Q1 2025 MACOM Technology Solutions Holdings Inc Earnings Call
Okay.
Welcome to me comes first fiscal quarter 2025 conference call.
This call is being recorded today Thursday February six 2025.
At this time all participants are in a listen only mode.
Speaker Change: I'll now turn the call to Mr. Steve Raunchy make them.
Speaker Change: <unk> of corporate development and Investor Relations. Mr. Ferranti. Please go ahead.
Speaker Change: Thank you Olivia good morning, and welcome to our call to discuss May Coms financial results for the first fiscal quarter of 2025.
Speaker Change: I'd like to remind everyone that our discussion today will contain forward looking statements, which are subject to certain risks and uncertainties as defined in the safe Harbor for forward looking statements contained in the private Securities Litigation Reform Act of 1995.
Speaker Change: Actual results may differ materially from those discussed today.
Speaker Change: For more detailed discussion of the risks and uncertainties that could result in those differences, we refer you to make com's filings with the SEC.
Speaker Change: Management statements. During this call will also include a discussion of certain adjusted non-GAAP financial information a reconciliation of GAAP to adjusted non-GAAP results are provided in the company's press release and related form 8-K, which was filed with the SEC today and with that I'll turn it over the call to Steve Daly, President and CEO of makeup.
Speaker Change: Thank you and good morning, I will begin today's call with a general company update after that Jack Kober, Our Chief Financial Officer will review, our Q1 results for fiscal year 2025.
Speaker Change: When Jack is finished I will provide revenue and earnings guidance for the second quarter of fiscal 'twenty five and then we will be happy to take some questions.
Speaker Change: Revenue for the first quarter of fiscal 2025 was $218 million and adjusted EPS was <unk> 79 per diluted share.
Speaker Change: We continue to execute our strategy and we are pleased with our Q1 cash flow and increased earnings.
Free cash flow for Q1 was approximately $63 million.
Speaker Change: At quarter end, we held approximately $657 million in cash and short term investments on our balance sheet.
Speaker Change: Overall Q1 was a great way to start our fiscal 2025.
Speaker Change: Revenues by end market were as follows industrial and defense was $97 4 million data Center was $65 3 million and telecom was $55 4 million.
Speaker Change: Data center was up 16% sequentially Telecom was up 7% sequentially and <unk> was up 5% sequentially.
Speaker Change: I will note that both our IMT and datacenter quarterly revenues were at record levels.
Speaker Change: Our Q1 book to Bill ratio was one one to one and new order activity was strong in certain areas of our business.
Speaker Change: While our backlog is at record levels, we do see pockets of both strength and weaknesses across our customer base.
Speaker Change: Our turns business or orders booked and shipped within the quarter was approximately 23% of total revenue.
Speaker Change: <unk> serves three large and diverse end markets some of which have strong secular growth drivers our targeted end markets collectively represent approximately seven to 8 billion dollar serviceable addressable market or Sam.
Today, we have a small fraction of the market and we continue to deploy a variety of strategies to gain market share.
Speaker Change: We intend to capture market share by leveraging our advanced IC design and semiconductor technologies by expanding our portfolio with compelling new products and by launching new product lines.
Speaker Change: All while focusing our investments in areas, where our product performance will be a differentiator.
Speaker Change: Now turning to our three end markets.
<unk> revenue is approaching $100 million per quarter, driven largely by growth in our defense business.
Speaker Change: The defense market is evolving rapidly in response to changes and new threats scene in the battlefield due to recent technology advancements we.
Speaker Change: We are seeing an uptick in the design of novel and innovative radar and EW systems, many of which have increased RF and microwave semiconductor content.
Speaker Change: In some cases these systems are being designed by new and well funded defense startups with innovative technology and business models.
Speaker Change: May comp plays an enabling role in the defense market, providing technology solutions to tier one defense primes tier two sub system suppliers and a long list of medium and small customers that service the industry.
Speaker Change: Most opportunities, we address trend towards higher frequencies higher power levels wider bandwidth and higher levels of integration all of which plays to make com strengths.
Speaker Change: In some cases customers are focused on high volume applications, where they're looking for partners that can deliver a complete system solutions and domestic manufacturing scale, while meeting aggressive cost targets.
Speaker Change: The increased use of Uavs and low cost drones has created a growing and urgent need for upgrades to legacy airborne and ground based radar platforms, along with entirely new electronic warfare platforms to detect identify track and eliminate threats.
Speaker Change: In addition, the dod's need for ubiquitous anytime anywhere access to high speed broadband connectivity is driving new investments and satellite programs.
Speaker Change: And finally newer avionics radar and EW platforms are increasingly adopting analog and digital optical links to adapt to a greater data transport requirements.
Speaker Change: Our strategy to service defense customers is built upon a few key differentiators first may comps industry, leading gallium arsenide gallium nitride capabilities spanning both our RF power and mimic product portfolios.
Speaker Change: As an example of complexity may comms products utilized nearly a dozen unique gan semiconductor processes, which allow us to address a wide range of applications and technical requirements.
Speaker Change: And we now have design teams that specialize in Bolton narrow band and wide band use cases for radar EW secure communications and signal intelligence.
Speaker Change: Second may com has broad expertise and comprehensive product portfolio for hard into optical solutions, including RF over fiber subsystems.
Speaker Change: RF over fiber utilizes linear photonics to transmit a radio signal directly over fiber without the need for digital conversion the.
Speaker Change: The result is higher bandwidth longer transmission distances, lower signal loss and better immunity to interference as versus traditional coax cable.
Speaker Change: These solutions are typically used in phased array radar remote antenna and tow decoy applications.
Speaker Change: With over fiber can replace copper coax cable or high speed digital cables.
Speaker Change: Third <unk> has leading RF diode technologies, which are ideal for a receiver protection high power switching coal generators and tunable filter applications.
Speaker Change: And some of these areas may com is regarded as the gold standard in the industry for performance and quality.
Speaker Change: Many customers within the A&D markets had been using may comp diodes in their platforms for decades.
And the final differentiator as May comms growing microwave system engineering capabilities. We've spent the last few years building our system engineering and applications engineering team with industry, leading veterans and technology experts across our core area of expertise.
This team has enabled us to engage much earlier in our customer's project design cycles to present, the full scope of may comps capabilities to help solve the customer's technical challenges.
Speaker Change: With the combination of our technology portfolio, along with our growing ability to support higher level system design. We are increasingly viewed as a partner of choice for many of our defense and space customers.
Speaker Change: To extend our reach into gain market share we plan to add new technologies to our portfolio in calendar 2025, we plan to announce two new product lines at upcoming Tradeshows in March in June and just a few months time.
Speaker Change: Additionally, we have an amazing pipeline of high performance products coming to market this year for our defense and space customers.
Speaker Change: Within the telecom market. There are also multiple areas where may comps technology shines.
Speaker Change: <unk> has a comprehensive portfolio of Gan on Silicon carbide solutions for <unk> applications.
Speaker Change: <unk> base stations required medium and high power amplifiers and this provides us a great growth opportunity our.
Speaker Change: Our products use unique device structures proprietary circuit architectures and high performance packaging solutions.
Speaker Change: We believe that we are gaining market share in the macro base station segment to <unk> driven by the need for high higher power multi band radios, where may comps products offer unique advantages over our competition.
Speaker Change: That said, we are not complacent and we are developing new epitaxial solutions to improve our product competitiveness and performance, especially for massive mimo applications.
Speaker Change: Second we have established a broad portfolio of products for low Earth orbit or Leo satellite based broadband and direct to sell applications.
Speaker Change: They cant provide semiconductor and module solutions for satellite to satellite links as well as satellite to ground leaks utilizing technology from our HBC diode mimic RF power Lightwave and Linearize our product lines.
Speaker Change: As an example, our linear modules and subsystems team or LMS specializes in designing products and solutions that overcome non linearity of RF microwave and millimeter wave signal transmission for space based communication systems.
Speaker Change: In some cases satcom lengths required linearization to boost the power efficiency and improve the quality of the connection.
This team can leverage our European space Agency space qualified processes from our May Com European Semiconductor center.
Speaker Change: Designing very high frequency linear rises SSP as our frequency converters.
Speaker Change: We also have a team that specializes in state of the art linear photonic components and optical modules and systems for use in free space optics and ground system distribution networks.
Speaker Change: Other segments within the telecom market, we focus on his front haul 132, gigabyte coherent systems in Metro and long haul deployments pond and cable infrastructure, we leveraged the strength of our high speed IC portfolio and our photonic products from our Lightwave portfolio.
To address these markets.
Speaker Change: Our datacenter market revenue is on pace to have another strong growth year.
Speaker Change: There are favorable secular growth trends driven by cloud service providers accelerating capital expenditure to deploy next generation data center architectures.
Speaker Change: Our broad based expertise and high speed signal integrity allows us to support the industry with our existing products.
Speaker Change: More importantly, we have aligned our product roadmaps with our customers' needs to deliver the right technology at the right time.
Speaker Change: We can differentiate in this market based on our IC and system design expertise as well as our unique photonic materials and product expertise.
Speaker Change: Today, we are servicing customers with products that support from 100 G to 160 applications.
Speaker Change: Our 100 G per lane product support 408 hundred <unk> systems, and our 200 G per lane product support 800, G and $1 60 systems.
Speaker Change: As we look ahead, we are focused on designing 400 G per lane products, which will eventually support three <unk> connectivity.
Speaker Change: Our ability to stay on the leading edge, while supporting multiple generations of products across a wide customer base is a key differentiating factor.
Speaker Change: And as a reminder, our product support both re timed and linear Pam four architectures as well as non DSP solutions, using linear applicable optics or LPL regardless.
Speaker Change: Regardless of the technology or architectures selected by our customers, we lean in and we support them with best in class Engineering and application support.
Speaker Change: We assist our customers where they are whether they are designing active copper cables plugged <unk> modules and active optical cables using dsp's or no DSP.
Speaker Change: We also support customers that utilize silicon photonics and co packaged optics or near packaged optics.
Speaker Change: Our products for 400, G and 800 G ZR and ZR plus coherent are also well positioned within the market to support future growth and finally as we look ahead, we see new applications emerging with disaggregated computing, such as PCI <unk> and PCI seven.
Speaker Change: In summary, our strategy is to build a unique best in class and diversified semiconductor portfolio that will enable may comp to capture a larger share of the three markets. We focus on our agility helps us address opportunities and ultimately beat our competitors that are often larger and have more resources.
Jack Kober: Before I pass the conversation to Jack I would like to review two recent press releases on January 14th we issued a detailed press release summarizing our long term wafer fab capital investment plan and the associated chips Act and state funding.
Jack Kober: Our investment plan has two major tenants, which we believe will make may com, a more competitive company over the long term.
Jack Kober: First we have plans to modernize our Lowell, Massachusetts, fab and expand its technology base with advanced node Gan on Silicon carbide.
Jack Kober: And second we plan to expand our manufacturing capacity and capabilities at our North Carolina Fab.
Jack Kober: To enable faster execution of our strategy, we will seek to take advantage of the grants and tax benefits offered by federal and state programs.
Jack Kober: As of today May <unk> has only signed a non binding preliminary memorandum of terms or PMT with the chips program office.
Jack Kober: Over the coming weeks and months, we expect to finalize the terms of the definitive agreement.
Jack Kober: In the near term, there will be minimal or no impact to our P&L.
Jack Kober: And second on February 5th we issued a press release announcing that May comps European semiconductor center or mask was awarded a mimic development project funded by the French government.
Jack Kober: Within the framework of the France 2030 program.
Jack Kober: We look forward to collaborating with our private and public sector partners to execute this exciting program.
Jack Kober: Award symbolizes recognition of our team and facility as a supplier and partner to the French industrial base and potentially opens the door for mask to collaborate on larger French and European Union technology development and capital investment programs.
Jack Kober: Jack will now provide a more detailed review of our financial results.
Speaker Change: Thanks, Steve and good morning to everyone.
Speaker Change: Our Q1 results show strong financial performance building upon our steady growth in revenue operating income and cash generation.
Speaker Change: This has allowed us to strengthen our balance sheet, while accumulating cash and positions us well to execute our corporate priorities before getting into the numbers I would like to highlight a recent announcement.
Speaker Change: In December 2024, we refinanced approximately 65% or $289 million of our convertible notes that are due in March of 2026 as.
Speaker Change: As part of the refinancing we issued new convertible notes of approximately $340 million, which have a zero percent coupon rate and are due in December 2029.
Speaker Change: Also in connection with the refinancing we issued approximately one 6 million shares of common stock to certain of the note holders who refinance their notes.
Based on the accounting rules. The majority of these shares were already included in our diluted shares as of the date of the refinancing.
Speaker Change: From a GAAP reporting perspective, we recorded a one time, primarily noncash loss on the extinguishment of the debt of $193 $1 million.
Speaker Change: The refinancing has had a neutral impact on our pro forma net leverage and we believe helps to strengthen our balance sheet and future financial performance.
Speaker Change: And now onto our quarterly results.
Speaker Change: Fiscal Q1 revenue was a new quarterly record high of $218 1 million up eight 7% sequentially based on growth across all three of our end markets.
Speaker Change: On a geographic basis revenue from U S. Domestic customers represented approximately 45% of our fiscal Q1 results levels.
Speaker Change: Levels consistent with fiscal Q4 2024.
Speaker Change: Adjusted gross profit for fiscal Q1 was $125 3 million or 57, 5% of revenue 60 basis points lower than the preceding quarter.
Speaker Change: We recognize that our gross margin for the first quarter is below our targets and we would like to provide some additional trend information on this.
Speaker Change: As a result of ongoing softness within certain of our industrial and telecom end markets. We have had lower wafer volumes going through our low fab, resulting in under absorbed costs compared to prior periods.
Speaker Change: Further based on our estimated mix of future product shipments, including the increased revenue contribution from our RF power business. We expect gross margins for the remainder of fiscal year 2025 to be in the range of 57% to 58%.
Speaker Change: I would like to note that we are making good progress on numerous initiatives, where our team continues to refine and optimize our cost structure and execute on incremental operational efficiencies and yield enhancements.
Speaker Change: These improvements can be seen in the sequential increases in our adjusted operating income operating margin and EPS over the past three quarters.
Total adjusted operating expense for our first quarter was $69 9 million <unk>.
Speaker Change: Consisting of research and development expense of $47 5 million and selling general and administrative expense of $22 4 million.
Speaker Change: The sequential increase in adjusted operating expense of $4 million was primarily driven by higher compensation related expenses associated with our annual employee merit increases and higher R&D costs.
Speaker Change: Depreciation expense for fiscal Q1 was $6 7 million compared.
Speaker Change: Compared to $6 3 million in Q1 2024.
Speaker Change: Adjusted operating income in fiscal Q1 was $55 4 million up 9% sequentially from $50 7 million in fiscal Q4 2024.
Speaker Change: For fiscal Q1, we had adjusted net interest income of $5 9 million compared to net interest income of approximately $5 3 million in Q4.
Speaker Change: As we continue through fiscal 2025, we expect quarterly net interest income to increase at a similar rate as the Q1 increase.
Speaker Change: We expect to increase investment balances to operational cash generation, which will more than offset potentially lower future interest rates and associated yields.
Speaker Change: Our adjusted income tax rate in fiscal Q1 was 3% and resulted in an expense of $1 $8 million.
Speaker Change: Our net cash tax payments were approximately $1 1 million for the first quarter.
Speaker Change: We expect our adjusted income tax rate to remain at 3% for fiscal year 2025.
Speaker Change: As of January three 2025, our deferred tax asset balances increased to $217 million as compared to $212 million at the end of fiscal Q4 2024.
Speaker Change: We anticipate utilizing our deferred tax asset balances, including R&D tax credits through the remainder of fiscal 2025 and into fiscal 2026, helping to keep our cash tax payments relatively low over these periods.
Speaker Change: Fiscal Q1, adjusted net income increased to $59 5 million compared to $54 2 million in fiscal Q4.
Speaker Change: Adjusted earnings per fully diluted share was <unk> 79.
Speaker Change: Utilizing a share count of $75 6 million shares compared to <unk> 73 of adjusted earnings per share in fiscal Q4 2024.
Speaker Change: Now moving on to operational balance sheet and cash flow items.
Speaker Change: Our Q1 accounts receivable balance was $91 $8 million down.
Speaker Change: Down from $105 7 million in fiscal Q4, 2024, due to improved shipment linearity and strong collection activity during the quarter.
Speaker Change: As a result days sales outstanding were 41 days compared to 48 days in the prior quarter.
Speaker Change: Inventories were $198 4 million at quarter end up sequentially from $194 5 million.
Speaker Change: Inventory turns were flat sequentially at one seven times the increase in our inventory balance is to support our growing customer order backlog and our strategic growth plans for fiscal 2025.
Speaker Change: Fiscal Q1 cash flow from operations was approximately $66 $7 million.
Speaker Change: Up $4 3 million sequentially and more than $33 million over fiscal Q1 2024.
Speaker Change: Capital expenditures totaled $5 3 million for fiscal Q1 slightly above the preceding quarter.
Speaker Change: As Steve had mentioned earlier, we are pleased with the announcement of the non binding preliminary memorandum of terms with the chips program office and look forward to finalizing the details of a definitive agreement in the near term.
Speaker Change: We expect our capital expenditures to be approximately $30 million for the full fiscal year 2025, excluding any chips program spending.
Speaker Change: Next moving on to other balance sheet items cash cash equivalents and short term investments for the fourth fiscal quarter was $656 5 million up $74 6 million from Q4.
Speaker Change: Comparing our cash and short term investments to the book value of our convertible notes. We are in a net cash position of more than $157 million as of January three 2025.
Speaker Change: Our balance sheet and cash generation remains sound and we continued to exercise leverage over our operations and discretionary spending to support may comes target margins through ongoing cyclical pressure.
Speaker Change: We are pleased with the Companys performance and accomplishments during Q1, and we will continue to execute on our financial goals.
Speaker Change: <unk> <unk>.
Speaker Change: Build a company that can achieve an annualized revenue run rate of $1 billion or more in fiscal year 2026.
Speaker Change: To carefully manage and allocate our discretionary spending and capital expenditure to growth areas of the business.
Speaker Change: Sequentially improved quarterly operational margins and increased EPS.
Speaker Change: Generate quarterly cash flow from operations that exceed prior year levels and ensure our capital structure is optimized to provide operating flexibility at a low cost.
Speaker Change: I would like to thank the entire may com team for their support and look forward to the remainder of fiscal year 2025.
Speaker Change: And now back to back over to you Steve.
Speaker Change: Thank you Jack May.
Speaker Change: <unk> expects revenue in fiscal Q2, ending April <unk> 2025 to be in the range of 227 two.
Speaker Change: $233 million.
Speaker Change: Adjusted gross margin is expected to be in the range of 57% to 58%.
Speaker Change: And adjusted earnings per share is expected to be between 82 and 86.
Speaker Change: Based on 76 million fully diluted shares.
Speaker Change: We expect sequential revenue growth in all our end markets. We expect that data center will lead with approximately 10% growth followed by telecom and industrial and defense, both with low to mid single digit sequential growth.
Speaker Change: As evidenced by our Q2 outlook, we continue to make steady progress to achieve our goal of $1 billion in annual revenues.
Speaker Change: I'd now like to ask the operator to take any questions.
Speaker Change: Thank you.
Speaker Change: And gentlemen to ask a question at this time, you will need to press star one on your telephone.
Speaker Change: For your name to be announced as the mine and the consideration of time, please limit yourself to one question and one follow up.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question coming from the line of Thomas O'malley with Barclays. Your line is now open.
Thomas O'malley: Hey, guys. Thanks for taking my questions I really appreciate it.
Thomas O'malley: To start on the data center side is it's really the growth engine of the business right now.
Thomas O'malley: Two part question. There. So you guys have always talked about the ACC inflection point potentially happening kind of in the middle of calendar year 'twenty five.
Thomas O'malley: You sounded a bit more modest on your expectations for ACC last call, but could you just update us there.
Thomas O'malley: The progress with ACC. This year do you still kind of see the inflection point middle of 'twenty five and in the second.
Thomas O'malley: It was really around IPO, which you spoke a little bit on the call Theres been a lot more talk about co packaged optics theres been a lot more talk about optics potentially moving to the back of the rock could you talk about what solutions, you're offering at <unk> and if that's the opportunity that potentially could exceed the opportunity that you've kind of laid out for the ACC side apologies with every.
Thomas O'malley: Big data center, but I wanted to kick it off there.
Thomas O'malley: Yeah.
Thomas O'malley: Thank you Tom for the question and I think you are correct.
Conclude that the data center and end market is having a very good year. It had a very good year last year with 35% growth and based on.
Thomas O'malley: Providing guidance into the second quarter, it looks like we might even be able to exceed that growth level.
Thomas O'malley: Our fiscal 'twenty five a lot of that drove growth is being driven by the optical side of our portfolio.
I wanted to make that very clear a lot of that growth has been driven by strength in our 800 gig portfolio.
Thomas O'malley: And what we see happening during the course of our our fiscal 'twenty five is actually <unk>.
Thomas O'malley: Probably us a bit of a slowdown in 800 gig as some of our lead customers transition over to a one six T. So I just want to highlight that now when you overlay the dynamics around the ACC product line, which we offer to customers to support various data rates not just the highest data rates.
Thomas O'malley: Yes.
Thomas O'malley: There are a few notable facts number one we have seen in the market.
Thomas O'malley: Architecture changes in some of the data centers and that will absolutely change the trajectory of the demand on for that customer for accs with.
Thomas O'malley: <unk> built that into our guidance, we don't see this as a major challenge for the company given we have lots of <unk>.
Thomas O'malley: Variety within the data center, but I would just highlight that we are seeing.
Thomas O'malley: One customer as they've moved from let's say, a two rack solution to our <unk> solution.
Thomas O'malley: That will ultimately reduce the overall demand for that particular product now with that said I have to highlight that the fact that we have proven that we can provide electrified copper cables at 800 gig at 160, <unk> is a little bit of a game changer for the entire <unk>.
Thomas O'malley: <unk> and so we are seeing tremendous interest.
Thomas O'malley: From across a very broad customer base to evaluate this technology and so that in our mind is really.
Thomas O'malley: The game changer. So the early adopters are making some changes clearly it architecture, but we think long term.
Thomas O'malley: It's a very positive trend.
Thomas O'malley: And then your second question was really on LPL.
Thomas O'malley: Which to remind everybody as a solution.
Thomas O'malley: Without the DSP, we are also sort of.
Thomas O'malley: Equivalence here between <unk> and ACC, we also see a lot of interest a lot of activity.
Thomas O'malley: Merrily at the higher data rates, so 800 gig and also $1 60, we have a very very strong product line for that.
Thomas O'malley: For solutions in this area and I would say from our point of view. This as a late 'twenty five late calendar 'twenty five in calendar 'twenty six contribution to our overall.
Thomas O'malley: Data center revenue.
Thomas O'malley: Very helpful. Thank you.
Thomas O'malley: Okay.
Thomas O'malley: Thank you.
Thomas O'malley: Okay.
Speaker Change: And our next question coming from the line of David Williams with the Benchmark Company. Your line is now open.
David Williams: Hey, good morning, Thanks for taking my questions and congratulations on the execution and the really strong results here.
Speaker Change: Thank you.
Speaker Change: I guess, maybe first just kind of thinking about the Dod satellite programs that you mentioned earlier I mean satellite com as it has been an area that you've been enthusiastic about for some time just kind of wondering if you could give a little more color on that and what youre seeing in that overall satellite comm space and how do we think about that revenue opportunity over the next couple of years, just given the strength, we're seeing in that space.
Speaker Change: Well I think that strength will continue for the next three to five years and we are seeing tremendous.
Speaker Change: Tremendous demand not only from established satellite manufacturers, but also let's say a new class of satellite manufacturers that are building.
Speaker Change: More let's say low cost leos.
Speaker Change: So it is a it's a very active environment across the space industry.
So clearly there is.
Speaker Change: Global broadband service is being provided by commercial providers, but also theres, a Dod overlay and what we see is there is multiple bands of opportunity or high frequency bands of opportunity.
Speaker Change: Including E band V band.
Speaker Change: And even <unk>. So these are generally very very high frequency levels. There is very limited semiconductor solutions for those bands.
Speaker Change: And may comp can be a leading provider of solutions just from an RF or microwave point of view. The systems generally speaking have lots of different components that we can sell into the into the platforms.
Speaker Change: Not only are we selling in analog mixed signal devices.
Speaker Change: Selling products that are effectively moving high speed data on the platform, but we're also involved on the optical side as well whether it be.
Speaker Change: Really free space optics for satellite to satellite satellite to ground communications now when you overlay on top of that the connectivity to their airborne platforms or ground based.
Speaker Change: Terminals.
Speaker Change: There's a lot of content that's happening on on those other ads and that's where also we shine and in my prepared remarks, we talked about the work that our linear module subsystems group is doing your LMS is doing and this is really been their bread and butter for 30 years and so with makeup scale.
Speaker Change: And breadth and access to customers, where we're really seeing just some great opportunities to produce linearized SSP as Ed Tw Ts, we're pushing more photonics onto these platforms. We have some very exciting new product lines, we're going to introduce in the back half of this year that will support even more growth.
Speaker Change: So I think it's a it's a great environment for May club.
Speaker Change: It's a great environment, because we have unique technology, we're vertically integrated obviously, what the millimeter wave semiconductors. So we have a lot of proprietary.
Speaker Change: Our processes that we can provide our customers and of course on the optical side. The fact that we're making lasers and photo detectors is a tremendous tremendous advantage to our customers where they can go to one company to provide them the solution that they want so it'll be good business. It is there are there will be periods of high <unk>.
Speaker Change: Growth in slow growth, depending on how these contracts flow as you may remember, we did announce a $55 million contract probably about six to nine months ago and I'll. Just highlight that we are in the development phase of executing on that contract and the revenues associated associated with that contract.
Speaker Change: Won't happen until the back half of our fiscal 'twenty five and it's really a fiscal 'twenty six revenue contributor. So we like the market is very dynamic it is not only commercial it's also defense.
Speaker Change: Lots of lots of really great color there thanks for that.
Speaker Change: And then maybe secondly, just on the datacenter side, you talked a bit about this earlier, but can you talk maybe about any changes that you've seen in terms of just the spending expectations over the next couple of years, we've all heard.
The changes that potentially could happen just kind of given the state of that industry now and kind of a person deep sea, but just curious if you're hearing anything from customers that early on in terms of their spending thoughts or plans.
Speaker Change: Thank you.
Speaker Change: So we we generally have a bullish posture on the expansion and the capital spending within the data center.
Speaker Change: And so it continues to be a focus area for me com.
Speaker Change: I'll add that we're not only.
Speaker Change: Supporting our existing customers with very high data rate products on the electrical side Pam four solutions, but also we believe in the future we'll be providing more on the optical side as well we have a very strong 200 gig.
Speaker Change: Per lane PD.
Speaker Change: Product and we have a very strong CW laser.
Speaker Change: Our products 75 megawatt 100 megawatt product that can support silicon photonic solutions and we think during the course of 25% to 26. This will add additional revenue to our overall portfolio. The other thing I'll highlight is with regards to the connectivity around compute and we are starting.
Speaker Change: To see opportunities with.
Speaker Change: With Pam four solutions for Pcie, <unk> and Pcie seven and.
Speaker Change: We are one of the few companies that really understands the electronics around those interfaces and so we plan on bringing bringing.
Speaker Change: The full way to May come into these markets for the interconnect portion of those pcie system. So we're forming partnerships, we're working with some major customers and we will be offering not only electrical solutions, but also optical chipsets, which support that those.
Speaker Change: Those new protocols and Pcie <unk> is right now still in the forming stage Theyre still ironing out a lot of the.
Speaker Change: The standards, but it's essentially a 500 gigabit per second Pam for Lincoln.
Speaker Change: No.
Speaker Change: We are continuing to see opportunities and I'll just add to that there's other markets that are being dragged into.
Speaker Change: Sort of the high speed data connectivity area, obviously, I just talked about defense, but I would also add automotive as well, we're starting to see more and more opportunities for high speed connectivity within the.
Speaker Change: Automotive deal.
Speaker Change: Harnesses and.
Speaker Change: The connectivity associated with inside the cabin as well as connecting two things outside the cabin.
Speaker Change: Thank you.
Speaker Change: And our next question coming from the lineup.
Speaker Change: Corey Sanders with Stifel. Your line is now open.
Yes, congratulations on the results.
Speaker Change: Steve could you just sort of take a step back in.
Speaker Change: Talk about the data center business for this calendar year. So it sounds like the growth is going to be driven mainly by the transition to one six optical you.
Speaker Change: You may see some growth.
Speaker Change: Copper and then obviously LPL comes late this year is that how we should think about it.
Speaker Change: Yes, I think I think that's right. There has been very strong growth over the past few quarters with our 800 gig optical products.
Speaker Change: There is going to be in.
Speaker Change: In some instances some customers migrating away from that and going to one six T and so that that is for may come where already let's say low rate production and thats going to ramp up.
Speaker Change: And so that will continue and remember that in the back half and as we go into 2026, we would expect <unk> solutions.
Speaker Change: Standard flexible module solutions with DSP.
Speaker Change: And of course continued contribution from ACC.
Just because there's been let's.
Speaker Change: Let's say a reduction in the Sam size within one particular application, we actually think overall the Sam is increasing.
Speaker Change: That's great color and then either for you or Jack on the gross margin.
So sounds like there is a.
Speaker Change: Mix element here, that's driving lower utilization in the low fab.
Speaker Change: Just just curious what are some of this business specifics. There is it is it products, primarily for telecom or data center and whats the team.
Speaker Change: Doing too.
Speaker Change: Try and get that gross margin back up again.
Speaker Change: Thanks, Victoria, maybe I'll say, a few words and then turn it over to Jack.
Speaker Change: As as everybody has seen May com has had gross margins in the in the low Sixty's just.
Speaker Change: Just a few quarters ago.
Speaker Change: And we really where we're hitting our stride when we had.
Speaker Change: Our core base May Com Telecom business was very strong and I would say right now that that piece of our businesses is relatively weak as I talked about in my script and also JAK and so there'll be.
Speaker Change: In time, when that returns to strength that will really be the.
Speaker Change: Will be what's necessary for us to get back over 60, So I want to make sure that people understand that it's really a base.
Speaker Change: Base may come low fab related topic.
Speaker Change: It's not necessarily related to the <unk> acquisition of the <unk> business or other dynamics within our business. It really has to do with the overall utilization, which maybe Jackson expand upon.
Speaker Change: Thanks Steven.
Speaker Change: As we had discussed in the prepared remarks.
Speaker Change: It's just making sure that we've got a bit more product running through that low fab, one where most efficient and it is a high mixed fab. So we're continuing to utilize the fab. It just we just don't have as many products going through there at this stage that are absorbing some of that additional cost as we had seen in the past and I think just to build upon that there is.
Speaker Change: There are some mix issues, we've been pleased with some of the growth areas that we've seen that are driving top line improvements as well as bottom line improvements that are just coming through at slightly lower than the corporate average gross margins from a comp. So there was a little bit of a mix element that we're seeing that we talked about in our prepared remarks, but over.
Speaker Change: We're pleased with the growth that these product lines have been bringing to the to the organization.
Speaker Change: Thank you.
Speaker Change: And our next question coming from the line up.
Speaker Change: Ackman with BNP Paribas. Your line is now open.
Speaker Change: Thank you gentlemen, I have two questions if I may.
Speaker Change: First could you discuss your in house capabilities to address Silicon Photonics optical transceivers.
Speaker Change: Winter, you want or or have customers asking you to scale. Your CW laser portfolio that you've been discussing about the last couple of quarters.
Speaker Change: Please.
Speaker Change: Sure so.
Speaker Change: We have just to be clear, we have no internal silicon photonic processes running within any of our Fabs, we do have indium phosphide and other than that it's generally other gas and Gan on silicon carbide type processes. So we are not a producer of silicon photonic.
Speaker Change: Materials and wafers, there is a merchant market and foundry services available from others.
Speaker Change: May com, let's say going back seven or eight years was spending a significant amount of effort and resources and investment.
Speaker Change: Looking at Silicon Photonics, we had partner partnered up with a large <unk>.
Speaker Change: Silicon Photonics fab and we were trying to attach a laser to our silicon photonic.
Speaker Change: Platform, let's say at the end of the day that did not work out we canceled the program.
Speaker Change: We basically reduced our silicon photonic design capability down to a small team that we retained today primarily to service defense related applications. So we've effectively exited the.
Speaker Change: Silicon the commercial Silicon Photonics space now what we what we've seen since then by the way is many of our customers many module manufacturers and <unk>.
Speaker Change: And <unk>.
Speaker Change: Larger companies.
Speaker Change: Have been utilizing this utilizing other file.
Speaker Change: Boundaries and developing their own silicon photonic solutions, and so we want to complement that effort.
Speaker Change: Merchant supplier of CW lasers, there's a finite number of companies that can do that so what we find ourselves doing today is partnering with module manufacturers.
Speaker Change: That are designing their own silicon photonic devices that need a CW laser.
Speaker Change: So this actually opens up a bit of an opportunity for us. The other thing I'll add is those solutions, we'll also need laser drivers and trends in peanuts amplifiers in some cases and so its a very.
Speaker Change: It's a very nice setup from our point of view, where we're not competing necessarily with our customers and we're able to provide them a unique technology.
Speaker Change: Our unique performance that they can't get elsewhere.
Speaker Change: Yeah very clear thank Steve for my follow up I wanted to pivot to satellite.
Speaker Change: I guess within that there's clearly a lot going on should we expect the government funding to shift towards this area as well.
Speaker Change: And separately are you seeing any pick up in your PON business ahead of bead funding initiatives. Thank you.
Speaker Change: Well the question about government funding.
Speaker Change: Anything. These days is an interesting question to ask so we'll have to wait and see how things ultimately shake out, but I can tell you that the need is there and we're actively engaged with the traditional as well as the new companies that are manufacturing or designing satellites and launching satellites and where we are in pretty.
Speaker Change: Deep on a lot of different programs. So we believe that it's needed for a variety of reasons some of which I stated on the prepared remarks, and so it is sort of our expectation that the government funding.
Speaker Change: To improve the posture of.
Speaker Change: The dod's position in space.
Speaker Change: As necessary so that funding will continue.
Speaker Change: Our expectation.
Speaker Change: Have we seen a direct <unk>.
Speaker Change: Impact to our to the PON market per Se I can't say that we could draw that that.
Speaker Change: Correlation our PON business has been slowly ticking up over the past few quarters, but it's only at a small level compared to what it was a few years ago. So I would say that there are just associated generally speaking.
Speaker Change: Thank you.
Speaker Change: And our next question coming from the line of Blayne Curtis with Jefferies. Your line is now open.
Speaker Change: Hey, good morning. Thanks second question I had two.
Speaker Change: I just want to start on the kind of the gross margin comment Youre, obviously at the middle of that range I think when you look at the RF business.
Speaker Change: You kind of had a margin improvement there I just wanted to kind of understand the moving pieces is it that that overall business is growing.
Speaker Change: And kind of offsetting the internal margin improvement with that or should we see some margin improvement within that range. You gave from RF I'm trying to understand the moving piece. It does sound like the bulk of our growth in telecom its been from RF. So that mix is kind of going against you, but maybe you can address the kind of margin improvement within that business.
Speaker Change: Sure, let me try to take a take a crack at that answer and answer that Jack can help out here. So.
Speaker Change: In terms of the.
Speaker Change: Our RF business, you can sort of break it out into multiple pieces. The piece that we acquired from will speed.
Speaker Change: Which has been growing over the past year quite significantly for a variety of reasons.
Speaker Change: We have that the trend line on that margin is improving and it's it's actually exceeding our expectations in terms of our ability to.
Speaker Change: Improved yields lower cost be more efficient running the business. So we see tremendous improvements with the sort of the pro forma P&L of that business. So we're very happy about that and the team has done a great job our operations team to support with will speed the.
Speaker Change: The sales team so that is.
Speaker Change: Working as expected and by the way I'll add to that that part of our strategy is to launch more mimic products within that portfolio. When you actually look at the.
Speaker Change: The sort of the <unk> portfolio as it came over we felt there just weren't enough standard products. So we've been accelerating the launch of standard products within that portfolio and that will also have a benefit to the P&L.
Speaker Change: And the gross margins of that business.
Speaker Change: When you look at base May Com, which our base may com business generally speaking has been growing however.
Speaker Change: We have we have pockets.
Speaker Change: And gaps in some of our demand primarily.
Speaker Change: Cable infrastructure related and some other wireless.
Speaker Change: Platforms as well as some industrial platforms that demand has been weak I would say over the past three quarters and as a direct result of that you have seen underutilization within the low fab creep up and Thats, having a direct effect on the.
Speaker Change: Gross margins at the corporate level outside of that industrial and defense.
Speaker Change: Great.
Speaker Change: Profitability profile are.
Speaker Change: Our datacenter business great profitability profile.
Speaker Change: Issue really revolves around filling the lull fab that is a priority for the business and Jack do you want to add to that I think you did a good job with that one Steve.
Speaker Change: Thanks, and then Steve I, just want to understand the commentary on optical.
Speaker Change: Should we assume can you maybe comment on your comment at $1 60 versus 800, I'm just trying to understand if you're just saying overall volumes are going down or is there a difference in your content between the two.
Speaker Change: To indicating the slowdown.
Speaker Change: So I would say that over the past few quarters, we've had concentrated revenues around our 800 gig business that is expected to expand as we enter the back half of the year and go into 2006.
Speaker Change: As that as that demand at where we're concentrated dips down over the next quarter or so it will be filled with the ramp of one six T. So net net we expect the data center revenues to be growing they grew last quarter that growing this quarter.
Speaker Change: And we're starting to build backlog for our Q3 and Q4.
Speaker Change: So there is a little bit of a transition at one of our lead customers, which were noting but more importantly, we're expanding the breadth of our customer base at 800 gig.
Speaker Change: The key point here.
Speaker Change: Thank you.
Speaker Change: And our next question coming from the lineup.
Speaker Change: Quinn Bolton with Needham <unk> Company. Your line is now open.
Speaker Change: Yeah.
Speaker Change: Thanks for taking my question, just I guess I just wanted to come back to the Lowell fab and the under loadings. There. The defense business is at record levels and I guess I thought a lot of the defense revenue also went through level. So I understand cable infrastructure and industrial is weak given we've heard that from.
Speaker Change: Pretty much everyone in the industry, but I guess I would've thought that loadings on the defense side would certainly offset some of that so could you just give us a sense how much of the defense business goes through Lowell and.
Speaker Change: Why that wouldnt be helping fill that that fab.
Speaker Change: Yes, I would say that you are correct that.
Speaker Change: The fab here supports a significant amount of defense business. The only thing that I would highlight is that we do have a large radar program that is.
Speaker Change: I would say the volumes on that one particular program would come down as we wait for a reload of Enel.
Speaker Change: Other long term contract and so that is having a headwind effect, which we think is a temporary effect, but generally speaking you're correct. There's a lot of different technologies within the fab that support the broader defense market.
Speaker Change: Then I will just add to that a lot of the products for industrial and medical like some of our high power.
Speaker Change: Devices.
Speaker Change: And high power switches.
Speaker Change: The demand on those products recently has been down and we expect that to come back at some point in time.
Speaker Change: Tori This is Jack I would also add that some of the growth that we've seen from a defense perspective has come through some of the newer acquisitions. So that's once again driving the top line not necessarily all flowing through the low fab so with that increase in the revenues that we're seeing on the defense side, it's not helping to support that.
Speaker Change: The low fab underutilization.
Speaker Change: Got it.
Speaker Change: Thanks for that and then I guess, just a follow up on the I'll call. It the linear equalizer opportunity because.
Speaker Change: Kind of highlighted that the ACC cable opportunity, maybe smaller now given customer transition, but overall you seem more excited or more upbeat about linear equalizers and I'm just kind of wondering how much of that is driven by sort of cable back plane. There has certainly been reports in the industry of la.
Speaker Change: Large customers, having signal integrity issues and their copper back planes and maybe needing to go to active cables to help those signal integrity issues. How do you see that opportunity I think you've also talked about applications like lower speed pcie cables that use the linear equalizers.
Where's the growth coming from in that larger linear equalizer Tam.
Speaker Change: If you could just spend a minute there that'd be very helpful.
Speaker Change: Yes, I would just say that the.
Speaker Change: The primary growth will be on the cables as opposed to on the back plane. So I think it.
Speaker Change: That is where we believe the volume will be.
Speaker Change: And Youre correct to think that there'll be.
Speaker Change: Equalizer equalization put on in various places to boost gain and help signal integrity, so that that will that will be.
Speaker Change: Ancillary to the main focus or the main volumes, which we believe will be on the <unk>.
Speaker Change: Cables themselves.
Speaker Change: Thank you.
Speaker Change: Our next question coming from the lineup.
Speaker Change: Jerry with Raymond James Your line is now open.
Speaker Change: Thank you good morning, guys.
Speaker Change: Questions on the one on the data center first.
Speaker Change: Steve as we go from 800 to one six T could you speak to what sort of ASP. The benefit you see and then.
Speaker Change: We hear a lot about <unk>.
Speaker Change: I guess there is the ASP benefit as they go to one six.
Speaker Change: You go to I guess from DSP based solutions to <unk> is there any sort of benefit as well on top of 160 transition for him.
Speaker Change: Yes, so it's very difficult for us to comment on that the ASP of the products given the competitive nature of the business. So.
Speaker Change: I can't really comment specifically there.
Speaker Change: On that I think it is important to highlight that the benefit of the <unk> solution as the customer is able to eliminate a DSP, which is really the major cost savings for them.
Speaker Change: Additionally, there is certainly significant power savings, so less power and the last sort of benefit as the latency with the <unk>.
Speaker Change: On time solution is better so.
Speaker Change: That those those reasons alone one could argue somebody should pay a premium for an <unk> solution.
Speaker Change: If you can put it into service and make it work in your environment and so.
Speaker Change: From our point of view, we're providing an enabling technology.
Speaker Change: And we want to make sure. We also always provide our customer good value.
Speaker Change: And then just.
Speaker Change: Similar when you when you talk about sort of 160.
Speaker Change: I think all of those same arguments supply things get harder.
Speaker Change: The interfaces more difficult how you assemble the unit.
Speaker Change: Whether you use a bare die a bump die wire bond flip chip.
Speaker Change: Die stacking all of that matters and so we're very good at dealing with a lot of those details. The other thing I would add which is I think relevant to as things move up.
Speaker Change: The higher data rates is may comps expertise with.
Speaker Change: Photo diodes, and we are one of I think we may be the only company in the industry and that makes trans impedance amplifiers and photo diodes and so.
Speaker Change: We're able to eliminate.
Speaker Change: Eliminate that connection for our customer by mounting one on the other end.
Speaker Change: So.
Speaker Change: And then teach our customers how to do it so that they can buy the chips from us so a lot of depth and expertise around these solutions.
Speaker Change: And.
Speaker Change: May comes at a very good position as the data rates go to higher speeds.
Speaker Change: Got it thanks for that and then my other question is on the satellite business.
Speaker Change: Are you able to kind of give us at least at a high level quantitatively. What the contribution is and also how you think about the opportunity here in terms of the Sam or whatever else you're.
Speaker Change: Willing to share with us in terms of how big this market is going to be and how do you see your competitive position.
Speaker Change: Yeah.
Speaker Change: So it really depends on the engagement and what ultimately the customers buying for the satellite whether it's different products from across our portfolio at the chip level or whether they want us to build a module or a multi chip assembly or a full up sub system. So you can imagine that the <unk>.
Speaker Change: Mrs for these products or the contribution can range from range from sort of hundreds of dollars too.
Speaker Change: Thousands or tens of thousands of dollars depending on exactly what we're building for them some of the more exotic products that our linear module systems team is building.
Speaker Change: These are five and six figure type products that would go on onboard a satellite.
Speaker Change: Thank you.
Speaker Change: Our next question coming from the line of harsh Kumar with Piper Sandler Your line is now open.
Speaker Change: Yeah, Hey, guys. Congratulations first of all on great results and guidance as usual and then.
Speaker Change: A multipart question, let me start with that one Steve for you.
Speaker Change: Are you shipping right now is it a contributor when do you think it will come and then.
Speaker Change: We get this question a lot as ACC, a long term viable solution or is this just a trend in the technology path and it probably doesn't have functionality 345 years out.
Speaker Change: What are some of the other uses that you've been taking cough outside of rack to rack.
Speaker Change: So the first part of your question is are we shipping and we have been shipping and will continue to ship.
Speaker Change: So yes to that question.
Speaker Change: And then the second piece is do we believe Theres, a long long term opportunity there and I can tell you that today, we are seeing that and you can even see some of the capability spillover into pcie six and seven.
Speaker Change: No.
Speaker Change: I think that finding ways to make use of the ASIC power within the switches or within compute and then using.
Speaker Change: Linear equalizers or the equivalent of an ACC chip in these connections is very attractive to customers. So we believe that.
Speaker Change: This is not a 2020 for 2025 Fad we believe.
Speaker Change: The demand will continue its very much use case specific I mean these are typically short reach applications.
Speaker Change: So if you're doing long reach.
Speaker Change: Very long reach youre going to need a DSP it'll be single mode.
Speaker Change: Architecture, and it will be a very different solution.
Speaker Change: Clearly there is a cost advantage.
Speaker Change: There's a simplicity associated with ACC that the industry is trying to sort out what is what is the exact use case and as <unk>.
Speaker Change: As the industry gets more experience I guess, we will have the answer to that that question. So.
Speaker Change: In the meantime, we will continue to engage customers and try to make them successful.
Speaker Change: Fair enough Thats very clear Steve. Thank you and then maybe one for Jack.
Speaker Change: Jack I'm sort of surprised that your 23% turns number it seems like your book to Bill has strong.
Speaker Change: Everything is good at this time I would expect currency to be down in orders to be up the orders are up but your turns are also pretty high is this an accurate assessment on my part and then if you could also clarify how much is defense off the defense and industrial segments.
Speaker Change: Yes, yes.
Speaker Change: Sure no problem.
Speaker Change: So we've been pleased with our our book to Bill ratio that came in at $1. One again this quarter. So we've been building backlog and from a turns perspective, yes. There has been a bit of a bump up thats just the nature of where we've been but its been relatively consistent in that 20% range for the past.
Speaker Change: Last number of quarters. So I don't think theres anything really out of the ordinary from a from a turns perspective to highlight.
Speaker Change: We are pleased with the backlog piece that we've been going through.
Speaker Change: And building backlog and yes, as evidenced by our growing defense revenues, that's been an area, where we have continued to build backlog.
Speaker Change: Generally don't break out the bookings.
Speaker Change: By each of the three different end markets, but it will vary from period to period, but as evidenced by.
Speaker Change: By that by the growth in defense and some of the other areas you can see thats, where its been <unk> been focused over the past number of quarters.
Speaker Change: Thank you.
Speaker Change: And our next question coming from the line of Michael <unk> with Bank of America Securities. Your line is now open.
Speaker Change: Hi, This is Michael <unk> on for Vivek Arya.
Speaker Change: Double click on the backlog point are there any areas of the backlog, where you kind of see incremental weakness or strength.
Speaker Change: Versus last quarter.
Speaker Change: Sounds like there is any weakness that might be coming from the telecom front, but.
Speaker Change: Is there anything on the industrial side that.
Speaker Change: That changed.
Speaker Change: We have prospects as well and.
Speaker Change: Do these changes at all impact your thinking for how you get back to or are you get to that $250 million per quarter run rate. It doesn't sound like it does but just what are the moving parts there.
Speaker Change: Sure. Thank you Michael for the question.
Speaker Change: Just to remind everybody as we said our backlog is at a record level.
Speaker Change: This has been the fourth quarter in a row that we've had a book to bill of one or higher I think the last three quarters have been a book to bill of one one.
Speaker Change: And as you look at sort of where we stand today and the trajectory.
Speaker Change: It seems that our year over year growth.
Speaker Change: Is going to be quite strong today.
Speaker Change: Even looking at the data center end market, where we had 35% growth last year.
Speaker Change: Even if you assume modest slowdowns of growth in the back half you are talking about close to 50% year over year growth. There and then strong double digit growth for telecom and industrial so we're actually quite pleased with the setup.
Speaker Change: We're booking large contracts multi year contracts.
Speaker Change: Wouldn't read anything into the turns business.
Speaker Change: Per se on any particular quarter because it just has to do with the execution and the normal moving parts of our business.
Speaker Change: I would be hyper focused on is our booking book to bill number without us. The most important number we put out every quarter. So why it's one of the first things. We say is this is the bookings and so we're very proud of the work that the sales team. The business development team has done and our operations team has been able to keep up.
Speaker Change: So that will be we've been able to deliver this very diversified growth so wouldn't read anything into the turns business.
Speaker Change: Our revenue during the course of the quarter is evenly balanced over the three months of the quarter that shows up in our cash flow and our.
Speaker Change: The overall financial performance of the business, so very strong very healthy business and some great growth in front of us.
Speaker Change: Got it. Thank you and then for my follow up.
Speaker Change: Just on these initiatives.
Bob: Hello, Bob.
Bob: The capacity expansion in the North Carolina Fab as well.
Bob: So for local I mean, what opportunities do you think these modern modernization effort will help you pursue.
Bob: And then for both initiatives could you give us a sense of timeline.
Bob: When do you expect.
Bob: Initiatives to kind of include and how do we how should we think about the impact to the P&L, especially from a gross margin impact like are there any kind of headwinds to gross margin, especially as you are.
Bob: Ramping up capacity in North Carolina, and does not become a tailwind eventually.
Bob: Or is it fair.
Bob: Fairly negligible. Thank you.
Bob: Sure. Thank you for the question and I'll try to briefly run through some of the key elements regarding our investment plan and overall chip's comment commentary.
Bob: Just to remind everybody we have today.
Bob: Significant R&D funding.
Bob: <unk> chips under the chips program, primarily for advanced scan projects. These projects are supported by the Dod.
Bob: And most of them are sort of in the category of high National Security and we probably have about $25 million to $30 million of generally active programs to do some of this advanced development the.
Bob: The announcement, we made in January on January 14th.
Bob: Came through really through the Commerce department and that was to address different elements modernization supply chain resiliency.
Bob: Capacity expansion in general Technology development.
Bob: And our overall application was very highly regarded by the Commerce Department.
Bob: It may come as a poster child, if we should get this funding in our minds.
Bob: So that's I just want to point out that.
Bob: That number one number two the program is a long term program. So you would not expect to see some of the benefits of this program for at least five years and at the low site, we plan on modernizing and improving some of the infrastructure within the fab.
Bob: Placing some antiquated equipment, we're not building any new buildings, we're just going to.
Bob: Give certain areas that have single point failure or low.
Bob: Let's say low end equipment, we want to upgrade and so that will have an immediate.
Bob: Benefit to our gross margins because.
Bob: And quality will improve and our yields will improve and our throughput will be increase will actually be picking up capacity benefit there as well. In addition to that in low part of our application was to install a six inch a small six inch.
Bob: Gan on Silicon carbide line to support advanced Gan technology. So we do not plan on shutting down our four inch line. We will continue to run that line, we do not plan on moving our products off of our four inch line, just going to modernize it and keep running that as a very profitable part of our business and then we will augment that here in la with a small very.
Bob: Focused advanced Gan.
Bob: Capability in North Carolina, it's a little bit different that fab as we do with the calculus.
Bob: We see that in the next year or two we're going to bump up against capacity issues and we wanted to expand capacity and so that application was primarily installing a six inch line right next to the four inch line and the existing building and over time, we would fill the six inch line with high.
Bob: Programs.
Bob: Programs and so in addition to that we were going to buy and Mo's CVD reactor. So that we can work on advanced EPPY for Gan. So that's in a nutshell is the program.
Bob: It's all subject to approval and as we highlighted there's a lot of dynamics in Washington, So theres always a risk factor that.
Bob: The whole thing gets canceled, but if it does we will adjust our strategy accordingly.
Bob: But I do want to highlight that in the near term no impact to the P&L. It's a long term investment program. The benefits will be may com will be a stronger supplier of these technologies in the market.
Bob: Yes.
Speaker Change: Thank you.
Speaker Change: And our next question coming from the line of Peter Peng with J P. Morgan Chase. Your line is now open.
Peter Peng: Hey, good morning, guys and thanks for taking my question just based on some commentary about your record backlog in some expectation of pretty.
Peter Peng: Sizeable ramp in your $1 60 in the Q3 and Q4 quarters is there any reason to think that we can't grow sequentially in your data center business throughout the year.
Okay.
Peter Peng: That's always a risk and as we talked about every quarter. The data center end market is certainly one of our most volatile.
Peter Peng: And our lead times for our products are typically anywhere between four and six months and so our visibility in the next two quarters is generally very good but after that it does.
Peter Peng: Fade away, let's say and so.
Based on all of the discussions we had today about the different programs, we're getting involved in.
Peter Peng: We're confident that we can continue to have strength within the segment were expanding and broadening our customer base, we're adding new products like the <unk> and the lasers that I talked about so we're confident that this.
Peter Peng: This year will be a record year for may come within the segment.
Peter Peng: Yes.
Peter Peng: Got it.
Peter Peng: And then.
Peter Peng: Maybe if you can level set me on.
Peter Peng: On your expectations for at least for fiscal 'twenty five what is the percentage that is levered to the higher speed expectations. So 800 gig and one six key application and then the lower speeds and how you expect those to kind of play out.
Peter Peng: Yeah.
Peter Peng: That's an interesting question our base business has been actually improving so a lot of our 100 G. C. WDM four platforms for LR four.
Peter Peng: Which are all NRC platforms have been <unk> been seeing some strength. There are 100 gig guests are for <unk>.
Peter Peng: Also doing quite well and we even have.
Peter Peng: Above bump in some of our 100 G. D. R. One platforms, where we actually are manufacturing a DSP. So our base data center business is actually.
Peter Peng: Improving.
Peter Peng: And then sort of the next stop would be 400 gig.
Peter Peng: We also see strength there both <unk> and <unk>. So I would say generally speaking that business is improving so all of that is considered the lower data rate base business and now you layer on top of that all the other elements that we talked about.
Speaker Change: Give us gives us confidence that.
Peter Peng: Fiscal year 'twenty five will be a good year.
Cindy: Thank you Cindy.
Speaker Change: There are no further questions in the queue I will now turn the call back over to Mr. Steve Daly for any closing remarks.
Speaker Change: Thank you in closing I would like to thank all our employees for their hard work and dedication which made these results possible.
Speaker Change: Have a nice day.
Speaker Change: Ladies and gentlemen that does Scott conference for today. Thank you for your participation you may now disconnect.
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Speaker Change: Thanks.
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