Q2 2025 Coherent Corp Earnings Call

February 5, 2025

Paul Silverstein: For the future financial performance of the company. We wish to caution you that such statements or predictions based on information that is currently available and that actual results may differ materially. We refer you to the documents that the company files with the SEC, including our 10-Ks, 10-Qs, and 8-Ks. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This call includes and constitutes the company's official guidance for Q3 of fiscal 2025. If at any time after this call we communicate any material changes to this guidance, we intend that such updates will be done using a public forum such as a press release or publicly announced conference call. We will refer to both GAAP and non-GAAP financial measures during this call.

We wish to caution you that such statements are predictions based on information that is currently available and that actual results may differ materially.

For you to the documents that the company files with the SEC.

Including our 10, Ks 10, Qs and eight Ks. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward looking statements.

Paul Silverstein: This call includes and constitutes the company's official guidance for Q3 of fiscal 2025. If at any time after this call we communicate any material changes to this guidance, we intend that such updates will be done using a public forum such as a press release or publicly announced conference call. We will refer to both GAAP and non-GAAP financial measures during this call.

This call includes and constitutes the company's official guidance for the third quarter fiscal 2025.

If at any time after this call we communicate any material changes to this guidance.

And that such updates will be done using a public forums, such as a press release or publicly announced conference call. We will refer to both GAAP and non-GAAP financial measures. During this call by disclosing certain non-GAAP information management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends or historic.

Paul Silverstein: By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends. For historical periods, we provided reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found on the investor relations section of our website at coherent.com. Let me now turn the call over to our CEO, Jim Anderson.

Speaker Change: Periods, we provided reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found on the Investor Relations section of our website at <unk> Dot Com, Let me now turn the call over to our CEO Jim Anderson.

Jim Anderson: Thank you, Paul, and thank you everyone for joining today's call. I'd like to start by thanking my Coherent teammates for the strong execution in our fiscal Q2 and the continued focus and great progress on driving market-leading innovation. For our fiscal Q2, revenue increased by approximately 6% sequentially and 27% year-over-year to a record $1.43 billion. This was driven by growth in multiple areas, including strong AI-related Datacom transceiver growth, a second quarter of sequential growth in our Telecom revenue, and sequential growth across multiple key industrial end markets. As I mentioned when I first joined the company, in addition to growing the top line, expansion in our gross margin would be a strategic focus area for the company, driven by parallel initiatives on both pricing optimization as well as product cost improvements.

Jim Anderson: Thank you Paul and thank you everyone for joining today's call I'd like to start by thanking my coherent teammates for the strong execution in our fiscal second quarter and the continued focus and great progress on driving market leading innovation.

Jim Anderson: For our fiscal second quarter revenue increased by approximately 6% sequentially and 27% year over year to a record $1 43 billion.

Jim Anderson: This was driven by growth in multiple areas, including strong AI-related Datacom transceiver growth, a second quarter of sequential growth in our Telecom revenue, and sequential growth across multiple key industrial end markets. As I mentioned when I first joined the company, in addition to growing the top line, expansion in our gross margin would be a strategic focus area for the company, driven by parallel initiatives on both pricing optimization as well as product cost improvements.

Jim Anderson: This was driven by growth in multiple areas, including strong AI related Datacom transceiver growth, our second quarter of sequential growth in our telecom revenue and sequential growth across multiple key industrial end markets.

Jim Anderson: As I mentioned when I first joined the company. In addition to growing the top line expansion in our gross margin would be a strategic focus area for the company driven by parallel initiatives on both pricing optimization as well as product cost improvements.

Jim Anderson: During our fiscal Q2, we made solid progress towards our goal of achieving durable company-wide gross margin of over 40%. Q2 non-GAAP gross margin of 38.2% marked strong improvement on both a sequential and year-over-year basis. While we have a lot more work to do on gross margin, I'm pleased with the team's focus and progress in this area. While we continue to invest in strategic R&D to fuel the long-term growth of the company, we remain focused on driving greater operational leverage and efficiency across the company. With revenue growth, gross margin expansion, and disciplined OpEx management, we drove significant expansion and profitability in Q2, with non-GAAP EPS growing over 40% sequentially and more than tripling on a year-over-year basis. Again, we have much more work ahead of us, but we remain focused on driving long-term shareholder value.

Jim Anderson: During our fiscal second quarter, we made solid progress towards our goal of achieving durable companywide gross margin of over 40% Q2, non-GAAP gross margin of 38, 2% Mark strong improvement on both a sequential and year over year basis.

Jim Anderson: While we have a lot more work to do on gross margin I am pleased with the team's focus and progress in this area.

Jim Anderson: While we continue to invest in strategic R&D to fuel the long term growth of the company, we remain focused on driving greater operational leverage and efficiency across the company with.

Jim Anderson: With revenue growth, gross margin expansion, and disciplined OpEx management, we drove significant expansion and profitability in Q2, with non-GAAP EPS growing over 40% sequentially and more than tripling on a year-over-year basis. Again, we have much more work ahead of us, but we remain focused on driving long-term shareholder value.

Jim Anderson: With revenue growth gross margin expansion and disciplined Opex management, we drove significant expansion in profitability in Q2, with non-GAAP EPS growing over 40% sequentially and more than tripling on a year over year basis again, we have much more work ahead of us, but we remain focused on driving long term shareholder.

Jim Anderson: Their value.

Jim Anderson: Let me shift gears and share some thoughts on our products and end markets. Starting with our data center and communications market, Q2 revenue increased 6% sequentially and by 58% year-over-year. The sequential and year-over-year increases were driven by another strong quarter of growth in our Datacom revenue and a second quarter of sequential growth in our Telecom revenue. We achieved record Q2 Datacom revenue, which grew 4% sequentially and by 79% year-over-year due to ongoing strong AI data center demand. We continue to see expansion in the number of customers adopting and ramping our 800G transceivers. In addition, revenue from our 400G and below transceivers remains strong. We also continue to make solid progress on our 1.6T transceiver products as we move through key engineering milestones with our customers.

Jim Anderson: Let me shift gears and share some thoughts on our products and end markets.

Jim Anderson: Starting with our data center and communications market Q2 revenue increased 6% sequentially and by 58% year over year, the sequential and year over year increases were driven by another strong quarter of growth in our datacom revenue in the second quarter of sequential growth in our telecom revenue.

Jim Anderson: We achieved record Q2 Datacom revenue, which grew 4% sequentially and by 79% year-over-year due to ongoing strong AI data center demand. We continue to see expansion in the number of customers adopting and ramping our 800G transceivers. In addition, revenue from our 400G and below transceivers remains strong. We also continue to make solid progress on our 1.6T transceiver products as we move through key engineering milestones with our customers.

Jim Anderson: We achieved record Q2, Datacom revenue, which grew 4% sequentially and by 79% year over year due to ongoing strong AI data center demand.

Jim Anderson: We continue to see expansion in the number of customers adopting and ramping our 800 gig Transceivers and in addition revenue from our 400 gig and below Transceivers remains strong.

Jim Anderson: We also continue to make solid progress on our one <unk> transceiver products as we move through key engineering milestones with our customers. After delivering initial samples of our 116 Datacom transceivers to customers last year, we remain on track to begin ramping sales in calendar 2025, and we are seeing continue.

Jim Anderson: After delivering initial samples of our 1.6T Datacom transceivers to customers last year, we remain on track to begin ramping sales in calendar 2025, and we are seeing continued expansion of our customer engagements on 1.6T. Even as we focus on the 1.6T ramp, we are investing in innovating for the future. We are both developing our 3.2T transceivers and investing in the key ingredient technologies that underlie our transceiver roadmap and that can support a variety of form factors of optical data transmission. We have the broadest and deepest portfolio in the industry of photonic technologies required for high-speed optical data transmission. Our customers view our technology portfolio as an important competitive advantage of Coherent in optical data transmission applications.

Jim Anderson: Expansion of our customer engagements on 160.

Jim Anderson: Even as we focus on the $1 60 ramp we are investing and innovating for the future we.

Jim Anderson: We are both developing our 3.2T transceivers and investing in the key ingredient technologies that underlie our transceiver roadmap and that can support a variety of form factors of optical data transmission. We have the broadest and deepest portfolio in the industry of photonic technologies required for high-speed optical data transmission. Our customers view our technology portfolio as an important competitive advantage of Coherent in optical data transmission applications.

Jim Anderson: We are both developing our $3 <unk> transceivers and investing in the key ingredient technologies that underlie our transceiver roadmap and that can support a variety of form factors of optical data transmission.

Jim Anderson: We have the broadest and deepest portfolio in the industry of photonic technologies required for high speed optical data transmission, our customers view, our technology portfolio as an important competitive advantage of coherent and optical data transmission applications.

Jim Anderson: For example, one of the key capabilities that we've had in-house for over 20 years is our Indium Phosphide platform, which is the key technology behind our EML and CW lasers. The US government recently announced plans to use CHIPS Act funding to help with the expansion of Indium Phosphide capacity at our Sherman, Texas facility. In our fiscal Q2, our Indium Phosphide production output tripled on a year-over-year basis. This enabled rapid year-over-year growth in our 800G transceiver products, some of which are EML based, and some of which are based on CW lasers combined with our silicon photonics solution. We expect to continue to expand our Indium Phosphide capacity over the coming quarters to support our long-term growth in both EML and CW laser capacity.

Jim Anderson: For example, one of the key capabilities that we've had in house for over 20 years is our indium phosphide platform, which is the key technology behind our ml and CW lasers.

Jim Anderson: The U S government recently announced plans to use chips act funding to help with the expansion of indium phosphide capacity at our Sherman, Texas facility and.

Jim Anderson: In our fiscal Q2, our indium phosphide production output tripled on a year over year basis. This enabled rapid year over year growth in our 800 gig transceiver products some of which are <unk> based and some of which are based on CW lasers combined with our silicon photonics solution we.

Jim Anderson: This enabled rapid year-over-year growth in our 800G transceiver products, some of which are EML based, and some of which are based on CW lasers combined with our silicon photonics solution. We expect to continue to expand our Indium Phosphide capacity over the coming quarters to support our long-term growth in both EML and CW laser capacity.

Jim Anderson: We expect to continue to expand our indium phosphide capacity over the coming quarters to support our long term growth in both email and CW laser capacity.

Jim Anderson: We also continue to execute on a roadmap of important ingredient laser technologies, such as our 200G differential EMLs, 200G VCSELs, and high-power CW lasers for our silicon photonic solutions. In addition to our key laser technologies, we are investing and innovating across a broad spectrum of important enabling technologies for our optical data transmission, including optical lens arrays, garnet, isolators, micro-optics, and thermal management solutions. Beyond transceivers and ingredient technologies, our new data center optical circuit switch, or OCS platform, is progressing well and our customer engagements are expanding. This platform enables significant expansion in our data center addressable market, and I'm very pleased to announce that in Q2, we received our first customer order for this differentiated new platform. Unlike other mechanical MEMS-based solutions, our platform uses field-proven digital liquid crystal technology that provides tremendous advantages to our customers.

Jim Anderson: We also continue to execute on our roadmap of important ingredient laser technologies, such as our 200 gig differentially emails 200 gig VIX holes and high power CW lasers for our Silicon Photonics solutions.

Jim Anderson: In addition to our key laser technologies, we're investing and innovating across a broad spectrum of important enabling technologies for our optical data transmission, including optical lens arrays, Garnet isolator micro optics and thermal management solutions.

Jim Anderson: Beyond transceivers and ingredient technologies, our new data center optical circuit switch, or OCS platform, is progressing well and our customer engagements are expanding. This platform enables significant expansion in our data center addressable market, and I'm very pleased to announce that in Q2, we received our first customer order for this differentiated new platform. Unlike other mechanical MEMS-based solutions, our platform uses field-proven digital liquid crystal technology that provides tremendous advantages to our customers.

Jim Anderson: Beyond Transceivers and ingredient technologies, our new data center optical circuit switch or Ocs platform is progressing well and our customer engagements are expanding this platform enables significant expansion in our datacenter addressable market and I'm very pleased to announce that in Q2, we received our first customer order for this <unk>.

Jim Anderson: <unk> <unk> platform.

Jim Anderson: <unk> other mechanical Mems based solutions our platform uses field proven digital liquid crystal technology that provides tremendous advantages to our customers.

Jim Anderson: We expect initial OCS revenue in calendar 2025, and we'll share more details about this innovative product and its revenue potential over the course of the coming quarters. In telecom, our Q2 revenue increased by 16% sequentially and by 11% year-over-year. Q2 is the second quarter in a row of sequential improvement. Revenue growth in Q2 was driven primarily by data center interconnect, with some improvement in the traditional transport market as well. We saw a continued growth in the ramp of new products, including our 100G, 400G, and 800G ZR+ coherent transceivers, and expect these products to continue to ramp over the coming quarters. In our remaining markets, which are primarily industrial-related applications, aggregate revenue increased 7% sequentially and was flat year-over-year. We saw sequential growth across multiple industrial end markets.

Jim Anderson: We expect initial ocs revenue in calendar 2025, and we will share more details about this innovative product in its revenue potential over the course of the coming quarters.

Jim Anderson: In telecom, our Q2 revenue increased by 16% sequentially and by 11% year over year Q2 is the second quarter in a row of sequential improvement.

Jim Anderson: <unk> growth in Q2 was driven primarily by datacenter interconnect with some improvement in the traditional transport market as well.

Jim Anderson: We saw a continued growth in the ramp of new products, including our 100G, 400G, and 800G ZR+ coherent transceivers, and expect these products to continue to ramp over the coming quarters. In our remaining markets, which are primarily industrial-related applications, aggregate revenue increased 7% sequentially and was flat year-over-year. We saw sequential growth across multiple industrial end markets.

Jim Anderson: We saw continued growth in the ramp of new products, including our 100 gig 400 gig and 800 gig ZR ZR plus coherent transceivers and expect these products to continue to ramp over the coming quarters.

Jim Anderson: In our remaining markets, which are primarily industrial related applications aggregate revenue increased 7% sequentially and was flat year over year, we saw sequential growth across multiple industrial end markets in particular display capital equipment grew on both a sequential and year over year basis.

Jim Anderson: In particular, display capital equipment grew on both a sequential and year-over-year basis. Ongoing display strength is being driven by demand for our highly differentiated excimer lasers for OLED screen manufacturing, resulting from expanding OLED adoption in smartphones and the beginning of OLED adoption in larger format devices like new laptop and tablet computers. We also saw a healthy sequential and year-over-year growth in the semi cap equipment market, where our lasers and advanced materials are critical enabling technologies for our customers. While we are still taking a cautious near-term outlook on the broad-based industrial end markets, we expect the industrial market to be an important long-term secular growth driver for the company as the broader end markets eventually recover and as our new products continue to ramp. Before wrapping up, I'd also like to provide a brief update on our strategic portfolio optimization.

Jim Anderson: Ongoing display strength is being driven by demand for our highly differentiated excimer lasers for OLED screen manufacturing, resulting from expanding OLED adoption in smartphones and the beginning of OLED adoption in larger format devices like new laptop and tablet computers.

Jim Anderson: We also saw a healthy sequential and year over year growth in the semi cap equipment market, where our lasers and advanced materials are critical enabling technologies for our customers.

Jim Anderson: While we are still taking a cautious near-term outlook on the broad-based industrial end markets, we expect the industrial market to be an important long-term secular growth driver for the company as the broader end markets eventually recover and as our new products continue to ramp. Before wrapping up, I'd also like to provide a brief update on our strategic portfolio optimization.

Jim Anderson: While we are still taking a cautious near term outlook on the broad based industrial end markets. We expect the industrial market to be important long term secular growth driver for the company as a broader end markets eventually recover and as our new products continue to ramp.

Jim Anderson: Before wrapping up I'd also like to provide a brief update on our strategic portfolio optimization.

Jim Anderson: We've made good progress on implementing the strategic portfolio assessment that we completed in the September quarter. As part of the process of divesting or shutting down product lines and assets that are non-strategic, we announced in December that we are evaluating strategic alternatives for our advanced lithium-ion battery recycling technology. This announcement follows the sale of our Newton Aycliffe facility and our announcement that we are evaluating strategic alternatives for our lithium-sulfur battery platform, as well as other portfolio optimization activities that are well underway. As we optimize our portfolio over the coming quarters, we'll provide further updates, including at our upcoming Investor Day this May. In summary, I'm very pleased with the progress we made in our fiscal Q2. While some near-term softness persists in our industrial-related end markets, we expect fiscal 2025 overall to be a strong growth year for the company.

Jim Anderson: We've made good progress on implementing the strategic portfolio assessment that we completed in the September quarter.

Jim Anderson: Part of the process of divesting or shutting down product lines and assets that are non strategic we announced in December that we are evaluating strategic alternatives for our advanced lithium ion battery recycling technology.

Jim Anderson: This announcement follows the sale of our Newton Aycliffe facility and our announcement that we are evaluating strategic alternatives for our lithium sulfur battery platform.

Jim Anderson: As well as other portfolio optimization activities that are well underway.

Jim Anderson: As we optimize our portfolio over the coming quarters, we'll provide further updates, including at our upcoming Investor Day this May. In summary, I'm very pleased with the progress we made in our fiscal Q2. While some near-term softness persists in our industrial-related end markets, we expect fiscal 2025 overall to be a strong growth year for the company. I'll now turn the call over to our CFO, Sherri Luther.

Jim Anderson: As we optimize our portfolio over the coming quarters, we will provide further updates including at our upcoming Investor day. This may.

Jim Anderson: In summary, I'm very pleased with the progress we've made in our fiscal second quarter, while some near term softness persists in our industrial related end markets. We expect fiscal 2025 overall to be a strong growth year for the company.

Jim Anderson: I'll now turn the call over to our CFO, Sherri Luther.

Jim Anderson: I will now turn the call over to our CFO Sherri Luther.

Sherri Luther: Thank you, Jim. In Q2, we drove continued sequential improvement in our financial results with strong revenue growth and gross margin expansion, driving strong profitability. In addition, we strengthened the balance sheet by paying down $132 million in debt. Now I will provide a summary of our results. Q2 revenue was a record $1.43 billion, an increase of approximately 6% sequentially and 27% year over year. From a segment perspective, networking revenue increased 7% sequentially and 56% year over year, driven by ongoing strong AI data center demand and the continued recovery in telecom. Laser segment revenue increased 8% sequentially and 6% year over year, driven primarily by demand for our excimer annealing lasers in our display capital equipment business, as well as strong demand in semiconductor capital equipment.

Sherri Luther: Thank you Tim and the second quarter, we drove continued sequential improvement in our financial results with strong revenue growth and gross margin expansion driving strong profitability.

Sherri Luther: In addition, we strengthened the balance sheet by paying down $132 million in debt.

Sherri Luther: Now I will provide a summary of our results.

Sherri Luther: Second quarter revenue was a record $1 43 billion, an increase of approximately 6% sequentially and 27% year over year.

Sherri Luther: From a segment perspective, networking revenue increased 7% sequentially and 56% year over year, driven by ongoing strong AI data center demand and the continued recovery in telecom. Laser segment revenue increased 8% sequentially and 6% year over year, driven primarily by demand for our excimer annealing lasers in our display capital equipment business, as well as strong demand in semiconductor capital equipment.

From a segment perspective networking revenue increased 7% sequentially and 56% year over year, driven by ongoing strong AI data center demand and the continued recovery in telecom.

Sherri Luther: Laser segment revenue increased 8% sequentially and 6% year over year, driven primarily by demand for our excimer annealing lasers, and our display capital equipment business as well as strong demand in semi cap equipment.

Sherri Luther: The materials segment revenue increased 3% sequentially and decreased 4% year-over-year. The year-over-year decrease was primarily due to weak automotive end market demand. Our Q2 non-GAAP gross margin was 38.2%, an increase of 146 basis points compared to the prior quarter, and an increase of 363 basis points compared to the year-ago quarter. The improvements in gross margin were driven by higher revenue volume as well as cost reductions and improvements in manufacturing yields, offset somewhat by unfavorable product mix. Q2 non-GAAP operating expenses were $283 million, compared to $278 million in the prior quarter and $239 million in the year-ago quarter. The sequential and year-over-year increases were primarily driven by increased R&D investments in our product portfolio.

Sherri Luther: The materials segment revenue increased 3% sequentially and decreased 4% year over year the.

Sherri Luther: The year over year decrease was primarily due to weak automotive end market demand.

Sherri Luther: Our second quarter non-GAAP gross margin was 38, 2% an increase of 146 basis points compared to the prior quarter and an increase of 363 basis points compared to the year ago quarter.

Sherri Luther: The improvements in gross margin were driven by higher revenue volume as well as cost reductions and improvements in manufacturing yields, offset somewhat by unfavorable product mix. Q2 non-GAAP operating expenses were $283 million, compared to $278 million in the prior quarter and $239 million in the year-ago quarter. The sequential and year-over-year increases were primarily driven by increased R&D investments in our product portfolio.

Sherri Luther: The improvement in gross margin were driven by higher revenue volume as well as cost reductions and improvement in manufacturing yields offset somewhat by unfavorable product mix.

Sherri Luther: Second quarter, non-GAAP operating expenses were $283 million compared to $278 million in the prior quarter and $239 million in the year ago quarter.

Sherri Luther: The sequential and year over year increases were primarily driven by increased R&D investments in our product portfolio.

Sherri Luther: SG&A decreased sequentially as a result of our disciplined approach to managing our SG&A expenses while ensuring that we invest in our product portfolio. Our Q2 non-GAAP operating margin was 18.5% compared to 16.1% in the prior quarter and 13.5% in the year-ago quarter. Q2 non-GAAP tax rate was 17.4% compared to 20% in the prior quarter due to the distribution of income earned across the jurisdictions as well as non-recurring one-time items. Q2 non-GAAP earnings per diluted share was $0.95 compared to $0.67 in the prior quarter and $0.27 in the year-ago quarter. We paid down $132 million in debt during the quarter using cash from operations. I will turn now to our guidance for Q3 of fiscal 2025.

Sherri Luther: SG&A decreased sequentially as a result of our disciplined approach to managing our SG&A expenses, while ensuring that we invest in our product portfolio.

Sherri Luther: Our second quarter non-GAAP operating margin was 18, 5% compared to 16, 1% in the prior quarter and 13, 5% in the year ago quarter.

Sherri Luther: Second quarter non-GAAP tax rate was 17, 4% compared to 20% in the prior quarter due to the distribution of income earned across the jurisdictions as well as nonrecurring onetime items.

Sherri Luther: Q2 non-GAAP earnings per diluted share was $0.95 compared to $0.67 in the prior quarter and $0.27 in the year-ago quarter. We paid down $132 million in debt during the quarter using cash from operations. I will turn now to our guidance for Q3 of fiscal 2025.

Sherri Luther: Okay.

Sherri Luther: Second quarter non-GAAP earnings per diluted share with 95 compared to 67 in the prior quarter and 27 in the year ago quarter.

Sherri Luther: We paid down $132 million in debt during the quarter using cash from operations.

Sherri Luther: I will turn now to our guidance for the third quarter of fiscal 2025.

Sherri Luther: We expect revenue to be between $1.39 billion and $1.48 billion. We expect non-GAAP gross margin to be between 37% and 39%. We expect total operating expenses of between $285 million and $305 million on a non-GAAP basis. We expect the tax rate for the quarter to be between 17% and 19% on a non-GAAP basis. We expect EPS of between $0.75 and $0.95 on a non-GAAP basis. In summary, I am very pleased with our progress in the quarter. We will continue to focus on improving profitability through gross margin expansion as well as operational efficiency. It is important that we make investments for the long-term growth of the company while driving operating leverage and efficiency.

Sherri Luther: We expect revenue to be between $1 39 billion and $1 $4 8 billion.

Sherri Luther: We expect non-GAAP gross margin to be between 37% and 39%.

Sherri Luther: We expect total operating expenses of between $285 million and $305 million on a non-GAAP basis.

Sherri Luther: We expect the tax rate for the quarter to be between 17% and 19% on a non-GAAP basis.

Sherri Luther: We expect EPS of between $0.75 and $0.95 on a non-GAAP basis. In summary, I am very pleased with our progress in the quarter. We will continue to focus on improving profitability through gross margin expansion as well as operational efficiency. It is important that we make investments for the long-term growth of the company while driving operating leverage and efficiency.

Sherri Luther: We expect EPS of between 75 and 95 on a non-GAAP basis.

Sherri Luther: In summary, I am very pleased with our progress in the quarter, we will continue to focus on improving profitability through gross margin expansion as well as operational efficiency. It.

Sherri Luther: It is important that we make investments for the long term growth of the company, while driving operating leverage and efficiency cash.

Sherri Luther: Cash and capital allocation will continue to be a key focus areas to further strengthen and deleverage our balance sheet. As a reminder, we will host an investor and analyst day in New York on 28 May at the New York Stock Exchange. At that event, we will outline our overall strategy, including our end market growth opportunities, product and technology roadmap, and long-term financial model. That concludes my formal comments. Operator, please open the call for Q&A.

Sherri Luther: Cash and capital allocation will continue to be a key focus areas to further strengthen and deleverage our balance sheet.

Sherri Luther: As a reminder, we will host an investor and analyst day in New York on May 28 at the New York Stock exchange at that event, we will outline our overall strategy, including our end market growth opportunities product and technology roadmap and long term financial model.

Sherri Luther: That concludes my formal comments.

Sherri Luther: Operator, please open the call for Q&A.

Operator: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from the line of Samik Chatterjee with J.P. Morgan. Please proceed.

Sherri Luther: Thank you.

Speaker Change: Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue you.

Sherri Luther: You May press Star two if you would like to remove your question from the queue.

Sherri Luther: For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

Sherri Luther: One moment, please while we poll for questions.

Speaker Change: Our first question comes from the line of semi Chatterji with J P. Morgan. Please proceed.

Samik Chatterjee: Yep. Hi, and thanks for taking my questions. Well, and congrats on the strong results here. I guess, Jim, I wanted to get your thoughts firstly on the telecom market. You've been up sequentially in that end market now for two quarters, but I think last quarter also, you were sounding a bit more cautious relative to your outlook for that market. So if you can just share with sort of this second sequential quarter of growth, has your outlook for in terms of sustainability of that improvement changed? What are you hearing from your customers on that front? Or are you still sort of cautious in terms of the pace of improvement here? I have a quick follow-up after that. Thank you.

semi Chatterji: Hi, Thanks for taking my questions.

semi Chatterji: And congrats on the strong results here I guess.

semi Chatterji: Jim I wanted to get your thoughts firstly on the telecom market.

<unk> been up sequentially in that.

semi Chatterji: Marketing off of two quarters, but I think last quarter.

semi Chatterji: So you were sounding a bit more cautious relative to your outlook for that market. So if you can share with sort of the second sequential quarter of growth is your outlook for.

Samik Chatterjee: So if you can just share with sort of this second sequential quarter of growth, has your outlook for in terms of sustainability of that improvement changed? What are you hearing from your customers on that front? Or are you still sort of cautious in terms of the pace of improvement here? I have a quick follow-up after that. Thank you.

semi Chatterji: In terms of sustainability of that improvement is how does that change what you're hearing from your customers on that front or are you still sort of cautious in terms of the pace of improvement and I have a quick follow up for that thank you.

Jim Anderson: Yeah, thanks for the question, Samik. I think our view is we've moved from cautious to cautiously optimistic. We were really pleased with the results that we saw in Telecom in our fiscal Q2. You know, the 16% sequential growth and 11% year-over-year growth in fiscal Q2. As you noted, that was the second quarter of sequential growth, and we are expecting the Telecom revenue to be up again sequentially in our fiscal Q3. Given all of that, we are cautiously optimistic that we've moved beyond the bottom of the valley in terms of the Telecom recovery and demand, and we're on the upslope within that market.

semi Chatterji: Yes. Thanks for the question <unk> I think our view is we moved from cautious to cautiously optimistic.

semi Chatterji: We're really pleased with the.

semi Chatterji: Results that we saw in telecom in our fiscal Q2.

semi Chatterji: The 16% sequential growth and 11% year over year growth in fiscal Q2. As you noted that was the second quarter of sequential growth and we are expecting the telecom revenue to be up again sequentially in our fiscal Q3. So given all of that we are we are cautiously optimistic that we have.

Jim Anderson: As you noted, that was the second quarter of sequential growth, and we are expecting the Telecom revenue to be up again sequentially in our fiscal Q3. Given all of that, we are cautiously optimistic that we've moved beyond the bottom of the valley in terms of the Telecom recovery and demand, and we're on the upslope within that market.

semi Chatterji: Moving beyond the bottom of the valley in terms of the telecom recovery in demand and we are on the on the up slope within that market and maybe just a little bit more commentary on what drove the sequential growth that we saw in fiscal Q2 is one of the main drivers was growth in datacenter interconnect and we.

Jim Anderson: Maybe just a little bit more commentary on what drove the sequential growth that we saw in fiscal Q2. One of the main drivers was growth in data center interconnect, and we expect that growth to continue into the current quarter. We also saw improvement in the traditional telecom transport market, which we view the sequential improvement as a really positive indicator for the overall underlying market health. We were really pleased with the continued ramp of our new products as well. Our 100G, 400G, and 800G ZR+ coherent transceivers ramping nicely. We expect that to continue over the coming quarters as well. Yeah, quite pleased with the telecom results and looking forward to another sequential improvement in the current quarter.

semi Chatterji: Expect that growth to continue into the current quarter. We also saw improvement in kind of traditional telecom transport market, which we view that.

semi Chatterji: Sequential improvement is a really positive indicator for the the overall underlying market health and then we were really pleased with the continued ramp of our new products as well sure. Our 100 gig 400 gig and 800 gig ZR ZR plus <unk>.

Jim Anderson: We were really pleased with the continued ramp of our new products as well. Our 100G, 400G, and 800G ZR+ coherent transceivers ramping nicely. We expect that to continue over the coming quarters as well. Yeah, quite pleased with the telecom results and looking forward to another sequential improvement in the current quarter.

semi Chatterji: Coherent transceivers ramping nicely and we expect that to continue over the coming quarters as well. So yes quite pleased with the telecom results and looking forward to another sequential improvement in the current quarter.

Samik Chatterjee: Got it. For my follow-up, the OCS first orders that you're highlighting, that's an exciting announcement. Just if you can give us a bit more color in terms of how to think about the addressable opportunity here. I know you've said probably the revenues are in calendar 2025, but just how to think about the pace of the ramp with the customer and how material it'll be in calendar 2025 and what the longer-term opportunity there could be.

Speaker Change: Got it got it and for my follow up.

semi Chatterji: Ocs.

Speaker Change: First are those bedroom highlighting that's an exciting announcement just if you can give us a bit more color in terms of how to think about the addressable opportunity here.

Speaker Change: <unk> said, probably the revenues are and got into quantify but just how to think about the pace of the ramp with.

Speaker Change: With the customer.

Speaker Change: But do you really.

Speaker Change: We got into 'twenty, five and what the longer term opportunity there could be.

Jim Anderson: Thanks, Samik. Yeah, really happy to talk about this product line. I love the differentiated technology in this product line. In fact, this was when I first joined the company. I guess that's about 8 months ago. This is one of the product lines that the team showed me early on, and when they explained to me the technology differentiation, I was quite impressed, and we've since increased R&D investment in this area to expand and accelerate the roadmap on this technology. Really pleased with the progress here.

Speaker Change: Thanks, Amy, Yes, really happy to talk about this product line I love the differentiated technology in this product line. In fact this was when I first joined the company.

Speaker Change: I guess thats about eight months ago. This is one of the product lines that the team showed me early on.

Speaker Change: And when they explain to me the technology differentiation over this I was quite impressed and we have since increased R&D investment in this area.

Speaker Change: Spanned and accelerate the roadmap on this technology really really pleased with our progress here maybe just.

Jim Anderson: Maybe just to explain what OCS does for the customer is rather than when they're transmitting data from one computing node to the other computing node, rather than having to go through an electrical switch and switch the data from the optical domain into the electrical domain by using an optical circuit switch, they're able to keep the signal in the optical domain through the transit from one computing node to the other computing node. That has great latency and power efficiency advantages. That's the advantage of OCS. For our platform in particular, it's a non-mechanical technology. It's based on digital liquid crystal technology that is much, much higher reliability than the other solutions that are out there that are essentially mechanical-based and based on MEMS-based solutions.

Speaker Change: Explain what what Ocs does for the customer is rather than when they're transmitting data from one computer node to the other computing nodes rather than having to go through an electrical switch and switch the data from the optical domain into the electrical domain by using an optical circuit switch, they're able to keep the signal in the optic.

Speaker Change: <unk> domain through the transit from one computer node to the other.

Jim Anderson: That has great latency and power efficiency advantages. That's the advantage of OCS. For our platform in particular, it's a non-mechanical technology. It's based on digital liquid crystal technology that is much, much higher reliability than the other solutions that are out there that are essentially mechanical-based and based on MEMS-based solutions.

Beauty: Beauty noted that has great latency and power efficiency advantages. So that's that's the advantage of Ocs and then for our platform in particular.

Beauty: A non mechanical technology, it's based on digital liquid Crystal technology that is much much higher reliability than the other solutions that are out there that are essentially mechanical based and based on Mems Mems based solutions and so we have very differentiated technology.

Jim Anderson: We have very differentiated technology. We're seeing really good customer engagement and momentum here. We're really pleased to get the first customer order in our fiscal Q2. On the revenue ramp, our view remains that the revenue. We should start to see first revenue in this current calendar year. We'll probably give better, you know, quantification of that as we move throughout the year. I think, given that we would start to see revenue this year, it would be more of a contributor in, you know, calendar 2026 and 2027 and beyond. In terms of the addressable market, we'll probably talk about that more at our Investor Day in May.

Beauty: We're seeing really good customer engagement and momentum here, we were really pleased to get the first customer order in our fiscal Q2.

Beauty: The revenue ramp we remain.

Our view remains that the revenue we should start to see first revenue in this current calendar year will probably give better quantification of that as we move throughout the year, but I think given that we would start to see revenue. This year will be more of a contributor.

Jim Anderson: We'll probably give better, you know, quantification of that as we move throughout the year. I think, given that we would start to see revenue this year, it would be more of a contributor in, you know, calendar 2026 and 2027 and beyond. In terms of the addressable market, we'll probably talk about that more at our Investor Day in May. We'll give a better quantification of the revenue and market opportunity when we talk at our Investor Day in May. Yeah, really pleased with the progress on this product.

Beauty: <unk>.

Beauty: Calendar 'twenty six 'twenty seven and beyond.

Beauty: And in terms of the addressable market will probably.

Beauty: Talk about that more at our Investor day in May we will we'll give a better quantification of the revenue and market opportunity when we talked at our Investor day in May, but really really pleased with progress on this product.

Jim Anderson: We'll give a better quantification of the revenue and market opportunity when we talk at our Investor Day in May. Yeah, really pleased with the progress on this product.

Samik Chatterjee: Got it. Great. Thank you. Thanks for taking my questions.

Beauty: Got it okay. Thank you thanks for taking my questions.

Operator: Our next question comes from the line of Simon Leopold with Raymond James. Please proceed.

Speaker Change: Our next question comes from the line of Simon Leopold with Raymond James. Please proceed.

Simon Leopold: Thanks for taking the question. I wanted to discuss the topic of co-packaged optics or CPO. Given that the noise level on this has definitely increased recently, how does Coherent envision this technology affecting its business in both the intermediate term as well as the long term? Thanks.

Simon Leopold: Thanks for taking the question I wanted to.

Scott: This is Scott.

Simon Leopold: <unk> of co package Opex or CPO.

Speaker Change: Given that the noise level on this has definitely increased recently, how does coherent envision this technology affecting its business in both the intermediate term as well as the long term.

Jim Anderson: Yeah. Thanks, Simon, and thanks for asking the question. Maybe to answer the question, what I'll do is I'll break it into two parts. Let me first just talk about our view of the market evolution, how we expect the market to evolve over the coming years and co-packaged optics place within that market evolution. Then I'll come back to the other part of your question, which is, you know, what is Coherent's opportunity within that landscape? If I start with the first part just on the market evolution. So first of all, you know, we believe that the TAM for optical networking in the data center that we're gonna see robust growth over the coming years and over the long term. That's really driven by two things.

Simon Leopold: Yes, Thanks, Simon and thanks for asking the question and maybe to answer the question what I'll do is I'll break it into two parts is let me first just talk about our view of the market evolution, how we expect the market to evolve over the coming years.

Simon Leopold: <unk> co packaged optics place within that market evolution, and then I'll come back to the other part of your question, which is what is what is coherence opportunity within that landscape, but if I start with the first part just on the market evolution. So first of all we believe that the Tam for optical networking and the data center.

Jim Anderson: Then I'll come back to the other part of your question, which is, you know, what is Coherent's opportunity within that landscape? If I start with the first part just on the market evolution. So first of all, you know, we believe that the TAM for optical networking in the data center that we're gonna see robust growth over the coming years and over the long term. That's really driven by two things.

Simon Leopold: Then we're going to see robust growth over the coming years and over the long term and that's really driven by by two things number. One is just the raw bandwidth increase thats required to support the computing capacity <unk>.

Jim Anderson: Number one is just the raw bandwidth increase that's required to support the computing capacity expansion that the market is expecting. If you look at the data center expansion plans, that drives tremendous growth in the number of computing nodes across the data center. That drives a tremendous number of, or amount of growth in the connections between those computing nodes and the bandwidth that's required between those computing nodes. That alone, we think drives a really good, robust growth in data center over the long term.

Simon Leopold: Expansion that the market is expecting so if you look at the data center.

Simon Leopold: Expansion plans that drives tremendous growth in the number of computing nodes.

Simon Leopold: Across the data center and that drives a tremendous number of our amount of growth in the connections between those computing nodes and the bandwidth that's required between those computing nodes and so that alone. We think drives a really good robust growth in data center over the long term, but the second the second effect.

Jim Anderson: The second effect that we think is that we're expecting, and this is kind of where CPO plays into, is we're expecting there to be a greater proportion of those interconnects between the computing nodes that switch from what are today electrical connections towards optical connections moving forward. Think about it as the proportion of electrical versus optical, the proportion of optical connections; we believe increases over the coming years. The reason for that is if you look at the bandwidth that's required to support the connections between these computing nodes, and those computing nodes could be GPUs, CPUs, or XPUs, some sort of accelerators. The bandwidth is ramping up significantly. Optical connections can provide a much higher level of bandwidth than an electrical connection. We think CPO is one of those enabling technologies.

Simon Leopold: That we think.

Simon Leopold: That we're expecting and this is kind of where CPO plays into is were expecting there to be a greater proportion of those interconnects between the computing nodes that switch from what are today electrical connections towards optical connections moving forward and so think about it is that.

Simon Leopold: The proportion of electrical versus optical the proportion of optical connections we believe increases.

Simon Leopold: Over the coming years and the reason for that is if you look at the bandwidth thats required to support the connections between these these computing nodes in those computing nodes could be Gpus, Cpus or XP use some sort of accelerators. The bandwidth is ramping up significantly and optical connections can.

Jim Anderson: The reason for that is if you look at the bandwidth that's required to support the connections between these computing nodes, and those computing nodes could be GPUs, CPUs, or XPUs, some sort of accelerators. The bandwidth is ramping up significantly. Optical connections can provide a much higher level of bandwidth than an electrical connection. We think CPO is one of those enabling technologies.

Simon Leopold: <unk>, a much higher level of bandwidth and electrical connection and we think CPO is one of those enabling technologies there'll be other enabling technologies that help enable the tam expansion or the replacement of electrical connections with optical connections.

Jim Anderson: There'll be other enabling technologies that help enable the TAM expansion or the replacement of electrical connections with optical connections. We see this CPO primarily. We believe the biggest sort of area of application for it over the long term is in scale-up. Within the rack or within the box connections between the computing nodes is where we believe we'll see the most prevalence over the long term. The net is we believe CPO is a net accelerator of the overall TAM for optical networking in the data center, driven by both the combination of the total raw bandwidth that's needed, as well as this conversion from electrical to optical. Back to the kind of second part of your question, what does that mean for Coherent?

Simon Leopold: And we see this CPO, primarily we believe the biggest.

Simon Leopold: I'm sort of area of application for it over the long term is in scale up so within the rack or within the box connections between the computing nodes is where we believe we will see the most prevalent over the long term and so the net is we believe <unk> is a net accelerator of the overall Tam for optical network.

Jim Anderson: The net is we believe CPO is a net accelerator of the overall TAM for optical networking in the data center, driven by both the combination of the total raw bandwidth that's needed, as well as this conversion from electrical to optical. Back to the kind of second part of your question, what does that mean for Coherent?

Simon Leopold: Working in the data center, but again driven by both the combination of the total raw bandwidth that's needed as well as conversion from electrical to optical and then back to the kind of second part of your question. What does that mean for coherent. We believe we're very well positioned to continue to drive growth and plug a hole.

Jim Anderson: We believe we're very well-positioned to, you know, continue to drive growth in pluggable transceivers, which is the dominant form factor today. Also to participate and drive growth in these newer potential form factors over the coming years. First of all, in pluggable transceivers, we've got a great roadmap of pluggable transceivers. This year, we're beginning the ramp of 1.6T. We've got 3.2T pluggable transceivers in development and products beyond that on our roadmap as well. We believe pluggable transceivers will continue to grow, especially in the scale-out domain over the coming years. We believe we're well-positioned to grow, not just because the TAM is expanding, but because we believe we're well-positioned for share gain as well.

Simon Leopold: Transceivers, which is.

Simon Leopold: Which is the dominant form factor today, but also to.

Simon Leopold: Paid and drive growth in these newer potential form factors.

Simon Leopold: Over the coming years.

Simon Leopold: First of all in <unk> Transceivers, we've got a great roadmap of plug a hole transceivers. This year were ramping beginning the ramp of 160, we've got three two T applicable transceivers in development and products beyond that on our roadmap as well.

Jim Anderson: This year, we're beginning the ramp of 1.6T. We've got 3.2T pluggable transceivers in development and products beyond that on our roadmap as well. We believe pluggable transceivers will continue to grow, especially in the scale-out domain over the coming years. We believe we're well-positioned to grow, not just because the TAM is expanding, but because we believe we're well-positioned for share gain as well.

Simon Leopold: We believe <unk> Transceivers will will continue to grow, especially in the scale out domain over the coming years and so we believe we're well positioned to.

Simon Leopold: To grow not just because of the Tam is expanding but because we believe we're well positioned for share gain as well and then in other form factors like CPO or there's other types of form factors that will be introduced as well.

Jim Anderson: Then in other form factors like CPO or there's other types of, form factors that'll be introduced as well, it's important to remember that, Coherent is not just a supplier of transceivers, but we invest and innovate in all of the, key ingredient technologies that go into those transceivers in terms of the optical ingredients. Things like Indium Phosphide platform, the EML and CW lasers that are built off our Indium Phosphide platform, silicon photonics, which we've had in production for years and have been developing for over a decade, and a number of other key enabling, technologies that are not just relevant to pluggable transceivers, but would be key enabling technologies for things like CPO and other form factors.

Simon Leopold: It's important to remember that coherent is not just a supplier of transceivers, but we invest and.

Simon Leopold: Innovate and all of the key ingredient technologies that go into those transceivers in terms of the optical ingredients. So things like indium phosphide platform. The <unk> CW lasers that are built off our indium phosphide platform Silicon Photonics, which we've had in production for years and have been.

Jim Anderson: Things like Indium Phosphide platform, the EML and CW lasers that are built off our Indium Phosphide platform, silicon photonics, which we've had in production for years and have been developing for over a decade, and a number of other key enabling, technologies that are not just relevant to pluggable transceivers, but would be key enabling technologies for things like CPO and other form factors.

Simon Leopold: <unk> for over a decade.

Simon Leopold: And a number of other key enabling technologies that are not just relevant to plug a hole transceivers, but would go into would be key enabling technologies for things like <unk> and other form factors. So we believe we're very well positioned to continue to grow in this what we see is a rapidly expanding tam and we will.

Jim Anderson: We believe we're very well positioned to continue to grow in this, what we see as a rapidly expanding, TAM. We'll, you know, at our Investor Day in May, we'll provide sort of more, you know, more thoughts on how the market evolves, and we'll quantify that and give a better idea of Coherent's opportunity. We feel well positioned for the long-term growth of the company.

Simon Leopold: At our Investor day in May we will provide sort of more.

Simon Leopold: More thoughts on how the market evolves and we'll quantify that and give a better idea of coherence opportunity, but we feel well positioned for the long term growth company.

Simon Leopold: That's great. I appreciate the thorough response. Just a very brief follow-up please, just wondering if there's any customer concentration or vertical concentration you could quantify in the quarter, whether it's the amount from you know, any 10% customers or sort of the AI you know consumption, whether direct or indirect to web scale. Anything you could help us with in terms of that quantification, I'd appreciate.

Simon Leopold: That's great I appreciate the thorough response and just a very brief follow up. Please is just wondering if there's any customer concentration or vertical concentration you could quantify in the quarter, whether it's the amount from.

Speaker Change: 10% customers are sort of the AI.

Speaker Change: Consumption, whether direct or indirect to web scale anything you could help us with in terms of that quantification I'd appreciate it.

Jim Anderson: Yeah. We have a broad range of customers, both you know hyperscaler customers as well as enterprise customers. The hyperscaler customers represent you know the vast majority of the data comm revenue. We have multiple hyperscaler customers and are well distributed across those key hyperscalers. Yeah, I would call our revenue and data comm as well diversified. The other point that I would make is on 800 gig transceivers, which I mentioned in the prepared remarks. It is one of the really positive things that we've seen over the past year, the number of customers that are ramping 800 gig continues to expand.

Speaker Change: Yes, we have.

Speaker Change: We have a broad range of customers both.

Speaker Change: Hyperscale customers as well as enterprise.

Speaker Change: The hyper scalar customers represent the.

Speaker Change: The vast majority of the Datacom revenue, but we have multiple multiple hyperscale.

Speaker Change: Hyperscale customers and are well distributed across those key hyper scaler.

Speaker Change: So, yes, I would I would call our revenue and Datacom is well diversified and and then the other point that I would make is on 800 gig Transceivers, which I mentioned in the prepared remarks is one of the really positive things that we've seen over the past year as the number of customers that are ramping 800 gig.

Speaker Change: Continues to continues to expand and so I mentioned this on our last quarter quarter's earnings update and we saw expansion in the number of customers again over the past quarter. So we view this as very positive as our as our overall 800 gig revenue is very highly diversified.

Jim Anderson: I mentioned this on our last quarter's earnings update, and we saw expansion in the number of customers again over the past quarter. We view this as very positive as our overall 800G revenue is very highly diversified.

Simon Leopold: Thank you.

Speaker Change: Thank you.

Speaker Change: Okay.

Operator: The next question comes from the line of Vivek Arya with Bank of America. Please proceed.

Speaker Change: The next question comes from the line of Vivek Arya with Bank of America. Please proceed.

Speaker Change: Okay.

Michael Mani: Hi, this is Michael Mani on for Vivek Arya. Thanks for taking our questions. To start, just wanted to get your thoughts on how the market landscape is evolving across VCSELs, the EMLs, and silicon photonics. You know, you stated that obviously a breadth of needs is required across these customers. As you get closer to the 1.6 ramp, do you have a better sense of which platform might be seeing relatively more pull from these customers? And how does that inform your buy versus make decision framework around internal production? Thank you.

Speaker Change: Hi, This is Michael money on for Vivek, Thanks for taking my questions.

Speaker Change: Start.

Speaker Change: Just wanted to get your thoughts on.

Speaker Change: All of the market landscape is evolving.

Across all of the adults in Silicon Photonics.

Speaker Change: David that obviously.

Our breadth of needs is required across these customers, but as you get closer to the $1 60 Ram you have a better sense of.

Speaker Change: Which <unk> seen relatively more pull from these customers and how does that inform your buy versus make.

Speaker Change: Susan framework around paternal production. Thank you.

Jim Anderson: Yeah. Thanks, Michael. First of all, maybe I'll start with kind of our strategy and philosophy around the ingredient technologies. I think it's well recognized by our customers that, you know, when it comes to the ingredients that go into optical networking technology, that Coherent certainly has the broadest and deepest portfolio of ingredient technologies. We don't just assemble the transceiver. We bring to our customers a very broad and deep and expansive roadmap in terms of all the underlying key technologies. Whether that's a VCSEL laser, an EML laser, a CW laser, EMLs, and CWs of course, based on Indium Phosphide platform, which I mentioned in the prepared remarks, silicon photonics, which we've had in production for a number of years.

Speaker Change: Yeah. Thanks, Michael So first of all I'll, maybe I'll start with kind of our strategy and philosophy around the ingredient technologies as I think it's well recognized by our customers that when it comes to the ingredients that go into optical networking technology that coherent certainly.

Speaker Change: Has the broadest and deepest portfolio of ingredient technologies. So we don't just assembled a transceiver, we bring to our customers are very broad and deep and expansive roadmap in terms of all the underlying key technologies, so whether thats, a pixel laser and <unk> laser a CW laser.

Jim Anderson: We don't just assemble the transceiver. We bring to our customers a very broad and deep and expansive roadmap in terms of all the underlying key technologies. Whether that's a VCSEL laser, an EML laser, a CW laser, EMLs, and CWs of course, based on Indium Phosphide platform, which I mentioned in the prepared remarks, silicon photonics, which we've had in production for a number of years.

Speaker Change: Emails and CWC of course based on indium phosphide platform, which I mentioned in the prepared remarks, Silicon Photonics, which we've had in production for a number of years, we're able to bring a wide array of AV technology and that's one of the key competitive advantages that our customers really appreciate because when they work with us and when they occur.

Jim Anderson: We're able to bring a wide array of technology, and that's one of the key competitive advantages that our customers really appreciate. Because when they work with us and when they partner with us in a strategic multi-generational fashion, they know they're working with a company that brings a very complete portfolio of optical networking technology. Our approach is to invest in all those key technologies. What we do is we work with our customers to field the particular technology that best fits their application and their needs. What we do is we pick out of our portfolio what we think is the most optimal technology, and that's our approach. You know, that's the same approach we've taken on 800G. You mentioned you asked about 1.6T.

Speaker Change: Hartner with us in a strategic multi generational fashion. They know they are working with with a company that brings a very complete portfolio of optical optical networking technology and so our approach is to invest in all those key technologies and what we do is we work with our customers to field test.

Jim Anderson: Our approach is to invest in all those key technologies. What we do is we work with our customers to field the particular technology that best fits their application and their needs. What we do is we pick out of our portfolio what we think is the most optimal technology, and that's our approach. You know, that's the same approach we've taken on 800G. You mentioned you asked about 1.6T.

Speaker Change: <unk> the the particular technology that best fits their application and their needs and so what we do is we pick out of our portfolio. What we think is the most optimal technology and so that's our approach.

Speaker Change: That's the same approach we've taken on 800 gig and you mentioned you asked about 160, we've taken the same approach on 160.

Jim Anderson: We've taken the same approach on 1.6, as well. Then in terms of the make versus buy, I think was the last part of your question. Again, our philosophy on make versus buy is, we wanna make where it provides a genuine competitive advantage to our customers. Where it doesn't provide a genuine advantage, then we should be buying that or sourcing that from the ecosystem. Where we invest our R&D or invest our CapEx dollars, that's where we believe we're either generating a significant technological advantage for our customers, or we're creating a significant cost structure advantage. That's where we focus and concentrate our resources. Otherwise, we leverage the ecosystem. Sometimes we mix and match as well.

Speaker Change: As well and.

Speaker Change: And then in terms of the make versus buy I think was the last part of your question again, our philosophy on make versus buy is we want to make where it provides a genuine competitive advantage to our customers.

Speaker Change: And where it doesn't provide a genuine advantage then we should be buying that are sourcing that from the ecosystem, So where we invest our R&D or invest our capex dollars, that's where we believe we are either generating.

Jim Anderson: Where we invest our R&D or invest our CapEx dollars, that's where we believe we're either generating a significant technological advantage for our customers, or we're creating a significant cost structure advantage. That's where we focus and concentrate our resources. Otherwise, we leverage the ecosystem. Sometimes we mix and match as well.

Speaker Change: Significant technological advantage for our customers or we're creating a significant cost structure advantage. So that's where we focus and concentrate our resources otherwise we leverage the ecosystem.

Speaker Change: And sometimes we mix and we mix and match as well in the case of for instance.

Jim Anderson: In the case of, for instance, EML lasers, we both source those internally, but we use external partners as well, and we have a number of really good external partners for EML lasers. We'll sometimes use a mixture for supply chain resiliency as well. That's kind of our overall, you know, philosophy and strategy around that.

Speaker Change: Ml lasers, we both source those internally, but we use external partners as well and we have a number of really good external partners for <unk> lasers, so while sometimes use a mixture for supply chain resiliency as well so that's kind of our overall <unk>.

Speaker Change: Osophy and strategy around that.

Michael Mani: Great. Thank you. Just for my follow-up, what are the puts and takes for gross margins this year? You know, the nice upside this past quarter. What initiatives worked well to deliver that? I guess as we look throughout the rest of this year, what are some of the low-hanging fruit that you'd be able to tackle, whether it's, you know, improving product costs on the transceiver side, divesting non-core assets that could help us move upwards from here? Thank you.

Speaker Change: Great. Thank you and just for my follow up.

Speaker Change: Puts and takes for gross margins this year.

Speaker Change: Nice upside this past quarter, so what initiatives working well to deliver that and I guess as you can.

Speaker Change: The rest of this year what are some of the low hanging fruit.

Speaker Change: Are you able to talk or whether it's now improving product costs in the transceiver side died.

Speaker Change: Divesting noncore office.

Speaker Change: Help us move upwards from here. Thank you.

Sherri Luther: Thank you, Michael. So when you look at the results that we achieved for Q2, you know, the 150 basis points sequential improvement and 360 basis points year over year, very pleased with the results there. You know, the elements that drove that, certainly volume was a contributor, but we saw improvement as well on the cost side. In particular, in Datacom, we continued to see improvement, yield improvements. We saw lower cost as well as improvements in the manufacturing process that all generated improvements in gross margin. If you recall back, several quarters ago, when we put out our long-term gross margin target of greater than 40%, we talked about our gross margin expansion strategy and the elements that comprise that.

Speaker Change: Thank you Michael.

Speaker Change: When you look at the results that we achieved for Q2 150 basis point sequential improvement and 360 basis points year over year I'm very pleased with the results there.

Speaker Change: The elements that drove that certainly volume was a contributor but we saw improvement as well on the cost side.

Speaker Change: In particular in Datacom, we continued to see improvement yield improvements, we saw lower cost as well.

Sherri Luther: We saw lower cost as well as improvements in the manufacturing process that all generated improvements in gross margin. If you recall back, several quarters ago, when we put out our long-term gross margin target of greater than 40%, we talked about our gross margin expansion strategy and the elements that comprise that.

Speaker Change: <unk> in the manufacturing process that all generated improvements in gross margin and if you recall back when we.

Speaker Change: Several quarters ago, when we put out our long term gross margin target of greater than 40%, we talked about our gross margin expansion strategy and the elements that comprise that product costs or cost reductions rather a part of that but also pricing optimization and so you know those areas continue to be areas of focus for us as we drive towards our long term model.

Sherri Luther: Product cost or cost reductions rather are part of that, but also pricing optimization. You know, those areas continue to be, you know, areas of focus for us as we drive towards the long-term model of greater than 40 percent. Pleased to see the results in Q2, you know, we'll continue to focus on that going forward. You know, you asked about the remainder of the year, and I guess I would really direct you to look forward to our Investor Day in May, and we'll give you more color on, you know, the various elements of our gross margin expansion strategy, and look forward to sharing that with you at that time.

Speaker Change: Of greater than 40%.

Speaker Change: And so pleased to see the results in Q2, and and we will continue to focus on that going forward.

Speaker Change: You asked about the remainder of the year and I guess I would really.

Speaker Change: Direct you to look at forward to our Investor day in May and we'll give you more color on the various elements of our gross margin expansion strategy.

Speaker Change: We look forward to sharing that with you at that time.

Operator: The next question comes from the line of George Notter with Jefferies. Please proceed.

Speaker Change: And the next question comes from the line of George Notter with Jefferies. Please proceed.

George Notter: Hi, guys. Thanks very much. I wanted to ask about tariffs. Obviously, there's been a lot of news on that front in the last few days and weeks. You guys obviously have a Chinese manufacturing footprint in some areas of the business, and it does seem like that 10% tariff isn't as bad as imagined previously. Could you talk about what the effect of those tariffs would look like on Coherent? And then, you know, what sorts of things could you do to mitigate those effects on the business? And then I guess the other part of this question is it possible that some of the strength you're seeing is a pull forward of demand, you know, customers trying to get ahead of the tariffs? Yeah, those are the questions.

George Notter: Hi, guys. Thanks, very much I wanted to ask about tariffs.

George Notter: Obviously, there's been a lot of news on that front in the last few days and weeks, but you guys. Obviously have a Chinese manufacturing footprint in some areas of the business.

Speaker Change: It does seem like the 10% tariff isn't as bad as imagine previously, but could you talk about what the effect of those tariffs would look like on coherent and then what sorts of things can you do to mitigate the effects on the business and then I guess the other part of this question is is it possible that some of the strength Youre seeing is a pull forward of.

George Notter: And then, you know, what sorts of things could you do to mitigate those effects on the business? And then I guess the other part of this question is it possible that some of the strength you're seeing is a pull forward of demand, you know, customers trying to get ahead of the tariffs? Yeah, those are the questions. Thanks a lot for your help.

George Notter: NAND customers trying to get ahead of the tariffs but.

George Notter: Thanks a lot for your help.

George Notter: Yes. This is the question. Thanks, a lot for your help.

Jim Anderson: Yeah. Thanks, George. On the first part of your question, you know, obviously dynamic situation around tariffs right now, and we, you know, continue to analyze it and make sure we're adapting as necessary. If we look at the current quarter of fiscal Q3, we don't expect a significant impact to the current quarter results. The guidance that Sherri provided in her prepared remarks factored in any impact that we expect from tariffs. In the second part of your question around mitigation, you know, I think one of the things the company's done really well over the past years is building a very resilient supply chain.

Speaker Change: Yes, Thanks, George So on the first part of your question.

Speaker Change: Obviously dynamics situation around tariffs right now and we continue to analyze it and make sure we're adapting.

Speaker Change: As necessary, but if we look at the current quarter of fiscal Q3, we don't expect a significant impact to the current quarter results and the guidance that <unk> provided in our prepared remarks factored in any impact that we expect from tariffs.

Speaker Change: Then the second part of your question around mitigation.

Speaker Change: I think one of the things the company has done really well over the past years is building a very resilient supply chain and there has been a very good strategic focus on this over the past years by the team and they've done a really great job of that and I think that's built a lot of resilience into our supply chain and a lot of flexibility.

Jim Anderson: There's been a very good strategic focus on this over the past years by the team, and they've done a really great job of that. I think that's built a lot of resilience into our supply chain and a lot of flexibility and adaptability. By the way, I think our customers definitely recognize that as well. Supply chain resiliency is becoming increasingly important to our customers, and they recognize that we have a very resilient supply chain. I think within the optical networking industry, I would say it's world-class supply chain resiliency. Now I'd flag a couple specific areas in particular that we have really great resiliency in our supply chain.

Jim Anderson: By the way, I think our customers definitely recognize that as well. Supply chain resiliency is becoming increasingly important to our customers, and they recognize that we have a very resilient supply chain. I think within the optical networking industry, I would say it's world-class supply chain resiliency. Now I'd flag a couple specific areas in particular that we have really great resiliency in our supply chain.

Speaker Change: <unk> and adaptability and by the way I think our customers definitely recognize that as well as supply chain resiliency is becoming increasingly important to our customers and they recognize that we have a very resilient supply chain and I think.

Speaker Change: Within the optical networking industry I would say its world class supply chain resiliency.

Flagged a couple of specific areas in particular that.

Speaker Change: We have really great resiliency in our supply chain, one is geographic diversity in our manufacturing base and that gives us great flexibility in terms of being able to.

Jim Anderson: One is geographic diversity in our manufacturing base, and that gives us great flexibility in terms of being able to shift the location of production to different geographies depending on the needs of our customer. The second thing is, which our customers appreciate, is vertical integration, where we've strategically chosen to invest in key technologies which are very important from an innovation perspective or from a capacity perspective. That vertical integration of key enabling technologies is another source of strength in terms of our supply chain resiliency and another, you know, another area that our customers really value in our overall resiliency.

Speaker Change: Shift the location of production to different geographies, depending on the needs of our customer and then the second thing is which our customers. Appreciate is vertical integration, where we've strategically chosen to invest in key technologies, which are very important from an innovation perspective or from a capacity.

Jim Anderson: The second thing is, which our customers appreciate, is vertical integration, where we've strategically chosen to invest in key technologies which are very important from an innovation perspective or from a capacity perspective. That vertical integration of key enabling technologies is another source of strength in terms of our supply chain resiliency and another, you know, another area that our customers really value in our overall resiliency.

Speaker Change: Perspective, and so that vertical integration of key enabling technologies is another source of strength in terms of our supply chain resiliency and another.

Speaker Change: Another area that our customers really value it really value in our overall resiliency. So we're focused on continuing to build the supply chain resiliency, but I would say, we have a tremendous amount of flexibility and adaptability already built into our supply chain strategy and then on the last part of your question which was.

Jim Anderson: We're focused on continuing to build the supply chain resiliency, but I would say we have a tremendous amount of flexibility and adaptability already built into our supply chain strategy. On the last part of your question, which was, you know, do we see any sort of pull forward of demand, we didn't see any indications of that. We, in our fiscal Q2, I would say the data center demand materialized very much as we had expected at the beginning of the quarter. We didn't see any signs of any pull forward in demand.

Speaker Change: Does.

Speaker Change: Did we see any sort of pull forward of demand, we didn't see any indications of that.

Speaker Change: In our fiscal Q2, I would say the datacenter demand materialized.

Speaker Change: Very much as we had expected at the beginning of the.

Speaker Change: Quarter end, so we didn't see any signs of any pull forward.

Speaker Change: And demand.

George Notter: Super. Thank you very much.

Speaker Change: Super Thank you very much.

Jim Anderson: Thanks, George.

Speaker Change: Thanks George.

Speaker Change: Oh.

Operator: The next question comes from the line of Meta Marshall with Morgan Stanley. Please proceed.

Speaker Change: The next question comes from the line of meta Marshall with Morgan Stanley. Please proceed.

Michael Mani: Great. Thanks. Congrats on the quarter. Maybe first question, you know, you did see improvement in lasers this quarter, but had noted kind of staying kind of more cautious about that market. I just wanted to get a sense of if you could give

Meta Marshall: Great. Thanks. Congrats on the quarter. Maybe first question, you know, you did see improvement in lasers this quarter, but had noted kind of staying kind of more cautious about that market. I just wanted to get a sense of if you could give Kind of how you're viewing that maybe, you know, on telco, where you said you were going from cautious to cautiously optimistic, just how you're viewing kind of the prospects throughout the year for that business. Then I have a follow-up.

Meta Marshall: Great. Thanks.

Speaker Change: On the quarter, maybe first question.

Speaker Change: The improvement in laser this quarter, but had noted.

Speaker Change: I'm kind of more cautious about that market I just wanted to get a sense of if you could give.

Meta Marshall: Kind of how you're viewing that maybe, you know, on telco, where you said you were going from cautious to cautiously optimistic, just how you're viewing kind of the prospects throughout the year for that business. Then I have a follow-up.

Kind of how you're viewing that maybe you know on telco, where you said you were going from cautious to cautiously optimistic just how you're viewing kind of the prospects throughout the year for that business and then I have a follow up.

Jim Anderson: Yeah, Meta, first of all, thanks for the question. On lasers, maybe I'll address it in the context of the market. Lasers business is primarily industrial-related applications, as is our materials business, which is significant industrial exposure as well. For the industrial and industrial-related markets, if we look at the submarkets, it's from our perspective just really a mixed bag in terms of the submarkets, where we see some of the subsegments as seeing some improvement and then others as, you know, really not seeing much improvement. Overall, we continue to take in the near term a cautious outlook on the overall industrial-related markets. We do believe that over the long term, this is a key growth area for the company, but in the short term, we're taking a more cautious view.

Speaker Change: Yes.

Speaker Change: First of all thanks for the question on lasers, maybe I'll address it in the context of the market. So lasers business is primarily industrial related applications as has our materials businesses is significant industrial exposure as well and for the industrial and industrial related markets. If we look at the sub market.

Speaker Change: It's from our perspective, it's just really a mixed bag in terms of the Submarkets, where we see some of the sub segments as.

Speaker Change: <unk> seen some improvement and then others as you know.

Really not seen much improvement. So overall, we continue to take in the near term a cautious outlook on the overall industrial related markets.

Jim Anderson: Overall, we continue to take in the near term a cautious outlook on the overall industrial-related markets. We do believe that over the long term, this is a key growth area for the company, but in the short term, we're taking a more cautious view.

Speaker Change: We do believe that over the long term. This is a key growth area for the company, but in the short term, we're taking a more cautious view now that said I will point out a couple of particular sub segments that we are seeing good growth signs from the first of which is the display capital equipment.

Jim Anderson: Now that said, I will point out a couple particular subsegments that we are seeing good growth signs from, the first of which is the display capital equipment, and that's where our excimer lasers are used for OLED screen manufacturing. What's happening there in the end market is OLED screens are traditionally been used on smaller device screens like mobile phones are now being used on larger device screens like laptops and PCs. That represents a dramatic expansion in the total surface area of OLED screens. It's our excimer lasers that are a key enabling factor of the manufacturing of high-quality OLED screens. We're seeing really good growth there. We saw growth on both a sequential and year-over-year basis.

Speaker Change: And Thats, where our excimer lasers are used for OLED screen manufacturing and what's happening there in the end market is OLED screens are traditionally been used on smaller device screens like mobile phones are now being used on larger device screens like laptops.

Speaker Change: Like laptops, and Pcs and so that represents a dramatic expansion in the total surface area of OLED screens and it's our excimer lasers that are key enabling factor of the manufacturing of high quality OLED screens and so we're seeing really good growth. There we saw growth on both a sequential and year over year basis.

Jim Anderson: That represents a dramatic expansion in the total surface area of OLED screens. It's our excimer lasers that are a key enabling factor of the manufacturing of high-quality OLED screens. We're seeing really good growth there. We saw growth on both a sequential and year-over-year basis.

Jim Anderson: The second area that I would flag for, you know, some improvement that we're seeing is in semi cap equipment. We're seeing stronger orders from some of our semi cap equipment customers, and those stronger orders are coming on their anticipated improved demand over the coming quarters. That's a positive sign as well. You know, overall, I would say in the near term, we're taking more of a cautious outlook.

Speaker Change: And then the second area that I would flag for.

I assume improvement that we're seeing is in semi cap equipment, we're seeing stronger orders from some of our semi cap equipment customers and those stronger orders are coming on they're anticipated improved demand over the coming quarters, and so that's a positive sign as well but.

Speaker Change: But overall I would say in the near term, we're taking more of a cautious outlook.

Meta Marshall: Got it. Maybe same on materials. You know, believe you guys mentioned automotive as kind of an ongoing headwind, but just as you look at some of the prospects for that business for the remainder of the year? That's it.

Speaker Change: Got it and maybe the same on materials.

Speaker Change: I believe you guys mentioned automotive as kind of an ongoing headwind, but just as you look at some of the prospects for that business.

Jim Anderson: Yeah. Yeah. Thanks, Meta. On materials, very similar comments to lasers. A lot of the materials business is related to those same industrial end markets. For instance, materials get used in semi cap equipment as well. Very similar outlook on kind of just cautious demand outlook around materials going into the industrial-related segments as well. In particular, a particular area of weakness for us in materials has been around the automotive sector. So again, here with materials, taking a more cautious outlook.

Speaker Change: Yeah, Yeah. Thanks meta.

Speaker Change: The materials very similar comments to lasers, a lot of the materials business is related to those same industrial end markets. So for instance materials get used in semi cap equipment as.

Speaker Change: As well so very similar outlook on and kind of just cautious demand outlook around materials going into the industrial related segments as well and in particular, a particular area of weakness.

Speaker Change: For us in materials has been around the automotive sector and so again here with materials, taking a more cautious outlook.

Speaker Change: Uh huh.

Operator: The next question comes from the line of Samik Chatterjee with Citi. Please proceed.

Paul Silva: The next question comes from the line of Paul Silva with Citi. Please proceed.

Speaker Change: Yeah.

Samik Chatterjee: Thank you for taking my question, and congrats for the strong result. I guess my first question is maybe more for Jim. I guess Coherent previously announced kind of seeing strong improvement on 200 gig per lane VCSEL. Just wanted to have kind of additional update on where you are in the process. Is the expectation that 200 gig per lane VCSEL could be available at some point for 1.6T cycle, or is it more of a 3.2T story?

Papa Sylla: Thank you for taking my question, and congrats for the strong result. I guess my first question is maybe more for Jim. I guess Coherent previously announced kind of seeing strong improvement on 200 gig per lane VCSEL. Just wanted to have kind of additional update on where you are in the process. Is the expectation that 200 gig per lane VCSEL could be available at some point for 1.6T cycle, or is it more of a 3.2T story?

Paul Silva: Thank you for taking my question and congrats for the strong results.

Speaker Change: I guess my first question is maybe more for Jim I guess.

Paul Silva: <unk> analysis.

Speaker Change: <unk> seen strong improvement on 200 gig and Vic. So just wanted to have kind of additional update on where you are in the process.

Speaker Change: Is the expectation that 200 gig <unk> could be available at some point for 160 cycle or you Didnt want over three two <unk> story.

Jim Anderson: Yeah. Thanks, Papa. We continue to progress well on our engineering efforts around not just 200 gig VCSELs, but I also mentioned in the prepared remarks 200 gig differential EMLs. Also we're building a robust roadmap of CW lasers based on our Indium Phosphide platform as well. Again, we invest across a range of technologies, and then the approach that we take is we deploy the laser technology or any other particular technology that we think is best suited for that application, whether that's a 1.6T transceiver or a 3.2T or, you know, we have products on the roadmap beyond that as well.

Speaker Change: Yes. Thanks, Papa So we continue to progress well on on our engineering efforts around not just 200 gig <unk>, but I also mentioned in the prepared remarks.

Speaker Change: 200 gig differential emails and also we're building a robust roadmap of CW lasers based on our indium phosphide platform as well. So again, we're we invest across a range of technologies and then the approach that we take as we deploy the laser technology or any other particular.

Speaker Change: <unk> technology that we think is best suited for that application, whether that's a $1 60 transceiver or three <unk> or we have products on the roadmap beyond that as well so.

Jim Anderson: I probably won't go into the details right now of what specific technology that we're selecting for any particular transceiver product just for competitive reasons. But our strategy and our approach is to build a very robust roadmap of ingredient technologies and to pick the one that's most optimal for a particular customer application.

I, probably won't go into the details right now of what specific technology that we're selecting for any particular.

Speaker Change: Transceiver product just for competitive reasons, but.

Speaker Change: But our strategy and our approach is to build a very robust.

Speaker Change: Robust roadmap of ingredient technologies and to pick the one that's most optimal for a particular customer application.

Speaker Change: Okay.

Samik Chatterjee: Got it. Thank you. That's very helpful. Maybe my follow-up is around the Datacom kind of margin. I believe previously you mentioned it being mostly in line with company level margins, but as you continue to improve yield and benefit from increased.

Papa Sylla: Got it. Thank you. That's very helpful. Maybe my follow-up is around the Datacom kind of margin. I believe previously you mentioned it being mostly in line with company level margins, but as you continue to improve yield and benefit from increased.

Speaker Change: Got it. Thank you that's very helpful and maybe my follow up is around the data com kind of margin I believe previously you mentioned it being mostly in line with company level margins, but as you continue.

Speaker Change: To improve yield and benefited from increased.

Speaker Change: Okay.

Jim Anderson: Operator, operator, did we lose Papa's line?

Speaker Change: Operator, operator did we lose Papa this line, yes pop pop his line has dropped.

Operator: Yes. Samik Chatterjee's line has dropped.

Jim Anderson: Maybe I'll try to answer. I think I got the gist of his question, so I'll try to answer it. I think it was around Datacom margins. Let me step back at a broader company level, and I'll come back to Datacom margins. You know, when I first joined the company on the first earnings call, made it clear from my perspective that the company needed to improve its gross margins, right? We've been very focused on that over the past months and quarters. On gross margin, we're approaching it from basically two parts, and Sherry touched on this earlier. One is pricing optimization, and the other is product cost.

Speaker Change: Maybe I'll try to answer I think I got the gist of his question. So I'll try to answer it I think it was around data.

Speaker Change: <unk> Datacom margins.

Speaker Change: And let me step back at a at a broader company level and I'll come back to Datacom margins. So.

Speaker Change: When I first joined the company in the first earnings call made it clear from my perspective that the company needed to improve its gross margins right and so we've been very focused on that over the past months and quarters and gross margin were approaching it from a two.

Speaker Change: From basically two parts and Sherry touched on this earlier, one is pricing optimization and the other is product cost.

Jim Anderson: On product cost, I think that there's opportunity to improve product cost, product cost across the company, not just in Datacom, but also in Telecom and all of our industrial products, whether it's materials or lasers. I think we have a lot of work to do to drive improvements on product costs. One of, I think Papa was asking about yields. I thought I heard him say yield at the end. One of the key areas that we're driving improvements, for instance, in Datacom margins, is by improving yields. I mentioned this on the prior earnings call a quarter ago, so that's one of the key product cost areas that we're focused on. There's others as well. Definitely gross margin is a key focus area of the company.

Speaker Change: And on product cost I think that there's opportunity to improve product cross product cost across the company not just in Datacom, but also in telecom and all of our industrial products, whether it's materials or lasers. I think we have a lot of work to do to drive improvements on product costs and one of I think Pat.

Speaker Change: Paul was asking about yields I thought I heard him say yield at the end, but one of the key areas that we're driving improvements for instance in Datacom.

Jim Anderson: I thought I heard him say yield at the end. One of the key areas that we're driving improvements, for instance, in Datacom margins, is by improving yields. I mentioned this on the prior earnings call a quarter ago, so that's one of the key product cost areas that we're focused on. There's others as well. Definitely gross margin is a key focus area of the company.

Speaker Change: Margins is by improving yields and I mentioned this on the prior earnings call a quarter ago and so that's that's one of the key new product cost areas that we're focused on there's others as well, but definitely gross margin is a key focus area of the company. We have a lot of energy devoted to that effort right now and I'm quite.

Jim Anderson: We have a lot of energy devoted to that effort right now, and I'm quite pleased with the progress that the team has made. Also we have a lot more work to do, and we have a lot more work ahead of us. We're very focused on that gross margin improvement goal.

Speaker Change: Pleased with the progress that the team has made but also we have a lot a lot more work to do and we have a lot more work ahead of us, but we're we're very focused on that gross margin improvement goal.

Operator: The next question comes from the line of Karl Ackerman with BNP Paribas. Please proceed.

Speaker Change: The next question comes from the line of Karl Ackerman with BNP Paribas. Please proceed.

Karl Ackerman: Yes, thank you. I have two questions, if I may. To start, Jim, is your AI transceiver opportunity this year gated by your current Indium Phosphide wafer capacity? I ask because some investors are contemplating how important laser wafer capacity is when you and peers discuss your transceiver roadmap with hyperscalers. I have a follow-up, please.

Karl Ackerman: Yes. Thank you I have two questions if I may.

Speaker Change:

Speaker Change: To start Jim is your AI transceiver opportunity this year gated by your current indium phosphide with capacity I asked because.

Speaker Change: Some investors are contemplating how important laser wafer capacity is when.

Speaker Change: You and peers discuss your transceiver roadmap with Hyperscale and then a follow up please.

Jim Anderson: Yeah. Thanks, Karl. So what I would first say on supply chain and capacity is, look, I wanna take the opportunity to thank my supply chain and manufacturing team for doing an outstanding job of increasing capacity and supporting our customers. If you look at our data center Datacom revenue, it grew 79% year-over-year in the most recent fiscal quarter. I think the team's done a great job of supporting our customers. We've been both ramping internal capacity, for instance, in Datacom, of the assembly of the transceivers, but also in the ingredient technologies. You asked about Indium Phosphide. One of the things I mentioned in the prepared remarks is if you look at our Q2 on a year-over-year basis, we tripled our Indium Phosphide capacity.

Speaker Change: Yes, Thanks Carl.

Speaker Change: So what I would first say on supply chain and capacity is.

Speaker Change: I want to take the opportunity to thank my supply chain and manufacturing team for doing an outstanding job of increasing capacity.

Speaker Change: And supporting our customers. If you look at our data center Datacom revenue grew 79% year.

Speaker Change: Year over year in the most recent fiscal quarter and I think the team's done a great job of supporting our customers and we've been both ramping internal capacity for instance in Datacom.

Jim Anderson: We've been both ramping internal capacity, for instance, in Datacom, of the assembly of the transceivers, but also in the ingredient technologies. You asked about Indium Phosphide. One of the things I mentioned in the prepared remarks is if you look at our Q2 on a year-over-year basis, we tripled our Indium Phosphide capacity.

The assembly of the Transceivers, but also in the ingredient technologies I mentioned, you asked about indium phosphide one of the things I mentioned in the prepared remarks is if you look at our fiscal Q2 on a year over year basis, we tripled our indium phosphide capacity and it's our intention to.

Jim Anderson: It's our intention to continue growing Indium Phosphide. US government recently announced plans to help us with the expansion of Indium Phosphide capacity at our Sherman, Texas, plant. Indium Phosphide platform, which we've had in-house for over 20 years, we view as a key technology, and we expect to continue to ramp, you know, ramp volume of Indium Phosphide technology for EML lasers, CW lasers, et cetera. Now we do also use a multi-source strategy, for instance, on EML lasers, where we have, you know, good external partners as well. But we certainly are focused on continuing to ramp capacity given the demand signals that we're seeing from our customers over the long term.

Speaker Change: <unk> growing indium phosphide and U S government recently announced plans to help us with the expansion of indium phosphide capacity at our Sherman, Texas plant, So indium phosphide platform, which we've had in house for over 20 years, we view as a key technology and we.

Speaker Change: We expect to continue to ramp.

Speaker Change: Ramp volume of indium phosphide technology.

Speaker Change: <unk> four ml lasers, CW lasers et cetera, now we do also use our multi source strategy for instance, China ml lasers, where we have good external partners as well, but we certainly are focused on continuing to ramp capacity given the demand signals that we're seeing from our customers over.

Jim Anderson: Now we do also use a multi-source strategy, for instance, on EML lasers, where we have, you know, good external partners as well. But we certainly are focused on continuing to ramp capacity given the demand signals that we're seeing from our customers over the long term.

Speaker Change: The long term.

Karl Ackerman: Very clear. Thank you. If I may, just on OpEx, how should we think about OpEx in March and throughout 2025? I guess, do you anticipate growing OpEx in line with sales growth before any restructuring, some of the initiatives that you've already previously laid out but are still at the forefront? Thank you.

Speaker Change: Very clear. Thank you and then if I may just on Opex.

Speaker Change: How should we think about Opex in March and throughout 'twenty Fives, I guess do you anticipate growing opex in line with sales growth before in our restructuring.

Speaker Change: Some of the initiatives that you've already previously laid out but are still.

Speaker Change: At the forefront thank you.

Sherri Luther: Yeah. Thank you, Karl. From an OpEx perspective, Q2, in terms of our OpEx results there, you saw that we increased our R&D spend sequentially. That's really as a result of our philosophy that we wanna make sure that we are investing our R&D dollars for the long-term growth of the company and really those projects that have the highest ROI. From an R&D perspective, that's what drove the sequential increase in Q2. When you look at the midpoint of our guide for total OpEx for Q3, that's also a key driver of the increase going into Q3. From an SG&A perspective, in Q2, you saw that we actually reduced our SG&A spend, in particular the G&A part of that.

Speaker Change: Yes. Thank you Carl so from an Opex perspective.

When you look at Q2 and in terms of our Opex results there.

Speaker Change: Saw that we increased our R&D spend sequentially and that's really as a result of our philosophy that we want to make sure that we are investing our R&D dollars for the long term growth of the company and really those projects that had the highest ROI.

Sherri Luther: From an R&D perspective, that's what drove the sequential increase in Q2. When you look at the midpoint of our guide for total OpEx for Q3, that's also a key driver of the increase going into Q3. From an SG&A perspective, in Q2, you saw that we actually reduced our SG&A spend, in particular the G&A part of that.

Speaker Change: So from an R&D perspective, that's what drove the sequential increase in Q2 and when you look at the midpoint of our guide for total Opex for Q3. That's also a key driver of the increase going into Q3.

Speaker Change: From an SG&A perspective in Q2, you saw that we actually reduced our SG&A spend in particular, the G&A part of that.

Sherri Luther: That again is part of our philosophy that we wanna drive greater leverage and efficiency in the business. You know, the increases in OpEx going into Q3 are really driven by R&D spend. Now on a quarterly basis, you can always see fluctuations, whether it's in terms of the timing of the benefits that we're able to achieve on the SG&A leverage front or the timing of spend of R&D programs. But that's our philosophy in terms of investing and with respect to OpEx.

Speaker Change: And then again as part of our philosophy that we want to drive greater leverage and efficiency in the business.

Speaker Change: And so.

Speaker Change: The increases in Opex going into Q3 are really driven by R&D spend.

Speaker Change: Now on a quarterly basis, you can always see fluctuations whether it's in terms of the timing of the benefits that we're able to achieve on on the SG&A leverage front or that the timing of R&D program, but that's our philosophy in terms of investing in and with respect to Opex.

Sherri Luther: When you look to the rest of the year and, you know, that really is an invitation for you to listen to our Investor Day in May as we give more perspective on our long-term model, and how we're thinking about that. That's just a perspective on Q3 and how to think about that.

Speaker Change: When you look to the rest of the year and that really is an invitation for you to listen to our Investor day in May as we give more perspective on our long term model.

Speaker Change: How are you thinking about that but that will give you that perspective on Q3, and how to think about that.

Karl Ackerman: Very clear. Thank you.

Speaker Change: Very clear thank you.

Operator: The next question comes from the line of Thomas O'Malley with Barclays. Please proceed.

Speaker Change: The next question comes from the line of Thomas O'malley with Barclays. Please proceed.

Thomas O'Malley: Hey, guys.

Thomas O'Malley: Hey, guys. I have a short-term one and then a long-term one. Just briefly for the March quarter, do you think you could walk through, obviously revenue is flat, and it sounds like communication continues to be cautiously a bit better than you had originally expected it. Any color on just the broader segments, what gets you to that flat guidance into March is the first question.

Thomas O'malley: Hey, guys.

Thomas O'Malley: I have a short-term one and then a long-term one. Just briefly for the March quarter, do you think you could walk through, obviously revenue is flat, and it sounds like communication continues to be cautiously a bit better than you had originally expected it. Any color on just the broader segments, what gets you to that flat guidance into March is the first question.

Speaker Change: Short term fundamental long term one.

Speaker Change: Just briefly for the March quarter do you think you could walk through obviously revenue was flat and it sounds like communications continues to be cautiously a bit better than you had originally expected it but any color on just the broader segments. What gets you to about flat guidance into March is the first question.

Jim Anderson: Yeah. Thanks, Thomas. It's pretty straightforward. We expect Datacom and Telecom to be up sequentially, and we expect the rest of our industrial-related businesses to be down sequentially, and that net to the midpoint to be flat.

Speaker Change: Yes, Thanks Thomas side.

Speaker Change: Pretty straightforward, we expect datacom and telecom to be up sequentially and we expect the rest of our industrial related businesses to be down sequentially and the net to at the midpoint to be flat.

Thomas O'Malley: Gotcha. Super helpful. Then I just wanted to talk strategically longer term. As you look at the dynamic for the transceiver market, particularly in the data comm, are you starting to see, you know, a change in behavior from some of the hyperscalers as it relates to the move to domestic producers of transceivers. You know, are you seeing changes in ordering behavior at this point, or is that all kind of headline news and no real changes yet? I'd just love to get a feel for, you know, if you're already starting to see a move to move supply chains onshore. Thank you.

Speaker Change: Got you Super helpful. And then I just wanted to talk strategically longer term.

Speaker Change: As you look at the dynamic for the transceiver market, particularly in the Datacom are you starting to see.

Speaker Change: A change in behavior from some of the Hyperscale or <unk>.

Speaker Change: As it relates to the diversification domestic accounts don't even know how to even honestly the word but the.

The move to domestic producers of Transceivers.

Speaker Change: And are you seeing changes in ordering behavior at this point or is that all kind of headline news and no real changes yet I just love to get a feel for if you're already starting to see a move to move supply chains onshore. Thank you.

Jim Anderson: Yeah. Thanks, Thomas. What I would say is that I definitely believe that we have the opportunity to gain share over the coming quarters and years, and we're certainly focused on that. When we talk with customers, the discussion almost always revolves around two things. Number one, it always starts with the roadmap of technology and not just our transceiver roadmap, but the underlying ingredient technologies. I think our customers recognize the, you know, the breadth and the depth of the technology that we can bring to them, and I think that's a big competitive advantage.

Speaker Change: Yes, Thanks, Thomas what I would say is that I definitely believe that we have the opportunity to gain share over the coming quarters and years and we're certainly focused on that and when we talk with.

Speaker Change: Customers you can almost always discussion revolves around two things number one it always starts with.

Speaker Change: The roadmap of technology, and not just our transceiver roadmap, but the underlying ingredient technologies and I think our customers recognize the the breadth and the depth of the technology that we can bring to them and I think thats, a big competitive advantage, but I think more to your question. The second part of the discussion, which I always.

Jim Anderson: I think more to your question, the second part of the discussion, which always is part of the customer discussion as well, is around supply chain resiliency and the fact that we have great resiliency in both geographic diversity in the flexibility and adaptability that provides us, as well as the vertical integration. They see that as supply chain resiliency as a tremendous advantage. That's another benefit beyond just our raw technology roadmap. I would say that both of those are very much appreciated by our, certainly by our big strategic customers.

Speaker Change: Is part of the customer discussion as well as around supply chain resiliency and the fact that.

Speaker Change: We have great resiliency in both geographic diversity in the flexibility and adaptability that that provides us as well as the vertical integration and they see that as that supply chain resiliency.

Speaker Change: A tremendous advantage and so that's another benefit beyond just our raw technology roadmap and so I would say that both of those are very <unk>.

Speaker Change: Much appreciated by our certainly by our big strategic customers.

Speaker Change: Okay.

Speaker Change: Uh huh.

Operator: The next question comes from the line of Christopher Rolland with Susquehanna International Group. Please proceed.

Speaker Change: The next question comes from the line of Christopher Rolland with Susquehanna.

Speaker Change: Please proceed.

Christopher Rolland: Hey, thanks for the question. This one's for Jim. Jim, you're a bigger picture thinker, so this is a bigger picture question, I think. It's really around networking intensity and also timing of, you know, either the peak in 800G or the beginning of 1.6T. There's kind of two parts. The first part is Ciena. Obviously, all the connectivity guys were down big that Monday. Do you think that impacts connectivity at all, the outlook for it? Then, perhaps there are push outs of key AI products. Do you see that affecting, you know, either 800G or 1.6T for you guys this year?

Speaker Change: Okay.

Speaker Change: Hey, Thanks for the question. This one is for Jim and.

Speaker Change: And Jim your your bigger picture thing.

Speaker Change: So there is a bigger picture question I think.

Speaker Change: It's really around networking intensity and also timing.

Speaker Change: Either the peak in the 100 G or the beginning of one six.

Speaker Change: And there's kind of two parts.

First part is deep seek.

Speaker Change: Obviously, all the connectivity guys were down big.

Speaker Change: That Monday.

Speaker Change: Do you think that impacts connectivity at all.

The outlook for it and then.

Speaker Change: Perhaps there are push outs.

Speaker Change: Key AI products.

Speaker Change: Do you see that affecting.

Speaker Change: There are 801 six for you guys this year.

Jim Anderson: Yeah. Thanks, Chris. So on the first part of the question around deep, Ciena and the outlook, first of all say that we've seen no significant changes in our customers' outlook, both in terms of the orders that they're placing or the long-term forecast that they have been providing to us. We've seen no significant change there.

Speaker Change: Yeah.

Speaker Change: Yeah. Thanks, Chris So on the first part of the question around.

Speaker Change: Deep deep seek and outlook.

Speaker Change: First of all I'll say that we've seen no significant changes in our customers.

Speaker Change: Look both in terms of the orders as they're placing or the long term forecast that they have been providing to us we've seen we've seen no significant change there and.

Jim Anderson: You know, I would say in terms of longer term, I think we share the view that many others do in the industry, which is that to the extent that any technology, whether it's Ciena or any other technology, you know, makes AI more pervasive, that propagates AI in a wider way, makes it easier to adopt or cheaper to adopt, we view that as underlying, you know, as providing underlying growth for the market over the long term. We view that as a long-term positive market trend. In the shorter term, we've seen no significant change in customer forecasts or ordering patterns. Because of that, I you know, I also don't see any impact that it has on 800G peak or 1.6T ramp.

Speaker Change: I would say in terms of longer term I think we share the view that many others do in the industry, which is that to the extent that any technology, whether it's deep sea crew or any other technology.

Speaker Change: Makes AI more pervasive that propagates AI why in a wider way makes it easier to adopt or cheaper to adapt we view that as as underlying.

Speaker Change: As providing underlying growth for the market over the long term should we view that as a long term positive market trend, but in the shorter term, we've seen no significant change in customer forecast or ordering patterns and because of that.

Jim Anderson: We view that as a long-term positive market trend. In the shorter term, we've seen no significant change in customer forecasts or ordering patterns. Because of that, I you know, I also don't see any impact that it has on 800G peak or 1.6T ramp.

Speaker Change: Also don't see any impact that it has an 800 gig pic or 160 ramp I don't believe it will have any effect on that.

Jim Anderson: I don't believe it'll have any effect on that. Just more specifically on that part, you know, we believe 800G will continue to grow over the coming quarters, even as 1.6T is introduced, because if you look at the customers, actually, it really depends on the customer on what specific data rate they're currently on. We still have a number of customers that are primarily on 400G and still have yet to transition to 800G. We have customers that are just at the beginning of their 800G ramp. I think it's, you know, 800G continues to grow while we start to ramp 1.6T.

Speaker Change: And just more specifically on that part we believe 800 gig will continue to grow over the coming quarters, even as 160 is introduced.

Speaker Change: Because if you look at the customers actually the customers.

Speaker Change: It really depends on the customer on what specific data rate. They're currently on we saw the number of customers that are primarily on 400 gig and still have yet to transition to 800 gig and Scott. We have customers that are just at the beginning of their 800 gig ramp so I think it's <unk>.

Speaker Change: 800 kg continues to grow while we start to ramp 160.

Christopher Rolland: Excellent. Thank you, Jim. Secondly, you know, there are a bunch of Chinese guys with really big capacity ramps coming. I'm just wondering if you're seeing anything in terms of transceiver pricing pressure on your own gross margins in this area, and, you know, how much more cost-cutting there is to do on the gross margin side on or efficiencies on transceiver as well.

Speaker Change: Excellent. Thank you, Jim and then <unk>.

Speaker Change: Secondly.

Speaker Change: There are a bunch of Chinese guys with really big capacity ramps coming.

Speaker Change: I'm just wondering if youre seeing anything in terms of transceiver pricing.

Speaker Change: Pressure on on your own gross margins in this area and you know how.

Speaker Change: How much.

Speaker Change: More cost cutting there has to do on the gross margin side.

Speaker Change: Or efficiencies on transceiver as well.

Jim Anderson: Yeah. Thanks, Chris. I would call the transceiver pricing that we've seen as pretty stable, and as predicted, as we would expect. I don't think there's been any unusual pricing changes that we've seen. On the second part of the question around gross margin efficiency, I kind of addressed that a little bit earlier in the questions around at a company level, I think we have a lot more work to do on driving product cost efficiency in our gross margin line. A lot more work ahead of us, and that includes for transceivers as well. I think there's improvements that are still in front of us in terms of improving product cost structures, yield being one of them.

Speaker Change: Yes, Thanks, Chris I wouldn't I would call the transceiver pricing that we've seen is pretty stable I don't and as predicted as we would expect I don't think theres been any.

Speaker Change: Unusual pricing changes that we've seen and then on the second part of the question around gross margin efficiency.

Speaker Change: And I kind of addressed that a little bit earlier in.

Speaker Change: And the questions around at a company level I think we have a lot more work to do on driving product cost efficiency in our gross margin line. So a lot more work ahead of us and that includes for Transceivers as well I think there's improvements that are still in front of us in terms of improving product cost structures yield being one.

Jim Anderson: A lot more work ahead of us, and that includes for transceivers as well. I think there's improvements that are still in front of us in terms of improving product cost structures, yield being one of them. I think input costs are an opportunity for us as well. Yeah, a lot more work to do. Good progress, and I appreciate the progress from the team in fiscal Q2, but both Sherry and I are not yet satisfied with the gross margin, and we continue to make sure the company is focused on it.

Jim Anderson: I think input costs are an opportunity for us as well. Yeah, a lot more work to do. Good progress, and I appreciate the progress from the team in fiscal Q2, but both Sherry and I are not yet satisfied with the gross margin, and we continue to make sure the company is focused on it.

Speaker Change: One of them, but I think input costs are an opportunity for us as well so yeah, a lot more work to do good progress and I appreciate the progress from the team in fiscal Q2, but we.

Speaker Change: Sheri and I are not yet satisfied with the gross margin and we continue to make sure. The company is focused on it.

Christopher Rolland: Great to hear. Thanks, Jim.

Speaker Change: Great to hear thanks, Tim.

Operator: The next question comes from the line of Edward Snyder with Charter Equity Research. Please proceed.

Speaker Change: The next question comes from the line of Jackie again with charter equity Research. Please proceed.

Edward Snyder: Great. Thanks for taking the question. I was hoping you could talk about the yield improvements in Datacom a bit. I was wondering where exactly it came from, like whether it was materials or on the manufacturing or back-end side. Are they coming from kind of the typical development process where you can just continually squeeze out improvements, or have these been more like discrete one-time improvements?

Jack Egan: Great. Thanks for taking the question. I was hoping you could talk about the yield improvements in Datacom a bit. I was wondering where exactly it came from, like whether it was materials or on the manufacturing or back-end side. Are they coming from kind of the typical development process where you can just continually squeeze out improvements, or have these been more like discrete one-time improvements?

Jackie: Great. Thanks for taking the question I was hoping you could talk about the yield improvements and datacom a bit. So I was wondering where exactly it came from like whether it was materials or on the manufacturing or back end side.

Speaker Change: And then are they coming from kind of the typical development process, where you can just continually squeeze out improvements or have these been more like discrete one time improvements.

Jim Anderson: I would say it's a range of things, right? There's a number of different places that we're focused on yields. I would say some of them are one-time improvements. Some of them are things that we believe are ongoing improvements that we're sort of at the start of ongoing improvements. I think it's a range of things. We're certainly looking at you know the entire expanse of any yield improvements we can drive. But also, as I mentioned just a minute or two ago, we're definitely looking at input costs and overhead costs. Anywhere where we can drive cost efficiency, we're focused on that. I think it's a range of activities.

Speaker Change: I wouldn't say, it's a range of things right. There's a number of different places that we're focused on on yields I would say some of them are one time improvement some of them are things that we believe our ongoing improvements that we're sort of at the start of ongoing improvements I think it's a range of things and we're certainly looking at at the.

Jim Anderson: We're certainly looking at you know the entire expanse of any yield improvements we can drive. But also, as I mentioned just a minute or two ago, we're definitely looking at input costs and overhead costs. Anywhere where we can drive cost efficiency, we're focused on that. I think it's a range of activities.

Speaker Change: The entire expanse of any yield improvements, we can drive but also as I mentioned, just a minute or two ago. We are definitely looking at input costs on overhead costs.

Speaker Change: Anywhere where we can drive cost efficiency, we're focused on that so I think it's a range of activities. Yes, I would just add that just a reminder that in Q from Q1 going into Q1, we saw improvement.

Sherri Luther: Yeah. I would just add that, just a reminder that from Q1 going into Q1, we saw improvements in yield as well, and we continue to see that in Q2. As Jim mentioned, it's in different areas, different products, different parts of the process, but we're focused on all those areas, and we're really pleased to see continued yield improvements in Q2 in the Datacom business.

Speaker Change: N yield as well and we continue to see that in Q2, so as Jim mentioned, it's in different areas different products different parts of the process, but we're focused on on all of those areas and we're really pleased to see.

Speaker Change: <unk> yield improvement in Q2 and in the Datacom business.

Edward Snyder: Great. For my follow-up then, you've given a lot of color on your strategy from the product portfolio and efficiency standpoints. I know you'll probably share more on this during the investor day, but have you made or are you looking to make any major changes when it comes to kind of the sales and marketing or the distribution side? I mean, because Coherent has the very broad footprint with vertical integration, as you mentioned. I was just curious if there were any synergies there.

Jack Egan: Great. For my follow-up then, you've given a lot of color on your strategy from the product portfolio and efficiency standpoints. I know you'll probably share more on this during the investor day, but have you made or are you looking to make any major changes when it comes to kind of the sales and marketing or the distribution side? I mean, because Coherent has the very broad footprint with vertical integration, as you mentioned. I was just curious if there were any synergies there.

Speaker Change: Right and.

Speaker Change: So for my follow up and you've given a lot of color on your strategy from the product portfolio and an efficiency standpoint, and I know youll probably share more on this during the Investor day, but have you made or are you looking to make any major changes when it comes to kind of the sales and marketing or the distribution side of it.

Speaker Change: Coherent how's that.

Speaker Change: The very broad footprint with vertical integration now that you've mentioned so I was just curious if there are any synergies there.

Jim Anderson: Yeah. Thank you. So that is another area that we've been driving improvement in what I would say is kinda similar to the activities we were driving in R&D. We're trying to make sure that, first of all, the resources around sales and marketing are applied in the area of greatest opportunity. We have made changes where we've reduced resources and sales resources in some areas, and we've increased resources in other areas. We are shifting resources to where we believe is the greatest long-term growth opportunity and margin growth opportunity for the company. Yeah, we are. There's a number of changes we've already driven, and you know, that's someplace where we'll continue to drive improvements moving forward.

Speaker Change: Yes. Thank you so that is another area that we've been driving improvement.

Speaker Change: In.

Speaker Change: What I would say is.

Speaker Change: Kind of similar to the activities we were driving in R&D is we're trying to make sure that first of all that the resources around sales and marketing are applied in the area of greatest opportunity and so we have made changes where we've reduced resources and sales resources in some areas and we've increased <unk>.

Speaker Change: <unk> and other areas and so we are shifting resources to where we believe is the greatest long term growth opportunity and margin growth opportunity for the company and so yes. We are there's a number of changes we've already driven and that's someplace, where we will continue to drive improvements moving forward.

Jim Anderson: We are shifting resources to where we believe is the greatest long-term growth opportunity and margin growth opportunity for the company. Yeah, we are. There's a number of changes we've already driven, and you know, that's someplace where we'll continue to drive improvements moving forward.

Speaker Change: Yeah.

Edward Snyder: Great. Thanks, Jim.

Jack Egan: Great. Thanks, Jim.

Speaker Change: Great. Thanks, Joe.

Jim Anderson: Thank you.

Speaker Change: Thank you.

Operator: Thank you. We have reached the end of our time for Q&A. I'd now like to turn the floor back to CEO Jim Anderson for closing comments.

Speaker Change: Thank you.

Speaker Change: <unk> reached the end of our time for Q&A.

Jim Anderson: Now I'd like to turn the floor back to CEO, Jim Anderson for closing comments.

Jim Anderson: Yeah. Thank you, operator, and thanks everybody for joining us on the call today. As we wrap up here, I first of all wanna thank all of my Coherent teammates for the great hard work and the dedication and the really good solid execution in our fiscal Q2. Thanks for everybody on the call today. Thanks for your support and looking forward to continuing to update you on our progress. Operator, that concludes our call.

Jim Anderson: Yes, Thank you operator, and thanks, everybody for joining us on the call today. So as we wrap up here first of all I want to thank all of my coherent teammates for the great hard work and the dedication and the really good solid execution in our fiscal Q2 and thanks for everybody on the call today. Thanks for your support and looking for.

Jim Anderson: Forward to continuing to update you on our progress operator that concludes our call.

Jim Anderson: Okay.

Operator: Thank you. This concludes today's conference. You may now disconnect your lines at this time, and enjoy the rest of your day.

Jim Anderson: Thank you. This concludes today's conference you may now disconnect your lines at this time.

Jim Anderson: Enjoy the rest of your day.

Jim Anderson: [music].

Q2 2025 Coherent Corp Earnings Call

Request a DemoDemo

COHR

Coherent

Earnings