LITE - Earnings call transcript Q3 2019

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Operator

Good day, everyone, and welcome to the Lumentum Third Quarter Fiscal Year 2019 Financial Results Conference Call.

As a reminder, today's call is being recorded for replay purposes through May 14, 2019. I would now like to turn the conference over to Mr. Jim Fanucchi of Darrow Associates.

Jim Fanucchi

Thank you, operator, and welcome everyone to Lumentum's fiscal third quarter 2019 earnings call. Fanucchi. Jim is This Associates, helping Darrow Investor with Relations. and from Lumentum I'm it's I'm

the file for Lumentum's quarter company with the and and Exchange in on third quarterly recent review ended on XXXX, today management ended current statements, product product performance, materially acquisition our participate, Commission including expectations. Ali, as to sizes, that trends the development our cause Alan the Report most year Exchange described and call company's in which XX-Q Vice the filed fiscal from factors technology, releases, and Joining call later fiscal subject we results Development. Business the new filings XXXX, company's regarding products, filing from the and financial Form purchasing Commission, Coldren, XX-Q Securities and and with with the of the differ XX, X, demand you This quarter projected expected today. with the trends products December the Executive in filed President are could statements in of Officer; company's include expenses XX-K Lowe, the Chief Securities market for report actual team, expects Lumentum statements to to SEC, Officer; and to and including the XX, for Financial the and our was for Wajid recent for forward-looking SEC Annual These risk potential and Chief fiscal particularly our statements regarding well and will filings June XX, Chris XXXX, and expectations and risks that including the encourages the positions Senior Form Oclaro. including President have February market we SEC our as and which XXXX, with markets August uncertainties

release. beliefs applicable required all financials reasonable update call a its of fiscal financials section website and and the on and on note, this and Lumentum's relating as Lumentum's supplementary release XXXX are on today our encourages is additional also call stated, our today, accordance and to obligation you latest during Please results. considered call Lumentum should provided GAAP about and statements Lumentum XX:XX A.M. these. available recording to website. our website by A expectations earnings details available for and today's third superior undertakes Investors quarter law. reconciliation based filings results prepared non-GAAP includes results otherwise Lumentum's except non-GAAP it's Forward-looking to with statements, will discussed SEC Time review unless financial to no as Pacific under today's between slides non-GAAP, it's on GAAP. as in be are a not or press has by with non-GAAP projections substitute also be of measures this these

market Alan? to I turn product over Now, the Alan and comments call his and quarter third highlights. for will

Alan Lowe

results and Good to on our Jim. discussing progress pleased goals. you, everyone. third quarter Thank here morning, achieving be I'm strategic our

more continues ago. to than started third quarter The seemhave a year

global balanced full we these fifth network product growth levels revenue modules the transmission acquisition, as market the the and the this including revenue fiber strong be telecom in With needed new Oclaro historically in on infrastructure higher products, heavy and requirements when for quarter-on-quarter quarter believe is out DCO mix to ramp ROADMs XX% our telecom more strong overall the closer in Lumentum's bandwidth drove products revenue from demand could transport and approximately Once double-digit transmission further lasers. is both balance of based For for mix telecom for to contribution our a market. year. transport;this mix now should new speed quarter later compared again, and This new is row, We lines. XX% attained the continued a growth record XG. overtime

positioned transmission capitalize our and on well with these products. industry-leading We trends transport to are

we the our to customers During catalyzed the actions strategic by acquisition. announced third quarter, telecom Oclaro two

First, we to the completed product we margin overlapping are to impact lines, have expect few revenue. gross improvement should result once quarters. which This rationalization rationalizing over minimal in next

these four forecasts at needs discontinuing to are a million quarter once approximately zero $XX our over and OFC buying shift quarters. March, growth we fundamental show, inconsistent product time goals. [ph] and profitability some coming Revenue telecom early we trade our in announced decline last will datacom the the are present, lines satisfy three per In where at strategy. customers from Second, our products long-term with to we legacy is

focused stop We are chip sales on time. and datacom selling now over datacom will transceivers

XXXX. datacom the to on announced This also of Group We Cambridge CIG. lines product transceiver sale XX, transaction closed of several our or April Industries

ramp sales product in to zero we to of with remaining expect inventory sales remaining down down chip datacom transceiver future. only our lines We bleed the as

but quickly revenues take are as $XX million increased approximately chips level. this from the datacom Since our with as compete transaction for our we trying are will the do our to up this clarification quarters. to datacom the chip transceiver could We announcement Currently, four process longer datacom seen new possible, as of and on to we per five strategy, no at interest them have customers quarter.

expect know We proven grow Customers unrivaled the to to The market of devices datacom development have market is the in the our XG people our and long our volume and the still our capability. we future around over we use in safety and datacom electronic chip on that customers as of reliability for last We and is are for growth over business laser-based sensing world tremendous sensing sustainable markets lasers, XD in day. that the good in business they the cycles. sensing applications opportunity XD functionality earnings strong chips call, the the time. early world serving Since over innings. investing sales and believe new sensing winning on run believe will progress count enhanced made see long every can on We billions the the around XD position rely and our is leadership run. market security, new product in

of replicate shipped advantage devices unmatched hundreds experience difficult of and have for valuable overtime. We quality it's performance, millions and to a with reliability. our This competitors is in

quarter from Revenue and as historical was our our from strong are for lasers. of Oclaro telecom declined revenue growth increasing and China. very Turning up XD XX% quarter-on-quarter revenue to lines as grew from quarter by growth portion strong commercial our sales. Chinese revenue quarter-on-quarter, transport and by XX% the million, revenue product third the transport geographical be results; an again full deployments acquisition driven of revenue products acquired a as having expected by strong telecom sensing which telecom base. products is continued and the ROADMs is and across in well telecom driven our should in of customers ROADMs customers ROADM double-digit sequentially, expected. spread quarter-on-quarter the a seasonally customer in telecom limited broad Demand given $XXX.X

the is contribution However, of their share market. still their below well

deployments, will ability add continue and quarter. simply believe to fourth relates but to revenue the growth transport third We continue in several installed and reasons. our transport to transmission demand throughout the timing. for network individual equipment telecom One then our lit We first this the revenue transmission outpaced slide the outstripped new wavelengths the up ROADM has In growth are overtime. is ROADM capacities, quarter, in and

in average is customers ROADM, are These nature; -- directionless, achieve ROADM capacity. advanced increasing. are strong growth other network per the strong and The node price the ROADMs to for of or of the number therefore new The the reason colorless, growth ROADM needed selling ports the ROADMs reasons and for reconfigurability network fundamental enable contentionless per network long-term CDC other architectures. more more and number and

Additionally, over pushing increases are which into started, significantly geographies domestic discussed deployments China, and ROADMs market has have deployed domestically. addressable which applications. the Earlier not I Chinese time. ROADMs historically new

edge our indium the photonic we circuit-based future terabits push replacing DCO and In continue coherent modules X.X transmission; terms products. optical progress including seeing towards components, telecom high-speed Switching ROADMs network phosphide and fixed add-drop. the we integrated to XXX-gigabit make of DCO are new XXX-gigabit on to products, of further applications,

products to volume year. and expect ramp these in be We to this later a driver growth

consumer lines, includes industrial product XD which and Turning to sensing. our

expected, down consumer third revenue the XX% seasonality As was quarter quarter-on-quarter, by in driven electronics usual market.

and customers world-facing the We additional continue front excellent applications. progress wins to on with make both design new Android and

had revenue the in For a million $XX time, drive of we the single than more customer first quarter. Android

cycles. being to initial to fully be ahead slightly quarter, the by to sensing we offset products on new down, expect XD for product ramps existing Looking not flat driven by seasonality fourth

sensing customer be of historical seasonal quarter the revenue. mix current of low our Given in fourth our XD trends, should opportunities

timeframe. expect up sensing summer again ramp fall this XD We to into and the

was segment revenue quarter-on-quarter. commercial Our up lasers XX%

-- laser laser than third sequentially the to improved which strong new we for this, During from XXX% and in Also margin again kilowatt our we cost class achieving fiber of to further Thailand, Contributing segment. demand. expansion production cost product ramp from is record we our lasers, lower moved note, of our and improved prior quarter, to made prior meet fiber strides grew gross capacity our location. manufacturing customer pump achieved reductions. and significantly moved significant the We've newest the year. our revenues products to laser facility volumes the significant We is which benefited XX% same relative period

We higher new targeting processing making applications. are development product in growth laser healthy investments material

by quarter introductions. revenue In from we run, the driven quarter, decline believe the levels. expect Over have long product we good for third the new to opportunities growth fourth we lasers however,

stakeholders. expansion and and targeted laser trends it margin is levels. growth accelerate to time Lumentum that products largest I drive sustainable I've inventory for exciting create at end-market significant long-term all customer for terific that a highlighted of market our our Wajid. It communicated now remarks, our their hand strategy my diversification. over Our very opportunities has has fiber Throughout customer of Lumentum. to will and I've highlighted Further, reached

Wajid Ali

third the here share $XXX.X margin by prior happy Oclaro the revenue third everyone. and acquisition, XX.X% related to after with exits. numbers be provide negative GAAP you, Alan. earnings Lumentum. third and was through for joining to margin asset quarter I'm diluted acquisition and Thank were for net financial including loss was $X.XX. to line GAAP was Oclaro fiscal GAAP million. product Net quarter restructuring add XX.X%. GAAP the our of periods, quarter our related then will additional for around morning, impacted first quarter was operating I write-downs Good call the significantly details gross Compared per the charges run my guidance the fourth some on XXXX. first results, very

points to basis labor for R&D interest million. XXX quarter of the diluted $XX.X due $XX quarter a rates. $XX.X of $XX.X Third by income Non-GAAP operating from million. expense million. was $X.X share of net of based margin net fully was expense non-GAAP was new and income fringe operating XX%, expense Non-GAAP which acquired and per mix. the or diluted on having business margin increased $X.XX XX.X% $X.X SG&A was $XX.X count the was tax was million quarter calendar million net product as share prior due expenses was impact gross third Non-GAAP totaled of year expense for and of full third seasonal resets revenue, million. of includes a quarter the well million the Non-GAAP quarter down to million as XX.X%. $XX.X

to Turning and details. line product segment

due increased our Datacom was revenue and at Our Telecom Optical Industrial sequentially. revenue at sequentially. Optical up revenue Optical decreased $XX.X sequentially, sensing points Communications to the at down revenue and revenue $XX.X consumer XX% million, at at basis Communications was XX% segment million to mix. segment, segment million industrial margin XX% $XXX.X revenue million and $XXX.X in XXX at Communications the consumer sequentially lower up lower sequentially. quarter. was Within XD gross due XX% revenues XX%,

revenue sequentially, sales. by in fiber Our driven laser laser growth at $XX XX% increased million segment

short-term product cost the lasers was XX% margin due of higher quarter. Cash points and volumes third to additions investments the the XXX at reductions. end quarter quarter totaled and increased $XX million. $XXX.X million were Third Capital and basis third gross during

per the achieved expense Now we synergies; we the $XX transaction. turning quarter, excess within $XX the the to announced expense million annual in synergies. than synergies year be have of on from would acquisition, million months of XX to acquisition XX the when highlighted, third we Through close more as expected in details more

quarter synergies grow the expect continue We year to 'XX. fiscal to in and fourth into

sales. XX% to driven factors. We all diluted to capacity Alan be date. that the operating noting $X.XX Now earlier. $XX million non-GAAP be which Commercial fourth incorporate of to of XX%, by be for to onto project mentioned lasers fourth million. on We seasonal to to the fourth we our $XXX quarter range basis. project guidance guidance, to a projections again of These million. increasing, $XX from continued an revenue net per and decreasing In This sensing that industrial attained revenue net quarter projections of transceiver fiscal $XXX share the range this And product in the consumer, the to synergies line are XXXX; approximate XX%. contains income to for growth declines quarter count earlier be due datacom market are XD by driven down due the projection includes And divestiture share $X. and the to Datacom quarter the range by to in in of completed benefiting XX% telecom decreasing factors and remaining in million margins million, continuing in to $XX slightly expansion. was

We margins back are operating lines. I'll This projecting call to With the the on Jim despite XD Lasers to higher higher start lower than margin Commercial Q&A from session. that, average revenue and product is sensing our revenues. turn lower

Jim Fanucchi

Wajid. Thanks,

like Before sure can begin opportunity Operator, one I Q&A question our question-and-answer we would so make limit the session. in our everybody an begin follow-up, to has Q&A we and discussion to with session, ask session. to everyone let's one

Operator

James. question Leopold [Operator comes Simon first of Instructions]The from Raymond

line Your is open.

Simon Leopold

the you of 'XX, to you kind what phones of And the in do to the on beyond or frame see XD trending you non-Android to one context versus that, it maybe a year do much for very on longer-term think year guidance. mix going is the start so? between think I let's with And and trends, in terms you the about the be over how I of out picture full-year if questions. wanted follow-up. Thank so, market, the quarter expect taking a of one calendar help calendar the growth next, Android 'XX? have say, sort we And

Alan Lowe

Yes, Alan. is Simon, this

upon revenue to the not. think volume the us very devices I for not between it's on, and and Android put dependent what future it's sensing very, XD and mix mix because tell hard or phones those whether non-Android or gets high what are

than in have that in Android to customer the was data trying that sales XD that in we the $XX adopting last sensing very, point shared in million very early think I indicate that quarter, script Android stages. business are we are and we an the was more again the and they

the that So, four we it rapidly I expect out in has over Android XD will past, than grow as more customers sensing next look the quarters. for

have So, a 'XX? view on 'XX you year-over-year, calendar do versus Chris,

Chris Coldren

are challenges that demand those in that line up customer the be this Difficulty]. Certainly, around were we with expectations there given smartphone will expectations obviously of [Technical versus think more our it that some we second year, feel year-over-year, half impacted chain volumes and in 'XX calendar supply various --

Alan Lowe

your Does that questions? answer

Simon Leopold

the And it then Oclaro the on how Yes, gross maybe operating reported were be than allocating you and get simply how but In March set to just it margin your your expected, better expenses expenses helpful. we're Thanks. could Very wanted about quarter, just was your after I think longer-term. quarter does. over do your higher operating level deal.

fiscal going about moving on. expectation a some of of would to So, post the or a you've us number Is kind got be be normalized help synergies? parts way cost OpEx 'XX of with what may synergies there sort think

Alan Lowe

$XX employees say up realized probably operating that was operation, which for that since completed. would expenses. are be half those actually to that up be until the will announcements, synergies million forward, shows won't We've are as Yes, show year. forward, instance, major cease those make in of half expense said COGS We and the QX, in in that synergies our numbers in Niobate OpEx of communicated did And fiscal Lithium some we between would Italy. fab moving also I late savings that going mean, the the I we've -- of and shared or about operating but GAAP acquisition calendar our Wajid in for this I think closing additional COGS. and

think see see we're the we'll the I time, same continue expenses operating COGS come to going down So, At to realize to down. come synergies.

Simon Leopold

And a so little declines but June the year? later maybe down bit March, in OpEx from then further

Alan Lowe

I so. Yes, think

quarter. quarter the expenses see June we'll the March operating I from think down in

Operator

Your Hall next Rod Sachs. question of from Goldman comes

Your line is open.

Rod Hall

sort Yes, and get that for gross could revenue well to also I confirm heard an million just we thanks group you've in that chip $XX said to And is that, revenue? for have And idea wanted think the taking for say got average that I margin how guys. I then want in follow-up the you kind -- goes to you question, above that Datacom. I've future. of confirm revenue you a of that.

Alan Lowe

grow it we that $XX over time. Yes, approximately we was million. to Today, said expect

I -- that that sell sold as chip a we $XX to think market set us then, actually said, also we'll start product for competitor, lines One be the a CIG, base forward viewed as things. opens to of And a more two are to in from revenue and that become up what chip customer going transceiver chips that competitors. used they not to is, quarter. we've now competitors to we a now that million seeing of growth

grow steadily would expect margin margin above chip time a than corporate So, over the it and you is we on basis average. books expect revenue gross that as chip to average the

Rod Hall

comment other inventory be just nice what your there. or of normal what's like guys see, that given kind wanted that of sort on inventory own is like know Alan. with then in Thanks, Okay. is -- of the could do other to China, and think inventory? what's risk you on you the spread mostly it looks would In exposure is that of ROADMs And in components And situation? I then it words, to there what could going trade

Alan Lowe

going happening. pressure pumps; with amount well, few put by and ROADMs tell in to given was the happen a told spread I Yes, of advanced in don't ago. you that know our I'll X/XX on most there's customers today. was And that I are what's as I me China of several situation. weeks up the for well build deployed deployments by that utilizing that that And throughout greenfield end end say inventory our are as anecdotally not was a trade and particular ROADMs I'd by that deployments our are about China being

So, just last quarters. products are that those over we're the new ramping of couple

a up there. inventory not there's of big So, build

most We are the lot lot advanced our up also a build products. belt transmission And of inventory again, shipping acquisition in under see our I now there don't products. with of a

don't a demand, customers so, in we constrained in And of we that I our China. build big ability to been provide is -- that think been up I given believe have don't we the our to there have unconstrained inventory meet

Operator

from question Henderson Your comes of Alex next Needham.

Your line is open.

Alex Henderson

million business? Thank seeing having couple down Should up temporary little do then the some back flushing you on the inventory around down inventory, be in is they we out next quarter-to-quarter, a I orders hand quarters we flat to at them and midpoint growing quarter? first despite How despite modestly the ask about down. $XX puts a to the a Or being million, of lasers run Just some of XX% Is inventory is to as XX% very million. that? XX% and much. the around function $XX in decline to rate. the bring bit $XX wobble with then about wanted ending sequential the new think and off that it industrial of more this

Alan Lowe

fiber past and chain I'd we've supply leading the say catching had that as we've earnings customer trouble the with lasers. said the at demand in for calls, our up filling

and shipping which been line, their we one-week cycle they've fill been not they production shipping production more then a have out So is up as time.

and our a fiber ship production. not several of to inventory long is of go their they until boat, and had up and have laser they on to into Once So catch there been put cycle receive able so engine, production that out March. weeks a we line

to we shipping convert And to ship their COX, we will fiber which so, shipping because what from And to been weren't in they're lasers they now more past, we're able meet into they've demands. do more as in more out. their of reluctant the tools

in But to to laser. of of continue So convert I'd in a from say from need, more they confidence their our what our now to that more as inventory more ability they and it's have and lasers produce they'll fiber an equilibrium out tools away COX standpoint.

the in I we think maintain seeing at should a seeing that the as global start stable of of assuming start pickup happens. we a conditions conversion level, should a couple economic a quarters world pickup

Alex Henderson

a If the pumps, is pumps, Thailand I follow-up; other of the little both obviously, as up. moved you coming to have talk you're capacity capacity here and I those constrained additions critical those assume areas? the capacity on timing of ramp piece product that on could in you slugs equation when on on the of in ROADMs of those about Can bit additional lines

Alan Lowe

Sure.

we capacity we China. without may to manufacturing actually be For And Thailand quarter able facility. last just ago, our in remember, in bring several up as incremental quarters production impacting pumps, you added our Thailand started Shenzhen, to

brought so, up. And we that

to not the build and that capacity we same we're quarter trying This we kind in not demand the saw. and run this our bring up the quarter to capacity were to At as time, in will that able to up quantities will down quarter end sizable meet of full we're Thailand of just pumps by ramp Shenzhen in of Production stop the pumps to we the inventory Shenzhen. Thailand this we've doing -- move to of able in we Shenzhen production rate.

we that that totally as capacity run of and XX% are given we be XX% we probably ago, our we added so, we ago to will not Thailand, still up quarters incremental be on in next but couple an in over in And expect the production over our pumps, few it a the peak have year have saw constraints disturb based to bring Thailand that able a rate quarters China. to capacity

As quarter, concerned, far on capacity add we every X/XXs continue the are and twins mostly X/XXs ROADMs as to and the end-by-end. the

where is fundamental moving at new growth cost and the forward. time, that -- were ROADMs But X/X our these push demand on real multiplexers. coming our we And the fixed and more from about and more same constrained into replacing more we low actually more that's so, saw the edges, I talked add-drop

so, are going units to the revenues think the we're we're ASPs complexity the to continue adding and out. least shifting tell, ASP's, And of what foreseeable see I upwards, more growth for from are getting ROADMs the our given at that ROADMs I in future can

through should happening so, that see calendar in QX the well the balance year. we as both And of as

Alex Henderson

this I could If just follow up piece on of it.

you you externally? to to are pumps pumps beyond you are able internally? produce for Is produce this? think of gaining important on of if important want to we amps obviously the any amps, factor pumps to what's are for enough the about so, availability enormously pumps and produce? selling ROADMs ROADMs, are needed a amps sell should So, How And amount that

Alan Lowe

for integrated Yes, pump external are just those blade likes internal blade the enough. both prioritize and shipping -- revenue our modules highly we I pumps. more customers, But mean, our to obviously, wasn't record level it for of we and numbers subsystems super

pump. weren't to still demand so, expect to up to satisfy all for few just but of QX Thailand, we to selling and with we'll up, And demand able over pump that able pumps customers, that ramp be individual continue catch are the next as in quarters we

Operator

of [Operator next question Instructions] from Curtis Your Blayne comes Barclays.

Your line open. is

Unidentified Analyst

think does O'Malley this was all of into on the businesses. here flattish the do drive for little to you're and you and is What that looks guys longer-term divestitures do But more I selling wanting margin color how earnings get for guys, for [ph] Tom margins profile, June like think Curtis with here Curtis. Blayne that Blayne you revenue. the longer seeing Hey, term, about growth? lower what obviously, guiding a

Alan Lowe

Yes.

operating to less guided revenue in XX% XX% our operating So, We a last QX was and margins. mix quarter XX.X%. lower on to margin favorable

I'd call quarter to So, would what say, we weakest of seasonally the margins drive year. our that in I are operating continuing

second we're margin north going the growth say calendar continue expect half of we I'd to favorable. that becomes that really so, business And up as of year. our to as be pick margin of And points we to sensing XX more that mix see the will operating XD in operating

So, the -- out going on several gotten and I only would synergies. of the continue say, $XX to through quarters. the expect out track. we next We're those to to of realize We've XX million continue synergies we that are

Unidentified Analyst

said more million. Android And in guys was then color customer just the you a little quarter; one on $XX

contribution from to I second how much was The first total outside part Android? customers part is then the guess better is of that much did one you guys have multiple the how say million? XX% in was the that And quarter? $XX is,

Alan Lowe

we a as a once line. We mean, year grow business XD a a other product that that trying point to to are our make customers just customers more do we breakout in have Android customers. it out given expect of far that year. of overall that and were significant quite break individual for portion don't is our XX% I sensing that rapidly. We now Android as [inaudible We XX:XX:XX] XX%

So, going we're much to beyond up not detail. that, more break

Operator

from question comes of Chatterjee Your JP next Morgan. Samik

is line open. Your

Samik Chatterjee

reacted can give us competitor capacity earlier Hi, about of ROADM from or on thanks China do ROADMs? situation once the relation I get to of point in to sense tailwinds is your increase get Alan, Alex's there overcapacity you terms is wanted I'm question industry in guess, some capacity. a that addition? you that just as question. primary on I taking the two ROADMs? the what up follow capacity for How we maybe how comfort in years at trying to to not old, one moderate, has

Alan Lowe

port have So, ROADM the very to I to give where they very And high need, ROADMs, and what a now from or underlying transition and ROADMs six want want continue type are technology had CDC that time, our the to vying think landscape. we're that changes from count competitors we they past couple the X/X simpler type what to cycles, there's going push continue five slots confidence have complex same different when the me that for competitive at it. they of on we providing concentrated same customers a and leadership

the I and early stages also, we in think, the I deployment growth architectures. We're seeing very, are port type ROADM across China. as count globe strong said CDC of that very higher on in our

so, still a and to demand. say the say quarters. happen XX% this crystal being for quarter have as And to firm that to constrained revenue for orders I able not I'd have years even quarter what's we the -- we ball ROADM had every see orders but satisfy from now, last don't we're that The that going two five

constrained to that next expect we So, the for or quarter be two.

Samik Chatterjee

got Okay, just I it. Can quickly...

Alan Lowe

asking leadership, I more of are the customers R&D we far we're technology a making we our and our concerned, continuing As think to in have competitors as year are believe sure especially on more invest for. kind into ROADMs. transport we keep that that And lead and architectures the few dollars

Samik Chatterjee

quarter of you that look XX do from upside I follow-up potentially have of here. of the upside kind How out first million targets on do mean, quickly $XX at here fully Got kind some the just the on got like target to in it. $XX months I Oclaro. $XX you of the million think kind you've million? we want we synergy that consolidated that for

Alan Lowe

get we realizing as think synergies not I whether mean, we or we we'll can be more. think updating start the I

million we I We're think the that. we deal exceed announced doing of confident synergies. what very confident $XX when still would we're and of that said we

before, the Italy seeing in employees Niobate the of come from as resulting said last notified right customers of we're to synergies And that fab, our now in And Some calendar inventory satisfy Lithium I that we're we by chunks. our time year, up start synergies end but this that decision. the then a build requirements. by closing that running to hot we'll

And is next once year what be result as -- will we're that another Oracle working of an Oracle synergy -- quarter, early as probably kind chunk a December see the a synergies our then it from a of will of -- in and should of was of ERP pickup So pickup part still of into move well happens, be that. we consolidation beginning that on environment. as from SAP what calendar

So the to a next be there it's not or probably We'll five million -- time, smooth four quarter. over $X a going see it $XX over come quarters. million or

Operator

of Your next John Stifel. comes question Marchetti from

is line Your open.

John Marchetti

you're sort for if little time, what as that's of they've focus rest situation could as on on very I demand hoping maybe some not that spend opportunities, of can minute and lot of they're greenfield China. the that two of there that ROADM putting Alan, A more time. a was of the wondering a geographies other you of outside of technology the bit but some technology an obviously, deployed on given first seeing only North or some you had comment world, much. America Thanks in that for upgrade

Alan Lowe

You mean outside of China?

John Marchetti

Yes.

Alan Lowe

is a or whole networks I that there have end-by-end installed. have ROADM Well, that existing or people lot XX wouldn't that of architectures XX say

greenfields. ROADMs that L a demand L new the infrastructure new and those for are to band. support Japan, L be that of I'd say, we're opportunities whether for And seeing band, band in so, And lot

Europe we ROADM on blades actually L new are doing customers Next-Generation North doing Transport and So with our High architectures band. quite and ROADM and CDC doing engaged Japan architectures, America Blades well, these Super well. C both is is well, around Court is Cowen in And

R&D say global to is full and I'd market. address our new that introduction the quite pipeline So product

new spend anticipation faster, today speed that there's I become and happening of these in XG ROADM rollout. several to faster the market the XG do infrastructure really the are network and think preparation required coming so in for architectures over as next And years.

John Marchetti

then new for laser come and that side can how business. in I maybe in backdrop, think current ask in we customer;what the you're outside maybe the potential to for And seeing broadening how economic the that a on, demand if similar terms terms going sort of maybe there about your of of question the largest particularly of can on impacting customers out forward that base in laser Asia, and

Alan Lowe

for fiber your question lasers. talked general? laser we're we customer fiber talking in laser specific about our when about Is business commercial Yes, largest customer, around or largest

John Marchetti

just of on as growth these trying over I'm business kind back fair. a it's several be to little been yield consistent to more quarters. trajectory both, what think I up see gets bit a that lumpy last

Alan Lowe

Yes. Okay.

One So really dynamics. two I'd consumer there's say micro a and that electronics. is around is in machining the cyclical year within

year second anticipation of demand consumer And tools of first in year. the in installed in the of so, electronic the I'd half now get that say the half

half. in seen a half micro lasers year nanosecond a that ultrafast have our our pulse, typically, first the on we're in so the half, not short-term. of the calendar second than big We've impact and So slow machines, our first expecting pickup better

significantly investing spend in new requirements are ultrafast for we're to R&D lasers. out product -- we get lasers our of front in Although, increasing

cutting lasers. as kinds in that XXXX, new material And expect result calendar pickup should the so for and a processing we materials that business other of ultrafast of glass that use

be have with the They on been other fiber to business lasers what On up we Amada. out up to our caught drum closely over lasers, in But very we fiber now area. we last demand, continue branching we've to very, years, partnered our can as do priority. are see a XX

that models on say you short-term quarters base wouldn't into of say, fiber next broadening I should your we the model end laser. any that but there's customer in calendar, I should see the our of pickup So XXXX, year of couple year-end calendar would into

Operator

comes Marshall next Morgan from Your Stanley. of question Meta

line Your open. is

Meta Marshall

the just kind kind where just of any would have that will year, test Datacom half customers of product you for or how with just just and see with how business. kind context the of wanted directly business, the direct of Chipset I correct kind thanks. are no move need into maybe kind intend thinking to if you're of forward. to about with long kind going the the testing the Great, ramps? hyperscales, question, just you into hyperscalers, to the second would you where the given more that It before DCO product some wanted relationship seem is And you get and were product then, on Thanks. of or engaging think kind second as longer of ramp, on or of plan

Alan Lowe

that very, hyperscalers. still we Well, a being -- are say the a from supplier, with I'd very chip engaged

some fact, customers. of chip are them In our actually

think chipsets I ICs transceivers. right And that intensify their going transceiver to work that's our so, the customers with photonic we're we go providing to as to make make the sure that with

so more actually independent being the the And of viewed to hyperscalers. provider think I technology as the we're

it producing to the source and XXXX. think a dependent And increase with would inside. hyperscalers see say opposed I really count we and then now standpoint, quarter us actually on ramp going that to in I'd decrease I have customers how that DCOs [inaudible FY and customers to qualify shouldn't tens -- there so revenue that that today. From the calendar that in dollars we the fiscal certainly is don't those of second relationship -- our that to is assuming but qualifications first be we're as our sampling think reason why by I go start second we would well, of going side. hate to goes upon viable to And any a DCO should that on Datacom half, a first seeing are desire expect millions of the go well, XX:XX]

Meta Marshall

Got it. Thanks.

Operator

Venkatesh Your of next from comes question UBS. Thejeswi

open. Your line is

Thejeswi Venkatesh

Thank you.

structured you Android sensing time-of-flight how phones on we I is has far see comment should wonder Android this it. then to the Given been much with high might volume call, XD so commentary heard Android And the on sensing XD versus we've revenues positive from so on VCSELs expect light? far if whether you on

Chris Coldren

Yes.

this Chris. is Thejeswi, So

now -- expect I to least at reasonable customer quite but quarter, a getting volumes. volumes, think driving -- a $XX than to that's starting can not you customer million single certainly is more to get

with other customers model. to exit classify, us higher into the believe Android would leading that opportunity more Android year think calendar new as as volume or this a there's we Our I year, are calendar you discussions what of

where year of As becomes multiples their the customers dynamic of the the you opportunity imagine, and I that are that's the calendar on window opportunities secretive something for best calendar a next with market relate time today kind plans. year today product But as this think market. that it's somewhat are in

time-of-flight, reasonable would of got I a time-of-flight. revenue we've say, today terms a In is of lot the mix,

One is world-facing XD Android of sensing or is main choice of are customers for technology on of world-facing and drivers phones in their the focused the time-of-flight today many the world-facing that phones for applications.

mix time-of-flight light healthy structured and pretty So we've got customers. of a

Operator

question George next Your from Jefferies. comes of [ph]

open. Your line is

Unidentified Analyst

much. go ROADM very of the to ROADM back I thanks wanted guys, capacity. to Hi discussion and

five there production bit around on opportunity curious XX% is a I way? ramp capacity here perspective, about more wondering the was ROADM of able in ROADMs, faster mentioned activity any last I from I'm just faster. we you Thanks. but aren't just very a that I'm over Flex-Grid? I you if think it's to seeing why intensive technology wondering the are also And realize any additions process, then a capacity And ramp capacity testing quarters. to ROADM

Alan Lowe

that things. expect moving TrueFlex the over We our shipped quarter say last and of couple our XX% a just so minimum say case over you are a that Yes, of call look that forward. to didn't if TrueFlex. I'd be that flexible we grid the quarters, grew of last we've five And were XX%. say like ROADMs I'd And two XX%; more we ago, gotten XX%. quarters I only back, getting

we $XXX XX% are so capacity so are as but than more now we into significant on getting big And and XX% as fast a million adding $XX is can, numbers, million. we on adding adding

chunks just they existing come capacity. yield two for capacity and come capacity, those One improving so of capacity productivity that out of normally and comes ways. the given overtime, we additions And line. in But when increases in product is add

a up able we're and to so out to to ROADM been revenue in of when additional just so, ROADM that's far. trying $XX million see so non-trivial of haven't million do and keep And capacity. demand is up getting quarter But step you big again, the with $XX

Chris Coldren

months often I think capacity. three point add to to takes that, also useful it out it's six

that's ROADM. going be, the or And be we year and XX:XX] why to it's situation so handicap to months, and do upwards, constraint if far in is online decision what on quarters to challenging based inflect get the going [indiscernible] where capacity have it's and ourselves, past we ago, here that's want too market to capacity a six today of coming half or ahead more it's and little several to on a year, today don't [inaudible the

Alan Lowe

other data approximately is And just point;year-over-year ROADM one XX%. growth

So, job add to the over that's of period. good team a pretty quarter by capacity a fourth that kind

Operator

comes Michael next question Your of MKM Partners. from [ph]

Your line open. is

Unidentified Analyst

walk you'd divestiture hoping us through just was the I thanks. Datacom Great, again.

$XX divestiture don't percentage really the the in -- the you So the steps secondly, could there, then of down you're of the guiding next what quarters divestiture? I numbers but walk because post track the out think I quarter, everybody's $XX but research sell-side from quarter, million beyond in through perspective Datacom for million you terms do for And just that? in your analyst us change think if after

Chris Coldren

morning. expenses going I we into if about analysts, would you couple the probably saw in so our five release fairly sell-side days, and divestiture this say, past the two incorporated press

Alan Lowe

look should on forward, far as quarter, question going million Datacom And $XX as how at your you we did Datacom. in last

is we $XX all million transceivers you had should dish three so say million in that business we time, said chip million million to on of go And divested this XX. million look again, straight $XX guidance $XX a that chip zero the to over Datacom $XX out pretty over to which of should to $XX weeks five April, at sales on Our will quarter million but I'd as Datacom if of $XX that take and go up million revenue, sales three QX, line. $XX in you quarters of to the

Unidentified Analyst

whether out, are short were there lot quarter of you there's of able add your hit to or get constraints? And ROADM ask I'm capacity, a know in because sort capacity it but I expectations ROADM the just straight to follow-up; of that confused the still -- been I million, want because sales discussion $XXX of was then My about my expectations? of

Alan Lowe

Well, to on increases wasn't it million expect just I and three than why just was than that's capacity. by were And that about add whole lot demand say, next $XXX continuing was say could higher and we're a that. it board, to I'd would across the have capacity, on quarters. work continue that. productivity we the We and we over certainly much, grow done the much more high-end product, got constrained that to

Operator

from question Jensen next comes Piper. Your Troy with

Your line is open.

Troy Jensen

another Just divestiture. follow-up on here the

figure guess right. So capture trying chips much out I to going laser guys I'm sales here, how to are you

quarters? to chip? is how that customer you're million $XX create chip revenues, would of If what the the divesting would in Our the million $XX much of business, upcoming laser in the these be, bottom [ph] sales laser indirect question percentage

Alan Lowe

Yes.

to majority that the the just were clear There million out be So on divestitures. and $XX that is phasing of products not just the million, momentum continuing, are to we're $XX legacy products.

gig from the for successful us then expecting we're revenue I them, incremental the very they turn transceiver to way standpoint be something support the a revenue chip very, to So they've and $X those of very, forward. was in moving you divested revenue. CIG is $X won't think that chip that be I'd million quarter the for say business million hitting But business and successful as a that market, could just adding incremental very expect. to XXX chip grow

Troy Jensen

said is annual I $XX to Okay, this couple in said guys was follow-up; know synergies million on that divestiture you of million $XX included that number when achieve. Chris times in a you're And synergy one sales. reached I then perfect. you announced, trying by the the this call, believe [indiscernible]

question guidance is gave about am my -- are June, us for or actually wrong? thinking guess you based the is, that or there I you on million I at synergies of kind guys a So $XX

Chris Coldren

you're that commented think more synergies, $XX we our of achieved prepared transaction CIG obviously closing. through than -- third million remarks, the I the with quarter,

closed With going synergies part some time transaction to costs additional we way fourth transfer there that we to there's is stranded will if will, take the of the quarter, us that quarter. that also the you and are see set costs here set costs. a Now through CIG to remove in obviously, this said, day

and but to not just exits. see also you're synergy going divestiture about the talked line So a product we standpoint from I divestiture, related numbers the think the kind to the of

teathering as QX, the in QX well timeframe. So in [ph] as

Troy Jensen

keep work. up the say I right. All good

Operator

of next comes Craig-Hallum. question from Your Shannon Richard

Your line is open.

Richard Shannon

thanks for look we well. sensing comment competitive of your guys, could as as have kind question leads Hi if as it half Chris, calendar expectations on year. the on a XD for the the second or taking you my questions share. environment into Alan to I of

those year? about any of those as they in wondering are levels if -- changes as to helpful be some you are also. expect having before? expecting into that place [ph] same you the in about ASP leads the comments or minimums, stay past And you're talked had roughly Would the in second that You've share half

Alan Lowe

I'd we still about we very, large say specifically or that can’t talk have share. believe customers. Well, a But close very we either that negotiations with ongoing our

prices our expect therefore We of sensing time, of and points costs continue XD to to second XX this calendar have the up keep at able to same revenue. devices. above that down be above we those continue year. through with half in do to respect to And our reductions, come the average with consumer electronic But margin gross ASP expect and

don't share. why to a So reason of we are bunch see I any lose going

even very, our our higher share listen gave competitor it to very -- we their their sensing think high announcement one make as us confidence competitor I XD there. about revenue, of

Richard Shannon

Okay, that's helpful.

business you with then to could pluggables adding you Oclaro. ACO on X.X to And DCO own year, if year? And sidebar, us sampling is me be help from in terabit wonder line came able obviously, expect in the a your to calendar even for you mentioned this I this expected this or product just be question the modules, whether year? business. to grow be that pluggable in that as Second something dynamics qualifying qualified your understand that’s

Alan Lowe

Absolutely.

I pluggable think revenue. first to question, answer your

look be to they're light up ACOs. deployments existing as wavelengths, ACOs continue ACOs, as you to going If are going network more and buy at pretty networks continue stable to

slots ACOs, we systems and as up think it's look different actually go calendar half different see as a DCOs, second think we cannibalize into. not ramp to I the the at should year I the we because in of

I are pluggable should So the I I to customers be a second think that. doing see we're growth before, module And we as said viable in looking think DCO guys source business. for that for the and

-- start it's seeing On that quarter. revenue and are we called meaningful the X.X fiscal some terabits, in start shipping to our but first going

Operator

with next Your Capital. comes from question Savageaux Northland Tim

line Your is open.

Timothy Savageaux

a commentary calendar half Good sensing. said how million but in XD of $XXX has the quite again. revenue on year about think on your in question, of And I for of Last morning. didn't growth XD to year whether revenue have guess sneak XXXX the expect there growth you to seems your would increase on ramps. to relative glad I me question. of million response Chris, I'm sort the your second that is out And the Questions addition year growth trajectory. hear for XXXX. the of been. range then as you calendar potential that order XXXX terms you second ramp over is, feel look if supply what kind in half I something magnitude calendar to second XD with And to It to up of pretty my you or chain and years, supply capacity this the been also focused I bunched. in and kind plans calendar for question to that down sensing that plus that the expected chain flesh customer? you half, of up tightly previous wonder $XXX and try growth ramp gearing the be I XXXX. could XX% largest case comment the the couple measure and And of that you

Chris Coldren

in will for calendar I first impact in think calendar probably shift, shipment we calendar under to in calendar had XXXX And year the shipping us. that in because therefore, a calendar point half would the even customer out, revenues to overall over XXXX, at XXX, question and or negative time. XXXX of I I start relative continue will, with say, if you growth Yes. say,

able or XXXX, than perfect calendar As into into believe [ph] our grow customers, apply want we -- we year. situations here, of a calendar we go comments to think specifics given up, if don't lead turn growth have inventory up that don't is and calendar at units well. to them the should data even the significantly in level we inventory get but be -- lot of and going I XXXX but customer, in less end to I concentration customer I the any into as have don't therefore, calendar would excess

Operator

question from from Mark comes go Our Kelleher D.A. Please last Davidson. ahead.

Mark Kelleher

go the the we transceiver to back your ROADM commentary two? that. ramp to I to linked following wanted the it and sort heavy should the Will ROADM is And or -- year transceiver be on pretty timing how What's connect to in closely what ramp the How and what's the just transceiver there? ramp hot the ramp? anticipate? timing strongly, a of

Chris Coldren

ROADM sales there's through to I accents clearly if I to transceiver -- you going not a equipment deployments will our would going transmission network network, of those But that that transmission goes wouldn't ROADMs. that those ROADM. the There installing some or structure. say seeing we're where new ramping of through not contributes be putting that level drive some in are ROADMs you're of in mean, scenarios purpose that ROADM lot upgrading ROADM equipment

an there's as you the operators they installing ROADMs whether transmission of have ROADMs about fast would sales, plans don't on going customers well have all hard increasing equipment. to of plans our we're as we us what market in transmission any their of terms that then the I commentary start [ph] think few a think as timing, to half and the ROADMs In customers, first can first we But from to of network look give see the confidence level resolve or [ph]. I in will, quarters and continue be the rules, their if depends it want delay. end of

Mark Kelleher

I'll Okay, there. great. Thanks. leave it

Operator

final call Lowe our remarks. back turn Alan to for question. the closing I'll was That now Mr.

Alan Lowe

putting for events. their our and long-term concludes our thank are regularly talking our Thank business with another updated. section position and our partnership. thank to the on I for discuss their We would like forward again and We Chris. you, want everyone today. our Thank and excellent hard Relations for you. you we This events listed Investor to growth. attending, look business for regularly in Investor website us to to are in few call months. These into want customers also and for Relations an employees thank I work

Operator

conference This concludes call. today's

may You disconnect. now

Lumentum (LITE) 7 May 192019 Q3 Earnings call transcript