Q2 2025 Fabrinet Earnings Call

February 3, 2025

Later, we will conduct a question and answer session and instructions on how to participate will be provided at that time as a reminder, today's call is being recorded.

Garo: I would now like to turn the call over to your host Garo <unk>, Vice President of Investor Relations.

Garo: Thank you operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss <unk> financial and operating results for the second quarter of fiscal year 2025, which ended December 27 2024 with.

Seamus Grady: With me on the call today are Seamus Grady, Chief Executive Officer, and charter Sferra Chief Financial Officer.

Seamus Grady: This call is being webcast and a replay will be available on the investors section of our website located at Investor Dot Fabry net dot com.

Seamus Grady: During this call we will present, both GAAP and non-GAAP financial measures. Please refer to the investors section of our website for important information, including our earnings press release, and Investor presentation, which include our GAAP to non-GAAP reconciliation as well as additional details of our revenue breakdown.

Seamus Grady: In addition, today's discussion will contain forward looking statements about the future financial performance of the company.

Seamus Grady: Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations.

Seamus Grady: These statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise them in light of new information or future events, except as required by law.

Seamus Grady: For a description of the risk factors that may affect our results. Please refer to our recent SEC filings in particular, the section captioned risk factors in our Form 10-Q filed on November five 2024.

Seamus Grady: We will begin the call with remarks from Seamus in Charbagh, followed by time for questions.

Seamus Grady: I'd now like to turn the call over to <unk> CEO Seamus Grady Seamus.

Thank you Carol good afternoon, and thanks to those of you joining our call today.

Seamus Grady: Our strong business momentum continued in the second quarter and represented a record quarter for both revenue and profitability with growth that exceeded our expectations.

Seamus Grady: Revenue of $834 million was an increase of 17% from a year ago and 4% from Q1.

Seamus Grady: Our team executed well to produce record non-GAAP earnings per share of $2 61.

Seamus Grady: While this is a remarkable performance. We're also very excited to see the positive trends in key areas of our business extending into the third quarter.

Seamus Grady: This reflects both increasing demand into high growth markets, we serve as well as our ability to further deepen relationships with existing customers and gain additional market share.

Seamus Grady: As a result, we are confident that our strong revenue growth will extend into the third quarter, along with the corresponding increase in profitability.

Seamus Grady: We are excited about these growth trends and have ample capacity to meet our near to medium term requirements and commitments to our customers.

That said with our continued growth we will need additional capacity in the future, which is why we are pleased to announce that last month, we broke ground on building 10, a new 2 million square foot facility at our Chonburi campus, adding more than 50% to our total footprint.

Seamus Grady: This new building will provides us with plenty of capacity to support our anticipated growth over the longer term.

Seamus Grady: Also reflecting our confidence during the second quarter, we repurchased more than one part of our $200 million authorized for share repurchases under our board just authorized an additional $100 million for share buybacks.

Seamus Grady: Looking at the dynamics of the quarter in more detail within optical communications Datacom experienced some bumping US ahead of the ramp of next generation products at a major customer.

Seamus Grady: And grew 4% from a year ago, but declined 9% from the first quarter.

Seamus Grady: While we believe datacom demand could see a slight decrease in the third quarter. We remain confident that datacom revenue trends will improve as next generation technologies at the one six terabits data rates begin to ramp later this calendar year.

Seamus Grady: Meanwhile, we were pleased to see telecom revenue performed even better than anticipated in the quarter, increasing 24% from a year ago and 17% sequentially. Our telecom revenue strength was driven primarily by increasing demand for data center interconnect products and by early success with recent telecom system wins.

Seamus Grady: We are optimistic that this positive trend will extend into the third quarter.

Seamus Grady: Turning to non optical communications, we experienced another healthy performance in automotive with revenue up 32% from a year ago and roughly flat from Q1.

Seamus Grady: Also contributing to our growth in the quarter industrial laser revenue was up 24% from a year ago and 6% from last quarter.

Seamus Grady: In summary, with the confluence of several positive growth drivers ahead of US we are more confident than ever in our business and.

Seamus Grady: In the coming quarters, we expect our datacom business to return to faster growth in telecom, we anticipate further growth driven by increasing momentum from recent system wins, coupled with rising demand for data center interconnect products correct.

Seamus Grady: Collectively we are very optimistic as we look to the third quarter and beyond.

Speaker Change: Now I will turn the call over to Java for more financial details on our second quarter and our guidance for the third quarter of fiscal 2025 chopper.

Java: Thank you Seamus and good afternoon, everyone. We had a strong second quarter with revenue and net income per share that were above our guidance ranges.

Java: In the second quarter about $834 million, an increase of 17% from a year ago and 4% from Q1.

Java: non-GAAP EPS was $2 60, a lot of sense.

Java: The revenue upside and FX revaluation gains contributing to our results.

Java: Details of our revenue breakdown are included in the Investor presentation on our website. So I will focus my comments on some of the more noteworthy highlights.

Java: In the second quarter optical communications revenue was $647 million up 14% from a year ago and 3% from Q1.

Java: Within optical communications Datacom revenue was $299 million or 46% of optical communications revenue, an increase of 4% from a year ago, but a decline of 9% as a major customer transition to next generation products.

Java: Telecom revenue was $348 million or 54% of optical communications revenue, a remarkable increase of 24% from a year ago and 17% from Q1, driven primarily by growth in Dci product and early contributions from <unk> system business space.

Java: By data rate revenue from 800 gig at foster products, plus $257 million up 12% from a year ago and flat sequentially.

Java: Revenue from products below 800 gig was $277 million, an increase of 25% from a year ago and 5% from Q1.

Java: 400, ZR products for data center interconnect applications were very strong contributors to growth, reaching 10% of total revenue in the quarter.

Java: Revenue from optical communications products that are non feed related was $114 million up 6% from Q1.

Java: Non optical communications revenue was $186 million up 29% from a year ago and 5% sequentially.

Our automotive industrial laser and other revenue category was up sequentially and grew over 20% year over year.

Java: As I discuss the details of our P&L expense and profitability metrics will be on a non-GAAP basis, unless otherwise noted.

Java: Gross margin in the second quarter about 12, 4% compared to 12, 7% in the first quarter, primarily due to Q1, FX tailwind turning into slight headwinds as anticipated.

Java: Operating expenses were flat sequentially at $16 million offsetting most of the impact of slightly lower gross margins.

Java: Operating income was a record $88 million, representing an operating margin of 10, 6% compared to 10, 7%, both a year ago and last quarter <unk>.

Interest income of $11 million in the quarter was in line with Q1, and a foreign exchange revaluation gain contributed $4 million.

Java: Effective GAAP tax rate was elevated in the quarter at eight 7% due to discrete items.

Java: We continue to expect an effective tax rate in the mid single digit for the fiscal year.

Java: non-GAAP net income of $95 million or $2 61 per diluted share, which was above our guidance range and a quarterly record.

Java: Turning to the balance sheet, we ended the second quarter with cash and short term investments of $935 million.

Java: $26 million from the end of the first quarter.

Java: Operating cash flow in the quarter was strong at $116 million Capex was $72 million, resulting in free cash flow of $94 million in the second quarter.

Seamus Grady: As Seamus mentioned, we recently broke ground on our new building in Chonburi, which will considerably increased our manufacturing capacity.

Seamus Grady: As a result, we expect to incur a higher capex outlay hour the next several quarters.

Seamus Grady: Turning to share buybacks recall that we increased the size of our share repurchase program in August to $200 million during.

Interest income of $11 million in the quarter was in line with Q1, and a foreign exchange revaluation gain contributed $4 million.

Seamus Grady: During the second quarter. They were very active in the program and acquired 292000 shares at an average price of $235 per share for a total cash outlay of $69 million.

Effective GAAP tax rate was elevated in the quarter at eight 7% due to discrete items.

We continue to expect an effective tax rate in the mid single digit for the fiscal year.

Seamus Grady: As a result at the end of the second quarter, we had $131 million remaining under our repurchase authorization.

non-GAAP net income of $95 million or $2 61 per diluted share, which was above our guidance range and a quarterly record.

Seamus Grady: As a sign of continued confidence in our business last week, our board authorized an additional $100 million for share repurchases.

Turning to the balance sheet, we ended the second quarter with cash and short term investments of $935 million up $26 million from the end of the first quarter.

Seamus Grady: Now I will turn to our guidance for the third quarter of fiscal year 2025.

Speaker Change: As Seamus highlighted we have several reasons to be optimistic about our business in Q3 and beyond and this is reflected in our outlook for.

Operating cash flow in the quarter was strong at $116 million Capex was $22 million, resulting in free cash flow of $94 million in the second quarter.

Speaker Change: For the third quarter, we expect total revenue to be between $850 and $870 million by.

As Seamus mentioned, we recently broke ground on our new building in Chonburi, which will considerably increase our manufacturing capacity as a result, we expect to incur a higher capex outlay hour. The next several quarters.

Speaker Change: By major product area, we anticipate data com revenue to be down slightly sequentially in anticipation of the ramp in coming quarters from next generation products. The.

Speaker Change: We expect telecom revenue to see strong sequential growth again in Q3, as increasing Dci momentum and new system means make larger contributions.

Turning to share buybacks recall that we increased the size of our share repurchase program in August to $200 million.

During the second quarter, maybe we're very active in the program and acquired 292000 shares at an average price of $235 per share for a total cash outlay of $69 million.

Speaker Change: They also expect automotive revenue to continue to grow sequentially.

Speaker Change: We expect FX pressure on gross margin to persist in the third quarter, but believe we can again offset much of that impact the continued operating leverage therefore.

As a result at the end of the second quarter, we had $131 million remaining under our repurchase authorization.

Speaker Change: Therefore, we anticipate EPS in the third quarter to be between $2 55.

As a sign of continued confidence in our business last week, our board authorized an additional $100 million for share repurchases.

Speaker Change: The $2 63 per diluted share in summary, after a very strong second quarter, we continue to be very optimistic about our business as they benefit from several positive trends.

Now I will turn to our guidance for the third quarter of fiscal year 2025.

Speaker Change: We believe you will see we represent another quarter of record revenue for the company as our strong business momentum continues in the third quarter and beyond.

As Seamus highlighted we have several reasons to be optimistic about our business in Q3 and beyond and this is reflected in our outlook for.

Speaker Change: Operator, we are now ready to open the call for questions.

For the third quarter, we expect total revenue to be between $850 and $870 million by.

Speaker Change: Yes, Sir ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad.

By major product area, we anticipate data com revenue to be down slightly sequentially in anticipation of the ramp in coming quarters from next generation products.

Speaker Change: If your question has been answered or you wish to remove yourself from the queue simply press star one one again.

We expect telecom revenue to see strong sequential growth again in Q3, as increasing Dci momentum and new system means make larger contributions.

Speaker Change: Again, if you have a question or comment at this time. Please press star one one on your telephone keypad.

Speaker Change: Please standby, while we compile the Q&A roster.

We also expect automotive revenue to continue to grow sequentially.

We expect FX pressure on gross margin to persist in the third quarter, but believe we can again offset much of that impact the continued operating leverage therefore.

Speaker Change: Our first course.

A comment comes from the line of Karl Ackerman from BNP Paribas. Your line is open.

Therefore, we anticipate EPS in the third quarter to be between $2 55.

Speaker Change: Yeah.

Speaker Change: Yes, Thank you gentlemen.

Speaker Change: For my first question I was hoping to discuss telecom for a second.

To $2 63 per diluted share in summary, after a very strong second quarter, we continued to be very optimistic about our business as the benefit from several positive trends.

Speaker Change: Uh huh.

Speaker Change: When should we expect to see record revenue in telecom.

Speaker Change: I guess is that implied in your March quarter outlook.

Speaker Change: I ask because telecom fell from about 400 million a quarter two years ago to a trough of <unk> in June of last year, but now youre seeing traction coherent ZR modules and two large system business wins.

We believe Q3 will represent another quarter of record revenue for the company as our strong business momentum continues in the third quarter and beyond.

Operator, we are now ready to open the call for questions.

Speaker Change: Appear to be just flowing into your results set a new support this end market recovery. So you've got several things acting as tailwind. So if you can talk about.

Speaker Change: Okay, Sir ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad.

Speaker Change: If your question has been answered or you wish to remove yourself from the queue simply press star one one again.

Speaker Change: The visibility you see within our.

Speaker Change: Telecom and when we should see record revenue in that segment.

Speaker Change: Again, if you have a question or comment at this time. Please press star one one on your telephone keypad.

Speaker Change: Yeah. Thanks, Thanks, Kurt.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: So yes, as you rightly say, our telecom revenue was down for.

Speaker Change: For the last several quarters as the whole industry is digested.

Speaker Change: Inventory.

Speaker Change: The nice thing is the counter cyclicality, we have in the business when our telecom Telecom revenue was was flash our datacom revenue is growing nicely and at the moment, our datacom revenue is little bit classes, we wait for new product launch on.

Speaker Change: Our first.

Speaker Change: The comment comes from the line of Karl Ackerman from BNP Paribas. Your line is open.

Speaker Change: Yes, Thank you gentlemen.

Speaker Change: Yes.

Speaker Change: For my first question I was hoping to discuss telecom for a second.

Speaker Change: In our telecom.

Speaker Change: Revenues back to strength.

Speaker Change: Uh huh.

Speaker Change: When should we expect to see record revenue in telecom I guess it is.

Speaker Change: And.

Speaker Change: The drivers of that are a mixture of new program wins and strength in primarily Dci products and <unk> products.

That implied in your March quarter outlook.

Speaker Change: I asked because telecom fell from about 400 million a quarter or two years ago to a trough of $2 80 in June of last year, but now youre seeing traction coherent ZR modules and two large system business wins.

Speaker Change: So we expect that trend to continue some of the system wins are in the beginning to show in the numbers, but the majority of the new system wins.

Speaker Change: Are actually not in our our results yes, the Sienna when we talked about previously is more of an FY 'twenty six.

Speaker Change: Appear to be just flowing into your results that do support this end market recovery. So you've got several things acting as tailwind. So if you can talk about.

Speaker Change: Story from a revenue perspective, and the other system win where we took business away from one of our competitors is really just beginning to ramp. So yeah. Good strength in telecom really offsetting softness in datacom, but we expect that trends that strength in telecom to continue.

Speaker Change: The visibility you see within our.

Speaker Change: Telecom and when we should see record revenue in that segment.

Kurt: Yeah. Thanks, Thanks, Kurt.

Kurt: So yes, as you rightly say, our telecom revenue was down for.

Speaker Change: You know for the next several quarters exactly when it gets back to where we were before the inventory digestion.

Kurt: For the last several quarters as the whole industry digested.

Kurt: Inventory.

Kurt: The nice thing is the counter cyclicality, we have in the business when our telecom Telecom revenue was was flash our datacom revenue was growing nicely at the moment, our datacom revenue is little bit flat as we wait for new product launch on.

Speaker Change: Really hard to say that wouldn't like to speculate but we're just focused on getting the customers what they need and we're very happy to see as I say, the telecom business being very strong for US just just when we needed to be from the Datacom business is a little bit soft.

Speaker Change: Yes, no. Thank you for that.

Kurt: In our telecom.

Kurt: <unk> back to strength.

Speaker Change: If I may have a follow up sure that aggressive in yours.

Kurt: And the drivers of Nash or a mixture of.

Speaker Change: Using your Silicon Photonics business is now approaching record levels as well.

Speaker Change: I guess within Silicon Photonics is the incremental growth.

Speaker Change: Coming from high speed Transceivers inside the data center or is it mainly coherent ZR for Dci.

We're in the beginning to show in the numbers, but the majority of the new system wins.

Speaker Change: And other telecom applications. Thank you.

We're actually not in our our results yes.

Speaker Change: It's mainly the latter coherence.

I know when we talked about previously is more of an FY 'twenty six.

Speaker Change: Transceivers for <unk>.

From a revenue perspective, and the other system win where we took business away from one of our competitors is really just beginning to ramp. So yeah. Good strength in telecom really offsetting softness in datacom, but we expect that that strength in telecom to continue.

Speaker Change: Transceivers for Dci applications between between the data centers. That's the main driver of our Silicon Photonics group.

Speaker Change: We were very early adopter of Silicon Photonics, we have been building silicon photonics.

Speaker Change: Products for over a decade at this stage.

Speaker Change: So we really feel we're in a strong position as the industry moves more towards silicon Photonics and also co packaged optics for us its a fairly natural transition to go from one to the other.

For the next several quarters exactly when it gets back to where we were before the inventory digestion, it's really hard to say and I wouldn't like to speculate but we're just focused on getting the customers what they need and we're very happy to see as I say, the telecom business being very strong for us.

Speaker Change: But you had that that growth in silicon photonics is primarily driven by coherent ZR Dci products.

Just when we needed to be from the desktop business is soft.

Speaker Change: Got it thank you thank.

Speaker Change: Thank you Kara.

Speaker Change: Thank you. Our next question or comment comes to the line of ceramic chatterji from J P. Morgan Your line is open.

Speaker Change: Yes, thank you for that.

If I may have a follow up.

Speaker Change: The growth in the rest of your Silicon Photonics business is now approaching record levels as well.

Ceramic Chatterji: Oh, hi, Thanks for taking my questions. Jim you talked about the next generation product.

Speaker Change: I guess within Silicon Photonics is the incremental growth.

Ceramic Chatterji: Indeed for the primary customer that you have here and I think you've referenced sort of the strong visibility you have in ramping the next generation products.

<unk> from high speed Transceivers inside the data center or is it mainly coherent ZR for Dci.

Speaker Change: And in other telecom applications. Thank you.

Speaker Change: What's driving that confidence in terms of timing.

Speaker Change: It's mainly the latter coherence.

Speaker Change: Transceivers for ZR.

You're guiding Q2, a little moderation in <unk> as well so should we just conclude that the new products starting in Q towards the end of the Union has the timing from the customer and it comes up with.

Speaker Change: Transceivers for Dci applications between between the data centers. That's the main driver of our our Silicon Photonics group.

Speaker Change: We were very early adopter of Silicon Photonics, we have been building silicon photonics.

Speaker Change: When that next product ramps has that also changed or is it still pretty intact in terms of the timing.

Speaker Change: Products for over a decade at this stage.

Speaker Change: We're expecting to ramp the next generation product and have a follow up thank you.

Yes, I think the timing of the next generation product really depends on our customers launch timing.

We would expect to see a ramp about one quarter before our customer wants to ship product to their customers.

Speaker Change: But yet that that growth in silicon photonics is primarily driven by coherent.

Speaker Change: <unk> products.

Speaker Change: We're ready we're prepared and we're ready to go from a capacity perspective, I'm, a really just working through the customer schedule. So no no big change.

Speaker Change: Got it thank you thank.

Speaker Change: Thank you Kara.

Speaker Change: Thank you. Our next question or comment comes to the line of Xiaomi Chatterji from JP Morgan Your line is open.

Speaker Change: Other than we're working to the customer schedule in terms of the.

Speaker Change: Of the launch.

Xiaomi Chatterji: Oh, hi, Thanks for taking my questions Seamus you've talked about the next generation product.

Speaker Change: We have we have good visibility we set up the same visibility we've had we have visibility well beyond the component lead times.

Speaker Change: And data for the primary customer that you have you and I think you've referenced sort of the strong visibility you have in ramping the next generation product.

Speaker Change: And we're quite optimistic we're not concerned.

Speaker Change: Really just a question of you.

Speaker Change: Making sure we're ready to go when the customer is ready to go so we're ready to ramp and ready to go whenever the whatever the product launches.

Xiaomi Chatterji: I mean, what.

Xiaomi Chatterji: What's driving that confidence in terms of timing.

Okay got it.

Xiaomi Chatterji: You're guiding you to a moderation in <unk> as well so should we just conclude that the new products starting in <unk> towards the end of the yield and has the timing from the customer in terms of when that next product ramps has that also changed or is it still pretty intact in terms of the timing that you would expecting to ramp the next generation product and have a follow up thank you.

Speaker Change: Great.

Speaker Change: The volumes that you would expect them to ramp on a mutually or even sort of volumes through the <unk>.

Speaker Change: Right.

Speaker Change: As well as pricing on these sort of products.

Speaker Change: What is the visibility that you have currently from the customer are doing particularly if you compare ratably 800, when you initiate them ramping in terms of price and volume how does the next generation product.

Xiaomi Chatterji: Yes, I think the timing of the next generation product because it depends on our customers launch timing.

Speaker Change: I think in terms of if I take volume first of all I think.

Xiaomi Chatterji: We would expect to see.

Speaker Change: The volume I think once it gets going it will be a pretty steep ramp that's not unusual in that part of our business. So we're ready for that.

Speaker Change: <unk> Pinot about one quarter before our customer wants to ship product to their customers.

Speaker Change: We're ready we're prepared and we're ready to go from a capacity perspective, I'm really just working to the customer's schedule and so no no big change.

Speaker Change: In terms of Asps.

Speaker Change: We continually reduce our costs and therefore, our prices to our customers is nothing new about that I think if anything.

Speaker Change: Other than we're working to the customer schedule in terms of the.

Speaker Change: Maybe to delay with launching the end products has allowed us and the customer to really focus on cost to make sure we're very cost competitive so.

Speaker Change: The launch.

Speaker Change: We have we have good visibility we set up the same.

Speaker Change: Ability, we've had we have visibility.

Speaker Change: Well beyond the component lead times.

Speaker Change: We expect when the one six product launches.

Speaker Change: And we're quite optimistic we're not concerned.

Speaker Change: We'd be very cost competitive.

Just a question of.

Speaker Change: Relative to 800 gig it won't be as much of an uplift is as my traditionally happened when you when you double the speed.

Speaker Change: Making sure we're ready to go when the customer is ready to go so we're ready to ramp and ready to go whenever the product launches.

Speaker Change: But like I say, we're ready to go we're working very hard to make sure the costs are competitive.

Speaker Change: Okay got it.

Speaker Change: Relative to the volumes that you would expect them to ramp on initially or even sort of volumes through the cycle as well as pricing on these sort of products.

Speaker Change: And yet the volumes were just ready to go whenever the customer is but we're optimistic we have no. We have no reason to be to be pessimistic or anything like that we're quite optimistic. It's just a question of timing.

Speaker Change: What is the visibility that you have currently from the customer, particularly if you compare it to 800 gig when you initiate them ramping in terms of price and volume how does the next generation product compare.

Alright, great. Thank you. Thanks, Thank you for taking my questions.

Speaker Change: Yeah.

Speaker Change: Thank you. Our next question or comment comes from the line of George Notter from Jefferies. Mr. <unk>. Your line is open.

Speaker Change: I think in terms of if I take volume first of all I think.

Speaker Change: The volume I think once it gets going it will be a pretty steep ramp that's not unusual in that part of our business. So we're ready for that.

George Notter: Hi, there thanks, very much guys I guess I was.

Can I ask the question of the day, I think which is tariffs.

Speaker Change: In terms of Asps.

George Notter: Obviously, it's been something the industry has been concerned about for some time I'm wondering if you guys are seeing incremental opportunity associated with tariffs going in place now.

Speaker Change: No.

Speaker Change: We continually reduce our costs and therefore, our prices to our customers and there's nothing new about that.

Speaker Change: If anything.

George Notter: Yes. It was just an opportunity for <unk> to take share, but can you kind of give us a sense for what youre seeing from the customers in your conversations thanks.

Speaker Change: Maybe it's a delay with launching the end products has allowed us and the customer to really focus on cost to make sure we're very cost competitive so.

George Notter: Hi, George.

Speaker Change: We expect when the $1 six product launches.

Speaker Change: Yes, we're keeping a close eye on that.

George Notter: Just on where our factories are locators.

Speaker Change: We'd be very cost competitive.

George Notter: So for at least we haven't seen any any any tariffs being imposed on China. So we don't expect any negative impact.

Kurt: Relative to 800 gig it won't be as much of an uplift is as my traditionally happened when you when you double the speed.

Kurt: But like I say, we're ready to go we're working very hard to make sure the costs are competitive.

George Notter: If anything maybe expect a potential positive impact if customers want to move production.

Kurt: And yes. The volumes were just ready to go whenever the customer is but we're we're optimistic we have no. We have no reason to be to be pessimistic or anything like that we're quite optimistic. It's just a question of timing.

George Notter: With the most recent tariffs.

George Notter: A lot of the supply chain in our industry, if you like still.

George Notter: Part of it is in Mexico, and some of it a sell in China. So we're quite happy to work with the customers if they want to move production to in our direction. So if anything we see the tariffs.

Kurt: Alright, great. Thank you. Thanks, Thank you for taking my questions.

Speaker Change: Thank you. Our next question or comment comes from the line of George Notter from Jefferies. Mr. Martin Your line is open.

George Notter: Leaving aside the kind of macroeconomic impacts which are levered to people smarter than me to talk about but just in terms of the demand on the <unk>.

George Notter: Hi, there thanks, very much guys I guess I was.

George Notter: Our ability to win business.

Speaker Change: Can I ask the question of the day, I think which is tariffs.

George Notter: We don't see tariffs as a headwind.

Speaker Change: Obviously, it's been something the industry has been concerned about for some time I'm wondering if you guys are seeing incremental opportunity associated with tariffs going in place now.

George Notter: If anything we think it could actually help us a little bit, but it's very early days, it's hard to see it's hard to say, but we'll cover it up.

George Notter: Got it and then.

George Notter: I think part of the trick on this is that there is some lead time moving manufacturing from one country or one geography to another or is that.

Speaker Change: Yes. There is this an opportunity for <unk> to take share can you kind of give us a sense for what youre seeing from the customers in your conversations thanks.

George Notter: If there is a benefit is that is that months away quarters away years away or like how do you think about what's what's reasonable in terms of when it could help you.

George Notter: Yeah, Hi, George.

Speaker Change: Yes, we're keeping a close eye on that.

Speaker Change: Based on where our factories are located.

Speaker Change: So at least we haven't seen any any any tariffs being imposed on China. So we don't expect any negative impact.

George Notter: It's pretty hard to say George.

George Notter: I'd like to not answer the question, but it's pretty hard to say I think if there is a benefit.

Speaker Change: If anything.

George Notter: Put it this way I think if the benefits hasnt hasnt materialized in months or quarters, it probably won't.

Speaker Change: We expect a potential positive impact if customers want to move production.

George Notter: That points because sometimes.

Speaker Change: With the most recent tariffs.

George Notter: Customers companies decided to stay where they are because they and then.

Speaker Change: A lot of the supply chain in our industry if you like.

George Notter: Find other ways to reduce cost or whatever but.

Speaker Change: <unk>.

Speaker Change: A lot of it is in Mexico, and some of them to sell in China. So we're.

George Notter: I think it's an opportunity I wouldnt get too excited about it though I think it's an opportunity.

Speaker Change: Quite happy to work with your customers if they want to move production to in our direction. If it so if anything we see the tariffs.

George Notter: But I'd say, it's probably more months and quarters and years.

George Notter: <unk> are complex, but we tend to move.

Speaker Change: Leaving aside the kind of macroeconomic impact, which I leave it to people smarter than me to talk about but just in terms of the demand.

George Notter: We have a track record of being able to move.

George Notter: Complex products very quickly so if customers want to move we're ready to support them. If we can move very quickly.

Speaker Change: Our ability to win business.

Speaker Change: We don't see tariffs as a as a headwind.

George Notter: Okay Super Thank you.

Speaker Change: If anything we think it could actually help us a little bit, but it's very early days, it's hard to see it's hard to say.

Youre welcome.

Speaker Change: Thank you our next question or comment comes from the line of Ryan Koontz from Needham Your.

Speaker Change: Got it and then I.

Speaker Change: Your line is open.

Speaker Change: I think part of the trick in this is that there is some lead time moving manufacturing from one country or one geography to another or is that.

Speaker Change: Alright, thanks for the question.

Speaker Change: James with your momentum in MCR, and Dci I'm wondering if you're contemplating or your customers are contemplating yet much of a transition over to Andrew.

Speaker Change: If there is a benefit is that is that months away quarters away years away like how do you think about what.

Speaker Change: ZR, yet or are you really seeing 400 dose.

Speaker Change: With reasonable in terms of when it could help you.

Speaker Change: Eminent force here in 'twenty five.

George Notter: Pretty hard to say George I don't I don't like to not answer the question, but it's pretty hard to say I think if there is a benefit I would put it this way I think of the benefits Hasnt Hasnt materialized.

Speaker Change: So yes, so first of all.

Speaker Change: In.

Speaker Change: In FQ4 in FQ, one 400, ZR was 10% or.

Speaker Change: Months or quarters, it probably won't be at.

Speaker Change: Or more of our optical revenue and in Q2 400, ZR was 10% of our total revenue. So it's a very important if you like category for us.

George Notter: At that point because sometimes.

George Notter: <unk> companies decided to stay where they are because they can.

George Notter: Find other ways to reduce cost or whatever but.

Speaker Change: If you do the math that represents about a 43% sequential increase.

George Notter: I think it's an opportunity I wouldnt get too excited about it though I think it's an opportunity.

Speaker Change: <unk> hundred $83 million. So <unk> is very very important for us.

George Notter: But I'd say, it's probably more months and quarters and years the products are complex, but we tend to move.

Speaker Change:

And we do expect 400 ZR.

Speaker Change: To remains strong in the coming quarters, we have actually.

George Notter: We have a track record of being able to move.

George Notter: Any context products very quickly so if customers want to move we're ready to support them. If we can move very quickly.

Speaker Change: Quality and chips 800, ZR as well <unk> it is.

Speaker Change: Early days, but we have actually qualified and have shipped some 800 <unk> as well.

Speaker Change: Okay Super Thank you.

George Notter: Youre welcome.

Ryan Koontz: Thank you our next question or comment comes from the line of Ryan Koontz from Needham Your.

Speaker Change: Got it great and as it relates to your expectations you talked about some lumpiness here on the Datacom side.

Speaker Change: Your line is open.

Speaker Change: Alright, thanks for the question.

Speaker Change:

Speaker Change: Seamus with your momentum in MCR and Dci I Wonder if you are contemplating or your customers are contemplating yet much of a transition over to Andrew.

Speaker Change: Do you are you.

Speaker Change: Is that primarily the lower speed Datacom do you think that will suffer more or more.

Speaker Change: High end at 800 do you think.

Speaker Change: ZR, yet or are you really seeing 400 is the dominant force here in 'twenty five.

Speaker Change: So to see a lot of a slowdown or anything you can share there.

Speaker Change: Yes, so we don't have much low speeds datacom business.

Speaker Change: So yes, so first the first of all.

Speaker Change: In.

Speaker Change: It's most it's mostly predominantly 800 gig and above.

Speaker Change: In FQ4 in FQ, one 400, ZR was 10% or.

Speaker Change: And what I would say is we're very optimistic about our datacom business overall.

Speaker Change: More of our optical revenue and in Q2 400, ZR was 10% of our total revenue.

Speaker Change: When we when we provided guidance, we indicated that datacom would be roughly flash and things turned out a little bit softer than anticipated and then the near term the product transition we talked about.

Speaker Change: Very important if you like category for us.

Speaker Change: If you do the math that represents about a 43% sequential increase.

Speaker Change: It means our overall datacom revenue will see additional softness in Q3 again nothing that we're overly concerned about but it is at those higher speeds products, we continue to anticipate.

Speaker Change: <unk> hundred $83 million. So <unk> is very very important for us.

Speaker Change:

Speaker Change: And we do expect 400 ZR.

Speaker Change: To remains strong in the coming quarters, we have actually.

Speaker Change: Quality on chips from <unk> as well.

Speaker Change: Increasing demand and revenue as our customer ramps.

Speaker Change: <unk>.

Speaker Change: X generation, one six terabyte products, which makes us optimistic over the longer term all of these we have some near term softness.

Speaker Change: It's early days, but we have actually quantified that have shipped some <unk> hundred <unk> as well.

Speaker Change: Got it great and as it relates to your expectations you talked about some lumpiness here on the Datacom side.

Speaker Change: In the meantime, we have we have several other drivers that contributed to strong growth in Q2, and we continue to benefit from those in Q3 Interestingly. If you look at we often talk about the counter cyclicality in our business.

Speaker Change:

Speaker Change: Do you are you.

Speaker Change: Is that primarily the lower speed Datacom do you think that will suffer more or more.

Speaker Change: As it seems when once one part of our business is down another part is up but that's really what we've been seeing here with with our telecom and Datacom business. Historically, when we were going through that inventory digestion for several quarters are our datacom business was strong.

Speaker Change: High end at 800 do you think we'll see.

Speaker Change: So you'll have a slowdown anything you can share there.

Speaker Change: Yes, so we don't have much low speeds datacom business.

Speaker Change: It's most it's mostly predominantly 800 gig and above.

Speaker Change: The moment suite or our Datacom businesses logo flash, but our telecom business is very strong, but but the mix of our of our business is more on the leading edge higher speed products not that not the older products got it it makes sense and just one last if I could around.

Speaker Change: And what I would say is we're very optimistic about our datacom business overall.

Speaker Change: When we when we provided guidance, we indicated that datacom would be roughly flash and things turned out a little bit softer than anticipated and then.

Speaker Change: Near term the.

Speaker Change: What's the rough timeframe between your Capex and when you can bring capacity online.

Speaker Change: The product transition we talked about.

Speaker Change: It means our overall datacom revenue will see additional softness in Q3 again.

Speaker Change: We're talking months quarters.

Speaker Change: Nothing that we're overly concerned about but it is that those higher speeds products, we continue to anticipate.

Speaker Change: So are you.

Speaker Change: Go ahead John.

Speaker Change: Brian If you are talking about our building tenths of the lead time on versus about 18 months. So we will see a linear a cash outlay in terms of Capex. So you would see probably about $20 million uplift in op expense and cash outlay in the next let's say six six to eight quarters.

Speaker Change: Increasing demand and revenue as our customer ramps. The next generation, one six terabyte products, which makes us optimistic over the longer term all of these we have some near term softness.

Speaker Change: In the meantime, we have we have several other drivers that contributed to strong growth in Q2, and we will continue to benefit from those Q3 Interestingly if you look at.

Speaker Change: Thanks, so much guys.

Speaker Change: And just maybe Brian just to put some context around building 10.

Speaker Change: In terms of the revenue capacity that we're adding.

Speaker Change: Often talk about our counter cyclicality in our business.

Speaker Change: General rule of thumb, we generate about $1200 per square foot in annual revenue.

As it seems when once one part of our business is down and the other part is up but that's really what we've been seeing here with with our telecom and Datacom business. Historically, when we were going through that inventory digestion for several quarters are our datacom business was strong.

Speaker Change: So.

Speaker Change: Building 10 will be a 2 million square foot facility. So.

Speaker Change: It's about a $2 4 billion.

Speaker Change: Capacity.

Speaker Change: That's where we're investing in.

Speaker Change: Enrollments in our Datacom business leather flash, but our telecom business is very strong.

Speaker Change: So obviously the actual revenue will depend on the mix of mix of products, but that's the ballpark capacity that we're adding is about $2 4 billion. That's.

Speaker Change: But the.

Speaker Change: The mix of our of our business is more on the leading edge higher speed products not that the older products got it makes sense and just last if I could around.

Speaker Change: That's great.

Speaker Change: Thank you gentlemen.

Speaker Change: Thank you Ron.

Speaker Change: What's the rough timeframe between your Capex and when you can bring capacity online.

Speaker Change: Our next question or comment comes from the line of George George Wang from Barclays. Mr. Wang Your line is open.

Speaker Change: We're talking months quarters.

Speaker Change: Hey, guys. Thanks for taking my attention just.

Speaker Change: So are you.

Go ahead John.

Speaker Change: Four quick ones, Firstly, just kind of want a homing under one <unk> ramp.

Speaker Change: Brian If you are talking about our building tenths of the lead time on versus about 18 months. So we will see a linear or a cash outlay in terms of Capex. So you would see probably about $20 million uplift in op expense and cash out in the next let's say six to eight quarters.

Just maybe kind of versus the last quarter.

Speaker Change: Are you guys seeing further delay all kind of.

Speaker Change: Kind of quote unquote kind of status quo kind of still waiting for <unk>.

Speaker Change: Helpful. Thanks, so much guys.

Speaker Change: <unk> hundred transition kind of lands you guys called out data this year and also a colorful.

Speaker Change: Maybe Brian just to put some context around building 10.

Speaker Change: In terms of the revenue capacity that we're adding.

Speaker Change: Other impediments for wider adoption for <unk> such as.

Speaker Change: General rule of thumb, we generate about $1200 per square foot to 90 oil revenue.

Speaker Change: Maybe the supply chain is waiting for the <unk> network.

Speaker Change: Network interface cards, which probably does not arrive until later this year can you kind of unpack some of the potential other underlying constraints aside from just your largest datacom customer kind of.

Speaker Change: So.

Speaker Change: Building 10 will be a 2 million square foot facility. So.

Speaker Change: It's about a $2 4 billion.

Speaker Change: Capacity.

Speaker Change: That's where we're investing in.

Speaker Change: Obviously with the transition on the Black box.

So obviously the actual revenue will depend on the mix of mix of products, but that's the ballpark capacity that we're adding is about $2 4 billion.

Speaker Change: Yes, I think on the wider questions around the supply chain and waiting for a network interface cards and things like that that's probably a question more that are directed to our customer. So that's something we really really comment on are of any particular knowledge of.

Speaker Change: Eight.

Speaker Change: Really impressive thank you gentlemen.

Speaker Change: Thank you Ron.

Speaker Change: We've been producing.

Thank you. Our next question or comment comes from the line of George George Wang from Barclays. Mr. Wang Your line is open.

Speaker Change: Sample qualification builds of 160 <unk> to the point, where we're ready to go wherever the customer is as I talked about earlier, it's really just a question of the timing of that product launch.

Speaker Change: Hey, guys. Thanks for taking my question just a.

Speaker Change: Two quick ones, Firstly, just kind of what the homing under one <unk> ramp.

Speaker Change: Again wider questions about other parts of the network, we're not really in a position to talk about mostly because we don't know, but it's also just a question that will be better directed to our customer.

Speaker Change: Just maybe kind of versus the last quarter are.

Speaker Change: Are you guys seeing further delay all kind of.

Speaker Change: Kind of quote unquote kind of status quo kind of still waiting for B.

Speaker Change: Okay. Thanks, and just a quick one if I can just in terms of the CNS business.

Speaker Change: <unk> hundred transition kind of lands you guys called out data this year and also kind of or are there other impediments for wider adoption of <unk> such as maybe the supply chain is waiting for the energy.

Speaker Change: C S anticipate it's going to be a much bigger customer.

In the next few quarters kind of FY 'twenty six days you guys called out.

Speaker Change: Is there any sort of a refresh of the old terms helpful.

Speaker Change: The peak revenue run rate I mean, do you think Kevin in the past and Cisco, California, No, 10% customer any sort of your latest thoughts in terms of the prospect for Athena recognizing its early days just curious any thoughts you have for.

Speaker Change: Network interface cards, which you probably does not arrive until later this year can you kind of unpack some of the potential other underlying constraint.

Speaker Change: The problem, just your largest datacom customer kind of.

Speaker Change: Obviously with the transition on the platform.

Speaker Change: Additional thoughts on that.

Speaker Change: Yes, I think on the on the wider questions around the supply chain and waiting for network interface cards and things like that that's probably a question more that are directed to our customer it's not something we really really comment on are of any particular knowledge of.

Speaker Change: Yes, So we've had a couple of.

Speaker Change: Solid recent system wins, one of which is the Sienna new products that we talked about in prior quarters.

Speaker Change: It's a new networking product that CNN is introducing this year. We I think we said at the time and we continue to expect that the bulk of the Sienna ramp will be in late fiscal 2025 and to earn into early fiscal 2026. So it's more of an FY 'twenty six story from a revenue point of view.

Speaker Change: We've been producing.

Speaker Change: Sample qualification builds of 160 and to the point, where we're ready to go whenever the customers as I talked about earlier, it's really just a question of the timing of that product launch.

Speaker Change: What's really is we'll be ramping of course in line with our customers' ramp plans.

Speaker Change: The revenue run rate for CNS, we Wouldnt, we wouldnt comment on we don't comment on individual.

Speaker Change: Okay. Thanks, and just a quick one if I can just.

Speaker Change: For the CNS business, obviously, I anticipate it's going to be a much bigger customer.

Speaker Change: Revenue other than at the end of the fiscal year, if the customer becomes a 10%.

Speaker Change: Customer, we disclosed the revenue, but outside of that we don't comment on individual customers revenue and we certainly don't forecast revenue at the customer level. So I'm afraid I can't give you a whole lot more.

Speaker Change: In the next few quarters kind of FY 'twenty six days you guys called out.

Is there any sort of a refresh of the intense helpful.

Speaker Change: Peak revenue run rate do you think that Ken.

George Notter: Information there George.

Speaker Change: In the past and Cisco kind of 10% customer any sort of your latest thoughts in terms of the prospect for Athena recognizing its early days just curious any thoughts you have for.

George Notter: Okay. Thank you I'll go back to the queue.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you. Our next question or comment comes from the line of Tim <unk> from Northland Capital markets. Mr. <unk>. Your line is open.

Speaker Change: Additional thoughts on that.

Speaker Change: Yes, So we've had a couple of.

Solid recent system wins, one of which is the Sienna new products that we talked about in prior quarters.

Tim: Thanks, Good afternoon, and congrats on the results and outlook here.

Speaker Change: Jimmy I can try and come at that from another direction.

Speaker Change: It's a new networking product that CNN is introducing this year. We I think we said at the time and we continue to expect that the bulk of the CN. The ramp will be in late fiscal 2025 and to earn into early fiscal 2026. So it's more of an FY 'twenty six.

Tim: So.

Tim: First question, if you look at the sequential growth in telecom this quarter, you've been pretty clear about the ZR data center interconnect impact.

Tim: Fair to conclude that the other piece of that $50 million is the new program ramp with the major customer that youre talking about or anything to discuss with them.

Speaker Change: Story from a revenue point of view.

Speaker Change: It's really as we've been ramping of course in line with the customers' ramp plans.

Tim: With regard to the broader telecom landscape recovering.

Speaker Change: The revenue run rate for Sienna, we Wouldnt, we wouldnt comment on we don't comment on individual.

Tim: So yes, it's primarily <unk> and also the the beginning the early days of the ramp of another.

Speaker Change: Revenue other than at the end of the fiscal year, if the customer becomes a 10%.

Tim: Program win that we had a competitive new business wins, where we took we took a little bit of share away from one of our competitors.

George Notter: Information there George.

You know that the customer we named before Sienna business that is really not in the numbers yet that hasnt really started yet so it's a combination of that other.

George Notter: Okay. Thank you I'll go back to the queue.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you. Our next question or comment comes from the line of Tim <unk> from Northland Capital markets. Mr. <unk>. Your line is open.

Tim: Competitive system win plus the ramp up of <unk> and Dci.

Speaker Change: Thanks, Good afternoon, and congrats on the results and outlook here. Thank.

Tim: We really took the opportunity when.

Tim: When the telecom business was was flash because of inventory digestion.

Jimmy: Thank you Jimmy I can try and come at that from another direction.

Tim: You spoke about the spring.

Speaker Change: <unk>.

Speaker Change: First question, if you look at the sequential growth in telecom this quarter, you've been pretty clear about the ZR data center interconnect impact.

Tim: We took the opportunity to use that to go in go win business.

Tim: So we are beginning to see the fruits of that now.

Tim: Yes.

Speaker Change: Fair to conclude that the other piece of that $50 million is the new program ramp with the major customer that youre talking about or anything to discuss with them.

Tim: Okay, well that makes this question a little easier.

Tim: <unk> referred to a couple of times strengthen the business in Q3 and beyond.

Tim: I think I think that fairly opens up a discussion about fiscal Q4.

Speaker Change: With regard to the broader telecom landscape recovering.

Seamus Grady: And Seamus you just said that the Sienna ramp you do expect to begin in fiscal 'twenty five.

Speaker Change: So yes, it's primarily <unk> and also the the beginning the early days of the ramp of another.

Tim: Yes.

Speaker Change: I guess looking at the sum total of that and you are typically seasonally pretty strong.

Speaker Change: Program win that we had a competitive.

Speaker Change: New business win where we took we took a little bit of share away from one of our competitors.

Tim: In the June quarter anyway.

Tim: But it looks like you've got a fair bit of momentum heading into the June quarter, regardless of.

Speaker Change: You know that the customer we named before Sienna business that is really not in the numbers yet that hasnt really started yet so it's a combination of the other.

Tim: Whether you see <unk> start to ramp then which I imagine you might.

Speaker Change: Competitive system win plus the ramp up of <unk> and Dci.

Tim: Feel free to comment on that as well in this.

Tim: Your assessment on that overall setup there.

Speaker Change: We really took the opportunity when.

Tim: Youre exactly right Tim.

Tim: I couldn't have said it better myself so we have.

Speaker Change: When the telecom business was was flat because of inventory digestion.

Tim: The part of our business, which has been a headwind for the longest time. The telecom business is now turned turned back into a tailwind with a number of growth.

Speaker Change: You spoke about the spring.

Speaker Change: We took the opportunity to use that to go in go win business.

Speaker Change: So we are beginning to see the fruits of that now.

Tim: Growth vectors in their zeal.

Tim: <unk> continues to grow nicely.

Speaker Change: Yes.

Speaker Change: Okay, well that makes this question a little easier.

Tim: The new network system wins that we've taken share of existing products away from one of our competitors and then of course, the sienna when that hasn't hasn't really figured in our in our numbers yet and then theres other system wins that we're also working on like I said, we alluded to earlier, we've been very busy trying to win telecom business during the time.

Speaker Change: And Tavis referred to a couple of times strengthening the business in Q3 and beyond.

Speaker Change: So I think I think that fairly opens up a discussion about fiscal Q4.

Speaker Change: And Seamus you just said that the Sienna ramp you do expect to begin in fiscal 'twenty five.

Tim: When the industry was flat and we've been working very very hard with US. We generally don't announce anything until there's something to announce but there's others that we're still working hard on so telecom, yes is turning from being a headwind to being a tailwind and then around the same time, all going well, we should start to ramp those next generation datacom products as well.

Speaker Change: Yes.

Speaker Change: So I guess looking at the sum total of that and you are typically seasonally pretty strong in the June quarter anyway.

Speaker Change: But it looks like you've got a fair bit of momentum heading into the June quarter, regardless of.

Speaker Change: Whether you see 160 start to ramp then which I imagine you might.

Tim: So we're quite optimistic going into the second half of the year.

Speaker Change: Feel free to comment on that as well.

Tim: That coupled with the announcement around the new the new factory in the increase share buyback I think should should give you some indication of that.

Speaker Change: Yes.

Speaker Change: But on that overall setup there.

Speaker Change: Youre exactly right Tim.

Speaker Change: I Couldnt have said the bedroom myself so we have.

Tim: Absolutely.

Speaker Change: The part of our business, which is has been a headwind for the longest time. The telecom business is now turned turned back into a tailwind with with a number of.

Tim: Quick one for me I missed the non optical guide if you wouldn't mind.

Tim: Repeating that.

Tim: <unk> in the last real question is.

Speaker Change: Growth vectors in their zeal.

Speaker Change: <unk> continues to grow nicely.

Speaker Change: My assumption would be I guess I'm trying to get you to rank order of magnitude the size of the relative new systems opportunities I would assume Diana would be larger to much larger, but but maybe not if you're willing to comment on that.

Speaker Change: The new network system wins that we've taken share of existing products away from one of our competitors.

Speaker Change: Then of course the <unk>.

Speaker Change: When that Hasnt hasnt really figured in our in our numbers yet and then there is other system wins that we're also working with like I said, we alluded to earlier, we've been very busy trying to win telecom business. During the time when the industry was flat.

Tim: <unk>.

Tim: Yes, I think I'll, let Charlie gave you the non optical guide in a moment, but I think yes.

Speaker Change: Sienna when we're very happy with that or they're just a fantastic.

Speaker Change: Customer fantastic companies do business with them are so so honored to be to be parts of our supply chain and really looking forward to that business ramping we're ready to support them.

Speaker Change: We've been working very very hard with last week, we generally don't announce anything until there's something to announce.

Speaker Change: There's others that we're still working hard on so telecom, yes is turning from being a headwind to being a tailwind and then around the same time, all going well, we should start to ramp those next generation datacom products as well.

Speaker Change: We're very excited about that but we're also excited about the other <unk>.

Speaker Change: New business wins, we've had.

Speaker Change: See I know one because it's a new product okay. It doesn't ramp straightaway when it does ramp then.

Speaker Change: So we're quite optimistic going into the second half of the year.

Speaker Change: That coupled with the announcement around the new the new factory and the increased share buyback I think should that should give you some indication of that.

Speaker Change: It is longer longer legs, we have it for the life of the product where some of the other ones. It's great to get the wind because you've got a quick infusion of revenue, but if you are ramping.

Speaker Change: If we're ramping it in the middle of the product lifecycle, we don't get that full.

Speaker Change: Absolutely.

Speaker Change: Quick one for me.

Speaker Change: <unk> at the business, but so we're we're very happy overall I wouldn't like to try and try and ranked them ranked them. It's like trying to tell you which of my children I prefer we love them all.

Speaker Change: Missed the non optical guide if you wouldn't mind.

Speaker Change: Repeating that.

Speaker Change: Briefly in the last real question is.

Speaker Change: My assumption would be I guess I'm trying to get you to rank order of magnitude the size of the relative new systems opportunities I would assume would be larger to much larger, but but maybe not if you're willing to comment on that thanks.

Speaker Change: With regards to with regards to the guidance, we are anticipating out or they have to be sequentially up and lasers to be flat to slightly up as well so across the board.

Speaker Change: Seeing.

Speaker Change: <unk> going into Q3 other than the temporary softness in medical.

Speaker Change: Yes, I think.

Speaker Change: Charlie gave you the non optical guide in a moment, but I think yes.

Speaker Change: When we're very happy with that or they are just a fantastic.

Speaker Change: Okay, great. Thanks, a lot.

Speaker Change: Hello.

Speaker Change: Thank you good luck.

Speaker Change: Thank you. Our next question or comment comes from the line of Mike Genovese from Rosenblatt Securities. Mr. <unk>. Your line is open.

Speaker Change:

Mike Genovese: Great. Thanks, I mean, just to clarify something that's been asked a couple of times already.

Speaker Change: We're very excited about that but we're also excited about the other.

Speaker Change: New business wins, we've had.

Speaker Change: Probably won't get a new answer but.

Speaker Change: See I don't want because it's a new product okay. It doesn't ramp straightaway when it does ramp than it is longer.

Speaker Change: So on June.

Mike Genovese: Versus September for so.

Speaker Change: So when we might see.

Speaker Change: Datacom grow again sequentially is it just too early to tell or I mean.

Speaker Change: Our legs, we have it for the life of the product where some of the other ones. It's great to get the wind because you've got a quick infusion of revenue, but if you are ramping.

Speaker Change: Do you have a.

Speaker Change: Do you have a sense, one way or the other whether that would happen in June or September.

Speaker Change: If were ramping in the middle of the product lifecycle, you don't get that full.

Speaker Change: Well I mean, we only guide one quarter at a time, Mike So.

Speaker Change: <unk> run out of the business.

Speaker Change: So we're very happy overall, I wouldn't like to try and try and ranked them ranked them.

Speaker Change: Right now we're guiding one quarter at a time, so we're not going to really go beyond that.

Speaker Change: Trying to tell you which of my children I prefer we love them all.

Speaker Change: We have a we have a sense of when the new products will begin to ramp.

Speaker Change: With regards to the guidance of the guidance then we are anticipating it to be sequentially up and lasers to be flat to slightly up as well so across the board. We are seeing upsides going into Q3 other than the temporary softness in medical.

Speaker Change: But as we've learned the hard way over the year, sometimes new products. They don't launch exactly in line with your expectations and sometimes the launch much quicker than we than we think they're world. So so it's really it's pretty early days, but from a from a from our point of view we're just.

Speaker Change: We're ready to support the customer whenever they are ready to start ramping the product, but I wouldn't want to get into whether it's June or September at this point.

Okay, great. Thanks, a lot.

Speaker Change: Thank you good luck.

Mike Genovese: Thank you. Our next question or comment comes from the line of Mike Genovese from Rosenblatt Securities. Mr. <unk>. Your line is open.

Speaker Change: Okay.

And then I guess you probably.

Speaker Change: Again don't have a view on the overall market, but do.

Great. Thanks, I mean, just to clarify something that's been asked a couple of times already probably.

Speaker Change: Do you think that your results are representative of the overall 800 G market or.

Mike Genovese: Probably won't get a new answer but.

Speaker Change: Yes.

Mike Genovese: So on June.

Speaker Change: Just I mean, obviously you have one customer there.

Mike Genovese: Versus September.

Mike Genovese: So when we might see.

Speaker Change: Do you think the market is maybe doing better than what you guys are showing or or or do you have any idea about that.

Mike Genovese: Datacom grow again sequentially.

Mike Genovese: Is it just too early to tell or.

Speaker Change: I don't really.

Speaker Change: Do you have a.

Speaker Change: We just we just.

Speaker Change: You have a sense, one way or the other whether that would happen in June or September.

Speaker Change: He will go over what the customers need from us.

Speaker Change: I think if you look at 800 gig, let's say data center 800 gig.

Speaker Change: Well I mean, we only guide one quarter at a time, Mike So.

Speaker Change: Right now we're guiding one quarter at a time, so we're not going to really go beyond that.

Speaker Change: The several players there are no. We're one of we think only supplier, let's say producing our customers design as a contract manufacturer, but then there are other merchants merchant suppliers. There. So we don't have visibility to the overall.

Speaker Change: We have a we have a sense of when the new products will begin to ramp.

Speaker Change: As we've learned the hard way over the year, sometimes new products. They don't launch exactly in line with your expectations and sometimes the launch looks much quicker than we and we think that with so so it's really it's pretty early days, but from a from a from our point of view we're just.

If you look at our overall 800 gig and above number in our numbers, but also includes of course.

Telecom products.

Speaker Change: So it's really a mixed bag I don't think we're necessarily representative of the overall industry because of course, we don't have other customers, who don't have all the products.

Speaker Change: Ready to support the customer whenever they are ready to start ramping the product, but I wouldn't want to get into whether it's June or September at this point.

Speaker Change: Okay and then just finally for me if I can sneak one more in.

Speaker Change: And then I guess you probably.

Speaker Change: Is there are you seeing anything with AML.

Speaker Change: Again like don't have a view on the overall market right.

Speaker Change: Particularly 200 G per lane or even 100 G per lane ml being hard to get that having any impact on.

Speaker Change: Do you think that your results are representative of the overall 800 gene market or.

Speaker Change: Yes.

Speaker Change: Just I mean, obviously you have one customer there.

Speaker Change: Either the size or the timing of the of the.

Speaker Change: Do you think the market is maybe doing better than what you guys are showing or or or do you have any idea about that.

Speaker Change: G market going to one six.

Yes, I think there is.

Speaker Change: It's not a secret they're very hard to guess.

Speaker Change: I don't really.

The world needs more <unk> so yes.

Speaker Change: We just we just.

Speaker Change: You will go about what the customers need from us.

One of the component that's in fairly short supply.

Speaker Change: I think if you look at 800 gig, let's say data center 800 gig.

Speaker Change: Okay.

Speaker Change: I would ask one more if I could I'm sure as long as I have you.

Speaker Change: Several players there are no. We're one of only supplier, let's say producing our customers design as a contract manufacturer, but then there are other merchants merchant suppliers. There. So we don't have visibility to the overall if.

Speaker Change: In the beginning of the 800 G. There werent a lot of merchant guys ready yet so you'll start at 800 G.

Speaker Change: Was a lot of share gains for furnace are almost because you guys were the only player in town and the only game in town I guess, one sex everyone is.

Speaker Change: If you look at our overall 800 gig and above number in our numbers, but also includes of course.

Speaker Change: Telecom products.

Speaker Change: It had more of a time to sort of develop on the same timeline, but do you see one second as an opportunity to gain to gain some share or how do you think that that could play out.

Speaker Change: No.

Speaker Change: It's really a mixed bag I don't think we're necessarily representative of the overall industry because of course, we don't have other customers, who don't have all the products.

Speaker Change: Okay and then just finally for me if I can sneak one more in.

Speaker Change: It's hard to say I think it's a little bit different this time around I mean for 800 gig.

Speaker Change: Is there are you seeing anything with AML.

Speaker Change: The products were new to the application was new and I think.

Speaker Change: Particularly 200 G per lane or even 100 G per lane ml being hard to get is that having any impact on.

Speaker Change: We were probably sole source for a period of time until some of the merchant suppliers.

Speaker Change: Either the size or the timing of the.

Speaker Change: Really caught up with the demand I think this time around is different everyone knows the demand is very real plus.

Speaker Change: G market going to one six.

Speaker Change: Yes, I think there.

Speaker Change: The industry I guess I would assume or the merchant guys are working very hard to get there one six.

Speaker Change: It's not a secret they're very hard to guess.

Speaker Change: The world needs more <unk> so yes.

Speaker Change: Offering ready and ready to rollout as well.

Speaker Change: One of the component that's in fairly short supply.

Speaker Change: On 800 gig.

Speaker Change: Okay.

Speaker Change: I think the.

Speaker Change: I would ask one more if I could.

Speaker Change: One of the reasons, we were the sole source of the early days was more to do with just I assume.

Speaker Change: As long as I have you.

Speaker Change: In the beginning of the 800, Jamie there Werent a lot of merchant guys ready yet so.

Speaker Change: Reducing the amount of complexity in the number of variables in the total network I think that's probably still the case, but I think as soon as the merchant suppliers are ready are ready to go.

Speaker Change: 800 G.

Speaker Change: Was a lot of share gains for <unk>.

Speaker Change: Just because you guys were the only player in town the only game in town I guess, one sex everyone is.

Speaker Change: <unk> assumed there'll be in the supply chain fairly quickly.

Speaker Change: So I think one of the.

Speaker Change: Had more of a time to sort of develop on the same timeline, but do you see one second as an opportunity to gain to gain some share or how do you think that that could play out.

Speaker Change: It depends on your perspective, but one of the good things about the delay.

Speaker Change: With launching one six is that everyone is ready to go our customers ready to go the supply basis more ready to go.

I think more supply overall should should see things ramp fairly quickly.

Speaker Change: It's hard to say I think it's a little bit different this time around I mean for 800 gig.

Speaker Change: I appreciate that.

The products when you the application was new and I think.

Speaker Change: Straightforward answers only interesting discussion thanks, so much.

Speaker Change: We were probably sole source for a period of time until some of the merchant suppliers.

Mike Genovese: No problem. Thank you Mike.

Speaker Change: Thank you I'm sure no additional questions in the queue at this time I'd like to turn the conference back over to Mr. <unk> for any closing remarks.

Speaker Change: Really caught up with the demand and I think this time around is different everyone knows the demand is very real plus the industry.

Speaker Change: Thank you for joining our call today, we're excited that our second quarter results again exceeded our guidance to produce record revenue and EPS for the company. We continue to be very optimistic about our future with several tailwind driving our growth in the third quarter and beyond we look forward to speaking with you again and to seeing those of you who will be attending.

Speaker Change: Assume or the merchant guys are working very hard to get there one six.

Speaker Change: Offering ready and ready to rollout as well.

Speaker Change: On 800 gig.

Speaker Change: I think the <unk>.

Speaker Change: One of the reasons, we were the sole source of the early days was more to do with just I assume.

Speaker Change: The Susquehanna Virtual conference later this month Goodbye.

<unk> the amount of complexity in the number of variables in the total network.

Speaker Change: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.

Speaker Change: That's probably still the case, but I think as soon as the merchant suppliers are ready are ready to go.

Speaker Change: They'll be in the supply chain fairly quickly.

Speaker Change: So I think one of the <unk>.

Speaker Change: Then on your perspective, but one of the good things about the delay.

Speaker Change: With launching one six is that everyone is ready to go our customers ready to go to supply basis, we're ready to go.

Speaker Change: So.

Speaker Change: More supply overall should should see things ramp fairly quickly.

Speaker Change: I appreciate that.

Speaker Change: Straightforward answers only interesting discussion thanks, so much.

Mike Genovese: No problem. Thank you Mike.

Speaker Change: Thank you I'm showing no additional questions in the queue at this time I'd like to turn the conference back over to Mr. <unk> for any closing remarks.

Speaker Change: Thank you for joining our call today, we're excited that our second quarter results again exceeded our guidance to produce record revenue and EPS for the company.

Speaker Change: We continue to be very optimistic about our future with several tailwind driving our growth in the third quarter and beyond.

Speaker Change: Look forward to speaking with you again and to seeing those of you who will be attending the Susquehanna Virtual conference later this month goodbye.

Speaker Change: Okay.

Speaker Change: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.

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Speaker Change: [music].

Good afternoon, welcome to Fabry <unk> financial results conference call for the second quarter of fiscal year 2025. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions on how to participate will be provided at that time as a reminder, today's call is being recorded.

I would now like to turn the call over to your host Garo tumor Johnson, Vice President of Investor Relations.

Speaker Change: Thank you operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss <unk> financial and operating results for the second quarter of fiscal year 2025, which ended December 27 2024.

Seamus Grady: With me on the call today are Seamus Grady, Chief Executive Officer, and <unk> Chief Financial Officer.

Seamus Grady: This call is being webcast and a replay will be available on the investors section of our website located at Investor <unk> Com.

Seamus Grady: In addition, today's discussion will contain forward looking statements about the future financial performance of the company.

Seamus Grady: Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations.

Speaker Change: We will begin the call with remarks from Seamus in trauma, followed by time for questions I would now like to turn the call over to <unk> CEO Seamus Grady Seamus.

Seamus Grady: Thank you Carol and good afternoon, and thanks to those of you joining our call today.

Seamus Grady: Our strong business momentum continued in the second quarter and represented a record quarter for both revenue and profitability with growth that exceeded our expectations.

Seamus Grady: Revenue of $834 million was an increase of 17% from a year ago and 4% from Q1.

Seamus Grady: Our team executed well to produce record non-GAAP earnings per share of $2 61.

Seamus Grady: While this is a remarkable performance. We're also very excited to see the positive trends in key areas of our business extending into the third quarter.

Seamus Grady: This reflects both increasing demand in the high growth markets, we serve as well as our ability to further deepen relationships with existing customers and gain additional market share.

Seamus Grady: As a result, we are confident that our strong revenue growth will extend into the third quarter, along with the corresponding increase in profitability.

Seamus Grady: We're excited about these growth trends and have ample capacity to meet our near to medium term requirements and commitments to our customers.

Seamus Grady: That said with our continued growth we will need additional capacity in the future, which is why we are pleased to announce that last month. We broke ground on building 10, New 2 million square foot facility at our Chonburi campus, adding more than 50% to our total footprint.

Seamus Grady: New building will provides us with plenty of capacity to support our anticipated growth over the longer term.

Also reflecting our conference during the second quarter, we repurchased more than one part of our $200 million authorized for share repurchases.

Seamus Grady: Our board just authorized an additional $100 million for share buybacks.

Seamus Grady: While we believe datacom demand could see a slight decrease in the third quarter. We remain confident that datacom revenue trends will improve as next generation technologies at a 1.6 terabyte of data rates begin to ramp later this calendar year.

Seamus Grady: Meanwhile, we were pleased to see telecom revenue perform even better than anticipated in the quarter, increasing 24% from a year ago and 17% sequentially. Our telecom revenue strength was driven primarily by increasing demand for data center interconnect products and great early success with recent telecom system wins were.

Seamus Grady: We're optimistic that this positive trend will extend into the third quarter.

Seamus Grady: Turning to non optical communications, we experienced another healthy performance in automotive with revenue up 32% from a year ago and roughly flat from Q1.

Seamus Grady: Also contributing to our growth in the quarter industrial laser revenue was up 24% from a year ago and 6% from last quarter.

Seamus Grady: In summary, with the confluence of several positive growth drivers ahead of US we are more confident than ever in our business.

Seamus Grady: Collectively we are very optimistic as we look to the third quarter and beyond.

Seamus Grady: Now I will turn the call over to Trevor for more financial details on our second quarter and our guidance for the third quarter of fiscal 2025 chopper.

Seamus Grady: Thank you Seamus and good afternoon, everyone. We had a strong second quarter with revenue and net income per share above our guidance ranges.

Seamus Grady: In the second quarter of about $834 million, an increase of 17% from a year ago and 4% from Q1.

Seamus Grady: non-GAAP EPS was $2 61.

With revenue upside and FX revaluation gain contributing to our results.

Seamus Grady: Details of our revenue breakdown are included in the Investor presentation on our website. So I will focus my comments on some of the more noteworthy highlights.

Seamus Grady: In the second quarter optical communications revenue was $647 million.

Seamus Grady: Up 14% from a year ago and 3% from Q1.

Seamus Grady: Within optical communications Datacom revenue was $299 million or 46% of optical communications revenue, an increase of 4% from a year ago, but a decline of 9% as a major customer transition to next generation products.

Seamus Grady: Telecom revenue of $348 million or 54% of optical communications revenue.

Seamus Grady: Remarkable increase of 24% from a year ago, and 17% from Q1, driven primarily by growth in Dci product and early contributions from <unk> based on business wins.

Seamus Grady: By data rate revenue from 800.

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