LITE - Earnings call transcript Q4 2019

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Operator

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

As a reminder, today’s call is being recorded for replay purposes through August 15, 2019.

I would now like to turn the conference over to Mr. Jim Fanucchi of Darrow Associates. Mr. ahead. go please Fanucchi,

Jim Fanucchi

and earnings Lumentum’s Fanucchi call. Lumentum Relations. Associates, operator, fiscal from quarter year assisting Investor its XXXX This with welcome you, fourth to and Darrow Thank is Jim

from the and and Development. President Officer; Chris the Joining Senior Executive today company’s team, President Alan Chief Financial we Chief Ali, Vice management Wajid Coldren, Lowe, have Officer; Business call of

uncertainties for sizes, which forward-looking financial and expectations expected could This to results materially statements Oclaro. in demand and including performance, including well as product include including releases, cause positions and from products products, the markets statements, of differ new expectations. we our statements call regarding and recent trends our These subject in potential development market that the market will are the regarding participate, acquisition for product our and actual expenses and trends technology, statements projected current purchasing as risks to

SEC, filings in with to you XX-K Securities Commission, encourages Lumentum Quarterly filed law. on to June for filings Then statements beliefs required update forward-looking reasonable including the year with undertakes XX-Q the on to ended the XXXX, fiscal in call ended provided of obligation Lumentum X, Report of and May applicable fiscal the review end. Lumentum’s year year as except risk XX, during March XXXX, company XXXX, based the these Exchange expects the as are for days company’s SEC most which no fiscal and that and recent by file within today, factors the this described Form our on statements, expectations XX the with XXXX, particularly, our the Lumentum’s

discussed be under accordance www.lumentum.com website release between historical and as financials stated, all additional in note, on is prepared to not our XXXX financial non-GAAP. substitute the with are details available unless projections also GAAP includes on non-GAAP non-GAAP results. with press about GAAP. a considered reconciliation at for Please superior and results financials non-GAAP fiscal should full-year a this or quarter and results call otherwise our Investors and fourth its section and measures Lumentum’s

has website on review filings today’s and today’s A our and call recording the to you release earnings slides latest encourages supplementary relating also company website. Lumentum’s Pacific these. by A.M. available will SEC today Time its to of XX:XX be

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

Alan Lowe

everyone. Thank you, good Jim, morning

on would press Kaplan role sad Marty with that Before our in our learned my trusted I the Board recently release yesterday. start Chairman, We a Chairman, business, was in the comments we Marty as his communicated news away. passed send truly but we was behalf that. missed. be of wise He human Lumentum, he family being, and friend, our most will a Kaplan amazing and heartfelt condolences more was On advisor, than much greatly a sympathies. who the

move eventful towards on and made comments at now quarter end-markets. my but year, we the business will our onto I significant off capped financial goals. disabled fourth least, fiscal which progress strategic it long-term during The was

market. business, leading unique commercial record markets. in our of market levels have revenue and we one our us technology in added We In customers positions new to leadership XD to with believe all market During in we telecom and new or highly to the win many past design year, products new products our lasers introduced grow extended new differentiated down enabled sensing. and a

advantage The a Oclaro acquisition mover first transforming has a given industry. us in

in per integrated higher higher indium XXX telecom network customers’ We phosphide this First, speeds. we eventually future, technology ability based second be circuit photonic transmission including to to a fundamental leading the attend will gigabits on our position critical bandwidth technology. believe in to and scale

chip photonic improved is target high that to finally, our synergies initial and to increasing datacom we highly additional re-vectored our million applications. have wireless accelerated capability. business volume market We datacom a million cost based synergy now other expanded significantly achieving more from five model will we profitable $XXX on savings our on model And business the by a more we include differentiated Second, focus a to $XX attained estimated and target, timeline which originally our over next exceeded. annual quarters. our than These be are XG

billion are come $X.X year. year, new in need for perhaps market XX% Over towards trend participants been as up XXXX was our was other that recognize exceeding today. Fiscal deals seen more a we’ve to Several relative a scale. M&A high the announced space consolidation. to further and have industry the prior past There revenue the

turn the time, underscore both believe fiscal and to strategic margin made we’ve accomplishments, these expansion results us XXXX operating goals the customers than revenue full-year lead need expanded to the the they technologies and for proud well and during in I to XXXX best industry growth more beyond. our For and to I’m first margin to progress one position that in fiscal toward first for significant XX%. win. and photonics the continually team

results, provide compliant U.S. more Department XX, list of Huawei. Before an indicated to the and requirements. had we Huawei we on on Commerce in with for our to May details our I’d to On shipping stopped response turning addition entity like their with update to become to to business

products comply to products after We supply the new Subsequently, compliance we these to determined business analysis completed on putting Commerce we ensure the Department place requirements U.S. We to processes of regulations. of requirements. quarter products shipments that certain to detailed ongoing not subject and fully government with late administration were in with intend Huawei in basis. resumed of a export an

these in as fourth Sales actions. Huawei the quarter sequentially a XX% down result were to of

first to projecting to be to revenues. can dynamic the geopolitical the you challenges current we flat situation sales Huawei the the Huawei quarter, of to down as of nature expect sequentially, to Looking future very imagine as

quarter, the nearly customers. XXXX. to Despite disruption X% revenue DCO declined record quarter in to decline from revenue sequentially telecom, in and Now capacity for after achieved by XX% revenue offsetting to the and ROADM at other sales sequentially on manufacturing them fiscal transmission XX% in telecom offset in both ROADM other partially growing. Huawei, Telecom the fourth transport lower coherent performance. the were revenue. we fourth revenue fiscal through details redirected quarter, within due geopolitical late able partially full Fourth the modules revenue Huawei increased quarter to customers We was again, to the the In lost shipments with up products sales up fourth during year growth was XX%. we with quarter ACO quarter. Huawei

be first Telecom Huawei sequentially. we strong. the to flat revenue customer outside of up demand quarter, Looking expect to is will telecom

Challenges obtaining demand different However, materials and supply time our than products long currently lead us, this been limitation. mix a in for is which had for the of from Huawei chain is driving material. supply purchases

business, been Additionally, impacting a business. lumpy has submarine telecom historically is our project-based expected in which temporary dip an

demand out, indicator the further wireless, network expected transport We of for telecom and growth believe multi-year on market Looking should in telecom be a needed center the leading products. we transmission a based year and strength infrastructure on future data over for strong bandwidth strong past have is global XG and the strength we continued optical seen believe the traffic, basis.

benefit with industry’s builds relationships. these or of market to from telecom bandwidth on the transport trends networks. and deep who and regardless transmission are leading global products supplies We well our We capitalize expansion positioned customer

– port in critical ROADM. high including second XXX global rates products to phosphide ZR our generation are MxN next customer those our components, gigabits for DCO Our longer and twin high baud reach including indium customers base. count modules including per and

This Japan-based Turning transceiver exit datacom chip Early in on the market seen announcement XX% we to a up datacom the our drove photonic closed and key business. in quarter, from we divestiture, transaction, to This XG was to milestone record the our including datacom. pivot in focus customers previously business. exclusively the wireless transceiver for in announced Since fourth strategic challenged datacom quarter chip sales levels. datacom fourth sequentially this photonic chips, of sales the engagement new datacom strong have applications.

us new nature not In customer in transceiver due many of is previously would business. competing transceiver competitive the the who to the competitors, cases, leading us purchase from from interest

remaining product and these should As a and fourth the Revenue to million few quarters. the in datacom over lines. margin quarter product decline all we $XX zero telecom are reminder, totaled next from discontinuing low lines transceivers certain

Turning was fall. diodes fourth customers’ sensing, cycles, industrial the revenue to expected quarter – our than started our XX%. industrial up to we to quarter, customers Fourth we sensing sensing. both product and lines, sport the growth lasers. start of which case consumer includes XD ramping This XD larger guidance in for was to product and this deliveries prior In XD

and models be be when to as expect supply sensing a appear unit last higher levels percentage to price inventory to expected the end We more declines year. of customer XD growth incorporated in chain normalized compared to exceed is

volumes our market shipments expect Taking fiscal first into four accelerated share, and up the of the of XXXX. smartphone slightly from and revenue XXXX we XD the half in account, around sensing half first be fiscal quarter expectations global

XD incorporate to media world-facing more reviews on to worldwide, and applications. XD virtual sensing reality sensing customers XD for smartphones augmented including depth continue consumer product sensing, make progress and customers’ photography good has roadmaps enabled We world-facing in broadly initial Favorable for and caused applications.

drive demand driven future we with manufacturers with major by this XXXX. and smartphones market a increase significant capabilities combined should in XXXX Xg customer products on calendar smartphone activity, world-facing new based in in introduce to expect sensing XD customer availability, XXXX. the increased for calendar

positioned well – growth for opportunities. very up this growing are We

our and know they world the around Customers can reliability unrivaled volume and capability. proven count

expect our X.X a our replicate. billion This devices hundreds experience for and shipped shipped quarter. millions advantage competitors is with and valuable end and quality have of the exceed of is cumulative to to first difficult unmatched We reliability devices performance, of by

was nearly Turning the grow as laser XX% to fiscal segment increase quarter, down down In market. fourth levels by us XXXX enabled to to the to as earlier, in highlighted laser This year. record fiber lasers, sales revenue driven expected. quarter-on-quarter commercial laser new relative new growth prior revenue was commercial in a our XXX% products

addressable technologies while is and leveraging grow and to It diversification. our of strategy. a commercial it manufacturing capabilities. Further, of us significant our level us long-term important lasers provides market end-market provides to optical Our set customer core business a into

laser the revenue to we Looking we further the period. fall entered time quarter, first weaker expect as soften seasonally to

to growth. for return in lasers will activity, year. we by because to products good However, we opportunity technologies, based in over we long calendar on quote customer commercial new and in new introductions market have for the unique the investments addition driven of growth our the believe growth believe new market run, requests product

time I’ve how exciting stakeholders. and XXXX very fiscal each we beyond. made toward financial growth goals catalyst in my significant the create the product are power we XXXX, light and remarks, fiscal combined the well lines have of Lumentum, makes a This highlighted Lumentum releasing during we see for for of strategic ourselves future. our major Throughout progress at and have positioned all we brighter our it to a At with

now will I said, turn the that to call With Wajid. over

Wajid Ali

Thank you, everyone. Alan. morning, Good

Before down Communications segment and our jumping run and our compared fiscal was revenue quarter acquisition. was fiscal up I’d for XX%, XXXX, XXXX full-year first for market driven Net billion, fiscal quarter of with results strong by XXXX. to revenue Oclaro products telecom up fiscal into fiscal guidance fourth for $X.XX results. XX% the Optical like our demand the XXXX XXXX

fiber These and GAAP restructuring, charges related X% was compared diluted year, loss synergies. acquisition to of share results was of to and our revenue and X.X% driven other intangibles, include year, sales. actions XX.X%. full the the by segment for GAAP laser operating negative $X.XX. was margin acquisition amortization to net the per the write-downs, strong attain GAAP impact margin was gross up prior GAAP Our laser

million, gross fixed Non-GAAP expanded costs. overall driven full basis XX% year revenue over non-GAAP XX expanded operating higher We our in per leverage margin an non-GAAP and increase $X.XX. the ended XX.X% to cash year more levels quarter. net higher as of year in margin of mix non-GAAP investments increased points share relative XX well $XX XX.X% margin fiscal income increased income and prior by million the net products short-term to points the resulting than to XXXX relative to of full $XXX with of diluted the our basis prior for as manufacturing year,

lower in Now decline actions and X.X% synergies. negative related GAAP quarter to the and due to X% net quarter. share for turning expected fourth the down XX.X%. for was margin to per quarter our and the operating $XXX.X gross million, $X.XX. write-downs, acquisition margin GAAP attain amortization the GAAP was revenue the loss to which the of diluted sequentially lasers. fourth sales again, fourth impact include was net to results of Huawei and GAAP restructuring, other was acquisition intangibles charges was

million for approximately non-GAAP million. Non-GAAP which quarter Fourth operating was $XX.X XX.X%, levels. non-GAAP SG&A million. was XX.X% was $XX.X lower on operating of third revenue was margin XX%. margin was gross expense R&D expense expenses or flat sequentially quarter the totaled revenue. $XX.X

a for $XX.X through is decline was sequential net think I important was to-date a it interest fourth income quarter operating per tax expansion and $X.X income of million. share expense diluted the basis sequential $X.XX quarter the includes fully X% in margin XXX highlight million. revenue. count of to points Non-GAAP a achieved fourth that million helped despite of based net synergies drive net Non-GAAP in expense $X.X million on and here share $XX.X diluted

which million, telecom revenue sequentially down product at within segment Now declined X% sequentially segment was million details. line $XX.X and at by to the our was transceiver lower million communications sequentially. Huawei segment, Communications sales. due XX% X% $XXX.X was turning $XXX.X product Datacom down line revenue to divestiture. Optical driven optical revenue

consumer $XX.X lower at and the lines XX.X%, basis XX% industrial on to increased sequentially in divestiture million due due product margin optical industrial margin revenue revenue and the to XD revenues. gross of industrial lower XX sensing higher segment and at sequentially Communications diode mix. up points consumer higher and datacom was

that achieved forward we decreased we than transaction. through in taken after the revenue levels transaction achieved due transaction. the Oclaro Our of by which put was more $XX.X target million at the $XX when annualized announced strong actions From lower quarter, is have when of we XX% fourth close synergy we million of We we synergies, of gross announced to when revenue. XXX basis Fourth quarter segment execution than close the the these the the earlier laser’s end estimated XX.X%, laser decrease transaction, a the the sequentially. margin points

for front yet than $XXX million target. higher approximately the not our original on in now $XX that estimate done are We We total synergy be will however. synergies million

likely will R&D synergies are market goods as Additional to in synergies primarily to fuel further cost extend and benefit leadership be growth sold our and positions. capabilities reinvested of programs operating expense new

quarters, complete five expect financial be although We the will actions the synergy positive bulk the this additional over impacts to realized next end the of timeline. tail these towards of

additional gross half the margins to margin We the continue to target believe to We the COGS XX% average the to synergies of financial transaction. model range XX% drive announced at the gross target these of upper of time the model.

on we by commercial first guidance as the time This million period we enter slightly XD revenue quarter driven Now, factors the today wind million. to for as The be the and telecom onto includes industrial XX% to projections mentioned our for approximately projection XXXX. of the strong revenue increasing and and are declining our to flat datacom fiscal transceiver quarter of providing range Alan net We up we down the sales. being project in sensing. are to on consumer decreasing for continue earlier, $XXX fiscal non-GAAP approximately lasers today. as seasonally basis first a based are $XXX of assumptions

of We the share be income diluted project $XX per first the incorporate net $X.XX. projections share range quarter to in to of XX.X% be of $X.XX approximate XX.X% an to operating these to million. in count margin range and

session. Q&A Jim? call turn the With that, to start to the back Jim I’ll

Jim Fanucchi

before Q&A to you, follow-up. Thank to to should question-and-answer I question of Operator, everyone begin one-hour call keep get Wajid. the let’s the end session. like ask everyone one start I’ll and to the our help This session. to over the the operator turn us one to timeframe. would

Operator

First Henderson of the Alex comes Needham. line of Instructions] from [Operator question

Alex Henderson

sensing not said slightly of but you first XD XXXX the of half Could that up the first, whether Hey, first clarification, I’m year you would meant fiscal calendar that or please? clarify from you sure XXXX be year. first XXXX, of half a half

Alan Lowe

fiscal talking half were We year. Yes. compared fiscal year half first of first the the to of

Alex Henderson

thought. That’s great. I what

Alan Lowe

but up months, six first months the six fiscal in next the XXXX. be, In expect to to we from slightly

Alex Henderson

Perfect.

any Second to you included or point? relative at the that be the so far and could, government piece have band Huawei in asked XD sensing exclusions, something it might for in top Huawei obviously is is question, the the mind. to some I been stuff if allowed ship that of has

Alan Lowe

Yes.

really to a to regulations. being as respect ship. I are with comply EAR, think, we process sure – I and board the make said, of developed new the we across respect our products subject with to to to with allowed majority not

on EAR. to comment want but products, would are our vast I subject not don’t say I of to So, that specific products the majority

Alex Henderson

the that the will result long you’re well Okay. that maybe that that think that? supply how And us year? product telecom even constraints, something in of production? of of any and year do think shifts a of Can I back is as the question, a just then Thanks. is one ask the into Or shifting timeline you last on give matter simply more if evidenced. any type could you be producing of you half into next and on

Alan Lowe

expect Yes. the but of bit supply the and that sure got progress, this I’m solve to in constraint a I’d And a suppliers coached sure help of that next over is we’ll be and gaining the beginning we’ve months. items being to whole but it quarter making several quarter. focus make the is QX. into to able certainly impacting us. and are it next material this on impacting quarter

Alex Henderson

much. you Thank very Superb.

Alan Lowe

Alex. Thanks,

Operator

Samik comes Chatterjee Your of JPMorgan. Instructions] line of next [Operator from question the

Joe Cardoso

the on Hi, sensing is to guidance. for question Joe this XD Cardoso is first related Samik. my

us provide adoption or whether whether your more sensing this, the seeing Android update that’s in fiscal seem optimism from more well an coming around from largest your camp? of just into you ramping half. that of XD kind guys you’re Can customer terms You first bullish of

Alan Lowe

Yes.

well but said, And been Android. than of of specifically customers, we going to year the but that where – a a we believe fiscal We’re saw that that say say they situation bit the both first product of And that growth new are That are were we’re weren’t a the board, expecting I’d fourth largest design is our we a new about we as half for say that expect ramp we I’d talk I’d quarter. fall. working not year. much think today, result as with across on still that of wins a as good we’ve we customer the in the on products based as in levels ago. better inventory earlier

So that gave us confidence good pretty is shape. that first year fiscal of the half in

Joe Cardoso

Got it. largely range kind long-term upper And you of that that target sort targets, synergies your the being or then the gross that coming your of margin is that coming from are of the clarification seeing? of relative your – gross from to in is – guys is business of mix

Wajid Ali

a It’s here. Wajid little it’s bit both. of Hi, Yes.

through We’re the that synergies period it’s us across quarters. expecting over seeing to that’ll and our of give up favorable the really us $XX continue product five-quarter that tail that range that, product the and flow XX%. we we’re expect million of But the next addition to XX% help mix annualized end to in in confidence in to of lines of number moving

Joe Cardoso

the synergies, guys the targets? a And exactly the synergy seeing on upside are to just clarification you where

Alan Lowe

$XX of originally product why place. that’s think executed get say, still to able more made that fabs I the take some looking across – lower I’d forward, a to along the the talked exiting in fixed that along had quarters think, in kind more period. the done remarks, million my already. we products, that drags go and several advertised. board, as some decisions than we’re Well, rapidly And of well during that telecom I over rapidly going full away rationalization as time next have bunch are we I we’ve margin to of costs about some prepared and

will So, processes, of, ERP how year. we system, how manufacturing we this and our do focused really later be combine I streamline fiscal combination think not it’s do on a which done done is our

another there’s those a it’s us million So, that that give to combination confidence $XX go. of things

Wajid Ali

Yes.

got add up. and to just with defined with with to like Just actions It’s million, $XX had the we we’ve the first I that, mean, bottoms the clearly a timelines same we’ve defined actions around is up bottoms $XX We’ve got that got Alan of next million. and confidence clearly achieving we’re why mentioned earlier, with timelines following, a it. which a lot

Operator

line of the Marchetti from comes John Stifel. question next of Your

John Marchetti

the at to your you comments Thanks back very Should basis short-term mixed certainly of the we of I the the this expected telco looking first ROADM Huawei at move some as about as of from get we’re moderating think growth full-year as on away shift sort just over of year, world maybe much. half least that wanted fiscal here of an well? sales, maybe some a but to mix. in continue to

Alan Lowe

we expectation today given where to is of Well, Huawei regardless continue and I that guide expectations our think our are grow. with our ROADMs,

continued as ROADM introduced we expecting new customer growth we’re first ROADM our the growth design So, base and globally. in quarter products across wins and new

products expectation new count, think has I our edge So, port leading the base. well as for are we especially our adoption brought across MxN which high capacity, customer and very still adding as the

expecting So, good year that for ROADM. we’re another

John Marchetti

that the seeing as comments follow is quite some at or first customers see into fiscal it’s you’re it a what you the new customer in then the submarine, to submarine bit just Just half strong that industry lumpy either least being year. maybe made market been on in upgrades a here behavior this move in vice away change is sign Alan for that a of versa? builds And there? you’re that for you up relatively from to starting around bit. for little to that curious

Alan Lowe

Yes.

couple a I things. combination a think it’s of of

project it’s based. of it is One lumpy, which is

we the own at transition up order our contract facility is recall, and Thailand. manufacturer ramped products We in coming production our to If make in made our up of China. that in submarine you most Thailand to

it We combination down that a result us had is production on I in some a and it’s in a winding part moving say I’d in of submarine fiscal two location think that QX based one really takes of up quarter So, things. location a lumpy. and project new in and to of bring One strong is time.

in there on think the up track inventory probably facility time, with was is bring a up. submarine, say new and quarters. next several the to this And months I over bringing that quarter but So, be is going QX quarter for takes on be to the factors. did going we’re and I’d low taken then that submarine those consumed so some just

Operator

comes your next of of Meta Marshall line Morgan Stanley. the question from

Unidentified Analyst

Eric for revenue the Hi, model Meta. Maybe, capacity, you just see for bit the this on is on in Thanks outside for XXXX? a of of timeline taking our second what of first half there’s product now business, adoption is the more question. could the fiscal lasers that

Alan Lowe

Yes. we customers winding completion and for samples. the down other shipped of are the have development of specific products I mean

in wouldn’t contribute meaningful the the it fiscal half, first I So, expect second year. but revenue half any to expect in the of

Unidentified Analyst

just give maybe the Thanks. a achieve you sense would XX could helpful. sales, on in over to chip that size datacom business And next months? then on us the hope that the That’s you

Alan Lowe

I today, we to quite think it’s and produce more ability wafers are our by more constrained frankly, chips.

is demand. have satisfied to making handle not We and demand that that being investments we’re

reason really be data what’s that. can’t the that do to that with double on outs expect rapidly see we fundamentally hyperscale over any know and centers unit demand we longer-term think and for build going is business. volume in And I able to the in growing don’t I Xg,

Unidentified Analyst

weaver is shipments? of granted Huawei, Thank something that that those if kind to you. that finally for bit start or just outstanding lag a to in timeline be then products is were would you aren’t there filling resuming immediately start And shipping, a on of a products

Wajid Ali

lag we’re unable to to not a inventory. that, if probably a a be do We some a a of Yes. continually. there would building we’re have in bit ship going – today, product only be product

end but So some have to and quarter up times links we there’s therefore respond, do that that and delay. can be typically, manufacturing a we

Operator

question comes from Venkatesh next of UBS. Tejas of the Your line

Tejas Venkatesh

for expect fiscal versus XXXX? do ASP sort Thank VCSELs XXXX you. you What declines of in

Alan Lowe

Yes.

into We’re not that. to going get specifics on

chips a introduced on calendar I will I what be reset, facing have increase we with an answer believe set board calendar calendar our will in content think device will per that meaningful world’s in of will meaningful coming in expect a in in and new is we believe XXXX way ASP the we way. XXXX, XXXX, we with that

remarks I to more than our in was expectations would and higher XXXX would what that ASP be unit our to a that driving say prepared first reduction, think in fiscal device. for but therefore think of XD tried sensing, growth we solid half the growth phone calendar I or in – year handset be into very new go going mobile per is us devices content because in XXXX.

Tejas Venkatesh

And believe ROADMs. follow-up, a I I you. Thank was $XXX as revenue XQ, ROADM to revisit you million in of had wanted What per quarter capacity.

So, it sounds like you’re still adding capacity.

be you. Thank would So, update be would that on just great. an

Wajid Ali

Tejas. Hey, Yes.

think imagine our anticipated to number as we grew ROADM quarter-over-quarter, I going manufacturing We’re digit that as as from we much QX. revenue product but did to not can disclosing triple prior in line, strongly capacity, May. and expect you by redirect grow originally not more we grow we had

Operator

line the comes Troy Piper. Jensen question of next of from Your

Troy Jensen

And thanks. results really nice congrats on now, here. Hey,

Alan Lowe

Troy. Thanks,

Troy Jensen

Acacia-Cisco what on to acacia big just for the and bitters you, to the guys I intention in the and to thoughts Yes. I’d means customer. you Alan, Cisco deal. maybe love ACO on is to want where sure transaction? get even mean, this thoughts longer-term then that clearly DCOs get your a Oclaro be also customer with the I’m for with

Alan Lowe

your to second going the certainly of not on part we’re Well, comment question.

Troy Jensen

a Had chat.

Alan Lowe

perspective solid, customer a Yes. really long to to partner a a us, Cisco a in has a on it’s the but ours. and mean, Acacia strategic time supplier and been I is, customer to us good a our been deal of has deal for customer competitor involved. everyone us. ours of

transport dynamics, think to want Lumentum. of Cisco a and transmission since second to respect the to in that think And we’ve the a activity a seen is future. into I is and source I which one announcement, going ours of are customers going be of from DCOs, with has the continue customer couple both transaction, the increase to

all industry DCOs to for to it’s be a us of and for will growth a and a think dynamic on that for outcome for Cisco to we said, continuing the positive be future. and in ZRs to expect I supplier the that be outcome the a very So, fully catalyst positive because I Acacia. And believe Lumentum,

Troy Jensen

there’s range just declining a but is Okay. looking September specifically And be OpEx, on more in a just bigger be or an question this sequentially, going basis is to it dollar the margins? numbers on I at going already OpEx just absolute understand to gross spike maybe maybe, to here, get synergies.

Wajid Ali

it’s that, see within line. probably minus dollars. talked in in our we’ve in we the range see mix provided. here. couple prepared will the cost sensing. that about to in outside five the really because within Wajid we gross $XX achieved, that the got are gross Hi, synergies a we that, of of upcoming that latter more the plus start of our of we quarter this through, the a already higher, million timeline but obviously on or primarily sold margins, like but part remarks, of fiscal be QX, goods margins flowing addition will quarter million stronger XD be OpEx synergy the Yes. stay said of We’ll you’ll

So, OpEx or the of will the timing investment those stay make levels relatively investment minus plus levels. on flat and based we

Operator

of Sachs. Goldman from comes line of Hall Rod Your next the question

Rod Hall

to about ask demand for Yes. the ROADM I the Hi question. situation. guys. wanted Thanks

that you to I the September said you previously you a know serve quarter, bunch had of in that orders. that expected backlog in of terms So, had

it clarify beyond now assuming the maybe, looks you And will is situation that’s that backlog what be whether being cleared the can demand so the or done and that wondered is I’m I quarter like. September

some Alan, what you ROADM quarter get like beyond. I wanted to demand alluded looks to we December an think just had there, growth and but on the basis clarify I that as into organic

Alan Lowe

Yes.

demand of very base So, all ROADMs customer across strong. for is our

quarter it add And shared the then not that’s satisfying capacity, the modules we’ll changes I’d how is like capacity quarters. we other mix in And MxN the in the interchangeable in that every We or through December the say overall lines. between with case. blades September are quarter. dynamically capacity. goes that not But a is see And our demand product as unique more not the

the it the September as that as well, higher have will that well that expectation to quarter seeing will we quarter comes technology. are wouldn’t for the and count associated And right we that XxXX through. as I the why gives capacity court that’s MxN shift a assuming ROADMs mix ROADM So us when one every have a confidence this grow – grow, newer by with December continual blades

ROADM our to So, to ROADM grow we’re going our capacity in revenue. continue

Rod Hall

assuming just the into beyond, are demand, equal think clarify So, that supply still to least need production in at by chance get demand? the the December Or time of that that, there’s and you be way we to? good ROADM to able thinking you’ve a Alan, should been you will supply short December that reconfigure you

Alan Lowe

the be across working some again, going with our on period to be continue the constrained capacity think, we customers ROADMs, directionless that we the bring continue we will new and to on for big and I believe designs for we of based capacity. and those to high as Well, contentionless time it’s globe our until additional mix be get

get the but So, some it more trying to customers tighten add flexibility, to the longer-term, a to to demand while are see we our capacity the capacity. than forecasting in we’re and continue takes

capacity, any ROADMs. on our of We capacity I’d say, again, anticipate having more today, excess lines on to we’re but mix. don’t we in But are any that have product bringing

of get without out and add productivity to a trying yields, capacity. feverishly having drive existing of drive more we’re the output bunch So, to drive capacity

Rod Hall

then And that on know progresses are Could comment second major those you you we that targeting thinking guys XX%. question XX% was terms the down just were and that of now I had quarter-over-quarter, goal? margins, how on in margin kind toward what lasers on of and gross Okay. trajectory you’re

Alan Lowe

with saw mean, and lower costs I based. get really absorbed the fixed think quarter June are I Yes. some that we the was volume. in volume revenue don’t based drop there

we said, new headwinds. and calendar up. new think, pretty we That fast are as XXXX, to the fiber calendar heavy expect pick and introduce assuming in XX% new products economy it ultra is us I’d margin allows some we higher volume I right, go closer get to will mix And in will lasers, that the XXXX grow the from expect business. lasers could XX% as the the to that margins of really hitting editors lasers we that ours back to say, –

a And so I story. think by tough XXXX growing that pretty our different we said, bought environment, expect we calendar the trend, in as we will lasers business but be a

Wajid Ali

of the It’s the – a in coming year us, past lasers, up average below over that had substantial portion mix it getting up over we’re Even historically margin increased, our now fiber for past the have growth lasers, revenue gross of amplify margins with become lot compressing down. until and which in year lasers margins. a there, that lasers the

that year, I’m higher has the than I is but So, emphasize the it’s trying that a had pretty laser margin think average. brutal to point portion non-fiber a

alluded and we have their gross portion will the mix will to XXXX, margin. laser that non-fiber believe a Alan readout, as So, influence begin calendar on the positive very in

Operator

from comes of Simon question line James. next Your of the Leopold Raymond

Mauricio Munoz

you A is question. give Can us for and XX% customers my contributions Mauricio taking of for the please? housekeeping quarter item. this you Simon. number Thank please quick a present This

Wajid Ali

in release had our XX%, I we’re We think releasing don’t customers. that today. three press

Alan Lowe

have Yes. K that XX% We’ll customers our the this in later detail out month.

Mauricio Munoz

your the to Today’s million highlight released. then wondering achieve Okay. us close And at And guys Huawei to back could wanted by close $XX results to addition to of following June what U.S. I the bid give if to go then portion some at could Huawei Huawei anticipated? do Thank color was your least I that again, question, be $XX the on at than a to of into products million ability you more attributed to May, this you the you. reduce in previously a you guidance NT guidance midpoint. midpoint bid

Wajid Ali

something, think, to was with I approximately what finish. Alan being come million. start, think up Huawei we down $XX when look, we if let you ended I’ll million The down I then amounts $XX re-guided, Well, XX% or

really was up. Huawei And most that in we business upside challenge business, obviously, as very though prepared significant we to able that highlighted to the the we weren’t is happened were industrial And as much redirect some the think telecom driver other just was consumer able late we not customers. of was that so probably this it therefore, as I of The of remarks, our of net-net in all to serve that the were quarter.

impact redirect when was really month there a and to only quarter month So, much get lead a difficult half or the to times with a our manufacturing within about and go.

Chris Coldren

Yes.

I it? that covers think

Mauricio Munoz

And then, yes – sorry. I’m

Wajid Ali

ahead. Go

Mauricio Munoz

floor, prepared kind ship you’re of you’re of what going have I’ll not to or able not the able okay. But products – that I is products of to your to ship assume into outside it fair currently of that to Huawei. this know given at disclosing remarks, telecom… the point minority

Alan Lowe

We question. the lost Mauricio’s. Operator, to next let’sgo

Operator

Your next [Rosenblatt question of the comes Zhang Securities from Jun Inc.]. line

Jun Zhang

my Thanks for question. taking

or So, shorter the do give meet supply? much how Thanks. a – little adds behind the it capacity in ROADM you order how if us demand to mind to the much ROADM color, you more lower bit for capacity, current

Alan Lowe

Yes.

of we I did output more we think ROADM. in than look the doubled fiscal XXXX, what you if at

again, expect add, We continue fiscal year. this but don’t to double to

fiscal they base. but XXXX, plans XXXX off CapEx for our So, of fiscal higher capacity are for lower than were installed our substantially

very MxN we’re and six count online to decisions high And port of are made that most the now, which are invest going ago to bring ROADMs we that So, continue coming months in. to high-end for the ROADMs.

in And million are last I We think grew $XXX over quarter. mentioned, we as ROADMs. Chris

from grow and fully growth blades. quarter. expect in We high-end of grow quarter ROADM expect this most I that the very and to to will ROADMs be the coming December

So, going give I’m number. not it a

installed don’t reason that yet, believe said able be to level shouldn’t get they we ROADMs any I other one think I of see in of we that calendar the why analysts to XXXX. of had capacity $XXX million

hope answers your question. that I So,

Jun Zhang

And more you’re Thanks. next telecom your the to could the also else seeing then few the question, upside in the potential Sure. revenue markets, XG and force Thanks. the in obviously which quarters? what for one sense addition ROADM, in

Alan Lowe

we’re products other seeing growth… What

Jun Zhang

the space. In telecom

Alan Lowe

the in we a our Yes. remarks, – I’d saw prepared we say modules. said in coherent growth as XX%

today, ACOs stages constrained we a of will ACOs So, fiscal early year the the meaningful revenue were up anticipated. grow several than next we We continue we’ve to our ACOs more growth. over than that and of and DCOs, the on constrained very telecom shipments through expecting And demand significantly continued seen we’re DCO as are our expect be part that quarters. pick

Jun Zhang

questions. my Thanks. all Thanks. That’s

Operator

line Northland question Savageaux the of comes Tim from Your next of Capital.

Tim Savageaux

questions, to margins Should detailed A Early to with two that. gross as more around want Good this sense and morning, the my party on A get of you couple to refer I regard everyone. little morning? there. commentary a

organic again, and upper you target follow-up. talked mix about the in a XX% have driven Could to end telecom and by you improvements what go have You whether being that’s on I datacom, XD a over better or kind margins, more of towards the less XX% range. timing of that with

Wajid Ali

Wajid. off jump Chris well. Hi, as Alan started and Yes. then I’ll and it’s can in

of quarter-to-quarter. a product obviously, plays kind mix role So,

we’re in what Alan What of a call. organically our think growth million that margins mix. got content are margin XD and so look trends the our more like? to on sales. product earlier a going quarters So, talked of do timelines couple XX%. And about of about are defined $XX actions annualized We happening talking for to to that we’re talked we having about positive addition datacom sensing XX% target we worth the is which have looking there’s gross in synergies, earlier to expecting that, given clearly mentioned five out chip supporting with on. with We’ve are all

five as But that quarter revenue. our earlier, higher mentioned levels to three on And given. margins probably up lasers things Even so expecting looking we’ve tail happen see those driving the Alan end target of gross going at business, that are the it’s expectations to that’s in really the of forward. we’re

And as well. so us gross perspective help should that organic from margin an

those all of So, combined. it’s Alan? things

Alan Lowe

is to transceivers Yes. to I are I margin over million of in low COGS several mostly no that. the average in $XX quarter products, gross next and have going be datacom add that quarters just going $XX in we go attainment X.X% a synergy telecom to itself mentioned to go products, X% zero. That but the would million to given up. will change. margin But mix help

confident we’re make think pretty that ability our I in happen. So, to

a think it’s all I things. So, combination of

Tim Savageaux

sensing, XD sensing drops on is in assume up really strong that that growth XD kind on growth out see double-digit off being implied obviously. basis and your I to actually fast comment actually And a quarter you on in guide. of how it levers What Great. follow year-on-year solid September sequential very pretty datacom depending

slightly decline of result cycle kind and in have in that an to some guide, that and right kind June get as quarter. that the the of I of But to about a trajectory your so earlier calendar from standpoint, maybe here build borrowing an way? maybe QX of a up substantial calendar to And comes pretty you need overall am thinking

Chris Coldren

start I – I think, time little to at talking we low about we’ve Tim, the a – of the further think, when plenty still manufacture… got absolute December out

Tim Savageaux

Well, you did to guide it.

So…

Chris Coldren

highlighted I quarter what this on direction. heading think we depends the put of we timing the comments in the I smartphone it that is, think being point happens our right think, on as you’re But I in the we Well, the what based do script, market. also, and overall

Tim Savageaux

Great, thanks.

Operator

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

Richard Shannon

sensing environment specs, also here capability here Thanks I Hi my competitors competing there in for? for taking for – XD you’re also in can be maybe it to Lumentum lower there Alan, me. talk guess maybe, competitive what the question for terms for capacity XD out and questions. of you are the in not which and seeing opportunities sensing degree guys. do of ask the about but may and interested coming online may looking if

Alan Lowe

going eventually. market to of say see, But this didn’t the we hard up out to And fiscal going we Richard. the billion – to everything, a hard ship reliability to we’ll is product was And ago, – sensing a remarks, down. phenomenal, years over right a year go that I I’d the figure think of our think our in level it interested it end XD we shipped extremely will – share. of for the week units in said keep And with. are quarter, had quality go prepared that absolutely products. high think, But as two phenomenal. have it’s I X.X level by now thought and going to down in we’ve of that’s competitors and that competitors We’re we I

So, to content in I forward that’s R&D going Especially, per have a go be combination reliability continue scale, look Products and and to XXXX, think the into is us new in of products is front for you out we’re confident. the investment to to having are as going going change why higher calendar pretty technology. to phone up.

I think we’re in going to the continue to stay front. out

that new things our give continuing invest technologies their in to with to customers devices. new We’re capability do

Richard Shannon

Okay. That’s commentary. helpful

on any me terms from ROADMs, inventory here base you growth seeing customer from your build stuff outside ROADMs sort you about of out in question trends worry if non-Huawei there? Second telecom obviously, look and of here telecom you’re here here. here, to of in do seems what Maybe, very strong

Alan Lowe

outside Inventory of Huawei? build

Richard Shannon

Yes. outside of yes. ROADMs,

Alan Lowe

outside of no. I don’t. ROADMs,

well. ACOs see buildup in and see don’t fact, I a and coherent of because able the components, I for challenge our opposite, inventory not as demand will the to, clearly I as quarter down think submarine aside submarine, are and be quarter. set there think was last we well, that anticipation some accepted I of why think we that I manufacturing in probably this because this said, still meet ROADMs we’re there and that shipments –

Richard Shannon

great. Thanks that. Okay, for

Operator

remarks. the to closing That now today. concludes our turn Lowe I Alan for call will back time

Alan Lowe

I in markets our We events regularly the putting for the excellent our into their long-term the discuss are growth. listed the Relations website market our are section These – regularly for and on Relations events. in Investor our updated. Investor and business work hard their and Thank in customers business want thank an us you, to employees to position I also want and operator. thank for partnership.

forward Thank This concludes to thank again, in talking We everyone few our And you. call look for would attending. you another months. we like with for to today.

Operator

this may You at disconnect time.

Lumentum (LITE) 8 Aug 192019 Q4 Earnings call transcript