Q3 2024 MACOM Technology Solutions Holdings Inc Earnings Call

Welcome to MACOM's third fiscal quarter 2024 conference call.

This call is being recorded today, Thursday, August 1, 2024.

Operator: I will mount them to call over to Mrs. P.

Stephen Daly: Ramsey, MACOM's Vice President, Corporate Development, and Investigations.

Speaker Change: At this time, all participants are in a listen-only mode. I will now turn the call over to Mr. Stephen Ferranti, MACOM's Vice President of Corporate Development and Investor Relations. Mr. Ferranti, please go ahead.

Operator: Please go ahead.

Stephen Daly: Thank you, Olivia. Good morning and welcome to our call to discuss MACOM's financial results for the third fiscal quarter of 2024.

Steve Ferranti: Thank you, Livia. Good morning and welcome to our call to discuss MACOM's financial results for the third fiscal quarter of 2024.

Stephen Daly: I would like to remind everyone that our discussion today will continue forward-looking statements, which are subject to certain risks and uncertainties, as defined in the safe harbor for forward-looking statements, contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. For more detailed discussion of the risks and uncertainties that can result in those differences, we refer you to MACOM's filings with the SEC.

Speaker Change: I would like to remind everyone that our discussion today will contain forward-looking statements, which are subject to certain risks and uncertainties, as defined in the Safe Harbor for Forward-Looking Statements contained in the Private Securities Litigation Reform Act of 1995.

Operator: For a more detailed discussion of the risks and uncertainties that can result in those differences, we refer you to MACOM's filings with the SEC. Management statements during this call will also include discussion of certain adjusted non-GAAP financial information. A reconciliation of GAAP to adjusted non-GAAP results is provided in the company's press release and related Form 8K, which was filed with the SEC today.

Speaker Change: Actual results may differ materially from those discussed today. For a more detailed discussion of the risks and uncertainties that can result in those differences, we refer you to MACOM's filings with the SEC.

Stephen Daly: Management statements during this call will also include discussion of certain adjusted non-GAAP financial information. A reconciliation of GAAP to adjusted non-GAAP results is provided in the company's press release and related for MAC, which was filed with the SEC today.

Speaker Change: Management statements during this call will also include discussion of certain adjusted non-GAAP financial information, a reconciliation of GAAP to adjusted non-GAAP results are provided in the company's press release and related Form 8K which was filed with the SEC today.

Steve Daly: With that, I'll turn over the call to Steve Daly, President and CEO of MACOM. During the quarter, we generated over $40 million of free cash flow, and we ended the quarter with approximately $521 million in cash in short-term investments on our balance. We demonstrated a 100-watt C-band GaN-on-silicon carbide power amplifier MIMIC with 57% power-added efficiency in an overmolded package in conjunction with the silicon P Congratulations to our CAPTURE team for developing these plans, completing the documentation, and putting forward compelling applications.

Stephen Daly: With that, I'll turn over to Steve Daley, President and CEO of MACOM. Thank you and good morning. I will begin today's call with a general company update. After that, Jack Cobra, our Chief Financial Officer, will review our Q3 results. When Jack is finished, I will provide revenue and earnings guidance for fiscal Q4, and then we will be happy to take some questions. Revenue for the third quarter of fiscal 2024 was $190.5 million in adjusted EPS, with 66 cents per diluted share. During the quarter, we generated over 40 million of free cash flow, and we ended the quarter with approximately 521 million in cash and short-term investments on our balance sheet.

Steve Daly: With that, I'll turn over the call to Steve Daly, President and CEO of MACOM.

Steve Daly: Thank you and good morning. I will begin today's call with a general company update. After that, Jack Kober, our Chief Financial Officer, will review our Q3 results.

Steve Daly: When Jack is finished, I will provide revenue and earnings guidance for fiscal Q4, and then we will be happy to take some questions.

Jack Kober: Revenue for the third quarter of fiscal 2024 was $190.5 million in adjusted EPS with $0.66 per diluted share.

Jack Kober: During the quarter, we generated over $40 million of free cash flow, and we ended the quarter with approximately $521 million in cash in short-term investments on our balance sheet.

Stephen Daly: Our business remains healthy and profitable, and we continue to generate strong cash flow while investing in future growth opportunities. In Q3, our book-to-bill ratio was 1.1 to 1, and our turns business, where orders booked and shipped within the quarter, was 21 percent of our total revenue. Booking trends are one of the most important metrics we track, as they are a leading indicator of future revenue. We recognize bookings can be volatile; however, we are pleased that this is the third quarter in a row that our bookings improved. It's also the second time in 12 months that we achieved a quarterly book-to-bill ratio of 1.1.

Jack Kober: Our business remains healthy and profitable, and we continue to generate strong cash flow while investing in future growth opportunities.

Jack Kober: In Q3, our book-to-bill ratio was 1.1 to 1, and our terms business, where orders booked and shipped within the quarter, was 21% of our total revenue.

Jack Kober: Booking trends are one of the most important metrics we track as they are a leading indicator of future revenue.

Jack Kober: We recognize bookings can be volatile. However, we are pleased that this is the third quarter in a row that our bookings improved.

Jack Kober: It's also the second time in 12 months that we achieved a quarterly book-to-bill ratio of 1.1.

Stephen Daly: New order demand was strongest in our I&D and data center end markets. Q3 revenue performance by end market was as expected. With industrial and defense at $90.9 million, telecom at $50.6 million, and data center at $49 million. For the quarter, data center was up 13.6 percent sequentially. Telecom was up 7.1 percent sequentially, and I&D was flat sequentially. I'll note that our I&D business had record revenues in the prior quarter. Industrial and defense is our largest market, and our I&D revenues have been steadily growing over the past few years. We believe the secular trends for the I&D market are favorable, and our growth strategies are. Our focus over the last few years has been strengthening our engineering capabilities to better serve these customers.

Jack Kober: New order demand was strongest in our IND and data center and markets.

Jack Kober: I'll note that our IND business had record revenues in the prior quarter.

Jack Kober: Industrial defense is our largest market, and our I&E revenues have been steadily growing over the past few years.

Jack Kober: Our focus over the last few years has been strengthening our engineering capabilities to better serve these customers.

Stephen Daly: For example, we approach our defense customers as merchant suppliers of high-performance IC components. In doing so, we offer standard and custom IC and package solutions to support their needs. We embrace custom design projects, which we view as a great way to build strong relationships with our customers' engineering teams. We also offer our defense customers access to our wafer foundries and approximately 20 proprietary process technologies. In some instances, our defense customers have their own wafer fabs and IC designers, but they are inclined to use DOD trusted foundries like MACOM to access differentiated process technologies. And we offer to design and manufacture custom component, module, and subsystem solutions, but only in areas where we have high MACOM IC content and true subsystem expertise, which typically revolves around millimeter wave, very high RF or microwave power filtering and switching, and specialized fiber optic subsystems. On last quarter's call, I highlighted electronic warfare radar, anti-drone, and integrated battlefield systems as four examples of defense applications which can utilize MACOM's technology.

Jack Kober: For example, we approach our defense customers as merchant suppliers of high-performance IC components. In doing so, we offer standard and custom IC and package solutions to support their needs.

Jack Kober: We embrace custom design projects, which we view as a great way to build strong relationships with our customers' engineering teams.

Jack Kober: We also offer our defense customers access to our wafer foundries and approximately 20 proprietary process technologies.

Stephen Daly: We see a number of large opportunities across these and other application areas at our major defense customers. As a reminder, our focus has been and will continue to be developing products and technology for the highest frequency, highest power, and highest data rate applications. We are pleased that our newest technology and latest products are being evaluated and adopted by leading defense OEMs and government customers.

Jack Kober: We see a number of large opportunities across these and other application areas at our major defense customers.

Stephen Daly: And finally, I'm pleased to announce that during the quarter, we were awarded a special development contract from the U.S. Air Force. Under the contract, we will conduct research and development on microwave filter technologies using novel epitaxial and semiconductor processing. We are excited to begin the work, and we believe our efforts will help improve the performance of next-generation defense systems, which require more precise filtering. We are pleased to see that our telecom and market revenues have stabilized, albeit in a generally weak environment for a few of our core submarkets. I'll note we are not seeing signs of a broad telecom recovery.

Jack Kober: Under the contract, we will conduct research and development on microwave filter technologies using novel epitaxial and semiconductor processing.

Stephen Daly: However, as noted last quarter, we are seeing platform shifts at our lead 5G customer, which may result in revenue growth opportunities for MACOM over the next 12 months. In addition, we believe we are gaining market share at certain key 5G accounts. While global 5G network CAPEX spending may have peaked, we are still excited about the growth opportunities in 5G networks. Our existing customers are providing MACOM more opportunities on the transmit and receive side of 5G radios, as well as the high speed digital and optical portions of the network. A bright spot in the telecom market is satellite communications or SATCOM.

Jack Kober: In addition, we believe we are gaining market share at certain key 5G accounts.

Stephen Daly: We see opportunities to sell our products into a growing number of satellite constellations, which are delivering broadband, internet, and direct-to-cell services to global customers. These systems typically operate at microwave or millimeter-wave frequencies, which plays to make home strengths.

Jack Kober: These systems typically operate at microwave or millimeter wave frequencies, which plays to MACOM's strengths.

Stephen Daly: The data center end market continues to be a dynamic market with significant growth opportunities. The industry's movement to higher data rates, combined with the increasing number of interconnects that are required for next-generation networking and high-performance computing applications, are creating meaningful opportunities for MACOM. For example, a single compute cluster could use hundreds of thousands of cores or GPUs across hundreds of equipment racks. Connecting everything together requires large volumes of fiber optic and/or copper interconnects, creating a potential opportunity for MACOM. Within these complex compute architectures, there are typically a wide range of connectivity requirements, including GPU to GPU, switch-to-switch, network interface card or NIC-to-switch, and DCI links.

Jack Kober: The data center and market continues to be a dynamic market with significant growth opportunities.

Jack Kober: The industry's movement to higher data rates combined with increasing number of interconnects that are required for next-generation networking and high-performance computing applications are creating meaningful opportunities for MACOM.

Jack Kober: For example, a single compute cluster could use hundreds of thousands of cores, or GPUs, across hundreds of equipment racks.

Jack Kober: Connecting everything together requires large volumes of fiber optic and or copper interconnects.

Jack Kober: creating a potential opportunity for MACOM.

Stephen Daly: Connectivity requirements can vary by customer, including link distance, protocol, and physical medium. As a result, our strategy is to bring to market a product portfolio that offers solutions for short and long distance connections, utilizing NRZ, PAM4, coherent modulations carrying Ethernet, PCIe, or other customer proprietary protocols. We designed high-speed analog chips to support both single mode and multi-mode fiber optic deployments using DML, VIXEL, or EML lasers, as well as silicon photonic modulators with CW lasers. And of course, we offer analog products that support both retined and linear architectures. Or said differently, we can sell our ICs to work in conjunction with DSPs or to replace DSPs.

Jack Kober: Connectivity requirements can vary by customer including link distance, protocol, and physical medium.

Speaker Change: As a result, our strategy is to bring to market a product portfolio that offers solutions for short and long distance connections, utilizing NRZ, PAM-4, coherent modulations carrying Ethernet, PCIe, or other customer proprietary protocols.

Jack Kober: We designed high-speed analog chips to support both single-mode and multi-mode fiber-optic deployments using DML, VXL, or EML lasers, as well as silicon photonic modulators with CW lasers.

Jack Kober: And of course, we offer analog products that support both re-timed and linear architectures.

Jack Kober: Or said differently, we can sell our ICs to work in conjunction with DSPs or to replace DSPs.

Stephen Daly: We believe there is a fast pace of innovation within the data center industry. For example, today 400G and 800G data center systems operating at up to 100 gigabits per lane are being deployed utilizing our products. At the same time these systems are being designed, production ramped, and deployed, we are also seeing new and increasing demand for our 200 gig per lane chipsets for both 800G and 1.6T applications. As part of the deployment of 200G per lane network architectures, we see our customers designing and adopting 200G per lane linear pluggable optics or LPO and active copper cables or ACCs in their networks to improve latency, thermals, and power consumption.

Jack Kober: At the same time these systems are being designed, production ramped, and deployed, we are also seeing new and increasing demand for our 200 gig per lane chipsets for both 800G and 1.6T applications.

Jack Kober: As part of the deployment of 200G per lane network architectures, we see our customers designing and adopting 200G per lane linear pluggable optics, or LPO, and active copper cables, or ACCs, in their networks to improve latency, thermals, and power consumption.

Stephen Daly: Our products can be very helpful in these applications, and they have been well received by leading customers in the space. As we look ahead, we see growth in our data center business being driven primarily by our 100G and 200G per lane solutions across optical and copper. Center. Demand for our legacy Ethernet data center products at 25 and 50G per lane, which has become a smaller part of our data center revenue, has recently shown modest improvements, and we are pleased to see these positive trends. And finally, as 100G per lane and 200G per lane products become a reality, our engineering teams have already started designing the next generation products to support 3.2 T applications.

Jack Kober: Demand for our legacy Ethernet data center products at 25 and 50G per lane, which has become a smaller part of our data center revenue, has recently shown modest improvements, and we are pleased to see these positive trends.

Stephen Daly: And now we would like to discuss a few recent highlights. In June, we attended the 2024 International Microwave Symposium, which was one of the most important trade shows of the year for MACOM. We used this venue to showcase our latest diode, RF power, and mimic product lines. This year we organized 14 product demonstrations that are boothed with products from across our core business units, as well as from our recent acquisitions. Some of these demos illustrate how our recent acquisitions and their associated technologies integrate seamlessly into our core portfolio in business. For example, we demonstrated a hundred watt C band, GaN on silicon carbide, power amplifier mimic, with 57% power added efficiency in an overmolded package in conjunction with the silicon PMIC or power management IC.

Jack Kober: In June , we attended the 2024 International Microwave Symposium, which was one of the most important trade shows of the year for MACOM.

Jack Kober: This year we organized 14 product demonstrations at our booth, with products from across our core business units, as well as from our recent acquisitions.

Stephen Daly: We believe this is one of the highest efficiency power amplifiers in its class, and our team was able to combine the GaN on silicon carbide technology from the recent RF business acquisition together with our silicon power management IC technology designed by our analog designers. We demonstrated, again, on silicon, low noise amplifier, or LNA, with one of the fastest recovery times in the industry, processed at our new French wafer fam. The combination of low noise figure, super fast recovery time, and ruggedness make our LNAs attractive for use in radar and electronic warfare. We are pleased that our North American applications and sales teams have successfully introduced the product line to new customers that can exploit the key features of this existing product.

Jack Kober: We believe this is one of the highest efficiency power amplifiers in its class and our team was able to combine the GaN on silicon carbide technology from the recent RF business acquisition together with our silicon power management IC technology designed by our analog designers.

Jack Kober: We demonstrated again on silicon low noise amplifier, or LNA, with one of the fastest recovery times in the industry, processed at our new French wafer fab.

Jack Kober: The combination of low-noise figure, super-fast recovery time, and ruggedness make our LNAs attractive for use in radar and electronic warfare.

Speaker Change: We are pleased that our North American applications and sales teams have successfully introduced the product line to new customers that can exploit the key features of this existing product.

Stephen Daly: And finally, we demonstrated our linearizer technology together with our GAN amplifier pallet technology to highlight how it's possible to simultaneously optimize linearity, power added efficiency, and output power in stack-com applications. These are just three examples of where our M&A strategy has created a 1 plus 1 equals 3 results. I'll note, we are very pleased with the progress we are making with our recent acquisitions, and I especially want to acknowledge the strong support from Wolfspeed over the past quarter.

Speaker Change: These are just three examples of where our M&A strategy has created a 1 plus 1 equals 3 result.

Stephen Daly: I would like to take a moment to update investors on our pursued activities for CHIP's Act funding. As reported previously, Make-on completed the full application process for our low Massachusetts wafer fab. Today, I can report we also completed the full application process for the RTP North Carolina wafer fab. Congratulations to our capture team for developing these plans, completing the documentation, and putting forward compelling applications. In addition to pursuing domestic government funding, we seek French state and European Union funding to support capital investments and technology development projects at our MACOM European Semiconductor Center or MESC near Paris, France.

Speaker Change: I would like to take a moment to update investors on our pursued activities for CHIPS Act funding.

Speaker Change: Today, I can report we also completed the full application process for the RTP North Carolina wafer fab.

Speaker Change: Congratulations to our CAPTURE team for developing these plans, completing the documentation, and putting forward compelling applications.

Speaker Change: In addition to pursuing domestic government funding, we seek French state and European Union funding to support capital investments and technology development projects at our MACOM European Semiconductor Center, or MESC, near Paris, France.

Stephen Daly: I'll note, since the acquisition in the spring of 2023, our teams have been actively working to bring online and qualify MESC's existing six inch wafer production line. We expect this activity to increase our manufacturing capacity while lowering manufacturing costs. As a reminder, our goal of modernization and expansion of our facilities is driven by our long-term strategy to make MACOM stronger and more competitive, and it is not dependent on external funding.

Speaker Change: I'll note, since the acquisition in the spring of 2023, our teams have been actively working to bring online and qualify MESC's existing 6-inch wafer production line.

Speaker Change: We expect this activity to increase our manufacturing capacity while lowering manufacturing costs.

Speaker Change: As a reminder, our goal of modernization and expansion of our facilities is driven by our long-term strategy to make MACOM stronger and more competitive, and it is not dependent on external funding.

Stephen Daly: Before turning the discussion over to Jack, I am pleased to report that in July we completed an update to our five-year strategic plan. We believe that detailed long-term planning is essential to be successful in the semiconductor industry. And while our plan is confidential, I can share that it revolves around a few central themes, which are: one, to focus on market positioning to capitalize on trends; two, execute advanced technology development; three, strengthen our franchise and form, always look for ways to differentiate ourselves from the competition in order to win market share. Our long term goal is to build a unique best in class and diversified semiconductor portfolio, which enables MACOM to capture a larger share of the market.

Speaker Change: Before turning the discussion over to Jack, I am pleased to report that in July we completed an update to our five-year strategic plan.

Jack Kober: We believe that detailed, long-term planning is essential to be successful in the semiconductor industry.

Steve Daly: And while our plan is confidential, I can share that it revolves around a few central themes, which are one, to focus on market positioning to capitalize on trends, two, to execute advanced technology development, three, strengthen our franchise, and four, to always look for ways to differentiate ourselves from the competition in order to win market share. We expect our adjusted income tax rate to remain at 3% for fiscal year 2024 and through fiscal year 2025.

Jack Kober: And while our plan is confidential, I can share that it revolves around a few central themes, which are, one, to focus on market positioning to capitalize on trends.

Jack Kober: Our long-term goal is to build a unique, best-in-class and diversified semiconductor portfolio which enables MACOM to capture a larger share of the market.

Stephen Daly: We are excited about the future and confident we can continue to gain market share.

Jack Kober: We are excited about the future and confident we can continue to gain market share.

Jack Cobra: Jack will now provide a more detailed review of our financial results. Thank you, Steve, and thanks to everyone for joining the call this morning. Revenue for the fiscal third quarter was $190.5 billion, up 5.1% sequentially based on growth in our data center and telecom markets. Industrial and defense markets were flat sequentially. On a geographic basis, revenue from US domestic customers represented approximately 46% of our fiscal Q3 results, up from 44% in fiscal Q2. Adjusted gross profit for fiscal Q3 was $109.5 million or 57.5% of revenue, up 40 basis points sequentially, increasing from 57.1% in Q2.

Jack Kober: Jack will now provide a more detailed review of our financial results.

Jack Kober: Thank you, Steve, and thanks to everyone for joining the call this morning.

Jack Kober: Industrial and defense markets were flat sequentially.

Jack Kober: On a geographic basis, revenue from U.S. domestic customers represented approximately 46 percent of our fiscal Q3 results, up from 44 percent in fiscal Q2.

Jack Kober: Adjusted gross profit for fiscal Q3 was $109.5 million or 57.5% of revenue.

Jack Kober: up 40 basis points sequentially, increasing from 57.1% in Q2. I would like to highlight that our operations team has been able to control costs and also execute improvement plans across the entire company, including within our recently acquired businesses, helping to increase our gross margin.

Jack Cobra: I would like to highlight that our operations team has been able to control costs and also execute improvement plans across the entire company, including within our recently acquired businesses, helping to increase our gross margin. As we implement additional operational improvements, grow our revenue, and better utilize our wafer foundries. Over time, we expect our gross margin to give back to prior levels of 60% or better. Total adjusted operating expense for our third fiscal quarter was $63.9 million, consisting of research and development expense of $41.5 million and selling, general and administrative expense of $22.4 million. Total operating expenses were up by $600,000 sequentially, primarily due to R&D investments in new product initiatives.

Jack Kober: As we implement additional operational improvements, grow our revenue, and better utilize our wafer foundries, over time we expect our gross margin to get back to prior levels of 60% or better.

Jack Kober: Total operating expenses were up by $600,000 sequentially, primarily due to R&D investments in new product initiatives.

Jack Cobra: Adjusted operating income in fiscal Q3 was $45.6 million, up from $40.2 million in fiscal Q2 2024. Adjusted operating margin was 24%, up 180 basis points from fiscal Q2. The sequential increase was driven by higher revenue, improved gross margin, and management of our operating expenses. Depreciation expense for fiscal Q3 was $7.3 million, essentially flat on a sequential basis. Adjusted EBITDA was $188.6 million. Adjusted net interest income for fiscal Q3 was $4.8 million, roughly $450,000 higher than the prior quarter, primarily due to growing cash and investment balances. Our adjusted income tax rate in fiscal Q3 was 3% and resulted in an expense of approximately $1.5 million.

Jack Kober: Adjusted operating margin was 24% up 180 basis points from fiscal Q2.

Jack Kober: The sequential increase was driven by higher revenue, improved gross margin, and management of our operating expenses.

Jack Kober: Adjusted EBITDA was $53 million, up $5.5 million, or approximately 12% sequentially.

Jack Kober: Our adjusted income tax rate in fiscal Q3 was 3% and resulted in an expense of approximately $1.5 million.

Jack Cobra: Our net cash tax payments were approximately $1.7 million for the third quarter. We expect our adjusted income tax rate to remain at 3% for fiscal year 2024 and through fiscal year 2025. Fiscal Q3 adjusted net income was $48.9 million compared to $43.2 million in fiscal Q2 2024. Adjusted earnings per fully diluted share was 66 cents, utilizing a share count of 74.2 million shares, compared to 59 cents of adjusted earnings per share in fiscal Q2. I would like to highlight that during the third quarter, as a result of our average stock price being above the strike price of our convertible notes, our diluted share count increased by approximately 1% as compared to the prior quarter.

Jack Kober: We expect our adjusted income tax rate to remain at 3% for fiscal year 2024 and through fiscal year 2025.

Jack Cobra: Now moving on to operational balance sheet and cash flow items. Our Q3 accounts receivable balance was $106.8 million, down from $120.2 million in fiscal Q2 2024. As a result, day sales outstanding were 51 days compared to 60 days in the prior quarter. Inventories were $190.7 million at quarter and up sequentially from $177.8 million. Inventory turns were 1.7 times down sequentially in Q3 from 1.8 times in the prior quarter. The sequential increase in our inventory balance was driven by anticipated higher demand within our data center business, the timing of certain program shipments, and also inventory builds to support future revenue.

Jack Kober: Our Q3 accounts receivable balance was $106.8 million, down from $120.2 million in fiscal Q2 2024. As a result, day sales outstanding were 51 days compared to 60 days in the prior quarter.

Jack Kober: Inventory turns were 1.7 times, down sequentially in Q3 from 1.8 times in the prior quarter.

Jack Cobra: We feel the quality and mix of our inventory is strong and continues to support our strategic backlog. We expect inventory turns to improve next quarter as our revenue increases. Additionally, over the last five quarters, we have continued to reduce channel inventories held at certain of our partners. Fiscal Q3 cash flow from operations was approximately $49 million, up from $18.2 million sequentially due to higher adjusted net income and improved AR collection. We expect cash flow from operations in the fourth quarter to be in excess of $35 million. Capital expenditures for the first nine months of fiscal 2024 totaled $17.3 million.

Jack Kober: We feel the quality and mix of our inventory is strong and continues to support our strategic backlog.

Jack Kober: We expect inventory turns to improve next quarter as our revenue increases.

Jack Kober: Fiscal Q3 cash flow from operations was approximately $49 million up from $18.2 million sequentially due to higher adjusted net income and improved AR collections.

Jack Kober: We expect cash flow from operations in the fourth quarter to be in excess of $35 million.

Jack Kober: Capital expenditures for the first nine months of fiscal 2024 totaled $17.3 million.

Jack Cobra: We have a rigorous approach associated with our capital expenditure process, which helps to ensure we are only spending on projects that are absolutely necessary and also meet our required returns. We expect our fiscal year 2024 capital expenditures to be approximately $25 million, primarily due to investments in manufacturing facilities and R&D initiatives. Next, moving on to other balance sheet items. Cash equivalents ensure term investments for the third fiscal quarter were $521.5 million, up $45.1 million sequentially, driven by net cash from operations. Comparing our cash and short term investments to the book value of our convertible notes, we are now in a net cash position of more than $70 million.

Jack Kober: We have a rigorous approach associated with our capital expenditure process which helps to ensure we are only spending on projects that are absolutely necessary and also meet our required returns.

Jack Kober: We expect our fiscal year 2024 capital expenditures to be approximately 25 million dollars, primarily due to investments in manufacturing facilities and R&D initiatives.

Operator: Next, moving on to the other balance sheet. Okay, thanks. And then you talked about market share gains in 5G, and then more specifically, last quarter, you talked about market share gains in the base station power ramp market. I was wondering if you could size those opportunities. Thanks.

Jack Cobra: As previously noted, we recently completed our long-term strategic planning process, and our management team is focused on developing and executing a compelling strategic plan that will drive stockholder value over time. Our plan sets out a strategy to expand our SAM, grow the business beyond $1 billion in revenue, increase profitability while generating positive cash flow.

Jack Kober: And our management team is focused on developing and executing a compelling strategic plan that will drive stockholder value over time.

Jack Kober: Our plan sets out a strategy to expand our SAM, grow the business beyond $1 billion in revenue, increase profitability, while generating positive cash flow.

Stephen Daly: I will now turn the conversation back over to Steve. Thank you, Jack. May come expect revenue in fiscal Q4 ending September 27th, 2024, to be in the range of $197 to $203 million. Adjusted gross margin is expected to be in the range of 57 to 59 percent, and adjusted earnings per share is expected to be between $0.70 and $0.76 based on 75 million fully diluted shares. We expect sequential revenue growth in all of our end markets. The expect data center will lead with low to mid-teens growth, followed by telecom and industrial and defense with low single-digit growth.

Jack Kober: Adjusted gross margin is expected to be in the range of 57 to 59 percent and adjusted earnings per share is expected to be between 70 and 76 cents based on 75 million fully diluted shares.

Stephen Daly: Based on these Q4 projections, on a full-year basis for FY24, we would expect data center to be approximately 35 percent, IND up around 10 percent, and telecom to be down slightly year on year.

Speaker Change: Based on these Q4 projections, on a full-year basis, for FY24, we would expect data center to be up approximately 35%, IND up around 10%, and telecom to be down slightly year on year.

Operator: I would now like to ask the operator to take any questions. Thank you. Please, thank you all. And to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. In the concern of time, we ask that you please limit yourself to one question and one follow-up.

Speaker Change: Thank you. Ladies and gentlemen, to ask a question you will need to press star 1 1 on your telephone and wait for your name to be announced.

Speaker Change: In the concern of time, we ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster.

Operator: Please spend while we comply with the county roster.

Ilana Sultman: Now, first question coming from Delina, Quinvon from Needham and Company, Ilana Sultman. Hey, guys, it's on Ilana for Quinvon, and thanks for taking our questions. Two questions from me.

Speaker Change: Now, first question coming from the line up, Quinn Ponce from Needham & Company, your line is open.

Neil: Hey guys, it's Neil on for Quinn Bolton. Thanks for taking our questions. Two questions for me. First, could you share where you are in the qualification process for active copper cables?

Ilana Sultman: First, could you share where you are in the qualification process for active copper cables? Sure, so that really depends on the customer and the data rate in the particular application. So it really varies. We have customers ramping up our products. We have customers qualifying our products, and we have customers just starting to design with our products. So it really depends very much on the customer, their application, and of course, the data. Okay, thanks.

Speaker Change: Sure, so that really depends on the customer and the data rate and in the particular

Speaker Change: application. So it really varies. We have customers ramping up our products. We have customers qualifying our products.

Speaker Change: and we have customers just starting to design with our products. So it really depends very much on the customer, their application, and of course the data rate.

Ilana Sultman: And then you talked about share market ROG. You talked about market share gains in 5G. And then, more specifically, last quarter, you talked about market share gains in the base station power at market.

Speaker Change: Okay, thanks. And then you talked about market share gains in 5G, and then more specifically, last quarter, you talked about market share gains in the base station power ramp market. I was wondering if you could size those opportunities. Thanks.

Stephen Daly: I was wondering if you could size those opportunities. Thanks. Sure. So the 5G RF power opportunity for us is significant. Today, the vast majority of the revenue that we have in 5G is on macro base station, so higher power devices, generally products that are above 20 watts in power. And we see a tremendous opportunity to really tap into the massive MIMO platforms, which over time may be a larger portion of the market. So I would say that over the next three to five years we could more than double our RF power revenue; that market is there.

Speaker Change: Sure, so the 5G RF power opportunity for us is significant. Today, the vast majority of the revenue that we have

Speaker Change: and we see a tremendous opportunity to really tap into the massive MIMO platforms which

Speaker Change: Over time, maybe a larger portion of the market.

Speaker Change: So I would say that over the next three to five years, we could more than double our RF power revenue. That market is there. Some people look at the GAN RF power market as sort of a two to three billion dollar market.

Stephen Daly: Some people look at the GAN RF power market as sort of a two to three billion dollar market, about half of that being in industrial and defense and the other half being in telecom, primarily 5G. And so we are today only winning, or our market share, let's say, is very small compared to the overall market size. And we think that there's opportunities not only on the macro side to gain market share, as well as the MIMO, but also in industrial and defense.

Speaker Change: about half of that being in industrial and defense, and the other half being in telecom, primarily 5G. And so we are today only winning, or our market share, let's say, is very small compared to the overall market size.

Speaker Change: And we think that there's opportunities not only on the macro side to gain market share, as well as the MIMO, but also in industrial and defense.

Harsh Kumar: Thank you. And our next question coming from the line up, Harsh Kumar with Barbara Sandler; you're on his open. Hey guys, first of all, congratulations again on solid, solid execution. I had two as well. Let me follow up on the question that was just asked, but in a slightly different way. So you acquired the wolf business, and admittedly the market is sort of stagnant. Can you talk about what the low hanging, easy opportunities are for you to be able to grow into the telecom space? Is it just sockets that you're winning because Wolf was not interested or focused on that business?

Speaker Change: Thank you. And our next question coming from the line-up, Harsh Kumar with Viper Sandler, your line is open.

Harsh Kumar: Yeah, hey guys. First of all, congratulations again on solid, solid execution. I had two as well. Let me follow up on the question that was just asked.

Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host

Harsh Kumar: Can you talk about what the low-hanging, easy opportunities are?

Speaker Change: for you to be able to grow into the telecom space. Is it just sockets that you're winning because Wolf was not interested or focused on that business? Or is there something else going on that you can do to try and grow that business? And then I have a follow-up.

Stephen Daly: Or is there something else going on that you can do to try and grow that business, and then I have a follow-up. Right. So there's no doubt that Wolf Speed was a significant player in the RF power markets for telecom as well as on the defense side. And so coupling with Maycom has really allowed us to get more scale. We have a larger engineering team. Collectively, we are seeing more opportunities. So that speaks to the comments I made about gaining market share. There also has to be additional work done on execution and also on technology development to make sure that we stay, you know, at the forefront of performance within the telecom market.

Speaker Change: Right. So...

Speaker Change: There's no doubt that Wolfspeed was a significant player in the RF power markets for telecom as well as on the defense side, and so coupling with MACOM.

Speaker Change: has really allowed us to get more scale. We have a larger engineering team. Collectively, we are seeing more opportunities. So that speaks to the comments I made about gaining market share.

Harsh Kumar: There also has to be additional work done on execution and also on technology development.

Speaker Change: to make sure that we stay

Stephen Daly: So I think over the next two to three years, you'll definitely see next generation, again, processes coming to market that are even more competitive than what we have today. So it's a combination of engaging customers more completely with a better, strong portfolio. It's better execution in terms of supporting existing customers and existing volumes as well as technology development to stay on that leading edge. And by the way, I would apply the same core themes to the defense side as well as the telecom side.

Harsh Kumar: you know, at the forefront of performance within the telecom market.

Speaker Change: So, it's a combination of engaging customers more completely with a better, stronger portfolio. It's better execution in terms of supporting existing customers and existing volumes, as well as technology development to stay on that leading edge.

Speaker Change: And by the way, I would apply these same core themes to the defense side as well as the telecom side.

Harsh Kumar: So can I had a follow up on that? I think in the commentary, Steve, you mentioned that you might be able to double the business in three to five years. This is telecom where the market is, you know, supposedly nothing happening at a broad level that hasn't been a lot of investment. So is that all coming from share gain? Predominantly just sort of refocusing and better operations under under may come. I just want to understand what will be the driver. Or is it a function of the fact that your share is so small that doubling is not a big deal?

Speaker Change: So, is that all coming from share gain, predominantly just sort of refocusing and better operations under MACOM? I just want to understand what will be the driver, or is it a function of the fact that your share is so small that doubling is not a big deal?

Stephen Daly: Well, it's kind of a combination of both, and understand that while the telecom or the OEMs that are building these 5G radios, generally speaking, are building the same volume of radios. What's changing, though, is the density of the RF radio itself. So there's more channels; there's more opportunities to get content. So, while the overall number of radios is sort of staying the same, the number of radios, they're not going to be the number of channels is increasing. And one thing that still exists is that there are many regions of the really the globe that have capacity limitations.

Speaker Change: Well, it's kind of a combination of both and understand that

Speaker Change: While the telecom or the OEMs that are building these 5G radios generally speaking are building the same volume of radios. What's changing though is the density of the RF

Speaker Change: is sort of staying the same, the number of channels is increasing.

Speaker Change: And one thing that still exists is that there are many regions of the globe that have capacity limitations. And so the deployment of 5G is not just for new coverage, it's actually to expand capacity.

Stephen Daly: And so the deployment of 5G is not just for new coverage. It's actually to expand capacity. So I just want to highlight that. And then the last thing I'll say is there's really not that many gain suppliers that are qualified to support this market. And we want to be a leader. And certainly be one of the, one of the leading companies doing that.

Akhil K. S.: Thank you. And our next question coming from the line of the back area with Bank of America, you're on the open. Thanks for having my question. Steve, I was hoping we could dig into the data center. And what is the mix between, you know, what one would consider AI versus non-AI. I think people would look at whatever 400 or 800 gig plus components and call them AI generically. So if we have to segment your data center business that way, what is it right now and what was it last year? Yeah, so that's it's an interesting question.

Speaker Change: Thank you. And our next question coming from the line of Vivek Arya with Bank of America, Yolanda Soltman.

Vivek Arya: Thanks for taking my question. Steve, I was hoping we could dig into the data center and what is the mix?

Vivek Arya: plus components and call them AI, generically. So if we had to segment your data center business that way, what is it right now and what was it last year?

Stephen Daly: So we don't typically speak publicly about, you know, the end application of where we're selling our products and whether it's in a say a traditional configuration of a data center deployment or whether it's more of a newer, you know, let's say AI cluster. So we don't, we don't parse our revenue that way publicly. It's clear that there are tremendous opportunities on both sides, both on the traditional Ethernet as I highlighted in my prepared remarks. We are seeing an uptick in 25G and 50G deployments for the sort of traditional Ethernet, but we're also seeing increased interest in demand for 100G, 100G and 200G products.

Steve: Yeah, so that's a, it's a, it's a interesting question. So we, we don't

Speaker Change: more of a newer

Speaker Change: You know, let's say AI clusters. So we don't, we don't parse our revenue that way publicly. It's clear that there are tremendous opportunities on both sides, both on the traditional Ethernet, as I highlighted in my prepared remarks.

Akhil K. S.: And certainly, those higher data rate products are tending to be on the more sophisticated applications. Okay.

Vivek Arya: products are tending to be on the more sophisticated applications.

Stephen Daly: And then for a follow up, I think you with this, I think you said booked a bill 1.1 was, I think, closer to parity last quarter. Which areas are you starting to see the pickup or are these kind of more company specific or you think this is more kind of recovery in some of these areas. And conversely, which areas do you think are still muted? I think you called our telco as still sort of being in a muted say try. Now. That's right. And looking back on Q3, we saw the data center bookings being the strongest within the three market segments, then followed by industrial and defense; in the weakest was telecom.

Speaker Change: Which areas are you starting to see the pickup, or are these kind of more...

Speaker Change: company-specific, or you think this is more kind of a recovery in some of these areas? And conversely, which areas do you think are still muted? I think you called out Telco as still sort of being in a muted state right now.

Stephen Daly: So collectively, we were very pleased to have a book-to-bill of 1.1. And, as I highlighted, you know, this is certainly a leading indicator. We do expect on a quarterly basis there to be variation. Sometimes we'll book a large contract that is a, you know, a 12-month or 18-month contract. So, you know, that factors into, you know, the timing of the revenue in the future quarters. But I would say, generally speaking, solid, industrial and defense, mostly on the defense side, is where we're seeing strength. Strong demand in data center. And as I pointed out, telecom is relatively weak, with the exception of the SATCOM industry, where we have a lot of activity and a lot of engagements for really on a lot of large programs, one of which I discussed last quarter, which was a contract that we were awarded for $55 million.

Speaker Change: And as I highlighted, you know, this is certainly a leading indicator.

Speaker Change: As I pointed out, telecom is relatively weak, with the exception of...

Speaker Change: the STATCOM industry where we have a lot of activity.

Speaker Change: and a lot of engagements really on a lot of large programs, one of which I discussed last quarter.

Stephen Daly: That contract is in the development phase right now. And we expect those revenues to begin to flow towards the end of our fiscal 25.

Speaker Change: which was a contract that we were awarded for $55 million. That contract is in the development phase right now, and we expect those revenues to begin to flow towards the end of our fiscal 25.

Akhil K. S.: Thank you. And our next question coming from the line-up. Call Akhilin with BNP Perubasilana Sophan. Yes, thank you. I have to as well, if I may, just calling up on that, which is part of the solid opportunity. You know, you spoke about this SATCOM opportunity last call. Any update on the timing of that program? It sounds like it's on track for the end of fiscal 25. But how about new opportunities here within SATCOM? Could you talk about some of your discussions and opportunities that you see within that business? Thank you.

Karl Ackerman: Karl Ackerman with BNP Purdue, the ceiling is open. With regard to the satellite opportunity, you spoke about this SATCOM opportunity on last call. Any update on the timing of that program?

Speaker Change: Karl Ackman with BNP Paribas. The line is open.

Steve Daly: It sounds like it's still on track for the end of fiscal 25, but how about new opportunities here within SATCOM? Could you talk about some of yours? Sure, so I certainly can say that we are actively engaged with a wide range of customers within the space looking at supplying at the chip level, the module level, to support their particular needs. We are seeing that there's more activity with direct-to-sell type systems in constellations, and we want to be engaged in that. These are satellite platforms that operate not only at millimeter wave but also at cellular bands, and so we want to participate in that, you know, those payloads and support those customers.

Stephen Daly: Sure. So I certainly can say that we are actively engaged with the wide range of customers within the space, looking at supplying at the chip level, the module level, to support their particular needs. We are seeing that there's more activity with direct-to-cell type systems and constellations. And we want to be engaged in that. And these are satellite platforms that operate not only at millimeter wave, but also at cellular bands. And so we want to participate in that, you know, those payloads and support those customers. So I would say we're very active additionally on the ground station side through our business unit of linear module systems. As you know, most of the transmitters on the ground are either using TWTs or SSPAs.

Speaker Change: discussions and opportunities that you see within that business. Thank you.

Speaker Change: Sure, so I certainly can say that we are actively engaged with a wide range of customers within the space.

Speaker Change: looking at supplying at the chip level, the module level, to support their particular needs.

Steve Daly: So I would say we're very active, additionally, on the ground station side through our business unit of linear module systems, as you know, most of the transmitters on the ground are either using TWTs or SSPAs and many of those customers prefer to use a linearizer to get more power and more efficiency out of the transmitter and so you can imagine as there's more satellites going up, there's more ground stations communicating and those deployments or that infrastructure also demands more linearizers and so we're active at the chip level, on the satellite end, on the ground side and, you know, all the way up to the module level. So very active there.

Speaker Change: you know, those payloads and support those customers.

Speaker Change: So I would say we're very active. Additionally, on the ground station side, through our business unit of Linear.

Stephen Daly: And many of those customers prefer to use a linearizer to get more power and more efficiency out of the transmitter. And so you can imagine, as there's more satellites going up, there's more ground stations communicating. And those deployments or that infrastructure also demands more linearizers. And so we're active at the chip level on the satellite end, on the ground side, and you know, all the way up to the module level. So very active there. We have really a very compelling capability of technologies, including the MEFC technologies, which is very high frequency power from our North Carolina, and you know, the RF power will speed acquisition.

Speaker Change: And so we're active at the chip level, on the satellite end, on the ground side.

Steve Daly: We have really a very compelling capability of technologies, including the MESC technologies, which are very high-frequency power from our North Carolina facility and, you know, the RF power Wolfspeed acquisition and, of course, all of this is supported by really best-in-class manufacturing, where we are one of the few companies that can produce high-volume, low-cost millimeter wave or microwave transceivers onshore in the U.S. at very competitive prices It really depends where you draw the line.

Speaker Change: and you know all the way up to the module level. So very active there.

Speaker Change: We have really a very compelling capability.

Speaker Change: of technologies, including the MESC technologies, which is very high frequency.

Speaker Change: Power, from our North Carolina.

Stephen Daly: And of course, all of this is supported by really best-in-class manufacturing, where we are one of the few companies that can produce high-volume, low-cost millimeter wave or microwave transceivers on shore in the US at very competitive prices. And so our customer base, not only commercial customer base, but also our defense customer base, like this.

Speaker Change: and, you know, the RF Power Wolfspeed acquisition.

Speaker Change: millimeter wave or microwave transceivers onshore in the U.S. at very competitive prices. And so our customer base, not only commercial customer base, but also our defense customer base, likes this.

Stephen Daly: Thank you, Steve. From my follow-up, I was open to put it back to Data.com. Could you talk about the breadth of engagements you have with perhaps linear-playable optics? And then secondly, could you perhaps discuss whether your linear equalizers would be used in scale-out compute deployments, or could they be mainly for scale-up or rack applications? Thank you. Yeah, so the LPO or linear-plugable optics sort of opportunity is significant for MACOM. As you may know, there was an MFA or a consortium, an industry consortium that was brought together within the last year with all of the leading members of the industry.

Speaker Change: Yeah, thank you, Steve. For my follow-up, I was hoping to pivot back to data.com. Could you talk about the breadth of engagements you have with, you know, perhaps linear playable optics?

Speaker Change: And then, secondly, could you perhaps discuss whether your linear equalizers would be used in scale-out compute deployments, or could they be mainly for scale-up or interact applications? Thank you.

Speaker Change: As you may know, there was a MSA, or a consortium, an industry consortium, that was brought together within the last year with all of, sort of, the leading members of the industry. MACOM was one of the founding members of the MSA.

Stephen Daly: MACOM was one of the founding members of the MFA, and really that the purpose of this organization was to create a standardization in an interop spec for LPO, so that it could be broadly adopted by the industry. And so we are heavily engaged in that. We're talking to sort of the who's who of end users, switch manufacturers, module manufacturers, and enterprise system OEMs. And we're certainly right in there supporting the industry as it looks to try to adopt LPO broadly. And so we do think there's a big opportunity. We think that it's not only at 100 gig, but also potentially 200 gig.

Speaker Change: And really, the purpose of this organization was to create a standardization and an interop spec for LPO so that it could be broadly...

Speaker Change: Adopted by the industry.

Speaker Change: And so we are heavily engaged in that. We're talking to sort of the who's who of end users, switch manufacturers, module manufacturers.

Speaker Change: Enterprise.

Speaker Change: System, OEMs.

Speaker Change: And we're certainly right in there supporting the industry as it looks to try to adopt LPO broadly.

Speaker Change: We do think there's a big opportunity. We think that it's not only at a hundred gig but also potentially 200 gig and we think that the higher the data rate the more interesting this solution gets.

Stephen Daly: And we think that the higher the data rate, the more interesting the solution gets. And just as a data point to do a 1.6T module, some people talk about over 30 watts of power necessary to run the module. If you select an LPO solution, that could be in the range of 10 watts. So that's a significant power savings. We happen to have the chips that support that implementation, so you can be sure that we are working with the leaders to try to adopt, get them to adopt our solutions. But I will highlight that this is very early.

Speaker Change: So that's a significant power savings. We happen to have the chips that support that implementation. So you can be sure that we are working with the leaders to try to adopt, get them to adopt our solutions.

Stephen Daly: The traditional classic approach is using DSPs. And that's why I also highlighted that our very high-speed chips are also being used and deployed today with DSPs. And so we're able to play both sides of the market with our leading analog solutions.

Speaker Change: But I will highlight that this is very early. The traditional classic approach is using DSPs, and that's why I also highlighted that.

Speaker Change: are very high-speed.

Stephen Daly: And then in terms of linear equalizers and ACC, you know, this is sort of a cousin to LPO where you want, you see some customers wanting to not use optical, but stick with copper and electric. And so electrifying cables is really what their mission is. And that has certainly been proven at the lower data rates. We have done that. We have been shipping product. And so now we are working at the higher data rates for the same or similar applications. And so it's fair to say that we have solutions at 100 gig for sort of 5 meter ranges and 200 gig for just a little bit shorter reach.

Speaker Change: A Cousin to LPO, where...

Speaker Change: And so now we are working at the higher data rates for the same or similar applications.

Speaker Change: And so it's it's fair to say that we have solutions at 100 gig for sort of 5 meter ranges and 200 gig for just a little bit shorter reach.

Stephen Daly: And, you know, very interesting product line, lots of engagement. We do expect some significant growth in the next, you know, 12 to 18 months in this area.

Stephen Daly: Thank you.

David Williams: And our next question coming from Delina, David Williams with the Benchmark Company on a Salpon. Hey, good morning. Thanks for taking my question. I guess, Steve, I wanted to ask a little bit about your sci-fi business and kind of where you're seeing the adoption and where you think that can go over time, just how big a portion of you think that could become of the overall part of the business there. And you're referring to Silicon photonics, sci-fi, just to be clear. Okay.

Speaker Change: Hey, good morning. Thanks for taking my question. I guess, Steve, I wanted to ask a little bit about your SIFO business and kind of where you're seeing the adoption and where you think that can go over time. Just how big a portion do you think that could become of the overall?

Steve: Part of the business there.

Stephen Daly: So I would say that this is an area that, over the past few years, we have been deemphasizing, and we made a strategic decision to focus on other parts of the market. And so, over time, we have been spending less on Silicon Photonics. I would say that our experience trying to get product in the market was painful. And so we have decided to limit our activity with Silicon photonics only for high value applications, which are primarily in defense. So we want we want to work with customers that want to work with us on specialized non-standard Silicon Photonic applications.

Speaker Change: So I would say that this is an area that over the past few years we have been de-emphasizing and we made a strategic decision to focus on other parts of the the market and so over time we have been spending less on silicon photonics.

Speaker Change: I would say that our experience trying to get product in the market was painful and so we have decided to limit

Speaker Change: our activity with silicon photonics only for high-value applications which are primarily in defense.

Speaker Change: So we want to work with customers that want to work with us on specialized, non-standard silicon photonic applications. So we are sort of tapping out of the commercial market.

Stephen Daly: So we are sort of tapping out of the commercial market with Silicon photonics. With that said, we support many customers that are implementing silicon photonics. And if a module for an optical application is using Silicon Photonics, they still need a driver, and they still need a trans and penis amplifier, and they also need a CW laser. And so these are three pieces to the puzzle that we do sell into these applications. But at the end of the day, we spent a lot of money for many years investing in Silicon Photonics. It really didn't pan out.

Speaker Change: With that said, we support many customers that are implementing silicon photonics.

David Williams: And so we pivoted our strategy over the past few years to focus on defense and very specialized applications. Great. Thanks for the color there.

Stephen Daly: And then secondly, maybe just on the bookings and maybe how your customers are thinking. We're hearing of some caution, and at least on the ordering patterns. And just curious if you're seeing any caution or do you feel like we're through all of the stalking and that customers are becoming maybe a little more optimistic about the demand trends maybe through the next several quarters. Thank you. Thank you for the question. I think it really depends on the market. We see some end markets that we believe there's limited or no demand, and so it's not an issue of clearing channel inventory.

Speaker Change: Okay, great. Thanks for the color there. And then secondly, maybe just on the bookings and maybe how your customers are thinking. We're hearing of some caution, at least on the ordering patterns. I'm just curious if you're seeing any caution, or do you feel like we're through all of the destocking and that customers are becoming maybe a little more optimistic about the demand trends maybe through the next several quarters? Thank you.

Stephen Daly: It's the fact that there's just no demand. There's no catalyst either through cap expending or infrastructure deployments. And so there's many markets that are down, and we would expect them to stay down until there's a catalyst. And so then we have other customers that are extremely busy not only ramping up existing programs but launching new programs. And I would say that applies to many of our defense customers. We are extremely busy supporting a whole wide range of applications in the defense industry.

Speaker Change: There's a catalyst and so

Speaker Change: Then we have other customers that are extremely busy not only ramping up existing programs, but launching new programs and I would say that applies to many of our defense customers. We are extremely busy supporting a whole wide range of applications in the defense industry.

Stephen Daly: The industrial market is, I would say, similar to your comments. It really depends in terms of you know what those particular customers are producing, whether it's test equipment or factory automation or sensors for automotive applications or traffic tolling. So it really depends. From our point here, we don't feel like there's an inventory overhang in our business. We think we're now pretty much, you know, sort of reacting to end market demand. And as Jack said in his comments, we have been bringing our inventory level down over the past few quarters. I think he said five quarters.

Speaker Change: The industrial market is, I would say, similar to your comments, it really depends in terms of, you know, what those particular customers are producing, whether it's test equipment or factory automation or

Stephen Daly: And so our channel inventory has been, you know, really brought down to manageable levels. And now we're really, you know, looking for catalyst of end applications and end demand.

Stephen Daly: And then the last thing I'll say is we have a very diversified business. We don't have a lot of customer concentration. We have thousands of customers who are global suppliers. And our strategy is to create an even more diverse portfolio. Our growth story ultimately is a product-driven growth story. We're in a very, you know, we stand in front of a very large market. Today we think it's about six to seven billion. We think our market will grow to about nine to ten billion in the next three to four years. And our goal is to launch more products, capture more market share, optimize our sales and applications to make sure that we're able to address the customer needs and be fast to market.

Stephen Daly: And these are some of the core things that we work on. And if we do all of those things, we think we'll have favorable booking trends over the long. Director.

Tore Svanberg: Thank you. In our next question, coming from the line up, Tore Svanberg, which people you're on is open? Yes, thank you, and congrats on the Fed execution here. So my first question, Steve, I know that when you do your five-year plan, it's obviously, you know, prop. There's a lot you can't disclose, but I know you have sort of a stale spam number out there. It's five billion. I assume that number has grown quite a bit since you shared that with investors. And if you do have a number, could you also potentially let us know what it is like segment at this point?

Stephen Daly: Yeah, and so it's a timely question. And I would say that the work that we've done is clear, as I commented a moment ago. We do believe that our SAM is expanding. We think it's a high single-digit expansion rate over the next three to four years. So that would put our SAM in about four to five years, around the nine to ten billion mark.

Stephen Daly: We are very hesitant to break out the SAM by end-market. There's a lot of assumptions, and it really depends where you draw the line. We see many companies talk about extremely large SAMs, and we scratch our heads trying to figure out how they get to that number. And so we take sort of a different approach, which is be more conservative on how we size the market opportunity and do so sort of with the bottoms-up approach. But with that said, the way we're going to increase our SAM is by adding more product lines. And if you look at our portfolio today, we have six business units.

Operator: We see many companies talk about extremely large SAMs, and we scratch our heads trying to figure out how they get to that number. And so we take sort of a different approach, which is to be more conservative in how we size the market opportunity and do so sort of with a bottoms-up approach. Right, thank you. My follow-up question is just on your gross margin, talk about getting back to 60% over time, maybe you can just walk us through what are some of the low hanging fruit we can get there? And how likely are we going to get back to those 60% levels, say, over the next 400 800 21.6 years?

Speaker Change: Polio today, we have six business units they have very very different technologies. If we look ahead 345 years from now we would expect to have significantly more business units with more diverse technology, which would allow us to capture more market. There are many parts of the industry that we're not tapping into.

Stephen Daly: They have very, very different technologies. If we look ahead three, four, five years from now, we would expect to have significantly more business units with more diverse technology, which would allow us to capture more market. There are many parts of the industry that we're not capping into. And we've put together an internal plan to really take actions to go after those markets in a way where we feel we can be successful. And by the way, a great example of reallocation of capital is what I just talked about on silicon photonics. We were beating our head against the wall, not making forward progress, and finally we decided to pivot and use those same R&D dollars to do something else where we had an increased probability of success, perhaps a front of a large market.

Speaker Change: And we've.

Speaker Change: We've put together an internal plan to really.

Speaker Change: Actions to go after those markets.

Speaker Change: In a way, where we feel we can be successful and by the way a great example of.

Speaker Change: Reallocation of of capital is what I just talked about on Silicon Photonics, we were beating our head against the wall not making forward progress and finally, we decided to pivot and use those same R&D dollars to do something else, where we had an increased probability of success, perhaps a shorter time to.

Speaker Change: Revenue and in front of a large market.

Stephen Daly: That's great perspective. And as my follow-up, you know, I think may come stick in a very unique position, because as you mentioned here, you can participate in an optical and in copper. I'm now specifically asking about data center infrastructure. As we go to, you know, 1.6, and I know you said your engineering is working for 3.2, how do you see that mix evolving between optical and copper? Do you think it will stay the same, or will it skew in one direction or the other? So I think it's too early to tell. I copper has its limitations, but if you think about volumes and where the interconnects are within the data center, typically it's the shorter reaches that have the highest volume, and so that could suggest that copper could win.

Speaker Change: That's great perspective, and as my follow up I think may come sits in a very unique position because as you mentioned you can participate in and optical and copper I'm now specifically asking about data center infrastructure.

Stephen Daly: But, you know, that has yet to be proven out. There is a tremendous cost savings if you stay out of optical, obvious for many reasons. So if you can come up with an elegant, electrified copper cable, then you know the customers would want to use that. But there are limitations, and so it really depends on the reach. It depends on the data rate. And as a remember, as things go to higher and higher data rates, copper will, you know, again have another set of challenges. And so, you know, we believe you can get copper to work at 200 gig per lane.

Stephen Daly: We know that. We have real examples of that. And so to get to 1.6 T, obviously you're using multiple lanes of 200 gig per lane. Whether that's the same, you know, that work can be done and be successful at 400 gig per lane, you know, we'll have to wait and see. But I think there's going to be a mix. I think that our contribution with our analog chips will always be complementing the DSP universe. Today they, you know, the re-time solutions are the majority of the market, and we don't participate in that. We are participating on the analog side.

Speaker Change: I think that our contribution with our analog chips will always be complementing the DSP universe today.

Speaker Change: <unk> solutions are the.

Speaker Change: The majority of the market and we don't participate in that we are participating on the analog side.

Stephen Daly: And we seem to be, in our opinion, a leader with analog solutions. And we have early adopters, not only at 100 gig, but also 200 gig.

Speaker Change: And we seem to be <unk>.

Speaker Change: Our opinion, a leader with analog solutions and we have early adopters.

Speaker Change: Not only at 100 gig, but also 200 gig and.

Stephen Daly: And we want to maintain that leadership position over the next three to four years.

Speaker Change: We want to maintain that leadership position over the next three to four years.

Peter Peng: Thank you, and our next question coming from Delina. Peter Peng with J.P. Morgan, Yelena Salpin.

Speaker Change: Thank you and our next question coming from the line of Peter Peng with Jpmorgan. Your line is open.

Stephen Daly: Hi, good morning, guys, and thanks for taking my questions, and congrats on the solid quarter. I just kind of want to follow up on the question that's asked differently. Is there any, I guess, as you look at your five or any changes on your thoughts about the growth for the end market? I know historically you always emphasize that telecoms going to be one of the factors growing, but just given how strong data centers and some of their opportunities, are there any updates on that? No, there's no changes on our general thinking that over the long term, we're talking in telecom will be the leading markets.

Peter Peng: Hey, good morning, guys and thanks for taking my questions and congrats on the solid quarter I, just kind of want to follow up on the question that asked differently is there any I guess as you look at your five year any.

Speaker Change: Changes on your thoughts about the growth of the end market, but I know historically, you've always emphasized that telecom is going to be one of the fastest growing but just given how strong data center is in some of the opportunities. There are there any updates on that.

Speaker Change: Okay.

Speaker Change: No there's no changes on our general thinking that over the long term and we're talking five to 10 years that we believe that.

Jack Cobra: Now, with that said, you've seen MACOM since 2019 have data center business that was running at about 115 million a year, that fiscal year, and this year we're going to be just under 200 million. So we've almost doubled the data center revenue in five years, and obviously we'd like to do that again over the next five years, but we'll have to wait and see how that pans out. The reason why we think telecom over the long term will be a larger market is because of the diversity within the space. As we talked about, you have SATCOM, 5G; you have a whole range of wireless applications, many of which today were not involved in, and we want to get involved in them.

Jack Cobra: We also believe adopting more analog and digital silicon solutions for markets such as automotive or other wireless applications is an area that we can be successful. So we just think that the overall opportunity, the diversity within the telecom market is larger than the opportunity that we've seen in the data center.

Jack Cobra: My follow-up question is just on your gross margin. Talk about getting back to 65% over time. Maybe you can just walk us through whether some of the low-hangs didn't get there, and how likely are we going to get back to those 60% levels and say over the next six to eight quarters? Peter, this is Jack. Thanks for the question. So, in terms of the timeline, I think that's to be determined. We've been over that 60% gross margin number in our more recent past. Obviously, there's some things that have occurred within the business, including the acquisition activity that we had where we brought in some business that had below MAKOM historic gross margin amount.

Jack Cobra: So I think we've shown over the years that we can improve our gross margins through a lot of operational activities that we're doing, in a lot of focus on the business in terms of how we go to market from a customer perspective, from a new product introduction perspective. These things are driving higher gross margins. But I think if you look over the near term, our expectation is we'll continue to make sequential improvements from a gross margin standpoint. There's a lot of activities that we've got lined up through the acquisitions, as well as some of the things that we just do from a day-to-day basis here at MAKOM to try and improve our gross margins.

Jack Cobra: So it is an area that we focus quite heavily on and think there continues to be more opportunities to drive overall operating margin improvements as well as we look. At the business.

Jack Cobra: Thank you.

Srinivas Pajjuri: Now the next question coming from the line-up, Srinivas Pajjuri with Raymond James-Celan Asalpen. Thank you. Good morning, guys. A couple of questions. First on the data center market. You know, we've been hearing about 1.60 cycles starting fairly soon.

Stephen Daly: Steve, maybe you can talk to the readiness of the, I guess, ecosystem, especially the optics side, and then maybe help us understand how your own content, you know, benefits from as we go from, I guess, 400, 800 to 1.6. And then I guess, you know, on the other hand, you know, some of the DSP suppliers seem to be integrating some of the analog components. I'm just curious; you know, on one hand, you have LPL. That's probably a new opportunity for you, but on the other hand, we will see, I guess, more integration. So I just want to hear your thoughts on that whole dynamic.

Speaker Change: I'm just curious you know on one hand, you have L. P O that's probably a new opportunity for you, but on the other hand, we see I guess more integration. So I just want to hear your thoughts on that whole dynamic. Thank you.

Stephen Daly: Thank you. Right. So on the 1.6 T on the optical side, what you see, typically, are EML solutions for single-mode applications. And, and maybe silicon photonics, it's sort of two camps there. But if it's an EML solution, to be clear, we don't, we don't have; we are actually working on it. We have 200 gig EML in test right now. But I think that's going to be a tall hurdle for MAKOM to get over there. Today are probably three, maybe four different laser suppliers that have 200 gig EMLs. So that, you know, they're in the market today.

Speaker Change: Right. So on the for 1.6 tally.

Speaker Change: On the optical side.

Speaker Change: What you see typically are.

Speaker Change: Ml solutions.

Speaker Change: For single mode applications.

Speaker Change: And maybe silicon photonics that sort of two camps, there, but if it's an <unk> solution to be clear. We don't we don't have any ml product in the market. Today, we are actually working on it we have 200 gig <unk> in test right now.

Speaker Change: But I think that's going to be a tall hurdle for may climb to get over there today are.

Speaker Change: Probably three maybe four different laser suppliers that have 200 gig <unk>. So.

Speaker Change: So that they are in the market today, they're they're getting the wins.

Stephen Daly: They're, they're, they're getting the wins on this. So, on the silicon photonics side, you're going to need a CW laser. We make CW lasers. We have a wide range of lasers that, that, and so there is an opportunity for MAKOM today on CW lasers. So then the last piece that we would contribute on would be the receive side in the photo detector. We have, we believe we have leading technology for photo detector performance, not only at 100 gig, but also at 200 gig. And so we'll have to wait and see if we're successful. But I would say that our timing for the market is not that bad.

Speaker Change: On the so on the Silicon photonics side Youre going to need a CW laser we make CW lasers, we have a wide range of lasers that debt.

Speaker Change: So there is an opportunity for may come today on CW lasers.

Speaker Change: No.

Speaker Change: Then the last piece that we would contribute on would be the receive side in the photo detector.

Speaker Change: We believe we have leading technology for.

Speaker Change: For photo detector performance not only at 100 gig, but also at 200 gig and so we'll have to wait and see if we're successful, but I would say that our timing for the market is.

Speaker Change: Is not that bad.

Stephen Daly: And we'll have to wait and see how that, that works out. And then, of course, on the analog side, depending on the customer, you might, you might have a customer building a traditional module, a plug, sort of a pluggable module using a classical approach with the DSP. We, we are seeing mostly these 200 gig per lane platforms using external components today. That may change in the future. But today I can tell you that for the most part, because these EMLs need to be driven with a significant voltage level, they are preferring customers are preferring to use external drivers and TIAs.

Speaker Change: And we will have to wait and see how that works out.

Speaker Change: And then of course on the analog side, depending on the customer you might you might have a customer building a traditional module.

Speaker Change: Sort of a plug a hole module.

Speaker Change: The classical approach with the DSP.

Speaker Change: We are seeing.

Speaker Change: Mostly these 200 gig per lane platforms using external components.

Speaker Change: Today that may change in the future.

Stephen Daly: That may change in the future. We've seen that happen at the lower data rates at 25 and 50 G. And even in some instances at 100 gig per lane for some 800 gig modules, we see DSPs in the market with integrated drivers that do the job. And so we certainly understand that. But I just want to highlight that there's kind of opportunities, depending on the different applications. When you look at 1.6T for active copper cable, so there's obviously, you know, try to get the job done without a DSP. And we think we have a solution working there.

Stephen Daly: The last thing I'll mention is typically the 1.60 are single-mode applications. When you look at multi-mode applications at 100 gig per lane, I think you are seeing on the optic side, heavy-vixel demand, and some might argue there's even vixel shortages at 100 gig. We're but again, we don't make Vixel, so we don't really have a play on that. I'm not sure I answered your full question. If I missed something, please follow up. That's pretty helpful, Steve. Thank you.

Speaker Change: On the optics side.

Speaker Change: VIX will.

Speaker Change: Heavy vixen demand.

Speaker Change: And some some might argue there's even vixens shortages at 100 gig.

Speaker Change: Not sure that that will remain the case as new entrants coming to the market.

Speaker Change: But again, we don't make pixels. So we don't we don't really have a play on that I'm not sure I answered your full question if I Miss something please follow up.

Speaker Change: That's very helpful. Steve. Thank you and then on the Telecom front Steve.

Srinivas Pajjuri: Then, on the telecom front, Steve, I know it's two quarters of decent growth here. I know you said it's probably not a reflection of the broader demand. Just curious us to what exactly what specifically is driving that growth? Is it more wireless, or is it wireless? Or do you have any new programs, or is the share gains? If you can speak to the sustainability of that growth as you're going to the next few quarters, that will be helpful. Thank you. Yes, I would say that the two areas that stand out would be SACCOM driving growth, as well as increased volume shipments into 5G radios on the transmit side.

Steve: I know, it's two quarters of.

Speaker Change: Decent growth here I know you said.

Steve: It's probably not a reflection of the broader demand just curious as to what exactly what specifically is driving that growth is it more wireless versus wireline or do you have any new programs or is this share gains and if you can speak to the sustainability of that growth as you go into I guess, the next few quarters that would be helpful.

Speaker Change: Thank you.

Speaker Change: Yes, I would say that the two areas that stand out would be satcom driving growth as well as increased.

Speaker Change: Increased volume shipments into <unk> radios on the transmit side. So those are the two areas that are driving our growth. The wireline market is quite muted right now so that would be cable infrastructure into.

Stephen Daly: Those are the two areas that are driving our growth. The wire line market is quite muted right now, so that would be cable infrastructure and to sort of bike extension pawn for some of the overseas markets. So the growth is really on the wireless side.

Steve: Sort of by extension PON.

Steve: For some of the overseas market. So the growth is really on the wireless side.

Thomas: Thank you. Our next question coming from Delayna.

Steve: And our next question coming from the line of Thomas O'malley with Barclays. Your line is now open.

Thomas: Thomas, taking my question, and sorry for Q and Lade here bouncing across a couple, but I just kind of wanted to get an update on the wolf acquisition. Obviously, you guys are starting to execute once again pretty well off the bottom on the gross margin side. But when you kind of originally laid out the plan there, you're kind of co-running the fab. Ultimately, you're going to start putting your own products in, but that takes time. But if you could help kind of break out how much of the gross margin improvement from kind of the March timeframe to the September timeframe where we are today is a function of that improvement versus just general volume coming back.

Thomas O'malley: Hey, guys. Thanks for taking my question and sorry for Q&A might here bouncing across a couple but I was just kind of wanted to get an update on the Wolf acquisition. Obviously, you guys are starting to execute once again pretty well off the bottom on the gross margin side.

Steve: But when you kind of originally laid out the plan there youre kind of co running the fab ultimately youre going to start putting your own your own products, but that takes time, but if you could help kind of break out how much of the gross margin improvement.

Steve: From kind of the March time frame to the September time frame, where we are today is a function of that improvement versus just general volume coming back that would be super helpful.

Stephen Daly: That would be super helpful. Thanks.

Stephen Daly: Thanks, Tom. We probably don't want to break out the particulars on the business. We look at this as a product line, and so we don't buy. Because of that, we don't break out publicly the improvements at the product line level. With that said, we are absolutely delighted with the work we're doing with full speed. We have a fab operating committee, which is a joint group that basically works with all of the day-to-day activities in the fab. Some of the May Com is on part of this committee. So we have people that are hands-on engaged in the day-to-day running of the business and supporting and getting ready for that fab transfer in the future.

Tom: Thanks, Thanks, Tom.

Speaker Change: We probably don't want to break out the particulars on the business.

Speaker Change: We look at this as a product line and so we don't buy.

Speaker Change: But because of that we don't break out publicly.

Stephen Daly: So this includes getting an understanding of how materials running through the fab, what the priorities are, what the wafer starts are, what are the pinch points and issues in the fab that might need to be addressed. And so we're sort of taking an approach where we're here to help, and we're going to do whatever it takes. today to improve overall performance and the FAB. And so I think we'll speed and MACOM have a really nice working relationship to make sure all of that happens. And so with that, I think we are seeing signs of improved performance.

Jack Cobra: I would say that the output of the FAB is increasing. We have seen some general benefits on yields, both inside the FAB and outside the FAB, including some of the back end assembly. And so we are in the early stages of working to improve the overall gross margins of the business. And I would say we're pretty much on track with that.

Jack Cobra: And maybe Jack can speak to the broader issue about our trajectory of gross margins. Yeah, Tom, and as I had indicated earlier, there's a number of things that we're doing across the entire organization, including the acquisitions, but also the legacy MACOM businesses to help try and improve the gross margins. The new product introductions is definitely an area that we look to where those new products that are coming off the line generally have higher gross margins than the corporate average. So those are helping to shape things for us as well in terms of that improvement that we've been seeing and hope to see as we go forward from an overall gross margin point of view.

Speaker Change: Yeah, Tom and as I had indicated earlier there is a number of things that we're doing across the entire organization, including the acquisitions, but also the.

Speaker Change: The legacy may cause businesses to help try and improve the gross margins. The new product introductions is definitely an area that we look to where those new products that are coming off the line generally have.

Speaker Change: Higher gross margins than the corporate average so those are helping to shape things for us as well in terms of that.

Speaker Change: That improvement that we've been seeing and hope to see as we as we go forward from an overall gross margin point of view.

Stephen Daly: Helpful. And then just one more as a follow-up. Steve, if you were to rewind, you know, 12 months ago and kind of look at this year, I think you would have said that your expectation was for telecom to grow. Obviously, the world has changed, and you're kind of ending up fiscal year 24 down slightly.

Speaker Change: Helpful. And then just one more as a follow up Steve If you if we were to rewind.

Steve: 12 months, yes.

Speaker Change: 12 months ago, and kind of look at this year I think you would've said that your expectation was for telecom to grow obviously the world has changed and you are kind of ending up fiscal year 2004 down slightly when you look at kind of the recovery in telecom, which I don't think we're hearing much from.

Stephen Daly: When you look at kind of the recovery and telecom, which I don't think we're hearing much from, you know, anyone that sounds positive, do you think that into the fiscal year, you know, 25 that what's occurred is kind of a destruction of demand or do you think that you're kind of pushing this out until the until the next fiscal year and could you just give your best estimate just based on today when you think that recovery may pick up. Obviously, you've had a couple quarters of sequential growth, but the more substantial recovery there, just because it's been a bit, and it clearly has pushed out a little bit, just would love your thoughts.

Speaker Change: The one that sounds positive.

Speaker Change: Think that into the fiscal year 'twenty five.

Speaker Change: What's occurred is kind of a destruction of demand or do you think that youre kind of pushing this out until then until the next fiscal year and could you just give your best estimate just based on today. When you think that recovery may pick up obviously, you've had a couple of quarters of sequential growth, but the more substantial recovery there.

Speaker Change: Just because it's been a bit and it clearly has pushed out a little bit just would love your thoughts.

Stephen Daly: Yeah, I think that, unfortunately, probably the former case of your comment about and demand not being there is probably our posture today. And so, you know, as you highlighted, year over year, we're going to be down slightly in telecom. We're certainly way off of the highs where we were doing, you know, over 60 million a quarter. But as we talk about the growth and adding new products and winning large contracts that will kick in next year, we think next year could be a reasonable year for low single-digit growth. There'll be new cycles coming on. Obviously, we just talked about the will speed acquisition.

Speaker Change: Yes, I think that.

Speaker Change: Unfortunately, it's probably the former case of your comment about end demand not being there is probably our posture today and so.

Speaker Change: As you highlighted year over year, we're going to be down slightly in telecom, we're certainly way off of the highs, where we were doing over $60 million a quarter.

Speaker Change: But as we talked about the growth and adding new products and winning large contracts that will kick in next year. We think next year could be a reasonable year.

Speaker Change: For low single digit growth.

Speaker Change: There'll be new cycles coming on obviously, we just talked about the <unk> acquisition that that's a major.

Stephen Daly: That that's a major, you know, really strengthens make homes portfolio in a major way. And there'll be new markets and opportunities. So I think that collectively, we like what's going on. We are at a bottom. A lot of the older telecom programs, legacy programs, have gone down, and from our point of view, we're going to assume that they're not coming back. And if they do, great.

Speaker Change: Really strengthens may comps portfolio in a major way.

Speaker Change: And there'll be new markets and opportunities so I think that <unk>.

Speaker Change: Collectively.

Speaker Change: We like whats going on we are at a bottom a lot of the older telecom programs legs.

Speaker Change: Legacy programs have gone down and from our point of view, we're going to assume that they're not coming back and if they do great, but we're moving on to the next applications.

Stephen Daly: But we're moving on to the next application.

Richard Shannon: Thank you. Now, next question coming from the line-up, Richard Shannon, with Craig Hallemey on the cellphone. Well, great.

Speaker Change: Thank you.

Speaker Change: Next question coming from the line of Richard Shannon with Craig Hallum. Your line is now open.

Richard Shannon: Thanks for getting me in the end of the call here. I guess a couple questions for you, Steve. The first one is in the data center. I want to get a sense of any changes and visibility of your seeing orders farther out. Here, we're seeing obviously some strength than the higher end AI-related part of this market here. And I guess maybe a more specific point to this question is, we've seen a number of suppliers, components, and modules into the high end of the market with volatile results. We see a large cluster as employed and see a couple of good quarters, and then it falls off.

Richard Shannon: Oh, great. Thanks for getting me in at the end of the call here I guess a couple of questions.

Richard Shannon: For you see the first one is in data center and wanted to get a sense of any changes in visibility are you seeing orders farther out here, we're seeing obviously some strength in the.

Speaker Change: Higher end AI related part of this market here and I guess, maybe more specific point to this question is we've seen a number of suppliers of components and modules into the high end of the market.

Speaker Change: The volatile results were you seeing large clusters as we deployed and see a couple of good quarters. Then it falls off curious to degree to which you're you're worried about that kind of volatility or do you see it more of a monotonically increasing outlook here going out for say the next year or so.

Stephen Daly: Curious to agree to which you're worried about that kind of volatility, or do you see it more of a monotonically increasing outlook here going out for the say the next year or so? So typically, the data center sockets that we're winning are high volume sockets, and so there's a lot of planning that goes into that. Jack talked about increasing inventory with the expectation of future revenue growth. I would say our visibility is pretty good into the market, so our customers know what our manufacturing lead times are, and they have to plan accordingly. They don't want to take that risk on their production lines; if they don't have parts, and they can't ship, you know, that's sort of a disaster.

Speaker Change: So typically the the.

Speaker Change: Data center sockets that we're winning are high volume sockets, and so theres a lot of planning that goes into that Jack talked about increasing inventories with the expectation of future revenue growth.

Jack Kober: I'd say, our visibility is pretty good.

Speaker Change: Into the market.

Jack Kober: So our customers know what our manufacturing lead times are and they they have to plan accordingly, and they don't want it.

Jack Kober: Take that risk in there.

Speaker Change: Their production lines, if they don't have parts and they can't ship.

Speaker Change: Sort of a disaster.

Stephen Daly: So we've been working with customers to make sure that we build a secure backlog in this regard. But you do highlight a very important point, which we've talked about sort of every quarter, which is the data center can be very volatile, and that's sort of the nature of the market where you see large orders deployed from the ISPs when there's demand or when they're getting ready to build out new infrastructure. So that volatility flows down. Now the good news is we are at the beginning of a hundred gig ramp, because remember the Tomahawk 5 switch just came out about a year ago or so.

Speaker Change: So we've been working with customers to make sure that we build secure backlog in this regard.

Speaker Change: But you do highlight a very important point, which we've talked about sort of every quarter, which is the data center can be very volatile and that's sort of the nature of the market, where you see large orders deployed win.

Speaker Change: From the Isps, when when when there's demand or when they're getting ready to.

Speaker Change: Build out new infrastructure, so that volatility flows down now the good news is we are at the beginning of a 100 gig ramp because remember the tomahawk five <unk>.

Speaker Change: Switch just came out about a year ago or so it's just getting out there in the market, which means the entire ecosystem needs to switch over to a 100 gig. So that will generally be 800 gig Ethernet, which is the core of the market that is the mainstay.

Stephen Daly: It's just getting out there in the market, which means the entire ecosystem needs to switch over to a hundred gig, so that will generally be 800 gig Ethernet, which is the core of the market, that is the mainstay, and then you add on top of that, some of the advanced technologies at 200 gig per lane coming in and layering on as well. It's a pretty good setup for MAKOM, but I do want to, I agree with the core of your question, which is could there be volatility? And we would always say, "Yes, there could be."

Speaker Change: Then you add on top of that.

Speaker Change: Some of the advanced <unk>.

Speaker Change: Technologies at 200 gig per lane coming in and layering on as well, it's a pretty good setup for my com.

Speaker Change: But I do want to I agree with your the core of your question, which is.

Speaker Change: Could there be volatility and we would always say, yes, there could be but we are at the beginning of a switchover from the lower data rates to the higher data rate.

Stephen Daly: But we are at the beginning of a switchover from the lower data rates to the higher data rate.

Stephen Daly: Okay, great perspective there, Steve.

Speaker Change: Okay, Great perspective, there Steve My second question, a very simple one here you guided the <unk> segment for a low single digit growth sequentially here in the quarter is there any major difference in the industrial part versus the defense baked into that.

Jack Cobra: My second question, very simple one here. You guided the IND segment for a low single to grow sequentially here in the quarters. Is there any major difference in the industrial part versus the defense baked into that? Generally, no.

Speaker Change: Generally no.

Jack Cobra: Okay, perfect. That's all from me.

Speaker Change: Yeah.

Speaker Change: Okay perfect. That's all for me. Thank you.

Stephen Daly: Thank you.

Stephen Daly: Thank you, and with that, I will now turn the call back over to Mr. Steve Daley for any closing remarks. Marks. Thank you. In closing, Jack and I would like to thank the entire MACOM team for their continued dedication, which has made these results possible. We will continue to work as a team to meet our customers' needs and to execute our strategic plan. Thank you, and have a nice day.

Speaker Change: Thank you and with that I will now turn the call back over to Mr. Steve Daly for any closing remarks.

Steve Daly: Thank you in closing Jack and I would like to thank the entire <unk> com team for their continued dedication which has made these results possible. We will continue to work as a team to meet our customers' needs and to execute our strategic plan.

Speaker Change: You would have a nice day.

Operator: May you sign, gentlemen, that doesn't have a conference for today. Thank you for your participation. You may now disconnect.

Speaker Change: Okay.

Speaker Change: Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Dan.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.