules ourselves are ramping up.
Wajid Ali: So, for example, as our ZR modules themselves are ramping up, you know, tunable lasers aren't yet there will be a time lag of a quarter or two before they start for the recovered. So, you know, unfortunately, the situation is that some of the major product lines that we have that have driven a lot of our historical revenue are the ones where there are high levels of inventory that are remaining to burn off. Thank you. Thank you, Dave. Our next question today comes from Ruben Roy from Stifle. Your line is now open. Please go ahead.
Ruben Roy: <unk> tunable lasers.
Ruben Roy: Aren't yet there will be a time lag.
Ruben Roy: Here are a quarter or two before they start to recover given the amount of inventory that's out there.
Wajid Ali: So.
Ruben Roy: Unfortunately, the situation is that some of the major product lines.
Ruben Roy: We have that are driven.
Ruben Roy: A lot of our historical revenue are the ones that where there are high.
Ruben Roy: High levels of inventory that are remaining to burn off in the coming couple of quarters.
Ruben Roy: Thank you.
Ruben Roy: Thank you Dave.
Ruben Roy: Our next question today comes from <unk> Roy from Stifel. Your line is now open. Please go ahead.
Christopher Coldren: Thank you. I hope my first question is quick because you guys have talked about this quite a bit. But Chris, I think this is for you in answer to a previous question just around this little bit of a pause in the June and September quarters on the transceiver technology. I just want to make sure I understand. That's a design change.
Ruben Roy: Thank you.
Ruben Roy: My first question is quick because you guys have talked about this quite a bit but Chris I think this is for you.
Christopher Coldren: In answer to a previous question just around this.
Christopher Coldren: Little bit of a pause in the June and September quarters on the <unk>.
Christopher Coldren: Transceiver technology I, just wanted to make sure I understood. That's a design change.
Christopher Coldren: 100% related to the kind of your product and not, you know, because of other network elements. Is that the right way to think about it? I would say, well, maybe slightly different, which is to say that the customer wants to purchase different products that then we have to make a new product.
Christopher Coldren: 100% related to kind of your product and not because of other network elements is that the right way to think about it.
Christopher Coldren: I would say well, maybe a slightly different which is to say that the customer wants to purchase different products that then we have to make.
Christopher Coldren: <unk>, a new product and so.
Christopher Coldren: And so there is a period of ramping down the old before we ramp up Okay, customers trying to improve system or network performance, if you will, through a different Product Design. Okay, thanks. Thank you for that. And then on the industrial side, you have, outside of 3D sensing, you've got inventory consumption at a large customer and, obviously, macro weakness ongoing. I'm wondering if you could kind of sort out the macro side of it.
Christopher Coldren: There is a period of ramping down the old.
Christopher Coldren: Before we ramp up the new in that.
Christopher Coldren: But presents that dip.
Christopher Coldren: Okay customers trying to improve.
Christopher Coldren: System or network performance.
Christopher Coldren: You will through a different.
Christopher Coldren: Product design, if you will.
Christopher Coldren: Okay. Thanks, Thank you for that and then.
Christopher Coldren: On the industrial side.
Christopher Coldren: You have outside of <unk> sensing you've got the.
Christopher Coldren: Inventory consumption at a large customer and obviously macro weakness.
Christopher Coldren: Ongoing.
Christopher Coldren: I'm wondering if you could kind of sort out the macro side of it.
Alan S. Lowe: How's the design activity been, Alan? I know you've gotten some new products out there with some of the, you know, fast industrial lasers. Are you seeing any, you know, sort of pick-up in, you know, design activity or discussions around, you know, either additive manufacturing or otherwise? I'm just curious about how you're thinking about that over the next 12 to 18 months. Yeah, good question. I'd say, as we said in the script, a lot of new applications. I'd say the one that we are ramping today is primarily around solar processing and manufacturing, and our laser gives them a differentiated efficiency in the solar cell.
Christopher Coldren: Design activity been Alan I know, you've gotten some new products out there with some of the fast industrial lasers are you seeing any sort of pickup in design activity or discussions around.
Alan S. Lowe: Either.
Alan S. Lowe: Additive manufacturing or or otherwise just curious how youre thinking about that over the next 12 to 18 months.
Alan: Yes, good question.
Alan: As we said.
Alan S. Lowe: In the.
Alan S. Lowe: Script, a lot of new applications I'd say, the one that we are ramping today is primarily around solar.
Alan S. Lowe: Processing manufacturing and our laser gives them a differentiated.
Alan S. Lowe: Efficiency of the solar cell. So as you can imagine 1% efficiency or even a fraction of a percent efficiency for solar cells is a big deal and so.
Alan S. Lowe: So it's, as you can imagine, 1% efficiency or even a fraction of a percent efficiency for solar cells is a big deal. And so for whatever reason, our unique capability in our ultrafast lasers has a lot of traction in that space. And similarly, we are seeing a lot of design activity around other applications, and we talked about those on the call around EV batteries and PCBs and displays that are, you know, coming to fruition and will turn into business really in the second half of calendar year 24 and into 25. So yeah, a lot of activity and a lot of success with respect to our femtosecond and picosecond lasers. Thank you. Thanks, Ruben. Our next question today comes from Vivek Arya from Bank of America. Your line is now open. Please go ahead.
Vivek Arya: For whatever reason our unique capability in our ultrafast lasers.
Vivek Arya: It has a lot of traction in that space and similarly, we're seeing a lot of design activity around other applications and we talked about those on the call around getting batteries and.
Vivek Arya: Pcbs and display that.
Vivek Arya: Are coming to fruition and will turn into business really in the second half of calendar 'twenty four and into 25, so yes, a lot of activity and a lot of success with respect to our <unk>.
Vivek Arya: Second picosecond lasers.
Vivek Arya: Thank you.
Vivek Arya: Thanks, Nick.
Vivek Arya: Our next question today comes from David <unk> from Bank of America. Your line is now open. Please go ahead.
Wajid Ali: Thank you for taking my question. I just wanted to nail down what we have heard so far about June and September. So it seems like June is at least 30 million below March levels, all else being equal. And then September, it recovers, but, you know, maybe doesn't get back to March levels. But I wanted to confirm that. And if June and September are both below March levels, then what happens to gross margins? Are they also below March levels? I just wanted to make sure that we disentangle all the dots that we have heard so far. Wajid, I think you're on mute.
Vivek Arya: Thank you for taking my question I, just wanted to nail down what we have heard so far about June and September so it seems like June.
Wajid Ali: Is at least 30 million below March levels.
Wajid Ali: That's being equal and then September it recovers, but maybe it doesn't get back to March levels, but I wanted to confirm that and if June and September are both below March levels than what happens to gross margins I think also.
Speaker Change: Below March levels I, just wanted to make sure that the disconnect all the dots that's the I've heard so far on the call.
Wajid Ali: Well I think youre on mute.
Wajid Ali: Oh, sorry. Thank you. Hi, Vivek.
Wajid Ali: Oh, sorry, thank you.
Wajid Ali: So I think that sounds about right. You know, we do try to guide one quarter at a time, just given the number of customers that we have that are over 10% and the type of volatility we can see, but, you know, based on the information we've provided, that's probably about the right math. Gross margins, you know, we're going, well, you know, gross and operating margins, you know, we should be able to see some of the synergies flowing through in our June and September quarters that we talked about earlier. You know, we achieved $60 million exiting the December quarter, and we're expecting additional synergies to help us a little bit in March and probably more in June. And so we should be able to see the benefit of that flowing through.
Vivek: Hi, Vivek.
Wajid Ali: I think that sounds about right.
Wajid Ali: We do try to guide one quarter at a time just given the.
Wajid Ali: The number of customers that we have that are over 10% and the type of volatility we can see but based on the information we provided.
Wajid Ali: That's probably about the right math.
Wajid Ali: Gross margins were going well gross and operating margins.
Wajid Ali: We should be able to see some of the synergies.
Wajid Ali: Flowing through.
Wajid Ali: Our June and September quarter that we talked about earlier, we've achieved $60 million exiting the December quarter, and we're expecting.
Wajid Ali: Additional synergies to help us a little bit in March and probably more in June.
Wajid Ali: And so we should be able to see the benefit of that.
Wajid Ali: And so gross margins should be about flat, at least into the June quarter, with some improvement into the September quarter. So, you know, some of the new programs that Alan talked about do require some incremental R&D expenses for those large hyperscale customers. And so we won't be backing off on those. And so, you know, OPEX will fluctuate between June and September as well. But I think that's the right way to think about it. But just for clarification, it's 30% Datacom down, not the company down. Right at 30 minutes. Yeah. And so very right. Yeah. 30 minutes. It's going to be about 30 minutes.
Wajid Ali: Flowing through and so gross margin should be probably about flat at least into the June quarter with some improvement into into the September quarter.
Wajid Ali: So some of the new programs that Alan talked about do require.
Wajid Ali: Some incremental R&D expenses.
Wajid Ali: For those for those large hyperscale customers and so we won't be backing off on those.
Wajid Ali: And so opex will modulate between June and September as well.
Wajid Ali: That's the right way to think about it.
Speaker Change: So just sort of clarification.
Wajid Ali: 30% Datacom down not the company down in the June quarter right.
Speaker Change: Pretty much yes, so $30 million about $30 million yeah.
Wajid Ali: Yeah. My follow-up question, how do you think about your balance sheet right now? You know, net leverage is, it's kind of higher than peers. So how do you think about your balance sheet right now? Do you think you need to do anything extraordinary to shore it up?
Wajid Ali: Alright.
Speaker Change: My follow up how do you think about your balance sheet right now.
Speaker Change: Net leverage is.
Speaker Change: It's kind of higher than peers.
Speaker Change: And so how do you think about the balance sheet right. Now do you think you need to do anything extraordinary to show at the top end in general.
Wajid Ali: And in general, how should we think about just cash flow generation this year? So just any comments on the balance sheet. Yeah, so you know, we exited the December quarter with a little over $1.2 billion in cash. Our expectation is that we'll continue to generate cash flow from operations, both in the March quarter and in the June quarter as well. We are making some incremental investments in capital in our Thailand facility that Alan talked about. And so that'll fluctuate between March and June, just depending on when the CapEx comes in and when we pay for it. We have a convertible debt due in March, in the middle of March.
Speaker Change: How should we think about just cash flow generation. This year. So just any comments on the balance sheet would be helpful.
Wajid Ali: Yes, so we exited the December quarter with a little over $1 2 billion.
Wajid Ali: Cash.
Wajid Ali: Our expectation is that we'll continue to generate cash flow from operations.
Wajid Ali: Both in the March quarter, and then the and then the June quarter as well.
Wajid Ali: We're making some incremental investments in capital in our Thailand facility that Alan talked about and so that will modulate between March and June just depending on when the Capex comes in and when we pay for it.
Wajid Ali: We have a convertible debt due.
Wajid Ali: In March in the Middle of March and so our expectation is that we'll be able to pay that off from the cash that we have on the balance sheet and that still leaves us with a with a comfortable level of cash.
Wajid Ali: And so our expectation is that we'll be able to pay that off from the cash that we have on the balance sheet. And that still leaves us with a comfortable level of cash after that payoff. So we're quite comfortable with the level of debt we have, both on a gross and a net basis, just kind of given those dynamics. Thanks, Vivek.
Wajid Ali: Exiting that pay off so we're quite comfortable with.
Vivek: The level of debt, we have both on a gross and a net.
Wajid Ali: Basis, just kind of given those dynamics.
Vivek: Thank you.
Wajid Ali: So Drew, I think we have time just for one more question. Okay, our next question comes from Amanda Barua from Loop Capital. Your line is now open, please go ahead. Yeah, good morning, guys.
Speaker Change: Thanks, Vivek. So do I think we have time just for one more question.
Amanda Barua: Okay. Our next question comes from Amanda Baruah from Loop capital. Your line is now open. Please go ahead.
Amanda Barua: Hey, good morning, guys. Thanks for thanks for taking the question.
Christopher Coldren: Thanks for taking the question. I guess, just, you know, sort of going back to the transceiver comp. Alan, Chris, what's a good way to think about... Overall, Gen AI. What is your right now?
Christopher Coldren: Yes.
Amanda Barua: Just sort of go back to the transceiver conflicts.
Amanda Barua: Alan Chris what's the good way to think about.
Christopher Coldren: Overall journey II.
Amanda Barua: So you are right now.
Christopher Coldren: I guess how big would you size your kind of gen-AI related business in the December quarter? And I guess what's a good way to think about it: you can include ZR in there if you think that that belongs. Sounds like Alan used to.
Amanda Barua: I guess, how big would you Sai here.
Christopher Coldren: Again AI related business in the December quarter.
Christopher Coldren: And I guess, what's a good way to think about.
Christopher Coldren: You can include the R&D or do you think that could that belong sounds like Alan you.
Christopher Coldren: In your prior remarks, you think it, to some degree, you think it belongs, and then what's a good way to think about, you know, sort of, I guess kind of like the growth rate of how you size that GNI-related business over the next 12 to 24 months. There are a lot of moving parts. The Bulletproof Executive 2013, Sure. I would, I would say, as we highlighted on the call, the Cloudlight revenue, you know, around $60 million, and we'll be going up. I think the vast, vast majority of that, given the vast, vast majority of that is 800 gigabytes, is going into AI platforms. Um, if you were, you know, looking beyond that, then obviously, we've got our Datacom chip business which is... several tens of millions of dollars. A quarter as well as adding to that.
Christopher Coldren: And you have higher much I think to some degree you think it belongs.
Christopher Coldren: And then what's a good way to think about sort of.
Christopher Coldren: I guess kind of like the growth rate of those that would have.
Bulletproof Executive: Besides that Jamie I really like the business.
Christopher Coldren: Over the next 12 months to 24 months, there are a lot of moving parts with new customers and programs and stuff like that coming up but any context.
Bulletproof Executive: Both of those questions would be would be probably quite useful for us I appreciate it.
Christopher Coldren: Sure.
Speaker Change: I would say as we highlight on the call the cloud light revenue.
Christopher Coldren: And you know around $60 million and will be going up significantly here in the March quarter with a full quarter of it.
Christopher Coldren: I think the vast vast majority of that given the vast vast majority of that is 800 gig is going into AI platforms.
Christopher Coldren: If you work.
Christopher Coldren: Look beyond that then obviously, we've got R. R.
Christopher Coldren: Datacom chip business, which as you know.
Speaker Change: Several tens of millions of dollars.
Speaker Change: Our quarter as well, adding into that I would be cautious to start throwing in.
Christopher Coldren: I would be cautious to start throwing in some of the telecom revenue at this point. Certainly, data going in and out of the data centers is relevant, but I think that's more of a longer-term story as more data centers are built, purpose-built, and spread out further for power consumption reasons, which will start to really drive the telecom space. Now, going back to the revenue pieces that are highlighted between the Cloudlight transceivers and our Datacom chips, I expect, I mean, obviously, we've talked about a kind of dip here over the coming quarters, but if we were to look at that over a um, several year period to smooth those out, I think the industry is expecting AI to grow at a 50% kegger or something like that, three, three, three plus years So I think we've got an to grow at least as fast as it is not faster given our more modest overall market share, but having all of the essential ingredients, be a share.
Christopher Coldren: Some of the telecom revenue at this point certainly data going in and out of the data centers is relevant, but I think thats more of a.
Christopher Coldren: Longer term story as more data centers are built purpose purpose built in spread out further for power consumption reasons that will start to really drive the telecom space.
Christopher Coldren: Now going back to the revenue pieces that are highlighted between the cloud like Transceivers and our Datacom chips I expect I mean, obviously, you've talked about kind of.
Christopher Coldren: Uh huh.
Christopher Coldren: <unk> here over the coming quarters, but if we were to look at that over a.
Christopher Coldren: Several year period to smooth those out I think the industry expecting that.
Christopher Coldren: <unk> is growing at a 50% CAGR or something like that over the next 333 plus years. So I think we've got an opportunity to grow at least as fast that if not faster given.
Christopher Coldren: Our.
Christopher Coldren: More modest overall market share, but having all of the essential ingredients to be able to be a share gainer.
Christopher Coldren: That's helpful, Chris. I appreciate it. I'll leave it there.
Speaker Change: Okay. That's helpful. I appreciate it I'll leave it there.
Alan S. Lowe: Thank you so much, Amanda. And now, I think we're going to turn the call back over to Alan for some closing remarks. Great, thank you, Kathy. I would like to leave everybody with a few thoughts as we wrap up this call. We are confident in our agility and leadership position to navigate the current market environment. Lumentum stands at the forefront of the data center revolution, from pioneering chip-scale photonics to automated manufacturing and to new and growing partnerships with hyperscale cloud customers and infrastructure providers. Our Cloudlight acquisition has already proven to be a success, with a fantastic team and valuable insight propelling our high-speed transceiver production to meet surging demand. With that, I would like to thank you for attending today's call, and we look forward to meeting you again at investor conferences, upcoming meetings, and at the OFC show in San Diego. Thank you. That concludes today's 2024 Lumentum Earnings Conference call; you may now disconnect your T-Show in San Diego.
Christopher Coldren: Yes.
Alan S. Lowe: Thank you so much Amanda.
Alan S. Lowe: And now I think we're going to turn the call back over to Alan for some closing remarks.
Speaker Change: Great. Thank you Kathy I would like to leave everybody with a few thoughts as we wrap up the call.
Alan: We are confident in our agility and leadership position to navigate the current market environment.
Alan S. Lowe: Momentum stands at the forefront of the data center Revolution from pioneering chip scale photonics to automated manufacturing and to new and growing partnerships with hyperscale cloud customers and infrastructure providers.
Alan S. Lowe: Our cloud light acquisition has already proven to be a success with a fantastic team and valuable insight propelling our high speed transceiver production to meet surging demand.
Alan: With that I would like to thank you for attending today's call and we look forward to meeting you again at investor conferences upcoming meetings.
Alan S. Lowe: At the OFC show in San Diego.
Speaker Change: Thank you.
Alan S. Lowe: That concludes today's 'twenty 'twenty four momentum earnings conference call. You May now disconnect your lines.
Alan S. Lowe: Let's see show in San Diego.