MTSI - Earnings call transcript Q4 2018 | MACOM Technology Solutions Holdings, Inc.

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Operator

Good afternoon, and welcome to MACOM's Fiscal Fourth Quarter 2018 Financial Results Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded today, Tuesday, November 13, 2018. I will now turn the call over to Steve Ferranti, Vice President of the Investor Relations at MACOM. Steve, please go ahead.

Steve Ferranti

you. Thank and fiscal everyone, earnings quarter to call. conference welcome afternoon, fourth 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, may 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.

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

XXXX, discussion to with Form X-K risks MACOM's GAAP in measures XX-K Relations on its referred filings press financial with Form at can today, November press that the update website. percentages future. could detailed information, during X-K, of we management you of include the income These current in and of Investor was non-GAAP represent today's as only and in XX-Q this non-GAAP statements filed more its and to filed filed amounts financial statements Form be certain company's assumes otherwise the SEC release management's today, these noted. views and including and adjusted are and no uncertainties and and to discussions results including of adjusted report company's the to forward-looking filed found conference a related provided in result section which release reconciliation call, call of measures will on statement unless XXXX. refer all MACOM obligation Any and on Form XX, The today, the MACOM's differences, those report statements XX, XXXX, For November annual SEC, quarterly reports its on

webcast least comments For those section time, to the his I'll John days the at for in recording listen call on of And MACOM's of available the that, relations will with at the you entire to XX call unable to over turn for quarter. this via website. a be investor

John Croteau

and thanks call Welcome, Steve. results. today. McMullan, an quarter over today's call us Bob MACOM's review our and milestones financial and conclude of who performance everyone, fiscal XXXX guidance end will in for our the the I'll fiscal for to joining close first then discussing Thanks, year-end will with with be key fourth further the in prepared by growth turn I our quarter I'll overview detail. call the for comments quarter XXXX. drivers CFO, of today's

that of reaching fourth the of sequentially, adjusted for share. revenue goal. margin and returning with was I margin QX free XX% on last XX% quarter, our gross per target As step numbers, diluted XX% $X.XX we're and gross mentioned fiscal to XX% X% operating earnings Jumping million, of solid a margin, $XXX fixated quarter adjusted model Fiscal the up right flow. cash towards financial into squarely was

solid China, downturn had moment transitional year a a in at a wraps served quarter a of QX pronounced of impact up up basis year free XX the excluding fourth entered take cyclical to execution. in end like team points major million all sequentially, generated of trough on margins which for the We During cash was quarter. $XX share $X the MACOM. up XX% was to fiscal product were our quarter-on-quarter. a quarter, flow. the revenue revenue per across of Earnings a for thank number markets, up services markets. we million sequentially, Operating prior and XX% I'd

XXXX, fiscal our that from rebounded fourth XXXX, review course is Bob Over now our QX and in-depth fiscal a trough demand of revenue margins recovered of to more it and this turn for fiscal complete. I'll believe financials. over of we quarter levels. recovery progressively the Entering

Bob McMullan

Thank you, John, and good afternoon, everyone.

couple points. summary Before I financial fourth MACOM's results review fiscal and position, of quarter a

non-GAAP in fiscal gross market margin, We us believe XXXX million; meet EPS, operating customer positioned XXXX Revenue, years. and results: year the investments fiscal fiscal XX%; and this $X.XX. to well $XXX.X Our over demand leaves and made future

in not new for recognition Next, in in requirements $X receive the fiscal contractual for technical customer payments, QX. GAAP acceptance terms million non-GAAP did revenue of and we payment Despite meet full the fiscal fiscal at cash revenue QX. QX we

we of improved down control not MACOM key million cash prohibiting recent totaled or that previously denial not a in components $X $XX now from much provided the Non-GAAP adjusting million. $XX was million, of and from Revenue from million to our by business, export midpoint Total in XXXX. Now which of quarter. were $XX were financial fiscal to QX cash This for in fiscal metrics. flat fourth exited negatively from guidance. cash cash increased results. and more in million our in increase QX flow may the sequentially. some by $XX fiscal X% free QX flow further, be dissect fiscal a fourth order resulting revenue after an $X quarter whole perspective revenue and sequentially. Department before fiscal revenues with Cash Commerce of X% $XXX operations in Cash flow and in for from orders fiscal revenues fourth those LRX free operations the after was $XXX $XXX $X than below as and our 'XX order, million to remains million revenue both the or these impacted million subject recent familiar with Revenue guidance, QX MACOM's Optical year-over-year metrics in financial after flow, impacts this year-over-year Chinese for sequentially, equivalents customers actions, million QX, $XXX from delivered from the U.S. expenditures capital To range issued totaling quarterly fulfilling Starting in fiscal million who positive. X% denial fiscal sub-assembly taken which a million. aerospace denial was numbers strategic quarter essentially we grew effect August from

We markets. in down that Revenue gross have will impact was year-over-year long but $XX million is X% XX% Telecom revenue, end a by continued XX% effect. total it as it industrial as LRX gross expect up and total rounding up flat million $XX was after adjusting the was a of was in revenue, revenue. datacom $XX million telecom year-over-year and defense year-over-year, revenues, to was industrial up $XX million sequential XX% and XX% essentially aerospace of profit XX% $XX and exited XX%, for and down to QX customers basis. was and gross margin XX% Optical margin Data center affected respectively, sub-assembly and fiscal Loss revenues, the of and of X% Sequentially, $XX and total and million mix. year-over-year. revenue of revenues, compared and Chinese respectively, of on and defense, to million X%, X%. flat Non-GAAP respectively,

XX% as percentage Non-GAAP million terms $XX sequentially. SG&A of operating were were $XX up million $XX non-GAAP $X expenses year-over-year, a were respectively, million in expenses expenses X% R&D Total million, sequentially. In a operating a expense approximately and income down basis, $XX million up dollars interest XX% were sequentially. expenses. from X% down operating in and respectively, year-over-year XX% QX. million $XXX,XXX $XX million down and percentage dollars on Net and was and operations sequentially. and margin XX% of operating up basis, and $XX in or Adjusted fiscal revenues, Adjusted respectively, compared and to

normalized fiscal non-GAAP tax QX in Our income at X%. rate continued

was negative rate quarter. for GAAP XX% tax fourth fiscal Our effective the

payments to taxes, As $XXX,XXX. approximately we cash of had a net

sequentially. income fully taxes, and XX% share, Adjusted of from up $XX down comparisons $X.XX but million and and XXXX non-GAAP EPS revenue positive from for $XX corner down earnings up non-GAAP The fiscal calculate reflect Net fully income year-over-year and $XX to but XX.X non-GAAP depreciation million Non-GAAP income year-over-year, were from fiscal Our Note, quarter but count from was and down fiscal year-over-year, sequentially. was XX% QX the was $X.XX non-GAAP X% EPS shares. up EPS net was Year-over-year the down amortization QX the sequentially. XX% was per $X.XX. QX million net $X respectively, year-over-year used share turn was and to diluted XX% fiscal $XX and diluted million or million, the fourth before EBITDA EPS interest, million million $XX should growth. EPS. point low up XX%

Moving to cash flow.

XXXX $XX and free fiscal capital cash from compared our GAAP fiscal million $XXX,XXX operating cash to QX. negative $XX $X QX was essentially sequentially. increase. and expenditures, million working After fiscal compared mentioned, flat Improved deducting QX of to million to in flow I million revenues, As of $XX was up capital this expenditures positive Depreciation management $X of X% $XX million, sequentially. of operations contributed XXXX, were QX income and from million was in adjusted flow in expense million sequentially. fiscal Capital $XX or essentially flat $XX million

Now principal debt days, $XX million million sequentially. outstanding short-term to to leases. XXX repayments Accounts maturity improved Day until flat turns XX with and and inclusive sequentially. Long-term sequentially. investments in from at were down XXX XXXX, million, compared quarter-end, minimum were cash, up sequentially. equivalents MACOM's XX Days X.Xx. $XXX days numbers. sequentially. termed $XXX were sheet $XXX is up days capital Inventory fiscal covenant annual $XXX from balance days cash were million sales was fourth were Long-term inventory was our Inventories flat from At May debt life. $XXX million, million, receivable down of

a May XXXX. have in you, line also undrawn in availability credit We million Back $XXX of an to maturing John.

John Croteau

Thanks, Bob.

secular regarding earnings the I'd ownership of announce since a MACOM To milestones the our dispute last assigned to intellectual has under litigation settlement I'm GaN for of call we've fields couple growth of our concluded opportunities, to that begin, discussing cover. all to pleased property. rights noteworthy like Infineon have the that Before that agreement, to of Under on we terms were use. Silicon Infineon patents ownership of our

the station of turn on XXXX. they're this I'll from in selling until We restricted call. later in GaN the products production in RF-base have license the to patents Infineon, quantities back but significance to explain agreed Silicon

Next, our production data QX. ramp in sales XX-gig the we our contributed of which controlled growth center continued lasers, to

that of progress finish, It's it manufacturing tests this from upon times will to quarter, manufacturing revenue ramp continue noting laser quarters build through epitaxial total type our final multiple through flows robust material for production cycle as to as to take very seven for fully profile demand a XXXX. take worth to we This start months from meet wafer orders we'll scale so that to models. output

growth and of high-growth closure in global the deployments Metro/Long-haul drivers actions backhaul. the the count in previously Ithaca announced plans, in core In In pruning our across gone QX. and resumed Metro/Long-haul fiscal and towards facility we're telecom, Next, consistent and fiber the took with our trends portfolio seeing as seeing we're particular, customer fab in we've Lowell throughout our PON year continuing demand improved divested we base.

specific Forecast before XXXX. of milestone port turning with PHY downturn, applications confident to wins chose provide Through fiscal of this design different to contribution of fiscal market, QX, products perspective a wins in for to transceivers solution. year's release proprietary before we growth XX-gigabyte fruition I healthy, ensuring which our and in and and for on plugfest R&D was in customer Based our and want plugfest feel coherent our questions, XXXX. or strength single-lambda growth are into longer-term additional maintaining success vendors' in quality we revenue competitive in PAM-X a to at disruptive focus XXXX. last these hardware specific switch entering identified customers' over some gate. various allocations production. supported focused PAM-X, off the with it drivers the their and fiscal products in we're commitments. midst coherent major adoption first-tier bring in ASPs on markets We shipments interoperability to on and to DSP secular with in due with our we But developments improving our share position industry our In The the share higher securing design next-generation drivers, carry of XXXX expected

data actions, and I can span security. and are America-based. with more that with opportunities these many of spending openly the inherently of It's to by well positioned cloud result global surge and now by these a all litigation that followed in Starting As homeland global Infineon. and beyond we during centers, opportunity worth telecom. spending, the speak now next a we're civil phase telecom, modify for of our strategic settled now defense XG of magnitude the North investments our China XG infrastructure led long-running noting finally about

Let and litigating me higher at explain to a acceptably base us teaming over why frequency why is in RF. Gallium efficiency for superior at requirement ST XG density Infineon is so with power so us with nitride rights and was due bands. invested in its XG stations the invested

previous top LTE that and XXXX especially the Billion-dollar semiconductor therefore billion-dollar surge for our customers in XG demand the power the show years times power in talking is dollars both XG on a from RF to than in base GaN market cycle. RF the station back fabs. consumption semiconductor of Forecast base We We're over believe triple high-volume through stations. XG. in strong content, next XG X poised in wafer markets require greater few

Catania scale Like in STMicro's the XG, and XG about the Catania more it's where Upon With imperative has excited that following is sources semi sourcing production. with of for order this than for an we're high-volume greater Sicily. opportunity fundamental we're in the largest wafer dramatic demand world's entering GaN GaN ownership of battery industry patents, magnitude increase fabs. in than the the cycle the output compound now ever reasons. for

XG Silicon GaN fraction but expansion fulfill we existing carbide leaders silicon to that for plans GaN the small the most on on Silicon service optimistic can high-volume Even in factory silicon demand. of build-out. First, see Carbide can by XG a announced fabs

substrates. frequency price with modest XG points on requirements MIMO ideally higher bands up the Second, properties and line antennas of or GaN massive Silicon of the targeted power

used were LTE. are XG These the Third, require product that incumbent this the of than that infrastructure class of transistors operations XG back-end MMICs LDMOS in is don't suppliers. high-powered a different

our programs. now turf with enjoys base fully playing for on we're on level with Silicon adoption. customer GaN cases, production proven, executive in initial some home So in already MACOM's XG. we're and is sponsorship and In validated qualified

and who us our multidimensional, two Infineon, five XG more and base of for this own infringing pad and of understand namely, we and with supply semiconductor lays to litigation Finally, without the with enabled stations customers that Between with now portfolio the our in work navigate of MACOM settlement, manufacturers our the ST, access control patents, a fact, partner impossible in plan for have destiny is fields to a we intimately top or Infineon build-out, Nitronex high-profile X-inch to believe fundamental minefield GaN we believe firmly The chain licensees. healthy After our all vendors industry we've GaN patents. use. one the Infineon for globally. multilayer

opportunity, proprietary are Now stepping highly back is and reflecting on several XG. the entire of industry-enabling about technologies that poised play XG GaN in MACOM telecom to one roles

The while receive that superior on the handling superior enables AlGaAs, on second switch reception our side side. power technology providing the is transmit

rooted from are HMIC phosphide on long XG the enter GaN and not Major in compound telecom coverage home latencies performance for to as and materials, a HMICs, and network MACOM's effectively is and ICs, power have our least, station but Each indium Silicon, than you'll anyone, Etched these high-performance to deployments. antennas why phosphide our maintain three optical allow lasers, dimensional Last right operators in structures this semiconductor reason, infrastructure leadership fiber what indium That's and pulls. core in to understand of customers technologies, cost and bandwidth Our or warehouse. glass global RF minimal. terms AlGaAs competence we we're superior processes lasers heritage XG specialized deeply scale differentiates bullish backbone understand Facet XG in base of to Heterolithic of that and to energy network the from better cycle packaging. Microwave efficiency. and

against coming our microwave of shaping Sensor point, air jointly we DoD of a defense. support U.S. work replace be is program, the wave Sensor is build-out, protect of and multiyear, deployment a U.S. vantage by Tile in we sensor proposals. believe global or and outdated sponsored investment readily of to with threats structure public with radar which Homeland is for radar the SPAR as Arrays to sector month, Planar area unique MACOM. featured Leveraging expected From applications. systems FAA, the aerospace. that system in of in and in cost a life Labs, that MACOM's wide our It's private many Security. RF Lincoln well and the modern-day approach example traffic consolidate for opportunity RFI multibillion-dollar Last and in can antennas as active the history. have from tiles largest responses the government's prime commercial prominently up array we civil a high-performance A contractors years of and sensor U.S. Department to scale Over prime MIT and utilize homeland our high-volume military see a represents Next to Scalable major their control assemblies. components

well a deployment could these still prime plan A couple to bids in and see over Tiles But public that's engineering to are be have of which as of conditions, Congress to drones Department ubiquitous is by early I length the low-cost The opportunities Even example all as in elements. now currently Scalable expeditionary see detect Chaser, increasingly is where They commercial radar XXXX same well are sufficient as venues air U.S. concerned a call, warning before any tiles the Scalable weaponized preproduction mentioned final and cellphone and come anyone. there drones potential require field years them need and Planar manufacturing other allow the other but of Security radar. customers builds, to The with While and being out, first, towers become agents. we as antennas security scale Security with mobile, that's XXXX. used world's Arrays being that Planar facilities. than the getting use better leading before antennas is coming full open program, FBI are radar And radiological Sky coming. agencies near that as fiscal will down Legislation in. they numerous understand as unique and cameras for we fruition. MACOM's government sensor position biological, and support chemical, fixed about last Homeland in Arrays low-cost terrorists to drones taken earnings which criminal are range today.

prospects growth sector prosperity. For about that private why public modern-day in reason, understand can peace you threats these defending the and to and bullish we're of against investment

sets. to long are in to data still hyperscale and innings forecast for CWDMX volumes cycle gig service providers XXX XXXX estimated for million potential their years over centers. the than data in unit be growth early Cloud next gig Customer the more Finally in particular, demand XXXX and XXX year. to of connectivity XX double in a upgrade reaching strong greater with XXXX, within project units

few the key production equipment design with are leading MACOM While X of This, to plugfest new volumes also majority of volume XXXX the represent in years, meaningful year. to switching has chipset, vast network switch like Tomahawk CWDM XXX-gig token, XXX-gig PAM-X. Growing next from the XXX-port single-lambda triggered move next scale spurred over XXX-gig is successful introduction will adoption transceivers. players PAM-X a of providers. who entrenched with terabits PAM-X availability wins ethernet planning platforms the expected customers for unit of combined September, our Broadcom's see with XX.X forward has has

of DSP CWDMX it to an underlying drivers quarter, equipment preeminent in come, than year top business and better as in cloud CDRs, of lasers, to and we're OEMs establish we strong well believe all, share and to cloud upon centers MACOM's opportunity build understand and TIAs, anyone. L-PICs strong on PHYs relevant we this with for optical we So to and for sequential grows PAM-X. Major innovation accelerated deployments in as PAM-X XX-gig economics. transceiver each potential providers overtime. expect service our a as layering network analogs, expect growth of connectivity pace meaningful All for share positioned to data years remain well With first

getting centers. For that prospects in squarely cash and operating conclude, margin on XX% short we to we're our remain reason, free XX% margin, To can operating financial growth you back our flow. cloud of bullish targeted understand model data long-term and why gross on fixated XX% and

were results the step Our in fiscal direction. right QX another

will secular light of operating and the of backlog. management sluggishness with signs expect and hard course lingering China remain provide in factors our by fiscal current on of regarding of the uncertainties as our reported The watch Over analog margins. OpEx to these and XXXX, present the of historical on contribution and seasonality some revenue we QX prudent tensions in growth expanding growing trade combination for leverage drivers from based markets peers, orders larger for

That our taking me time Moving new we're operational customer a brings base guiding forward, at products order to to visibility and scale backlog, our for and it quarter X ability QX these guidance. technologies.

first fiscal adjusted fully we anticipated XX, $XXX XX% expected on is Operator, the and adjusted in the earnings you per be open share to questions. million quarter between range call an and to XXXX, XX.X can margin the million outstanding. gross now $X.XX of million, diluted ending revenue For and shares to between expect December XX%, $XXX be to $X.XX

Operator

Instructions] you, with sir. Bolton first come from Needham Thank the And of question Quinn Company. line will and our [Operator

Quinn Bolton

to I the on center data first wanted opportunity. start

you traction the us well PMDs transceiver Sounds business in as you've both pretty the how some sounds for PAM-X. position like a growing 'XX the quickly as also like equipment got energy market, could for some wins some in customers? network sense You've you you? ramp have across give PAM-X strong fiscal in Can got

John Croteau

address So let that first. me on PAM-X

introduction of XXth second do to was starts days plugfest latter follow-up. September So will lines. about the it the still by in it's process said, customers. CWDMX the frankly would have began the XXXX, missed in XXXX. time contribution ramp all half I you material say can be products, and question, a of I but it like for They volumes to dwarfed making was going of half materially, telegraphing I the our that be little their I successful very of introducing the careful actually on

Quinn Bolton

the is be actually on Silicon on going to GaN XG more opportunity. Follow-up Yes.

but we move of XG that as for multiyear do You're of opportunity it 'XX you in talking the period, in more for sort a about GaN-based big PAs contribution? and again think, is question, you, a significant over GaN to and fiscal terms similar tripling you

John Croteau

at learned Yes. time. I way to the about mean, a quarter we've hard trying X guide

if is -- revenue this the deployments, answer you 'XX. beginning simple I the to are you year, into XG time if that look which continues it public hits on reflects its frame, kind ramp, opportunity 'XX, it at think but 'XX exactly our of really look there deployments reports that stride in 'XX, and

more multiples and consumption volumes the when of are talking requirements. LTE higher It's wafer talk in interim But I litigation So as see and supply chain. unit the of you're describe tense. it cycle. right shocking now XG actually wouldn't up over, It's it hot the present you their in quite heavy can -- than a certainly, LDMOS now the And lining I is is about customers openly. that terms cycle previous the

we're So it's the perfectly think challenge really with for positioned operations settlement. an But customers. our I

Operator

And our next Harsh question Piper will Jaffray. come from line with of Kumar the

line is now Your open.

Harsh Kumar

couple of questions. A

a about China. in are dislocation We of hearing lot

are some that. of you I follow-ups. does then of couple China seemed usually to things I adjust numbers talk the could you're And optical, a seeing inventory, in avoiding other guess, Again, there? about for the seeing big at have Chinese that be this you fine. important Also a Your market market. you. curious that's I the are I'm know what you time,

John Croteau

absolutely. Yes,

people's little a different. about of business. pure-play A other lot mean, single I the report bit China a are than China, we're So more

two, have significant We four three, businesses.

a of kind it's So bag. mixed

looks that On that's shipments very healthy. long-haul healthy metro, to I port to the back The are be quite There to think the positive mix and are Metro/Long-haul but branding growing. side, stuff off is Customers inventories. normal. from

On we spectrum, product the the this aerospace customers get into of of order in other in China. end going unexpected the denial

stuff ugly, PON in middle. of the and market kind that's So there's was that other the like

at answer for least simple us no there's in So China.

Harsh Kumar

hard center then fast of curious, in China cover the And part couple pretty XX-gig of lasers. about ramping that with have and data was early I other XXXX talked a we companies

those products. have You

what are you and You similar XG. geography not opportunity about got in too, small which and a historically strong if have? I path? talk ramp, that talking pretty They that your can about companies revenues on kind then And talking you're line, in are charts about curious if think I'm of I'm a well you I'm if curious a steep of mistaken. presence sort revenues as also several other optical. about talking

John Croteau

Yes.

center data So don't our in China, business say, mean, is into I in in XG PAM-X interest quite an moving and and mid-haul, smoking wait customers general, components XX-gig XXX-gig there's over data center for and both on China extreme associated possibly applications. have center, we I and the to China data analog front-haul, analog Chinese in these price. for would to lasers. lasers selling in

on between Apple. data North a very of magnitude. think, Amazons, American-centric going challenged It's to are forecast still certainly will strength the Facebooks, optical center Microsoft, But catch China So similar It's side, to I be XG an for exciting up still, be market market. too. Googles,

our a me, very to products. it's, lasers for So analog market healthy and global components,

things XG the we of out level don't detail. that revenues, at On break

wouldn't bands as initial the in I well right but there's XG in systems. But those it's products revenue growth material shipping real GaN very say guys. yet, driver are as We revenue with a

Operator

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

now Your is open. line

Blayne Curtis

Any Maybe helpful. dollars. would your maybe like color a high-level, segments the guidance be segment? color sounded data few some it for other million grow think December's but on again, in just would center sort the of up very I

John Croteau

have that customers, unanticipated across would is one which question, our fine, we two that it's as the say quantified we Blayne. segments as demand – aerospace good of Chinese quarter, moderate projections The really end-market with healthy. million, $X for one is a million. That's the much I all kind things at $X maybe thing headwind next now that

in absence stronger So that. would of the have it been

previous The other and have come China. thing year-end years in seen is we're our in in guidance, planning to for over we especially inventories in,

Our cases, are on year-end bonuses incentivized with many inventories. customers, in

their manage in make can So to support inventories. that that manner we sure them want to want a we they

three say with aside, end healthy. still markets quite I'd all the So two very those across factors are

Blayne Curtis

And or of for looks going elevated an kind maybe were I thought flat. a Question, that amount of was September. foundry you then partner for see like It your Bob. in CapEx you question to it

give one, if some And as STMicro? you the December? could that of progress in So of to just color happening is us ramping maybe

Bob McMullan

I've Blayne, out over a onetime pay translated progress not mean, the time, reasons into make I for not to like that payments. identify that in deposit learned expenditure you're But I payment that's capital pushed expected first, did anything for make that STMicro be We made can are been that payment. else correct. that for we a installment to we

As I year-end, be comes and as last it it large delivery. quarter, amount payment it's be final noted the on paid will at but a will together

So multiple a they rather be last fiscal amount it payment paid anticipated as in 'XX. than of one-time will the payments quarter, full it being across balance

John Croteau

me, So lot a there. to added to of I'll points you Blayne. speak

working need together capacity reacting bullish capacity So to that, capacity ranks commitments. ST with the forecasts capacity, to in terms very of with three ST ramp ramp. in that us along of a initial get year say We're are just of to we ramps, five these but terms working I'd to the top not

patents, broader adjacent now markets, the as Silicon have a GaN as for ST For we on can enable that rights the on well these we basis.

on that and So been collective business the outlook brighter. never has relationship

enthusiasm. talk similar folks, to -- you'll the hear I level ST think you'll of see a if you

Operator

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

open. Your line now is

C.J. Muse

growth question, I trying fiscal first what through bit term. for you 'XX, parse you to look as to a longer guys versus is near-term guess,

terms in rank defense, terms So revenue fiscal of looking 'XX order? What other, you absolute to data you how growth 'XX? fiscal expect think if XG, versus about center, you would would in

John Croteau

is after a guide we're X% short Again, a cautious quarter here, -- quarter. at XX% just simple. we've X reason and the the time, demand. sequential the thing a That industrial strong to nice, growth prior term that the healthy, we defense and said, In posted got

of you the market But now our through The I demand stuff, one of and sustain specifically on the business, and driver. as go to that kind be as sales The quite solutions say up in organic well. stuff So as seems telecom it's I'd kind data backloaded. it's holding growth hard it's think year, XG of number ramping, the basis. quarter-by-quarter center the the lasers clearly a well merchant lasers right that course kick to

In I with sense are of a tell to the get really be we grow have time. from terms thing the is thing you, we juice. difficult comments is think really long-term industry, of very the year, But prospects, most can to of you I bullishness of about caution I the well and ability careful my this up. lot of heating got our a you positioned areas in the lot growth

We the have the right customers. They programs. right have

about We have everything keep and the spoke I But very see are more can certain we caution. field we orders to guide, we going well. has been trials until never But that trying express real.

C.J. Muse

of benefit well for the from including forma, I it savings as you implied pro And take. as part full million are I'm that, curious you is factory like guess question $XX.X litigation Bob, or give of shutdowns? looks reduced as just OpEx cost expense around

Bob McMullan

just that is litigation me Are of with question. you it expense? say timing, So the -- help question

C.J. Muse

you for Or So reduced that further as be as the benefit the litigation into -- savings about thinking guided of we quarter? should include implied in the expenses? March December, look OpEx well that shutdowns factory full does

Bob McMullan

sale not expense event. litigation rail particularly the The in the business, in of being we less the as GAAP a expenses answer more high shutdowns include or is onetime included the not business. the for did savings The are results

report. of level that the operating impact expenses we don't they So

Operator

And question Sur with the of our Harlan line from next will JPMorgan. come

is Your now line open.

Harlan Sur

drivers $X laser in the business the in you to DC wondering XX% close the And of guys growth? business? mentioned help sequentially. if your the XX-gig just probably what to I strong revenues in exclude grew data big transceiver the was business June, some I partnership your you the incremental quarter. product drove growth revenues was also strong. also on center us part the data any from understand ramp of transceiver If Can in solutions, center colors contributed white It incremental that. box a million the I'm the non-product know other

John Croteau

be as So sales, when solutions in just as that's both talk clear, merchant model well to we laser about market. a

a just comes ramp. stuff is some that But core separate But generated of kind some laser, a lumpy. the don't -- a recovery issue. on AppliedMicro. had as don't a demand laser. large How business, to connectivity model. laser confuse stuff out, guess wasn't that particular was really on strong with the There's it's with actually customer well, product I contribution the it's laser people that yes, we previously want it, core certainly was you're in the segment that which mean, service we I a we right, So some was the known

quarter. quarter-by-quarter can get favorable up we growth And revenue. and operational that product of won't XX% So it that. a you're sequential or be data centers was a tailwinds but had part last it unequivocally, But to tailwind basis. has, challenges was on big I the customer from into right, on as lasers headwinds a show continues

Harlan Sur

the was your there. momentum XXX basis Yes. midpoint in a It's on good about to kind the of range. gross margins of guidance it the Bob, September the below see quarter, points

what is the the improvement side, margins guess going I basis lower driving the on flip performance? slightly drove First, XXX quarter? then margin what's strong December And in into the

Bob McMullan

couple Harlan, things. there's of a

down. very, now our denied very margin ship margins, tail most had were for have business aerospace customers that to that attractive Those and, the rail we attractive margins are that business, have again, delivered we did contribute overall the here. range in then we brought So things the the wasn't our ability the will was it accounted high margin to too that in that and the guidance the small the therefore, away that of And QX. for fiscal increase gross gross goes of piece end

Operator

the come line with And our next of Goldman from Mark Delaney Sachs. will question

Mark Delaney

be components on revenue extent one was center starting opportunity. either programs, a to have I your of efforts, shipping And in explicit volume I more the the go know guidance? or licensing could the you're question First to to sales. those was hoping been of a through data in what into the direct either assumed follow-up laser and bit the see white you completed suppliers to quarter what's box, or hyperscalers

John Croteau

Yes.

with front the dicing. general laser with of talking new no what controllable in but the be to can generated of the models, preference that lasers. we're in to different price a between wants give model me I creation. the versus to more Frankly, merchant to Now new, improved demand demand at I tends our I breakout buy one we we actually have you're reliability who about is still That solutions very Anybody sales lasers do shape. other. are slicing, customers you said, numbers model different aggressively so. ourselves going would market It's the call we have because one the the say out with earlier. laser don't is skewed right welcome the selling towards just

is one designs time, think of out our it's and other than -- a there's there their own people very to component I have be who more are The that creation, over more lot traditional demand healthy lasers. buying happy

days going it's that course an much situation be unfolding that's as demand next go of to speculative we and can drive the creation. we how about share really drive over and So quickly, how out the XX

Mark Delaney

Can that? with be sort Infineon and you And the XXXX, when you help start mean royalty Infineon Infineon are then in better Is potentially those those of royalties? payments? are us associated what damage MACOM things terms for help that question that with what license are potential And royalty settlement now? mentioned. maybe maybe And potential financial that understand, seeing any understand does us MACOM will on ramping a paying follow-up

John Croteau

Yes.

So there the area perhaps sensitive terms the this selling confidential in most are for Infineon. and was

the litigation the other that litigated. financial just we have the when set all have just goals So I of fact the the to accomplished originally we not discuss don't terms out than we settlement, liberty the that for all

the I mean don't confidentiality question, covered by are the but to agreement. terms So, dodge of we

Mark Delaney

just I for potential impact to a help that then. in I'll MACOM, of -- the And term. that, couldn't you was guess my you what and hoping one the us second if Maybe There's intermediate I companies. see give to any, understand you near count may question. could some optical M&A different amongst

John Croteau

it negative impacts. had Yes. think that's anything a and see very just negative there's positive But II-VI, we're model. a And the commoditizing, we lot predictable. I don't I positive was probably a as interesting necessarily industry, into scaling to predictable, industry the or a combination. It's been that for these thing fascinated high transceivers, at It's as would don't going MACOM. view continues A and as consolidation and thing just optical by that's bandwidth of combination. on Finisar semiconductor-type one evolve. further this the it is consolidation look

our I good, say for it a guys, sense. The not and them businesses. and boutique, in makes it's Metro-Long-haul all good for positive more differentiated, transceiver they're sense, negative more consolidate. all So sense customers to a But that analog in

honest. So it's be just fun to watch, to

Operator

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

open. line now is Your

Mark Kelleher

the there? I that a talked of about And price very disruption see deliver. give Just can know maybe the us wanted that view this some data what I on know high-level you're also to back here. you but quarter competitive competitor competitive the there's center we've selling But business. to is a on, a you a position couldn't ask just lot part partner selling with market. is partner the and

any or you're seeing wondering changes pricing over the the the center dynamics in market if on I'm side? data So just share dynamics in

John Croteau

Very fascinating question, yes.

products gross is growing points, a maintaining those and following it any we're So size seeing and from these done margin. like ASP high-volume boutique this market fantastic centers, high-speed a at products a evolves I a way, modest price into business, share, growing maintain very connectivity data high-performance change. we describe The changed, have as our analog in job their would into market market,

shared companies have We with crafted. we've high agreements that long-term very

to So we've survive that it's and natural market, in and been a it's negative thing. thrive a consolidating not progression, able

and plan Outside And inside. it great to cost and center, competitor. we your it compete a have compete to and needs sources, data would tend Semtech's with they're healthy plan Inphi. to the the for center, be business, a industry high-quality I it tends company, accordingly. the describe multiple, it's good, way, would we in analog this I say inside Semtech, You with just structure our data

XXX-gig mean, SAM I TAM, yes, call some developments part there's some products, our in not right the great reliability, as lasers. I there the standard. dealing right a as our, on It's us competitors but things, certainly to stuff another now people's negative but the structure. for things, of wouldn't against not to all same just with other our of are of side other at as that laser is now good. laser don't PAM-X starts supply ramp, with we already the and proven we're are a are it. much customers, for misfortune, been On shifts them yes, work great side, similar We've PHY. the us. position And own We showing the the our shortage have share we leadership We content think ourselves. some got that I position. favorable people through the or future. thrive analog really We're continues just with We're cost And for PAM-X for And at time industry have and the to struggles the part the mode, foreseeable

guys, negative everything much everybody. thing. in, position pretty So it's generator there's not a very to healthy credible everybody. area selling spot them, nice for about a not data domination, because world economics it's a and center to a I very lot It's good. healthy be have of that think Not growth but a are something revenue very we the to Cloud

our and we're but So our holding think obviously we're position. own expanding bullish, I very

Operator

line Our of will the Savageaux from next Capital. question Tim come Northland with

is line Your now open.

Tim Savageaux

beat horse. Let to me datacom the continue

some As you I appear to impact wonder, you and datacom side I customer legacy in analog of had no, many didn't IC-driven the some maybe ICs growth out business, the in had, same more that laser very impact double-digit encountered. laser assume think in we heading in and or you issues forward datacom driven struggle that the than That the both competitor quarter. noted, your I last overall but quarter called growth that I in with maybe analog datacom have and Should guess? is guess, the

John Croteau

But relatively mature constrained the spirit, in side. put -- mean relatively have it the of as with parts, lasers. and and on curve. leadership we this the we're -- side, laser moving I'd We're the both percentage-wise, there's that's as position, sure, analog on a or I a a supply-defined new in fully a side Well, share well analog entrant supply growth lot

and material function simply it's multi-quarter from materials. moving because don't with laser, time, start we're factory, step in uncontrolled production you a the On

our So a we ramp times suppliers side, it's lead described. those controlled wafers Even class of from with as in analog extended. the are

it's the to It's infinite reasons our whether I customers understand on some aren't -- pull more to hold sitting well people So it's think, of in. one can not because shares like able we shift. that just material to it's us we've magically able why be been or so to inventory terribly competitors, react our share

So moderated all we're an the it's think execution with races we're in very I on clicking the with as the in like there and the lasers off it But methodical business, in to it's changes is Again, standpoint, growth fantastic. terms ASPs. of well. cylinders looks operational from growth. unit The that the

Tim Savageaux

balanced. sure So in to pretty follow-up, of wanted understand. guidance, I And it make a terms sounds just just

on the sequential order be your be side? like growth context, design and industrial million the that $X given expect down we In to mentioned, defense communication million $X driving offset to on some probably of but... So and based the sounds you would should datacom that it comments,

John Croteau

to mean side the on I cut -- so didn't actually Well, off. I&D sorry, you

it and side, I&D sequential aerospace the grew that Chinese taken X% hit the on aerospace on stuff. So having

sequential data I'm continues sorry, but a it about or half your centers? telecom question. impact. it's of not missed Is I that So

Tim Savageaux

no. Well,

is no enough. incremental on you just impact, said half fair and that's half, second the there's first so The predicated

think growth relative December in about the you the top before like kind drivers and were heading of at list. any of asked you put datacom it I quarter, sequential that of the sounds

John Croteau

The strongest. is end health okay? the it one we the soft across demand seasonally yes, we we December of to all is don't tends don't that this issue. in -- X dodge is So to way. want Datacom be Yes. can't question. I factors is clearly I'd end The a thing calculated predict see be market would solid, put it the an market quarter.

customers which product customers down. don't which just who end have and inventories know which We and We market. manage their

of depending that know. it that we products, apply X, show where been and we which there's kind end that one level see don't in judgment all So top or could market nothing have portfolio weakening just showing But and others missed. our that versus up we've

Operator

next from Our question with line Richard Instructions] come of the [Operator Craig-Hallum. will Shannon

Richard Shannon

Bob. here for you, ask of I'll line and out margins on question just one jump gross

we're you Maybe quite of and revenues You a talked some a XX% getting what time, on help to you way. us for multi-quarter if that of some can trajectory that like perhaps you've give moving about sounds on kind need goal do it trajectory a allow of to you as takes you either can that us to continue are Any puts get over to and And any incremental to get that path below or help to way track there gross you quarters that. level? margins kind that grow. the next of above held few

Bob McMullan

margin one gross beholding that remarks, increases margin. And guide some Richard, let in the of expansion about me John time, start gross course quarter the to fiscal context about at the in flavors I'll and We increasing again, 'XX. yields, over to incrementally what as mix give talked of his prepared lasers. significantly in our improvement yields contributes talked a drives with

all continued as right technologies North on as as products. which the mature high-margin we internationally XG Our priced continued the year. through very way, line have and field march rollouts, America both supporting trials that the of contributing growth margin top to are expansion well in They're and

Operator

the America. Vivek And of of our Bank come from will with Arya question next line

now line open. Your is

Vivek Arya

China. on Question

China recovery's Was of any sales last the now? of we that complete. issues that steps issues? how curious of I'm sure of the mentioned And that inventory buying are industry saw percentage kind the abnormal a avoid because as to some make there taking You over is tariff-type any you're much there year?

Bob McMullan

China business over about still that, room have revenues. for XX% the have quarter, revenues, recovery multiple to this almost is change peak at shipped our some year could total But a been just from of alone. the was It of have and XXX which across up China basis would in goes last aerospace so it we points markets. by Vivek, And XX again, higher if customers.

the Some contribution offering next-generation a of of No, products moment. buying that mix China as margin products no we reduction of we're in revenues, effect talked mature past, but government-imposed, some see tariff markets, about different don't about. at more ahead or U.S. at we've the of whether ASPs, of we've tariff on revenue gross some abnormal lower are markets in the talked the any

we about, continue and particularly do seasonality talked John expect As fiscal in see in here. China, is our first this what quarter, to we

we here something So in sit that coming different. today would are buying we unusual as suggest way no see a the orders pattern nor

Vivek Arya

I For in competitive hoping talk could my was follow-up, landscape PAM-X. the you about

about of in one important XXXX is has thinking about of market gaining a what your are think line to lot growth perspective? design you a I spoken competitors share wins. top PAM-X How in from

John Croteau

different So think first referring to. you of all, a I we're are bit little than people

in the that stuff is with where today. We volume high a very -- inside have strong very data position center the

of business. So I PAM-X a meaningful, we're terms to the a the of even go CWDMX. not It's the in don't with our which swing addressing, percent the say share, to XXX% center contributes meaningfully. extreme, data it's want lasers market not lasers, factor it's like it not XX-something but huge demand, is

important. So more basis a I importance the PAM-X more go-forward understate and are to of want on don't because

who people other and sustained talk design in probably to their way. people strategy the doing. those win also design the matter can't those quantity because quality a and inherited AppliedMicro, hearts. a and the they're it, big one you're is world is I confusion dear they And to program, rather to the or people the what They thing, big the program they factor, the -- hold pursued, that appreciate about when that they're telegraphing publicly meaning think referring we don't tend we've call be than I us win near who supported had to. we their those have people the They a

versus XXX-gig I we're where PAM-X I a about vendor, think probably the a transceiver there's And at swirl semiconductor lot PAM-X. XXX-gig CWDMX not is similar would And say, XXX-gig was a least is ago, that analogy. and guy. people is to years caution at about thing confusion would I the of three Lastly,

part early business. meaningful the of that there's in So ramp, transceiver

right the revenue, you that's and nice as investment because provider, and we're if And can forecast you have business. You to material is. for terms But top start at reason overlay on have they semiconductor we fixated. why CWDMX, of meaningfully fixated -- look where you a to the a are go in now the volume transceiver return on on of that's customer XXX-gig XXX-gig, where

In has production to don't honest, our position that with into be right mainstream the XXX-gig, budgets, next a of see can we terms at sets now the product meets in power anybody mass that that manufacturing move year.

think with I that servicing, our we've So position the we're been think and the comfortable pretty makers. are share who guys I market

think I mix year, next line contribute the will much at for nice, towards be will growth. to it least more is But top So CWDMX. the it

we move over I terms which modest when way, of But has than in what now as three talking horizon, contribution PAM-X about you to think about intend forward we're next wins. the coming that by the year, years. changes, the is very a over talk rather

Operator

our Svanberg question come And Tore will from next with Stifel.

now Your is open. line

Tore Svanberg

on a question. John, maybe the follow-up last

the PAM-X So you market expecting Are XX if look for expecting CWDMX? to close year? for year, still at what are XXX-gig ports next million we ports next you

John Croteau

I now, forecasts careful ports our if be to to about going because got our customers' I are. telegraphing Yes, I'm be talk what

so back like well me on than say information. to inappropriately relative to analysts you, that generalize so not will market can and from say, I'm So the honest, customer of of sharing less I get the let ports I helps. to PAM-X reports that I'd be CWDMX. But the pull XX% to one be Maybe would

Tore Svanberg

is follow-up, my the maybe the could following when a little comes capacity we signposts meaningful that ST, at have be go is running it now. least you be of for you When makes will partnership probably That ramps should to right capacity as GaN? the some obviously, And as and So through far on CapEx with as revenue concerned? going sense. that up bit

John Croteau

is revenue of look the into say question today, deployments, quarter is at 'XX general about into secular market even spirit as XG we point to But the not does inflection very our following are if XXXX, profile you go get that of but customers be build-out 'XX, year, have part say of given meaningful reports gets 'XX, through the your And would an I very of I XXXX. driver that each describing 'XX talk that turn you the second way you the supply get where growth Well, when the are intense latter it we it years that really really the when you about, the concerned would have meaningful. into in of and terms us. customers

are the don't I present to that create in very the the impression But this I tell you is tense year. So real. first programs want step half in can of very, a of function next the the design

Operator

That session for question-and-answer today. concludes our

Executive comments back the Chief pleasure my conference So over to closing Officer, now remarks. Croteau, for or John hand it's to

John Croteau

Thanks. Great.

Global Cowen's December in of X D.A. Summit today's including Francisco, San between Technology on TMNT the closing year-end, be XX then attending New December we'll Networking and events before X that and on So in on on call, Barclays' mention New and in XX Raymond Conference York, Cybersecurity will Laser/Optical Conference I number now December a in the December in York Forum Davidson James investor Boston.

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

Operator

conference. for today's Everybody, good and This day. have Ladies program participation the and does gentlemen, may all you in disconnect. you your thank a conclude

MACOM Technology Solutions (MTSI) 14 Nov 182018 Q4 Earnings call transcript