Q3 2025 Coherent Corp Earnings Call

May 7, 2025

A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press Star then zero on your telephone keypad.

As a reminder, this conference is being recorded.

Speaker Change: It's now my pleasure to introduce your host Paul Silverstein Senior Vice President of Investor Relations for coherent. Please go ahead.

Speaker Change: Thank you operator, and good afternoon, everyone with me today are Jimmy Anderson coherent CEO Sherri Luther coherent CFO during today's call, we will provide a financial and business review of the third quarter of fiscal 2025, and the business outlook for the fourth quarter of fiscal 2025, our earnings press release can be found in the inverse.

Speaker Change: Relations section of our company website at coherent Dot com I would like to remind everyone that during our conference call today, we may make projections or other forward looking statements regarding future events or the future financial performance of the company.

Speaker Change: We wish to caution you that such statements are 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 eight Ks.

Speaker Change: 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.

Operator: Greetings, and welcome to the Coherent Fiscal Year 2025 Q3 Earnings Webcast. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Paul Silverstein, Senior Vice President of Investor Relations for Coherent. Please go ahead.

Operator: Greetings, and welcome to the Coherent Fiscal Year 2025 Q3 Earnings Webcast. At this time, all participants are in listen-only mode. A briefQ&A session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Paul Silverstein, Senior Vice President of Investor Relations for Coherent. Please go ahead.

Speaker Change: This call includes and constitutes the company's official guidance for the fourth quarter of fiscal 2025.

Speaker Change: 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 forums, such as a press release or publicly announced conference call. Additionally, we will refer to both GAAP and non-GAAP financial measures. During this call by disclosing certain non-GAAP information management intends to.

Speaker Change: 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 in our earnings release and Investor presentation that can be found on the Investor Relations section of our website at coherent Dot Com, Let me know.

Paul Silverstein: Thank you, operator, and good afternoon, everyone. With me today are Jim Anderson, Coherent CEO, and Sherri Luther, Coherent CFO. During today's call, we will provide a financial and business review of Q3 of fiscal 2025 and the business outlook for Q4 of fiscal 2025. Our earnings press release can be found in the investor relations section of our company website at coherent.com. I would like to remind everyone that during our conference call today, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are 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.

Speaker Change: I'll 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 another quarter of strong execution and the continued focus on accelerating our pace of innovation as we introduced a number of outstanding new products over the past quarter that will help drive long term growth for the company.

Jim Anderson: Our fiscal third quarter revenue increased by approximately 4% sequentially and 24% year over year to a record $1 $5 billion. This was primarily driven by ongoing strong AI data center related revenue growth in the third quarter of growth in our telecom revenue.

Paul Silverstein: 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 Q4 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. Additionally, 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.

Jim Anderson: We also continued to make solid progress towards achieving our gross margin target of operating above 40% on a non-GAAP basis in fiscal Q3, our non-GAAP gross margin improved on both a sequential and year over year basis to 38, 5%.

Jim Anderson: Our revenue growth and gross margin expansion drove a two point forex increase year over year, and our non-GAAP EPS, while I'm pleased with the progress to date, we have much more work and opportunity ahead of us.

Jim Anderson: I'd now like to share some updates on our products and markets starting with our data Center and communications end market Q3 revenue increased by 9% sequentially and by 46% year over year with growth in both our AI data center and telecom end markets in.

Paul Silverstein: For historical periods, we provided reconciliations of these non-GAAP financial measures to GAAP financial measures in our earnings release and investor presentation 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.

Jim Anderson: In the data center market, we achieved record Q3 revenue, which grew 11% sequentially and 54% year over year due to ongoing strong AI data center demand.

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 another quarter of strong execution and the continued focus on accelerating our pace of innovation as we introduced a number of outstanding new products over the past quarter that will help drive long-term growth for the company. Our fiscal Q3 revenue increased by approximately 4% sequentially and 24% year-over-year to a record $1.5 billion. This was primarily driven by ongoing strong AI data center related revenue growth and a third quarter of growth in our telecom revenue. We also continued to make solid progress towards achieving our gross margin target of operating above 40% on a non-GAAP basis. In fiscal Q3, our non-GAAP gross margin improved on both a sequential and year-over-year basis to 38.5%.

Jim Anderson: We have the broadest and deepest portfolio of photonic technologies required for high speed optical data transmission, our customers value, both the breadth and depth of our technology portfolio as well as our supply chain flexibility and resiliency, especially in the current environment.

Jim Anderson: At the optical fiber Communications conference in March we introduced many new optical networking products and technologies. For example, six of our products received awards, reflecting innovations at the component module and system level at OFC. We showcased three different 160 transceiver designs based on three different <unk>.

Jim Anderson: <unk> of lasers designed based on our <unk> technology to design based on our new 200 gig per lane VIX cell technology, and a third design based on our Silicon Photonics technology. The three different 116 demonstrations illustrate the wide breadth of technology options that we bring to our customers as we partner with them.

Jim Anderson: Our revenue growth and gross margin expansion drove a 2.4x increase year-over-year in our non-GAAP EPS. While I'm pleased with the progress to date, we have much more work and opportunity ahead of us. I'd now like to share some updates on our products and markets. Starting with our data center and communications end market, Q3 revenue increased by 9% sequentially and by 46% year-over-year, with growth in both our AI data center and telecom end markets. In the data center market, we achieved record Q3 revenue, which grew 11% sequentially and 54% year-over-year due to ongoing strong AI data center demand. We have the broadest and deepest portfolio of photonic technologies required for high-speed optical data transmission.

Jim Anderson: Over multiple generations of data rate and architectural transitions.

Jim Anderson: We continue to expect $1 60 to begin ramping during this calendar year, we're making good progress with our lead customers and we continue to execute well through the typical stages of engineering milestones and customer qualifications. We are also pleased to see continued expansion of our $1 60 customer engagement.

Jim Anderson: We approached the 116 ramp our engineering team is also focused on the development of our portfolio of three <unk> transceiver products and technologies, which will support a range of optical data transmission form factors for.

Jim Anderson: Our customers value both the breadth and depth of our technology portfolio as well as our supply chain flexibility and resiliency, especially in the current environment. At the Optical Fiber Communications conference in March, we introduced many new optical networking products and technologies. For example, six of our products received awards reflecting innovations at the component, module, and system level. At OFC, we showcased three different 1.6T transceiver designs based on three different types of lasers, a design based on our EML technology, a design based on our new 200G per lane VCSEL technology, and a third design based on our silicon photonics technology. The three different 1.6T demonstrations illustrate the wide breadth of technology options that we bring to our customers as we partner with them over multiple generations of data rate and architectural transitions.

Jim Anderson: For example at OFC, we reached a key technical milestone for the industry. When we demonstrated our 400 gig per lane differential email, which is the foundation of three <unk> Transceivers and paves the path for future industry adoption of <unk> Transceivers. We also expect to see adoption of our 400 gig EMA.

Jim Anderson: <unk> and $1 60, transceivers, where they can provide meaningful benefit to our customers.

Jim Anderson: We also showcased a wide range of co package optical solutions over the past quarter, we announced our collaboration with Nvidia on co packaged optics and networking switches for AI infrastructure and at OFC, we showcased a comprehensive portfolio of optical networking components for CPO applications in both the scale out and ski.

Jim Anderson: Bill up domain.

Jim Anderson: Indium phosphide is a key technology behind our internally produced email and CW lasers with the latter being used in our silicon photonics and <unk> solutions.

Jim Anderson: We continue to expect 1.6T to begin ramping during this calendar year. We're making good progress with our lead customers, and we continue to execute well through the typical stages of engineering milestones and customer qualifications. We are also pleased to see continued expansion of our 1.6T customer engagements. While we approach the 1.6T ramp, our engineering team is also focused on the development of our portfolio of 3.2T transceiver products and technologies, which will support a range of optical data transmission form factors. For example, at OFC, we reached a key technical milestone for the industry when we demonstrated our 400G per lane differential EML, which is the foundation of 3.2T transceivers and paves the path for future industry adoption of 3.2T transceivers.

Jim Anderson: We have had in house indium phosphide capability for over 20 years indium phosphide based email Transceivers already account for the majority of our datacenter transceiver revenue and a majority of our email base transceivers utilize our internally manufactured lasers.

Jim Anderson: To meet rising demand for optical networking solutions I use either email or CW lasers, we continue to expand our indium phosphide capacity in Q3, we once again expanded our capacity both sequentially and year over year with year over year capacity growing by over three acts.

Jim Anderson: We remain on track to introduce our six inch indium phosphide platform, which will provide significant advantages in terms of both lower cost and higher volume production we.

Jim Anderson: We also expect to see adoption of our 400G EMLs in 1.6T transceivers, where they can provide meaningful benefit to our customers. We also showcased a wide range of co-packaged optical solutions over the past quarter. We announced our collaboration with NVIDIA on co-packaged optics and networking switches for AI infrastructure. At OFC, we showcased a comprehensive portfolio of optical networking components for CPO applications in both the scale-out and scale-up domain. Indium phosphide is the key technology behind our internally produced EML and CW lasers, with the latter being used in our silicon photonics and CPO solutions. We've had in-house indium phosphide capability for over 20 years. Indium phosphide-based EML transceivers already account for the majority of our data center transceiver revenue, and a majority of our EML-based transceivers utilize our internally manufactured lasers.

Jim Anderson: We expect to begin ramping six inch volume production next quarter.

Jim Anderson: We also continue to make good progress with our new data center optical circuit switch or Ocs platform, which drives a significant expansion in our datacenter addressable market opportunity.

Jim Anderson: The underlying technology, and our Ocs, which is based on field proven digital liquid Crystal technology that has been deployed for many years and demanding telecom applications.

Jim Anderson: Our technology has tremendous benefits versus the mechanical Mems based solutions offered by others and our customer engagement and enthusiasm around our ocs platform continues to grow.

Jim Anderson: As I noted last quarter, we've already received our first customer order for this key new differentiated platform and we continue to expect initial <unk> revenue in calendar 2025.

Jim Anderson: In telecom, our Q3 revenue increased 2% sequentially and 21% year over year.

Jim Anderson: Q3 was a third consecutive quarter of sequential growth revenue growth in Q3 was driven primarily by data center interconnect along with further improvement in traditional transport market.

Jim Anderson: To meet rising demand for optical networking solutions that use either EML or CW lasers, we continue to expand our indium phosphide capacity. In Q3, we once again expanded our capacity both sequentially and year-over-year, with year-over-year capacity growing by over 3x. We remain on track to introduce our six-inch indium phosphide platform, which will provide significant advantages in terms of both lower cost and higher volume production. We expect to begin ramping six-inch volume production next quarter. We also continue to make good progress with our new data center optical circuit switch, or OCS platform, which drives a significant expansion in our data center addressable market opportunity. The underlying technology in our OCS switch is based on field-proven digital liquid crystal technology that has been deployed for many years in demanding telecom applications.

Jim Anderson: To meet rising demand for optical networking solutions that use either EML or CW lasers, we continue to expand our indium phosphide capacity. In Q3, we once again expanded our capacity both sequentially and year-over-year, with year-over-year capacity growing by over 3x. We remain on track to introduce our 6-inch indium phosphide platform, which will provide significant advantages in terms of both lower cost and higher volume production. We expect to begin ramping 6-inch volume production next quarter. We also continue to make good progress with our new data center optical circuit switch, or OCS platform, which drives a significant expansion in our data center addressable market opportunity. The underlying technology in our OCS switch is based on field-proven digital liquid crystal technology that has been deployed for many years in demanding telecom applications.

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

Jim Anderson: We also continued to expand our product portfolio and announced new products at OFC to address increasing demand for high speed efficient and scalable metro regional in Dci applications.

Jim Anderson: We expect this to continue to be a key growth area for us over the long term.

Jim Anderson: In our remaining markets, which are primarily industrial related applications aggregate revenue was relatively stable with a decrease of 2% sequentially and an increase of 1% year over year.

Jim Anderson: In Q3, we saw healthy year over year growth in the semi cap equipment and display capital equipment end markets that was offset by soft demand in broad based industrial end markets such as precision manufacturing.

Jim Anderson: Our technology has tremendous benefits versus the mechanical MEMS-based solutions offered by others, and our customer engagement and enthusiasm around our OCS platform continues to grow. As I noted last quarter, we've already received our first customer order for this key new differentiated platform, and we continue to expect initial OCS revenue in calendar 2025. In telecom, our Q3 revenue increased 2% sequentially and 21% year-over-year. Q3 was the third consecutive quarter of sequential growth. Revenue growth in Q3 was driven primarily by data center interconnect, along with further improvement in traditional transport market. We saw a continued growth in the ramp of our new products, including our 100G, 400G, and 800G ZR/ZR+ coherent transceivers, and expect these products to continue to ramp over the coming quarters.

Jim Anderson: Growth in our semi cap equipment revenue was driven by increased demand for advanced packaging tools, where our lasers optics and advanced materials are being increasingly adopted and our display capital equipment market year over year growth was driven by ongoing demand for our differentiated excimer laser annealing systems, which support both gen six OLED fab.

Jim Anderson: Expansions and new Gen eight fabs as OLED screen adoption continues to grow.

Jim Anderson: We expect the total surface area of OLED screen production to double over the coming years as OLED screens are adopted across a broader range of devices.

Jim Anderson: And support to the OLED expansion, we continue to ramp shipments of our laser systems for new Gen. Eight OLED fabs.

Jim Anderson: We also continued to expand our product portfolio and announced new products at OFC to address increasing demand for high-speed, efficient, and scalable metro, regional, and DCI applications. We expect this to continue to be a key growth area for us over the long term. In our remaining markets, which are primarily industrial-related applications, aggregate revenue was relatively stable, with a decrease of 2% sequentially and an increase of 1% year-over-year. In Q3, we saw a healthy year-over-year growth in the semi cap equipment and display capital equipment end markets that was offset by soft demand in broad-based industrial end markets such as precision manufacturing. Growth in our semi cap equipment revenue was driven by increased demand for advanced packaging tools where our lasers, optics, and advanced materials are being increasingly adopted.

Jim Anderson: Shifting now to our investment strategy I'd like to provide an update on our strategic portfolio optimization. We continue to drive a series of actions stemming from the portfolio assessment that we completed last year with several parallel initiatives in motion.

Jim Anderson: One area of focus to optimize our portfolio is to exit or divest non core product lines. For example, during the March quarter, we shut down development of Silicon carbide devices and modules and eliminated the related head count and operational expenses.

Jim Anderson: We have refocused our silicon carbide business on substrate in heavy production, where we have differentiated technology and healthy customer demand.

Jim Anderson: We also discontinued several other unprofitable product lines.

Jim Anderson: Another area of focus is to continue to streamline our asset base and divest underutilized assets.

Jim Anderson: For example, we recently announced our intent to sell our underutilized production facility in Champaign, Illinois. We are also pursuing several other asset optimization actions.

Jim Anderson: In our display capital equipment market, year-over-year growth is driven by ongoing demand for our differentiated excimer laser annealing systems, which support both Gen 6 OLED fab expansions and new Gen 8 fabs as OLED screen adoption continues to grow. We expect the total surface area of OLED screen production to double over the coming years as OLED screens are adopted across a broader range of devices. In support to the OLED expansion, we continue to ramp shipments of our laser systems for new Gen 8 OLED fabs. Shifting now to our investment strategy, I'd like to provide an update on our strategic portfolio optimization. We continue to drive a series of actions stemming from the portfolio assessment that we completed last year, with several parallel initiatives in motion. One area of focus to optimize our portfolio is to exit or divest non-core product lines.

Jim Anderson: As we reduce investment in noncore product lines and streamline our asset base, we continue to concentrate and grow investment in our core growth and profit engines to accelerate shareholder value creation for the long term.

Jim Anderson: We'll provide additional details and examples regarding our strategic portfolio realignment at our upcoming Investor day.

Jim Anderson: Regarding the current tariff policy environment, the impact of tariffs to our business in the current quarter is not expected to be significant.

Jim Anderson: One of our strengths, which is valued by our customers as supply chain resiliency and flexibility we have a global manufacturing footprint that spans roughly 60 different locations across 14 countries with roughly half of our manufacturing sites located in the U S.

Jim Anderson: For example, during Q1, we shut down development of silicon carbide devices and modules and eliminated the related headcount and operational expenses. We have refocused our silicon carbide business on substrate and epi production, where we have differentiated technology and healthy customer demand. We also discontinued several other unprofitable product lines. Another area of focus is to continue to streamline our asset base and divest underutilized assets. For example, we recently announced our intent to sell our underutilized production facility in Champaign, Illinois. We are also pursuing several other asset optimization actions. As we reduce investment in non-core product lines and streamline our asset base, we continue to concentrate and grow investment in our core growth and profit engines to accelerate shareholder value creation for the long term. We'll provide additional details and examples regarding our strategic portfolio realignment at our upcoming Investor Day.

Jim Anderson: Our geographically diverse supply chain combined with the internal production many of our most critical technology and feeds provides adaptability and optionality that benefits our customers.

Jim Anderson: To the extent there are changes in landscape, we will adapt as necessary to support our customers.

Jim Anderson: In summary, I'm pleased with the additional progress we made in our fiscal third quarter, and especially proud of the large number of new products and technologies that we introduced.

Jim Anderson: With a high level of uncertainty in the current macroeconomic environment, we're taking a more cautious near term view of our end market demand. However, we continue to expect fiscal 2025 to be a strong growth year for the company and we believe we are well positioned for continued long term growth.

Jim Anderson: Forward to sharing more details about our long term plans for the company at our upcoming Investor Day.

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

Sherri Luther: Thank you Jim.

Sherri Luther: Third quarter, we drove continued sequential improvement in our financial result, with strong revenue growth and gross margin expansion driving strong profitability.

Jim Anderson: Regarding the current tariff policy environment, the impact of tariffs to our business in the current quarter is not expected to be significant. One of our strengths, which is valued by our customers, is supply chain resiliency and flexibility. We have a global manufacturing footprint that spans roughly 60 different locations across 14 countries, with roughly half of our manufacturing sites located in the US. Our geographically diverse supply chain, combined with the internal production of many of our most critical technology inputs, provides adaptability and optionality that benefits our customers. To the extent there are changes in the landscape, we will adapt as necessary to support our customers. In summary, I'm pleased with the additional progress we made in our fiscal Q3 and especially proud of the large number of new products and technologies that we introduced.

Sherri Luther: In addition, we strengthened the balance sheet by paying down $136 million in debt.

Sherri Luther: Third quarter revenue was a record $1 5 billion, an increase of approximately 4% sequentially and 24% year over year.

Sherri Luther: From a segment perspective networking revenue increased 10% sequentially and 45% year over year, driven by strong AI data center demand.

Sherri Luther: Laser segment revenue decreased 3% sequentially and increased 4% year over year.

Sherri Luther: The year over year growth was driven primarily by demand for our excimer annealing lasers, and our display capital equipment business.

Sherri Luther: As well as higher demand in semi cap equipment.

Sherri Luther: Materials segment revenue decreased 3% sequentially and decreased 1% year over year.

Jim Anderson: With a high level of uncertainty in the current macroeconomic environment, we're taking a more cautious near-term view of our end market demand. However, we continue to expect fiscal 2025 to be a strong growth year for the company, and we believe we are well positioned for continued long-term growth. I look forward to sharing more details about our long-term plans for the company at our upcoming Investor Day. I'll now turn the call over to our CFO, Sherri Luther.

Sherri Luther: The sequential and year over year declines were due to softness in the consumer electronics end market.

Sherri Luther: Our third quarter non-GAAP gross margin was 38, 5% an increase of 30 basis points compared to the prior quarter and an increase of 490 basis points compared to the year ago quarter.

Sherri Luther: The sequential and year over year improvements in non-GAAP gross margin were driven by higher revenue volume as well as benefits from our gross margin expansion strategy, where we saw improvements in both pricing optimization as well as cost reductions offset somewhat by unfavorable mix.

Sherri Luther: Thank you, Jim. In Q3, 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 $136 million in debt. Q3 revenue was a record $1.5 billion, an increase of approximately 4% sequentially and 24% year-over-year. From a segment perspective, networking revenue increased 10% sequentially and 45% year-over-year, driven by strong AI data center demand. Laser segment revenue decreased 3% sequentially and increased 4% year-over-year. The year-over-year growth was driven primarily by demand for our excimer annealing lasers in our display capital equipment business, as well as higher demand in semi cap equipment. Material segment revenue decreased 3% sequentially and decreased 1% year-over-year.

Sherri Luther: Cost reductions included lower manufacturing costs as well as yield improvement.

Sherri Luther: Third quarter non-GAAP operating expenses were $297 million compared to 283 million in the prior quarter and $254 million in the year ago quarter.

Sherri Luther: R&D increases were primarily driven by increased investments in our product portfolio.

Sherri Luther: SG&A increases include debt repricing fees incurred in Q3 to reduce the interest rate on our term loan b by 50 basis points.

Sherri Luther: As a result of our strategic portfolio optimization, the company incurred restructuring costs of $74 million on a GAAP basis in Q3 related to a number of restructuring actions, including the elimination of certain non strategic product line.

Sherri Luther: Closures and consolidations workforce reductions contract termination and other associated cost reductions as well as initiatives to drive greater efficiency and lower costs.

Sherri Luther: Both the sequential and year-over-year declines were due to softness in the consumer electronics end market. Our Q3 non-GAAP gross margin was 38.5%, an increase of 30 basis points compared to the prior quarter, and an increase of 490 basis points compared to the year ago quarter. The sequential and year-over-year improvements in non-GAAP gross margin were driven by higher revenue volumes as well as benefits from our gross margin expansion strategy, where we saw improvements in both pricing optimization as well as cost reductions, offset somewhat by unfavorable mix. Cost reductions included lower manufacturing costs as well as yield improvements. Q3 non-GAAP operating expenses were $297 million compared to $283 million in the prior quarter and $254 million in the year ago quarter.

Sherri Luther: I'm, an R&D perspective, we continue to focus on investing our R&D in those projects with the highest ROI, while driving efficiency and greater leverage in SG&A.

Sherri Luther: Our third quarter non-GAAP operating margin was 18, 6% compared to 18, 5% in the prior quarter and 12, 6% in the year ago quarter.

Sherri Luther: Third quarter non-GAAP tax rate was 25% compared to 17, 4% in the prior quarter due to the restructuring charges that I mentioned, which were primarily in higher tax rate jurisdictions.

Sherri Luther: Third quarter non-GAAP earnings per diluted share with 91 cents compared to 95 cents in the prior quarter and 38 in the year ago quarter.

Sherri Luther: We paid down $136 million in debt during the quarter using cash from operations.

Sherri Luther: The R&D increases were primarily driven by increased investments in our product portfolio. The SG&A increases include debt repricing fees incurred in Q3 to reduce the interest rate on our Term Loan B by 50 basis points. As a result of our strategic portfolio optimization, the company incurred restructuring costs of $74 million on a GAAP basis in Q3 related to a number of restructuring actions, including the elimination of certain non-strategic product lines, site closures and consolidations, workforce reductions, contract terminations, and other associated cost reductions, as well as initiatives to drive greater efficiency and lower costs. From an R&D perspective, we continue to focus on investing our R&D in those projects with the highest ROI while driving efficiency and greater leverage in SG&A.

Sherri Luther: This brings our fiscal year to date total debt payments to $386 million, reducing our debt leverage to two one times as defined in the credit agreement.

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

Sherri Luther: We expect revenue to be between 145 billion and $1 $5 75 billion.

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

Sherri Luther: We expect total operating expenses of between $290 million and $310 million on a non-GAAP basis.

Sherri Luther: We expect the tax rate for the quarter to be between 21% and 24% on a non-GAAP basis.

Sherri Luther: We expect EPS of between 81 cents and a dollar and one sand on a non-GAAP basis.

Sherri Luther: Our Q3 non-GAAP operating margin was 18.6% compared to 18.5% in the prior quarter and 12.6% in the year-ago quarter. Q3 non-GAAP tax rate was 25% compared to 17.4% in the prior quarter due to the restructuring charges that I mentioned, which were primarily in higher tax rate jurisdictions. Q3 non-GAAP earnings per diluted share was $0.91 compared to $0.95 in the prior quarter and $0.38 in the year-ago quarter. We paid down $136 million in debt during the quarter using cash from operations. This brings our fiscal year to date total debt payments to $386 million, reducing our debt leverage to 2.1x as defined in the credit agreement.

Sherri Luther: Our guidance comprehends the impact of tariffs based on the current policy environment.

Sherri Luther: Current impact is not expected to be significant.

Sherri Luther: In summary, I am very pleased with the progress we have made in Q3.

Sherri Luther: We will continue to focus on improving profitability through gross margin expansion as well as operational efficiency.

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

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

Sherri Luther: As a reminder, we will host an investor 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: I will now turn to our guidance for Q4 of fiscal 2025. We expect revenue to be between $1.425 and 1.575 billion. We expect non-GAAP gross margin to be between 37% and 39%. We expect total operating expenses of between $290 and 310 million on a non-GAAP basis. We expect the tax rate for the quarter to be between 21% and 24% on a non-GAAP basis. We expect EPS of between $0.81 and $1.01 on a non-GAAP basis. Our guidance comprehends the impact of tariffs based on the current policy environment. The current impact is not expected to be significant. In summary, I am very pleased with the progress we have made in Q3.

Sherri Luther: That concludes my formal comments opt.

Speaker Change: Operator, please open the call for Q&A.

Speaker Change: Thank you.

Speaker Change: We will now be conducting a question and answer session. If you would like to ask a question. Please press star and then one on your telephone keypad.

Chris: Hey, Chris Star and then two if you would like to remove your question from the queue.

Chris: Again, if you would like to ask a question. Please press star and then one now.

Speaker Change: The first question, we have comes from stomach chatterji of J P. Morgan. Please go ahead.

Speaker Change: Hi, Thanks for taking my questions and congrats on the robust results.

Speaker Change: Jim If I can talk to you off on the in your prepared remarks did mentioned the pace of innovation.

Speaker Change: Seeing that growth in industrial coherent as well you had a bunch of announcements product announcements at the OFC can you just help us think about the significance of the impact as well as somewhat in relation to the timing of when investors should expect those to become more material in terms of revenue in the back of the BNS under that on a follow up thank you.

Sherri Luther: We will continue to focus on improving profitability through gross margin expansion as well as operational efficiency. It's important that we make investments for the long-term growth of the company while driving operating leverage and efficiency. Cash and capital allocation will continue to be key focus areas to further strengthen and de-leverage our balance sheet. As a reminder, we will host an Investor 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.

Speaker Change: Yes, Thanks, Amit I appreciate that.

Speaker Change: We're always happy to talk about products. So thanks for asking.

Speaker Change: So we did have quite a outstanding month in March in terms of new product announcements and technology demonstrations most of that happening at OFC and I think it really showcased the great innovation that happens everyday within coherent but.

Speaker Change: I could go on and on about the product announcements, but maybe I'll just highlight two or three is one of the ones I was most proud about.

Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star and then one on your telephone keypad. You may press star and then two if you would like to remove your question from the queue. Again, if you would like to ask a question, please press star and then one now. The first question we have comes from Samik Chatterjee of J.P. Morgan. Please go ahead.

Operator: Thank you. We will now be conducting a Q&A session. If you would like to ask a question, please press star and then one on your telephone keypad. You may press star and then two if you would like to remove your question from the queue. Again, if you would like to ask a question, please press star and then one now. The first question we have comes from Samik Chatterjee of JPMorgan. Please go ahead.

Speaker Change: What the team accomplished was we showed three different versions of a $1 16, transceivers. So obviously for the industry. The next for the data center. The next big transition in terms of data rate is $1 60, and we showed three different versions one that was based on our two.

Speaker Change: 200 gig AML technology, one that was based on our 200 gig pixel and then another one based on our Silicon Photonics and I thought that was a great way to showcase the breadth and the depth of technology that coherent brings to our partners. When we partner in a multi generational basis and then my other one that I really liked was we.

Samik Chatterjee: Oh, hi. Thanks for taking my questions and congrats on the robust results. Maybe, Jim, if I can start you off on you in your prepared remarks did mention the pace of innovation, and we're seeing that across the industry and from Coherent as well. You had a bunch of announcements, product announcements at OFC. Can you just help us think about the significance and the impact as well as somewhat, in relation to timing of, when investors should expect those to become more material in terms of revenue and impact the P&L? And then I have a follow-up. Thank you.

Speaker Change: Australia at 400 gig differential ml and the reason islands important is because that's really the foundation laser technology for three <unk> Transceivers. So we're we're deep into development of our portfolio of $3, <unk>, transceivers and demonstrating that key laser.

Jim Anderson: Yeah. Thanks, Samik. Yeah, I appreciate that. Always, I'm always happy to talk about products, so thanks for asking. You know, we did have quite an outstanding month in March in terms of new product announcements and technology demonstrations, most of that happening at OFC. I think it really showcased the great innovation that happens every day within Coherent. I could go on and on about the product announcements, but maybe I'll just highlight two or three. One of the ones I was most proud about of what the team accomplished was we showed three different versions of a 1.6 transceiver. Obviously, for the industry, for the data center, the next big transition in terms of data rate is 1.6.

Jim Anderson: Yeah. Thanks, Samik. Yeah, I appreciate that. Always, I'm always happy to talk about products, so thanks for asking. You know, we did have quite an outstanding month in March in terms of new product announcements and technology demonstrations, most of that happening at OFC. I think it really showcased the great innovation that happens every day within Coherent. I could go on and on about the product announcements, but maybe I'll just highlight two or three. One of the ones I was most proud about of what the team accomplished was we showed three different versions of a 1.6T transceiver. Obviously, for the industry, for the data center, the next big transition in terms of data rate is 1.6T.

Speaker Change: <unk> 400 gig AML is a really important milestone so really proud of the innovation and the team have demonstrated there. So we're really pleased with the progress on that end.

Speaker Change: Then you asked about kind of timing of impact.

Speaker Change: All of what I, just mentioned, we view as significant to the company and then timing of impact would be on 116, we continue to view the 160 ramp as we've said in past quarters. We expect Lumpiness 60 revenue to start in in this current calendar year, and we're making good progress through kind of the norm.

Speaker Change: What I would call the normal engineering milestones and qualification milestones with the customers.

Jim Anderson: We showed three different versions, one that was based on our 200G EML technology, one that was based on our 200G VCSEL, and then another one based on our silicon photonics. I thought that was a great way to showcase the breadth and the depth of technology that Coherent brings to our partners when we partner on a multigenerational basis. Then my other one that I really liked was we demonstrated 400G differential EML. The reason that one's important is because that's really the foundation laser technology for 3.2T transceivers. So we're, you know, deep into development of our portfolio of 3.2T transceivers. Demonstrating that key laser capability of 400G EML is a really important milestone.

Speaker Change: Cross multiple customers so.

Speaker Change: Continuing to see that beginning as a <unk>.

Speaker Change: Ramp in this calendar year, and then obviously continuing into the following calendar year.

Speaker Change: Got it got it thanks for those insights maybe for my follow up clearly there is a lot of concern.

Speaker Change: Go to the investors as well as the broader industry in relation to the macro as well as startups right now and you outlined that you are not really seeing that it is a headwind, but still maybe if you can flesh out the strength of your manufacturing footprint.

Speaker Change: It gives you some level of flexibility with Duke.

Speaker Change: Overall manufacturing plans and at the same time, how are you incorporating any second order demand impact in your guidance for the fourth quarter in relation to any demand hiccups do expect because of the macro where we stand today. Thank you.

Jim Anderson: Really proud of the innovation the team demonstrated there. We're really pleased with the progress on that. Then you asked about kinda timing of impact. You know, all of what I just mentioned we view as significant to the company. Then timing of impact would be on 1.6. We continue to view the 1.6 ramp as we've said in past quarters. We expect 1.6 revenue to start in this current calendar year. We're making good progress through kind of the normal, what I would call, engineering milestones and qualification milestones with the customers, you know, across multiple customers. You know, continuing to see that beginning as a ramp in this calendar year and then obviously continuing into the following calendar year.

Jim Anderson: Really proud of the innovation the team demonstrated there. We're really pleased with the progress on that. Then you asked about kinda timing of impact. You know, all of what I just mentioned we view as significant to the company. Then timing of impact would be on 1.6T. We continue to view the 1.6T ramp as we've said in past quarters. We expect 1.6T revenue to start in this current calendar year. We're making good progress through kind of the normal, what I would call, engineering milestones and qualification milestones with the customers, you know, across multiple customers. You know, continuing to see that beginning as a ramp in this calendar year and then obviously continuing into the following calendar year.

Speaker Change: Got it and thanks on the first part of your question on the kind of flexibility of our manufacturing footprint as we as we mentioned in the prepared remarks. When you look at the current tariff policy environment, We don't expect any significant impact our financials this quarter and with respect to the manufacturing footprint I think.

Speaker Change: The company has really done a great job over the past years of building a very rich.

Speaker Change: A resilient and adaptable supply chain and just.

Speaker Change: A couple of data points around that I mentioned in the prepared remarks, if you look at the global footprint of the company. We have over 60 different production facilities worldwide and those are across 14 different countries and so from a geographic diversification perspective, we have really great Geo diversity.

Samik Chatterjee: Got it. Thanks for those insights. Maybe for my follow-up, clearly there's a lot of concern, both with investors as well as the broader industry in relation to the macro as well as tariffs right now. You outlined that you're not really seeing tariff as a headwind. Still maybe if you can flesh out the strength of your US manufacturing footprint, how that gives you some level of flexibility with your overall manufacturing plans. At the same time, how are you incorporating any second order demand impact in your guidance for Q4 in relation to any demand hiccups to expect because of the macro where we stand today?

Speaker Change: In our production footprint now of those 60, plus production sites actually roughly half are within the U S. So we're very proud of our strong U S manufacturing presence in.

Speaker Change: We view that as a key capability.

Speaker Change: But the other the second point I would make in terms of supply chain resiliency is around vertical integration and this applies to not just our data center business, but also to our industrial business for instance, our laser business is if you look at a lot of the very key technology in feeds for whether it's a <unk>.

Jim Anderson: Got it. Thanks. On the first part of your question on the kind of flexibility of our manufacturing footprint, you know, as we mentioned in the prepared remarks, when we look at the current tariff policy environment, we don't expect any significant impact to our financials this quarter. With respect to the manufacturing footprint, I think the company has really done a great job over the past years of building a very resilient and adaptable supply chain. Just a, you know, a couple data points around that, I mentioned in the prepared remarks. If you look at the global footprint of the company, we have over 60 different production facilities worldwide, and those are across 14 different countries. From a geographic diversification perspective, we have really great geo-diversity in our production footprint.

Speaker Change: Data center transceiver or an industrial laser we.

Speaker Change: Make ourselves manufacturer ourselves a lot of the very key components that go into our into our Transceivers are laser systems or other products and so that's an important part of our supply chain resiliency and flexibility so to the extent that there are changes in the landscape the tariff landscape and to the extent we need to adapt.

Speaker Change: Manufacturing move manufacturing to different places for our for the benefit of our customers. We certainly feel like we've got a very good resilience adaptable supply chain.

Speaker Change: To leverage for that and then I think the second part of your question was on demand impact.

Speaker Change: With respect to tariffs I would say the one place where we're taking a more cautious view on the end market demand I say I would say is more in the industrial part of our business.

Jim Anderson: Now, of those 60+ production sites, actually roughly half are within the US, so we're very proud of our strong US manufacturing presence and, you know, we view that as a key capability. The second point I would make in terms of supply chain resiliency is around vertical integration. This applies to not just our data center business, but also to our industrial business, for instance, our laser business, if you look at a lot of the very key technology inputs for whether it's a data center transceiver or an industrial laser, we manufacture ourselves a lot of the very key components that go into our transceivers or laser systems or other products. That's an important part of our supply chain resiliency and flexibility.

Speaker Change: The current tariff environment I think is creating.

Speaker Change: A higher level of uncertainty across the environment and so we're taking a bit of a more cautious near term view on our industrial business.

Speaker Change: But other than that I would say.

Speaker Change: On the other part of our business, our data center and communications business, we see that is continuing.

Speaker Change: To grow and be strong.

Speaker Change: Alright, Thank you very helpful. Thanks.

Speaker Change: Thank you.

Simon Leopold: Next question, we have comes from Simon Leopold of Raymond James. Please go ahead.

Speaker Change: Thanks for taking the question I wanted to first ask you about what youre seeing in the trends for the 800 gig, which I guess is more of a foundational element today of your data center business.

Jim Anderson: To the extent that there are changes in the landscape, the tariff landscape, and to the extent we need to adapt manufacturing, move manufacturing to different places for the benefit of our customers, we certainly feel like we've got a very good, resilient, adaptable supply chain, to leverage for that. I think the second part of your question was on demand impact. With respect to tariffs, I would say you know, the one place where we're taking a more cautious view on the end market demand, I would say is more in the industrial part of our business. You know, the current tariff environment, I think is creating you know, just a higher level of uncertainty across the environment.

Speaker Change: We're getting a lot of questions are hearing about debate about excess inventory. So if you could help level set us where are we and where are we going in that category of equipment.

Speaker Change: I've got a quick follow up which I'll ask after you. After this one.

Simon Leopold: Okay. Thanks, Simon so on 800 gig I would say first.

Simon Leopold: Look at 800 gig shipments last quarter I would say the demand was strong and as expected I mean, if you look at it as I mentioned in the prepared remarks, our data center business. So these are primarily datacom transceivers that grew 11, 11% sequentially and grew about 50.

Simon Leopold: 4% year over year. So we continue to see strong demand in 800 gig, but also I would say 400 gig and below we also saw a strong demand.

Jim Anderson: We're taking a bit of a more cautious near-term view on our industrial business. But other than that, you know, I'd say on the other part of our business, our data center and communications business, we see that as continuing to grow and be strong.

Simon Leopold: So good strong demand and then if I.

Simon Leopold: With respect to inventory I think you are asking about customer inventory.

Simon Leopold: Yes.

Simon Leopold: Clearly, we don't have perfect visibility into our end customer inventory, but I will say that from our experience and from our interactions with customers when as we're shipping them for instance, transceivers.

Samik Chatterjee: Correct. Thank you. Very helpful. Thanks.

Operator: Thank you. The next question we have comes from Simon Leopold of Raymond James. Please go ahead.

Simon Leopold: Thanks for taking the question. I wanted to first ask you about what you're seeing in the trends for the 800G, which I guess is more of a foundational element today of your data center business. We've been getting a lot of questions or hearing about debate about excess inventory. If you could help level set us of where are we and where are we going in that category of equipment. I've got a quick follow-up, which I'll ask after this one.

Simon Leopold: They are they are using those are deploying those very quickly. After we ship them. So we're not seeing any obvious pockets of inventory because we're seeing customers deploy those transceivers very quickly after shipment.

Speaker Change: Thanks, that's helpful and then.

Speaker Change: My other question is regarding the mix of technologies in the data center.

Speaker Change: Yes.

Speaker Change: In terms of the new products, you've talked about having offerings and vicks, <unk> and silicon photonics and with <unk>.

Jim Anderson: Okay. Thanks, Simon. On 800G, I would say first, you know, if I look at 800G shipments last quarter, I would say the demand was strong and as expected. I mean, if you look at, as I mentioned in the prepared remarks, our data center business, so these are primarily data comm transceivers, that grew 11% sequentially and grew about 54.4% year-over-year. We continue to see strong demand in 800G, but also I would say 400G and below, we also saw strong demand. Good strong demand. If I think with respect to inventory, I think you're asking about customer inventory.

Jim Anderson: Okay. Thanks, Simon. On 800G, I would say first, you know, if I look at 800G shipments last quarter, I would say the demand was strong and as expected. I mean, if you look at, as I mentioned in the prepared remarks, our data center business, so these are primarily datacom transceivers, that grew 11% sequentially and grew about 54.4% year-over-year. We continue to see strong demand in 800G, but also I would say 400G and below, we also saw strong demand. Good strong demand. If I think with respect to inventory, I think you're asking about customer inventory.

Speaker Change: I wanted to get a better understanding of how does that mix lineup with your revenue and the reason I'm asking is I.

Speaker Change: Like there's a perception that you're overly dependent on <unk> four for revenue.

Speaker Change: And so you've got all the tools in the tool chest and Im just trying to understand what is the mix and how does that evolve over time. Thank you.

Simonon Leopold: Yeah. Thanks, Thanks Simon.

Simon Leopold: So the yeah definitely if there is a perception that we're over indexed on VIX holes, that's certainly not the case.

Simon Leopold: As a as I mentioned in the prepared remarks, if we look at our transceiver revenue actually over over half. The revenue is in is based on AML. So over half of our transceiver revenue comes from.

Simon Leopold: Yes.

Jim Anderson: You know, clearly, we don't have perfect visibility into our end customer inventory. I will say that from our experience and from our interactions with customers, when as we're shipping them, for instance, transceivers, they are using those or deploying those very quickly after we ship them. We're not seeing any obvious pockets of inventory because we're seeing customers deploy those transceivers very quickly after shipment.

Simon Leopold: Ml based Transceivers and then if I look at that portion of AML Transceivers actually the majority of that email transceivers actually shipped with our own internally designed and manufactured AML now we do utilize externally ml sources as well, but as I said over half of <unk>.

Simon Leopold: Our email transceivers are from our own email factories, so hopefully that addresses a little bit of a mix Vicks <unk> is still we view are an important part of our tool chest.

Simon Leopold: Thanks. That's helpful. My other question is regarding the mix of technologies in the data center. I think it's, you know, great in terms of the new products you've talked about having offerings in VCSELs, in silicon photonics, and with EMLs. I wanna get a better understanding of how does that mix line up with your revenue. The reason I'm asking is I feel like there's a perception that you're overly dependent on VCSELs for revenue. You've got all the tools in the tool chest, and it's just trying to understand what's the mix and how does that evolve over time. Thank you.

Simon Leopold: But as I said majority of Transceivers of Uml based now although I also say that a growing portion of the transceiver is now silicon photonics too. So we do have silicon photonics Transceivers and as I mentioned earlier in terms of 160 Transceivers. We have all three solutions right we were.

Simon Leopold: Intending to offer our customers a one <unk> transceivers based on AML victual and Silicon Photonics. So we can deploy the best.

Simon Leopold: Technology for whatever particular at particular application the customers are trying to address.

Jim Anderson: Yeah. Thanks. Thanks, Simon. Yeah, definitely, if there is a perception that we're over-indexed on VCSELs, that's certainly not the case. As I mentioned in the prepared remarks, if we look at our transceiver revenue, actually over half the revenue is based on EML. Over half of our transceiver revenue comes from EML-based transceivers. If I look at that portion of EML transceivers, actually the majority of that EML transceivers actually ship with our own internally designed and manufactured EML. Now we do utilize external EML sources as well, but as I said, over half of our EML transceivers are from our own EML factories. Hopefully that addresses a little bit of the mix.

Simon Leopold: Thank you.

Speaker Change: The next question we have comes from Blayne Curtis of Jefferies. Please go ahead.

Speaker Change: Hi, Ashley <unk> on for Brian Thanks for taking my question.

Speaker Change: I guess the first one kind of following up on the last question in 800 G and some of the technological changes there as you move to IMO can you talk a little bit about the track.

Speaker Change: Traction of your mouth.

Speaker Change: And what that means in terms of your supply demand and capacity growth there and how it looks when you move from foreign to <unk> and then second question would be can you talk a little bit about your guidance from a segment basis.

Speaker Change: Yes on the first part of your question on 800 G that would tell you. The traction is on our own email was quite good considering you know as I mentioned the majority of our.

Jim Anderson: You know, VCSEL is still we view an important part of our tool chest. As I said, majority of transceivers are EML-based now. Although I also say that, you know, a growing portion of the transceiver is now silicon photonics too. We do have silicon photonics transceivers. As I mentioned earlier, in terms of 1.6 transceivers, we have all three solutions, right? We're intending to offer our customers 1.6 transceivers based on EML, VCSEL, and silicon photonics, so we can deploy the best technology for whatever particular application the customers are trying to address.

Jim Anderson: You know, VCSEL is still we view an important part of our tool chest. As I said, majority of transceivers are EML-based now. Although I also say that, you know, a growing portion of the transceiver is now silicon photonics too. We do have silicon photonics transceivers. As I mentioned earlier, in terms of 1.6T transceivers, we have all three solutions, right? We're intending to offer our customers 1.6T transceivers based on EML, VCSEL, and silicon photonics, so we can deploy the best technology for whatever particular application the customers are trying to address.

Speaker Change: Total transceiver revenue shifts on our own emails right.

Speaker Change: And.

Speaker Change: And look I think.

Speaker Change: Our strategy of using both external and internally produced.

Speaker Change: <unk> is a good way to provide us greater supply chain resiliency again to our customers, we're able to offer a.

Speaker Change: Our very resilient adaptable supply chain, because we're using we're able to shift.

Speaker Change: Shift and adapt our own internal capacity as well as our as well as our externally supplied emo capacity. So we view that as a key tool of our supply chain resiliency, but certainly.

Simon Leopold: Thank you.

Operator: Thank you. The next question we have comes from Blaine Curtis of Jefferies. Please go ahead.

Operator: Thank you. The next question we have comes from Blayne Curtis of Jefferies. Please go ahead.

Ezra Weener: Hi, Ezra Weener in for Blayne. Thanks for taking my question. Two, I guess. The first one kind of following up on the last question on 800G and some of the technological changes there, as you move to EML. Can you talk a little bit about the traction of your own EML and what that means in terms of your supply-demand and capacity growth there, and how it looks when you move from 400G to 800G? Second question would be, can you talk a little bit about your guidance from a segment basis?

Speaker Change: Internally produced <unk> is an important part of our strategy also mentioned that.

Speaker Change: Just reiterate that remember we have shared that our indium phosphide capacity has tripled on a year over year basis, and our intention is to continue to expand our indium phosphide capacity.

Speaker Change: Our six inch indium phosphide align will go into we'll start production next quarter and that six inch line moving from three inch to six inch provides significant increase in capacity, but it also provides a significant step function improvement in cost structure as well so we see that as a as a big.

Jim Anderson: Yeah. On the first part of your question on 800G, I would say the traction is on our own EML quite good considering, you know, as I mentioned, the majority of our total transceiver revenue ships on our own EMLs, right? Look, I think, you know, our strategy of using both external and internally produced EMLs is a good way to provide greater supply chain resiliency, again, to our customers. We're able to offer, you know, a very resilient, adaptable supply chain because we're able to shift and adapt our own internal capacity as well as our externally supplied EML capacity. We view that as a key tool of our supply chain resiliency.

Speaker Change: Benefit in one of the reasons, we're we're ramping indium phosphide capacity beyond just the immediate need for Transceivers is also for CW lasers for for instance, CPO applications. So indium phosphide capacity is used for both AML as well as CW lasers since we're ramping that.

Speaker Change: <unk> in preparation for that as well and so we see it again, we see indium phosphide is a key capability in the company is something we've had in house for over 20 years and something we expect to continue to invest in on the second part of your question around guidance. Yes. If you look at the midpoint of the guidance that <unk> provided.

On revenue.

Speaker Change: Roughly flat at the midpoint sequentially, but within that what I would say is we're expecting data center and communications to be sequentially up in the current quarter and then our industrial related end markets to be sequentially down and with the industrial related markets as I mentioned earlier I think just given the.

Jim Anderson: Certainly, internally produced EMLs is an important part of our strategy. I'll also mention that, and just reiterate that, remember, we've shared that our indium phosphide capacity has tripled on a year-over-year basis, and our intention is to continue to expand our indium phosphide capacity. Our 6-inch indium phosphide line will start production next quarter. That 6-inch line, moving from 3-inch to 6-inch, provides significant increase in capacity, but it also provides a significant step function improvement in cost structure as well. We see that as a big benefit. One of the reasons we're ramping indium phosphide capacity beyond just the immediate need for transceivers is also for CW lasers, for instance, CPO applications.

Speaker Change: Kind of more uncertainty in the environment, we're taking a bit of more of a cautious view on the end market outlook around industrial but in datacenter in communications, we expect to continue to see growth.

Speaker Change: Awesome I appreciate it.

Speaker Change: Thank you.

Speaker Change: Next question, we have comes from Thomas O'malley of Barclays. Please go ahead.

Thomas O'malley: Hey, Thanks for taking my question.

Thomas O'malley: Tactically first off on the Silicon carbide business Youre exiting there. There's obviously some costs associated with those people, but theres also some revenue associated with that business unit as well in your June guidance. What are you assuming from a revenue perspective from silicon carbide and maybe walk through what numbers would have been if you would have included it that'd be helpful just to compare.

Jim Anderson: Indium phosphide capacity is used for both EML as well as CW lasers, and so we're ramping that capacity in preparation for that as well. We see it again. We see indium phosphide as a key capability in the company, something we've had in-house for over 20 years and something we expect to continue to invest in. On the second part of your question around guidance. Yeah, if you look at the midpoint of the guidance that Sherry provided on revenue, you know, roughly flat at the midpoint sequentially. Within that, what I would say is we're expecting data center and communications to be sequentially up in the current quarter, and then our industrial-related end markets to be sequentially down.

Jim Anderson: Indium phosphide capacity is used for both EML as well as CW lasers, and so we're ramping that capacity in preparation for that as well. We see it again. We see indium phosphide as a key capability in the company, something we've had in-house for over 20 years and something we expect to continue to invest in. On the second part of your question around guidance. Yeah, if you look at the midpoint of the guidance that Sherri provided on revenue, you know, roughly flat at the midpoint sequentially. Within that, what I would say is we're expecting data center and communications to be sequentially up in the current quarter, and then our industrial-related end markets to be sequentially down.

Thomas O'malley: Yes, the on the devices and modules portion of our Silicon carbide business that we discontinued that was largely pre pre revenue. So there is no revenue that comes out of the forecast because those were largely pre revenue. So.

Thomas O'malley: Our revenue today is on a.

Thomas O'malley: The substrates in ERP and that's the place that we continue to.

Thomas O'malley: Invest in so what we did is we shut down investment for devices and modules.

Thomas O'malley: And we're just focusing on substrate in MP and Thats really where we think that we have significant differentiation in the manufacturing.

Jim Anderson: With the industrial-related markets, as I mentioned earlier, I think just given the kind of more uncertainty in the environment, we're taking a bit more of a cautious view on the end market outlook around industrial. In data center and communications, we expect to continue to see growth.

Thomas O'malley: Capability and the technology behind that that's where we have a long history and that's also where we have strong customer.

Thomas O'malley: Our relationships and we see improving demand in terms of the size of the silicon carbide revenue, we don't break that out, but it's a I would say, it's a small percentage of our overall revenue certainly in the probably low single digits.

Ezra Weener: Awesome. Appreciate it.

Operator: Thank you. The next question we have comes from Thomas O'Malley of Barclays. Please go ahead.

Thomas O'Malley: Hey, thanks for taking my question. Tactically, first off, on the silicon carbide business, you're exiting there. There's obviously some costs associated with those people, but there's also some revenue associated with that business unit as well. In your June guidance, what are you assuming from a revenue perspective from silicon carbide? Maybe walk through what numbers would've been if you would've included it. That would be helpful just to compare.

Speaker Change: Helpful. And then just something I noticed obviously going into the June quarter, Youre getting a bit of revenue uplift, obviously, a little flattish, but gross margins are pressured a bit should we be thinking about mixed differential that gets you to lower gross margins or are there any other factors that we should be weighing as to why youre seeing the sequential step down.

Jim Anderson: Yeah. On the devices and modules portion of our silicon carbide business that we discontinued, that was largely pre-revenue. There is no revenue that comes out of the forecast because those were largely pre-revenue. Our revenue today is on the substrates and epi, and that's the place that we continue to invest. What we did is we shut down investment for devices and modules, and we're just focusing on substrate and epi. That's really where we think that we have a significant differentiation in the manufacturing capability and the technology behind that. That's where we have a long history. That's also where we have strong customer relationships, and we see improving demand.

Thomas O'malley: Yeah.

Speaker Change: Take that question. So you know first of all the.

Speaker Change: Gross margin guide it is a range.

Speaker Change: But you know certainly within that range at the midpoint.

Speaker Change: To your question about what impacted that could cause it to be a little bit.

Speaker Change: Downward from sequentially and that would mix would be the biggest driver there frankly, because mix can always be a headwind.

Speaker Change: Next within our market segment, amongst our market segments and within our market segments can be a headwind.

Speaker Change: But the other thing I will take the Africa opportunity to point out is that you know the the sequential improvement that we did see in Q3, very pleased with that 30 basis points sequentially and 490 basis points year over year.

Speaker Change: And the great thing about what we've been doing is our gross margin optimization strategy is where we've been focused on product cost reduction as well as pricing optimization and you know what I can tell you for Q3 is that we have seen that.

Jim Anderson: In terms of the size of that silicon carbide revenue, we don't break that out, but it's a—I would say it's a small percentage of our overall revenue, certainly, probably in the low single digits.

Jim Anderson: In terms of the size of that silicon carbide revenue, we don't break that out, but it's a, I would say it's a small percentage of our overall revenue, certainly, probably in the low single digits.

Speaker Change: Frankly, we saw benefits across all of our all of our market segments.

Speaker Change: Within the company and the product cost reductions, we thought all market segments. We saw examples of that we saw yield improvement we thought overall cost reductions I was really pleased with that.

Thomas O'Malley: Helpful. Then, just something I noticed, obviously going into Q2, you're getting a bit of revenue uplift, obviously a little, you know, flattish, but gross margins are pressured a bit. Should we be thinking about mix differential that gets you to lower gross margins, or are there any other factors that we should be weighing as to why you're seeing the sequential step down?

Speaker Change: And then from a pricing optimization perspective, we did see benefits and you know in our lasers business in our in our Datacom business.

Speaker Change: Apples with where we were at you know executing on pricing improvements there. So I'm really pleased with the progress that the team has made so far we are definitely in the early stages.

Speaker Change: <unk> to focus on that.

Sherri Luther: Yeah. Thomas, I'll take that question. You know, first of all, the gross margin guide, it is a range. You know, somewhere within that range at the midpoint, you know, to your question about what could impact it, that could cause it to be a little bit less downward, from, you know, sequentially, and that would, mix would be the biggest driver there, frankly, because mix can always be a headwind, you know, mix within our market segments, among our market segments, and within our market segments can be a headwind.

Speaker Change: Levers for pricing optimization and cost reduction they really help when we do have a mixed headwind.

Speaker Change: And so the other thing I would mention is that you know the timing of these initiatives can kick in some near term some longer term and the rate and pace can differ so.

Speaker Change: That's just a few other little things that I can share with you in terms of that gross margin optimization strategy, but we are focused on the target of over 40% and I look forward to giving more color on that at our Investor day in May.

Sherri Luther: The other thing I will take the opportunity to point out is that, you know, the sequential improvement that we did see in Q3. Very pleased with that, you know, 30 basis points sequentially and 490 basis points year over year. The great thing about, you know, what we've been doing is our growth margin optimization strategy is where we've been focused on product cost reductions as well as pricing optimization. You know, what I can tell you for Q3 is that we've seen that, you know, frankly, we saw benefits across all of our market segments within the company in the product cost reductions. We saw it in all market segments. We saw examples of that. We saw yield improvement. We saw overall cost reductions.

Sherri Luther: The other thing I will take the opportunity to point out is that, you know, the sequential improvement that we did see in Q3. Very pleased with that, you know, 30 basis points sequentially and 490 basis points year-over-year. The great thing about, you know, what we've been doing is our growth margin optimization strategy is where we've been focused on product cost reductions as well as pricing optimization. You know, what I can tell you for Q3 is that we've seen that, you know, frankly, we saw benefits across all of our market segments within the company in the product cost reductions. We saw it in all market segments. We saw examples of that. We saw yield improvement. We saw overall cost reductions.

Speaker Change: Thank you.

Speaker Change: The next question we have comes from Vivek Arya with Bank of America. Please go ahead.

Speaker Change: Hi, This is Michael Mani on perfect. Thanks, So much for taking my questions. Just first on the $1 60 ramp at this stage.

Speaker Change: Visibility do you have any insight into what your relative share could be for the upcoming ramp maybe relative to 800 gig and then further on that.

Sherri Luther: I was really pleased with that. Then from a pricing optimization perspective, we did see benefits in, you know, in our lasers business, in our datacom business, examples of where we were, you know, executing on pricing improvements there. I'm really pleased with the progress that the team has made so far. We are definitely in the early stages. You know, we're continuing to focus on that. Those levers for pricing optimization and cost reduction, they really help when we do have, you know, mixed headwinds. The other thing I would mention is that, you know, the timing of these initiatives can kick in some near term, some longer term, and the rate and pace can differ.

Speaker Change: Could you give us a sense of.

Speaker Change: What the Paderborn adoption is across your customer base.

Speaker Change: So just starting with a few customers.

Speaker Change: Kind of like 800 gig maybe later in the ramp there will be a longer tail of customers that then eventually catch up just how should we think about that progression. Thank you.

Speaker Change: Yeah, Thanks, Mike on the first.

Speaker Change: On the first part of the question.

Speaker Change: It's probably too early for us to talk about share of $1 60 ramp but but.

Speaker Change: But as we said.

Speaker Change: We still continue to expect revenue to start.

Speaker Change: Yeah.

Sherri Luther: You know, that's just a few other little specifics that I can share with you in terms of that growth margin optimization strategy. We are focused on the target of over 40%, and I look forward to giving more color on that at our Investor Day in May.

Speaker Change: This this calendar year, and then ramp through the course of the following year and beyond.

Speaker Change: And then what one of the things that we're seeing in the industry, which has changed versus say <unk>.

Speaker Change: <unk> of years ago is we're seeding these faster adoption cycles of new data rates until we're seeing overlapping.

Speaker Change: Cycles, and so we expect 800 gig to continue to ramp as the $1 60 adoption starts. So we still expect 800 gig demand to remain strong I would say into into next year as well with one six kind of ramping on top of that and that will actually give a picture of what we.

Operator: Thank you. The next question we have comes from Vivek Arya of Bank of America. Please go ahead.

Michael Mani: Hi, this is Michael Mani on for Vivek Arya. Thanks so much for taking our questions. Just first on the 1.6T ramp. At this stage of your visibility, do you have any insight into what your relative share could be for the upcoming ramp, maybe relative to 800G? Further on that, could you give us a sense of what the pattern of adoption is across your customer base? Is it just starting with a few customers and, you know, kind of like 800G, maybe later in the ramp, there'll be a longer tail of customers that then eventually catch up? Just how should we think about that progression? Thank you.

Speaker Change: Back to the industry adoption rate of 160 to be at our Investor day at the end of May we'll map out what we think is kind of the 800 gig to 160.

Speaker Change: Transition and we would view our our revenue profile will will kind of match the industry adoption rate on the second part of your question in terms of pattern of customer adoption.

Speaker Change: I think what you the way you described it as accurate as we would see probably a smaller number of early adopters of 160 and that expanding out over time. That's what we saw in 800 gig is a small number of initial adopters of 800 gig and although that that did occur.

Jim Anderson: Yeah. Thanks, Michael. On the first part of the question, you know, it's probably too early for us to talk about share of 1.6T ramp. But as we said, you know, we still continue to expect revenue to start this calendar year and then ramp through the course of the following year and beyond. One of the things that we're seeing in the industry which has changed versus, say, you know, a number of years ago is we're seeing these faster adoption cycles of new data rates, and so we're seeing overlapping cycles. We expect 800G to continue to ramp as the 1.6T adoption starts.

Speaker Change: Spanned pretty rapidly over the course of about a year and so we would expect the same to happen on 160.

Speaker Change: Great. Thank you and then just wondering gross margins. So just to confirm I know you said no significant impact from tariffs, but is there any cost headwind contemplated in your gross margin guide.

Speaker Change: For the next quarter and then from here through the end of the year could you give us a sense of where most of the expansion opportunity could come from from whether it's.

Jim Anderson: We still expect 800G demand to remain strong, I would say, into next year as well, with 1.6T kind of ramping on top of that. We'll actually give a picture of what we expect the industry adoption rate of 1.6T to be at our Investor Day at the end of May. We'll map out what we think is kind of the 800G to 1.6T transition. We would view our revenue profile will kind of match the industry adoption rate.

Speaker Change: Cost reductions yield product mix further pricing optimization, just among those big buckets, what would be the biggest contributors for the next for maybe like the medium term.

Speaker Change: And then just finally on the pricing optimization. So I know you said you've already begun to do that.

Speaker Change: How early are we in that process.

Speaker Change: How much of I guess, how much of a benefit will that be.

Speaker Change: Over the next couple of quarters, and what are some areas where.

Speaker Change: You can you still see great opportunity to maybe optimize price. Thank you.

Jim Anderson: On the second part of your question, in terms of pattern of customer adoption, yeah, I think the way you described it is accurate, as we would see probably a smaller number of early adopters of 1.6T and that expanding out over time. That's what we saw in 800G. It's a, you know, small number of initial adopters of 800G. Although that did expand pretty rapidly over the course of about a year. We would expect the same to happen on 1.6T.

Speaker Change: Sure. Thank you for the question number of questions asked they got to make sure I cover to cover them all but in terms of that I think the first one had to do with you know sort of a cost impact in Paris in gross margin I think that was what your sort of your first question was.

Speaker Change: And what I can tell you is that you know that in addition to what I've already said I mean right that the gross margin guidance based upon the best information that we have for Q4.

Speaker Change: And incorporate.

Speaker Change: All the best information that we have the current environment related to tariffs, which as we have said all right.

Jim Anderson: Jim and I, both are as I said in our prepared remarks is not significant.

Michael Mani: Great. Thank you. Just one on gross margins. Just to confirm, I know you said no significant impact from tariffs, but is there any cost headwind contemplated in your gross margin guide for the next quarter? From here through the end of the year, could you give us a sense of where most of the expansion opportunity could come from whether it's, you know, cost reductions, yield, product mix, further pricing optimization? Just among those big buckets, you know, what would be the biggest contributors for the next, for maybe like the medium term? Just finally on the pricing optimizations, so I know you said you've already begun to do that. How early are we in that process?

Jim Anderson: We're going to continue focusing our gross margin expansion strategy.

Jim Anderson: If a pricing optimization and cost reductions in the answer to that that the unfavorable component that could occur is mixing up that I responded to an earlier question. So all of those are.

Jim Anderson: Earlier comments apply to your question.

Jim Anderson: And then in terms of the rest of the year.

Jim Anderson: Where are the opportunities for improvement in gross margin how can we get it up you know, we don't guide beyond the current quarter, but.

Jim Anderson: They are focused on on the price.

Jim Anderson: Product cost reductions and the pricing optimization the way to think about that and of course, we'll give more color at investor day, but the way to think about that is when we think of product cost reductions that that's the entire company right. We're looking everywhere in the company every segment no stone unturned product costs and manufacturing costs.

Michael Mani: You know, I guess, you know, how much of a benefit will that be over the next couple of quarters? You know, what are some areas where you still see great opportunity to maybe optimize price? Thank you.

Jim Anderson: Fixed costs.

Jim Anderson: All elements of cost as well as yield improvements and so every part of the company every part as each business is really it's participating in that and really driving them towards those improvement. When you think about pricing optimization that is primarily in the industrial and other part of our business. It.

Sherri Luther: Sure. Thank you for the question. Number of questions there, so I gotta make sure I cover them all. In terms of the, I think the first one had to do with, you know, sort of cost impact, tariffs, and gross margin. I think that was what your sort of first question was. And what I can tell you is that, you know, the, in addition to what I've already said, I mean, right, the gross margin guide is based upon the best information that we have for Q4. It incorporates, you know, all the best information that we have, the current environment related to tariffs, which have, as we have said, Jim has said, and both of us have said in our prepared remarks, is not significant.

Jim Anderson: It doesn't mean datacom won't have benefits there in fact, we did have a benefit from pricing in Q3 from datacom, but most of that benefit. If you think about you know.

Jim Anderson: Whereas whereas most of the opportunities coming from in the company for pricing will be in the industrial and the other part of our business because for Datacom you know we're focused on.

Sherri Luther: You know, we're gonna continue focusing our gross margin expansion strategy, you know, for pricing optimization and cost reductions and sort of the unfavorable component that could occur is mix, and that's what I responded to in the earlier question. All of those earlier comments apply to your question. Then in terms of the rest of the year, you know, where are the opportunities for improvements in gross margin? How can we get it up? You know, we don't guide beyond the current quarter, but you know, we are focused on the product cost reductions and the pricing optimization.

Jim Anderson: Growing revenue growth market share all of that and so that's kind of the way you can think about in terms of.

Jim Anderson: We're in the company, we would be generating these benefits.

Jim Anderson: Part of this optimization strategy and then in terms of the relative magnitude of each of these elements that will give you more color on at our Investor Day, where I think we've got some good information that we'll share with you that will hopefully help give you better perspective at that time.

Jim Anderson: Hopefully I covered them all.

Jim Anderson: Missed any part of your question.

Jim Anderson: No that was super helpful. Thank you.

Jim Anderson: Okay.

Sherri Luther: The way to think about that and, you know, of course, we'll give more color at Investor Day, but the way to think about that is when we think of product cost reductions, that's the entire company, right? We're looking everywhere in the company, every segment, you know, no stone unturned, you know, product costs, manufacturing costs, you know, fixed costs, you know, all elements of costs as well as yield improvements. Every part of the company, every part of each business is really is participating in that and really driving toward those improvements. When you think about pricing optimization, that is primarily in the industrial and other part of our business. It doesn't mean Datacom won't have benefits there. In fact, we did have benefits from pricing in Q3 from Datacom.

Sherri Luther: The way to think about that and, you know, of course, we'll give more color at Investor Day, but the way to think about that is when we think of product cost reductions, that's the entire company, right? We're looking everywhere in the company, every segment, you know, no stone unturned, you know, product costs, manufacturing costs, you know, fixed costs, you know, all elements of costs as well as yield improvements. Every part of the company, every part of each business is really is participating in that and really driving toward those improvements. When you think about pricing optimization, that is primarily in the industrial and other part of our business. It doesn't mean datacom won't have benefits there. In fact, we did have benefits from pricing in Q3 from datacom.

Jim Anderson: Thank you.

Speaker Change: The next question we have comes from Pablo <unk> of Citigroup. Please go ahead.

Pablo: Thank you for taking my question and congrats on the strong results I guess for my first question. Jim I was wondering if you can.

Speaker Change: Just provide more color on that.

Speaker Change: Telecom.

Speaker Change: And then I guess.

Speaker Change: Last quarter, the sentiment was for traditional telco.

Speaker Change: <unk> has the sentiment improve incrementally since then despite maybe more macro uncertainty in terms of mix how should we think about the mix between the traditional telco versus Dci at this point.

Sherri Luther: Most of that benefit, if you think about, you know, where are most of the opportunities coming from in the company for pricing, will be in the industrial and other part of our business. Because for Datacom, you know, we're focused on, you know, growing, you know, revenue growth, you know, market share, all of that. So that's kind of the way you can think about in terms of where in the company we would be generating these benefits that are part of this optimization strategy. In terms of the relative magnitude of each of these elements, that I'll give you more color on at our Investor Day, where I think we've got some good information that we'll share with you that'll help give you that better perspective at that time.

Sherri Luther: Most of that benefit, if you think about, you know, where are most of the opportunities coming from in the company for pricing, will be in the industrial and other part of our business. Because for datacom, you know, we're focused on, you know, growing, you know, revenue growth, you know, market share, all of that. So that's kind of the way you can think about in terms of where in the company we would be generating these benefits that are part of this optimization strategy. In terms of the relative magnitude of each of these elements, that I'll give you more color on at our Investor Day, where I think we've got some good information that we'll share with you that'll help give you that better perspective at that time.

Bob: Thanks, Bob.

Speaker Change: I think we're in the traditional telecom were still in that cautiously positive mode that I mentioned last quarter, Yes, we're still seeing incremental improvement on a quarter on quarter by quarter basis. So we're certainly happy to see that now where we're seeing bigger growth.

Is of course in Dci kind of the second part of your question, that's still a smaller portion of our telecom revenue, but no doubt.

Speaker Change: The bigger growth driver in that segment when we look at our telecom revenue grew over 20% year over year. Some of that was improvement in traditional telecom, but.

Sherri Luther: Hopefully, I covered them all. I don't know if I missed any part of your question.

Michael Mani: No, that was super helpful. Thank you.

Speaker Change: The majority of that growth was driven by Dci and we expect that Dci component to continue to grow over the coming quarters.

Operator: Thank you. The next question we have comes from Papa Silha of Citigroup. Please go ahead.

Operator: Thank you. The next question we have comes from Papa Sylla of Citigroup. Please go ahead.

Papa Silha: Thank you for taking my question, and congrats on the strong results. I guess for my first question, Jim, I was wondering if you can just provide more color on the telecom sub-segment. I guess if last quarter the sentiment was for traditional telco cautiously positive, has the sentiment improved incrementally since then, despite maybe more macro uncertainty? And in terms of mix, how should we think about the mix between traditional telco versus DCI at this point?

Papa Sylla: Thank you for taking my question, and congrats on the strong results. I guess for my first question, Jim, I was wondering if you can just provide more color on the telecom sub-segment. I guess if last quarter the sentiment was for traditional telco cautiously positive, has the sentiment improved incrementally since then, despite maybe more macro uncertainty? And in terms of mix, how should we think about the mix between traditional telco versus DCI at this point?

Speaker Change: Got it that's helpful and my follow up is kind of a margin kind of alongside part of your question and obviously you have been quite successful in your efforts to improve margin through.

Speaker Change: Manufacturing, reducing manufacturing costs, improving yield and price increases.

Speaker Change: I guess for this quarter in particular, what would you attribute it primarily your margin outperformance between growth and.

Speaker Change: And maybe the second part of this question is.

Speaker Change: How far along in terms of the yield improvement efforts hopeful are alone are you is there is still a lot of room, there or are you getting close to our internal targets.

Jim Anderson: Thanks, Papa. Yeah, I think we're in the traditional telecom. We're still in that, you know, cautiously positive mode that I mentioned last quarter. Yeah, we're still seeing, you know, incremental improvement on a kinda quarter-by-quarter basis. We're certainly happy to see that. Now, where we're seeing bigger growth is, of course, in DCI, kind of the second part of your question. That's still a smaller portion of our telecom revenue, but no doubt, you know, the bigger growth driver in that segment. When we look at, you know, our telecom revenue grew over 20% year-over-year. Some of that was improvement in traditional telecom, but, you know, the majority of that growth was driven by DCI. We expect that DCI component to continue to grow over the coming quarters.

Speaker Change: Yeah sure. So I think you cut out a little bit but I think your question was where is most of that most of the benefit in Q3 come from in terms of pricing and costs, because as you're asking and so it's a really cost reductions tend to be a little bit higher in terms of the contributor versus pricing.

Speaker Change: But again that can fluctuate on a quarterly basis, and that's not necessarily always the rule, but that's generally what we saw for Q3 cost reductions.

Speaker Change: A little bit higher than the pricing improvement.

Speaker Change: And then in terms of where we are on the yield improvement I mean, as you can imagine for a manufacturing company.

Speaker Change: Manufacturing a number of different products, there's lots of opportunity for yield improvement all throughout the manufacturing processes and in many of our businesses and so it's not it's not the situation that you sort of make it a yield improvement and youre done it's always ongoing there's always opportunity for improving yield and also as new products come out there you know additional opportunities.

Papa Silha: Got it. No, that's helpful. My follow-up is kind of on margin and kind of alongside prior questions. Here, obviously, you have been quite successful in your efforts to improve margin through kind of manufacturing, reducing manufacturing costs, improving yield, and price increases. I guess for this quarter in particular, what would you maybe attribute primarily your margin outperformance between those three? Maybe the second part of this question is, how far along, in terms of the yield improvement efforts, how far along are you? Is there still a lot of room there, or are you getting really close to your internal targets?

Papa Sylla: Got it. No, that's helpful. My follow-up is kind of on margin and kind of alongside prior questions. Here, obviously, you have been quite successful in your efforts to improve margin through kind of manufacturing, reducing manufacturing costs, improving yield, and price increases. I guess for this quarter in particular, what would you maybe attribute primarily your margin outperformance between those three? Maybe the second part of this question is, how far along, in terms of the yield improvement efforts, how far along are you? Is there still a lot of room there, or are you getting really close to your internal targets?

Speaker Change: Present themselves to create yield improvements so that that is going to be an ongoing part of our part of our strategy.

Speaker Change: Got it thank you.

Speaker Change: Thank you. The next question we have comes from Chris Rolland of Susquehanna. Please go ahead.

Speaker Change: Okay.

Speaker Change: Hey, guys. Thanks for the question.

Speaker Change: So perhaps first a follow up on your manufacturing footprint.

Speaker Change: Specifically for Transceivers.

Sherri Luther: Yeah, sure, Papa. I think it cut out a little bit, but I think your question was where did most of the benefit in Q3 come from in terms of pricing and cost. I think is what you're asking. Really, you know, cost reductions tend to be a little bit higher in terms of the contributor versus pricing. Again, that can fluctuate on a quarterly basis, and that's not necessarily always the rule. That's generally what we saw for Q3, cost reductions a little bit higher than the pricing improvement. Then in terms of where we are on the yield improvement, I mean, as you can imagine, for a manufacturing company, there's, you know, manufacturing a number of different products.

Speaker Change: I guess I think you are in China, and Malaysia with that manufacturing.

Speaker Change: Do you have the capacity to serve American customers.

Speaker Change: Malaysia.

Speaker Change: How was China evolves.

Speaker Change: And then perhaps if you could give us some color as to what percent of your business might actually end up.

Speaker Change: In the mirror.

Speaker Change: So yes, Ken can you fully serve America out of Malaysia, and what percent.

Speaker Change: Thank you.

Speaker Change: Yeah on the first part of the question.

Sherri Luther: You know, there's lots of opportunity for yield improvements all throughout the manufacturing processes and many of our businesses. It's not the situation that you sort of make a yield improvement and you're done. It's always ongoing. There's always opportunity for improving yield. Also as new products come out, there are, you know, additional opportunities that present themselves to, you know, create yield improvements. That is gonna be an ongoing part of our part of our strategy.

Speaker Change: Answers yes.

Speaker Change: Today, if you look at our U S based for instance, customers like Hyperscale customers.

Those transceivers come from Malaysia. So, yes, we're today, we're supporting our U S customers.

Speaker Change: Almost entirely from Malaysia, and then on the second part of the question I think you were asking about like total revenue by geography, how much is North America based.

Papa Silha: Got it. Thank you.

Papa Sylla: Got it. Thank you.

Speaker Change: For trends here.

Speaker Change: For Transceivers.

Operator: Thank you. The next question we have comes from Christopher Rolland of Susquehanna. Please go ahead.

Speaker Change: Boy I don't have Chris I don't have that in front of me, but it certainly is a very significant percentage rate, but I don't have that right in front of me.

Christopher Rolland [Managing Director, Senior Equity Analyst: Hey, guys. Thanks for the question. Perhaps first a follow-up on your manufacturing footprint, specifically for transceivers. I guess I think you're in China and Malaysia with that manufacturing. Do you have the capacity to serve American customers via Malaysia? How is China involved in that? Perhaps if you could give us some color as to what percent of your business might actually end up in America. Can you fully serve America out of Malaysia, and what percent goes to the US? Thank you.

Christopher Rolland: Hey, guys. Thanks for the question. Perhaps first a follow-up on your manufacturing footprint, specifically for transceivers. I guess I think you're in China and Malaysia with that manufacturing. Do you have the capacity to serve American customers via Malaysia? How is China involved in that? Perhaps if you could give us some color as to what percent of your business might actually end up in America. Can you fully serve America out of Malaysia, and what percent goes to the US? Thank you.

Speaker Change: Yes no.

Speaker Change: Brian I think you answered it.

Speaker Change: And then secondly.

Speaker Change: The comments and the additional focus on AML this quarter.

Speaker Change: It seems like this is our increased emphasis for the company.

Speaker Change: I guess at what point in time do you think you could fill all your email needs internally or do we have to wait for that six inch fab to come online and Conversely momentum last night talked about doing more in CW.

Speaker Change: Do you see that as becoming increasingly.

Speaker Change: Increasingly crowded space. Thank you.

Speaker Change: Okay.

Speaker Change: Yes, Sean email I think today, our strategy is actually to use a mix of both external and internal.

Jim Anderson: Yeah. On the first part of the question, the answer is yes. In fact, today, if you look at our US-based, for instance, customers like hyperscaler customers, those transceivers come from Malaysia. So, yeah, today we're supporting our US customers, almost entirely from Malaysia. On the second part of the question, I think you were asking about like total revenue by geography. How much is North America based? I don't have

Speaker Change: <unk> produced e-mails for our Transceivers and I would expect to continue to use a mix we have.

Speaker Change: Of external ml vendors that are that are great partners and had been very reliable suppliers and we view it as it's a nice way to have just even more supply chain resiliency. So as I shared the majority of our email based transceivers shipped with our own internally produced <unk>.

Christopher Rolland [Managing Director, Senior Equity Analyst: For transceivers, yeah.

Christopher Rolland: For transceivers, yeah.

Jim Anderson: Well, for transceivers, boy, I don't have Chris, I don't have that in front of me, but it certainly is a very significant percentage, right? I don't have that right in front of me.

Speaker Change: But I would.

Speaker Change: I expect to continue to utilize external suppliers as well on CW lasers, maybe for US maybe just to maybe clarify that on CW lasers, we have produced CW lasers for our telecom products for many years. So remember we've had indium.

Christopher Rolland [Managing Director, Senior Equity Analyst: Yeah, no, that's fine. I think you answered it. Secondly, you know, the comments and the additional focus on EMLs this quarter, it seems like this is an increased emphasis for the company. I guess, at what point in time do you think you could fill all your EML needs internally, or do we have to wait for that six-inch fab to come online? Conversely, Lumentum last night talked about doing more in CW. Do you see that as becoming an increasingly crowded space? Thank you.

Christopher Rolland: Yeah, no, that's fine. I think you answered it. Secondly, you know, the comments and the additional focus on EMLs this quarter, it seems like this is an increased emphasis for the company. I guess, at what point in time do you think you could fill all your EML needs internally, or do we have to wait for that 6-inch fab to come online? Conversely, Lumentum last night talked about doing more in CW. Do you see that as becoming an increasingly crowded space? Thank you.

Speaker Change: Fighting capability for over 20 years and.

Speaker Change: And so we've been doing CW lasers for a long time for telecom and are.

Speaker Change: Moving forward with the adoption of Silicon photonics, and some transceiver applications and and potentially in CPO applications as well. We believe there's certainly opportunity for increased usage of CW lasers in datacenters and so part of the capacity ramp.

Jim Anderson: Yeah, Sean. On EML, I think today our strategy is actually to use a mix of both external and internal produced EMLs for our transceivers, and I would expect to continue to use a mix. We have, you know, a number of external EML vendors that are great partners and have been very reliable suppliers, and we view it as a nice way to have just even more supply chain resiliency. As I shared, the majority of our EML-based transceivers ship with our own internally produced EMLs, but I would, you know, expect to continue to utilize external suppliers as well. On CW lasers, you know, maybe for us, maybe just to clarify that. On CW lasers, we have produced CW lasers for our telecom products for many years.

Jim Anderson: Yeah, [Rolland]. On EML, I think today our strategy is actually to use a mix of both external and internal produced EMLs for our transceivers, and I would expect to continue to use a mix. We have, you know, a number of external EML vendors that are great partners and have been very reliable suppliers, and we view it as a nice way to have just even more supply chain resiliency. As I shared, the majority of our EML-based transceivers ship with our own internally produced EMLs, but I would, you know, expect to continue to utilize external suppliers as well. On CW lasers, you know, maybe for us, maybe just to clarify that. On CW lasers, we have produced CW lasers for our telecom products for many years.

Speaker Change: That we're doing is in support of.

Speaker Change: Making sure that we have the right capacity in place to support our customers with respect to CW laser needs over the long term as well and indefinitely that that six inch line actually will be.

Speaker Change: Introducing six inch capacity.

Speaker Change: At two sites two separate physical sites. So in that six inch capacity is definitely a key a key enabler of our capacity expansion and then again I'll just reiterate a significant cost structure advantage as well.

Speaker Change: Okay.

Jim Anderson: Thanks, Jim.

Speaker Change: Thank you.

Speaker Change: The next question we have comes from call Ahmed of Bnb parallel. Please go ahead.

Speaker Change: Yes, I have two if I may Sheri could you quantify the gross margin impact on your March quarter and June outlook from these portfolio optimization actions taken in the quarter.

Jim Anderson: Remember, we've had indium phosphide capability for over 20 years. We've been doing CW lasers for a long time for telecom. You know, moving forward with the adoption of you know, silicon photonics in some transceiver applications and potentially in CPO applications as well, we believe there's certainly opportunity for you know, increased usage of CW lasers in data centers. Part of the capacity ramp that we're doing is in support of you know, making sure that we have the right capacity in place to support our customers with respect to CW laser needs over the long term as well. Definitely that you know, that 6-inch line actually we'll be introducing 6-inch capacity at 2 sites, 2 separate physical sites.

Speaker Change: Follow up.

Speaker Change: Yeah. Thanks, Karl So I think you're referring to some of the restructuring that we've taken the portfolio actions associated with it.

Speaker Change: So what I would say is that you know that the <unk>.

Speaker Change: The actions that were taken.

Speaker Change: In terms of.

Speaker Change: And I know you'd like assets are under under utilized businesses.

Speaker Change: That benefit is.

Speaker Change: Certainly will contribute to our our financials from a gross margin and Opex perspective, depending on the nature of the actual.

Speaker Change: So for example.

Speaker Change: The device and module business that Jim talked about four of our silicon devices business I mean that didn't affect our revenue because that was a pre revenue as he described until it really affected more from an opex perspective going forward and not really from that from a revenue or gross margin perspective. So it depends on the nature of the businesses in terms of where it will impact.

Jim Anderson: That six-inch capacity is, yeah, definitely a key enabler of our capacity expansion, and then again, I'll just reiterate, a significant cost structure advantage as well.

Jim Anderson: That 6-inch capacity is, yeah, definitely a key enabler of our capacity expansion, and then again, I'll just reiterate, a significant cost structure advantage as well.

Speaker Change: In the P&L.

Speaker Change: When you when you go forward in terms of going to the future in terms of our long term model. We will give you more color on how to think about our gross margin at our Investor day as well as our complete operating model from an Opex perspective, and revenue growth and I think it's really all of those elements that come into play longer term that is more will be more useful for you to.

Christopher Rolland [Managing Director, Senior Equity Analyst: Thanks, Jim.

Christopher Rolland: Thanks, Jim.

Operator: Thank you. The next question we have comes from Karl Ackerman of BNP Paribas. Please go ahead.

Karl Ackerman: Yes, I have two, if I may. Sherry, could you quantify the gross margin impact on your Q3 and Q4 outlook from these portfolio optimization actions taken in the quarter? I have a follow-up.

Karl Ackerman: Yes, I have two, if I may. Sherri, could you quantify the gross margin impact on your Q3 and Q4 outlook from these portfolio optimization actions taken in the quarter? I have a follow-up.

Speaker Change: Theater Investor day from looking at our Iron overall model perspective versus the actions that we took during the quarter, having a significant impact in the quarter I think it's more long term impact I think is really the short list.

Sherri Luther: Yeah. Thanks, Carl. If I think you're referring to some of the restructuring that we've taken and the portfolio actions associated with it. What I would say is that, you know, the actions that were taken in terms of, you know, an underutilized assets or underutilized businesses, that benefit certainly will contribute to our financials from a gross margin and OpEx perspective, depending on the nature of the actual divestiture. For example, the silicon carbide devices and modules business that Jim talked about from our silicon carbide devices and modules business, I mean, that didn't affect our revenue because that was pre-revenue as he described.

Sherri Luther: Yeah. Thanks, Karl. If I think you're referring to some of the restructuring that we've taken and the portfolio actions associated with it. What I would say is that, you know, the actions that were taken in terms of, you know, an underutilized assets or underutilized businesses, that benefit certainly will contribute to our financials from a gross margin and OpEx perspective, depending on the nature of the actual divestiture. For example, the silicon carbide devices and modules business that Jim talked about from our silicon carbide devices and modules business, I mean, that didn't affect our revenue because that was pre-revenue as he described.

Speaker Change: The short answer to the question, where you would see the benefits. So you know that the results that we had for Q3.

Speaker Change: I didn't say that there were significant impacts related to the portfolio analysis directly in the P&L, but what you have been seeing even prior to Q3 is that shift in R&D spend I mean that was a big part of what we talked about and looking at the portfolio review analysis was really making sure that we pull R&D out of those.

Speaker Change: Non strategic or underperforming assets and really focus it towards the profit and growth engines and so those are the things that you already see that were doing.

Speaker Change: In Q3, and prior quarters, and so youll continue to see that going forward, but otherwise I would say, it's more more longer term that youll see the benefits of our restructuring actions that we took.

Sherri Luther: It really affected more from an OpEx perspective, going forward and not really from a revenue or gross margin perspective. It depends on the nature of the businesses in terms of where it will impact in the P&L. You know, when you go forward in terms of going to the future, in terms of our long-term model, we'll give you more color on how to think about our gross margin at our Investor Day, as well as our complete operating model from an OpEx perspective and revenue growth.

Speaker Change: Yes. Thank you Jim I was hoping you could address how you see the demand outlook for Datacom, Transceivers, particularly 800 gig.

Speaker Change: In the June quarter and throughout the calendar year and the reason why I ask is some investors have been.

Speaker Change: <unk> about this.

Speaker Change: Our inventory build and heightened competition pressuring margins that doesn't seem to be the case for you.

Speaker Change: But perhaps you could highlight how you see second half relative to first half in the context of your Datacom transceiver business. Thank you.

Sherri Luther: I think it's really all of those elements that come into play longer term that will be more useful for you to see at our Investor Day and from a, you know, looking at our overall model perspective versus, you know, the actions that we took during the quarter having a significant impact in the quarter. I think it's more long-term impact. I think is really the short answer to the question where you would see the benefits. You know, the results that we had for Q3.

Speaker Change: Yes, we don't we don't guide beyond the current quarter, but what I would say is datacom. We continue to see strong demand signals from our customers both kind of shorter term demand signals, which would be purchase orders and backlog, but also longer term demand signals like the forecast that they will give us a 12 or 18 month forecast and so.

Sherri Luther: You know, I wouldn't say that there were significant impacts related to the portfolio analysis directly in the P&L. What you have been seeing even prior to Q3 is the shift in R&D spend. I mean, that was a big part of what we talked about in looking at the portfolio re-review analysis was really making sure that we, you know, pull R&D out of those non-strategic or underperforming assets and really focus it towards the profit and growth engines. Those are the things that you already see that we're doing. You know, we're seeing that in Q3 and prior quarters, and so you'll continue to see that going forward. Otherwise, I would say it's more longer term that you'll see the benefits of some of our the restructuring actions that we took.

Speaker Change: We continue to see strong demand from the data center customers, who were expecting that business to continue to grow and certainly were not running just maybe to clarify we're not just focused on matching the market growth. We're also focused on share gains. We believe we gained share over the last two to three quarters.

Speaker Change: And certainly we're very focused on continuing to gain share of wallet of our customers and overall share in the market.

Speaker Change: Thank you.

Speaker Change: Next question, we have comes from meta Marshall of Morgan Stanley. Please go ahead.

Karl Ackerman: Yep. Thank you. Jim, I was hoping you could address how you see the demand outlook for Datacom transceivers, particularly 800G, in the Q2 and throughout the calendar year. The reason why I ask is some investors have been concerned about this inventory or an inventory build and heightened competition pressuring margins. That doesn't seem to be the case for you. But perhaps you could highlight how you see second half relative to first half in the context of your Datacom transceiver business. Thank you.

Karl Ackerman: Yep. Thank you. Jim, I was hoping you could address how you see the demand outlook for datacom transceivers, particularly 800G, in the Q2 and throughout the calendar year. The reason why I ask is some investors have been concerned about this inventory or an inventory build and heightened competition pressuring margins. That doesn't seem to be the case for you. But perhaps you could highlight how you see H2 relative to H1 in the context of your datacom transceiver business. Thank you.

Speaker Change: Great. Thanks, a couple of questions for me.

Speaker Change: Maybe first just kind of on the commentary about industrials.

Speaker Change: Second half potentially.

Speaker Change: Being a little bit weaker I just wanted to get a sense is there any pull forward that you observed in the first half of it makes you more cautious or is that just kind of macro.

Speaker Change: And I was just given the uncertainty in the environment and then maybe a second question for me now.

Speaker Change: You do have a sizable military kind of business any impact from what we're seeing with the federal government.

Jim Anderson: Yeah, we don't guide beyond the current quarter, but what I would say is, you know, in Datacom, we continue to see strong demand signals from our customers, both kind of shorter term demand signals, which would be purchase orders and backlog, but also longer term demand signals like the forecast that they'll give us, a 12- or 18-month forecast. We continue to see strong demand from the data center customers, so we're expecting that business to continue to grow. Certainly we're not just maybe to clarify, we're not just focused on matching the market growth. We're also focused on share gain. We believe we gained share over the last 2 to 3 quarters, and certainly we're very focused on continuing to gain share of wallet at our customers and overall share in the market.

Jim Anderson: Yeah, we don't guide beyond the current quarter, but what I would say is, you know, in datacom, we continue to see strong demand signals from our customers, both kind of shorter term demand signals, which would be purchase orders and backlog, but also longer term demand signals like the forecast that they'll give us, a 12 or 18 month forecast. We continue to see strong demand from the data center customers, so we're expecting that business to continue to grow. Certainly we're not just maybe to clarify, we're not just focused on matching the market growth. We're also focused on share gain. We believe we gained share over the last two to three quarters, and certainly we're very focused on continuing to gain share of wallet at our customers and overall share in the market.

Speaker Change: Timing our approval processes.

Speaker Change: Thanks made are on industrial we haven't seen any signs of pull forward the customer ordering patterns have been very very normal and.

Speaker Change: You are kosher or showed a more cautious outlook around the industrial end market demand is really related to the second thing that you mentioned just macroeconomic uncertainty that's.

Speaker Change: It's causing us to just take a more cautious outlook on that on that market in the near term, but we still believe that that that is a long term growth area for the company and certainly an area will highlight.

Speaker Change: As long term growth in our Investor Day later later in May and the second part of your question around the aerospace and defense business I would say that business is it's a smaller part of our revenue, but that business has been doing quite well recently, we saw good sequential growth.

Karl Ackerman: Thank you.

Operator: Thank you. The next question we have comes from Meta Marshall of Morgan Stanley. Please go ahead.

Meta Marshall: Great. Thanks. A couple questions for me. Maybe first, you know, just kind of on the commentary about industrials in the second half potentially, you know, being a little bit weaker. Just wanted to get a sense, is there any pull forward that you observed in the first half that makes you more cautious, or is that just kind of macro caution, you know, just given the uncertainty in the environment? Maybe second question for me, I'll just get in now. You know, you do have a sizable military kind of business. Any impact from kind of what we're seeing with the federal government just in terms of timing or approval processes? Thanks.

Meta Marshall: Great. Thanks. A couple questions for me. Maybe first, you know, just kind of on the commentary about industrials in the H2 potentially, you know, being a little bit weaker. Just wanted to get a sense, is there any pull forward that you observed in the H1 that makes you more cautious, or is that just kind of macro caution, you know, just given the uncertainty in the environment? Maybe second question for me, I'll just get in now. You know, you do have a sizable military kind of business. Any impact from kind of what we're seeing with the federal government just in terms of timing or approval processes? Thanks.

Speaker Change: If I take our most recent quarter, we saw good sequential growth in the most recent quarter and year over year growth as well.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: The next question we have comes from Ryan Koontz of Needham <unk> Company. Please go ahead.

Ryan Koontz: Alright, thanks for being here.

Speaker Change: With regards to.

Ryan Koontz: Dci, which is hot we're hearing everywhere.

Ryan Koontz: And the ZR designs for them for the applicable Transceivers there.

Jim Anderson: Thanks, Meta. On industrial, we haven't seen any signs of pull forward. The customer ordering patterns have been very, very normal. You know, our sort of more cautious outlook around the industrial end market demand is really related to the second thing that you mentioned, just macroeconomic uncertainty. That's causing us to just take a more cautious outlook on that market in the nearer term. We still believe that that is a long-term growth area for the company and certainly an area we'll highlight as long-term growth in our Investor Day later in May.

Ryan Koontz: If you pull out the DSP, what what is your addressable.

Ryan Koontz: Our wallet share there in terms of the bill of materials that you can sell your products into our CRM module.

Ryan Koontz: Well, we do two things with respect to Dci in ZR modules, we make our own modules and sell our own modules, but then we also sell components.

Ryan Koontz: Into other suppliers of those modules, so we kind of.

Ryan Koontz: <unk> addressed the market from both perspectives.

Ryan Koontz: I think your question was about the second piece of it.

Ryan Koontz: Yourself.

Ryan Koontz: Got it.

Jim Anderson: On the second part of your question around the aerospace and defense business, I would say that business has. It's a smaller part of our revenue, but that business has been doing quite well recently. We saw good sequential growth. If I take our most recent quarter, we saw good sequential growth in the most recent quarter and year-over-year growth as well.

Ryan Koontz: It's.

Ryan Koontz: I don't know how to really break down the bomb opportunity, but I would say, it's a it's a significant opportunity for us and it's a very good part of our business.

Ryan Koontz:

Ryan Koontz: We see good demand there and also I would say, it's a it's a reasonably good gross margin as well I think we can probably give you a better picture when we meet at our Investor Day. This month, what Dci and our products in the Dci space as one of the topics, we'll hit at the Investor Day, So I would say probably stay tuned and we can provide a little bit more.

Meta Marshall: Great. Thank you.

Operator: Thank you. The next question we have comes from Ryan Koontz of Needham & Company. Please go ahead.

Ryan Koontz: Great. Thanks for getting me in here. With regards to DCI, which is hot, we're hearing everywhere, and the ZR designs for the pluggable transceivers there. If you pull out the DSP, you know, what is your addressable kind of wallet share there in terms of the bill of materials that you can sell into your products into a ZR module?

Ryan Koontz: Color at the Investor Day.

Jim Anderson: Sounds great Jim and then on your new Ocs products in your right mind US where you are in terms of.

Jim Anderson: Launch introduction trials customer wins and remind us of the use case there for the ocs.

Jim Anderson: Yeah happy to really great product I'm really excited about it so first of all on the use case, the ocs replaces an electrical switch. So the reason a customer would want us switch or change.

Jim Anderson: Well, we do two things with respect to DCI and ZR modules. We make our own modules and sell our own modules, but then we also sell components into other suppliers of those modules. We kind of, you know, address the market from both perspectives. I think your question was about the second piece of it, of where you sell.

Jim Anderson: From an electrical switch to an optical switches because then the the data transmission stays in the optical domain, which has performance and power efficiency advantages our ocs.

Jim Anderson: Our solution is very differentiated versus what else is out there in the market. The other solutions or mechanical Mems based solutions ours is based on digital liquid Crystal technology from our telecom business, which is much is much higher reliability and other benefits as well.

Ryan Koontz: That's right.

Jim Anderson: Yeah. It's, I don't know how to really break down the BOM opportunity, but I would say it's a significant opportunity for us, and it's a very good part of our business. We see good demand there. Also I would say it's a reasonably good gross margin as well. I think we could probably give you a better picture when we meet at our Investor Day this month. Well, DCI and our products in the DCI space is one of the topics we'll hit at the Investor Day. I would say probably stay tuned, and we can provide a little bit more color at the Investor Day.

Jim Anderson: We are we continue to expect revenue to begin to generate revenue from that product line. This calendar year, and we do have existing customer orders in place. So it's something that.

Jim Anderson: Its product line and we're really excited about in terms of Tam expansion and future revenue growth.

Speaker Change: Got it does that play into the AI clusters, typically or are you kind of maybe in the <unk>.

Jim Anderson: And the network typically.

Jim Anderson: Yes. Good question. It can go into multiple parts of the market.

Ryan Koontz: Sounds great, Jim. On your new OCS product, can you remind us where you are in terms of launch, introduction, trials, you know, customer wins? Remind us of the use case there for the OCS.

Jim Anderson: Or the data center deployments. So you would find it in multiple potentially multiple different parts of the data center.

Speaker Change: Got it thanks, so much.

Jim Anderson: <unk>.

Speaker Change: Thank you ladies and gentlemen that is all the time, we have for questions I would now like to turn the floor back over to CEO, Jim Anderson for closing comments. Please go ahead Sir.

Jim Anderson: Yeah, happy to. Really, great product. I'm really excited about it. First of all, on the use case, the OCS replaces an electrical switch. The reason a customer would wanna switch or change from an electrical switch to an optical switch is because then the data transmission stays in the optical domain, which has performance and power efficiency advantages. Our OCS solution is very differentiated versus what else is out there in the market. The other solutions are mechanical MEMS-based solutions. Ours is based on digital liquid crystal technology from our telecom business, which has much higher reliability and other benefits as well. We continue to expect revenue to begin to generate revenue from that product line this calendar year.

Thank you operator, and thanks, everybody for joining us on the call today I do want to take the opportunity to once again. Thank my coherent teammates for all their hard work and dedication and their fantastic innovation and.

Speaker Change: And then thanks again for joining us and we're looking forward to sharing more details of the long term plans for the company at our Investor Day on May 28th Thank you.

Speaker Change: Thank you so.

Speaker Change: Ladies and gentlemen that then concludes today's conference. Thank you for joining US you may now disconnect your lines.

Jim Anderson: You know, we do have existing customer orders in place, so it's a product line we're really excited about in terms of TAM expansion and future revenue growth.

Speaker Change: [music].

Jim Anderson: You know, we do have existing customer orders in place, so it's a product line we're really excited about in terms of TAM expansion and future revenue growth.

Ryan Koontz: Got it. Is that play into the AI clusters typically, or you kind of maybe in the front end of the network typically, or where you play that?

Jim Anderson: Yeah, good question. It can go into multiple parts of the market, or the data center deployment. You would find it in potentially multiple different parts of the data center.

Ryan Koontz: Got it. Thanks so much.

Jim Anderson: Thanks.

Operator: Thank you. Ladies and gentlemen, that is all the time we have for questions. I would now like to turn the floor back over to CEO Jim Anderson for closing comments. Please go ahead, sir.

Jim Anderson: Thank you, operator, and thanks everybody for joining us on the call today. I do wanna take the opportunity to once again thank my Coherent teammates for all their hard work and dedication, and their fantastic innovation. Thanks again for joining us, and we're looking forward to sharing more details of the long-term plans for the company at our Investor Day on May 28. Thank you.

Operator: Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.

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