Q3 2024 Coherent Corp Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the Coherent Corp. Fiscal Year 24 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode.

Good day, and thank you for standing by and we'll go to the coherent Corp fiscal year 'twenty four third quarter earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session to ask a question. During the session you will need to press star one on one.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.

Telephone you I Didnt hear an automated message advising your hand as rates to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today, Paul Silverstein Senior Vice President of Investor Relations. Please go ahead.

Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Paul Silverstein, Senior Vice President, Investment Relations. Please go ahead.

Paul Jonas Silverstein: Thank you, Victor. And good morning, everyone. Thank you for joining our third quarter fiscal 2024 earnings call. On the call, we have Coherent Chair and CEO, Dr. Chuck Mattera, and a number of Coherent senior leaders who Chuck will introduce shortly. Yesterday, after the market closed, we issued a press release, posted a shareholder letter, and an updated investor presentation to the investor relations section of our website, and furnished these documents in Form 8K. This morning, we filed our 10-Q. The shareholder letter contains the financial statements historically included in our earnings press releases and detailed information regarding our operating performance, outlook, visibility, key trends, and developments.

Paul Jonas Silverstein: Thank you Victor.

Paul Jonas Silverstein: Everyone. Thank you for joining our third quarter fiscal 2024 earnings call on the call we are coherent chair and CEO.

Paul Jonas Silverstein: Dr. Chuck Mattera, and a number of coherent senior leaders shop will introduce shortly.

Paul Jonas Silverstein: Yesterday after market closed we issued a press release posted to shareholder letter and an updated investor presentation to the Investor Relations section of our website.

Paul Jonas Silverstein: These documents and form 8-K.

Speaker Change: Morning, we filed our 10-Q.

Speaker Change: The shareholder letter continues to financial statements is strictly.

Speaker Change: Earnings press releases.

Speaker Change: Detailed information regarding our operating performance outlook visibility key trends and developments before we begin short statement about forward looking statements. We may make and will refer to forward looking statements, including statements about the future performance and market outlook.

Paul Jonas Silverstein: Before we begin, a short statement about forward-looking statements. We may make and or refer to forward-looking statements, including statements about future performance and market outlook. However, actual results may differ from those in the forward-looking statement. The shareholder letter and our SEC report set forth risk factors that could cause actual results to differ materially. We assume no obligation to update forward-looking statements. We speak only as of their respective dates.

Speaker Change: Actual results may differ from those in forward looking statements the shareholder letter and our FCC report set forth risk factors that could cause actual results to differ materially.

Speaker Change: No obligation to update forward looking statements, which speak only as of their respective dates.

Paul Jonas Silverstein: During this call, we may discuss both GAAP and non-GAAP financial measures. If we do, a reconciliation of GAAP to non-GAAP measures is included in the shareholder letter. We present historical non-GAAP financial measures to eliminate our discussion of those that are reconciled in this journal letter. With that, it is my pleasure to turn the call over to Coherent's Chair and CEO, Dr. Chuck Mattera. Thank you, Paul. The excitement continues at Coherent, where we delivered another solid quarter.

During this call we may discuss both GAAP and non-GAAP financial measures. If we do a reconciliation of GAAP to non-GAAP measures is included in the shareholder letter.

Speaker Change: 3% historical non-GAAP financial measures you will limit our discussion of those that are reconciled in the shareholder letter with that it's my pleasure to turn the call over to <unk>, Chairman and CEO, Dr. Chuck Mattera.

Chuck Mattera: Thank you Paul.

Chuck Mattera: The segment continues at coherent where we delivered another solid quarter.

Paul Jonas Silverstein: Before diving into the details, I will comment briefly on the CEO search process. As previously disclosed, our board has retained a leading executive search firm to help identify and establish a selection committee to evaluate CEO candidates from a pool of both internal and external candidates.

Chuck Mattera: Before diving into the details I will comment briefly on the CEO search process.

Chuck Mattera: As previously disclosed our board has retained a leading executive search firm to help identify and establish the selection committee to evaluate CEO candidates from a pool of both internal and external candidates.

Chuck Mattera: Our focus is on preparing for and selecting a new CEO with the necessary skills, knowledge, and experience to seamlessly and successfully succeed me and to help ensure coherent, sustainable growth and success. With that said, I will not comment on it further during today's call. Rather, I will focus my brief remarks on our super exciting performance in Q3 and the exciting setup for Q4 and fiscal year 25. As I have stated previously, leadership development is among a CEO's most important responsibilities.

Chuck Mattera: Our focus is on preparing for in selecting a new CEO with the necessary skills knowledge and experience to seamlessly and successfully succeed me.

Chuck Mattera: Is to help ensure a coherence of sustainable growth and success.

Chuck Mattera: With that said I will not comment on it further during today's call.

Chuck Mattera: Rather I will focus my brief remarks on our Super exciting performance in Q3.

Chuck Mattera: And the exciting set up for Q4 and fiscal year 'twenty five.

Chuck Mattera: As I have stated previously leadership development this amongst Ceos most important responsibilities.

Chuck Mattera: Given the shareholder letter's extensive disclosures, I have asked the following senior leaders to participate in the Q&A portion of today's call: Rich Martucci, Interim Chief Financial Officer; Dr. Giovanni Barbarossa, Chief Strategy Officer; and the President of the Materials Segment; Dr. Julie Chernenay, Chief Technology Officer; and Dr. Sanjai Parthasarathi, Chief Marketing Officer. Magnus Bengtsson, Chief Commercial Officer, who leads our global sales and service organization and who came to us through the Coherent Acquisition; Sohail Khan, EVP, Silicon Carbide, LLC; Dr. Lee Hsu, EVP, Datacom Transceivers; and Dr. Beck Mason, EVP, Telecom.

Chuck Mattera: Given the shareholder letters extensive disclosures I have asked the following senior leaders to participate in the Q&A portion of today's call.

Chuck Mattera: Rich <unk> interim Chief Financial Officer Dr.

Chuck Mattera: Dr. Giovanni Barbarossa, Chief strategy Officer, and the President of the materials segment, Dr. Julie Sharon in a chief Technology Officer.

Chuck Mattera: Dr. Sanjay Parthasarathy, Chief marketing officer.

Chuck Mattera: Magnus banks to Chief commercial officer, who leads our global sales and service organization and who came to us through the coherent acquisition.

So he'll Kahn EVP silicon carbide LLC, Dr. Lee Hu <unk>.

Chuck Mattera: <unk> Datacom Transceivers and Dr. Mason EVP telecom.

Chuck Mattera: For the last 20 years, I have been blessed with the privilege of working with the most experienced management team in the industry. As one small measure, those of us on today's call have 300 years of collective experience. We will provide investors with a rich source of information about the depth and breadth of our markets, technologies, operations, and overall business. For the quarter, we delivered solid sequential improvement in revenue and EPS, both of which came in above the high end of our guide.

Chuck Mattera: For the last 20 years I have been blessed with the privilege of working with the most experienced management team in the industry.

Chuck Mattera: One small measure those of us on today's call 300 years of collective experience.

Chuck Mattera: We will provide investors a rich source of information about the depth and breadth of our markets technologies operations and overall business.

Chuck Mattera: For the quarter, we delivered solid sequential improvement in revenue and EPS, both of which came in above the high end of our guidance.

Chuck Mattera: Due primarily to unexpected issues that we've already resolved or expect to soon resolve, the non-GAAP gross margin was below guidance, but rigorous operating expense discipline and controls allowed us to deliver non-GAAP operating margin in line with our guidance.

Chuck Mattera: Due primarily to unexpected issues that we've already resolved or expect to soon resolved. The non-GAAP gross margin was below guidance, but rigorous operating expense discipline and controls allowed us to deliver non-GAAP operating margin in line with our guidance.

Chuck Mattera: The highlights of our third quarter include an almost 7% sequential increase in revenue and a 17 cents, or almost 50%, sequential increase in non-GOP EPS. Another strong quarter of strong AI-related Datacom demand for our 800G Datacom transceivers. We now expect the strength to continue in the current fourth quarter and into fiscal 25.

Chuck Mattera: The highlights of our third quarter include an almost 7% sequential increase in revenue and a 17.

Chuck Mattera: Or almost 50% sequential increase in non-GAAP EPS.

Chuck Mattera: Another strong another quarter of strong AI related datacom demand for our 800 gig Datacom transceivers.

Chuck Mattera: Now expect this strength to continue in the current fourth quarter and due to fiscal 'twenty five.

Chuck Mattera: A slower than expected recovery in our telecom markets, but continued signs of an improving outlook for our industrial market, which accounts for approximately 34% of total revenue. The repayment of $58 million of outstanding debt and the completion of a repricing of our $2.4 billion secured term loan fee, reducing interest rate margins by 25 basis points, which results in an annual savings of approximately $9 million. Additionally, we upgraded our credit rating to BA2, by Moody's, reflecting our leadership position in the exciting AI market and their expectation that our financial performance will continue to improve. Our diversification across product, technology, and regional markets is serving AI-related datacom demand remains strong.

Chuck Mattera: A slower than expected recovery in our telecom markets.

Chuck Mattera: Continued signs of improving outlook for our industrial market, which accounts for approximately 34% of total revenue.

The repayments of $58 million of outstanding debt and the completion of a repricing of our $2 4 billion secured term loan b, reducing interest rate margins by 25 basis points, which results in an annual savings of approximately $9 million.

Chuck Mattera: And the upgrade of our credit rating to be <unk>.

Chuck Mattera: By Moody's, reflecting our leadership position in the exciting AI market and their expectation that our financial performance, we will continue to improve.

Chuck Mattera: Our diversification across product technology in regional markets is serving us well.

Chuck Mattera: AI related Datacom demand remains strong.

Chuck Mattera: While still early, we also saw further signs in the quarter of improving demand in our industrial market, along with further signs of stabilization in our instrumentation and electronics markets, which we expect will also eventually return to growth. Despite the macroeconomic backdrop, our diversification strategy has helped distinguish us from the rest of the pack. For the quarter, we posted revenue of $1.209 billion, which was above the high end of our guidance, and non-GAAP EPS of $0.53, which was also above the high end of our guidance. Operating cash flow was $117 million.

While still early we also saw further signs in the quarter of improving demand in our industrial market along with further signs of stabilization in our instrumentation and electronics markets, which we expect will also eventually returns to growth.

Chuck Mattera: Despite the macroeconomic backdrop, our diversification strategy has helped distinguish us from the rest of the pack.

Chuck Mattera: For the quarter, we posted revenue of $1 209 billion, which was above the high end of our guidance.

Chuck Mattera: non-GAAP EPS of <unk> 53.

Chuck Mattera: Which was also above the high end of our guidance.

Chuck Mattera: We invested $93 million in capital equipment, and we retired $58 million of debt. Turning to our guidance for the fourth quarter of fiscal 24, we are guiding for revenue of approximately 1.123 to 1.32 billion, with non-GAAP earnings per share of approximately $0.52 to $0.68. Revenue of approximately $4.62 to $4.7 billion for the year, which is a $70 million increase from the low end of our previous guidance. Non-GAAP EPS of approximately $1.56 to $1.73 for the year, up from $1.30 to $1.70, which was our previous guidance.

Chuck Mattera: Operating cash flow was 117 million, we invested $93 million in capital equipment, and we retired $58 million of debt.

Chuck Mattera: Turning to our guidance for the fourth quarter of fiscal 'twenty. Four we are guiding for revenue of approximately $1 12313 2 billion.

Chuck Mattera: And non-GAAP earnings per share of approximately 52 to <unk> 68.

Chuck Mattera: Revenue of approximately $4 six 2% to four 7 billion for the year, which is a $70 million increase at the low end of our previous guidance.

Chuck Mattera: non-GAAP.

Chuck Mattera: non-GAAP EPS of approximately $1 56 to $1 73 for the year up from $1 30 to $1 70, which was our previous guidance.

Chuck Mattera: Before turning to questions, I would like to say how appreciative and proud I am of the senior leaders and all of our other employees whose tireless dedication to transforming Coherent is setting the stage for broad industry leadership now, next, and beyond.

Speaker Change: Before turning to questions I would like to say, how appreciative and proud I am of the senior leaders and all of our other employees, whose tireless dedication to transforming coherent for setting the stage for a broad industry leadership now.

Speaker Change: Next and beyond.

Speaker Change: Opportunity as one of the most difficult things in life to recognize early on.

Chuck Mattera: However, we have a 50-year-old track record to point to when I say, with confidence and faith, that I truly believe that the best is yet to come. With that, I'll turn it back over to Paul. Well, thank you, Chuck. We'll now open the call to your questions. This call is scheduled for a full hour.

Speaker Change: However, we have a 50 plus year old track record to point to when I say with confidence and faith.

Speaker Change: That I truly believe that the best is yet to come.

Speaker Change: With that I'll turn it back over to Paul Paul. Thank you Chuck We will now open the call three of those questions. This call is scheduled for a full hour as we are approximately 20 analysts that cover the company. We ask that each of you limit yourself to one question and one follow up please direct your questions to Chuck who will decide who is best respond Victor Please open it up to questions.

Paul Jonas Silverstein: As we have approximately 20 hours to cover the company, we ask that each of you limit yourself to one question and one follow-up. Please direct your questions to Chuck, who will decide who is best to respond. Victor, please open it up to questions. Thank you. As a reminder, to ask a question, you need to press star 11 on your telephone and wait for your name to be announced. Once again, to withdraw your question, please press star 11. Please stand by.

Victor: Thank you.

Speaker Change: A reminder to ask a question you need to press star one on your telephone and wait for your name to be announced once again to withdraw your question. Please press star one.

Operator: We will compile the Q&A roster. One moment for our first question. Our first question will come from Samik Chatterjee from J.P. Morgan. Your line is open.

Victor: Okay Sand island compile the Q&A roster.

Speaker Change: Moment for our first question.

Victor: Our first question will come from I know some make sure <unk> from J P. Morgan Your line is open.

Samik Chatterjee: Hi, thank you for taking my questions and congratulations on the strong results here. If I can just start with Datacom, and when you started on this ramp, which has been pretty impressive, you did have the benefit of a lot of visibility into the orders from your customers. I think at that point, you had almost a year's visibility in terms of orders, based on how you were communicating about orders.

Speaker Change: Hi, thank.

Speaker Change: Thank you for taking my questions and congrats on the strong results here.

James Andrew Ricchiuti: If I can just start with Datacom and when you started on the DRAM, which has been pretty impressive.

Speaker Change: Did have the benefit of.

Speaker Change: A lot of visibility into the orders from your customers I think at that point, you had almost like a yields visibility in terms of autos based on how you are communicating about autos as we now move into fiscal 'twenty five and lead times are coming down just curious what kind of visibility are customers, giving you in relation to demand.

Samik Chatterjee: As we now move into fiscal 25, and lead times are coming down, just curious what kind of visibility our customers are giving you in relation to demand for fiscal 25? What do you think are the key growth drivers for the 800 gigabit or Datacom business in total in FY25? And we'll have a follow-up.

Speaker Change: For fiscal 'twenty five what do you think are the key growth drivers for the 800 gig Datacom business in total and FY 'twenty five and have a follow up thank you.

Lee Xu: Thank you, Samik. Lee, would you like to? Hi, thanks for the question. This is Lee Xu.

Speaker Change: Thank you Dana.

Speaker Change: <unk>.

Speaker Change: Would you like to.

Yes.

Speaker Change: Okay.

Speaker Change: Thanks for the question this is <unk>.

Lee Xu: Our outlook versus a quarter ago did not change. We still see strong growth in overall 800G and AI-related demand. And our customer interaction has been improving. And as you can see, in the past few quarters, our 800G run pump from FY23's $20 million also to $15 million in our Q1, a little bit over $100 million in Q2. And this quarter, we reported close to $200 million.

Speaker Change: Our outlook.

Speaker Change: A quarter ago, they're not changed we still see strong growth in <unk>.

Speaker Change: Overall <unk> AI related.

Speaker Change: Demand.

Speaker Change: And in our customer interaction has been improving.

Speaker Change: And as you can see in the past few quarters, our energy ramp up.

Speaker Change: From FY.

Speaker Change: FY2023 is.

Speaker Change: 20 million I will sell to $15 million in our Q1.

Speaker Change: A little bit over $100 million in <unk> and this quarterly.

Speaker Change: <unk> it close to $200 million and we project.

Lee Xu: And we project a Q4 of more than $250 million. So, we still see further growth in FY25, but in our field, the lead time for people to order 800G transceivers is long. And that's why when we forecast our 800-year revenue, we are being more prudent. But in terms of trend, our forecast from our key customers, there is no change. And we also said that we're broadening our 800G customer base now. It's much wider, and we see that in FY25 it's going to be even wider.

Speaker Change: So for us more than $215 million.

Speaker Change: We still see further growth in FY 'twenty five but.

Speaker Change: In our.

Speaker Change: In our field.

Speaker Change: The.

Speaker Change: Uh huh.

Speaker Change: The lead time for people to order <unk>.

Speaker Change: <unk> Transceivers.

Speaker Change: It's coming down.

Speaker Change: That's why.

Speaker Change: We are when we forecast our revenue were a more prudent but in terms of the trend our forecast from our key customers.

Speaker Change: There is no change and.

Speaker Change: And we also said that.

Speaker Change: We're broadening our 800 Chi.

Speaker Change: Customer basis and now it's.

Speaker Change: It's much broader and we see that in FY 'twenty five its going to be even more.

Speaker Change: Spot.

Lee Xu: Thank you. Thank you. And for my follow-up question, if I can just quickly ask on the supply side, we get a lot of questions from investors asking about if there are supply constraints, either on pixels or any of the other components going into the data from SeaWorld, particularly as you plan ahead for the ramp, for the ramp in fiscal 25 or the growth in fiscal 25, how you're managing around that sort of visibility around supply, any key bottlenecks that you see that you need We largely resolved all the material constraints, whether it's internal or external.

Speaker Change: Thank you Lee.

Speaker Change: And for my follow up if I can just quickly ask on the.

Speaker Change: The supply side.

Speaker Change: We get a lot of questions from investors asking about if there are supply constraints either on VIX. So do you have the other components going into the Datacom transceiver, particularly as you plan ahead for the ramp for the ramp in fiscal 'twenty five of the growth in fiscal 'twenty five.

Speaker Change: Managing around those sort of visibility around supply any key bottlenecks that you see that you need to resolve thank you.

Speaker Change: Thank you for that key question.

Speaker Change: We largely resolved all of that material constraint, whether it's internal or external.

Simon Matthew Leopold: So we feel confident on our... Thank you, Julie. Okay, thanks, Sam. Thank you. One moment for our next question. Our next question comes from the line of Simon Leopold from Raymond James. Your line is open.

Speaker Change: So we feel confident.

Speaker Change: Thank you Lee.

Lee: Okay. Thanks, Eric.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from the line of Simon Leopold from Raymond James Your line is open.

Simon Matthew Leopold: Great. Thank you very much for taking the time to answer the question. The first thing I wanted to see if you could unpack a little bit was, in your prepared remarks, Chuck, you mentioned the gross margin being a little bit softer than you had been anticipating. Could you help us understand what are sort of the key drivers and expectations for how gross margin can improve over time? Is it as simple as getting utilization up, or is it more about cost reduction and synergies? Help us understand some of the key levers and the targets.

Simon Matthew Leopold: Great. Thank you very much for taking the question.

Simon Matthew Leopold: First thing I wanted to see if you could unpack a little bit was in the prepared remarks, Chuck you mentioned.

Simon Matthew Leopold: Gross margin being a little bit softer than what you had been anticipating.

Simon Matthew Leopold: Could you help us understand what are sort of the key drivers.

Simon Matthew Leopold: And expectations for how gross margin can improve over time is it as simple as getting our utilizations up or is it more about the cost reduction synergies help us understand sort of the key levers and the targets and then I've got a follow up.

Rich Martucci: And then I've got a follow up. Okay, good morning, Simon. Thanks for your question. Rich is ready to go.

Speaker Change: Okay. Good morning, Savi. Thanks for your question Rich is ready to go.

Rich Martucci: Thank you, Simon. Obviously, the management team was a little disappointed in our performance in Q3 on the margin. We detailed out the one-time really transitory items in Q3.

Simon Matthew Leopold: Well thank you Simon.

Rich Martucci: As we move forward, and as we mentioned, we still are targeting a 40% gross margin by the second quarter, first half of FY26, and with that, over a 20% operating margin. And there are many positive drivers that we have to achieve this. First, is really the incremental volume and the mix as well.

Simon Matthew Leopold: <unk>.

Speaker Change: Obviously management team was a little disappointed in our performance in Q3 on the margin.

Speaker Change: We detailed out the onetime really transitory items.

Speaker Change: In Q3, as we move forward and as we mentioned.

Speaker Change: Still are targeting 40% gross margin.

Speaker Change: By the second quarter first half of FY 'twenty six.

Speaker Change: And with that at 20 over 20% operating margin and there is many.

Positive drivers that we have to achieve this.

First is really the incremental volume and the mix as well.

Speaker Change: Without a doubt we're going to need.

Speaker Change: The increase in our industrial as well as instrumentation markets.

Rich Martucci: Without a doubt, we're going to need an increase in our industrial as well as instrumentation markets. Those are typically sales that come through, revenue that comes through our networking, or our materials and laser segment. That'll strengthen the margins, as well as our strength in the supply chain and buying power. That also is a key factor.

Speaker Change: These are typically sales that come through revenue that comes through our networking our materials and laser segment.

Speaker Change: That will strengthen the margins as well as our strength in supply chain and buying power.

Speaker Change: That also is a key factor we did have mentioned to you our synergy and restructuring plans in the past, which we are on pace for but even longer term.

Rich Martucci: We have mentioned to you in the past our synergy and restructuring plans, which we are on pace for. But even longer term, we're in the midst of a transformation. We just started a global design for a new ERP implementation, a new system, and we are just at the beginning of implementing AI tools.

Speaker Change: We're in the midst of a transformation.

Speaker Change: Just started a global design for our new ERP ERP.

Speaker Change: P implementation.

Speaker Change: System and we are just at the beginning of implementing AI tools. So all of those factors will.

Speaker Change: Culminate in us, reaching a higher margin.

Simon Matthew Leopold: So all those factors will culminate in us reaching a higher margin. Thank you. And then, as my follow-up, I'd like to sort of get some sense of your vision of where the AI opportunity can go. So it looks as if you're expected to exceed your prior expectations for this fiscal year. I imagine it's maybe a little bit early to give us details on fiscal twenty five.

Speaker Change: Thank you and then as my follow up I'd like to sort of get some sense of your vision of where the AI opportunity kengo. So it looks as if you.

Speaker Change: You are expected to exceed your prior expectations for this fiscal year.

Speaker Change: Imagine, it's maybe a little bit early to give us details on fiscal 'twenty five, but if you could give us some guide posts of how youre thinking about the 800 gig and above business evolving beyond the next quarter. Thank you.

Speaker Change: Okay.

Chuck Mattera: But if you could give us some guideposts of how you're thinking about the eight hundred gigabyte and above business evolving beyond the next quarter. Simon, thanks. Simon, I think we'll take a step back and talk about the market, because we're expecting to lead the market. So Sanjai, why don't you just give a quick summary?

Speaker Change: Simon Thanks, So I mean, I think we will take a step back and talk about the market because where we're expecting to lead the market. So Sanjay I wanted to just give you a quick summary, okay. Thanks, Chuck Hi, Simon Thanks for the question.

Sanjai Parthasarathi: Okay. Thanks, Chuck. Hi Simon.

Sanjai Parthasarathi: So we just are.

Sanjai Parthasarathi: The rest of our presentation, we have a chart that talks about the market the growth an inflection that's happened with AI.

Sanjai Parthasarathi: Thanks for the question. So we just, in our investor presentation, we have a chart that talks about the market, the growth and inflection that's happened with AI. Over the next few years, we still see very strong growth in 800G. Over the next five years, it's growing at a 60% rate, and that's 800G and beyond. So 800G and 1.6.

Sanjai Parthasarathi: And over the next few years do you still see a very strong growth in 800 feet.

Sanjai Parthasarathi: Over the next five years, that's growing at a 60% CAGR and Thats 800, G and beyond energy and one six so the market is strongest.

Sanjai Parthasarathi: So the market is strong. We are projecting very healthy growth for the market. That's where it is.

Sanjai Parthasarathi: We are projecting very healthy growth for the market.

Sanjai Parthasarathi: Okay.

Speaker Change: That's where it is today that's great good.

Ruben Roy: Okay, good. Okay, thank you, Simon. Thank you. One moment for our next question. Our next question will come from the line of Ruben Roy from CFO. Your line is open.

Speaker Change: Okay. Thank you Susan.

Speaker Change: One moment for our next question.

Speaker Change: Our next question will come from the line of Ruben Roy from Stifel. Your line is open.

Ruben Roy: Thanks very much. And congrats, Cain, on the execution and solid results. I guess, Chuck, I wanted to follow up on Sanjai's commentary. Which is the question, I guess, would be sort of around longer-term expectations and the CAGR, and the CAGR has been moving around on, you know, kind of your overall day-to-day transceiver expectations, I think. The shareholder letter last night, 21% was, "Great." But it's down a little bit from the previous assumption.

Ruben Roy: Thanks, very much and congrats again on the execution and solid results I guess, Chuck I wanted to follow up on.

Ruben Roy: Sanjay and commentary.

Ruben Roy: Which is the question I guess would be sort of around longer term expectations in the CAGR in the CAGR has been moving around on kind of your overall datacom.

Ruben Roy: Some of our expectations I think in the shareholder letter last night, 21% wishes.

Sanjai Parthasarathi: And so I guess the question would be, you know, what are the moving parts, so how are you guys thinking about the longer-term category? Is there part of Telco in that, or is it just Datacom that you're considering, and any kind of additional detail on how you think about longer-term growth would be helpful. Thank you, Ruben. Thanks for the question. Sanjai?

Chuck Mattera: Great, but it's down a little bit from the previous assumption.

Chuck Mattera: Assumption and so I guess the question would be what are the moving parts and sort of how you guys are thinking about the longer term CAGR is that.

Chuck Mattera: Are there parts of telco in that or is it just datacom that you're considering.

Speaker Change: Any kind of additional detail on how you're thinking about longer term growth would be helpful. Thank you.

Speaker Change: Okay. Thank you everyone and thanks for the question Sanjay Thanks Robin Thanks for the question yes.

Sanjai Parthasarathi: Yeah, thanks, Ruben. Thanks for the question. Yes, we did take it down a little bit from our last report.

Speaker Change: Yes, we did take it down a little bit from from our last report two things happen. One seemed like 23 was much bigger than what we had originally anticipated.

Sanjai Parthasarathi: Two things happened. One, CY23 was much bigger than we had originally anticipated. And then, over the long term, we've taken down the sub-800G numbers a little bit. So we're still projecting 21% over five years. And I made the comment earlier about 800G and beyond. That is still growing at the same kind of clip that we had previously anticipated. The market is young and fluid.

Speaker Change: And then over the long term, we've taken down the sub 800 G numbers, a little bit. So we are still projecting 21% over five years and and I made the comment earlier about.

Speaker Change: 800, G and beyond that that is still growing at the same kind of clip.

Speaker Change: <unk> previously on the standard maybe keep the market is young and fluid, we keep getting data points from our customers <unk> customers.

Sanjai Parthasarathi: We keep getting data points from our customers and then customers, so we are constantly revising our view of the market. Hopefully, that answers the question. Yes, it did.

Speaker Change: We are constantly analyzing our view of the market.

Speaker Change: Hopefully that answered thank you.

Ruben Roy: Thank you, Sanjai. And then, for a follow-up question, I had a gross margin question as well, given that Datacom transceivers are a meaningful part of the way the gross margins, you know, move around. Can you give us a little more detail on some of the corrective actions around the transceiver yields? And, you know, as you look out into fiscal 25 or some of those corrective actions, do you think they are applicable to the 1.6 T-RAM? Ruben?

Speaker Change: Yes. It did thank you Sanjay and then for <unk>.

Speaker Change: Follow up I had a gross margin question as well given that datacom.

Speaker Change: Transceivers are a meaningful part of the kind of the way the gross margins.

Speaker Change: Around I guess can you give us a little more detail on some of the corrective actions around the transceiver yields and as you look out into fiscal 'twenty five or some of those corrective actions do you think are applicable to the 116 ramp.

Lee Xu: Yeah, sure. Lee? Hi Ruben. Thanks for the question. This is one of our key targets for our operations, the data column transceivers. First of all, we did just, we are transparent in terms of we had Unexpected Yield Issues Impacting Our 800G Ramp-Up in Q3, and that problem has been resolved, and who will see on Datacom a significant margin improvement going forward in FY25 because more and more products are going to move to 800G and higher data rates.

Speaker Change: Yes sure.

Speaker Change: Yes, hi.

Speaker Change: Thanks for the question.

Speaker Change: One of our key tar.

Speaker Change: Target.

Speaker Change: For our operations the Datacom Transceivers are first of all art.

Speaker Change: Did just.

Speaker Change: We are transparent in terms of <unk>.

Speaker Change: Had a.

Speaker Change: Lastly, our expected yield issue impacting.

Speaker Change: Our <unk> ramp up in Q3 and that problem has been resolved and.

Speaker Change: We'll see.

Speaker Change: Datacom are significant.

Speaker Change: Margin improvement.

Speaker Change: Going forward in FY 'twenty five begins.

Speaker Change: More and more products, that's going to move to 800 HCN higher data rate, we think that will further improve our datacom transceiver.

Lee Xu: We think that will further improve our datacomp transceiver margin. So going forward, because of our versus integration, because of our kind of being a leader in the high-end part of the market, we're quite confident of our gross margin and also our net margin. [inaudible] Yes, thank you.

Speaker Change: So.

Speaker Change: Going forward because of our vertical integration because of our.

Speaker Change: Being a leader of high end part of the market.

Speaker Change: We're quiet.

Speaker Change: <unk> of our <unk>.

Speaker Change: Gross margin.

Speaker Change: And also in that market.

Speaker Change: Yes.

Speaker Change: That's the question.

Speaker Change: Yes. Thank you.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you one moment our next question.

Lee Xu: Thank you. Thank you. One moment for our next question. And our next question comes from Thomas O'Malley from Barclays. Your line is open. Hey, good morning, guys.

Speaker Change: And our next question comes from the line of Thomas O'malley from Barclays. Your line is open.

James Andrew Ricchiuti: Thanks for taking my question. I wanted to ask about the timing of 1.60. You guys are saying fiscal Q1. Your competitor last night was kind of talking about the end of the calendar year, maybe the beginning of the next calendar year. There's really only two major customers who are doing 200G per lane at 1.60.

James Andrew Ricchiuti: Hey, good morning, guys. Thanks for taking my question I wanted to ask on the timing of $1 60, you guys are saying fiscal Q1.

James Andrew Ricchiuti: Your competitor last night, it was kind of talking about the end of the calendar year, maybe beginning of next calendar year, There's really only two major customers who are doing 200 G per lane at 116 could you talk about is that sampling in the September quarter, which is fiscal Q1. When do you expect volume production is that across multiple customers are just concentrated amongst.

Speaker Change: One or two thank you.

Speaker Change: Okay. Thanks, Tom Good morning, Tom Lee Okay.

Speaker Change: Yes, thanks for being so clear what we have published yes, we.

Chuck Mattera: Can you talk about, is that sampling in the September quarter, which is fiscal Q1? When do you expect volume production? And is that across multiple customers or just concentrated amongst one or two?

Speaker Change: We are ready to sample <unk> auto energy per lane based.

Speaker Change: Transceivers start seeing our physical Q1, and we do expect volume shipments to start at the beginning of calendar 'twenty five.

Speaker Change: Our Q3 fiscal year <unk>.

Speaker Change: Everything's.

Speaker Change: Going as expected.

Speaker Change: We're excited about this new opportunity.

Speaker Change: Helpful. And then the second question was around Silicon carbide.

Speaker Change: Guys described just an issue during the quarter historically, you've had a customer in electronics, that's made it a little bit easier to kind of solve for the revenue in.

Speaker Change: In the Silicon carbide business could you just maybe give us a little more color just because that customer has gotten so small where that revenue has gone from a silicon carbide perspective, and then you talked about some strong growth in the quarter any any additional details on where that when in the quarter and where you're expecting over the next couple.

Speaker Change: Yes, Tom.

Tom: As I understand it you are.

Speaker Change: Youre trying to plumb.

Tom: Our data and the electronics market for sensing versus silicon carbide, and you'd like to have a clear view for silicon carbide, So who will give you the color that you need I think.

Sohail A. Khan: This is Sohail Khan.

Sohail A. Khan: In Q3.

Sohail A. Khan: Our silicon carbide.

Sohail A. Khan: Had some operational issues about we mentioned about the power failure.

Sohail A. Khan: And that.

Sohail A. Khan: Impacted our failure impacted.

Sohail A. Khan: The factory, which limited our ability to deliver.

Sohail A. Khan: The plan.

Sohail A. Khan: All those actions have been put in place.

Sohail A. Khan: Able to get everything back.

Sohail A. Khan: And then 30 days.

Sohail A. Khan: And I am looking at a very good strong Q4, and we expect that we will grow more than 50% from Q3 to Q4.

Sohail A. Khan: I hope that's helpful. Tom.

Lee Xu: Thank you. Okay, thanks, Tom. Good morning, Tom. Lee, please.

Speaker Change: Hi, Tom.

Tom: Alright, thank you.

Tom: Thank you thank you Brian.

Speaker Change: One moment for our next question.

Speaker Change: And our next question comes from the line of meta Marshall from Morgan Stanley. Your line is open.

Lee Xu: Okay. Um, yeah, thanks for being so clear about what we have published. Yes, we are ready to sample 1.6T or 200G per lane based transceivers starting our physical Q1, and we do expect a volume shipment to start at the beginning of calendar 25 or of our Q3 fiscal year, and so far, everything's going as expected, and we're excited about this new opportunity. And then the second question was around silicon carbide. You guys described just one issue during the quarter.

Great. Thanks, Congrats on the quarter a couple of questions for me, maybe just first on.

Meta A. Marshall: You noted that your expectations for kind of growth in sub 800 gig declined and that was what led to the kind of industry or a change in the industry growth rate, but just what are you seeing in terms of just anything any commentary on sub 800 gig demand.

Meta A. Marshall: And then the second question.

Meta A. Marshall: To harp on the gross margin piece, but kind of understanding the overhang that fiscal Q3 and.

Meta A. Marshall: And the yield issues that you've resolved about silicon carbide of Datacom.

Meta A. Marshall: But with most of that seemingly resolved given the answers you've given today just what is the reason for kind of a slower Q on Q pickup than you had been forecasting kind of last quarter. Thanks.

James Andrew Ricchiuti: Historically, you've had a customer in electronics that's made it a little bit easier to kind of solve for the revenue in the silicon carbide business. Could you just maybe give us a little more color, just because that customer has gotten so small, where that revenue has gone from the silicon carbide perspective? And then you talked about some strong growth in the out quarter. Any additional details on where that went in the quarter and where you're expecting over the next? Yes, Tom, as I understand it, you're trying to plumb our data in the electronics market for sensing versus silicon carbide. And you'd like to have a clear view of silicon carbide. Sohail will give you the color that you need, I think.

Meta A. Marshall: Just suggest.

Speaker Change: Good morning, just repeat the last part of the question.

Sohail A. Khan: Hi Tom, this is Sohail Khan. In Q3, our silicon carbide had some operational issues. We mentioned the power failure and that power failure impacted the factory, which limited our ability to deliver to the plant. All those actions have been put in place.

Speaker Change: Yes, So last few wonder you would've implied kind of about a 100 150 basis point increase between fiscal Q3, and fiscal Q4 and that seemingly kind of come down to about 80 basis points and kind of understand the overhang for fiscal Q3, but what is different than kind of a.

Speaker Change: Smaller jump up between fiscal Q3 and implied fiscal Q4 gross margin.

Sohail A. Khan: We were able to get everything back within 30 days, and I am looking at a very good, strong Q4, and we expect that we will grow more than 50% from Q3 to Q4. I hope that's helpful, Tom.

Speaker Change: I think it's just given the big picture if you will.

James Andrew Ricchiuti: All right. Thank you. Thank you. One moment for our next question, and our next question comes from Meta Marshall from Morgan Stanley. Your line is open.

Speaker Change: Yes so.

Speaker Change: The the.

Meta A. Marshall: Great, thanks. Congratulations on the quarter. A couple questions for me, maybe just first on: you noted that your expectations for kind of growth and sub-800 gigabit declined, and that was what led to the kind of industry or change in the industry growth rate. But just what are you seeing in terms of anything, any commentary on sub-800 gigabit demand? And then the second question, to harp on the gross margins piece, but kind of understanding the overhang, fiscal Q3 and the yield issues that you've resolved, both in Silicon Carbide and Datacom, but with most of that seemingly resolved, given the answers you've given today, just what is the reason for kind of a slower Q on Q pickup than you had been forecasting last quarter? Good morning.

Speaker Change: Margin resolution in Q3, as we mentioned are pretty much done we're still in the middle of ramping ethylene.

Speaker Change: As Lee mentioned, our 800 gig product and are you in plants that we have going forward. So the other piece of this is the majority of the increase quarter over quarter is coming from.

Speaker Change: 800 key as well as Soho management Silicon carbide and in the past you didn't mention that.

Speaker Change: 800.

Meta A. Marshall: Just repeat the last part of the question. Yeah, so last quarter, you would have implied a kind of about 100-150 basis point increase between fiscal Q3 and fiscal Q4. And that seemingly kind of comes down to about 80 basis points, and I kind of understand the overhang to fiscal Q3. But what is the difference in kind of a smaller jump up between fiscal Q3 and implied fiscal Q4 gross, I think, Rich? Just give us the big picture, if you would, please. Yeah, yeah. So, so, um, the, the...

Speaker Change: Is that our gross margin average so it's really part of a mix issue as well on a quarter over quarter.

Rich Martucci: Margin resolution in Q3, as we mentioned, pretty much done. We're still in the middle of ramping up our 800G product, as Lee mentioned, and our yield plans that we have going forward. So the other piece of this is the majority of the increase, quarter over quarter, is coming from 800G, as well as Sohil mentioned silicon carbide. And in the past, we did mention that the 800G product is at our gross margin average.

Speaker Change: Let me add.

Speaker Change: To be clear.

Speaker Change: Well the problems have been resolved.

Speaker Change: Resolving this.

Speaker Change: It does entail in terms of a ramp back up to where we need to be.

Speaker Change: Not a flash cut so we're confident about the correctly.

Speaker Change: The corrective actions and alike, but we still need to establish that.

Rich Martucci: So it's really part of a mix issue as well, quarter over quarter. Yeah, let me add, needed to be clear. While the problems have been resolved, or are being resolved, there's a tail in terms of a ramp back up to where we need to be. It's just not a flash cut.

Speaker Change: Target Eagles.

Speaker Change: On different product lines will come within this quarter, so there's a little bit of a tailwind in the quarter.

Speaker Change: Yes.

Rich Martucci: So we're confident about the corrective actions and the like. But we still need to establish the target yields. They'll come on different product lines, and they'll come within this quarter. So there's a little bit of a tail into the quarter. Is that clear? Yeah, no, that's perfectly clear.

Speaker Change: Yeah, no that's perfectly clear and then just any commentary on 800 gig demand.

Speaker Change: That's a great topic, let's let's go to the market first if we can okay. Thank.

Meta A. Marshall: And then just any commentary on the sub 800 gigabyte domain. Oh, yeah, that's a great topic. Well, let's go to the market first, if we can. Okay. Thanks, Mita. This is Sanjai.

Speaker Change: Thanks Nina.

Speaker Change: Jay.

Speaker Change: So or over the five years.

Speaker Change: The sub 800 <unk> is essentially flat that's our latest projections the 800 and about as I said earlier is growing at a sales to grow at a 60% gather.

Sanjai Parthasarathi: So over the five years, the sub-800 G is essentially flat. That's our latest projection. The 800G and above, as I said earlier, are slated to grow at a 60% CAGR. So the sub-800 is, I mean, that's our view of the market. Thank you. Great. Thank you. Just one second.

Speaker Change: So the sub 800.

Speaker Change: Yes.

Speaker Change: I mean, that's our view of the market.

Speaker Change: Okay, great. Thank you.

Speaker Change: Maybe just one second I think we can clarify one step further we are pleased to vision. It is a very important topic.

Sanjai Parthasarathi: I think we can clarify one step further, will we? Yeah. Please do.

Sanjai Parthasarathi: Because it is a very important topic. Sure. From our own kind of internal forecast point of view, we see, indeed, just as Sanjai was saying, the sub-800G is roughly flat for the next few quarters, but we do see some pick-up, So that. You know, I think the whole role is helpful.

Speaker Change: Some of our own kind of internal forecast point of view.

Speaker Change: We see indeed, just as Sanjay was saying the sub 800 G is roughly flat for the next few quarters, but we do see some pickup free.

Speaker Change: Three quarters from now.

Speaker Change: So thats.

Speaker Change: I think the overall.

Speaker Change: As healthy.

Sanjai Parthasarathi: We'll be opportunistic about it. We're definitely trying to expand our share of wallet with the largest players. We've told the story about 400G in the past. And when it comes, if we can turn our capacity into it and make a real good business out of it, we'll be there. Perfect, thank you.

Speaker Change: We'll be opportunistic.

Speaker Change: We'll be opportunistic about it.

Speaker Change: We are definitely trying to expand this year.

Speaker Change: Wallet with the largest players.

Speaker Change: We've told the story about foreign regime in the past.

Speaker Change: When it comes if we can turn our capacity into it and make it make a real good business out of it will be there.

Speaker Change: Perfect. Thank you.

Speaker Change: Okay.

Karl Ackerman: Thank you. One moment for the next question. The next question comes from Karl Ackerman from P&B Potter Boss. Your line is open. Yes, thank you. I want to focus on the telecom.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Next question comes from the line of Karl Ackerman for one P. M. B prior boss your line is open.

Karl Ackerman: Yes. Thank you.

Karl Ackerman: I wanted to focus on the telecom.

Karl Ackerman: Portioning your business for a moment, you know, clearly, you and peers in the ecosystem have pushed out the recovery in telecom from what was roughly June of this year to the end of this year and perhaps even the beginning of 2025. But within that, there seems to be some pockets of growth, as well as softness. For example, last week, one of your peers had spoken about a recovery in Metro Long Hall, while cable was a bit soft. I'm curious if you have seen similar...

Karl Ackerman: <unk> business for a moment.

Karl Ackerman: Clearly.

Karl Ackerman: You and peers in the ecosystem have pushed out the recovery in telecom from what was roughly.

Karl Ackerman: Roughly June.

Karl Ackerman: This year to the end of this year and perhaps even the beginning of 2025.

Karl Ackerman: But within that there seems to be some pockets of growth as.

Karl Ackerman: As well as softness for example last week one of your peers had spoken about a recovery in metro long haul.

Karl Ackerman: While cable was a bit soft I'm curious if you have seen.

Karl Ackerman: Similar.

Karl Ackerman: Commentaries within the telecom sector. So if you could just double-click on the opportunities you see within telecom, what's working, what's not working, as you progress toward that recovery in that market, that would be very helpful. Okay, Karl.

Karl Ackerman: Commentary within the telecom. So if you could just double click on the opportunities you see within telecom, what's working what's not working.

Karl Ackerman: As you progress toward that recovery in that market that would be very helpful.

Chuck Mattera: Good morning. Thanks. Back, please.

Speaker Change: Okay. Good morning, Thanks Vivek. Please.

Beck Mason: Sure, thank you for the question. So we do see a sort of mixed areas of strength and weakness in the telecom market. One area of strength we have seen is in the Chinese market.

Speaker Change: Sure. Thank you for your question so.

Speaker Change: Do you see sort of a mix.

Speaker Change: Areas of strength and weakness in the telecom market one area of strength, we have seen is in the China market and there we see build outs by mode.

Beck Mason: And there, we see buildups by most of the major carriers going on with new CPSL networks. And we have some differentiated products in our pump laser and our WSS that give us strength in that market. We expect that to continue through the year. I think the other thing for us where we see a growth opportunity coming in FY25 is really the digital coherent optical pluggable market space. And that's where we have a number of really differentiated products coming to market, including our 100 gigabyte QSP28CR that is in tremendous demand from our customer base.

Speaker Change: Most of the major carriers going on with new <unk> networks, and we have some differentiated products and our pump laser and our WSI.

Speaker Change: It gives us strength of that market and we expect that to continue through the year I think the other thing for us where we see growth opportunity coming in FY 'twenty five is really on the digital coherent optical applicable market space.

Speaker Change: That's where we have a number of really differentiated products coming to market, including our 100 gig <unk> 'twenty HCR that has tremendous.

Speaker Change: Demand from our customer base.

Beck Mason: And we think that will help us sort of lift up to our FY25. So our view of what's going to happen in the market and with our growth may be a little bit decoupled from what some of our competitors are seeing. Thanks. I'll keep your questions. Yes, it did. I'll see you on the floor.

Speaker Change: We think that will help us sort of lift up to our FY 'twenty five.

Speaker Change: Our view of what's going to happen in the market and with our growth.

Speaker Change: Maybe a little bit decoupled from some of our competitors are seeing.

Speaker Change: Okay.

Speaker Change: For your question.

Dan: Yes, Dan ill.

Dan: I'll cede the floor. Thank you.

Dan: Thank you Mac.

Karl Ackerman: Thank you. Thank you. One moment for our next question. Our next question comes from Jed Dorsheimer on behalf of William Blair. Your line is open.

Speaker Change: One moment for your next question.

Jed Dorsheimer: Our next question from line of Jed door Shimer from William Blair. Your line is open.

Jed Dorsheimer: Hi, thanks for taking my question. So one in a follow-up, I guess, first, just on the silicon carbide, maybe as additional clarification, I know you have the, you know, the power outage, but wondering if you could give an update on progress on your 200 millimeter development activities and any metrics that you can provide. And then I have a follow-up. Okay, thank you, Jed. Sohail, please.

Jed Dorsheimer: Hi, Thanks for taking my question. So wanted to follow up I guess first just on the Silicon carbide maybe is that.

Jed Dorsheimer: Additional.

Jed Dorsheimer: Clarity I know you had that.

Jed Dorsheimer: How're outage, but I'm wondering if you could give an update on progress on your 200 millimeter development activities.

Jed Dorsheimer: Any metrics that you can provide and then I have a follow up.

Speaker Change: Okay. Thank you Jed so real pleased.

Sohail A. Khan: Hi. Thanks for the question. 200 millimeters is going quite well.

Jed Dorsheimer: Hi.

Speaker Change: Thanks for the question.

Speaker Change: 200 millimeter is growing quite well.

Sohail A. Khan: We are supplying pre-production quantities to multiple customers, and the feedback from the customers is very good, both on quality as well as their ability to bring their lines up. As you know, the ramp is going to be dependent on when their fabs are up. So from our standpoint, we are ready, and we are adding capacity more to ramp up, and we will see much more contribution coming in next fiscal year. That's great. Thanks. And then, as a follow up.

Speaker Change: We are supplying pre production quantities to multiple customers.

Speaker Change: And the feedback from the customer.

Speaker Change: Very good both from quality as well as the ability to bring that lines up.

Speaker Change: As you know.

Speaker Change: Ramp is going to be dependent on when their fabs are up so from our standpoint yesterday and Debbie.

Speaker Change: Adding capacity.

Speaker Change: To ramp and we will see.

Speaker Change: Bob.

Speaker Change: Much more contribution coming in next fiscal year.

Speaker Change: That's great. Thanks, and then as a follow up.

Jed Dorsheimer: You know, clearly, there's a lot of demand in the data comm side of the business, and it's fantastic that you guys are playing well into that. As we think ahead a little bit, I'm just curious, something that's a bit out of your control, you know, how you think about the power challenges, and specifically, you know, lead times around things like transformers, which seem to be limiting data center growth. And I'm curious, you know, how a company that's selling components into that market is thinking about some of those structural challenges in developing with respect to AI. Thank you, Jed. Giovanni, would you like to take this?

Speaker Change: Clearly there is a lot of demand in the Datacom side of the business and it's fantastic that you guys are.

Speaker Change: <unk> well into that as we think out a little bit.

Speaker Change: Just curious something that's a bit out of your control.

Speaker Change: You are thinking about.

Speaker Change: Power challenges in specifically.

Speaker Change: Lead times around things like Transformers.

Speaker Change: It seemed to be limiting data center growth and I'm curious.

Speaker Change: How a company that's selling components into that market is thinking about some of those structural.

Speaker Change: Challenges in in developing.

Speaker Change: With respect to AI.

Speaker Change: Okay. Thank you Johnny we're doing can take them now of course, we read about it we know it will mask as worried about it about the transformers for the Transformers.

Giovanni Barbarossa: Yeah, of course. We read about it. We know Elon Musk is worried about it, about the transformers. For the transformers. I mean, that's a very well-known challenge.

Giovanni Barbarossa: We keep focusing on, ultimately, what's driving our demand. You know, recently, we have seen that the optical bandwidth required by GPUs is actually growing. It's not only the number of GPUs per cluster that's growing; the demand is strong in terms of number of GPUs. But what's very important for us is the increase in optical bandwidth required by GPUs. That's driving the need for 1.6 era and beyond, and that will continue for quite some time, as GPUs require more and more bandwidth for their input-output.

Speaker Change: That's a very well known challenge we have.

Speaker Change: Keep focusing on ultimately what's driving our demand.

Speaker Change: We have seen that the optical bandwidth required by GPU is actually growing is not only the number of gpus, but cost is growing the demand is strong in terms of number of Gpus, but what's really important for us is the increasing optical bandwidth required by GPU.

Speaker Change: Driving the need for one <unk> and beyond.

Speaker Change: That will continue for quite some time.

Speaker Change: <unk> GPU require more and more bandwidth for their input output.

Giovanni Barbarossa: So those are really the fundamental drivers for our growth, which I don't think are going to change. And, of course, there could be challenges in infrastructure from the infrastructure standpoint, but those are not really up to us to solve. Obviously, we may be dependent on them, but the fundamental drivers for our growth will remain unchanged. Thank you, Giovanni.

Speaker Change: Really the fundamental drivers for our growth, which I don't I don't think theyre going to change and of course, there could be challenges in infrastructure from the infrastructure standpoint, but those will not living up to us to solve but we obviously, we may be dependent on them, but the fundamental drivers for our growth will remain unchanged.

Speaker Change: Yeah.

Jed Dorsheimer: Jed is particularly focused on the total energy required by the system. Hope that was helpful, Jed. It is. Thank you, Chuck. I appreciate it. And thanks, Giovanni. Thank you. One moment for our next question. And our next question will come from Mark Miller from the Benchmark Company. The line is open.

Speaker Change: Thank you Jay.

Speaker Change: <unk> is great.

Speaker Change: As J J is particularly focused on the energy total energy required by the system hope that was helpful. Jonathan.

Speaker Change: It is thank you Chuck I appreciate it and thanks to you about it.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question will come from the line of Mark Miller from the benchmark company.

Mark Miller: Your line is open.

Mark Miller: Congratulations on your progress. I'm just wondering if you can give us some color on rodents and also if there are any new opportunities coming along for vixels and where you are positioned in that market. Okay, good. Good morning, Mark. Thanks for your question. We'll take it in two parts. First, Beck, we'll take the rodent question. Giovanni will address the vixel question.

Mark Miller: Congratulations on your progress I was just wondering if you can give us some color on on road arms and also are there any new opportunities coming along for Victoza and where are you positioned in that market.

Mark Miller: Okay.

Mark Miller: Okay. Good morning, Mark. Thanks for your question, we'll take it in two parts prospect will take the eroding question. Jerome you will address the victim of a question.

Beck Mason: Yeah, thanks, Mark. I'm actually really excited you asked that question because one of the most important new trends in ROADMs is really the drive towards C++L network deployments, which have been kind of on the drawing board for many years and are now finally coming and being deployed. And one thing that we have that really no one else in the industry has is a true C++L ROADM. So that is, there are two bands in the optical communication space that we use for long haul DWM communication. One is the C band, and one is the L band.

Jerome: Thanks, Mark and I'm actually really excited you asked that question because.

Beck Mason: And by expanding to both C plus L, we double the capacity in the fiber. So all of the new networks being deployed today include both C and L. And we're the only company that has a Rotem solution that actually covers both bands simultaneously in a single part. And that's driving a lot of upside opportunity for us as we go forward. The first place we see that really emerging is in China.

Jerome: What are the most important new trends in <unk> is really the drive towards supercell network deployments, which have been kind of on the drawing board for many years and are now finally really coming and being deployed and one thing that we have that really no. One else in the industry has is a true super algorithm. So that is.

Jerome: Theres two bands and then at the communication space that we use in long haul Dws communications one of the C band and one is the L band and buy.

Jerome: Expanding to both shippers that we double the capacity of the fiber. So all of the new networks being deployed today include both P&L and we are the only company that has eroded solution that actually covers both bands simultaneously in a single part and that's driving a lot of upside opportunity for us as we go forward. The first place we said really emerging.

Jerome: In China, but we know that's very important for the Hyperscale is North America and some of our higher capacity build out. So we are excited about what's going to happen in the future and are items now the nature of the network is evolving but that is still evolving to one that is really strongly dependent on use of <unk> in terminal <unk> and other applications in the network. So so we think thats a positive.

Beck Mason: But we know that's very important for the hyperscalers in North America and some of the higher capacity buildings. So we are excited about what's going to happen in the future with Rotems. Now, the nature of the network is evolving, but that is still evolving to one that is really strongly dependent on the use of Rotems in terminal MUXs and other applications in the network.

Giovanni Barbarossa: So we think that's a positive long-term driver for us. Okay, great. From the telecom systems to the Datacom laser. Vixels, Giovanni?

Jerome: Long term driver for us okay great.

Jerome: Telecom systems.

Giovanni Barbarossa: So on Vixel, at the LRC, we reported the progress that we've been making on the development of 200G Vixels, which we think would be a game-changer in the industry as many, many customers, as well as, generally, even competitors, kind of ruled out the possibility for Vixels to go even above, you know, beyond 100G. So that's very exciting. The good news is that we also had our main competitor, probably the only competitor we have in this space, that also reported progress on it, which is very positive for the industry because the industry will need at least two suppliers to support the growth.

Jerome: On the Datacom laser fix was joining.

Jerome: Victor.

Jerome: See we reported the progress that we've been making on the development of <unk>, which we think would be.

Jerome: That game changer in the industry has many many.

Jerome: Customers' willingness generally even compared to those kind of ruled out the possibility for VIX has to go even above and beyond the 100 G. So.

Jerome: The exciting the good news is that we.

Jerome: We also had our main competitor probably the only compared to that we have on the space. They also reported progress on it which is very positive for the industry because dealers will need at least two suppliers to support the growth and then.

Jerome: We are also working on.

Giovanni Barbarossa: And then, you know, we are also working on 400G Vixels for the future. You know, it's something that we didn't mention, and so we'll keep the roadmap going. And if you ask in general about Vixels, I also wanted to mention the progress on multi-junction Vixels for behind-display applications, which are, you know, they're required to increase the power coming through the display in some cases, in some user cases.

Jerome: 400, <unk> it for the future, it's something that we didn't side and so we will keep the roadmap going.

Jerome: If you ask in general about <unk>.

Jerome: Also wanted to mention.

Jerome: The progress on multi channel mix of full behind display applications, which is as you know.

Jerome: That required to increase the power coming through the display in some cases some user cases. So that's also something that we have.

Jerome: We have been working on and will provide the growth for the top line, which is already experiences experiencing today with the one on the <unk>.

Jerome: Incredible growth over the past several quarters. So in the next few quarters too.

Giovanni Barbarossa: So that's also something that we have been working on and will provide part of the growth for the product line, which is already experiencing incredible growth over the past several quarters and the next few quarters. Thank you, everyone. Thank you, Mark. Thank you. One moment for our next question. Our next question comes to mind from Ananda Baruah from Loop Capital. Your line is open.

Speaker Change #102: Thank you. Thank you.

Speaker Change #103: Thank you Mark.

Speaker Change #104: Thank you one moment for our next question.

Speaker Change #102: Okay.

Speaker Change #102: Okay.

Speaker Change #106: Our next question comes from right now.

Jim Ricchiuti: The ruler from loop capital your line is open.

Ananda Prosad Baruah: Yeah, good morning, guys. Thanks for taking the question. I really appreciate it.

Unknown Executive: Hey, good morning, guys. Thanks for taking the question really appreciate it.

Ananda Prosad Baruah: I guess a little bigger picture on transceivers, you know, as you guys progress and as the market progresses from 800 to 1.6 to 2.2. Interested in understanding any net new technical hurdles and challenges that could occur necessary to be successful there? And I guess any, I'm going to call them business-related, dynamics that are going to increasingly manifest the things that it'll take to be successful there and wondering if you guys have a share gain opportunity in that context and what that whole, you know, that whole dynamic could look like. And then I have a quick follow-up. Thanks. Hi Melinda. Thanks for the question. This is Lee Xu.

Unknown Executive: I guess, a little bigger picture on transceiver.

Speaker Change #102: No.

Jim Ricchiuti: As you guys progressed and as the market progresses from 800 to $1 62.

Speaker Change #108: Interested in understanding.

Speaker Change #102: Any.

Speaker Change #102: Any net new technical hurdles and challenges.

Speaker Change #102: So does it could occur.

Speaker Change #102: Necessary to be successful, there and I guess any I'm going to call them business related.

Speaker Change #102: Dynamic that they've got.

Speaker Change #102: Increasingly that SaaS that will take to be successful there and wondering if you guys have a share gain opportunity in that context.

Speaker Change #102: And what that whole that whole dynamic could look like they have a quick follow up thanks.

Speaker Change #102: Yeah.

Speaker Change #102: Okay.

Lee Xu: So this is a very key question. Thanks for asking. For this development, it is indeed getting higher and higher data rates. The technical challenge is It's getting more complex, but to us, there are several advantages also that we got to use a higher portion of our internal lasers and components. And also we found that the competition landscape is becoming, there are fewer people, right? For example, for the current 800G shipment, so far, it's only a small number of companies that would be able to support that in high volume. And we expect similar things for the 1.6T and the 3.2T. So we do think that we can gain market share, and in the next few months, I've got it.

Speaker Change #102: Hi, Linda Thanks for the question. This is Lisa so as a system very key question. Thanks for asking.

Speaker Change #102: Matt.

Speaker Change #109: For this development and it is indeed getting higher higher data rate the technical challenges.

Speaker Change #109: He is getting more complex and but to US. There are several advantages also that we got to use a higher portion of our internal lasers and components and also we found that.

Speaker Change #102: The competition landscape becomes.

Speaker Change #102: Fewer people are ideal for that for the current 800, you ship. It. So far is only a small number of companies that would be able to support that and Kai volume.

Speaker Change #102: We expect a similar things on a $1 63.

Speaker Change #102: <unk>. So we do think that we can gain market share.

Speaker Change #102: And over the next few years.

Speaker Change #111: Okay got it.

Speaker Change #111: Embark agco.

Lee Xu: You are your market. Oh, sorry, go ahead. Yes. You also mentioned if there are any key technical hurdles that we won't be able to overcome. So far, no. Our development has been going on track, and we are confident that we'll be able to release the product on time.

Speaker Change #112: Oh, sorry, Okay, yes right.

Speaker Change #112: You also mentioned if there is any key technical hurdles that we won't be able to overcome so far no we are.

Speaker Change #112: Our development has been going on track.

Speaker Change #102: We're confident that we'll be able to release the product on time.

Chuck Mattera: This evolution of the market is going to play right into the strengths of Coherent, and we'll continue to invest, innovate, and use our imagination across both the laser and the transceiver to deliver disruptive capabilities to our customers. The optical circuit switch is just one example, not laser-based, but the optical circuit switch is just another example of the kind of innovation power in the company and the ability of the company to begin to catalyze new markets that may have billions of dollars worth of opportunity for us. So, thank you for your question, Ananda. Thanks, guys. I appreciate it. I'll leave it be.

Speaker Change #102: This evolution of the market is.

Speaker Change #102: Going to play right into the strengths of coherent.

Speaker Change #102: And we will continue to invest innovate and to use our imagination across both the laser.

Speaker Change #102: The transceiver to deliver.

Speaker Change #102: Disruptive capabilities to the customer.

Speaker Change #102: <unk>, which is just one example, nano laser based optical.

Speaker Change #102: <unk> Silicon switch is just another example of the kind of innovation power in the company and the ability of the company beginning to catalyze.

Speaker Change #102: Market new markets, we have doing.

Speaker Change #102: Billions of dollars' worth of opportunity for us. So thank you for your question in on them.

Speaker Change #113: Thanks, guys appreciate it.

Speaker Change #110: I'll leave it there thanks.

Speaker Change #110: Thanks.

Speaker Change #114: Thank you one moment for our next question.

Ananda Prosad Baruah: Thanks. Thank you. One moment for our next question. Our next question will come from Dave Kang from B. Reilly. Your line is open. Thank you. Good morning. Regarding that OCS, just wondering if I could get any update. How big is it right now?

Speaker Change #110: Our next question comes from the line of Dave Kang from B Riley Your line is open.

David Kang: Thank you good morning regarding that.

David Kang: Just wondering if I could get any update how big is it right now any new customer wins and who are your main competitors.

David Kang: Any new customer wins? And who are your main competitors? Okay. Thank you, Dave. Good morning. Julie, do you want to take this?

David Kang: Okay. Thank you Dave Good morning, Julie if you want to take that sure yes, Dave. Thanks for the question. So yes. This is Chuck was just saying that optical circuit switch I think is a great example on that power of innovation of our company I'm sure you saw demo and released at OFC, where we're using our <unk>.

Julie Sheridan Eng: Sure. Yeah, Dave. Thanks for the question. So yeah, as Chuck was just saying, that optical circuit switch is a great example of the power of innovation in our company. I'm sure you saw a demo and release at OFC where we're using our liquid crystal technology. So it's a great example of technology inside the company that we have a long history of. We ship it into the undersea market, so it's very, very reliable.

Chuck Mattera: <unk> Crystal technology. So it's a great example, where we Havent technology inside the company that we have a long history of we ship into the undersea market is very very reliable and we saw a market opportunity, where we could use that same technology for and different market need in the optical circuit switch. So it was real.

Julie Sheridan Eng: And we saw a market opportunity where we could use that same technology for a different market need, in the optical circuit switch. So I was really proud of our team who delivered a great demo for OFC. It is new, incremental revenue for us. We think our liquid crystal is a great solution. It operates at a lower voltage than MEMS.

Chuck Mattera: Proud of our team who delivered a great demo for OFC.

David Kang: Is new incremental revenue for US we think are our liquid crystal is a great solution.

David Kang: It operates at a lower voltage than men's and so that leads to higher reliability, but also lower power, which is very very important and the data center.

Julie Sheridan Eng: And so that leads to higher reliability but also lower power, which is very, very important in the data center. We're engaged with many multiple customers. And we see shipping samples all within the next few months. And I think we called out in our shareholder letter that we could see revenue on that product by our fiscal year 26. And yeah, we just feel like we have a really strong position there, so I'm excited about it.

Julie Sheridan Eng: Thank you, Julie. Thank you. And my follow-up is on 800GIG.

David Kang: We are engaged with many multiple customers.

David Kang: And.

David Kang: We see shipping samples all within the next few months.

David Kang: And.

David Kang: I think we called out in our shareholder letter that we could see revenue on that product by our fiscal year 'twenty six.

David Kang: And.

Speaker Change #120: Yes, we just feel like we have a really strong position so I'm excited about it.

Speaker Change #121: Thank you Julie.

David Kang: You mentioned that orders were down sequentially from a very strong fiscal 2Q. Just wondering what to expect during this quarter. Magnus, do you want to take that?

Julie Sheridan Eng: Thank you and my follow up is on 800 gig.

Speaker Change #122: You mentioned that orders were down sequentially from very strong fiscal <unk>, just wondering what to expect during this quarter.

Magnus Bengtsson: Sure, I can take that. Thanks for the question, Dave. So, as we noted in the shareholder letters, lead times have come down, and so customer ordering patterns have normalized to be within lead time, whereas a couple of quarters ago, they ordered many quarters out. So I think we're back to a more normal order pattern. Thank you. Thank you, Dave.

David Kang: Mike do you want to take that sure I can take that thanks for the question Dave So.

Mike: As we noted in the shareholder letters lead times have come down and so customer ordering patterns have more normalized two.

Mike: To be within lead time, whereas cut.

Mike: A couple of quarters ago, they ordered many quarters out so I think we're back to a more normal order pattern.

Speaker Change #117: Thank you.

Speaker Change #118: Thank you Dave.

David Kang: Thank you. One moment for our next question. Our next question comes from the line of Jim Ricchiuti from Needham Company. Your line is open. Hi, thank you. Good morning.

Speaker Change #125: Thank you one moment for your next question.

Speaker Change #118: Our next question will come from the line of Jim <unk> from Needham <unk> Company. Your line is open.

Jim Ricchiuti: What drove that 30% increase in laser bookings? I'm assuming the ELA display business was a big driver. Can you say what the bookings were, how they performed excluding display?

Jim Ricchiuti: Hi, Thank you good morning, what drove that 30% increase in laser bookings I'm, assuming the DLA display business was a was a big driver can you say what the bookings how it performed excluding dislike.

Jim Ricchiuti: Yes. Thank you. Good morning, Jim.

Speaker Change #124: Yes. Thank you good morning, Jim.

Unknown Executive: Good morning, Matt. You're welcome. Take care. Yeah, so I'll have to do the math, but you're right.

Speaker Change #119: Thank you.

Unknown Executive: We saw a good uptick in display orders in the quarter, and I think that drove the lion's share of the uptick. We saw orders from capacity increase in China. And we actually expect similar order performance in the display market in the current quarter in Q4. So most of that uptick was displayed.

Speaker Change #128: Yeah. So.

Speaker Change #127: So yes.

Speaker Change #126: I'll have to do the math, but you are right.

Speaker Change #126: Six orders in the quarter, we saw a.

Speaker Change #126: And good uptake in display orders and I think that drove the lion's share of the uptake.

Speaker Change #119: We saw orders from capacity increase in China, and we actually expect similar order performance in the display market in the current.

Speaker Change #119: Current quarter in Q4.

Speaker Change #119: So most of that uptick was whats display.

Unknown Executive: Thank you. Thank you. Precision Manufacturing right behind it. Yeah, display number one. Yeah, display number one.

Speaker Change #129: Got it thank you for your manufacturing.

Unknown Executive: Precision Manufacturing also saw an increase, and I think that will see a further increase in Q4. And then in the semi-vertical, mostly flat.

Speaker Change #119: Precision manufacturing right behind it yes, everyone, yes display number one precision manufacturing.

Speaker Change #119: So saw an increase and I think that we'll see a further increase in Q4, and then into semi vertical mostly flat.

Speaker Change #119: Ashley.

Unknown Executive: That ties into it with the next question on precision manufacturing. What's driving that? Is it a case of easy comparisons?

Speaker Change #119: Ties into the next question on precision manufacturing whats driving that is the case of easy comparisons or are you guys seeing a turn in this part of the business.

Unknown Executive: Or are you guys seeing a turn in this part of the business? I think what we're excited about in the business is what we're doing in the welding space to target EV applications, where, you know, we have broad customer engagements, and we're seeing increasing depth in terms of customer engagements. We've seen a little bit of an uptick in China, in the broader market in China, but we haven't yet seen the broader market turn.

Speaker Change #119: I think what we're excited about in the business is what we're doing in the welding space targeted towards EV applications.

Speaker Change #119: Where we have broad customer engagements and we're seeing increasing depth in terms of customer engagements.

Unknown Executive: You know, for the rest of that space, as you know, it's pretty macro-dependent, and we haven't really seen that changing in a broad way. So there are some pockets of upside rather than a broad comeback. Decision Manufacturing. Thank you. Thanks, Mattis.

Speaker Change #119: We've seen a little bit of an uptick in China, and the broader market in China, but we haven't yet seen the broader market turn for the rest of that space as you know, it's pretty macro dependent.

Speaker Change #119: Sure.

Speaker Change #119: We haven't really seen that change in in a broad way. So there is there is some pockets of upside rather than a broad comeback and precision manufacturing.

Speaker Change #130: Thank you.

Jim Ricchiuti: Thank you, Jim. Thank you. One moment for our next question. Our next question comes from Tim Savageaux from Northern Capital Markets. Hi, good morning.

Speaker Change #131: Thanks, Matt.

Speaker Change #131: <unk>.

Speaker Change #133: Thank you one moment for our next question.

Speaker Change #133: Yeah.

Speaker Change #130: Our next question will come from the line of Tim Silver go from Northern capital markets. Your line is open.

Timothy Paul Savageaux: I want to come back to the order and backlog discussion. I guess the commentary was about more normalized, but you've seen orders come down, I think three quarters in a row now. I think the book to bill is under below one in the quarter, and you did see a big surge of orders last year driven by networking in Q4. Sounds like you don't expect to see that again as lead times normalize.

Tim Silver: Hi, Good morning, I wanted to come back to the order and backlog discussion.

Tim Silver: And I guess the commentary was about more normalized but <unk> seen orders come down I think three quarters in a row now.

Tim Silver: I think the book to Bill was below.

Tim Silver: Below one in the quarter and you did see a big surge of orders last year, driven by networking and Q4.

Speaker Change #135: Sounds like you don't expect to see that again.

Speaker Change #135: Lead times normalized, but what should we expect for the direction of overall <unk>.

Speaker Change #135: Orders and backlog for the company.

Timothy Paul Savageaux: But what should we expect for the direction of overall orders and backlog for the company heading into fiscal Q4 here? Richard, you know, just in general.

Speaker Change #135: Heading into fiscal Q4 here.

Speaker Change #137: Yes, Richard.

Richard: Just in general Okay. So in general.

Rich Martucci: Okay, so in general. Our book the bill, you know, quarter over quarter, we did see a below one book to bill in Q3. Really, we expect the year's backlog to remain flat pretty much year over year, but we still believe that a majority of the strength in the markets in terms of long-term growth will increase the total backlog. We're expecting a book to bill, really, around one in Q4. We're focused on it, Tim. It's a critical success factor going forward, so we're totally focused on it as a team.

Speaker Change #138: Our book to Bill.

Speaker Change #138: Quarter over quarter, we did see.

Speaker Change #138: In Q3.

Richard: Below one book to Bill.

Richard: We expect the year backlog remained flat pretty much year over year.

Richard: We still are.

Richard: Believed that a majority of the strength in the markets.

Richard: In terms of long term.

Richard: We will increase the total backlog.

Richard: We're expecting a book to Bill.

Richard: Yes.

Richard: Really around one if not Q4, we're focused on it Tim.

Richard: Critical success factors going forward. So we are totally focused on as a team.

Rich Martucci: And we'll have more to say about 25 in 90 days from now, but it's a top priority in the company. I appreciate it.

Richard: Ken.

Richard: We'll have more to say about 25.

Richard: <unk> 90 days from now.

Richard: It's a top priority in the company.

Timothy Paul Savageaux: And just a quick follow-up, I think there was a comment about the customer base broadening out, I believe, specifically in 800 gigabit, but maybe in Datacom generally. And along those lines, I wonder if you can address the kind of concentration in Datacom, whether you had any 10% customers overall in the quarter, and what sort of major customers are driving the Datacom segment at this point. We report 10% customers once a year, as you know, at the end of the fiscal year, Tim, we won't have any, any comment on that.

Speaker Change #136: I appreciate it and just a quick follow up I think there was a comment about the customer base broadening out.

Speaker Change #140: Believe specifically in 800 gig, but maybe in Datacom generally and along those lines I Wonder if you can address kind of concentration in datacom, whether you had any 10% customers overall in.

Speaker Change #140: In the quarter and what sort of major customers are driving that datacom.

Speaker Change #140: Segment at this point.

Timothy Paul Savageaux: But we can give you just a general flavor for the broadening of the base, which we saw evidence of at OFC with just a tremendous amount of interest from the industry fanning out to two additional layers. As of the beginning of the shipment of the 800G, we have two major customers that we, we all know who they are. Now, you know, in the past quarter, we have over four customers that have ordered a significant amount, multi-million dollars from us. And we're also, in the past two quarters, have multiple design wings of our 800G, various 800G products, you know, from short-reach to long-reach. You know, with key customers.

Speaker Change #140: We reported 10% customers once a year as you know at the end of the fiscal year. Two we won't have any any comment on that.

Speaker Change #139: He can give you just a general flavor.

Speaker Change #139: Broadening.

Speaker Change #139: The broadening of the base, which we saw evidence over at OFC with just a tremendous amount of interest from from the from the industry standing up to two additional layers.

Speaker Change #139: The market is right.

Speaker Change #139: As of the beginning of the shipment of 800.

Speaker Change #139: And we have two major customers that would be part of that.

Speaker Change #139: We all know who they are.

Speaker Change #139: Now.

Speaker Change #139: In the past quarter, we have.

Speaker Change #139: <unk>.

Speaker Change #139: Over four customers that order <unk>, a multimillion dollars from us.

Speaker Change #139: And we're also.

Speaker Change #139: In the past two quarters have multiple design wins of our 800 G. Various AI product for.

Speaker Change #139: Storage to low reach.

Lee Xu: So we think going forward into FY25, the 800G is going to have a much broader customer base. Great. Thank you, Lee. Thanks very much.

Speaker Change #139: With key customers. So we think going forward into FY 'twenty five.

Speaker Change #139: 800, <unk>, it's going to have a much broader customer base.

Speaker Change #143: Great. Thank you Lee.

Lee: Okay. Thanks, Steve.

Lee Xu: Thank you. One moment for our last question. And our next question will come from Christopher Rolland from Susquehanna. Your line is open.

Speaker Change #141: Thank you for a moment for our last question.

Speaker Change #141: Yeah.

Speaker Change #141: And our next question comes from the line of Christopher Rolland from Susquehanna. Your line is open.

Christopher Adam Jackson Rolland: Hey guys, thanks and congrats on the results. And this may have been answered, but the 500 gig, if you could just talk about the lead times coming down, is that more of like a demand issue or a supply issue? And you guys mentioned a pause for a couple of quarters. Is that two quarters?

Christopher Adam Jackson Rolland: Hey, guys, Thanks, and congrats on the results and this may have been.

Christopher Adam Jackson Rolland: Answered but.

Christopher Adam Jackson Rolland: The 500 gig.

Christopher Adam Jackson Rolland: If you could just talk about the lead times coming down is that more of a like a demand issue or a supply issue.

Christopher Adam Jackson Rolland: Is that three quarters? And is there like this inventory digestion going on here as well? Is this kind of exacerbating this pause?

Christopher Adam Jackson Rolland: And you guys mentioned a pause for a couple of quarters is that two quarters is that three quarters.

Christopher Adam Jackson Rolland: And is there like this inventory digestion going on here as well is this kind of exacerbating.

Christopher Adam Jackson Rolland: This pause like it did a ton of people was there like an initial rush for <unk>.

Christopher Adam Jackson Rolland: Did a ton of people, was there like an initial rush for 800 GAI products, and this market just got ahead of itself, and people bought a little bit more? I'm just trying to understand this pause a little bit more here, particularly as when it unpauses, it looks like it'll be the beginning of the 1.6 market, kind of. So just trying to put all those pieces together, you know, the demand issue, the supply issue, inventory digestion, etc. Okay, Chris. Good morning. Can you clarify? You said something about 500 G. Oh, did I say 500? I meant 800 if I said 500.

Christopher Adam Jackson Rolland: 800 Gi products in this market just got ahead of itself and people bought a little bit more.

Christopher Adam Jackson Rolland: I'm just trying to understand this pause a little bit more here, particularly as one of <unk>. It looks like it'll be at the beginning of the one six market.

Speaker Change #148: Kind of.

Speaker Change #148: So just trying to put all those pieces together is demand issue supplier shoe inventory digestion et.

Christopher Adam Jackson Rolland: Et cetera.

Speaker Change #144: Okay Chris.

Speaker Change #144:

Chris: Good morning can you clarify you said something like 500 G.

Chris: 500.

Chris: 800, if I said 500.

Speaker Change #146: Okay, Okay alright.

Chuck Mattera: Okay, all right. Well, we will try to address that. But for sure, as I said to Tim, that bookings and building up our backlog is a top priority for the management team. However, as we indicated, we are going to grow again in the fourth quarter, and we're building up this capability to continue to expand our output in 800G transceivers. Lee, why don't you give a little more color?

Speaker Change #147: We will try to address that.

Speaker Change #147: But.

Speaker Change #147: For sure as I said to Tim.

Speaker Change #147: Bookings and building up our backlog is a top priority for the management team.

Speaker Change #147: However.

Speaker Change #147: As we indicated we are going to grow again in the fourth quarter and we are building up this capability to continue to expand.

Speaker Change #147: Our own put 800 gig transceivers. So once you give a little more color.

Lee Xu: Thanks for the question, Tim. First of all, 800G, the lead time. A few quarters ago, people did place orders for close to a year. That's because at that time, neither the material nor the capacity were fully ready.

Speaker Change #150: Okay. Thanks for question Tim.

Speaker Change #149: First for 800 achieved the lead time.

Speaker Change #152: Few quarters ago people to place orders for close to a year and that's because at that time, neither the material, Florida capacity are fully ready so people are willing to.

Speaker Change #151: Place to longer term orders secure the capacitive secure material now as we are.

Speaker Change #151: A couple of the companies ramping up the <unk> shipment.

Speaker Change #151: So capacity is largely there, although we are still expanding.

Speaker Change #151: And the next couple of quarters.

Speaker Change #151: And then the material lead time also came down so.

Speaker Change #151: That's that's why.

Lee Xu: So people are willing to, you know, place longer-term orders, secure the capacity, secure the material. [inaudible] As Magnus, our chief revenue officer, said, we see customers placing orders within a shorter lead time. I think that's very normal in our industry, and that does not change the forecast our customers give us for the future growth of the 800G and related products. That's one question that you asked.

Speaker Change #151: Magnus.

Speaker Change #151: Our chip.

Speaker Change #151: Hum.

Speaker Change #151: Our revenue Officer said.

Speaker Change #151: We see customers, placing orders within a shorter lead time.

Speaker Change #151: I think that's very normal in our industry.

Speaker Change #151: Yeah.

Speaker Change #151: That does not change.

Speaker Change #151: Forecast our customers gave us.

Speaker Change #151: The future growth of the 800 G related to products. That's one question.

Speaker Change #151: That you asked at the other is that you said that there is a pause for.

Lee Xu: The other is that you said that there is a pause for products that seem to be below 800G. What we see is that, indeed, there's some kind of squeezing out effect as people are putting more money on 800G for AI expansion. There's some of the capex for normal networking is squeezed out, but we do see that in a few quarters start to go back up.

Speaker Change #151: Products that seem to be the lowly Henry Chi.

Speaker Change #151: What we see is that indeed, there is some kind of.

Speaker Change #151: Squeezing out effect as people are putting more money.

Speaker Change #151: 800 G for AI expansion.

Speaker Change #151: There is some.

Speaker Change #151: Of the Capex for normal.

Speaker Change #151: Working.

Speaker Change #151: Squeezed out of that.

Speaker Change #151: But we do see that in a few quarters start to.

Speaker Change #151: Go back up.

Lee Xu: But overall, you know, people, my friends, switch to 800G for their normal networking in addition to using AI. So that. Overall, that's, that's our view of the current marketplace. Okay. Thank you, Lee. Great. That was a great clarification.

Speaker Change #151: But overall people my.

Speaker Change #151: Switch to 800 GE full there are normal networking.

Speaker Change #151: Listen to using on AI.

Speaker Change #151: That's overall that's our.

Speaker Change #151: That's our view of the current market place.

Speaker Change #151: Julie.

Speaker Change #151: Great.

Speaker Change #153: That was a great clarification.

Lee Xu: As I think out to the 1.6T cycle, you know, every company in this industry has its different kind of strengths and weaknesses. And, you know, there's probably going to be three technologies, laser technologies, you know, Vixels, EMLs, and SIFO, that are going to address this 1.6 opportunity, particularly the AI opportunity. I just wanted to get a clear picture, you know, what are your capabilities? What are your strengths around these three technologies? And What are your ramp times?

Speaker Change #151:

Speaker Change #151: As I think of out to the one six T cycle every company in this industry has its different kind of strengths and weaknesses.

Speaker Change #151: And there's probably going to be three technology laser technologies vessels MLS and FIFO that are going to address this one six opportunity, particularly the AI opportunity.

Speaker Change #154: I just wanted to get a clear picture what are your capabilities. What are your strengths around these three technologies and what are your ramp times.

Christopher Adam Jackson Rolland: Like, for example, are you initially addressing 1.6 with EMLs or SIFO? If not SIFO, like when can you kind of hard move over to SIFO technologies, which I think are a little more cost effective? Maybe you can talk about where these three technologies kind of intercept 1.6 for you guys. Okay. Now, Julie, do you want to take it?

Speaker Change #154: Like for example, your address.

Speaker Change #151: Wally addressing one six with <unk> our CFO.

Speaker Change #151: If not safer like when can you kind of hard move over to FIFO technologies, which I think are a little more cost effective.

Speaker Change #151: Maybe you can talk about where these three technologies kind of intercept one six for you guys.

Julie Sheridan Eng: Sure, sure. Yeah, thanks for the question. Yeah, as you accurately said, we can use VCSLS, we can use EMLs. We've actually, in the indium phosphide domain, also introduced our DFBNZ, and we can use silicon photonics.

Speaker Change #151: Okay, Julie do you want to take it sure sure yes. Thanks for the question.

Julie Sheridan Eng: <unk> accurately and we can use the vitol. So we can use <unk>, we've actually in the indium phosphide domain also introduced our DSD envy and we can use silicon photonics and.

Julie Sheridan Eng: And we have, as you know, for VCSLS and the indium phosphide, we design in-house, and we manufacture in-house. For silicon photonics, we're in, as is common in the silicon industry, a fabless, you know, so we have an internal design team, and we use outsourced fabs. And so, what we do is we choose the best technology for the product based on cost and performance. And because we have access to all the technologies, you know, we can choose the one that makes the most sense. As far as transitioning to 200G, the fundamental basic laser technology is actually very similar. Once you go from 100G to 200G, it's still hard, but it's very similar.

Julie Sheridan Eng: And we have as you know for <unk> and the indium phosphide, we design in house and we manufacture in house for Silicon Photonics and.

Julie Sheridan Eng: As is common in the silicon industry is fabulous.

Julie Sheridan Eng: Have an internal design team and we use outsource fabs and so.

Julie Sheridan Eng: What we do is we choose the best technology for the product based on the cost and the performance and because we have access to all of the technologies. We can choose the one that makes the most sense as far as transitioning to 200 G. The fundamental basic laser technology as <unk>.

Julie Sheridan Eng: Actually very similar once you go from 180 to 200, <unk>, it's still hard but it is very similar.

Julie Sheridan Eng: So using this very similar equipment set, we can make the lasers at higher data rates. The test equipment data rate has to go up, so that's something we need to do. But in general, we should be able to handle that RAM challenge the same as we have at 100G. And then, as with everything, silicon photonics isn't always cheaper, but in some cases, for some applications, it may be the best choice.

Julie Sheridan Eng: So using a very similar equipments that we can make the lasers at the higher data rates and the test equipment data rate has to go up so that's something we need to do but in general we should be able to handle that ramp challenge. The same as we have had 100 G and then as things that sounds good.

Julie Sheridan Eng: Photonics isn't always cheaper by in some cases for some applications. It may be the best choice and as we see our products transitioning the silicon Photonics, we feel.

Julie Sheridan Eng: And as we see product transitioning to silicon photonics, we feel very strong in our capability. We've been working on silicon photonics since 2010. We have silicon photonics shipping in production, in product. Our team demonstrated publicly 200G per lane silicon photonics eyes. And one very important thing, and we have actual products in design right now with silicon photonics for Datacom. And one very important thing to never forget is that a silicon photonics-based transceiver actually requires an indium phosphide high-power laser. So even in silicon photonics, you should think silicon photonics and indium phosphide. So in silicon photonics-based transceivers, we can differentiate ourselves also with our indium phosphide lasers.

Julie Sheridan Eng: Very strong in RF capability, we've been working on Silicon Photonics since 2010, we have silicon photonics shipping in production in products.

Julie Sheridan Eng: Our team demonstrated publicly 200 G per lane Silicon Photonics is and one very important and we have actual products in design right now with silicon Photonics for Datacom and one very important thing to never forget is that silicon photonics based transceivers.

Julie Sheridan Eng: Actually requires an indium phosphide high power laser so even in Silicon Photonics, you should think silicon photonics and indium phosphide. So in silicon Photonics based transceivers, we can differentiate ourselves also with lasers.

Julie Sheridan Eng: So we feel in a really good position to address all the technologies for 1.6T at 200G. And just maybe a clarification. Let's say within the first ramp, what do you expect the mix of those three technologies to be? And then, let's say in the second year, how might that shift? Chris, I think we only had time for two.

Julie Sheridan Eng: So we feel I have a really good position to address all of the technologies at tax for $1 60, and 202 per lane.

Speaker Change #155: Thank you Julien.

Julien: And just maybe a clarification.

Speaker Change #155: Let's say within the first ramp what do you expect the mix of the three technologies to be and then let's say in the second year, how might that shift.

Christopher Adam Jackson Rolland: We're running out of time. Chris, to be polite, to be respectful to everybody on the call, we still have another person in the queue, and we've got two minutes left. So we'll take that offline.

Speaker Change #156: Chris I think.

Speaker Change #157: We only have time for two we're running at a time Chris.

Chris: To be respectful to everybody to the call. We saw another person or two we've got two minutes left so we'll take that offline.

Chuck Mattera: Thank you, Chris. Thanks, guys. Thank you. One moment for the next question. And our last question for today will come from Richard Shannon from Craighalam. Your line is open.

Speaker Change #157: Chris.

Chris: Thanks, Kevin.

Chris: Sure.

Chris: For next question.

Julie Sheridan Eng: Yeah.

Julie Sheridan Eng: And our last question for today will come from Richard Shannon from Craig Hallum. Your line is open.

Richard Cutts Shannon: Oh, hi, guys. Thanks for taking my question. Hi Chuck.

Richard Cutts Shannon: Hi, guys. Thanks for taking my question.

Richard Cutts Shannon: Hi, Chuck.

Julie Sheridan Eng: Yes.

Richard Cutts Shannon: I wanted to talk a little bit about <unk>.

Richard Cutts Shannon: Margin structure here as you get to your 40% gross and above 20% EBIT margin. It really kind of want to look at the time in the past, where you've done that which in the first half of fiscal 'twenty two.

Julie Sheridan Eng: Looking at the margin structure by your three segments and specifically I'm curious, whether you expect to be able to get the networking backup in kind of that 19 plus percent EBIT range to enable that or can you do with that being not as high and also maybe if you can.

Speaker Change #160: What kind of revenue levels required to get to that kind of margin structure that'd be great and that's my only question. Thanks guys.

Richard Cutts Shannon: I wanted to talk a little bit about margin structure here as you get to your 40% gross and above 20% EBIT margin. I really kind of want to look at the time in the past where you've done that, which is the first half of fiscal 22, looking at the margin structure by your three segments. And specifically, I'm curious whether you expect to be able to get the networking back up in kind of that 19 plus percent EBIT range to enable that, or can you do it with that being not as high?

Speaker Change #162: Thank you Richard I think I think the.

Speaker Change #161: Youre, 100% rate.

Speaker Change #164: We have achieved over 40% margin.

Speaker Change #163: And the revenue range and that was over $1 3 billion. So as we've crossed that $1 3 billion.

Speaker Change #163: Mark on the topline just really comes down to the mix and even though we believe we can increase the networking margin, we still need as I mentioned to you earlier.

Speaker Change #163: Still need instrumentation, and our industrial markets to improve.

Speaker Change #163: Okay.

Speaker Change #163: Okay.

Speaker Change #163: Yeah.

Richard Cutts Shannon: And also, maybe if you can suggest what kind of revenue levels are required to get to that kind of margin structure, that'd be great. That's my only question. Thanks, guys. Thank you, thank you, Richard. Yeah, I think I think you're 100% right.

Speaker Change #163: But you do have a follow up.

Rich Martucci: You know, we achieved over a 40% margin, and the revenue range of that was over 1.3 billion. So as we cross that 1.3 billion mark on the top line, this really comes down to the mix. And even though we believe we can increase the networking margin, we still need, as I mentioned to you earlier, we still need instrumentation and our industrial markets to improve. Richard, do you have a follow-up? No, that's all for me, Chuck.

Speaker Change #166: No. That's all for me Chuck Thank you.

Richard Cutts Shannon: Thank you. Thank you, Richard. Okay. All right.

Speaker Change #165: Thank you Richard Okay.

Speaker Change #165: Alright.

Paul Jonas Silverstein: If there's no further question in the queue, I'll turn it back over to Paul for any closing remarks. Thank you, Victor.

Speaker Change #165: Thank you and there is no further question in the queue I'll turn it back over to Paul for any closing remarks.

Paul Jonas Silverstein: I want to thank everybody for joining us on the call this morning. Just a heads up, next week on March 14, we will be hosting our third in our series of investor market webinars that will be on our instrumentation market. As with the other two, the goal is to help give you insight into the various aspects of our business. If you'd like to join, it will be accessible on our website.

Paul Jonas Silverstein: Thank you Victor I want to thank everybody for joining us on the call. This morning.

Paul Jonas Silverstein: Next week on March 14th we will be hosting our third in our series of Investor market Webinars, though.

Paul Jonas Silverstein: <unk> market as with the other two the goal is to help give you insight into the various aspects of our business.

Paul Jonas Silverstein: Once again, thank you all for joining us. We look forward to talking to you throughout the day. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day. , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? [inaudible] Good day and thank you for standing by. Welcome to the Coherent Corp. Fiscal Year 24 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode.

Paul Jonas Silverstein: If you'd like to join it will be accessible on our website. Once again. Thank you all for joining US we look forward to talk to you throughout the year.

Speaker Change #167: Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.

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Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised.

Speaker Change: Good day, and thank you for spending available to the coherent Corp fiscal year 'twenty four third quarter earnings call.

Operator: At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question answer session.

Speaker Change: Ask a question during the session you will need to press star one on your <unk>.

Speaker Change: Telephone you didn't hear an automated message advising your hand as rates to withdraw your question. Please press star one one again please be advised that today's conference is being recorded I would now.

Operator: To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Paul Silverstein, Senior Vice President, Investment Relations. Please go ahead.

Operator: Like to hand, the conference over to your first speaker today, Paul Silverstein Senior Vice President Investor Relations. Please go ahead.

Paul Jonas Silverstein: Thank you, Victor. And good morning, everyone. Thank you for joining our third quarter fiscal 2024 earnings call. On the call, we have Coherent Chair and CEO, Dr. Chuck Mattera, and a number of Coherent senior leaders who Chuck will introduce shortly. Yesterday, after the market closed, we issued a press release, posted a shareholder letter, and an updated investor presentation to the investor relations section of our website, and furnished these documents in Form 8-K. This morning, we filed our 10-Q. The shareholder letter contains the financial statements historically included in our earnings press releases and detailed information regarding our operating performance, outlook, visibility, key trends, and abilities.

Paul Jonas Silverstein: Thank you Victor and good morning, everyone. Thank you for joining our third quarter fiscal 2024 earnings call on the call. We are coherent insurance CEO, Dr. Chuck Mattera, and a number of junior and senior leaders with shock will introduce shortly yes.

Paul Jonas Silverstein: Yesterday after market closed we issued a press release posted to shareholder letter and an updated investor presentation to the Investor Relations section of our website and first these documents and the form 8-K.

Paul Jonas Silverstein: Morning, We filed our 10-Q with several letter continues to financial statements historically included in our.

Paul Jonas Silverstein: Earnings press releases.

Paul Jonas Silverstein: Detailed information regarding our operating performance outlook visibility Q trends into buildings before we begin short statement about forward looking statements. We may make and we'll refer to forward looking statements, including statements about future performance and market outlook.

Paul Jonas Silverstein: Before we begin, a short statement about forward-looking statements. We may make and or refer to forward-looking statements, including statements about future performance and market outlook. However, actual results may differ from those in the forward-looking statement. The shareholder letter and our SEC report set forth risk factors that could cause actual results to differ materially.

Paul Jonas Silverstein: Results may differ from those in forward looking statements the shareholder letter in our SEC reports set forth risk factors that could cause actual results to differ materially.

Paul Jonas Silverstein: We assume no obligation to update forward-looking statements, and we speak only as of their respective dates. During this call, we may discuss both GAAP and non-GAAP financial measures. If we do, a reconciliation of GAAP to non-GAAP measures is included in the shareholder letter. We present historical non-gap financial measures to eliminate our discussion of those that are reconciled in the shareholder letter. With that, it is my pleasure to turn the call over to Coherent's Chair and CEO, Dr. Chuck Mattera.

Paul Jonas Silverstein: <unk> no obligation to update forward looking statements, which speak only as of their respective dates. During this call. We may discuss both GAAP and non-GAAP financial measures. If we do a reconciliation of GAAP to non-GAAP measures is included in the shareholder letter.

Speaker Change: We present historical non-GAAP financial measures, we will limit our discussion to those that are reconciled in the shareholder letter with them.

Paul Jonas Silverstein: That is my pleasure to turn the call over to <unk>, Chairman and CEO, Dr. Chuck Mattera.

Paul Jonas Silverstein: Thank you, Paul. The excitement continues at Coherent, where we delivered another solid quarter. Before diving into the details, I will comment briefly on the CEO search process. As previously disclosed, our board has retained a leading executive search firm to help identify and establish a selection committee to evaluate CEO candidates from a pool of both internal and external candidates.

Chuck Mattera: Thank you Paul.

Speaker Change: The segment continues at coherent where we delivered another solid quarter.

Paul Jonas Silverstein: Before diving into the details I will comment briefly on the CEO search process.

Paul Jonas Silverstein: As previously disclosed our board has retained a leading executive search firm to help identify and establish the selection committee to evaluate CEO candidates from a pool of both internal and external candidates.

Chuck Mattera: Our focus is on preparing for and selecting a new CEO with the necessary skills, knowledge, and experience to seamlessly and successfully succeed me and to help ensure coherent, sustainable growth and success. With that said, I will not comment on it further during today's call. Rather, I will focus my brief remarks on our super exciting performance in Q3 and the exciting setup for Q4 and fiscal year 25. As I have stated previously, leadership development is among a CEO's most important responsibilities.

Paul Jonas Silverstein: Our focus is on preparing for and selecting a new CEO with the necessary skills knowledge and experience to seamlessly and successfully succeed me.

Chuck Mattera: To help ensure a coherence of sustainable growth and success.

Chuck Mattera: With that said I will not comment on it further during today's call.

Chuck Mattera: I will focus my brief remarks on our Super exciting performance in Q3.

Chuck Mattera: And the exciting set up for Q4 and fiscal year 'twenty five.

Chuck Mattera: As I have stated previously leadership development is among the Ceos most important responsibilities.

Chuck Mattera: Given the shareholder letter's extensive disclosures, I have asked the following senior leaders to participate in the Q&A portion of today's call: Rich Martucci, Interim Chief Financial Officer; Dr. Giovanni Barbarossa, Chief Strategy Officer; and the President of the Materials Segment; Dr. Julie Chernenay, Chief Technology Officer; and Dr. Sanjai Parthasarathi, Chief Marketing Officer. Magnus Bengtsson, Chief Commercial Officer, who leads our global sales and service organization and who came to us through the Coherent Acquisition, Sohail Khan, EVP of Silicon Carbide LLC, Dr. Lee Hsu, EVP of Datacom Transceivers, and Dr. Beck Mason, EVP of Telecom.

Chuck Mattera: Given the shareholder letters extensive disclosures I have asked the following senior leaders to participate in the Q&A portion of today's call.

Chuck Mattera: <unk> <unk> interim Chief Financial Officer Dr.

Chuck Mattera: Dr. Giovanni Barbarossa, Chief strategy Officer, and the president of the materials segment.

Chuck Mattera: Dr. Julie Sharon in a chief Technology Officer.

Chuck Mattera: Dr. Sanjay Parthasarathy, Chief marketing officer.

Chuck Mattera: Magnus <unk>, Chief commercial officer, who leads our global sales and service organization, who came to us through the coherent acquisition. So he'll Kahn EVP silicon carbide LLC, Dr. Lee Hu, EVP, Datacom, Transceivers and Dr. Mason EVP telecom.

Chuck Mattera: For the last 20 years, I have been blessed with the privilege of working with the most experienced management team in the industry. As one small measure, those of us on today's call have 300 years of collective experience. We will provide investors with a rich source of information about the depth and breadth of our markets, technologies, operations, and overall business. For the quarter, we delivered solid sequential improvement in revenue and EPS, both of which came in above the high end of our guidance.

Chuck Mattera: For the last 20 years I have been blessed with the privilege of working with the most experienced management team in the industry.

Chuck Mattera: As one small measure.

Chuck Mattera: Those of US on today's call 300 years of collective experience.

Chuck Mattera: We will provide investors a rich source of information about the depth and breadth of our markets technologies operations and overall business for.

Chuck Mattera: For the quarter, we delivered solid sequential improvement in revenue and EPS, both of which came in above the high end of our guidance.

Chuck Mattera: Due primarily to unexpected issues that we've already resolved or expect to soon resolve, the non-GAAP gross margin was below guidance, but rigorous operating expense discipline and controls allowed us to deliver non-GAAP operating margin in line with our guidance.

Chuck Mattera: Due primarily to unexpected issues that we've already resolved or expect to soon resolved. The non-GAAP gross margin was below guidance, but rigorous operating expense discipline and controls allowed us to deliver non-GAAP operating margin in line with our guidance.

Chuck Mattera: The highlights of our third quarter include an almost 7% sequential increase in revenue and a 17 cents, or almost 50%, sequential increase in non-GOP EPS. Another strong quarter of strong AI-related Datacom demand for our 800G Datacom transceivers. We now expect the strike to continue in the current fourth quarter and into fiscal 25.

Chuck Mattera: The highlights of our third quarter include an almost 7% sequential increase in revenue and a 17.

Chuck Mattera: We're almost 50% sequential increase in non-GAAP EPS.

Chuck Mattera: Other strong another quarter of strong AI related datacom demand.

Chuck Mattera: 800, <unk> Datacom transceivers.

Chuck Mattera: We now expect this strength to continue in the current fourth quarter and due to fiscal 'twenty five.

Chuck Mattera: A slower than expected recovery in our telecom markets, but continued signs of an improving outlook for our industrial market, which accounts for approximately 34% of total revenue. The repayment of $58 million of outstanding debt and the completion of a repricing of our $2.4 billion secured term loan fee, reducing interest rate margins by 25 basis points, which results in an annual savings of approximately $9 million. Additionally, we upgraded our credit rating to BA2, by Moody's, reflecting our leadership position in the exciting AI market and their expectation that our financial performance will continue to improve. Our diversification across product, technology, and regional markets is serving AI-related datacom demand remains strong.

Chuck Mattera: The slower than expected recovery in our telecom markets.

Chuck Mattera: Continued signs of improving outlook for our industrial market, which accounts for approximately 34% of total revenue.

Chuck Mattera: The repayments of $58 million of outstanding debt and the completion of a repricing of our $2 4 billion secured term loan b, reducing interest rate margins by 25 basis points, which results in an annual savings of approximately $9 million.

Chuck Mattera: And the upgrade of our credit rating to be <unk> <unk>.

Chuck Mattera: By Moody's, reflecting our leadership position in the exciting AI market and our expectation that our financial performance, we will continue to improve.

Chuck Mattera: Our diversification across product technology in reasonable markets is serving us well.

Chuck Mattera: AI related Datacom demand remains strong.

Chuck Mattera: While still early, we also saw further signs in the quarter of improving demand in our industrial market, along with further signs of stabilization in our instrumentation and electronics markets, which we expect will also eventually return to growth. Despite the macroeconomic backdrop, our diversification strategy has helped distinguish us from the rest of the pack. For the quarter, we posted revenue of $1.209 billion, which was above the high end of our guidance, and non-GAAP EPS of $0.53, which was also above the high end of our guidance. Operating cash flow was $117 million.

Chuck Mattera: While still early we also saw further signs in the quarter of improving demand in our industrial market along with further signs of stabilization in our instrumentation and electronics markets, which we expect will also eventually returns to growth.

Chuck Mattera: Despite the macroeconomic backdrop, our diversification strategy has helped distinguish us from the rest of the pack.

Chuck Mattera: For the quarter, we posted revenue of $1 209 billion, which was above the high end of our guidance.

Chuck Mattera: non-GAAP EPS was <unk> 53.

Chuck Mattera: Which was also above the high end of our guidance.

Chuck Mattera: We invested $93 million in capital equipment, and we retired $58 million of debt. Turning to our guidance for the fourth quarter of fiscal 24, we are guiding for revenue of approximately 1.123 to 1.32 billion, with non-GAAP earnings per share of approximately $0.52 to $0.68. Revenue of approximately $4.62 to $4.7 billion for the year, which is a $70 million increase from the low end of our previous guidance. Non-GAAP EPS of approximately $1.56 to $1.73 for the year, up from $1.30 to $1.70, which was our previous guidance.

Chuck Mattera: Operating cash flow was 117 million, we invested $93 million in capital equipment, and we returned 58 million of debt.

Chuck Mattera: Turning to our guidance for the fourth quarter of fiscal 'twenty. Four we are guiding for revenue of approximately $1 12313 2 billion.

Chuck Mattera: And non-GAAP earnings per share of approximately 52 to <unk> 68.

Chuck Mattera: Revenue of approximately $4 six 2% to four 7 billion for the year, which is a $70 million increase.

Chuck Mattera: Of our previous guidance.

Chuck Mattera: non-GAAP.

Chuck Mattera: non-GAAP EPS of approximately $1 56 to $1 73 for the year up from $1 30 to $1 70, which was our previous guidance.

Chuck Mattera: Before turning to questions, I would like to say how appreciative and proud I am of the senior leaders and all of our other employees whose tireless dedication to transforming Coherent is setting the stage for broad industry leadership now, next, and beyond.

Speaker Change: Before turning to questions I would like to say, how appreciative and proud I am of the senior leaders in all of our other employees, whose tireless dedication to transforming coherent for setting the stage for broad industry leadership now.

Chuck Mattera: Next and beyond.

Chuck Mattera: Opportunity as one of the most difficult things in life to recognize early on.

Chuck Mattera: However, we have a 50-year-old track record to point to when I say, with confidence and faith, that I truly believe that the best is yet to come. With that, I'll turn it back over to Paul. Well, thank you, Chuck. We'll now open the call for three annual questions. This call is scheduled for a full hour.

Chuck Mattera: However, we have a 50 plus year old track record to point to when I say with confidence and faith.

Paul: And I truly believe that the best is yet to come.

Chuck Mattera: With that I'll turn it back over to Paul Paul.

Paul: Thank you Chuck we will now open the call three of those questions. This call is scheduled for full hour as we are approximately 20 analysts that cover the company. We ask that each of you limit yourself to one question and one follow up please direct your questions to Chuck who will decide who is best response Victor Please open it up to questions.

Paul Jonas Silverstein: As we have approximately 20 annual reports that cover the company, we ask that each of you limit yourself to one question and one follow-up. Please direct your questions to Chuck, who will decide who is best to respond. Victor, please open it up to questions. Thank you. As a reminder, to ask a question, you need to press star 11 on your telephone and wait for your name to be announced. Once again, to withdraw your question, please press star 11. Please stand by.

Victor: As a reminder to ask a question you May press star one on your telephone and wait for your name to be announced once again to withdraw your question. Please press star one one.

Operator: We will compile the Q&A roster. One moment for our first question. Our first question will come from Samik Chatterjee from J.P. Morgan. Your line is open. Hi, thank you for taking my questions and congratulations on the strong results here. If I can just start with Datacom.

Victor: Please standby lingered compile the Q&A roster.

Samik Chatterjee: One moment for our first question.

Samik Chatterjee: Our first question will come from the line of Sonic chat <unk> from Jpmorgan. Your line is open.

Samik Chatterjee: And when you started on this ramp, which has been pretty impressive, you did have the benefit of a lot of visibility into the orders from your customers. I think at that point, you had almost a year's visibility in terms of orders, based on how you were communicating about orders. As we now move into fiscal 25, and lead times are coming down, I'd be curious what kind of visibility our customers are giving you in relation to demand for fiscal 25.

Operator: Hi.

Samik Chatterjee: Thank you for taking my questions and congrats on the strong results here.

Samik Chatterjee: If I can just start with Datacom and when you started on this ramp which has been pretty impressive.

Samik Chatterjee: Did have the benefit of.

Samik Chatterjee: A lot of visibility into the orders from your customers I think at that point, you had almost like a huge visibility in terms of autos based on how you are communicating about autos as we now move into fiscal 'twenty five and lead times are coming down just curious what kind of visibility are customers, giving you in relation to demand.

Samik Chatterjee: For fiscal 'twenty five what do you think are the key growth drivers for the 800 gig or Datacom business in total and FY 'twenty five and have a follow up thank you.

Samik Chatterjee: What do you think are the key growth drivers for the 800 gigabit or Datacom business in total in FY25? And have a follow-up, Thank you, Samik. Lee, would you like to? Hi, thanks for the question. This is Lee Xu.

Speaker Change: Thank you Sam.

Speaker Change: We would you like to.

Samik Chatterjee: Yes.

Samik Chatterjee: Okay.

Lee Xu: Thanks for the question this is <unk>.

Lee Xu: Our outlook versus a quarter ago did not change. We still see strong growth in overall 800G and AI-related demand. And our customer interaction has been improving. And as you can see, in the past few quarters, our 800G ramp-up from FY23's $20 million or so to $15 million in our Q1, a little bit over $100 million in Q2, and this quarter, we reported close to $200 million.

Lee Xu: Our outlook versus a quarter ago, they're not changed we still see strong growth in <unk>.

Lee Xu: Or or <unk> AI related.

Lee Xu: Demand.

Lee Xu: And in our customer interaction has been improving.

Lee Xu: As you can see in the past few quarters, our <unk> ramp up.

Lee Xu: FY2023s.

Lee Xu: Mill and also $215 million in our Q1.

Lee Xu: A little bit over $100 million in Q2, and this quarter, we reported close to $200 million and we project.

Lee Xu: And we project a Q4 of more than $250 million. So, we still see further growth in FY25, but in our field, the lead time for people to order 800G transceivers is long. And that's why when we forecast our 800-year revenue, we are being more prudent. But in terms of the trend, our forecast from our key customers, there is no change. And we also said that we're broadening our 800G customer base now. It's much wider, and we see that in FY25 it's going to be even wider.

Lee Xu: Q4 of more than $215 million.

Lee Xu: No.

Lee Xu: We still see further growth in FY 'twenty, five but in our own.

Lee Xu: In our field.

Lee Xu: How does that the lead time for people to order <unk> Transceivers.

Lee Xu: It's coming down.

Lee Xu: That's why.

Lee Xu: We are when we forecast our revenue, we're being more prudent but.

Lee Xu: That trend our forecast from our key customers.

Lee Xu: There is no change.

Lee Xu: And we also said that.

Lee Xu:

Lee Xu: We are broadening our 800 GE.

Lee Xu: Customer basis now.

Lee Xu: It's much broader and we see that in FY 'twenty five it's going to be even more.

Lee Xu: Spot.

Lee Xu: Thank you. Thank you. And for my follow-up question, if I can just quickly ask on the supply side, we get a lot of questions from investors asking about if there are supply constraints, either on pixels or any of the other components going into the data from SeaWorld, particularly as you plan ahead for the ramp, for the ramp in fiscal 25 or the growth in fiscal 25, how you're managing around that sort of visibility around supply, any key bottlenecks that you see that you need We largely resolved all the material constraints, whether it's internal or external.

Speaker Change: Thank you. Thank you Lee.

Lee Xu: And for my follow up if I can just quickly ask on the supply side.

Lee Xu: A lot of questions from investors asking about if there are supply constraints either on <unk> or any of the other components going into the Datacom Crown seaboard, particularly as you plan ahead for the ramp for the ramp in fiscal 'twenty five of the growth in fiscal 'twenty five.

Lee Xu: Managing around those sort of visibility around supply any key bottlenecks or do you see that you need to resolve.

Speaker Change: Thank you for that question.

Lee Xu: We largely resolved all of that material strength, whether it's internal or external.

Lee Xu: So, we feel confident in our... Thank you, Lou. Okay, thanks, everyone. Thank you. One moment for our next question. Our next question comes in the line of Simon Leopold from Raymond James. Your line is open. Great.

Lee Xu: So we feel confident on our questionnaire.

Lee Xu: Yes.

Simon Matthew Leopold: Thank you Julie.

Simon Matthew Leopold: Okay. Thanks, Amy.

Simon Matthew Leopold: Thank you one moment for our next question.

Lee Xu: Our next question comes from the line of Simon Leopold from Raymond James Your line is open.

Simon Matthew Leopold: Thank you very much for taking the question. The first thing I wanted to unpack a little bit was, in your prepared remarks, Chuck, you mentioned the gross margin being a little bit softer than you had been anticipating. Could you help us understand what sort of the key drivers and expectations for how gross margin can improve over time? Is it as simple as getting utilization up, or is it more about cost reduction and synergies? Help us understand sort of the key levers and the targets.

Simon Matthew Leopold: Great. Thank you very much for taking the question.

Simon Matthew Leopold: First thing I wanted to see if you could unpack a little bit was in the prepared remarks, Chuck you mentioned the <unk>.

Simon Matthew Leopold: <unk> margin being a little bit softer than what you had been anticipating.

Simon Matthew Leopold: Could you help us understand what are sort of the key drivers and.

Simon Matthew Leopold: And expectations for how gross margin can improve over time is it as simple as getting utilizations up or is it more about the cost reduction synergies help us understand sort of the key levers and the targets and then I've got a follow up.

Simon Matthew Leopold: And then I've got a follow up. Okay, good morning, Simon. Thanks for your question. Rich is ready to go.

Speaker Change: Okay. Good morning, Savi. Thanks for your question Rich is ready to go.

Rich Martucci: Thank you, Simon. Obviously, the management team was a little disappointed in our performance in Q3 on the margin. We detailed out the one-time really transitory items in Q3.

Speaker Change: Well thank you Simon.

Rich Martucci: As we move forward, and as we mentioned, we still are targeting a 40% gross margin by the second quarter, first half of FY26, and with that, over a 20% operating margin. And there are many positive drivers that we have to achieve this. First, is really the incremental volume and the mix as well.

Rich Martucci: The <unk>.

Rich Martucci: Obviously management team was a little disappointed in our performance in Q3 on the margin.

Rich Martucci: We detailed out the onetime really transitory items.

Rich Martucci: In Q3, as we move forward and as we mentioned, we still are targeting 40% gross margin.

Rich Martucci: By the second quarter or first half of FY 'twenty six.

Rich Martucci: And with that at 20 over 20% operating margin and there is many.

Rich Martucci: Positive drivers that we have to achieve this.

Rich Martucci: First is really the incremental volume and the mix as well.

Rich Martucci: Without a doubt we're going to need.

Rich Martucci: The increase in our industrial as well as instrumentation markets.

Rich Martucci: Without a doubt, we're going to need an increase in our industrial as well as instrumentation markets. Those are typically sales that come through, revenue that comes through our networking, or our materials and laser segment. That'll strengthen the margins, as well as our strength in the supply chain and buying power. That also is a key factor.

Rich Martucci: Typically sales that come through our revenue that comes through our networking our materials and laser segment.

Rich Martucci: That will strengthen the margins as well as our strength in supply chain and buying power.

Rich Martucci: We have mentioned to you in the past our synergy and restructuring plans, which we are on pace for. But even longer term, we're in the midst of a transformation. We just started a global design for a new ERP implementation, a new system, and we are just at the beginning of implementing AI tools.

Rich Martucci: That also is a key factor we did have mentioned to you our synergy and restructuring plans in the past, which we are on pace for but even longer term.

Rich Martucci: We're in the midst of a transformation.

Rich Martucci: Just started a global design for our new ERP ERP implementation.

Rich Martucci: System and we are just at the beginning of implementing AI tools. So all of those factors will.

Rich Martucci: Culminate in us, reaching a higher margin.

Rich Martucci: So all those factors will culminate in us reaching a higher margin. Thank you. And then, as my follow-up, I'd like to sort of get some sense of your vision of where the AI opportunity can go. So it looks as if you're expected to exceed your prior expectations for this fiscal year. I imagine it's maybe a little bit early to give us details on fiscal twenty five.

Speaker Change: Thank you and then as my follow up I'd like to sort of get some sense of your vision of where the AI opportunity kengo. So it looks as if you.

Rich Martucci: You are expected to exceed your prior expectations for this fiscal year.

Rich Martucci: Imagine, it's maybe a little bit early to give us details on fiscal 'twenty five, but if you could give us some guide posts of how youre thinking about the 800 gig and above business evolving beyond the next quarter. Thank you.

Simon Matthew Leopold: But if you could give us some guideposts of how you're thinking about the eight hundred gigabyte and above business evolving beyond the next quarter. Simon, thanks. Simon, I think we'll take a step back and talk about the market because we're expecting to lead the market. So Sanjai, why don't you just give a quick summary?

Rich Martucci: Okay.

Rich Martucci: Simon Thanks, So I mean, I think we will take a step back and talk about the market because where we were expecting to lead the market. So Sanjay I wanted to just give you a quick summary, okay. Thanks Chuck.

Chuck Mattera: Okay, thanks Chuck. Hi Simon, thanks for the question. So we just, in our investor presentation, we have a chart that talks about the market, the growth and inflection that's happened with AI. Over the next few years, you still see very strong growth in 800G. It's over the next five years, it's growing at a 60% rate, and that's 800G and beyond. So 800G and 1.6.

Speaker Change: Thanks for the question.

Chuck Mattera: So we just in our Investor presentation, we have a chart that talks about the market the growth of inflection thats happened with AI.

Chuck Mattera: And over the next few years do you still see a very strong growth in 800 achieved its.

Chuck Mattera: Over the next five years, that's growing at a 60% CAGR and Thats 800, G and beyond <unk> and <unk>.

Sanjai Parthasarathi: So the market is strong. We are projecting very healthy growth for the market, and that's where it is. [inaudible] Okay, thank you, Simon.

Chuck Mattera: So the market is strong.

Sanjai Parthasarathi: We are projecting very healthy growth of the market and.

Speaker Change: That's where it is today that's great.

Sanjai Parthasarathi: Okay.

Sanjai Parthasarathi: Thank you. One moment for our next question. Our next question will come from the line of Ruben Roy from CFO. Your line is open.

Speaker Change: Thank you one moment for our next question.

Sanjai Parthasarathi: Our next question comes from the line of Ruben Roy from Stifel. Your line is open.

Ruben Roy: Thanks very much. And congrats, Cain, on the execution and solid results. I guess, Chuck, I wanted to follow up on Sanjai's commentary. Which is the question, I guess, would be sort of around longer-term expectations and the CAGR, and the CAGR has been moving around on, you know, kind of your overall day-to-day transceiver expectations, I think. The shareholder letter last night, 21% was, "Great." But it's down a little bit from the previous assumption.

Ruben Roy: Thanks, very much and congrats again on the execution and solid results I guess, Chuck I wanted to follow up on.

Ruben Roy: Sanjay and commentary.

Ruben Roy: Which is the question I guess would be sort of around longer term expectations in the CAGR on the CAGR has been moving around on kind of your overall datacom.

Ruben Roy: <unk> of our expectations I think in the shareholder letter last night, 21% wishes.

Ruben Roy: And so I guess the question would be, you know, what are the moving parts. This is sort of how you guys are thinking about the longer-term category. Is there part of Telco in that, or is it just Datacom that you're considering? Any kind of additional detail on how you think about longer-term growth would be helpful. Thank you, Ruben. Thanks for the question. Sanjai?

Ruben Roy: Great, but it's down a little bit from the previous assumption.

Speaker Change: Assumption and so I guess my question would be what are the moving parts and sort of how you guys are thinking about the longer term CAGR is that.

Speaker Change: Are there parts of telco in that or is it just datacom that you're considering.

Speaker Change: Any kind of additional detail on how you're thinking about longer term growth would be helpful. Thank you.

Sanjai Parthasarathi: Okay. Thank you Rob and thanks for the question Sanjay Thanks, Robin Thanks for the question.

Sanjai Parthasarathi: Yeah, thanks, Ruben. Thanks for the question. Yes, we did take it down a little bit from our last report.

Sanjai Parthasarathi: Yes, we did take it down a little bit from from our last report two things happen. One CDI 23 was much bigger than what we had originally anticipated.

Sanjai Parthasarathi: Two things happened. One, CY23 was much bigger than we had originally anticipated. And then, over the long term, we've taken down the sub-800G numbers a little bit. So we're still projecting 21% over five years. And I made the comment earlier about 800G and beyond. That is still growing at the same kind of clip that we had previously anticipated. The market is young and fluid.

Sanjai Parthasarathi: And then over the long term, we've taken down the sub 800, GE numbers, a little bit. So we are still projecting 21% over five years and and I made the comment earlier about.

Sanjai Parthasarathi: 800, G and beyond that is still growing at the same kind of clip.

Sanjai Parthasarathi: We keep getting data points from our customers and then customers, so we are constantly revising our view of the market. Hopefully, that answered the question. Yes, it did.

Sanjai Parthasarathi: British previously anticipated maybe keep the market is young and fluid, we keep getting data points from our customers <unk> customers.

Sanjai Parthasarathi: We are constantly analyzing our view of the market.

Speaker Change: Hopefully that answer thank you yes.

Sanjai Parthasarathi: Thank you, Sanjai. And then, for a follow-up question, I had a gross margin question as well, given that Datacom transceivers are a meaningful part of the kind of the way gross margins, you know, move around. Can you give us a little more detail on some of the corrective actions around the transceiver yields? And, you know, as you look out into fiscal 25 or some of those corrective actions, do you think they are applicable to the 1.6 T-RAM? Ruben?

Speaker Change: Yes. It did thank you Sanjay and then for a follow up.

Sanjai Parthasarathi: At a gross margin question as well given that datacom.

Sanjai Parthasarathi: Transceivers are a meaningful part of the kind of the way the gross margins.

Speaker Change: Move around I guess can you give us a little more detail on some of the corrective actions around the transceiver yields and.

Sanjai Parthasarathi: As you look out into fiscal 'twenty, five or some of those corrective actions do you think are applicable to the 160 ramp.

Ruben Roy: Yeah, sure. Lee? Hi, Ruben. Thanks for the question. This is one of our key targets for our operations, the Data Combined Transceivers. First of all, we are transparent in terms of we had an Unexpected Yield Issues Impacting 800G Ramp-Up in Q3, which will see Datacom a significant margin improvement going forward in FY25 because more and more products are going to move to 800G and higher data rates.

Ruben Roy: Yes sure yes.

Lee Xu: Yes, Hi, Robyn thanks for the question.

Ruben Roy: One of our key.

Ruben Roy: Target.

Ruben Roy: For our operations the Datacom Transceivers are first of all art.

Speaker Change: It did.

Ruben Roy: We are transparent in terms of we had a.

Ruben Roy: Lastly, our expected yield issues impacting.

Lee Xu: Our 800 G ramp up in Q3 and that problem has been resolved and.

Speaker Change: We'll see.

Speaker Change: Oh identical are significant.

Ruben Roy: Margin improvement.

Ruben Roy: Going forward in FY 'twenty five begins.

Ruben Roy: More and more products is going to move to <unk> and higher data rate.

Ruben Roy: We think that we will further improve our datacomp transceiver margin. So going forward, because of our virtual integration, because of our kind of being a leader in the high-end part of the market, we're quite confident of our gross margin and also the net margin. Okay, no question. Yes, thank you.

Ruben Roy: That will further improve our datacom transceiver margins so.

Ruben Roy: Going forward because of our versatile integration because of our.

Ruben Roy: In terms of being a leader our high end part of the market.

Speaker Change: We are quiet.

Ruben Roy: <unk> of our gross margin.

Ruben Roy: And also in that market.

Ruben Roy: No.

Speaker Change: Okay. Good question.

Speaker Change: Yes. Thank you.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you one moment our next question.

Lee Xu: Thank you. Thank you. One moment for our next question. And our next question comes from Thomas O'Malley from Barclays. Your line is open. Hey, good morning, guys.

Ruben Roy: And our next question comes from the line of Thomas O'malley from Barclays. Your line is open.

James Andrew Ricchiuti: Thanks for taking my question. I wanted to ask about the timing of 1.60. You guys are saying fiscal Q1. Your competitor last night was kind of talking about the end of the calendar year, maybe the beginning of the next calendar year. There's really only two major customers who are doing 200G per lane at 1.60.

James Andrew Ricchiuti: Hey, good morning, guys. Thanks for taking my question I wanted to ask on the timing of $1 60, you guys are saying fiscal Q1.

James Andrew Ricchiuti: Your competitor last night, it was kind of talking about the end of the calendar year, maybe beginning of next calendar year, There's really only two major customers who are doing 200 G per lane at 116 can you talk about is that sampling in the September quarter, which is fiscal Q1.

James Andrew Ricchiuti: When do you expect volume production is that across multiple customers are just concentrated amongst one or two thank you.

James Andrew Ricchiuti: Can you talk about, is that sampling in the September quarter, which is fiscal Q1? When do you expect volume production? And is that across multiple customers or just concentrated amongst one or two? Thank you. Okay, thanks, Tom. Good morning, Tom. Lee, please.

Speaker Change: Okay. Thanks, Tom Good morning, Tom Lee please okay.

Lee Xu: Okay. Um, yeah, thanks for being so clear about what we have published. Yes, we are ready to sample 1.6T or 200G per lane-based transceiver and start our physical Q1.

Lee Xu: Yes, thanks for being so clear what we have published yes, we.

Speaker Change: We are ready to sample <unk> auto energy per lane based.

Lee Xu: Transceivers start seeing our Cessna call Q1, and we do expect volume shipments to start at the beginning of calendar 'twenty five.

Lee Xu: And we do expect volume shipment to start at the beginning of calendar 25 or our Q3 fiscal year. And so far, everything's going as expected, and we're excited about this new opportunity. Helpful. And then the second question was about silicon carbide. You guys only described just one issue during the quarter.

Lee Xu: Our Q3 fiscal year and so far everything.

Lee Xu: Going as expected.

Lee Xu: We're excited about this new opportunity.

Lee Xu: Helpful. And then the second question was around Silicon carbide.

Lee Xu: Guys described just an issue during the quarter historically, you've had a customer in electronics, that's made it a little bit easier to kind of solve for the revenue in the silicon carbide business could you just maybe give us a little more color just because that customer has gotten so small.

Lee Xu: That revenue has gone from a silicon carbide perspective, and then you talked about some strong growth in the quarter any any additional details on where that went in the quarter and where you are expecting over the next couple.

James Andrew Ricchiuti: Historically, you've had a customer in electronics that's made it a little bit easier to kind of solve for the revenue in the silicon carbide business. Could you just maybe give us a little more color, just because that customer has gotten so small, where that revenue has gone from the silicon carbide perspective? And then you talked about some strong growth in the out quarter. Any additional details on where that went in the quarter and where you're expecting over the next? Yes, Tom, as I understand it, you're trying to plumb our data in the electronics market for sensing versus silicon carbide. And you'd like to have a clear view of silicon carbide. Sohail will give you the color that you need, I think.

Speaker Change: Yes, Tom as I as I understand it.

Sohail: Youre trying to plumb.

James Andrew Ricchiuti: Our data and the electronics market for sensing versus silicon carbide, and you'd like to have a clear view for silicon carbide, So who will give you the color that you need I think.

Sohail A. Khan: Hi Tom, this is Sohail Khan. In Q3, our silicon carbide had some operational issues. We mentioned the power failure and that power failure impacted the factory, which limited our ability to deliver to the plant. All those actions have been put in place. We were able to get everything back within 30 days.

James Andrew Ricchiuti: Hi, Tom This is Sohail Khan.

Speaker Change: At the end.

Sohail A. Khan: In Q3.

Sohail A. Khan: Our silicon carbide.

Sohail A. Khan: Some operational issues about we mentioned about the power failure and that.

Sohail A. Khan: Impacted our failure impacted.

Sohail A. Khan: The factory, which limited our ability to deliver to the plan.

Sohail A. Khan: All those actions have been put in place.

Sohail A. Khan: Able to get everything back.

Sohail A. Khan: And then 30 days.

Sohail A. Khan: And I am looking at a very good, strong Q4. And we expect that we will grow more than 50% from Q3 to Q4. I hope that's helpful, Tom Icahn.

Sohail A. Khan: And I am looking at a very good strong Q4, and we expect that we will grow more than 50% from Q3 to Q4.

Speaker Change: Hope that's helpful. Tom.

Speaker Change: Hi, Tom.

Sohail A. Khan: Alright.

Speaker Change: Thank you.

James Andrew Ricchiuti: All right. Thank you. Thank you. One moment for our next question, and our next question comes from Meta Marshall from Morgan Stanley. Your line is open.

Speaker Change: Thank you thank you Dan.

Meta A. Marshall: One moment for our next question.

James Andrew Ricchiuti: And our next question comes from the line of meta Marshall from Morgan Stanley. Your line is open.

Meta A. Marshall: Great, thanks. Congratulations on the quarter. A couple questions for me, maybe just first on: you noted that your expectations for kind of growth and sub-800 gigabit declined, and that was what led to the kind of industry or change in the industry growth rate. But just what are you seeing in terms of anything, any commentary on sub-800 gigabit demand? And then the second question to harp on the gross margins piece, but kind of understanding the overhang, fiscal Q3 and the yield issues that you've resolved, both in Silicon Carbide and Datacom, but with most of that seemingly resolved, given the answers you've given today, just what is the reason for kind of a slower Q on Q pickup than you had been forecasting last quarter? Good morning.

Meta A. Marshall: Great. Thanks, Congrats on the quarter a couple of questions from me, maybe just first on.

Meta A. Marshall: You noted that your expectations for kind of growth in sub 800 gig decline and that was what led to the kind of industry or a change in the industry growth rate, but just what are you seeing in terms of just anything any commentary on sub 800 gig demand.

Meta A. Marshall: And then the second question.

Meta A. Marshall: To harp on the gross margin piece, but kind of understanding the overhang that fiscal Q3 and.

Meta A. Marshall: And the yield issues that you raise.

Meta A. Marshall: Solved both in silicon carbide of Datacom.

Meta A. Marshall: But with most of that seemingly resolved given the answers you've given today just what is the reason for kind of a slower Q on Q pickup than you had been forecasting kind of last quarter. Thanks.

Meta A. Marshall: Just suggest.

Speaker Change: Good morning, just repeat the last part of the question.

Meta A. Marshall: Just repeat the last part of the question. Yeah, so last quarter, you would have implied a kind of about 100-150 basis point increase between fiscal Q3 and fiscal Q4. And that seemingly kind of comes down to about 80 basis points, and I kind of understand the overhang to fiscal Q3. But what is the difference in kind of a smaller jump up between fiscal Q3 and implied fiscal Q4 gross, I think, Rich? Just give us the big picture, if you would, please. Yeah, yeah. So, so, um, the, the...

Meta A. Marshall: Yes, So last few wonder you would've implied kind of about a 100 150 basis point increase between fiscal Q3 of fiscal Q4 and that seemingly kind of come down to about 80 basis points and kind of understand the overhang for fiscal Q3, but what is different than kind of a.

Meta A. Marshall: Smaller jump up between fiscal Q3, and implied Q4 gross margins.

Speaker Change: I think it's just give a big picture issue.

Speaker Change: Yes so.

Speaker Change: The the.

Rich Martucci: Margin resolution in Q3, as we mentioned, pretty much done. We're still in the middle of ramping up our 800G product, as Lee mentioned, and our yield plans that we have going forward. So the other piece of this is the majority of the increase, quarter over quarter, is coming from 800G, as well as Sohil mentioned silicon carbide. And in the past, we did mention that the 800G product is at our gross margin average.

Meta A. Marshall: Margin resolution in Q3, as we mentioned are pretty much done we're still in the middle of ramping ethylene.

Rich Martucci: As Lee mentioned, our 800 gig product and our yield plants that we have going forward. So the other piece of this is the majority of the increase quarter over quarter is coming from.

Rich Martucci: 800, G as well as our Soho management Silicon carbide and in the past we did mention that.

Rich Martucci: The 802.

Rich Martucci: So it's really part of a mixed issue as well, quarter over quarter. Let me add, needed to be clear. While the problems have been resolved, or are being resolved, there's a tail in terms of a ramp back up to where we need to be. It's just not a flash cut.

Rich Martucci: Our product.

Rich Martucci: Our gross margin average so it's really part of a mix issue as well quarter over quarter.

Rich Martucci: Let me add.

Rich Martucci: I needed to be clear.

Rich Martucci: Wow Wow the problems have been resolved.

Rich Martucci: Resolving this.

Rich Martucci: There is a tail in terms of a ramp back up to where we need to be.

Rich Martucci: So we're confident about the corrective actions and the like, but we still need to establish those target yields. They'll come on different product lines, and they'll come within this quarter. So there's a little bit of a tail into the quarter. Is that clear? Yeah, no, that's perfectly clear. And then just any commentary on the sub 800 gig to me.

Rich Martucci: A flash cut so we're confident about the correctly.

Rich Martucci: The corrective actions and alike, but we still need to establish that.

Rich Martucci: Target equals Doug will come on different product lines will come within this quarter. So there's a little bit of a tailwind through the quarter.

Rich Martucci: Yes.

Rich Martucci: Yes, no that's perfectly clear and then just any commentary on 800 gig demand.

Meta A. Marshall: Oh, yeah, that's a great topic. Well, let's go to the market first, if we can. Okay. Thanks, Mita. This is Sanjai.

Speaker Change: Well, that's a great topic, let's let's go to the market first if we can okay. Thank.

Sanjai Parthasarathi: So over the five years, the sub-800 G is essentially flat. That's our latest projection. The 800G and above, as I said earlier, are slated to grow at a 60% CAGR. So the sub-800 is, I mean, that's our view of the market. Thank you. Great. Thank you. Just one second.

Sanjai Parthasarathi: Thanks Nina.

Sanjai Parthasarathi: So or over the five years.

Sanjai Parthasarathi: The sub 800 <unk> is essentially flat that's our latest projection.

Sanjai Parthasarathi: 800, and about as I said earlier is growing at a slant.

Sanjai Parthasarathi: Plans are to grow at a 60% gather.

Sanjai Parthasarathi: So the sub 800.

Sanjai Parthasarathi: I mean, that's our view of the market.

Speaker Change: Okay, great. Thank you.

Sanjai Parthasarathi: I think we can clarify one step further, will we? Yeah. Please do.

Speaker Change: Maybe just one second I think we can clarify one step further we are pleased to because it is a very important topic.

Sanjai Parthasarathi: Because it is a very important topic. Sure. From our own kind of internal forecast point of view, we see, indeed, just as Sanjai was saying, the sub-800G is roughly flat for the next few quarters, but we do see some pick-up, so that. You know, I think the overall picture is healthy.

Sanjai Parthasarathi: From our own kind of internal forecast calling me.

Sanjai Parthasarathi: We see indeed, just as Sanjay Hussein.

Sanjai Parthasarathi: A sub 800 G is roughly flat for the next few quarters, but we do see some pickup.

Sanjai Parthasarathi: Three quarters from now.

Sanjai Parthasarathi: So thats.

Sanjai Parthasarathi: I think the overall.

Sanjai Parthasarathi: We'll be opportunistic about it. We're definitely trying to expand our share of wallet with the largest players. We've told the story about 400G in the past. And when it comes, if we can turn our capacity into it and make a real good business out of it, we'll be there. Perfect, thank you.

Sanjai Parthasarathi: Healthy.

Sanjai Parthasarathi: We will be opportunistic.

Sanjai Parthasarathi: We'll be opportunistic about it.

Sanjai Parthasarathi: We are definitely trying to expand this year.

Sanjai Parthasarathi: Wallet with the largest players.

Sanjai Parthasarathi: We've told the story about foreign regime in the past and.

Sanjai Parthasarathi: When it comes if we can turn our capacity into it and make it make a real good business out of it will be there.

Sanjai Parthasarathi: Perfect. Thank you.

Sanjai Parthasarathi: Sure.

Karl Ackerman: Thank you. One moment for the next question. The next question comes from Karl Ackerman from PNB Pyre Boss. Your line is open. Yes, thank you. I want to focus on the telecom.

Speaker Change: Thank you one moment for our next question.

Karl Ackerman: Next question comes from the line of Karl Ackerman from <unk> prior boss.

Karl Ackerman: <unk> is open.

Karl Ackerman: Yes. Thank you.

Karl Ackerman: I wanted to focus on the telecom.

Karl Ackerman: Portioning Your Business for a Moment, you know, clearly, you and peers in the ecosystem have pushed out the recovery in telecom from what was roughly June of this year to the end of this year and perhaps even the beginning of 2025. But within that, there seems to be some pockets of growth, as well as softness. For example, last week, one of your peers had spoken about a recovery in Metro Long Hall, while cable was a bit soft.

Karl Ackerman: Portion of your business for a moment clearly.

Karl Ackerman: You and peers in the ecosystem have pushed out the recovery in <unk>.

Karl Ackerman: Telecom from what was.

Karl Ackerman: Roughly June.

Karl Ackerman: This year to the end of this year and perhaps even the beginning of 2025.

Karl Ackerman: But within that there seems to be some pockets of growth as.

Karl Ackerman: As well as softness for example last week one of your peers had spoken about a recovery in metro long haul.

Karl Ackerman: While cable was a bit soft I'm curious if you have seen.

Karl Ackerman: I'm curious if you have seen similar commentary within the telecom sector. So if you could just double-click on the opportunities you see within telecom, what's working, what's not working, as you progress toward that recovery in that market, that would be very helpful. Okay, Karl, good morning. Thanks. Back, please.

Karl Ackerman: Similar.

Karl Ackerman: Commentary within the telecom. So if you could just double click on the opportunities you see within telecom, what's working what's not working.

Karl Ackerman: As you progress toward that recovery in that market that would be very helpful.

Karl Ackerman: Okay. Good morning, Thanks Vivek. Please.

Chuck Mattera: Sure, thank you for the question. So we do see a sort of mixed areas of strength and weakness in the telecom market. One area of strength we have seen is in the Chinese market.

Karl Ackerman: Sure. Thank you for the question so.

Chuck Mattera: Do you see sort of a mix.

Karl Ackerman: Areas of strength and weakness in the telecom market one area of strength, we have seen these in the China market and there we see build outs, but most of the major carriers going on with new <unk> networks, and we have some differentiated products and our pump laser and our WSI.

Beck Mason: And there, we see build-outs by most of the major carriers going on with new C plus L networks. And we have some differentiated products in our pump laser and our WSS that give us strength in that market. We expect that to continue through the year. I think the other thing for us where we see a growth opportunity coming in FY25 is really the digital coherent optical pluggable market space. And that's where we have a number of really differentiated products coming to market, including our 100 gigabyte QSP28CR that is in tremendous demand from our customer base.

Beck Mason: It gives us strength in that market and we expect that to continue through the year I think the other thing for us where we see growth opportunity coming in FY 'twenty five is really on the digital coherent optical applicable market space.

Beck Mason: We have a number of really differentiated products coming to market, including our 100 gig <unk> 'twenty ACR that is tremendous.

Beck Mason: Demand from our customer base, and we think that will help us sort of lift up to our FY 'twenty five so our view of what's going to happen in the market and with our growth.

Beck Mason: And we think that will help us sort of lift up to our FY25. So our view of what's going to happen in the market and with our growth may be a little bit decoupled from what some of our competitors are seeing. Thanks. I'll continue with your questions. Yes, it did. I'll see you on the floor.

Beck Mason: Maybe a little bit decoupled from some of our competitors are seeing.

Beck Mason: Okay.

Speaker Change: With your question.

Beck Mason: Yes.

Speaker Change: In the floor. Thank you.

Speaker Change: Thank you Mac.

Beck Mason: Thank you. Thank you. One moment for our next question. Our next question comes from Jed Dorsheimer on behalf of William Blair. Your line is open.

Speaker Change: One moment for our next question.

Jed Dorsheimer: Our next question from the line Jed door Shimer from William Blair. Your line is open.

Jed Dorsheimer: Hi, thanks for taking my question. So one in a follow-up, I guess, first, just on the silicon carbide, maybe as additional clarification, I know you have the, you know, the power outage, but wondering if you could give an update on progress on your 200 millimeter development activities and any metrics that you can provide. And then I have a follow-up. Okay, thank you, Jed. Sohail, please.

Jed Dorsheimer: Hi, Thanks for taking my question. So wanted to follow up I guess first just on the Silicon carbide maybe is that.

Jed Dorsheimer: Additional.

Sohail: Clarity I know you had that.

Sohail: Power outage, but I'm wondering if you could give an update on progress on your 200 millimeter development activities and any metrics that you can provide and then I have a follow up.

Sohail: Okay. Thank you Jed so please.

Sohail A. Khan: Hi. Thanks for the question. 200 millimeters is going quite well.

Jed Dorsheimer: Hi.

Sohail: Thanks for the question.

Sohail: 200 millimeter is growing quite well.

Sohail A. Khan: We are supplying pre-production quantities to multiple customers, and the feedback from the customers is very good, both on quality as well as their ability to bring their lines up. As you know, the ramp is going to be dependent on when their fabs are up. So from our standpoint, we are ready, and we are adding capacity more to ramp up, and we will see much more contribution coming in the next fiscal year. That's great. Thanks. And then, as a follow up.

Sohail: We are supplying pre production quantities to multiple customers.

Sohail A. Khan: And the feedback from the customer.

Sohail A. Khan: Very good both from quality as well as their ability to bring that lines up.

Sohail A. Khan: As you know the ramp is going to be dependent on when their fabs are up so from our standpoint, yes, Randy and Debbie.

Sohail A. Khan: Adding capacity more to ramp and we will see.

Sohail A. Khan: Bob.

Sohail A. Khan: More contribution coming in next fiscal year.

Speaker Change: That's great. Thanks, and then as a follow up.

Jed Dorsheimer: You know, clearly, there's a lot of demand in the data comm side of the business, and it's fantastic that you guys are playing well into that. As we think ahead a little bit, I'm just curious, something that's a bit out of your control, you know, how you think about the power challenges, and specifically, you know, lead times around things like transformers, which seem to be limiting data center growth. And I'm curious, you know, how a company that's selling components into that market is thinking about some of those structural challenges in developing with respect to AI.

Sohail A. Khan: Clearly there is a lot.

Jed Dorsheimer: Demand in the Datacom side of the business and it's fantastic that you guys are playing well into that as we think out a little bit.

Jed Dorsheimer: Just curious something that's a bit out of your control how youre thinking about.

Jed Dorsheimer: Power challenges in.

Jed Dorsheimer: Specifically.

Jed Dorsheimer: Lead times around things like Transformers.

Jed Dorsheimer: It seemed to be limiting data center growth and I'm curious.

Jed Dorsheimer: How a company that selling components into that market is thinking about some of those structural.

Jed Dorsheimer: Challenges in developing.

Jed Dorsheimer: With respect to AI.

Giovanni Barbarossa: Okay. Thank you, Jed. Giovanni, would you like to take this?

Speaker Change: Okay. Thank you joining we're doing can take them now of course, we read about it we know it will mask is growing at about it about the transformers for the Transformers.

Giovanni Barbarossa: Yeah, of course. We read about it. We know Elon Musk is worried about it, about the transformers. For the transformers. I mean, that's a very well-known challenge.

Giovanni Barbarossa: We keep focusing on, ultimately, what's driving our demand. You know, recently, we have seen that the optical bandwidth required by GPUs is actually growing. It's not only the number of GPUs per cluster that's growing.

Giovanni Barbarossa: That's a very well known challenge we have.

Giovanni Barbarossa: Keep focusing on ultimately what's driving our demand.

Giovanni Barbarossa: Currently we have seen that the optical bandwidth required by GPU is actually growing is not only the number of gpus, but classes growing the demand is strong in terms of number of Gpus, but what's really important for us is the increase in optical bandwidth required by GPU.

Giovanni Barbarossa: The demand is strong in terms of the number of GPUs. But what's very important for us is the increase in optical bandwidth required by GPUs. That's driving the need for 1.6 data and beyond, and that will continue for quite some time as the GPU requires more and more bandwidth for its input-output. So those are really the fundamental drivers for our growth, which I don't think are going to change. And, of course, there could be challenges in infrastructure from the infrastructure standpoint. But those are not really up to us to solve, although obviously, we may be dependent on them. But the fundamental drivers for our growth will remain unchanged. Thank you, Giovanni. That's how Jed is.

Giovanni Barbarossa: Driving the need for one <unk> and beyond.

Giovanni Barbarossa: That will continue for quite some time.

Giovanni Barbarossa: <unk> GPU require more and more bandwidth for their input output.

Giovanni Barbarossa: Really the fundamental drivers for our growth, which I don't I don't think theyre going to change and of course, there could be challenges in infrastructure from the infrastructure standpoint, but those will not living up to us to solve but we obviously, we may be dependent on them, but the fundamental drivers of our growth will remain unchanged.

Giovanni Barbarossa: Yeah.

Giovanni Barbarossa: Thank you Jack.

Speaker Change: <unk> is great.

Speaker Change: And as J J is particularly focused on the energy total energy required by the system hope that was helpful. Jeff.

Speaker Change: It is thank you Chuck I appreciate and thanks to you about it.

Speaker Change: Thank you one moment for our next question.

Giovanni Barbarossa: Jed is particularly focused on the total energy required by the system. Hope that was helpful, Jed. It is. Thank you, Chuck. I appreciate it. And thanks, Giovanni. Thank you. Please take a moment for our next question. And our next question will come from Mark Miller from The Benchmark Company. Your line is open. Congratulations on your progress. I'm just wondering if you can give us some color on rodents and also, are there any new opportunities coming along for vixels?

Giovanni Barbarossa: And our next question will come from the line of Mark Miller from the benchmark company.

Mark Miller: Your line is open.

Mark Miller: Congratulations on your progress I was just wondering if you can give us some color on <unk> and also are there any new opportunities coming along for Victoza and where are you positioned in that market.

Mark Miller: And where are you positioned in that market? Okay, good morning, Mark. Thanks for your question. We'll take it in two parts. First, Beck, we'll take the ROADM question, and Giovanni will address the VIXL question. Beck?

Giovanni Barbarossa: Okay.

Mark Miller: Okay. Good morning, Mark. Thanks for your question, we'll take it in two parts prospect will take the eroding question Giovanni will address the VIX will question.

Beck Mason: Thanks, Mark. I'm actually really excited you asked that question because one of the most important new trends in ROADMs is really the drive towards C plus L network deployments, which have been kind of on the drawing board for many years and are now finally coming to fruition and being deployed. And one thing that we have that really no one else in the industry has is a true C plus L ROADM. So that is, there are two bands in the optical communication space that we use for long haul DFDM communication. One is the C band, and one is the L band.

Beck Mason: Thanks, Mark and I'm actually really excited you asked that question because.

Beck Mason: And by expanding to both C plus L, we double the capacity in the fiber. So all of the new networks being deployed today include both C and L, and we're the only company that has a Rotem solution that actually covers both bands simultaneously in a single part, and that's driving a lot of upside opportunity for us as we go forward. The first place we see that really emerging is in China, but we know that's very important for the hyperscalers in North America and some of the higher capacity buildings.

Beck Mason: What are the most important new trends in <unk> is really the drive towards supercell network deployments, which have been kind of on the drawing board for many years and are now finally really coming and being deployed and one thing that we have that really no. One else in the industry has is a true <unk> so that is.

Beck Mason: Theres two bands in the communication space that we use in long haul dws communication what is the C band and one is the <unk> and bi.

Beck Mason: Expanding the most supercell, we double the capacity of the fiber so all of the new networks being deployed today include both P&L and we are the only company that has eroded solution that actually covers both bands simultaneously in a single part and that's driving a lot of upside opportunity for us as we go forward. The first place we really emerging.

Beck Mason: In China, but we know that's very important for the Hyperscale is North America and some of our higher capacity build out. So we are excited about what's going to happen in the future and rhythms now the nature of the network is evolving but that is still evolving to one that is really strongly dependent on use of <unk> in terminal <unk> and other applications in the network. So so we think thats a positive.

Beck Mason: So we are excited about what's going to happen to teaching Rotems. Now, the nature of the network is evolving, but that is still evolving to one that is really strongly dependent on the use of Rotems in terminal MUXs and other applications in the network. So we think that's a positive long-term driver for us. Okay, great. From the telecom systems to the data comp laser. Vixels, Giovanni?

Beck Mason: Long term driver for us okay great.

Speaker Change: Telecom systems.

Speaker Change: In the Datacom laser rentals joining.

Giovanni Barbarossa: So on Vixel, at the OFC, we reported the progress that we've been making on the development of 200G Vixels, which we think would be a game-changer in the industry, as many customers, as well as, generally, even competitors kind of ruled out the possibility for Vixels to go even above, you know, beyond the 100G. So that's very exciting. The good news is that we also have our main competitor, probably the only competitor we have in this space; they're also reporting progress on it, which is very positive for the industry because the industry will need at least two suppliers to support the growth.

Beck Mason: The VIX.

Giovanni Barbarossa: Youll see we reported the pauses that we've been making on the development of <unk>, which we think would be.

Giovanni Barbarossa: That game changer in the industry has many many.

Giovanni Barbarossa: Customers well as generally even compared to those kind of ruled out the possibility for VIX has to go even above and beyond the 100 G. So.

Giovanni Barbarossa: The exciting the good news is that we.

Giovanni Barbarossa: We also had our main competitor probably the only competitor that we have on the space. They also report in Pakistan, which is very positive for the industry because the industry will need at least two suppliers too to support the growth and then.

Giovanni Barbarossa: And then, you know, we are also working on 400G Vixels for the future. It's something that we didn't mention, and so we'll keep the roadmap going. And if you ask in general about Vixels, I also wanted to mention the progress on multi-junction Vixels for behind-display applications, which are, you know, they're required for increased power coming through the display in some cases, some user cases, so that's also something that we have been working on and will provide further growth for the product line, which is already experiencing incredible growth over the past several quarters and the next few quarters.

Giovanni Barbarossa: We are also working on.

Giovanni Barbarossa: 400, <unk> it for the future, it's something that we didn't side and so we will keep the roadmap going.

Giovanni Barbarossa: If you ask in general about <unk> I will.

Giovanni Barbarossa: Also wanted to mention on the.

Giovanni Barbarossa: The progress of multichannel mixed so far behind display applications, which is.

Giovanni Barbarossa: That implies for increased power coming through the display in some cases some user cases. So that's also something that we have we have been working on and will provide the funds the growth for the total line, which has already experienced is experiencing today with the one on the <unk> ramp.

Giovanni Barbarossa: Incredible growth over the past several quarters. So in the next few quarters too.

Giovanni Barbarossa: Thank you, everyone. Thank you, Mark. Thank you. One moment for our next question. Our next question comes to mind from Ananda Baruah from Loop Capital. Your line is open.

Speaker Change: Thank you. Thank you.

Ananda Prosad Baruah: Thank you Mark.

Ananda Prosad Baruah: Thank you one moment for next question.

Giovanni Barbarossa: Okay.

Giovanni Barbarossa: Okay.

Ananda Prosad Baruah: Our next question comes from right now.

Ananda Prosad Baruah: The ruler from loop capital your line is open.

Ananda Prosad Baruah: Yeah, good morning, guys. Thanks for taking the question. I really appreciate it.

Ananda Prosad Baruah: Hey, good morning, guys. Thanks for taking the question really appreciate it.

Ananda Prosad Baruah: I guess a little bigger picture on transceivers, you know, as you guys progress and as the market progresses from 800 to 1.6 to 2.2. Interested in understanding any new net new technical hurdles and challenges that could occur necessary to be successful there? And I guess any, I'm going to call them business-related, dynamics that are going to increasingly manifest the things that it'll take to be successful there and wondering if you guys have a share gain opportunity in that context and what that whole, you know, that whole dynamic could look like. And then I have a quick follow-up. Thanks. Hi Melinda. Thanks for the question. This is Lee Xu.

Ananda Prosad Baruah: I guess, a little bigger picture on <unk>.

Lee Xu: As you guys progressed and as the market progresses from 800 to 162.

Lee Xu: Adjusted and understanding.

Ananda Prosad Baruah: Any.

Lee Xu: Any net new technical hurdles and challenges.

Lee Xu: You guys sort of it could occur.

Lee Xu: Necessary to be successful, there and I guess any.

Lee Xu: They call them business related.

Ananda Prosad Baruah: Dynamic.

Lee Xu: Increasingly that SaaS that will take to be successful there and wondering if you guys have a share gain opportunity in that context.

Lee Xu: And what that whole that whole dynamic could look like then I have a quick follow up thanks.

Ananda Prosad Baruah: Yeah.

Ananda Prosad Baruah: Okay.

Lee Xu: So this is a very key question. Thanks for asking. For this development, it is indeed getting higher and higher data rates; the technical challenge is that it's getting more complex. But to us, there are several advantages. Also, we got to use a higher portion of our internal lasers and components. And also, we found that the competition landscape becomes more difficult because there are fewer people.

Lee Xu: Hi, Linda.

Lee Xu: For the question. This is Lee so as a system very key question, thanks for asking that.

Lee Xu: Matt.

Lee Xu: For for this development and it is indeed getting higher higher data rate the technical challenge is.

Lee Xu: He is getting more complex and but to US. There are several advantages also that we got to use a higher portion of our internal lasers and components and also we found that.

Lee Xu: The competition landscape becomes.

Lee Xu: For example, for the current 800G shipment, so far, it's only a small number of companies that would be able to support that in high volume. And we expect similar things on the 1.6T and the 3.2T. So we do think that we can gain market share. And over the next few, I'll get it.

Lee Xu: There are fewer people for that for the current 800, you ship. It. So far is only a small number of companies that would be able to support that and Kai volume.

Lee Xu: We expect a similar things on a $1 63.

Lee Xu: <unk>. So we do think that we can gain market share.

Lee Xu: And over the next few years.

Lee Xu: You also mentioned if there are any key technical hurdles that we won't be able to overcome. So far, no, our development has been going on track, and we are confident that we'll be able to release the product on time.

Speaker Change: Okay got it.

Lee Xu: Market.

Speaker Change: Oh, sorry, yes.

Lee Xu: You also mentioned if there is any key technical hurdles that we won't be able to overcome so far not.

Lee Xu: Our development has been going on track and we are confident that we'll be able to release the product on time.

Chuck Mattera: This evolution of the market is going to play right into the strengths of Coherent, and we'll continue to invest, innovate, and use our imagination across both the laser and the transceiver to deliver disruptive capabilities to the customer. The optical circuit switch is just one example, not laser-based, but the optical circuit switch is just another example of the kind of innovation power in the company and the ability of the company to begin to catalyze new markets that may have billions of dollars worth of opportunity for us. So, thank you for your question, Ananda. Thanks guys. I appreciate it. I'll leave it be.

Lee Xu: This evolution of the market is.

Chuck Mattera: Going to play right into the strengths of coherent.

Chuck Mattera: And we will continue to invest innovate and to use our imagination across both the laser.

Chuck Mattera: The transceiver to deliver.

Chuck Mattera: Disruptive capabilities to a customer.

Chuck Mattera: <unk>, which is just one example, not a laser based optical.

Chuck Mattera: Optical silicon switch is just another example of the kind of innovation power in the company and the ability of the company beginning to catalyze new market new markets that we have.

Chuck Mattera: Billions of dollars' worth of opportunity for us. So thank you for your question in on them.

Chuck Mattera: Thanks, guys appreciate it.

Speaker Change: I'll leave it there thanks.

Chuck Mattera: Thanks.

Speaker Change: Thank you one moment for our next question.

Ananda Prosad Baruah: Thanks. Thank you. One moment for our next question. Our next question comes from Dave Kang from B. Reilly. Your line is open. Thank you. Good morning. Regarding that OCS, just wondering if I could get any update. How big is it right now?

Chuck Mattera: Yeah.

Chuck Mattera: Our next question will come from the line of Dave Kang from B Riley Your line is open.

David Kang: Thank you and good morning.

David Kang: Regarding <unk>, yes, just wondering if I could get any update how big is it right now any new customer wins and who are your main competitors.

David Kang: Any new customer wins? And who are your main competitors? Okay. Thank you, Dave. Good morning.

Ananda Prosad Baruah: Okay. Thank you Dave Good morning, Julie if you want to take that sure yes, Dave. Thanks for the question. So yes, Chuck was just saying that optical circuit switch I think is a great example of manpower of innovation of our company I'm sure you saw a demo and released at OFC, where we're using our <unk>.

Julie Sheridan Eng: Julie, do you want to take this? Sure. Yeah, Dave, thanks for the question. So yeah, as Chuck was just saying, that optical circuit switch, I think is a great example of the power of innovation in our company. I'm sure you saw our demo and release at OSC where we're using our liquid crystal technology. So it's a great example of where we have a technology inside the company that we have a long history of. We ship to the undersea market, so it's very, very reliable.

Julie: A quick Crystal technology. So it's a great example, where we have a technology inside the company that we have a long history of we ship into the undersea market is very very reliable and we saw a market opportunity where we can use that same technology for a different market need in the optical circuit switch sides.

Julie Sheridan Eng: And we saw a market opportunity where we could use that same technology for a different market need, the optical circuit switch. So I was really proud of our team who delivered a great demo for OSC. It is new, you know, incremental revenue for us. We think our liquid crystal is a great solution. It operates at a lower voltage than MEMS, and so that leads to higher reliability but also lower power, which is very, very important in the data center.

Julie Sheridan Eng: Really proud of our team who delivered a great demo for OFC.

Julie Sheridan Eng: It is new incremental revenue for us we think our liquid crystal is a great solution.

Julie Sheridan Eng: It operates at a lower voltage than men's and so that leads to higher reliability, but also lower power, which is very very important and the data center. We are engaged with many multiple customers.

Julie Sheridan Eng: We're engaged with many multiple customers, and, you know, we see shipping samples all within the next few months. And I think we called out in our shareholder letter that we could see revenue on that product by our fiscal year 26. And, yeah, we just feel like we have a really strong position there. So I'm excited about it. Enjoy.

Julie Sheridan Eng: And we see shipping samples all within the next few months.

Julie Sheridan Eng: And.

Julie Sheridan Eng: I think we called out in our shareholder letter that we could see revenue on that product by our fiscal year 2006.

Julie Sheridan Eng: And.

Julie Sheridan Eng: Yes, we just feel like we have a really strong position so I'm excited about it.

Speaker Change: Thank you Julie.

David Kang: Thank you. And my follow-up question is on 800GIG. You mentioned that orders were down sequentially from a very strong fiscal 2Q. Just wondering what to expect during this quarter. Magnus, do you want to take that?

Speaker Change: Thank you and my follow up is on 800 gig.

Magnus Bengtsson: You mentioned that orders were down sequentially from very strong fiscal <unk>, just wondering what to expect during this quarter.

Magnus Bengtsson: Sure, I can take that. Thanks for the question, Dave. So, as we noted in the shareholder letters, lead times have come down. And so, customer ordering patterns have normalized to be within lead time, whereas a couple of quarters ago, they ordered many quarters out. So, I think we're back to a more normal order pattern. Thank you. Thank you, Dave.

Magnus Bengtsson: So as a matter of if you want to take that sure I can take that thanks for the question Dave So.

Magnus Bengtsson: As we noted in the shareholder letters lead times have come down and so customer ordering patterns of more normalized two.

Magnus Bengtsson: To be within lead time, whereas cut.

Magnus Bengtsson: A couple of quarters ago, they ordered many quarters out so I think we're back to a more normal order pattern.

Speaker Change: Thank you.

Magnus Bengtsson: Thank you Dave.

David Kang: Thank you. One moment for our next question. Our next question comes from the line of Jim Ricchiuti from Needham and Company. Your line is open. Hi, thank you. Good morning.

Speaker Change: Thank you one moment for your next question.

Jim Ricchiuti: Our next question will come from the line of Jim <unk> from Needham <unk> Company. Your line is open.

Jim Ricchiuti: What drove that 30% increase in laser bookings? I'm assuming the ELA display business was a big driver. Can you say what the bookings were, how it performed excluding display?

Jim Ricchiuti: Hi, Thank you good morning, what drove that 30% increase in laser bookings I'm, assuming the DLA display business was a was a big driver can you say what the bookings how it performed excluding dislike.

Jim Ricchiuti: Yes, thank you. Good morning, Jim. Good morning, Matt.

Speaker Change: Yes. Thank you good morning, Jim.

Unknown Executive: I'll take it. Yeah, so I'll have to do the math, but you're right. In the orders in the quarter, we saw a good uptick in display orders. I think that drove the lion's share of the uptick. We saw orders from capacity increase in China, and we actually expect similar order performance in the display market in the current quarter and in Q4. So most of that uptick was displayed. Thank you. Thank you. Precision Manufacturing is right behind it. Display number one.

Jim Ricchiuti: Thank you.

Unknown Executive: Yes so.

Unknown Executive: Yes, so I'll have to.

Unknown Executive: To do the math, but you are right.

Unknown Executive: Orders in the quarter, we saw a.

Unknown Executive: And good uptake in display orders and I think that drove the lion's share of the uptake.

Unknown Executive: We saw.

Unknown Executive: Orders from capacity increase in China, and we actually expect similar order performance in the display market in the current.

Unknown Executive: The current quarter in Q4.

Unknown Executive: So most of that uptick was whats display got.

Speaker Change: Got it thanks for your manufacturing.

Unknown Executive: Precision manufacturing right behind it yes, Helane, everyone. Yes display number one precision manufacturing also saw an increase and I think that we'll see a further increase in Q4 and then into semi vertical mostly flat. Thank you Matt.

Unknown Executive: Yeah, display number one. Precision Manufacturing also saw an increase, and I think that will see a further increase in Q4. And then in the semi-vertical, mostly flat.

Unknown Executive: Ties into it with the next question on precision manufacturing. What's driving that? Is it a case of easy comparisons?

Speaker Change: It actually ties into the next question on precision manufacturing whats driving that would be the case of easy comparisons or are you guys seeing a turn in this part of the business.

Unknown Executive: Or are you guys seeing a turn in this part of the business? I think what we're excited about in the business is what we're doing in the welding space to target EV applications, where, you know, we have broad customer engagements, and we're seeing increasing depth in terms of customer engagements. We've seen a little bit of an uptick in China, in the broader market in China, but we haven't yet seen the broader market turn.

Unknown Executive: I think what we're excited about in the business is.

Unknown Executive: What we're doing in the welding space targeted towards EV applications.

Unknown Executive: Where we have broad customer engagements and we're seeing increasing depth in terms of customer engagements.

Unknown Executive: You know, for the rest of that space, as you know, it's pretty macro-dependent, and we haven't really seen that changing in a broad way. So there are some pockets of upside rather than a broad comeback. Thank you. Thanks, Matt. Thank you, Jim. Thank you. One moment for our next question. Our next question will come from Tim Savageaux from Northern Capital Markets. Hi, good morning.

Timothy Paul Savageaux: We've seen a little bit of an uptick in China, and the broader market in China, but we haven't yet seen the broader market turn for the rest of that space as you know, it's pretty macro dependent and.

Timothy Paul Savageaux: We haven't really seen that change in in a broad way. So there is there are some pockets of upside rather than a broad comeback and precision manufacturing. Thank.

Timothy Paul Savageaux: Thank you.

Timothy Paul Savageaux: Thanks Bruce.

Timothy Paul Savageaux: Thank you Jim.

Timothy Paul Savageaux: Thank you one moment for our next question.

Timothy Paul Savageaux: Our next question will come from the line of Tim <unk> from Northern capital markets.

Timothy Paul Savageaux: I want to come back to the order and backlog discussion. I guess the commentary was about more normalized, but you've seen orders come down, I think, three quarters in a row now. I think the book to bill ratio was under below one in the quarter, and you did see a big surge of orders last year driven by networking in Q4. But it sounds like you don't expect to see that again as lead times normalize. But what should we expect for the direction of overall orders and backlog for the company heading into fiscal Q4 here? Rich, you know, just just just in general.

Unknown Executive: Okay.

Timothy Paul Savageaux: Hi, Good morning, I wanted to come back to the order and backlog discussion.

Timothy Paul Savageaux: And I guess the commentary was about more normalized but <unk> seen orders come down I think three quarters in a row now alright.

Timothy Paul Savageaux: I think the book to Bill was below one in the quarter and you did see a big surge of orders last year, driven by networking and Q4.

Timothy Paul Savageaux: It sounds like you don't expect to see that again.

Timothy Paul Savageaux: As lead times normalized, but what should we expect for the direction of overall.

Timothy Paul Savageaux: Orders and backlog for the company.

Timothy Paul Savageaux: Heading into fiscal Q4 here.

Timothy Paul Savageaux: Richard.

Speaker Change: Just in general.

Rich Martucci: So in general.

Timothy Paul Savageaux: Okay, so in general, our book the bill, you know, quarter over quarter, we did see in Q3, a below one book to bill. Really, we expect the year's backlog to remain flat pretty much year over year. But we still believe that a majority of the strength in the markets in terms of long-term will increase the total backlog. We're expecting a book to bill, really, around one in Q4.

Timothy Paul Savageaux: Our book to Bill.

Timothy Paul Savageaux: Quarter over quarter, we did see.

Timothy Paul Savageaux: In Q3.

Timothy Paul Savageaux: Below one book to Bill.

Timothy Paul Savageaux: We expect the year backlog remained flat pretty much year over year.

Timothy Paul Savageaux: And we still.

Timothy Paul Savageaux: Believed that a majority of the strength in the markets.

Timothy Paul Savageaux: In terms of long term will increase the <unk>.

Timothy Paul Savageaux: Total backlog, we're expecting a book to bill.

Timothy Paul Savageaux: We really were on one if not Q4, we're focused on it Tim is a critical success factor going forward. So we are totally focused on as a team.

Rich Martucci: We're focused on it, Tim. It's a critical success factor going forward, so we're totally focused on it as a team. And we'll have more to say about 25 in 90 days from now. But it's a top priority in the company.

Rich Martucci: Ken.

Rich Martucci: We'll have more to say about 25.

Rich Martucci: <unk> 90 days from now.

Rich Martucci: It's a top priority in the company.

Rich Martucci: And just a quick follow-up, I think there was a comment about the customer base broadening out, I believe, specifically in 800 gigabit, but maybe in Datacom generally. And along those lines, I wonder if you can address the kind of concentration in Datacom, whether you had any 10% customers overall in the quarter, and what sort of major customers are driving the Datacom segment at this point. We report 10% customers once a year, as you know, at the end of the fiscal year, Tim, we won't have any comments on that.

Speaker Change: I appreciate it and just a quick follow up I think there was a comment about the customer base broadening out.

Rich Martucci: I believe specifically in 800 gig, but maybe in Datacom generally and along those lines I Wonder if you can address kind of concentration in datacom, whether you had any 10% customers overall in.

Rich Martucci: In the quarter and what sort of major customers are driving that datacom.

Rich Martucci: Segment at this point.

Timothy Paul Savageaux: But we can give you just a general flavor for the broadening of the base, which we saw evidence of at OFC with just a tremendous amount of interest from the industry fanning out to two additional layers. As of the beginning of the shipment of the 800G, we have two major customers that we, we all know who they are. Now, you know, in the past quarter, we have over four customers that have ordered a significant amount, multi-million dollars from us, and we're also, in the past two quarters, have multiple design wings of our 800G, various 800G products, you know, from short-reach to long-reach, with the key customers. So we think going forward into FY25. The 800G is going to have a much broader customer base.

Rich Martucci: We reported 10% customers once a year as you know at the end of the fiscal year. Two we won't have any any comment on that but we can give you just a general flavor.

Timothy Paul Savageaux: Further broadening.

Timothy Paul Savageaux: The broadening of the base.

Timothy Paul Savageaux: Which we saw evidence of at OFC with just a tremendous amount of interest from from the from the industry Fanning out to two additional layers.

Timothy Paul Savageaux: In the market.

Timothy Paul Savageaux: Right.

Timothy Paul Savageaux: As of the beginning of the shipment of 800.

Timothy Paul Savageaux: We have two major customers that would support that.

Timothy Paul Savageaux: We all know who they are.

Timothy Paul Savageaux: Now.

Timothy Paul Savageaux: You know in the past quarter, we have.

Timothy Paul Savageaux: <unk>.

Timothy Paul Savageaux: Or for customers that order significant amount multimillion dollars from us.

Timothy Paul Savageaux: And we're also.

Timothy Paul Savageaux: In the past two quarters have multiple design wins of our 800 G. Various AIG product.

Timothy Paul Savageaux: Shortage to low reach.

Timothy Paul Savageaux: With key customers. So we think going forward into FY 'twenty five.

Timothy Paul Savageaux: <unk> 800, GE is going to have a much broader customer base.

Lee Xu: Great. Thank you, Lee. Thanks very much.

Speaker Change: Okay, great. Thank you Lee.

Speaker Change: Hey, Thanks, Steve.

Lee Xu: Thank you. One moment for our last question. And our next question will come from Christopher Rolland from Susquehanna. Your line is open.

Speaker Change: Thank you.

Christopher Adam Jackson Rolland: Our last question.

Lee Xu: Okay.

Lee Xu: And our next question comes from the line of Christopher Rolland from Susquehanna.

Christopher Adam Jackson Rolland: Line is open.

Christopher Adam Jackson Rolland: Hey guys, thanks and congrats on the results. And this may have been answered, but the 500 gig, if you could just talk about the lead times coming down, is that more of like a demand issue or a supply issue? And you guys mentioned a pause for a couple of quarters. Is that two quarters?

Christopher Adam Jackson Rolland: Hey, guys, Thanks, and congrats on the results and this may have been <unk>.

Christopher Adam Jackson Rolland: Answer but.

Christopher Adam Jackson Rolland: The 500 gig.

Christopher Adam Jackson Rolland: If you could just talk about the lead times coming down is that more of a like a demand issue or a supply issue.

Christopher Adam Jackson Rolland: Is that three quarters? And is there like this inventory digestion going on here as well? Is this kind of exacerbating this pause?

Christopher Adam Jackson Rolland: And you guys mentioned a pause for a couple of quarters is that two quarters is that three quarters.

Christopher Adam Jackson Rolland: And is there like this.

Christopher Adam Jackson Rolland: Venturi digestion going on here as well is this kind of exacerbating.

Christopher Adam Jackson Rolland: Did a ton of people, was there like an initial rush for 800 GAI products, and this market just got ahead of itself, and people bought a little bit more? I'm just trying to understand this pause a little bit more here, particularly as when it unpauses, it looks like it'll be the beginning of the 1.6 market, kind of. So just trying to put all those pieces together, you know, the demand issue, the supply issue, inventory digestion, etc. Okay, Chris. Good morning.

Christopher Adam Jackson Rolland: This pause like it did a ton of people was there like an initial rush for.

Christopher Adam Jackson Rolland: 800 Gi products in this market just got ahead of itself and people bought a little bit more.

Christopher Adam Jackson Rolland: I'm just trying to understand this pause.

Christopher Adam Jackson Rolland: Little bit more here, particularly as as when it unpark it looks like it'll be at the beginning of the one six market.

Christopher Adam Jackson Rolland: Kind of.

Christopher Adam Jackson Rolland: So just trying to put all those pieces together.

Christopher Adam Jackson Rolland: Demand issue supply issue inventory digestion.

Christopher Adam Jackson Rolland: Et cetera.

Speaker Change: Okay Chris.

Chuck Mattera: Can you clarify? You said something about 500 G. Oh, did I say 500? I meant 800 if I said 500. Okay, all right. Well, we will try to address that. But for sure, as I said to Tim, that bookings and building up our backlog is a top priority for the management team. However, as we indicated, we are going to grow again in the fourth quarter, and we're building up this capability to continue to expand our output in 800G transceivers. So Lee, why don't you give it a little more color?

Christopher Adam Jackson Rolland: Okay.

Chris: Good morning can you clarify you said something about 500 G.

Lee Xu: Thanks, Mike.

Chuck Mattera: 800, if I said 500.

Lee Xu: Okay, Okay, alright, well, we will try to address that.

Chuck Mattera: For sure as I said to Tim.

Lee Xu: The bookings and building up our backlog is a top priority for the management team.

Lee Xu: However, as we indicated we are going to grow again in the fourth quarter and we are building up this.

Lee Xu: <unk> ability to continue to expand our output.

Lee Xu: <unk> Transceivers. So once you give a little more color.

Lee Xu: Thanks for the question, Tim. First of all, 800G, the lead time. A few quarters ago, people did place orders for close to a year. That's because at that time, neither the material nor the capacity were fully ready.

Chuck Mattera: Okay.

Speaker Change: One question Tim.

Lee Xu: First for 800 achieved the lead time few.

Lee Xu: Few quarters ago people to place orders for close to a year.

Lee Xu: Because at that time on either the material, Florida capacity are fully ready so people are willing to.

Lee Xu: Place to longer term orders secure the capacitive secure the material now as we are.

Lee Xu: A couple of the companies ramping up the <unk>.

Lee Xu: Energy shipment.

Lee Xu: So capacity is largely there, although we are still expanding.

Lee Xu: And the next couple of quarters.

Lee Xu: And then the material lead time also came down so.

Lee Xu: That's why.

Lee Xu: So people are willing to, you know, place longer-term orders, secure the capacity, secure the material. And then the material lead time also came down. So that's why, you know, as Magnus, our chief revenue officer, said, we see customers placing orders within a shorter lead time. I think that's very normal in our industry, and that does not change the forecast our customers give us for the future growth of the 800G and related products. That's one question that you asked me.

Lee Xu: Magnus.

Lee Xu: Our chip.

Lee Xu: Hum.

Lee Xu: Yeah.

Lee Xu: Revenue Officer said.

Lee Xu: We see customers, placing orders within a shorter lead time.

Lee Xu: That's I think that's very normal in our industry.

Lee Xu: That does not change.

Lee Xu: Forecast our customers gave us.

Lee Xu: For the future growth of the 800 G related to products.

Speaker Change: One question.

Lee Xu: The other is that you said that there is a pause for products that seem to be below 800 G. What we see is that, indeed, there's some kind of squeezing out effect as people are putting more money on 800 G for AI expansion. There's some of the capex for normal networking is squeezed out, but we do see that in a few quarters start to go back up.

Lee Xu: That you asked at the other is that you said that there is a pause for.

Lee Xu: Products that seem to be below a 100 G.

Lee Xu: What we see is that indeed, there is some kind of.

Lee Xu: Squeezing out effect as people are putting more money.

Lee Xu: 800, <unk> four AI extension.

Lee Xu: There is some.

Lee Xu: Of the Capex for normal.

Lee Xu: Net working.

Lee Xu: Squeezed out of it.

Lee Xu: But we do see that in a few quarters to start to.

Lee Xu: Go back up.

Lee Xu: But overall, you know, people might switch to 800G for their normal networking in addition to using AI. So that's. Overall, that's our view of the current marketplace. Okay. Thank you, Lee. Great, that was a great clarification.

Lee Xu: But overall people might.

Speaker Change: Uh huh.

Speaker Change: Switch to 800 G for their normal networking.

Speaker Change: Listen to using on AI.

Lee Xu: So that's overall that's our.

Lee Xu: That's our view of the current market place.

Lee Xu: Julie.

Speaker Change: Great that was.

Lee Xu: That was a great clarification.

Lee Xu: I, as I think of out to the 1.6 T cycle, you know, every company in this industry has its different kind of strengths and weaknesses. And, you know, there's probably going to be three technologies, laser technologies, you know, Vixels, EMLs, and SIFO, that are going to address this 1.6 opportunity, particularly the AI opportunity. I just wanted to get a clear picture, you know, what are your capabilities? What are your strengths around these three technologies? And What are your ramp times?

Lee Xu:

Lee Xu: As I think out to the one six T cycle every company in this industry has its different kind of strengths and weaknesses.

Lee Xu: And there's probably going to be three technology laser technologies VIX of AML and FIFO that are going to address this one six opportunity, particularly the AI opportunity.

Lee Xu: I just wanted to get a clear picture.

Lee Xu: What are your capabilities what are your strengths around these three technologies and what are your ramp times.

Christopher Adam Jackson Rolland: Like, for example, are you initially addressing 1.6 with EMLs or SIFO? If not SIFO, like when can you kind of hard move over to SIFO technologies, which I think are a little more cost effective? Maybe you can talk about where these three technologies kind of intercept 1.6 for you guys. Okay, now, Julie, do you want to take it?

Julie: Like for example, your address.

Julie: Surely addressing one six with <unk> our CFO.

Julie: If not FIFO like when can you kind of hard move over to CFO technologies, which I think are a little more cost effective.

Julie: Maybe you can talk about where these three technologies kind of intercept one six for you guys.

Julie Sheridan Eng: Sure, sure. Yeah, thanks for the question. Yeah, as you accurately said, we can use Vixels, and we can use EMLs.

Christopher Adam Jackson Rolland: Okay, Julie do you want to take it sure sure yes. Thanks for the question.

Julie: Accurately and we can use the vitol. So we can use <unk>, we've actually in the indium phosphide domain also introduced our DSD envy and we can use silicon photonics and.

Julie Sheridan Eng: We've actually, in the Indium Phosphide domain, also introduced our DFBNZ, and we can use silicon photonics. And we have, as you know, for Vixels and the Indium Phosphide, we design in-house, and we manufacture in-house. For silicon photonics, and as is common in the silicon industry, a fabless, you know, so we have an internal design team, and we use outsourced fabs. And so, what we do is we choose the best technology for the product based on cost and performance.

Julie Sheridan Eng: And we have as you know for <unk> and the indium phosphide, we design in house and we manufacture in house for Silicon Photonics.

Julie Sheridan Eng: As is common in the silicon industry is fabulous.

Julie Sheridan Eng: We have an internal design team and we use outsource fabs and so.

Julie Sheridan Eng: What we do is we choose the best technology for that product based on the cost and the performance and because we have access to all of the technologies. We can choose the one that makes the most sense as far as transitioning to 200 G. The fundamental basic laser technology is actually.

Julie Sheridan Eng: And because we have access to all the technologies, you know, we can choose the one that makes the most sense. As far as transitioning to 200G, the fundamental basic laser technology is actually very similar. Once you go from 100G to 200G, it's still hard, but it's very similar.

Julie Sheridan Eng: Very similar once you go from 100 G 200, <unk>, it's still hard but it is very similar so using a very similar equipment that we can make to sit in the lasers at the higher data rates and the test equipment data rate has to go up so that's something we need to do but in general we should be able to handle that ramp challenge the same.

Julie Sheridan Eng: So using this very similar equipment set, we can make the lasers at higher data rates. The test equipment data rate has to go up, so that's something we need to do. But in general, we should be able to handle that RAM challenge the same as we have at 100G. And then, as with everything, silicon photonics isn't always cheaper, but in some cases, for some applications, it may be the best choice.

Julie Sheridan Eng: We have 100 G and then as things.

Julie Sheridan Eng: Photonics isn't always cheaper by in some cases for some applications. It may be the best choice and as we see our products transitioning the silicon Photonics, we feel.

Julie Sheridan Eng: And as we see products transitioning to silicon photonics, we feel very strong in our capability. We've been working on silicon photonics since 2010. We have silicon photonics shipping in production in products. Our team demonstrated publicly 200G per lane silicon photonics eyes. And one very important thing, and we have actual products in design right now with silicon photonics for Datacom. And one very important thing to never forget is that a silicon photonics-based transceiver actually requires an indium phosphide high-power laser. So even in silicon photonics, you should think silicon photonics and indium phosphide. So in silicon photonics-based transceivers, we can differentiate ourselves also with our indium phosphide lasers.

Julie Sheridan Eng: Very strong in RF capability, we've been working on Silicon Photonics since 2010, we have silicon photonics shipping in production in products.

Julie Sheridan Eng: Our team demonstrated publicly 200 Jeep per lane Silicon Photonics is and one very important and we have actual products in design right now with silicon Photonics for Datacom and one very important thing to never forget is that silicon photonics based transceiver actually.

Julie Sheridan Eng: Requires an indium phosphide high power laser so even in Silicon Photonics is you think silicon photonics and indium phosphide Silicon Photonics based transceivers, we can differentiate ourselves also with lasers.

Julie Sheridan Eng: So we feel in a really good position to address all the technologies for 1.6T at 200G. And just maybe a clarification, let's say within the first ramp, what do you expect the mix of those three technologies to be? And then, let's say in the second year, how might that shift?

Julie Sheridan Eng: So we feel like we're really good position to address all of their technologies at tax for $1 60 to 202 per line.

Speaker Change: Thank you Julien.

Speaker Change: And just maybe a clarification.

Julie Sheridan Eng: Let's say within the first ramp what do you expect the mix of the three technologies to be and then let's say in the second year, how might that shift.

Christopher Adam Jackson Rolland: Chris, I think we only have time for two. We're running out of time. Chris, to be honest, to be respectful to everybody on the call, we still have another person in the queue, and we've got two minutes left. So we'll take that offline.

Speaker Change: Chris I think we only have time for two we're running at a time Chris.

Speaker Change: Be respectful to everybody to the call restore.

Speaker Change: <unk> got two minutes left so we'll take that offline.

Speaker Change: Thank you Chris.

Chris: Thanks, Kevin.

Christopher Adam Jackson Rolland: Sure.

Speaker Change: Our next question.

Chuck Mattera: Thank you, Chris. Thanks, guys. Thank you. One moment for the next question. And our last question for today will come from Richard Shannon from Craighalem. Your line is open. Hi guys, thanks for taking my question. Hi Chuck. I wanted to talk a little bit about margin structure here as you get to your 40% gross and above 20% EBIT margin, and really kind of want to look at the time in the past where you've done that, which is the first half of fiscal 22, looking at the margin structure by your three segments.

Christopher Adam Jackson Rolland: Okay.

Christopher Adam Jackson Rolland: And our last question for today will come from Richard Shannon from Craig Hallum. Your line is open.

Chuck Mattera: And specifically, I'm curious whether you expect to be able to get the networking back up and kind of in that 19 plus percent EBIT range to enable that, or can you do it with that being not as high?

Richard Cutts Shannon: Hi, guys. Thanks for taking my question Hi, Chuck.

Richard Cutts Shannon: Wanted to talk a little bit about <unk>.

Richard Cutts Shannon: Margin structure here as you get to your 40% gross and above 20% EBIT margin. It really kind of want to look at the time in the past, where you've done that which in the first half of fiscal 'twenty two.

Richard Cutts Shannon: Looking at the margin structure by your three segments and specifically I'm curious, whether you expect to be able to get the networking backup in kind of that 19 plus percent EBIT range to enable that or can you do with that being not as high and also maybe if you can.

Richard Cutts Shannon: And also, maybe if you can suggest what kind of revenue levels are needed to get to that kind of margin structure, that'd be great. That's my only question. Thanks guys. Thank you, thank you, Richard. Yeah, I think I think you're 100% right. You know, we have achieved over a 40% margin. And the revenue range of that was over 1.3 billion.

Richard Cutts Shannon: Yes, what kind of revenue levels required to get to that kind of margin structure that'd be great and Thats. My only question. Thanks guys.

Rich Martucci: So as we cross that 1.3 billion mark on the top line, this really comes down to the mix. And even though we believe we can increase the networking margin, we still need, as I mentioned to you earlier, we still need instrumentation and our industrial markets to improve. Richard, do you have a follow-up? No, that's all for me, Chuck.

Speaker Change: Thank you Richard.

Richard: Thank you.

Richard: Youre, 100% rate.

Richard: We have achieved over 40% margin in.

Richard: And the revenue range that was over $1 3 billion. So as we've crossed that $1 3 billion.

Richard: Mark on the topline this really comes down to the mix and even though we believe we can increase the networking margin, we still need as I mentioned to you earlier.

Richard: Still need instrumentation, and our industrial markets to improve.

Richard: But you do have a follow up.

Richard: Thats all from me Chuck Thank you.

Richard Cutts Shannon: Thank you. Thank you, Richard. Okay. All right. Thank you. If there's no further questions in the queue, I'll turn it back over to Paul for any closing remarks. Thank you, Victor. I want to thank everybody for joining us on the call this morning. Just a heads up, next week on March 14, we will be hosting our third in our series of investor market webinars that will be on our instrumentation market. As for the other two, the goal is to help give you insight into the various aspects of our business.

Chuck Mattera: Thank you Richard Okay.

Richard Cutts Shannon: Alright.

Richard Cutts Shannon: Thank you and there is no further question in the queue I'll turn it back over to Paul for any closing remarks.

Paul: Thank you Victor I wanted to thank everybody for joining us on the call. This morning.

Richard Cutts Shannon: Next week on March 14th we will be hosting our third in our series of Investor market Webinars that will be on our instrumentation market as with the other two the goal is to help give you insight into the various aspects of our business.

Paul Jonas Silverstein: If you'd like to join us, it will be accessible on our website. Once again, thank you all for joining us. We look forward to talking to you throughout the day. This does conclude the program. You may now disconnect. Everyone have a great day.

Paul: If you'd like to join it will be accessible on our website. Once again. Thank you all for joining US we look forward to talk to you throughout the year.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.