Q3 2024 Lumentum Holdings Inc Earnings Call

Good day, everyone and welcome to the momentum holdings third quarter fiscal year 2024 earnings call. All participants will be in a listen only mode. Please also note today's event is being recorded.

Operator: Good day, everyone, and welcome to the Lumentum Holdings third quarter fiscal year 2024 earnings call. All participants will be in a listen-only mode. Please also note today's event is being recorded for replay purposes. At this time, I would now like to turn the conference call over to Kathy Ta, Vice President of Investor Relations. Ms. Ta, please go ahead.

Courted for replay purposes at this time I would now like to turn the conference call over to Kathy talk Vice President of Investor Relations. Mr. <unk>. Please go ahead. Thank.

Kathryn Ta: Thank you, and welcome to Lumentum's Fiscal Third Quarter 2024 Earnings Call. This is Kathy Ta, Lumentum's Vice President of Investment 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.

Thank you and welcome to the momentum fiscal third quarter 2020 earnings call. This is Cathy Charles We mentioned as Vice President of Investor Relations. Joining me today are Alan Lowe, President and Chief Executive Officer Wajid Ali.

Kathryn Ta: Today's call will include forward-looking statements, including statements regarding our expectations and beliefs regarding recent acquisitions, including Cloudlight and Neocritonics, macroeconomic trends, trends and expectations for our products and technologies, our end markets, market opportunities, and customers, and our expected financial and operating performance, including our guidance, as well as statements regarding our future revenues, financial model, and margin targets. 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.

Kathryn Ta: We encourage you to review our most recent filings with the SEC, particularly the risk factors described in our most recent 10-Q and in 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 laws. Please also note that, unless otherwise stated, all financial results and projections discussed in this call are non-GAAP.

Kathy Charles: Decorative vice President and Chief Financial Officer, and Chris Coldren, Senior Vice President and Chief strategy and corporate development Officer.

Kathy Charles: Today's call will include forward looking statements, including statements regarding our expectations and beliefs regarding recent acquisitions, including cloud and Nielsen tonics macroeconomic trends.

And expectations for our products and technologies are end markets market opportunities and customers.

Kathy Charles: Our expected financial and operating performance, including our guidance as well as statements regarding our future revenues financial model and margin targets.

Kathy Charles: 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 Charles: We encourage you to review our most recent filings with the SEC, particularly the risk factors described in our most recent 10-Q.

Kathy Charles: And in our 10-Q that will be filed soon.

Kathy Charles: The forward looking statements provided during this call are based on momentum reasonable beliefs and expectations as of today.

Kathy Charles: Momentum undertakes no obligation to update these statements except as required by applicable law.

Kathy Charles: Please also note that unless otherwise stated all financial results and projections discussed in this call are non-GAAP non-GAAP.

Kathy Charles: Those are not to be considered as a substitute for or superior to financials prepared in accordance with GAAP.

Kathryn Ta: Non-GAAP financials are not to be considered as a substitute for or superior to financials prepared in accordance with GAAP. Lumentum's press release with the fiscal third 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.

Kathy Charles: <unk> press release with our fiscal third quarter results and the accompanying supplemental slides are available on our website at www Dot <unk> dot com under the investors section with that I'll turn the call over to Alan.

Alan S. Lowe: Thank you Kathy and good afternoon, everyone.

Alan S. Lowe: Thank you, Kathy, and good afternoon, everyone. This is a very exciting time for Lumentum. We are making excellent progress on the huge opportunities the long-term demand for data center platonics creates for us, driven by the exponentially increasing compute requirements of artificial intelligence, machine learning, and advanced data centers. High-performance photonics are absolutely critical to enabling networks both within and beyond the data center to keep pace with these demands. Lumentum is pursuing a three-pronged strategy to drive significant growth in our cloud data center revenues. First, we are executing on our compelling new product roadmap that expands our offerings and market opportunities. We have multiple waves of product releases beginning later this calendar year and continuing into calendar 2025.

Alan S. Lowe: This is a very exciting time for momentum.

Alan S. Lowe: We are making excellent progress on the huge opportunities for long term demand for data center photonics creates for us driven by the exponentially increasing compute requirements of artificial intelligence machine learning and advanced data centers.

Alan S. Lowe: High performance Photonics are absolutely critical to enabling networks, both within and beyond the data center to keep pace with these demands.

<unk> is pursuing a three pronged strategy to drive significant growth in our cloud data center revenue.

Alan S. Lowe: First we are executing on a compelling new product roadmap that expands our offerings and market opportunities.

Alan S. Lowe: We have multiple waves of product releases, beginning later this calendar year and continuing into calendar 2025.

Alan S. Lowe: This includes new 1.6 terabit intradata center optical transceivers, optical switching products, and 800G coherent pluggables for data center interconnect, or DCI. This portfolio expansion is a result of our offerings spanning not only leading data center optical components at both 100G and 200G per lane speeds but also high-speed 800G and 1.6 terabit transceivers that leverage these components across a range of customers. These transceiver product lines address a range of requirements from multiple market-leading customers, from short-reach to long-reach, within their data center optical link fabric. Our 800ZR and ZR Plus coherent transceivers utilize our photonic integrated circuit technology and deliver differentiated transmission performance and power consumption.

Alan S. Lowe: This includes new one six terabits intra data center optical transceivers.

Alan S. Lowe: Optical switching products and 800 G coherent <unk> for data center interconnect or Dci.

Alan S. Lowe: This portfolio expansion as a result of our offerings spanning not only leading data center optical components at both 100 G and 200 G per line speeds, but also high speed 800, G and one six terabits transceivers that leverage these components across a range of customers.

Alan S. Lowe: Please transceiver product lines to address a range of requirements from multiple market, leading customers from short reach to long reach within their data center optical link fabric.

Alan S. Lowe: Our 800, ZR and ZR plus coherent transceivers utilize our photonic integrated circuit technology and deliver differentiated transmission performance and power consumption critical factors for data center applications.

Alan S. Lowe: Critical Factors for Data Center Applications. We have already begun product sampling with key customers, and our demos and customer discussions at the recent OFC trade show went very well. Given the challenges in powering data centers, we expect to accelerate growth of our DCI products over the coming years. In the second prong of our data center strategy, we are significantly expanding our manufacturing capacity in our proven wafer fabs and back-end factories to ensure a secure, high volume supply of our differentiated products to address our cloud customers' strong demand now and into the future. Two weeks ago, I visited our state-of-the-art manufacturing facility in Thailand.

Alan S. Lowe: We have already begun product sampling with key customers and our demos and customer discussions at the recent OFC Tradeshow went very well.

Alan S. Lowe: Given challenges empowering data centers, we expect to accelerate growth of our Dci products over the coming years.

Alan S. Lowe: And the second prong of our data center strategy, we are significantly expanding our manufacturing capacity and our proven wafer fabs and back end factories to ensure a secure high volume supply of our differentiated products to address our cloud customers' strong demand now and into the future.

Alan S. Lowe: Two weeks ago I visited our state of the art manufacturing facility in Thailand.

Alan S. Lowe: I'm pleased to report that our expansion plans are progressing very well and remain on track. We expect to provide customers with qualification units, including 1.6T modules, from this facility this summer. And based on current customer timelines, we expect volume production to start later this calendar year and accelerate into calendar 2025 in a meaningful way. Further, based on progress with new customer opportunities since our last call, we have ratcheted up the magnitude of our expansion plans to prepare for continued success in winning new sockets and customers in calendar 2025 and beyond.

Alan S. Lowe: I am pleased to report that our expansion plans are progressing very well and remain on track.

We expect to provide customers with qualification units, including one six key modules from this facility. This summer and based on current customer timelines. We expect volume production to start later this calendar year and accelerate into calendar 2025 in a meaningful way.

Alan S. Lowe: Further based on progress with new customer opportunities since our last call. We have ratcheted up the magnitude of our expansion plans to prepare for continued success in winning new sockets and customers in calendar 2025 and beyond.

Alan S. Lowe: The third prong of our strategy focuses on partnering with cloud and AI infrastructure customers, a new innovative solutions to scale data center infrastructure that leverages, our extensive portfolio of in house Photonics and manufacturing technologies.

Alan S. Lowe: The third prong of our strategy focuses on partnering with cloud and AI infrastructure customers on new innovative solutions to scale data center infrastructure that leverages our extensive portfolio of in-house photonics and manufacturing technology. For example, power consumption will continue to be a key limiter in further scaling of compute power in the future.

Alan S. Lowe: For example, power consumption will continue to be a key limiter and further scaling of compute power in the future too.

Alan S. Lowe: To address this, we are focused on enabling innovative photonic approaches to more energy-efficient data center networks. These include supporting optical switching to replace certain electronic packet switches and new optical transceiver and link architectures, which will reduce the amount of power needed and will move photonics even closer to the processor and the switch chip. By implementing this three-pronged cloud strategy, Lumentum is well positioned to capitalize on the tremendous growth potential in data center photonics as compute and data center infrastructures increasingly rely on photonics to scale.

Alan S. Lowe: To address this we are focused on enabling innovative photonic approaches to more energy efficient data center networks.

These include supporting optical switching to replace certain electronic packet switches.

Alan S. Lowe: And new optical transceiver, and link architectures, which will reduce the amount of power needed and remove photonics, even closer to the processor and the switch chips.

Alan S. Lowe: By implementing this three pronged cloud strategy momentum is well positioned to capitalize on the tremendous growth potential and datacenter photonics as compute and data center infrastructures increasingly rely on photonics to scale.

Alan S. Lowe: In a recent let's see momentum Investor technology event, we highlighted our current view.

Alan S. Lowe: In a recent OFC Lumentum investor technology event, we highlighted our current view that our cloud photonics opportunity in calendar year 2028 could be approximately $16 billion. Based on this, and the progress we've made with leading customers, we believe we can expand our cloud revenue to multi billions of dollars in the years ahead. Outside of the cloud, we continue to be focused on helping customers scale internet optical network infrastructure. Over many years, we have solidified our market share and technology leadership positions in this important market.

Alan S. Lowe: Our cloud photonics opportunity in calendar year, 2028 could be approximately $16 billion.

Alan S. Lowe: Based on this and the progress we've made with leading customers. We believe we can expand our cloud revenue to multi billions of dollars in the years ahead.

Side of the cloud we continue to be focused on helping customers scale Internet optical network infrastructure.

Alan S. Lowe: Over many years, we have solidified our market share and technology leadership positions in this important market.

Alan S. Lowe: We are addressing the growing bandwidth needs with our high-speed components, but physical constraints, such as the Shannon limit, are impacting the ability to scale capacity by increasing speed alone. Further, networks will need to utilize increased parallelism with more wavelength channels, more fiber transmission bands, and more fibers carrying data. These challenges create growth opportunities for Lumentum, as higher volumes of leading-edge coherent components and more advanced and complex rodents and optical amplifiers are required to enable further network capacity scaling.

Alan S. Lowe: We are addressing the growing bandwidth needs with our high speed components, but physical constraints such as the Shannon limit are impacting the ability to scale capacity by increasing speed alone further networks will need to utilize increased parallelism with more wavelength channels in more fiber transmission bands.

Alan S. Lowe: More fibers carrying data.

Alan S. Lowe: These challenges create growth opportunities for momentum as higher volumes of leading edge coherent components and more advanced and complex <unk> and optical amplifiers are required to enable further network capacity scaling.

Alan S. Lowe: For example, our high port count and end-by-end ROADMs are addressing the growing number of wavelength channels, fibers, and degrees of connectivity, and our latest ROADM designs integrate C plus L band capability, enabling customers to better maximize the available bandwidth in a single fiber. Now, let me move to our fiscal third quarter revenue and product highlights. Cloud networking revenue grew 9% sequentially and 7% year over year, given by strong data center demand and the contribution from the CloudLight acquisition.

Alan S. Lowe: For example, our high Port Count and end by end <unk> are addressing the growing number of wavelength channels fibers and degrees of connectivity and our latest rhythm designs integrates C plus L band capability, enabling customers to better maximize the available bandwidth in a single.

Alan S. Lowe: Fiber.

Speaker Change: Now, let me move to our fiscal third quarter revenue and product highlights.

Speaker Change: Our cloud networking revenue grew 9% sequentially and 7% year over year, driven by strong data center demand and the contribution from the cloud right acquisition.

Alan S. Lowe: Our revenue from 100G EML laser chips nearly tripled in fiscal Q3 compared to Q2, given by the expansion of output capacity at our Japanese wafer fab. Our earlier investments in this FAB have proven to have been the right decisions.

Speaker Change: Our revenue from one energy emo laser chips nearly tripled in fiscal Q3 compared to Q2, driven by the expansion of output capacity at our Japanese wafer fab.

Speaker Change: Our earlier investments in this fab have proven to have been the right decision.

Alan S. Lowe: As we ramp up production of 100G EMLs with market-leading customers, we are also qualifying our 200G EMLs for use in both 1.6 terabit and lower power 800G transceivers. Early customer feedback on our 200G EMLs is excellent, positioning this product line to be a key contributor to growth in calendar 2025. Data center demand is also increasing for 400GR and GR plus modules for DCI. In addition to providing these modules, we are a market leader in the narrow-linewidth tunnel laser used in CR modules.

Speaker Change: As we ramp up production of 100, <unk> with market leading customers. We are also qualifying our 200 <unk>.

In both one six terabyte and lower power 800 GT Transceivers.

Speaker Change: Early customer feedback on our two energy emo is excellent positioning this product line to be a key contributor to growth in calendar 2025.

Speaker Change: Data Center demand is also increasing 400, ZR and ZR plus modules for Dci.

Speaker Change: In addition to providing these modules we are a market leader in the narrow line width tunable laser used in ZR modules.

Alan S. Lowe: We are encouraged by a notable uptick in demand for our tunable lasers in Q3, as customer inventory of these products appears to be normalized. We expect these strong cloud demand trends to continue based on the robust double-digit CAFX projections for calendar 24 coming from cloud data center operators. All that said, in the next few quarters, revenue will continue to be burdened by telecom customer inventory challenges because the pace of telco carrier spending has slowed more than previously anticipated.

Speaker Change: We are encouraged by a notable uptick in demand for our tunable lasers in Q3 as customer inventory of these products appears to be normalizing.

Speaker Change: We expect the strong cloud demand trends to continue based on the robust double digit capex projections for calendar 'twenty four coming from cloud data center operators.

Speaker Change: All of that said in the next few quarters revenue will continue to be burdened by telecom.

Speaker Change: Customer inventory challenges.

Speaker Change: The pace of telco carrier spending has slowed more than previously anticipated.

Alan S. Lowe: Because we continue to ship below end market demand, customer inventory of our products is decreasing, indicating that we are getting closer to the end of this lower demand phase in our industry. We remain highly confident in our market position and the future recovery and growth of our telecom business. Network bandwidth growth continues unabated, requiring network capacity addition. As fiber transmission approaches its physical limits, network providers increasingly recognize the value proposition of our technologies, which enable continued network scaling.

Speaker Change: Because we continue to ship below end market demand customer inventory of our products is decreasing indicating that we are getting closer to the end of this lower demand phase in our industry.

Speaker Change: We remain highly confident in our market position and the future recovery.

Speaker Change: And growth of our telecom business.

Speaker Change: Net worth bandwidth growth continues unabated requiring network capacity additions.

As fiber transmission approaches its physical limits network providers increasingly recognize the value proposition of our technologies, which enabled continue network scaling.

Alan S. Lowe: This reinforces our long-term optimism about our opportunities in this market. In contrast to the extended inventory correction, I'm very pleased with the adoption and early ramp-up and growth potential of our newest telecom products by our customers. For example, we are ramping up shipments of our new 130 and 200 gigabyte coherent components, which enable the next generation of high-performance coherent transmission systems at 1.2 and 1.6 terabits per second.

Speaker Change: This reinforces our long term optimism for our opportunities in this market.

Speaker Change: In contrast to the extended inventory correction I am very pleased with the adoption and early ramp up and growth potential of our newest telecom products by our customers.

Speaker Change: For example, we are ramping up shipments of our new 130, and 200 gigabyte coherent components. These enable the next generation of high performance coherent transmission systems at one two and one six terabits per second.

Alan S. Lowe: They've also seen increased customer activity in next-generation high port count and integrated extended C and extended L-band ROADM. Customers are not burdened with excess inventory of these products, and increasing shipments highlight growing in-market needs that will drive growth on top of the eventual market recovery. Turning to industrial tech, fiscal 2-3 revenue was down 34% sequentially and down 42% year over year, driven by expected seasonality and increased competition in our 3D sensing business as well as inventory consumption at our largest industrial laser customer.

Speaker Change: We are also seeing increased customer activity and next generation high port count and integrated extended C and extended L band <unk>.

Speaker Change: Customers are not burdened with excess inventory of these products and increasing shipments highlight growing end market needs that will drive growth on top of the eventual market recovery.

Speaker Change: Turning to industrial Tech fiscal Q3 revenue was down 34% sequentially and down 42% year over year, driven by expected seasonality and increased competition in our <unk> business as well as inventory consumption at our largest industrial laser customer.

Alan S. Lowe: This decline masks the success we are having on new industrial laser platforms for emerging applications, particularly ultrafast lasers, which experienced a more than 40% sequential growth in Q3. These lasers serve key micromachining applications in industries like semiconductor, EV batteries, displays, PCBs, and solar cell manufacturing.

Speaker Change: This decline masks. The success, we are having on new industrial laser platforms for emerging applications, particularly ultrafast lasers, which experienced a more than 40% sequential growth in Q3.

Speaker Change: These lasers for key micro machining applications and industries like semiconductor EV batteries displays PCE.

Speaker Change: Pcbs and solar cell manufacturing.

Alan S. Lowe: We anticipate an improved revenue profile for the industrial tech platform in the quarters to come. This is due to two facts. One, the smaller size of our 3D sensing business will have a less significant impact on our overall revenue profile. And two, we expect an uptick in industrial fiber laser shipments after the severe inventory correction experienced during Q3. To summarize, the combination of explosive growth in cloud data center and AI-driven demand, customer traction and capacity additions for new data center products, and strong early demand for our new telecom products makes me confident and bullish about calendar 2025.

Speaker Change: We anticipate an improved revenue profile for the industrial tech platform in the quarters to come.

Speaker Change: This is due to two factors one the smaller size of our <unk> sensing business will have a less significant impact on our overall revenue profile and two we expect an uptick in the industrial fiber laser shipments after the severe inventory correction experienced during Q3.

Speaker Change: To summarize the combination of explosive growth in cloud data center, and AI driven demand.

Speaker Change: Our customer traction and capacity additions for new data center products and.

Speaker Change: And strong early demand for our new Telecom products makes me confident and bullish about calendar 2025.

Alan S. Lowe: We expect significant growth next calendar year as our investments in new data center products and manufacturing capacity this year translate into significant new revenues. This, combined with the telecom industry inventory correction abating, makes the outlook for calendar 2025 and beyond very promising. They have multiple cloud customer engagements, which will drive meaningful revenue growth and drive total company quarterly revenue to exceed $500 million by calendar 2025. Additionally, we expect that significant growth will continue into 2026 and 2027.

Speaker Change: We expect significant growth next calendar year as our investments in new data center products and manufacturing capacity this year translates into significant new revenues.

Speaker Change: This combined with the telecom industry inventory correction abating makes the outlook for calendar 2025 and beyond very promising.

Speaker Change: We have multiple cloud customer engagements, which will drive meaningful revenue growth and drive total company quarterly revenue to exceed $500 million.

Speaker Change: Exiting calendar 2025.

Speaker Change: Additionally, we expect that significant growth will continue into 2026 and 2027.

Speaker Change: We are working on several significant opportunities today that we expect will propel our cloud business into a multi billion dollar annual run rate business in the coming years.

Alan S. Lowe: We are working on several significant opportunities today that we expect will propel our cloud business into a multi-billion dollar annual run rate business in the coming years. Given all of this, it's clear that the future is bright 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,

Speaker Change: Given all of this it's clear that the future is bright for momentum.

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.

Wajid Ali: With that budget.

Wajid Ali: Thank you, Alan. Third quarter revenue and non-GAAP EPS results were above the midpoint of our guidance ranges, with revenue of $366.5 million and non-GAAP EPS of $0.29. We're very excited about the contribution that our Cloudlight acquisition had on the quarter, 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. We recognize a record revenue quarter in our cloud data center business, fueled in part by a full quarter of Cloudlight revenue contribution.

Wajid Ali: Thank you Allen third quarter revenue and non-GAAP EPS results were above the midpoint of our guidance ranges with revenue of $366 5 million and non-GAAP EPS of <unk> 29.

Wajid Ali: We're very excited about the contributions that our cloud light acquisition had on the quarter and we will have in the future given the technology and capability of the combined companies to address the rapidly growing AI and ml photonics market.

Wajid Ali: We recognized a record revenue quarter in our cloud datacenter business fueled in part by a full quarter of cloud revenue contribution.

Q3 gross margins were in line with expectations as the overall product mix included a full quarter of transceiver revenue from the cloud might acquisition, while operating margins saw a modest improvement due to lower operating expenses in the quarter as we continued to execute on synergy actions.

Wajid Ali: Q3 gross margins were in line with expectations as the overall product mix included a full quarter of Cranceva revenue from the Cloud Lite acquisition, while operating margins saw modest improvement due to lower operating expenses in the quarter as we continued to execute on Synergy Action. We remain confident in our market position and compelling growth opportunities across our served markets, as Alan discussed earlier, and we are focused on continuing to lower our fixed cost base to accelerate operating margin expansion as revenue recovers.

Wajid Ali: We remain confident in our market position and compelling growth opportunities across our served markets that Alan discussed earlier, and we are focused on continuing to lower our fixed cost base to accelerate operating margin expansion as revenue recovers to achieve this we've made significant progress on manufacturing.

Wajid Ali: To achieve this, we've made significant progress on manufacturing. Following the closure of two factories in China last December, we have transferred those products to our infrastructure in Thailand. Our Japan Wafer Fab Consolidation plans are on track for execution in the first half of Fiscal 25.

Wajid Ali: Energy's.

Wajid Ali: Following the closure of two factories in China last December we have transferred those products to our infrastructure in Thailand.

Wajid Ali: Our Japan wafer fab consolidation plans are on track for execution in the first half of fiscal 'twenty. Five this will unlock significant synergies in both manufacturing and operating expenses starting in fiscal Q3 2025 and.

Wajid Ali: This will unlock significant synergies in both manufacturing and operating expenses, starting in Fiscal Q3 2025. In addition, we have implemented initiatives to capture synergy and efficiency opportunities within our operating. Our strong financial discipline drove a $2.4 million sequential decrease in company-wide non-GAAP operating expenses, despite Q3 being the quarter where the annual payroll tax and employee fringe rates reset. Our non-GAAP operating expenses will step down further in Q4 with the actions we have already taken. As I have mentioned in previous earnings calls, we had pre-built product inventory from these two factories in China to facilitate these transitions.

Wajid Ali: In addition, we have implemented initiatives to capture synergy and efficiency opportunities within our operating expenses.

Wajid Ali: Our strong financial discipline drove a $2 $4 million sequential decrease in companywide non-GAAP operating expenses, despite Q3 being the quarter, where the annual payroll tax and employee fringe rates reset our non-GAAP operating expenses will step down further in Q4.

Wajid Ali: With the actions we have already taken.

Wajid Ali: As I have mentioned in previous earnings calls, we had prebuilt product inventory from these two factories in China to facilitate these transitions in Q3, we achieved a $51 million sequential reduction in momentum overall inventory levels and we plan to continue to increase our inventory.

Wajid Ali: In Q3, we achieved a $51 million sequential reduction in Lumentum's overall inventory levels, and we plan to continue to increase our inventory turns during the next several quarters. We are confident that our combined focus on manufacturing efficiency, inventory management, and cost control will pave the way for improvement in gross and operating margins as telecom revenue recovers and cloud revenue grows. We are on track to achieve our $100 million annualized synergy target from the neophotonics acquisition.

Wajid Ali: Turns during the next several quarters.

Wajid Ali: We are confident that our combined focus on manufacturing efficiency and inventory management and cost control will pave the way for improvement in gross and operating margins as telecom revenue recovers and cloud revenue grows we aren't we are on track to achieve our.

Wajid Ali: $100 million annualized synergy target from the Neo Photonics acquisition to date, we have secured approximately $70 million in annual run rate savings and expect to capture the balance of the $30 million as we execute the remaining actions of our plan, we will continue to provide us.

Wajid Ali: To date, we have secured approximately $70 million in annual run rate savings and expect to capture the balance of the $30 million as we execute the remaining actions of our plan. We will continue to provide updates as we reach each milestone.

Wajid Ali: Updates as we reach key milestones.

Wajid Ali: Net revenue for the third quarter was $366 $5 million, which was approximately flat sequentially and down four 4% year on year.

Wajid Ali: Net revenue for the third quarter was $366.5 million, which was approximately flat sequentially and down 4.4% year-on-year. Gap gross margin for the third quarter was 16.2%, Gap operating loss was 31.3%, and Gap diluted net loss per share was $1.88. With a large portion of the gap net loss due to acquisition-related charges, restructuring charges, and amortization of acquired intangibles, third quarter non-gap gross margin was 32.6%, which was flat sequentially and down year on year, driven by product. Third quarter non-GAAP operating margin was 4.1%, which was up 60 basis points sequentially and down year on year.

Wajid Ali: GAAP gross margin for the third quarter was 16, 2% GAAP operating loss was 31, 3% and GAAP diluted net loss per share was $1 88 with a large portion of the GAAP net loss due to acquisition related charges restructuring charges and amortization.

Wajid Ali: Acquired intangibles third quarter non-GAAP gross margin was 32, 6%, which was flat sequentially and down year on year, driven by product mix third quarter non-GAAP operating margin was four 1%, which was up 60 basis points sequentially and down year on year.

Wajid Ali: <unk> third quarter non-GAAP operating income was $15 million and adjusted EBITDA was $41 million.

Wajid Ali: Third quarter non-GAAP operating income was $15 million, and adjusted EBITDA was $41 million. Third quarter non-GAAP operating expenses totaled $104.3 million, or 28.5% of revenue, down $2.4 million from Q2, and down $0.6 million from the year-ago quarter, despite the additional operating expenses from the Cloud Lite acquisition due to tight expense controls and continued synergy attainment. Q3 non-GAAP SG&A Interest and other income was $8 million on a non-gap basis, driven by interest earned on our cash and investments.

Wajid Ali: Third quarter non-GAAP operating expenses totaled $104 3 million or 28, 5% of revenue down $2 4 million from Q2 and down zero point $6 million.

Wajid Ali: From the year ago quarter. Despite the additional operating expenses from the cloud light acquisition due to tight expense controls and continued synergy attainment Q.

Q3, non-GAAP SG&A expense was $38 $1 million non-GAAP R&D expense was $66 $2 million.

Interest and other income was $8 million on a non-GAAP basis, driven by interest earned on our cash and investments third quarter non-GAAP net income was $19 6 million and non-GAAP diluted net income per share was 29.

Wajid Ali: Third quarter non-GAAP net income was $19.6 million, and non-GAAP diluted net income per share was $0.29. Our fully diluted share count for the third quarter was 68.1 million shares on a non-GAAP basis. Our cash and short-term investments decreased by $353.1 million during the quarter to $870.9 million. This was primarily due to the $323 million in cash used for the repayment of our 2024 convertible notes, which matured in March. In addition, we incurred approximately $30 million in restructuring, integration, and manufacturing consolidation charges in the quarter, as well as $23.8 million in CapEx. Turning to segment detail,

Wajid Ali: Our fully diluted share count for the third quarter was $68 1 million shares on a non-GAAP basis.

Wajid Ali: Our cash and short term investments decreased by $353 $1 million during the quarter to $879 million. This was primarily due to the $323 million in cash used for the repayment of our 2024 convertible notes, which matured.

In March in addition, we incurred approximately $30 million and restructuring integration and manufacturing consolidation charges in the quarter as well as $23 8 million in Capex.

Wajid Ali: Third quarter clouded networking segment revenue, at $313.8 million, increased 9.5% sequentially and increased 7.1% year-on-year. Clouded networking segment non-GAAP operating profit, at 14.6%, increased sequentially and decreased year-on-year. Our third quarter industrial tech segment revenue, at $52.7 million, was down 34.2% sequentially and down 41.7% year on year. The third quarter industrial tech non gap reporting loss was 5.1%, which was driven by declines in our 3D sensing business and a fiber laser inventory correction at our largest industrial laser customer, as expected.

Speaker Change: Turning to segment details.

Speaker Change: Third quarter cloud and networking segment revenue at $313 $8 million increased nine 5% sequentially and increased seven 1% year on year clouded networking segment non-GAAP operating profit at 14, 6% increase sequentially and <unk>.

Speaker Change: Decreased year on year.

Speaker Change: Our third quarter Industrial Tech segment revenue at $52 7 million was down 34, 2% sequentially and down 41, 7% year on year third quarter.

Speaker Change: For industrial Tech non-GAAP reporting loss was five 1%, which was driven by declines in our <unk> sensing business and a fiber laser inventory correction at our largest industrial laser customer as expected.

Speaker Change: Now, let me move to our guidance for the fourth quarter of fiscal 'twenty, four which is on a non-GAAP basis and is based on our assumptions as of today.

Wajid Ali: Now, let me move to our guidance for the fourth quarter of fiscal 24, which is on a non-gap basis and is based on our assumptions as of today. We expect net revenue for the fourth quarter of fiscal 24 to be in the range of $290 to $315 million. This Q4 revenue forecast includes the following assumptions: clouded networking to be down sequentially.

Speaker Change: We expect net revenue for the fourth quarter of fiscal 'twenty four to be in the range of $290 million to $315 million. This Q4 revenue forecast includes the following assumptions cloud and networking to be down sequentially.

Wajid Ali: This decline includes an approximate incremental $40 million reduction at the midpoint due to the recent broad-based demand softness in telecom, and industrial tech is expected to be up slightly sequentially with increased industrial laser shipments partially offset by typical 3D sensing seasonality. Based on this, we project fourth quarter non-GAAP operating margin to be in the range of negative 3 to positive 1% and diluted net income per share to be in the range of negative 5 cents to positive 10 cents. Our non-GAAP EPS guidance for the fourth quarter is based on a non-GAAP annual effective tax rate of 14.5%. These projections also assume an approximate share count of 68.5 million shares.

This decline includes an approximate incremental $40 million reduction at the midpoint due to the recent broad based demand softness in telecom.

Speaker Change: And industrial tech to be up slightly sequentially with increased industrial laser shipments, partially offset by typical three D sensing seasonality.

Speaker Change: Based on this we project fourth quarter non-GAAP operating margin to be in the range of negative three to positive, 1% and diluted net income per share to be in the range of negative five.

Speaker Change: Two positive turn.

Speaker Change: Our non-GAAP EPS guidance for the fourth quarter is based on a non-GAAP annual effective tax rate of 14, 5%. These projections also assumed an approximate share count of 68 5 million shares.

Speaker Change: These projections also excludes certain unusual expenses, including factory under absorption due to factory consolidations and transitions restructuring other synergy attainment and integration activities and inventory reduction activities related to prior acquisitions.

Wajid Ali: These projections also exclude certain unusual expenses, including factory underabsorption due to factory consolidations and transitions, restructuring, other synergy attainment and integration activities, and inventory reduction activities related to prior acquisitions and the COVID-19 pandemic. These expenses are related to one-time events, and we expect them to, in general, decline over the coming quarters. These expenses for our third fiscal quarter can be found in our GAAP to non-GAAP reconciliation paper. With that, I'll turn the call back to Kathy to start the Q&A session. [inaudible]

Speaker Change: And the COVID-19 pandemic.

Speaker Change: These expenses are related to onetime events and we expect these will in general decline over the coming quarters. These expenses for our third fiscal quarter can be found in our GAAP to non-GAAP reconciliation tables.

With that I'll turn the call back to Kathy to start the Q&A session Kathy.

Kathryn Ta: Thank you, Wajid. Before we start the Q&A session, I'd 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, we will begin the Q&A session.

Kathy Charles: Thank you Roger before we start the Q&A session I'd 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 Charles: Now, let's begin the Q&A session.

Roger: Of course, we will now begin the question and answer session. If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason here like term is that a question. Please press star followed by Kim again to ask a question press Star one.

Operator: Of course. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If, for any reason, you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. Our first question comes from a line from Simon Leopold with Raymond James. Your line is now open. Thank you.

Roger: As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.

Roger: Our first question comes from the line of Simon Leopold with Raymond James.

Simon Matthew Leopold: Your line is now open thank you.

Simon Matthew Leopold: Thank you very much for taking the question. First thing, I wanted to see if you could clarify the commentary on the cloud and networking incremental $40 million reduction because, in the prior quarter, you talked about roughly $30 million decline due to a product transition that was occurring in the cloud-like business. And I want to understand, is that $30 million part of the new $40 million number you cited today? Just help us unpack that a little bit, and then I've got a follow-up.

Simon Matthew Leopold: Thank you very much for taking the question first thing I wanted to see if you could clarify the <unk>.

Simon Matthew Leopold: Commentary on the cloud and networking incremental $40 million reduction.

Simon Matthew Leopold: Because in the prior quarter, you talked about roughly $30 million decline due to a product transition.

Simon Matthew Leopold: That was occurring in the cloud like business.

Speaker Change: And I want to understand is that $30 million part of the new $40 million number you cited today, just help us unpack that a little bit and then I've got a follow up.

Speaker Change: Sure Simon this is.

Unknown Executive: Sure Simon, this is incremental to the Datacom module transition we talked about on the last call. So this is a change in the outlook for telecom spending, carrier spending, that happened over the last three months that is impacting our ability to burn off inventory in the channel and at our customers. So this is incremental to what we talked about last time.

Speaker Change: Incremental to that.

Speaker Change: The the Datacom module transition, we talked about on the last call. So.

Speaker Change: This is.

Speaker Change: A change in the outlook for telecom spending carrier spending that happened over the last three months that are impacting our ability to burn off inventory in the channel and at our customers.

Speaker Change: So this is incremental to what we talked about last time.

Speaker Change: Thanks, and then in terms of your ZR.

Unknown Executive: Thanks. And then, in terms of your ZR business, it sounds like that's gotten better, but we don't really have a good sense of what the baseline is. So could you help us understand how much revenue you are generating through VR and VR-related sales, selling lasers to others, as well as your own products, and where do you see that going over the next, let's say, two to four quarters? Thank you.

Speaker Change: It sounds like that's gotten better, but I think we don't really have a good sense of what the baseline is.

Could you help us understand how much revenue are you generating through ZR and ZR related sales selling lasers to others as well as your own products and.

Speaker Change: And where do you see that going over the next let's say two to four quarters. Thank you.

Speaker Change: Yes.

Alan S. Lowe: Yeah, the narrow line with tunable lasers was up dramatically last quarter, as we talked about in the pre-recorded, or in the script rather, that we believe that inventory in many of our customers has been depleted as the strength in ZR has really picked up over the last several quarters and burned off that inventory. So we're back to where we were pre-pandemic on the narrow line with tunable lasers. And then on the ZR and ZR+, it's still in the single digits of overall revenue. But we expect, as we are getting a lot of traction on the 800 gigabyte ZR and ZR+, that that should grow as we start deploying those in a meaningful way. Thank you.

Speaker Change: The narrow line width tunable lasers was up dramatically last quarter as we talked about in the pre recorded or the script rather.

Speaker Change: We believe that inventory in many of our customers has been depleted.

Speaker Change: <unk> ZR.

Speaker Change: <unk> has really picked up.

Speaker Change: Over the last several quarters and burned off that inventory.

Speaker Change: So we're back to where we were pre <unk>.

Speaker Change: Pandemic on on the narrow line width tunable lasers.

Speaker Change: And then on the on the ZR ZR plus its still in the single digits.

Speaker Change: Our overall revenue.

But we expect as we are getting a lot of traction on the 800 gig ZR and ZR plus that.

Speaker Change: It should grow.

Speaker Change: As we start deploying those in a meaningful way.

Speaker Change: Thank you.

Speaker Change: Thanks, guys. Thank you for your question.

Speaker Change: Sorry, Thank you for your question.

Operator: Thank you for your questions. Sorry. Thank you for your question. Our next question comes from the line of Samik Chatterjee with JP Morgan.

Jpmorgan: Our next question comes from the line of furniture <unk> with Jpmorgan. Your line is now open.

Operator: Your line is now open. The makeup line is now open. Can you try one more time for me, please?

Your line is now open.

Jpmorgan: Can you try one more time for me please.

Operator: Yes, I think Victoria, we can take the next question unless Samik says something right now.

Jpmorgan: Yes, I think Victoria, we can take the next question in less stomach.

Furniture: Right now.

Speaker Change: Alright, well go ahead and move on.

Speaker Change: Our next question comes from the line of George Notter with Jefferies. Your line is now open.

George Charles Notter: Hi, guys can you hear me.

George Charles Notter: Yes, so Ken can you guys hear me Hello.

Operator: Yes, we can. Can you guys hear me? Hello?

Speaker Change: Okay, Great Super.

Operator: Okay, great. Super. Yeah. All right. Thanks. Hey, look.

Speaker Change: Alright, Thanks, Hey look.

Speaker Change: I am <unk>.

Speaker Change: <unk>.

Speaker Change: Better understanding the manufacturing expansions here Alan I think you said just in the last three months you guys have increased your expectation for the.

Speaker Change: The size of the manufacturing operation can you talk a little bit more about what youre doing down in Thailand, how much capacity are you, adding what's driving that incremental.

Speaker Change: <unk> requirement to expand manufacturing more than you previously thought.

Speaker Change: I think obviously a lot of folks are looking for the opportunity to win additional cloud customers.

Speaker Change: The cloud business is that is that an element of what's driving the incremental outlook there. Thanks.

Speaker Change: Yes, absolutely and as I said.

Alan S. Lowe: Yeah, absolutely. And as I said, I was in Thailand to see how things were progressing. And, you know, we're setting up today the qualification line in Thailand. And today we make transceivers in China, but most of our customers are very interested in building up capacity outside of China. So that's what we did there. The qualification line is going in.

Speaker Change: In Thailand.

Speaker Change: See how things were progressing.

Speaker Change: We're setting up today the qualification line in Thailand, and today, we make transceivers in China, but most of our customers are very.

Speaker Change: I'm.

Speaker Change: Interested in building up.

Speaker Change: Capacity outside of China. So that's what we have done their qualification.

Speaker Change: Qualification line is going in the first four.

Operator: The first floor of our existing building that had not been used yet for some of our other products is being facilitated. And then, this quarter, based on the traction and the interest and the pull that we're getting from cloud and AI infrastructure customers, we started construction on a new building that we can phase in over time. So basically, a building that will have three stories, and we can, we're planning on facilitating the first floor, and have the capability to facilitate the second and third floors as we see fit. So it's really the change in traction and customer demand that has given us confidence that we're building the right level of infrastructure for them.

Speaker Change: Four of our existing building that had not been used yet for some of our other products as being facilities and then through this quarter based on the traction and the interest in the <unk>.

Operator: Got it. And then are you adding that floor space on spec, or are you adding it based on your new customer wins? What's driving the incremental investment?

Speaker Change: The pull that we're getting from cloud and AI infrastructure customers.

Speaker Change: Started construction on a new building that we can phase in over time, so basically bill.

Speaker Change: Building that will have three stories and we can we're planning on facilitating the first floor.

Speaker Change: And have the capability to facilitate as the second and third for as we see fit so it's really a.

Speaker Change: A change in in traction and customer demand that.

Speaker Change: Has given us confidence that we're building the right level of infrastructure for them.

Speaker Change: Okay.

Speaker Change: Got it and then are you adding that.

Operator: What do you mean by specs? Speculation. Oh, I mean, I mean, sure. Is that what you want? Well, you want

Speaker Change: For space on spec or are you, adding it based on new customer wins.

Speaker Change: Driving the incremental investment.

Speaker Change: What do you mean by spec.

Speaker Change: Oh speculation.

Speaker Change: Yes.

Speaker Change: Sure.

Is that what you where you.

Speaker Change: Do you want to clarify George.

Operator: Unmute your answer to the radio. I'd like to know if you're adding the additional floor space, adding the new building, is that based on contracts or wins that you've got incrementally on the cloud provider side of the business.

George Charles Notter: I'm, just I want to make sure I answered that I guess specifically.

I'd like to know if you're adding the additional floor space, adding the new building is that based on contracts or wins that you've got incrementally on the.

George Charles Notter: The cloud cloud provider side of the business.

George Charles Notter: No I think I mean, we have certainly some orders and some customers today.

Alan S. Lowe: No, I think with, I mean, we certainly have some orders and some customers today that we're working on bringing capacity for in Thailand. That said, a lot of this incremental capacity is really new customers and diversified customers, both in the cloud space as well as the AI infrastructure space. And so, you know, the challenge is, it's a chicken and egg thing in that if you don't have the floor space and capacity, you won't get the orders.

George Charles Notter: That we're working on bringing up capacity for <unk>.

George Charles Notter: And Thailand.

George Charles Notter: A lot of this incremental capacity is really.

George Charles Notter: Is really new customers and diversified customers both in the cloud space as well as the AI infrastructure space and so.

George Charles Notter: The challenge is it's a chicken and egg thing in that if you don't have the floor space and capacity youre not going to get the orders and if you don't have the orders and if you have the orders and you don't have the floorspace youre not going to be able to perform so we're working hand in hand with our customers.

Alan S. Lowe: And if you don't have the orders, and if you have the orders, but you don't have the floor space, you're not going to be able to perform. So we're working hand in hand with our customers to make sure that we're pulling the trigger at the right time to not have too much capacity but, at the same time, to build confidence that we're making the investments on behalf of them and delivering the growth that they see in calendar 2025 and beyond.

George Charles Notter: To make sure that we're pulling the trigger at the right time to not have too much capacity, but at the same time to build confidence that we're making the investments on behalf of them and the growth that they see in calendar 2025 and beyond.

George Charles Notter: Okay.

Alan S. Lowe: We are having customers visit and see for themselves what we're doing, and so far, the feedback has been extremely positive with respect to facilitation, the line setup, and the level of automation, so we're pretty happy and confident in our future expectations there.

Speaker Change: Alright, thank you.

Yes.

We are having customers visit.

Speaker Change: See for themselves, what we're doing and so far the feedback has been extremely positive with respect to facilitation. The line setup at the level of automation. So, we're we're pretty happy and confident in our and our future expectations there.

Thanks, Josh.

Josh: Thank you for your question George.

Speaker Change: So mcdonald back into our next question will be from the line of <unk> <unk> with J P. Morgan.

Operator: Thank you for your question, George. So Samik dialed back in. So our next question will be from the line of Samik Chatterjee with JP Morgan.

Speaker Change: Your line is now open.

Speaker Change: Right.

Samik Chatterjee: Hi, can you hear me now? We can hear you. Okay, great. Sorry about that.

Speaker Change: Hi can you hear me now.

Speaker Change: We can hear you.

Speaker Change: Okay, great sorry about that so I had a couple on datacom and I'll start with the more near term question. If you don't mind.

Operator: So I had a couple of questions on Datacom. And I'll start with the more near-term question, if you don't mind. I know you've talked about the product transition for CloudLight with its primary customer, with revenues in the March quarter about sort of 90 million going to 60 million in June. Just want to clarify if that's holding true in terms of your engagement with your customer there and any thoughts in terms of the magnitude of the rebound as you ramp with the new product in the September quarter. And I have a longer-term question about Datacom after that.

Speaker Change: I know you've talked about the product transition from cloud players with its primary customer with revenues in the March quarter was about sort of $90 million going to six 2 million in June just wanted to clarify is that still holding true in terms of your engagement with your customer there and any thoughts in terms of the magnitude of the rebound as you ramp.

Speaker Change: New product in the September quarter.

Speaker Change: And longer term question data go after that thank you.

Speaker Change: Okay.

Alan S. Lowe: Yeah, I'm not going to comment on any specific customer, but I'd say that the transition is playing out as we expect.

Speaker Change: Yeah, I'm not going to comment on any specific customer, but I would say that the.

Speaker Change: The transition is playing out as we had expected in the last call.

Speaker Change: Yeah.

Speaker Change: Okay. Okay.

Operator: Okay, okay. And I know you've talked about the data... And then there's this as well. Sorry.

Speaker Change: And then the data Com alright.

Speaker Change: Yes.

Speaker Change: No I was going to answer the second part of your question about September Yes, we expect some.

Alan S. Lowe: Now, I was going to answer the second part of your question about September. Yeah, we expect some incremental increase in the September quarter. But, you know, that's still yet to be seen in data.

Speaker Change: Some incremental increase in the September quarter, but.

Speaker Change: That's still yet to be yet to be seen on data content.

Speaker Change: Okay.

Samik Chatterjee: And for my long-term question, Alan, I know you talked about the Datacom business being a multi-billion dollar business in the future. I'm wondering if you can give us a few more milestones for your medium-term milestones to track that by. For example, like when you think about fiscal 25 over 24, does this business double in size? Or even when you reference the $500 million of revenue for the aggregate company exiting calendar 25, how much Datacom business should we expect in that mix? Any thoughts to give us more medium-term milestones on that rank?

Speaker Change: And from a longer term question Alan I know you talked about the Datacom business being a multibillion dollar business in the future.

Speaker Change: Wondering if you could give us a few more milestones to your medium term milestones to track that by input example, like when you think about fiscal 'twenty fighting over 24 does this business to double in size our breakeven when you referenced the 500 million of revenue for the aggregate company exiting calendar liquidity five how much of Datacom.

Speaker Change: Listeners should we expect if that makes any thoughts just to give us more medium term milestones on that.

Thank you.

Yes, I'll give you.

Alan S. Lowe: Yeah, I'll give you my thoughts on that, and then I'll ask Chris to chime in. I would say that, you know, the milestones are really the qualification samples that I talked about earlier, getting into our customers' hands and having them test them. So we're in control of a lot of that, but at the same time, you know, we're still relying on third-party suppliers of DSPs and other components. And so that's a little bit out of our control.

Speaker Change: My thoughts on it and then I'll ask Chris to chime in I would say that the milestones are really the qualification samples that I talked about earlier getting into our customers' hands and having them test them. So we're in control of a lot of that but at the same time.

Christopher Coldren: Still relying on third party suppliers of DSP and other components and so that's a little bit out of our control and so I'd say summertime qualification samples qualification sometime in the December quarter and ramp starting really in the December quarter and into calendar 2025.

Alan S. Lowe: So I'd say, you know, summertime qualification samples, qualification sometime in the December quarter, and ramp starting really in the December quarter and into calendar 2025. As far as your question on $500 million by the end of next calendar year, I would say that we would certainly be disappointed if we didn't more than double that.

Christopher Coldren: As far as your question on 500 million.

Christopher Coldren: By the end of next calendar year.

Christopher Coldren: I would I would say that we would certainly be disappointed if we don't more than double our datacom business by then.

Christopher Coldren: From today's or from the Q3 run rate.

Speaker Change: Yes, I think the only thing I would add is.

Christopher Coldren: Yeah, I think the only thing I would add is just to highlight that each of the individual customer opportunities we're chasing is very significant, so those one or two customers. Sockets essentially can double revenue. And so that's my confidence that as we win, you know, there's a lot more than one or two customers and one or two sockets out there. So our ability to win new customers and materially move revenue upwards is ample as opposed to a type of application or market where we need to land hundreds of customers.

Speaker Change: To highlight each.

Speaker Change: Each of the individual customer opportunities. We're chasing are are very significant.

Speaker Change: One or two customers.

Speaker Change: Sockets essentially can double.

Revenue ex Tac.

Speaker Change: Confidence that as we win.

Speaker Change: There's a lot more than one or two customers in one or two sockets out there so our ability to win new and materially move the revenue upwards.

Speaker Change: As ample as opposed to.

Speaker Change: Type of application or market, where we need to land hundreds of customers for it.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Thank you Sammy.

Thank you for your question. Our next question comes from the line of meta Marshall with Morgan Stanley.

Operator: Thank you for your questions. Our next question comes from the line of Meta Marshall with the Morgan family. Your line is now open.

Meta A. Marshall: Your line is now open.

Meta A. Marshall: Great. Thanks.

Meta A. Marshall: Great, thanks. Maybe building on Simon's question from earlier, just getting a sense of kind of the 40 million headwind from Telco and just, you know, what that conversation is like with customers, like, do you have a greater sense of where their inventory levels are or, you know, are there areas where they've worked on inventory more than others, just trying to get a sense of, you know, when some of that business could come back. And then maybe just a specific question on, did you outline what the specific contribution of Cloudlight was to the quarter?

Meta A. Marshall: Maybe building on Simon's question from earlier, just getting a sense of kind of the.

Meta A. Marshall: The $40 million headwind from telco and this.

Meta A. Marshall: What that conversation is like with customers like do you have a greater sense of where their inventory levels are or.

Meta A. Marshall: Are there areas, where they've worked down inventory more than others, just trying to get a sense of.

Meta A. Marshall: Do you have more clarity on when some of that business could come back and then maybe just.

Speaker Change: A specific question on did you outline what the cloud light specific contribution was to the quarter and that's it for me.

Alan S. Lowe: Yeah, so on the $40 million headwind, really, it's a combination of two things, one of which is the slowdown in carrier spending and the duration of the inventory burn off that will take longer since they're not spending quite as much. So I'd say that, as we saw in the March quarter, our inventory at our customers coming down, but there are still pockets of inventory that's still going to take at least this quarter and probably into the September quarter before it's all consumed.

Speaker Change: Yes, so on the on the $40 million headwind really the.

Speaker Change: It's a combination of two things one of which is the.

Speaker Change: Slowdown in carrier spending.

Speaker Change: And in the <unk>.

Speaker Change: Duration of the inventory burn off that will take longer since they are not spending quite as much. So.

Speaker Change: Say that.

Speaker Change: As we've seen in the March quarter, we saw our inventory at our customers coming down.

Speaker Change: Still pockets of inventory of.

Speaker Change: Still going to take at least this quarter and probably into the September quarter before it's.

Speaker Change: It is all consumed and again it has to do with product by product and which customers. They are selling to I would say that the cloud.

Alan S. Lowe: And again, it has to do with product by product and which customers they're selling to. I would say that the cloud. The products that are destined for the cloud are burning off certainly faster than the ones that are going to the carriers. So I'd say that's, that's kind of the only, different dynamic. But the telco carriers are slower than what we thought three months ago.

Speaker Change: <unk> that are destined for the cloud are burning off certainly faster than.

Speaker Change: And then the ones that are going to the carriers.

Speaker Change: So I'd say, that's kind of the only.

Speaker Change: Different dynamic.

Speaker Change: But thats it.

Speaker Change: Telco carriers are slower than what we thought three months ago.

Speaker Change: Yeah.

Speaker Change: And whether there was a cloud specific contribution you guys were calling on as part of Datacom.

Unknown Executive: And whether there was a Cloudlight specific contribution you guys were calling out as part of Datacom.

Speaker Change: Yes, we're not going to break out the specific products.

Alan S. Lowe: Yeah, no; we're not going to break out the specific products. Certainly, it was a full quarter of production, and so it was more than more than the prior partial quarter.

Speaker Change: But certainly it was a full quarter of production and so it was more than.

Speaker Change: More than the prior partial quarter.

Speaker Change: Alright, great. Thanks.

Meta A. Marshall: All right, great, thanks.

Speaker Change: Thanks Peter.

Speaker Change: Thank you for your question.

Operator: Thank you for your question. Our next question comes from the line of Christopher Rolland with SIG. Your line is now open.

Speaker Change: Next question comes from the line of Christopher Rolland with <unk>. Your line is now open.

Christopher Adam Jackson Rolland: Hey, guys. Thanks for the question.

Christopher Adam Jackson Rolland: Hey guys, thanks for the question. Mine's around DC.

Christopher Adam Jackson Rolland: Minds around D C.

Christopher Adam Jackson Rolland: So the 200 gig laser market seems like there's a bunch of things that might be slowing that down now.

Christopher Adam Jackson Rolland: So the 200 gigabit laser market, seems like there's a bunch of things that might be slowing that down now. Can you remind us when you would be capable of supplying 200 gigabit lasers, I assume EML at launch? And then when you think others in the supply chain might be able to ramp up? I'm just trying to get a sense of what a realistic timetable for this true 200 gigabit lane ramp might

Christopher Adam Jackson Rolland: Can you remind us when you would be capable of supplying 200 gig lasers I assume ml at launch.

Christopher Adam Jackson Rolland: And then when you think others in the supply chain might be able to ramp.

Christopher Adam Jackson Rolland: Im just trying to get a sense of what a realistic timetable for this true 200 gig Wayne.

Wayne: The ramp might be.

Wayne: Yeah.

Alan S. Lowe: Yeah, we're shipping qualification units. Last quarter, and feedback from customers was extremely strong and very positive.

Yes, we're shipping qualification units.

Wayne: Last quarter and feedback from customers is extremely strong.

Wayne: And very positive so they need to then take those lasers and put them into Transceivers and again they rely on third party DSP is in most cases, so thats going to take a couple of quarters.

Alan S. Lowe: So they need to then take those lasers and put them into transceivers. And again, they rely on third-party DSPs in most cases. So that's going to take a couple of quarters. And so I would say that by the December quarter, those should all be in place, and the ramp-up of those EML chips should begin really in our fiscal Q2 and then in a meaningful way into calendar 25.

So I would say that by the December quarter, those should all be in place and ramp up of those email chips should begin.

Wayne: In our fiscal Q2, and then in a meaningful way into calendar 'twenty five.

Wayne: Excellent.

Christopher Adam Jackson Rolland: Excellent. And then Alan, why have you said a meaningful increase in your calendar 2025 revenue. Maybe you could put a finer point on meaningful. Are we talking single digits, double digits? Um, you know, and any color there would be great.

Wayne: And then Alan why have you you said a meaningful increase.

Alan S. Lowe: In your calendar 2025 revenue.

Speaker Change: Uh huh.

Alan S. Lowe: What maybe you could put a finer point on meaningful or are we talking single digits double digits.

Alan S. Lowe: And any color there would be great.

Alan S. Lowe: Yes, I mean, I think what we've said is we expect to exit the calendar year 2025, greater than $500 million of company revenue. So.

Alan S. Lowe: Yeah, I mean, I think what we said is that we expect to exit the calendar year 2025 with greater than $500 million in company revenue. So, you know, if you look at where we are today, at the midpoint of just over 300 million to the exit rate of calendar 25 of 500 million, you know, that's a meaningful increase, and it won't be linear between now and then because I think we still have a couple of quarters of inventory burn off in telecom and the qualification work that has to happen in new sockets for Datacom.

Alan S. Lowe: If you look at where we are today at midpoint of just over 300 million to exit rate of calendar 'twenty five of $500 million.

Alan S. Lowe: That's a meaningful increase in it won't be linear between now and then because I think we still have a couple of quarters of inventory burn off in telecom and the qualification work that has to happen in new sockets for Datacom in Azure.

Alan S. Lowe: And as you know, from your first question on the 200 gigabit per lane, a lot of the products we're going to launch are going to be 200 gigabit per lane out of our Nava facility. So that's really late calendar 24 and into calendar 2025. So not a lot of big volume in the December quarter, but more meaningful in the March and June quarters as we ramp up those qualified products.

Alan S. Lowe: Your first question on the 200 gig per lane.

Alan S. Lowe: Lot of the products, we're going to launch are going to be 200 gig per lane.

Alan S. Lowe: Out of our Nava facility. So that's really a late calendar 'twenty four and into calendar 2025, so not a lot of big volume in the December quarter, but more meaningful in the March and June quarter, as we ramp up those qualified products.

Alan S. Lowe: Does that answer your question Christopher Thank you so much that does thank you al.

Christopher Adam Jackson Rolland: Does that answer your question, Christopher? Thank you so much. That does. Thank you.

Operator: Thank you so much. That does work. Thank you, Alan.

Speaker Change: Alright, thanks, Thanks, Chris.

Speaker Change: Thank you for your question. Thanks, guys. The next question.

Operator: Thank you for your question. Thanks, guys. Oops, sorry about that. The next question comes from the line of David Voigt with UBS. Your line is now open.

Oh, sorry about that the next question comes from the line of David <unk> with UBS your.

David: Your line is now open.

David: Great. Thanks, guys can you guys hear me.

David Vogt: Great. Thanks, guys. Can you guys hear me? Yes, we can. Hey, thanks, Kathy.

David: Okay.

David: Yes again.

David: Hey, Thanks, Kathy So I have two questions one longer term in terms of the trajectory to get to this 500 million run rate just kind of the way that we're trying to pencil in the numbers obviously it looks like your telco core telco business needs, obviously, you steep recovery as well and given that the customers are taking longer to place orders and die.

David Vogt: So I have two questions. One longer term in terms of this trajectory to get to this 500 million run rate, just kind of the way that we're trying to pencil in the numbers. Obviously, it looks like your telco core telco business needs a steep recovery as well. And given that customers are taking longer to, you know, place orders and digest, I'm just trying to get a sense for where you are going to see the growth or how you are thinking about the growth to come back on the core telecom side.

David: Just I'm just trying to get a sense for.

David: Where are you going to see the growth or how youre thinking about the growth to come back in the core telecom side and given the strength of the second question is given the strength in the Datacom that you just laid out.

David Vogt: And given the strength of datacom that you just laid out, how does it affect gross margin given the manufacturing capacity that you're adding is clearly, you know, skewed towards datacom customers, potential datacom customers going forward? Are we still thinking about this consistently with what Wajid laid out at OFC, and just trying to get a sense for how you're thinking about that?

David: Does it affect gross margin given the manufacturing capacity that you're adding is clearly skewed towards datacom customer potential datacom customers going forward.

Are we still thinking about this consistent with worldwide you laid out at OFC Im just trying to get a sense for how youre thinking about that thanks.

Speaker Change: Yeah, I'll take the telecom question and I'll, let wajid comment on the on the gross margins.

Alan S. Lowe: Yeah, I'll take the telecom question and I'll let Wajid comment on the gross margins. Yeah, as I said, I think we have a couple of quarters at a minimum of burn off of telecom inventory and, you know, really exacerbated by the slower telco spend. That said, on the new products, like the higher speed 130 gigabyte, 200 gigabyte, and highly integrated ROADMs, there is no inventory. So as, for instance, the three Chinese carriers deploy their next generation networks, those ramps are well underway today and don't have that burden of inventory.

Wajid Ali: Yes, as I said I think we have a couple of quarters.

Wajid Ali: Some of burn off of telecom inventory.

Wajid Ali: No really exacerbated by the slower.

Wajid Ali: Telco spend.

Wajid Ali: That said on the new products like the higher speed 130, gigabyte 200 gigabyte and.

Wajid Ali: Highly integrated wrote them there is no inventory so as for instance, the three China carriers deploy their next generation networks those ramps are well underway today.

Wajid Ali: And don't have that burden of inventory. So I would say, there's really two aspects of our telecom business all those new products that are ramping today, but.

Alan S. Lowe: So I'd say there are really two aspects of our telecom business; all those new products that are ramping up today but, you know, from a small base and then growing fast. But then those other products that are still on the channel, by the end of the calendar year, I'd say that those are probably taken care of. And, you know, that gives us confidence in the strength of telecom in calendar 2025 as that inventory is burned up.

Wajid Ali: From a small base and then growing fast, but and then those other products that are still in the channel by the end of the calendar year I would say that those are probably taken care of and.

Wajid Ali: That gives us confidence in the strength of telecom in calendar 2025 is that inventory is burned up.

Alan S. Lowe: Wajid, you want to comment on that? Yeah, no, from a gross margin standpoint, pretty much what we laid out at OFC contemplated the type of product mix we were expecting to get to, you know, a nearer term model as well as a longer term model. So I think that those gross margins that we laid out pretty well hold under what Alan spoke about with the $500 million a quarter existing run rate for next year.

Wajid Ali: Jay do you want to comment on that.

Jay: From a gross margin standpoint pretty much what we laid out at OFC.

Contemplated the type of product mix, we were expecting.

Jay: To get to.

Jay: Our near term model as well as our long term model. So I think that those gross margins that we laid out pretty well hold under what island spoke about with the $500 million per quarter exiting run rate for next year.

Jay: So the shift in telco out a little bit doesn't have an impact just trying to think through that.

Wajid Ali: So the shift in telco out a little bit doesn't have an impact; I'm just trying to think through that.

Jay: Well I think the timing of the telco return as well as the step function increases we're expecting to see on the.

David Vogt: Well, I think that the timing of the telco return, as well as the step function increases we're expecting to see on the data comp side, will line up together. Now, we'll probably have a little bit of a tailwind because 200G revenues will come in before – 200G EML chip revenues will come in before some of the transceiver revenue will, just given where we are in the qualification cycle between the two products.

Jay: The Datacom side.

Jay: Mobile lineup together now, we'll probably have a little bit of a tailwind because 200 GE revenues will come in before 200, <unk> chip revenues will come in before some of the transceiver revenue will just given where we are in the qualification cycle between the two products. So there might be a quarter or two where we're on the higher end of that model because.

Jay: Of that but when that when the revenues do kick in for.

David Vogt: So, there might be a quarter or two where we're on the higher end of that model because of that. But, you know, when the revenues do kick in for those transceiver products, we will start to see a normalization of the margins back to the model we presented at a WIP. Yeah, I think just to echo what you said earlier, Wajid, the

For those transceiver products, we will start to see a normalization of the margins back to the model we presented at OFC.

Alan S. Lowe: Yeah, just to echo what you said earlier, Wajid... The consolidation of our two Japanese wafer fabs in the first half of fiscal 25 will certainly help gross margins as well.

Yes, I think just to echo what I said earlier.

The consolidation of our two Japanese wafer fabs in the first half of fiscal 'twenty five we'll certainly helped gross margins as well.

Jay: Okay.

Speaker Change: Thanks, David.

Speaker Change: Thank you for your question. The next question comes from the line of Anna.

Operator: Thank you for your question. The next question comes from one from Ananda Baruah with Loop Capital. Your line is now open.

Anna: <unk> with loop capital your.

Anna: Your line is now open.

Anna: Yeah. Good afternoon, guys and thanks for taking the question.

Ananda Prosad Baruah: Yeah, good afternoon, guys. And thanks for taking the question. Um, I guess, yeah, two on two on data com quickly, if I could, with the expansion that you're doing on the capacity expansion at your Japan fab, at least anecdotally, any context you can share with regards to where you think that business ultimately can go relative to what you were, you know, thinking prior to inventory digestion a couple years ago, and then have a quick follow-up. Thanks.

Anna: I guess you had Q on Q on Datacom quickly if I could.

Anna: With the expansion this year, the capacity expansion and new Japan fab.

Speaker Change: Just anecdotally any context, you can share with her.

Speaker Change: Where you think that business ultimately can go relative to what you were.

Speaker Change: Thinking.

Speaker Change: Prior to inventory digestion in a couple of years ago, and then I have a quick follow up.

Speaker Change: Yeah.

Alan S. Lowe: Yeah, we're still adding capacity. We had a record EML shipment last quarter. And then as we ramp up the 200 gigabit per lane product, that certainly will grow revenue without necessarily growing units, although we do plan on growing units further. So, you know, I think that there's no reason that that kit couldn't be a $300 million a year type run rate and more, given that we'll be providing both EMLs, as well as CW lasers and, and Datacom Vixels for the multimode.

Speaker Change: Yes, we're still adding capacity we had a record.

Speaker Change: <unk> <unk> shipments last quarter, and then <unk>.

Speaker Change: As we ramp the 200 gig per lane.

That certainly will will grow the revenue without necessarily growing units, although we do plan on growing units further so.

Speaker Change: I think that there is no reason that that couldn't be.

Speaker Change: $300 million, a year type run rate and more.

Speaker Change: Given that we will be providing both <unk> as well as CW lasers in VIX holes datacom pixels for the multimode Transceivers.

Speaker Change: Okay.

Ananda Prosad Baruah: That's more context than I'd even hoped for, Alan. I appreciate that.

Speaker Change: Yeah, that's more contracts than I had even heard of per annum appreciate that and the follow up is for the 500 million kind of December 25.

Ananda Prosad Baruah: And the follow-up is, for the 500 million kind of December 25 kind of guide, or at least guideline, how many, all things being said, there's a pair of them on the telco. How many qualifications with Tier 1's or Tier 2's, I guess whichever way you think is useful to think about it, would be necessary? I'm just trying to gauge how conservative your qualification is, might be in that $500 million. Thanks a lot.

Speaker Change: Kind of guide.

Speaker Change: At least guidelines, how many things are being etc. Terabits on on the telco business.

Speaker Change: How did your qualification with.

Speaker Change: Tier one tier twos I guess whichever way you think is useful to think about it would be necessary.

Speaker Change: I'm just trying to gauge how conservative your qualification assumptions might be in that $500 million. Thanks a lot.

Speaker Change: Yes.

Speaker Change: Are you talking about Datacom or telecom.

Operator: Are you talking about Datacom or Telecom?

Speaker Change: Got it datacom, how many how many incremental data galley or clear too right.

Alan S. Lowe: Datacom. Yeah, how many how many incremental scales is or tier two?

Speaker Change: Thanks.

Speaker Change: I mean, it doesn't take it doesn't take many.

Speaker Change: If we land three.

Speaker Change: <unk> I'd be very very happy and.

Speaker Change: We're working with more than that so I think.

From my perspective.

Speaker Change: We have 500 on the engagements that we are in and I think we are.

Speaker Change: We're positioned to do quite a bit better than that given the.

Speaker Change: The customer pull and the desire to have.

Speaker Change: A U S headquartered company with manufacturing outside of China.

Speaker Change: That's why we're being aggressive with respect to putting in place the capacity needed for these customers.

Speaker Change: That's great I appreciate it thanks a lot.

Ananda Prosad Baruah: Right? Yeah, yeah. Thanks.

Speaker Change: Thank you for your question.

Alan S. Lowe: I mean, it doesn't take many, you know, if we land three, I'd be very, very happy, and, you know, we're working with more than that. So, from my perspective, you know, we have to bet 500 on the engagements that we're in. And I think we're, we're positioned to do quite a bit better than that, given the customer pull and the desire to have a US headquartered company with manufacturing outside of China. That's why we're being, you know, aggressive with respect to putting in place the capacity needed for these customers.

Speaker Change: The next question comes from the line of Tom O'malley with Barclays. Your.

Tom O'malley: Your line is now open.

Tom O'malley: Hey, guys. Good afternoon, Thanks for taking my question.

Ananda Prosad Baruah: That's great. I appreciate it. Thanks a lot.

Tom O'malley: I wanted to focus on just what's built into the ramp here on the Datacom side. So you guys have talked about some big opportunities that you could potentially win that gets you to that $500 million run rate through the end of this year and into next year, but I want to understand what you have visibility to right now you talked on the last call about a transition that your existing customer and I know that you are.

Tom O'malley: You're saying that the Datacom downtick as it related to telecom, but are you seeing further weakness there or are you baking in a return to growth with that customer and how good is your visibility with your existing customers such that you get comfortable around the growth profile that you're laying out already.

Speaker Change: Yes, Tom we're not going to comment on specific customers, but I would say as I mentioned earlier our expectations are.

Operator: Thank you for your question. The next question comes from the line of Tom O'Malley with Barclays. Your line is now open.

Speaker Change: A slight uptick in Datacom revenues.

Speaker Change: The September quarter.

Speaker Change: And then more rapid increase in the December and into calendar 2025, as the new products at 160 really start ramping into <unk>.

Unknown Attendee: Hey guys, good afternoon. Thanks for taking my question. I wanted to focus on just what's built into the ramp here on the Datacom side. So you guys have talked about some big opportunities that you could potentially win that get you to that 500 million run rate through the end of this year and into next year. But I want to understand what you have visibility into right now. You talked in the last call about a transition at your existing customer.

Speaker Change: Late this year and into calendar 2025.

Speaker Change: <unk>.

Speaker Change: I wouldn't say that we have everything locked up but certainly <unk>.

Speaker Change: Indications of interest in customers spending time with our engineering teams customers, taking visits to Thailand and to our wafer fab in saga Mojarra, Japan, and they don't do that if they're not intending to.

Speaker Change: I'm not intending to partner with us and so that's what gives me confidence and.

Speaker Change: When I have purchase orders will have a lot more confidence.

Speaker Change: That's where we are today.

Speaker Change: Yeah.

Speaker Change: Helpful. And then my second one is kind of a broader question just on the on the evolution of 200 G per lane and $1 60, So youre talking about the lasers coming first which kind of aligns with what we've been hearing but like in terms of the broader systems. It seems like it's more middle of 'twenty five maybe even second half of 'twenty five.

Speaker Change: There's really only two customers that can do that even in that timeframe. So can you talk about why you would be able to ship in the December quarter.

Speaker Change: Do you see actual production shipments of 200 <unk> in Q1 of 'twenty fiber are you just seeing kind of token shipments in Q4 that really get to volume maybe in the second half of 'twenty, one, but just wanted to your view of the timing of 200 G per line. Thank you.

Speaker Change: Yes, Tom Let me, let me try to help out here and maybe confusion a fiscal year calendar year here.

Unknown Attendee: And I know that you're saying that the Datacom downtick is related to telecom, but are you seeing further weakness there? And are you baking in a return to growth with that customer? And how good is your visibility with the existing customer such that you get comfortable around the growth profile that you're laying out?

Speaker Change: Certainly we have today as we've highlighted the.

Speaker Change: Laser components other optical components that are in qualifications with other.

Tom O'malley: Either transceiver manufacturers or.

Tom O'malley: AI infrastructure providers, those qualifications will continue and.

Alan S. Lowe: Yeah, Tom, we're not going to comment on specific customers. But I'd say, as I mentioned earlier, our expectations are that a slight uptick in Datacom revenues in the September quarter and then, you know, a more rapid increase in December and into calendar 2025 as the new product at 1.6T really starts ramping very late this year and into calendar 2025. I wouldn't say that we have everything locked up, but, you know, certainly indications of interest and, you know, customers spending time with our engineering teams, customers taking visits to Thailand and to our WaferFab in Sagamihara, Japan, and they don't do that if they're not intending to partner with us. And so that's what gives me confidence. And, you know, when I have purchase orders, I'll have a lot more confidence, but that's where we are today.

Tom O'malley: And we expect that those customers will be in a position later this calendar year. So I E. The beginning of our fiscal 'twenty five that will be in a position if all other parts of the ecosystem are able to start ramping up.

Unknown Attendee: helpful. And then my second one is kind of a broader question just on the evolution of 200 G per lane and 1.60. So you're talking about the lasers coming first, which kind of aligns with what we've been hearing. But, like, in terms of the broader systems, it seems like it's more the middle of 25, maybe even the second half of 25. And, you know, there's really only two customers that can do that, even in that timeframe.

Tom O'malley: Even if they do.

Tom O'malley: To start ramping up in that timeframe, obviously it doesn't overnight.

Tom O'malley: Become the predominant set of volumes and so we do expect through calendar 'twenty five a continual ramp up both the components and the Transceivers. The components may lead Transceivers for two reasons one of your earlier in supply chain in general so youre shifting a quarter or two.

Unknown Attendee: So can you talk about why you would be able to ship in the kind of December quarter? Do you see actual production shipments of 200 G per lane in Q1 of 25? Or are you just seeing kind of token shipments in Q4 that really get to volume maybe in the second half of 25? I just want to understand your view of the timing of 200 G per lane

Tom O'malley: Two ahead ultimately of Linde Transceivers are shifting.

Tom O'malley: Secondly, the nature of who the customers are maybe the most early leading adopters, maybe folks that build transceivers themselves and need components.

Tom O'malley: And I think as Alan alluded to.

Christopher Coldren: Yeah, Tom, let me try to help out here and maybe confusion about the fiscal year calendar year here. Certainly, we have today, as we've highlighted the laser components, other optical components that are in qualification with other either transceiver manufacturers or AI infrastructure providers. Those qualifications will continue, and we expect that those customers will be in a position later this calendar year. So, i.e.

Tom O'malley: All these timelines are clearly dependent on whether it be DSP switching silicon processors silica and things that are beyond our control. We are closely monitoring we are unaware of anything that impacts the.

Tom O'malley: Timelines that we're outlining here based on those.

Those other elements, becoming available either late this calendar year at the beginning of the.

Tom O'malley: Calendar 'twenty five.

Speaker Change: Thanks, Tom.

Speaker Change: Thank you for your question.

Christopher Coldren: At the beginning of our fiscal 25, they will be in a position if all other parts of the ecosystem are able to start ramping up. Even if they do start ramping up in that timeframe, obviously, it doesn't overnight become the predominant set of volumes. And so, we do expect through calendar 25, a continual ramp of both the components and the transceivers. However, the components may lead the transceivers for two reasons. One is you're earlier in supply chains in general.

Speaker Change: Our next question comes from the line of Karl Ackerman with Bnb per box.

Unknown Attendee: Your line is now open.

Unknown Attendee: Okay.

Unknown Attendee: Yes. Thank you I have a clarification question and a follow up for clarification question does the $40 million headwind from telco reflect any broadening impact.

Christopher Coldren: So, you're shipping a quarter or two ahead, ultimately, of when transceivers are shipping. But secondly, the nature of who the customers are, maybe the most early, leading adopters, maybe folks that build transceivers themselves and need components for that. And I think, as Alan alluded to, all these timelines are clearly dependent on whether it be DSPs, switching silicon, processor silicon, things that are beyond our control, we're closely monitoring, and we are unaware of anything that impacts the timelines that we're outlining here based on those other elements becoming available either late this calendar year or the beginning of this calendar 25.

Unknown Attendee: From chip from the chip supply band beyond the initial telecom products you outlined last quarter.

Unknown Attendee: Chip supply.

Unknown Attendee: Are you referring to restrictions.

Unknown Attendee: Our customers in China.

Speaker Change: That is correct.

Speaker Change: Somewhat.

As of today, we are not shipping to that large customer and there were some shipments in.

Speaker Change: The March quarter, so that has some impact.

Speaker Change: But not.

Meaningfully large impact relative quarter to quarter now year over year major impact.

Speaker Change: Of the <unk>.

Speaker Change: U S restrictions on our ability to sell to that customer.

Speaker Change: Yes, Okay understood and then you spoke.

Speaker Change: About some updated views on the timing of <unk> shipments.

Speaker Change: But do you have any update on the timing.

Speaker Change: 100 gig <unk> I think last quarter, you indicated that you would start production in the second half of 2024.

Speaker Change: I'm just curious if there's any update on that thank you.

Speaker Change: Yes, we're making continued progress on our 100 gig pixel now with having cloud like be part of the momentum team. We have in house way of getting our VIX was tested in Transceivers in and hopefully qualified and as you said in the second half of the calendar year in these multi mode Trans.

Speaker Change: Sievers, So continued progress, but I'd say, we're still on track for really the end second half of the calendar year for 100 gig pixels in dixville arrays.

Okay.

Operator: Thank you for your question. The next question comes from a line called Carl Ackerman with B&B Pair Boss. Your line is now open.

Speaker Change: Thanks, Kyle Victoria I think we have time for just one more question.

Karl Ackerman: Yes, thank you. I have a clarification question and a follow-up. For the clarification question, does the 40 million headwind from telco reflect any broadening impact from the chip supply band beyond the initial telecom products you outlined last quarter?

Speaker Change: Of course, our next question comes from line of Tim <unk> with Northland capital markets. Your.

Karl Ackerman: Are you referring to restrictions on customer feedback?

Line is now open.

Great snuck in there.

Tim: So when I compare your one six terabits opportunity or at least ask a question about.

Tim: For 800 gig we seem to have seen the very short reach kind of within the rack connectivity market developed first.

Tim: And then.

Tim: Broader market maybe for.

Tim: Switch to switch Transceivers inside the data center appears to be.

Tim: Developing now as you look at the <unk>.

Tim: One.

Tim: Opportunity I guess is there any reason that would develop differently.

Tim: It seems like most of what you're targeting or traditional transceivers versus short reach cables or what have you.

Tim: But I'd just be interested in your perspective on comparing and contrasting what we've seen at 800 and what you expect at 1.6 terabyte.

Speaker Change: Yeah, Ken a little bit of nuance, but I would say that something we highlighted at the OFC presentation end point investors, just a little more detail in that slide deck that we had sheridan.

Unknown Executive: Somewhat. As of today, we're not shipping to that large customer, and there were some shipments in the March quarter. So that has some impact, but not a meaningfully large impact relative quarter to quarter now year over year, the major impact of the US restrictions on our ability to sell to that customer.

Speaker Change: The key point is that as you go to higher speeds the distance as you can go.

Speaker Change: Decrease very rapidly so we do anticipate as we move to 116 and beyond that you'll see.

Speaker Change: More single mode in the mix.

Speaker Change: Than you've seen historically.

Speaker Change: Maybe these are simpler single mode. The Dr type stack.

Speaker Change: <unk>, whether they are using silicon photonics or <unk>.

And so therefore, a lot more single mode.

Speaker Change: Where maybe perhaps there would've been a multimode historically does any multi months going away just seems that we will see.

Speaker Change: More single mode in those sockets, and therefore right out of the gate.

Unknown Executive: Yeah, okay, understood. And then you spoke about some of the views on the timing of the ML shipment. Would you have any update on the timing of the 100 gigabyte Vixels? I think last quarter you indicated that you would start production in the second half of 2024. I'm just curious if there's any update on that. Thank you.

Speaker Change: Tim did you have a follow up Greg in the past.

Greg: Sure I do.

Greg: I don't want to misinterpret this.

Greg: Alan did you say, you're targeting 50% share of this $1 six terabyte market to kind of get where you need to beat or or was that 50% comment around something else.

Greg: No that was.

Greg: A comment around.

Alan S. Lowe: We don't need to hit.

Alan S. Lowe: We don't need to hit on all of the sockets in any given socket, we're not going to get 100% of so I'm just.

Alan S. Lowe: Indicating that we have a lot of.

Alan S. Lowe: Qualification work and customer interaction going on today in order to achieve what we talked about at $500 million exiting calendar 2025, we don't need to we don't need to be successful in all of those slots that we're engaged with today now if we're more successful than half of them then it will be more revenue than that and I think.

Alan S. Lowe: That will come down to us executing better than our competitors and having a value proposition that makes it compelling for our customers to buy more from us.

Speaker Change: Okay. Thanks very much.

Speaker Change: Thank you for your question.

Speaker Change: There are no additional questions waiting at this time I would now like to pass the conference back to Alan Lowe for any closing remarks.

Alan S. Lowe: Great. Thank you Victoria I would like to leave you with a few thoughts as we wrap up this call.

Alan S. Lowe: Yeah, we're making continued progress on our 100 gigabit VXL. Now, with Cloudlight being part of the Lumentum team, we have an in-house way of getting our VXLs tested in transceivers and, hopefully, qualified in, as you said, the second half of the calendar year in these multi-mode transceivers. So continued progress, but I'd say we're still on track for really the end of the calendar year for 100 gigabyte VXLs and VXL arrays.

Alan S. Lowe: Agility and leadership position gives us confidence in navigating the current market environment.

Operator: Thanks, Carl. Victoria, I think we have time for just one more question.

Alan S. Lowe: Momentum stands at the forefront of the datacenter revolution pioneering advancements and chip scale photonics automated manufacturing and partnerships with Hyperscale cloud customers.

Operator: Of course. Our next question comes from the line of Tim Savageaux with Northland Capital Markets. Your line is now open.

Alan S. Lowe: To capitalize on these compelling cloud opportunities we are rapidly deploying both manufacturing capacity and R&D capabilities. This ensures we are well positioned to help customers meet the escalating data rate demands of AI architectures.

Alan S. Lowe: The cloud light acquisition has been a resounding success. Our combined teams has propelled our highest speed transceiver production plans forward, enabling us to meet the surge in market demand, which we expect will drive our cloud revenue into a multi billion dollar run rate in the coming years.

Timothy Paul Savageaux: Great, snuck in there. I want to compare your 1.6 terabit opportunity or at least ask a question about, You know, for 800 gig, we seem to have seen the very short reach kind of within the rack connectivity market developed first, and then, you know, broader market maybe for switch-to-switch transceivers inside the data center appears to be, developing now, as you look at the one point opportunity, I guess, is there any reason that would develop differently?

Speaker Change: Thank you for joining our call today, we look forward to seeing you again at investor conferences and upcoming meetings later this quarter.

Timothy Paul Savageaux: It seems like most of what you're targeting are, you know, traditional transceivers versus short-reach cables or what have you, but I'd just be interested in your perspective on comparing and contrasting what we've seen at 800 with what you expect at 1.6 terabits.

Timothy Paul Savageaux: Thanks.

Christopher Coldren: Yeah, Tim, it's a little bit of nuance, but I would say that something we highlighted at the OFC presentation and pointed investors out there's a little more detail in that slide deck that we had shared. But the key point is that as you go to higher speeds, the distances you can go decrease very rapidly.

Operator: So we do anticipate as we move to 1.6T and beyond that you'll see more single mode in the mix than you've seen historically. Maybe these are simpler single mode, the DR type spec transceivers, whether they're using silicon photonics or EMLs. And so therefore, a lot more single mode where perhaps there would have been multimode historically. Doesn't mean multimode is going away; just means that we will see more single mode in those sockets and, therefore, right out of the gate.

Operator: Did you have a follow up?

Operator: I'm sure I do, and I don't want to misinterpret this. Alan, did you say you're targeting a 50% share of this 1.6 terabit market to kind of get where you need to be? Or was that 50% comment around something else? No, that was a comment about something else.

Alan S. Lowe: No, that was a comment around, you know, we don't need to hit all of the sockets and any given socket we're not going to get 100% of, so I'm just, it was indicating that, you know, we have a lot of qualification work and customer interaction going on today in order to achieve what we talked about in $500 million exiting calendar 2025. We don't need to; we don't need to be successful in all of those areas that we're engaged with today.

Alan S. Lowe: Now, if we're more successful than, you know, half of them, then, you know, it'll be more revenue than that. And I think, you know, that will come down to us executing better than our competitors and having a value proposition that makes it compelling for our customers to buy more from us.

Speaker Change: That concludes today's call. Thank you for your participation and enjoy the rest of your day.

Operator: Thank you for your question. There are no additional questions waiting at this time. I would now like to pass the conference back to Alan Lowe for any closing remarks.

Alan S. Lowe: Great, thank you, Victoria. I would like to leave you with a few thoughts as we wrap up this call. Our agility and leadership position gives us confidence in navigating the current market environment. Lumentum stands at the forefront of the data center revolution, pioneering advancements in chip scale photonics, automated manufacturing, and partnerships with hyperscale cloud customers. To capitalize on these compelling cloud opportunities, we are rapidly deploying both manufacturing capacity and R&D capabilities.

Operator: That concludes today's call. Thank you for your participation, and enjoy the rest of your day.

Alan S. Lowe: This ensures that we are well positioned to help customers meet the escalating data rate demands of AI architectures. The Cloudlight acquisition has been a resounding success. Our combined teams have propelled our high-speed transceiver production plans forward, enabling us to meet the surging market demand, which we expect will drive our cloud revenue into a multi-billion dollar run rate in the coming years. Thank you for joining our call today. We look forward to seeing you again at investor conferences and other meetings later this quarter.