MTSI - Earnings call transcript Q1 2018 | MACOM Technology Solutions Holdings, Inc.

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Operator

Good afternoon, and welcome to MACOM's fiscal first quarter 2018 financial results conference call at this time all participants are in a listen only mode. At the conclusion of today's conference call, instructions will be given for the question-and-answer session.

As a reminder this call is being recorded today, Tuesday, February 6, 2018. I will now turn the call over to Steve Ferranti, Vice-President of Investor Relations at MACOM. Steve, please go ahead.

Stephen Ferranti

Brian. Thanks, and fiscal everyone, earnings quarter to call. conference welcome afternoon, first MACOM's XXXX Good

are and Financial MACOM's John today me Joining President Senior President McMullan. Croteau Chief Vice and Bob Chief Officer, and Officer Executive

you release, can at press www.macom.com not the MACOM's Investor the copy you received copy obtain a If of have Relations earnings under on a website yet section.

uncertainties. statements over prepared which like Because to questions that Private management's remarks differ for Before risks answers materially would the discussed contain subject and Act those I remind forward-looking are I forward-looking turn to certain to the from John, Litigation the Harbor Securities claims protection actual results XXXX. Safe your and the may today, call of to MACOM in Reform statements everyone contained of

today, to detailed the Investor conference X, website. discussions on which certain be views with the press today report with Relations release via of its including its in of information turn future. listen of can financial you amounts for filings to found SEC in Any a quarter. risks that, call provided that least adjusted and percentages over adjusted and MACOM's the For recording of website. XX, management's measures November statement measures And results including X-K company's be and reconciliation section MACOM's no press during a and statements in February update other of and report forward-looking will include for John as XXXX, the at and than The assumes and release XX-K Form unable and the filed statements in this entire refer and statements XXXX. to uncertainties revenue annual financial management's its non-GAAP those And represent we obligation for more webcast call on section X-K could days the the on discussion unless the Form current only will MACOM's made to this of filed was noted. MACOM GAAP you differences, Investor these non-GAAP of on are comments all SEC with income available Relations the call result at related Form to filed These otherwise time, to at the those XX I'll his today company's

John R. Croteau

to that conditions today. of the guidance. performance mostly developments update fiscal then coming an we line our with lower over end had followed related QX of quarter Thank an for XXXX. the you, on further Welcome for providing our I'll $XXX Overall, wrapping thanks review business near-term fiscal quarter guidance business growth in Jumping with Steve. first for by us I'll review by today's our market and a trends. turn current in everyone, XXXX our fiscal will McMullan, who for our overview and conclude financial prepared call comments I'll call to joining detail. the secular begin CFO, results expectations our second of the revenue first into into the long-term demand was drivers right at our with numbers, before the end was key guidance. in our up factored million, quarter of Bob

Perhaps of particular that in believe least impact board in of mix China. we the more Looking we for as importantly, December obviously was the indeed of geopolitical the challenging downturn dealt the across back, businesses was China. our with the cycle QX quarter bottom a at full

Our guidance QX recovery in expected markets China. reflects end of revenue an certain within demand

expect of of this the the that FY to we progressively recovery, call early will remainder While XXXX. strengthen it's still demand slope do too exact through

PON declined be have were the and of short-term telecom we already underway among in downturn. some the revenue orders returns. led parts, product and network channel the is We on moving seen XX% lines. year-on-year recovery in infrastructure that lean which near-term, in in combined depths thus our the spending priority our softness of telecom, business in in markets. across now our backhaul hardest in backlog the first during across quarter all are supply inventories fiber In believe where recovery laser point This recent down by served on QX, constrained at in hit driven telecom maximizing has Looking quarter QX. a was our to of will far with the China for prominently quarter we Most March

growth China domestic we transceiver modestly, are service pockets to forward, remaining our in in improvements capacity expect metro inventory, also count customers across have the of laser believe for in product global chain bottom, recovery through we first supply haul, demand. In and expansion We burning output XX% lines. some of customers with who Looking half and XXXX. increase albeit long XXXX seen delivery, off throughout port and orders are forecasting placing all

are the long we a see of that carrier recovery through haul we XXXX. slope spending improvement in shift China, metro believe in seeing While also clearly we will moderate

to edges for First, cost products forecasts shift year. out show networks. higher as XXXG recovery in products of metro haul unit push of TIA projected volumes our thereby business softening significantly the these a their portfolio, toward Customer metro coherent form this and in metro lower long demand ASPs driver long our factors carriers but from lower haul there's CFP

we're our XG. in from as a CWDMX to OSA focus Second, to telecom seeing lower shift cost transition products, LRX carriers

business of a be long the too haul it year. in in While recovery short-term, we we with expect gradual effect this is mix XXXX in our our long-term, MACOM pace The metro net business moderate recover more expect core haul will and will networks we previously metro the that to favorable but for medium this through different anticipated. than long had at a to a

up year-over-year. but down revenue was sequentially data centers, XXX% to Moving data center

major most our center know, As you were business. there two of data elements to

the legacy of mappers, chips photonic Centers. for XXXG and comprised second analog of lasers, first portfolio being Cloud our framers OTN performance PHYs high components, Data and The

QX, separately, switches. legacy the declined telecom being portfolio a driven China these well routers in sequentially of Looking at as grade displaced as where by enterprise combination regions our grade OTN of other pause in are each in sluggishness by

enabled CWDM ahead, QX and top XXX what in business certain ranging Looking baseline. XXXX our gradual XX happening the anticipate supply XX XXX Business, from new another and is recovery rapidly in expect to displacing connectivity manufacturers Cloud remains year growth. campus kilometers, reaches this for and see modules DCI Asia meters choice we networks robust Center remain becoming of high the LRX the is of for to telecom volume strong we similar driven portfolio, In sea chains On begin to silicon this, CWDMX technology in from undergoing priced in demand legacy photonics port gig change consolidate for kilometers. we is is XXXG higher a by their service center solutions. expect around be Data market. Overall, as lumpy market recovery Pacific. deployments data cloud to OTN by providers this will Below

long-term, at overall expected heart the to-date. data positive for XXX in both are moderate our expect in medium While resulting to declines the of gig unequivocally the SAM us has to be components growth center our for of to we factors the revenue been ASP business, these near-term, which

improve platform ramp address as year. growth of about own scenario through in term prospects. later this course We expect I'll I the we more the CWDM call to longer this our silicon talk photonics that when

QX million review revenue for off was out Defense and part QX. first the financials it that, the further $XX.X exceptionally let down Industrial to being me turn quarter of fiscal sequentially in played business Finally, expected quarter. Bob our as an to with strong detail. This over With largely

Robert McMullan

and XXX% and Revenue revenues, XX% quarter quarter and and XX% revenues, by respectively XX% compared everyone. to million MACOM's and XX% Industrial good year-over-year $XX I product up mix QX: highly center revenue million year-over-year; of million will John, year-over-year $XXX was XX% million, you, end telecom of revenue, a of Revenue and of XX% gross in declining fiscal gross XX% the down and fiscal margin review and quarter the sequential $XX by basis. fiscal influenced year-over-year; in down Thank revenue, first Non-GAAP down million, on and sequentially. gross year-over-year. position. associated of the profit in XX% and $XX million fiscal respectively was respectively $XX and afternoon, financial XX% results and markets data first million is $XX first Defense X% margin $XX Gross profits.

gross our product center telecom revenues margins were affected. and As decline, data our negatively

quarter. operations respectively basis. XX% as $XX expenses Non-GAAP fiscal were we Adjusted down In a the and QX. to flat dollars X% first and a XX% million or $XX managed operating with in on terms expenses, XX% expense revenues, were $XX respectively year-over-year and were down from income through sequentially. in sequentially, fiscal down on million million compared year-over-year, SG&A total expenses $XX $X expenses dollars and of basis basis million year-over-year million down XX% Net percentage R&D million, $XX XX%, in margins and was XX% and and operating X,XXX respectively and $XX and operating non-GAAP points of were up interest operating Adjusted sequential controls. aggressively expense million,

X%, in the quarter income normalized was rate Our guidance. tax in non-GAAP fiscal first with line

million associated net fiscal first cash the any our with had to U.S. will payments. Japan tax we're operations, quarter, law, cash tax $X the and working earnings foreign zero, As new our our exposures. our loss profits in carry-forwards future negating liability reduce of and we accumulated to minimize payments taxes Briefly on tax where significant

new for in we year decrease income. Going which MACOM's the to of forward, taxable law U.S. deductibility the expenditures capital paid, expect full allows

negative sequentially, of was related excluding quarter, non-GAAP acquisition deducting cash and of related of acquisition in EPS and Non-GAAP quarter million depreciation year-over-year sequentially. XX% income amortization XX% XX% sequentially. and respectively, adjusted earnings from in compared XXX% non-GAAP $X XX% EBITDA and free first and was non-GAAP were million first income XX% of fiscal decreased $XX $X and (sic) XXXX first decreasing taxes, the net $X.XX related $XX XX% After and sequentially. capital net flow cash of and year-over-year quarter million income operations $XX income interest, fiscal million and flow excluding Adjusted net down acquisition down first from million negative EPS share, $X.XX or $X.X $X.XX million, sequentially. from Our expenditures non-GAAP million from was fiscal diluted and million, million. and the cash approximately to income net year-over-year Non-GAAP including in million XX% $XX fiscal decreased and and fully GAAP after non-GAAP quarter net payments. $X and million our $XX per also payments, before $X XXXX payments XX% $XX

to Now sheet. from balance sequentially. to end, $XXX Days equivalents improved X.X to leases. were Long-term $XXX from of days. quarter, short-term sequentially. was sales million receivable debt accounts XX and cash, $XXX were to first $XXX quarter down up compared At outstanding XX million cash $XXX million, Inventory days Inventories times X.X investments last $XXX MACOM's times. X% million, were fiscal compared from turns declined our to down million million $XX capital million, inclusive

undrawn compared availability line. We XX% to fourth expenditures in were revenue or an $X in of revenue also have or sequentially. million, $XXX quarter the X% fiscal million of $XX of million Capital credit

to Our capital customer products. compared increasing our approximately was silicon $X Depreciation fulfill expense million GaN to for capacity on million photonic and expected $X silicon sequentially. to as expenditures are directed demand

our exceeded expenditures capital John. free by of Back flow reducing cash to in you, investments million. level our current $X depreciation, Our

John R. Croteau

Thanks, Bob.

corresponding found shifting words, or then thought the sharing in Turning in connectivity, like forecast moving vision geopolitical poised back and the recently the remarks, in with inventory of major I as business, I'd bottom product which center just we landscape outlined right the the lay increasing Bandwidth doubling our is shared mentioned and especially by a in and the the at shows conversation connectivity. XXXX count and mix our port In compound of I words, now market me China, depth. his more beneficiary our of His had at annual view year, we MACOM his other those But the with this He Cloud comment network PAM-X. reason are that each earlier both my virtual with and why like be the quality of term He of ports downturn next one of underpinning We're in facing firmly against in concentrated for in so to Data the longer single-Lambda be compound Data to now and wheelhouse. forums trends gig growth upgrade golden minutes a build-outs customers. our firm optical telecom the discussing few that XXX data reduced amidst demand of do Data that correction. secular coming fascinating, That brings and behind a beyond. bandwidth Centers out years. his I founder and I'm what for assembly these rate I'd in building model, start land. improved a see in he technical augmented architectures CWDM industry still of in this me about his prospects supporting services drivers spend our Centers May. technology data Centers latency, unprecedented center support and to and industry rooted businesses optical Center to for IoT, from come. XX shared new entering XXX% a XG is current associated large of signal get it. I'll growth count vision wafer analog the long-term optical portfolio Cloud pause in the XX% a in into is to is and industry decade a the increasing enable manufacturing, gig Optical soon through mirrors service. age a there several of to Cloud next. rate. markets. cycle, talk the in increased our Telecom me that to and company and build-outs next These supply like reality mass Telecom. and for will growth current with of photonics we future, believe for XX passionate silicon the scale intelligence. and artificial those will in cost Cloud edge that opportunity scale caliber environment. demand is laser distributed transformative can structure are MACOM's the backdrop over We're XG mixed about Data requirements to enabling why performance these new That's with reality, port chain services that semiconductor high automated There key economic and tangible in fuel computing

And In Ultimately, long-term prospects area. discrete XXXX our we and it's that provider fact, will behind every OEM we customers scale customers with in that inform major that in by every ramp those my by is cloud service how at fuel work designs. this we determined network revenues with the data passion which pace MACOM's quickly be resonates vision. center conventional transceiver and transceiver Today ramp production. limited in

manufacturing this and potential low is silicon networks and times with accelerate expanded as successfully new photonics as both to proprietary Our dramatically additional output. for our well engagements technology partners. poised ramp production partner OEM solutions To cost to transceiver adding that the manufacturing end, we increase L-PIC customers that CWDM quarter reduce PAM-X

way capital and Telecom business. Centers. To creating in to handle network the optical of side some in the much a wireless, baseband the building increase to carriers by all data both will much high telecom the the massive business we on investment to to as more out from say emerging interconnects traffic processing, telecom year be heavily Cloud relying XG expect breakout long-term are over XG backbone, speed ahead, networks network this the our network optical architectures Now XXXX, through what clearly akin are antenna. Data as shifting

the XG, more Data XG with operators this gig the resources, it network for be networks the which cabling backhaul, tremendous deeper PAM-X to framework. higher like moving with extensively more that much kilometers, We new center. strong equally hyperscale evolving to a telecom upgraded Cloud server be edge running base on are as At ranges optical into have transceivers of speed, be existing In wheelhouse. have and this why into Data pushed the XX technology. optical at low to racks XG see look Telecom network Centers, Cloud the XXX computing. well speeds. majority side allows upgraded secular our distributed expect data high networks anticipate driver a will our antenna. to below that sharing antennas and overlook of will inside the within which XG stations also That's deployments and to in a same call processing for we wireless capability L-PIC opportunity will our CWDM developed efficient In moving time, forward. latency like for we copper of growth haul Some And an we've the Telecom fiber the front can't L-PIC way, pooling our is Centers large applications, solutions to built these fiber from same benefit be business

build-outs. corresponding Everything New ability XG, arrays years MIMICs all X.X, from power antenna. of expand to is in of the MIMO and XX and antenna SAM the GaN ultimately to to from amplifiers forming to embed designs expected our in geometrically network and silicon X a migration to active beam massive cycle techniques the next on connectivity X.X, and our over optical strengths X plays to our directly company as to

me technology OEM will timeline. deployments and working are the on Field Carriers our expected product as selections expectations XG today. schedules, to customers by field next our year and Let making close and on begin are this trials clarifying vendor year. deterministic

ramp for L-PICs will to proprietary highly and GaN and wave years products ride differentiated up come. like on technologies planned many silicon Our and roll-out this

and wafers. of silicon many supply station the as the we wrapping supply GaN with mainstream our wireless strategy, installing the GaN for up, third agreement you base of bring all parts announced to leg across of ST Before This and market, requisite To-date, an chain in on addresses today, requisite yeoman's well on saw final That and growth of recently work the LTE is GaN the life prove as and most complete our to in XG the we've of first stations, amplifier in as silicon worked fields. technology eyes diligently decades the effectively XG. performance in GaN customers. support base in to validate reliability operating of manufacture

ST we cost will supply amplifiers. top-tier to massive we the LTE unlock MACOM frontend chain yet, collaboration antennas $X position for the commercial to uniquely become a to XG. power structure have collaboration servicing supplier market and Better roughly is biggest scale, ST the opportunity yet, believe which MIMO Our with XG expected billion expect for the wafer

As two from antennas over four to challenge and per carbide arrays, be role the GaN massive we're channels the ST last L-PIC GaN XG that intellectual the with early technology, ST industry-wide in cost summary, and transition of power fundamental potential I biggest networks they're MIMO or position. the property conversations market XX conventional silicon as in realizing GaN element they modest, of believe of facing recently following recovery, antennas technology, believe be industry-enabling for a commercially will year's with channel supplier encouraged on that Like for must the will silicon Based MACOM radical to MACOM supply albeit MIMO a undergo we downturn. for In will collaboration exclusive otherwise signs see the of play amplification key XG. viable a on from on XG view some solving not volume. had improvements I've customers, major sourced

to recovery progress that fiscal XXXX. the expect better of through We part

being XXXX transitional view year our served a FY as in we For markets. that reason,

As technology shifting XG and an demand both Cloud of landscape anticipation Data Telecom. next Centers in of investments the infrastructure wave major the comes is back,

our these leading recovery, likely opportunities directly breakout that strengths. pace moderate much, shifts much bigger play the near-term will of they're to While to

bringing programs by and aggressively Looking will invest L-PIC industry ahead, fruition, continue backed today to we in that this GaN are leading customers. programs year to

industry enable these investments next technologies an these anticipating growth. of were believe targeted expect what over are of be in MACOM major of a in We secular which that Simply usher disruptions. poised investments We future monetize to course we participant, underway. will industry strategic areas casualty transitions are phase not MACOM, the to FY now now XXXX active the put, technology clearly these in previously

Now let's talk guidance. about next quarter

$XXX share between color second ending It's the revenue spending is to bottom Longer gross $XX to Entering we Adjusted For saw progressive margin earnings and for worth anticipated the in $XXX quarter, XXXX, XX, gross be quarter fiscal and mix range the margin market can we our will the adjusted gross margin provide December $X.XX be a per million the the we quarter, XX% of March questions. expect parts QX quarters, between anticipate in Operator, revenue. $X.XX now and portfolio. March committed still be additional of believe to bottom moment million. on growth guide. to XX%, the million open as an diluted outstanding. and XX% in to on higher expect fully and In we expected term, we we of the of the in are adjusted terms March demand coming delivering recovery call our to you target margins. shares

Operator

of Blayne And will come our the from line with first Barclays. Curtis question

Your now line open. is

Blayne Curtis

some Maybe trying is kind understand, margins from understand the do of guys. transitions happened grow and just question. you starting margin, mix I that the for pieces. to moving lower just think didn't that starting of the margin I'm has just recover, just talked about getting the those that that started kind slope. issues of can of to here. – want to gross how gross I'm I'm a space? understand my within expect you I Are it to or trying little products trying understand and John, to or all And you all then just taking know with has about then, pieces of terms shift in impact, mix mix you Obviously, kind Hey, but Thanks that much. moving just just

John R. Croteau

question. Good Yes.

which of margin fully a the then was quarter, expected was gross mix, So within and the unexpected. there development which was part

of it's bottom So that the at is, point. cycle, part uglier that was the than the hey, never expected

the simply downturn was One so part which among was that margin in SAM from thing was SAM that expected was our business was LRX that transitioning that CWDM, portfolio. two part of anticipate didn't compression. there there's solutions, our the customers our is impacted the to so to we hardest CWDM the from was lost things. happened highest The hit So compression,

was is in has is second very nice second a much suffered which we business That is out the that comment We the lower the priced to the up And high see really everything This LRX, erosion, for my last margin in we're within about quarter bottom. point. being bottom absolutely in than ASP The point the had quarter. being so LRX. but CWDM is growth from all expect that bottom that that anticipating LRX the we and stuff. impact,

Blayne Curtis

big gets CWDMX, that John, to if you've do it, that on market be more just to an But then us or gross projects, importantly, win maybe forward? then, And competitive, accretive going as some win would update. been margin looking more give even just that you dilutive

John R. Croteau

and position Yes. our the silicon laser all in photonics. Believe or it's rooted not, specifically it

generation is subassemblies. current So largely the CWDMX of designs, TOSA discrete optical

separate and on the solutions are lasers discrete functions driving on happening specifically now ROSA. right compression price based MUX/DEMUX photonics have silicon type you both So is CWDMX. and then What's TOSA the

be Secondly, data in a side, that's XG. we see what looks to where where developing reach. LRX XX figure the getting center for really telecom XX of in to central coming side CWDM just things, kilometers to the CWDMX precursor they're in of thrived. And kind and At it's kilometers is up not what's

so fantastic is couple So ramp structure We've for cost about volume One we're because in that's cost our reasons. scale and always goes But assembly. importantly, L-PIC because where year. and is automated process a now commentary when think right the critical the product. output the that that got ability I our talk more way you this L where a exactly game to my been manufacturing about throughput That's and ramping up that's of manufacturing margin.

Blayne Curtis

then large quick the dollar a think on had. amount one Bob, days amount I for are highest you've the inventory And on you. Got absolute up just but is even levels

so the inventories going just are them you you're how talk why So manage high if back about to down? and

Robert McMullan

large again, as increases the turn even still over that quantity of And around. products, numbers. in X,XXX wafers inventory of is that lower most things raw to ready we to Well, revenues, in a the product extent ship and are subassemblies different go units our materials like of

see the probably Some next of inventory it top cannot times down to cycle to cut and I the long as same vision back to And have that products match rest think those They're commitments would the really we'll times, even necessarily a them be ship here revenue quickly in expect. the the to not are level quarter by for the required is forecast. this we've customers. position lead one at to we But of hit therefore as tied year. the of difficult stay the that ordered of

Operator

Needham our & from And you. Thank with Company. Bolton next question will come the line Quinn of

open. is now Your line

Quinn Bolton

a you on Blayne's under-absorption been have I revenues cut the margin. think seeing wanted that factor XX% under-absorption follow XX%, question Hey, of I impact Are your would up over guys gross from any just guys. when be here. couple quarters, to by may

Robert McMullan

function of lower a revenue, of higher Quinn, not it's se, certainly per absorption it's of build. now a But function the some with revenues. is

is And inventory reflected of in that well. the some as levels

to It's flowing margins. profit. really – the So overall margin our really and some levels. product material gross gross not to of through in not critical is really today mix drives gross the it's absorption it's necessarily But that absorbed inventory it's or

Quinn Bolton

it. Got

sessions, it a had back capacity that Okay. over laser capacity. you is PON constraints, on laser the the to data an laser Thank center therefore datacom short laser a you on probably about the production the Just laser you're Can taking lot know then in production talk over capacity, mentioned what's of gig us bring around going I the back you John, on you when XX the you PON lot constraints had update you center give of laser side to that said shifted were side. PON? you. Can And the data the just capacity and it just for switching laser of space? you business?

John R. Croteau

November the guys in developing was seeing started of PON, we of recovery as had we what and totally kind planned, we're one standing. in mean last I Yeah, originally unanticipated

that's for the as flow actually recovers, cash market business So PON us. very nice very,

solely capacity So where we per more at gross focus fixated could center balanced a revenue on we before frankly, data on supply that wafer. point, we're ramping moving this had empty back product, to

strategy short it that to some the also not, – some are returns sure our And or customers there's and So forward. important crossover. sustaining believe there's maximizing we're make focusing for moving

PON actually of are the PAM-X talk and entering you customers. customers As CWDM becoming over China, some in that data center high customers about have volume XG XG we

a So it's year, but And and ramping supplying both. centers this in optimizing we simple well to have data as PON we answer, things to supply quickly returns breakout to short-term the going market. have the feed two we're can as not as as capacity when a then are

Quinn Bolton

production So that laser hit something peak level in XXXX a shouldn't you units X to million in PON think we that like month. of the going X is back to

You're recovery PON not of anticipating that kind in side. the

center fair capacity to You're data keep going XX to support the the of business? on gig laser amount a

John R. Croteau

actually rates, the surprise. to were, thought. snapping slightly the to it It's are snapped ASPs The but volumes what you previous demand run Actually, they similar to to our has is. back back as down compared

pretty and (XX:XX:XX). saw upturn supply gig lasers, the said, get got to we're an X.X not portfolio. the the one, situation the I because in of materials all lasers, much instantaneous in lasers, XX order it step between November, XX have you've when in now gig like gig constrained the was you So And we parts

doing we the we'll on terms So that can as time, same see at we of in the you beyond. but in didn't full be the and we're and into quarter June beyond, the capacity timeframe quarter get to guide. ramp everything clipping supply March impact But

Quinn Bolton

color, the for Thanks John.

John R. Croteau

welcome. You're

Operator

will of Thank D.A. from come question next you. Kelleher Davidson. And our with line the Mark

Your line open. is now

Mark Kelleher

for Great. Thanks taking the questions.

Just to want at the look R&D.

this some comments be more year. sequentially. looking there build anything took we made this You a quarter? you're Is step Was be going here? for looking in should investing new of Kind What and unusual to that operating the the be leverage Should we R&D? baseline? for from up a

John R. Croteau

baseline. the is it new say wouldn't I Yeah. definitely

in talked customer the programs, a set I luxury we and ramping about L-PIC that commitments say down. two so areas, decisions a have focus to We've in I When don't very We portfolio of frontend the premier our including we're of doubling OpEx those modules. have of programs, programs XG back an well, heavily interesting made GaN cutting things, problem internally the should we're we actually those here. lot have investments

the So high Data the customers that. programs. kind as XG side XG and Cloud an leave between we're Telecom, with now that is both on both the the side the Centers to time dry on of customer news LTE GaN demand. It's timing L-PICs rich all that good are of cycle as as and the XG, XG burning got OpEx as on transmit is at these unfortunate well bottom Optical, for the and But not that well we've

programs for now I turning into think and what is the R&D in could big this technology ramps were year investments transitions. focused previously called be XXXX difference more customer revenue XXXX. our are we're monetizing Those in through – speculative on

Mark Kelleher

quick just second And Okay. a question.

your that ramping partner you're of Some with programs CWDM.

you the that But margin? Does think gross this margin Is what's have I help? gross missed your profile? lower or addressed I earlier, it. that than may higher average

John R. Croteau

So at the corporate will our above OpEx target. be

Mark Kelleher

Thanks. Okay, great.

Operator

Evercore. next come C.J. question And our you. with Thank from of Muse line the will

Your line now open. is

C.J. Muse

through of we're just the in demand pressure? much Good a are seeing guess question. update Thank Would of Yeah. to of what holistic I taking seeing first part How pressure for on that, of in that trying an sort terms you're pressure of is excess view as afternoon. working inventory get in ASP to get guess terms my I inventory, versus love and China. where of you we today. question,

John R. Croteau

a mentioned. I it's back. we terms example, the standpoint, laser I from used strong, as recovery substantial a and on us. upon the Well, in I'd backhaul unit say haul, PON back and had that's in that's front mean of business and I

through the So pace I It's recovery, that progressively seeing go mix but hit the emphasized we recovery. be our of as to particular bottom it's for it's the going to call businesses, we why too unquestionably and of early stronger year. we're

components, stuff customers. they burned of pause, pocket China – have inventory TIAs, to sell to infamous of analog transceiver terms we through I That little long metro much the On emphasize, the a There's through. demand, haul in that Chinese left burning modulator the want drivers, of the inventory. China they're

recovery there. We have seen

business. have We anticipate in XX%. lifts that We seen

percentage our stronger difference XX% are still of substantial these said, in moderating the and There's customers shift anticipated metro, used quite ASPs. a a are All factors big there's Gross same port The CFP number, from very we good. margin to factors had growth. though. have important, count is than what haul so long form

fact, different. In profoundly the good, ASPs but very are

the to transitional the bit products, transition business. which we of traditional an XG to is lift and gig right element a that CWDM, why on compression XG – see part said a over XXX from side, to promise the same begin I of produces the is China. our showing our in reason in ramping So it's PAM-X SAM LRX the in CWDMX little placed And a that year now

to as again, that So likely center lasers well. global components, selling quite servicing local analog data Chinese photonic manufacturer, demand components, demand and

C.J. Muse

That's helpful.

could bit given how follow-up, fiscal to of manage you for to year, more cost my call XXXX Bob, talk medium As near be the over you to a about plan structure transitional a term? your the

Robert McMullan

– look the if are XXXX, we define a seeing feel revenue. So as we term to about fiscal recovery in good we

I and come hands, see We as underway quarter, over XXXX. that in As all our that expenses are spending customers' see forward the a XX% get gross get in, quals, increasing one, fiscal than recovery our to increase new the to we're critical backdrop. have the But we improves forecast product the in mix in not to will of is longer we products which but we that today don't that to year programs in think the capacity, margin. finalize we visibility do

fiscal XQ second a So the I quarter. forward R&D the for anticipate fiscal here modest in expenses operating and increase in

C.J. Muse

Thank you. helpful. Very

Operator

Stifel, our come from of Thank Nicolaus. Svanberg question Tore line next you. the will with And

open. Your now line is

Tore Egil Svanberg

Thank we but When will little (XX:XX:XX) on Because exactly address more the a LRX would John, I the L-PIC? timeline, really you a could capacity, you that ramping to ASP really you're a know little give partnerships if was of bit helpful. be Yes. bit hoping you. could I go from lower these

John R. Croteau

Yes.

the business some largely actually Japan nice of for China globally very loss. LRX, and suffered outside So had LRX, and have North we've a subassemblies, America which

they customers photonics reach, which lost was lost Our anticipated. modules, enabled, silicon (XX:XX:XX) specifically not and the business silicon to XX then suffered business, CWDMX photonics to kilometer enabled

So is. that's downside impact what the

the Data the On ramping but just and now for up this in And are ramp mean for said. XG unit shaping Chinese year, and ramp numbers Telecom of calendar see this believe, you into the as we Obviously, near fruition. that the to ramp, through get progression volumes L-PICs, each cost as Centers pulling of the we our year. to it half And calendar I I is of the the capacity, stronger our supply. Bob quarter a production, much wafer with curve manufacturers photonics solutions. coming transformative Cloud for aggressively you'll will low very as silicon are second continue those

those We'll really PIC capacity populate I with be But think be that's to that'll have product do. in now. gating customers on the can flip-chip piling production ramp. what to enough of going gate we right availability, laser but going it's products lasers, to have wafers our our terms our

the begin as get we and kind laser whether have to customers it at over on XG sampling cycle, China. now sounds people As environment of in be frenzy of product this able in or feeding L-PICs, it's hands right of the bottom to a these bizarre cloud supply their to trying

best non-issue, So those products the sequentially but and production can of to progressively from standpoint each demand ramp quarter. we're doing we a

Tore Egil Svanberg

That's on with elaborate And no partnership? partnership? right. really helpful. production issues did we also that see my of I litigation, little there's some When IP the you more follow-up, here start could to ST bit the And revenue out as a assume

that's that litigation? materialize something is the outcome of going of regardless this So to

John R. Croteau

actually, Yeah, insightful for It's asking. question. not it's very a unrelated. Thanks

January structure the referring been we litigation. ST given XX, background, know of the sooner. time. working stations, can We've was exclusive ramping I but to I it at the is that, field District contract very with I delivers The announce few From Lowell that also required manufacturing is very, in base Los midst semi in you, That's Court performance using required. years. the prove Circuit emphasis sub-license affirmed valid timing us hoped cost Very, an scale had to ST our been in we've tell be factory now So grants the fully rights. on rights field surge able our us modest off second I to capacity, past like factories who service place, for just required to exciting reason use, why and were over that's to my to in the the capacity, in But Federal partnership. frankly, compound reliability. on was grants our and holding a standpoint, it not none. we're of which of confirming fully ruling Angeles Court And technology

automotive, consumer, in chain sub-license, now supply LDMOS cost our ST of go markets volumes mobile most with fraction technology. care off you I the exclusivity. a in can that cost reserve very of where wireless tell in be them they and infrastructure the to develop. right a the They'll high is the we applications to volumes benefiting from relationship So And structure mature the be so enabling driving develop They'll on. involves and

So chain in you of delivering by thing of is supply will have the the validated, products that first revenue. field high have that finish the now we drive performance I'll brilliant wafers we the we reliability GaN saying can where the and volume proven, believe line transition. be

demand tape-outs all So this This proven with proven the of customer isn't servicing right guys. speculative. is products

to is this year L-PIC those GaN investments. turning monetizing like technology stuff, moving transition on, So speculative from the

time. So exciting it's

Tore Egil Svanberg

you. Thank helpful. Very

John R. Croteau

welcome. You're

Operator

come from you. Thank with next of line will Craig-Hallum. our Richard the Shannon And question

now Your open. line is

Richard Cutts Shannon

of Thanks, John, only prepared anywhere Is arrays your power my the in the comments questions. here not the interesting taking technology, or antenna also power John part use opportunity around had that you arrays. question antenna and the some on GaN. but size of is for Maybe I'll Bob ask near the a for amps? on of remarks amplifiers

John R. Croteau

Its integer multiples bigger.

number of be integer that it's of emphasize Met over number shipping. customers. times I These sourcing they times China stations antennas gigahertz. with two, are are not weeks guys the should small you They they'll millimeter And multiples anticipate base quantified And deploying China top type alone of the antennas the if devices. sub-X that I was bigger. number elements, wave they these in in So at cell the three our – the do ago.

as the So growing decline. view XG we expansion, SAM space a LTE to not XG GaN growth market

Richard Cutts Shannon

Okay. That's helpful.

Second a questions the previous center. data on just follow-up thing, about

this and question, happening bit constrained it And if wafer constraints talking something detail precise like like little gathered to more wonder those that. timeframe will could bit a some a year. John, that You're give it's response I by a internal maybe more little relieved. breakout or if sounds I your which like about by, you things supply be

John R. Croteau

this Well, it's I I stick mean hardware – ramp by say say the mean would a has finite ability, not software. everything is I constrained When hockey quarter-to-quarter-to-quarter-to-quarter-to-quarter. you a

than frankly, we're consumption, what it, at I it's comparison to-date. larger been much wafers, unit for photonics would applied has market say XG at now silicon mean by to data photonics is So a look inside has I the if applying far, which pales silicon materialized these where volume on. so inside you look and networks you and and where of so wafer it centers, wafers

it, more at not flowing And especially chomping the world. the matter So of in material a Again, ramp. and a got And capacity foundries a of so We've customers with guide customers on. it's time. who we've exact a year, working and the XXXX, end the are the executives very is at wafer wafers cloud and just this the than place into getting top that quarter quarter-by-quarter frankly calendar shape cautious our very But year, been global a in PIC issue and of this supplier, bit. at to demand there's we're through one whatsoever. there known being not

Richard Cutts Shannon

PAM-X. qualifying question last the me products of What's do end sit product line? you Where on terms Okay. in quick on That's of the from that here? view helpful well, The ramp as John. your single your of

John R. Croteau

the life was his area And that center gated public so I because fabulous can he in opportunities customers. dealing about That's qualifications gig. I with programs. area it's XXX monetize talking would we year the a on. that view to their pleased. the passionate all great strategic with don't was another he He's the I at Yeah, data as vision referred meeting that comment XXX see But lead well. we're as was have us what where and I I'm And previously so disadvantage had expected investments. talking we XX-year to describe a process our customers were the this we by at about appreciate this a we of in I had and status had I gig about – very way customer. market. single the lambda. of

to what So matter that about portfolio. that's segments encouraging. market going in into and And year's it's for a that of product space. products this configurations and monetizing That's different the be

Richard Cutts Shannon

the That's questions you. me, detail all well. Appreciate as Okay. for guys. that Thank

John R. Croteau

You're welcome.

Operator

Thank you. time. I'm further questions this showing at And no

the Croteau, it's John Mr. President remarks. closing Chief hand my pleasure over Executive comments for So Officer, to conference some Sir? and and to

John R. Croteau

Sure.

and the the XX Sachs events want March on in February trade in conference before and out includes mention and So I closing San on in today's Goldman San investor XX. Francisco, Congress XX be the shows which XX and month, coming OSC Internet February XX on call, attending we'll Technology Barcelona that World and in to Diego Mobile

these events, disconnect may at meeting Operator, That a arrange please concludes email ir@macom.com. call. remarks. to today's like now you'd at the us If you one of

Operator

Ladies and a may thank day. you, Everybody, disconnect. all have gentlemen, your on conclude program, wonderful you our we and This does participation today's for Thank sir. conference.

MACOM Technology Solutions (MTSI) 6 Feb 182018 Q1 Earnings call transcript