LITE - Earnings call transcript Q4 2022

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Operator

Good day, everyone, and welcome to the Lumentum Holdings Fourth Quarter Fiscal Year 2022 Earnings Call. All participants will be in listen-only mode. Please also note, today's event is being recorded for replay purposes. [Operator Instructions] Thank you. At this time, I’d like to turn the conference call over to Kathy Ta, Vice President of Investor Relations. Ms. ahead. go please Ta,

Kathy Ta

Welcome is fiscal President Kathy Relations. operator. earnings of quarter call. This Ta, to you, fourth Lumentum’s XXXX Investor Thank Lumentum’s Vice

our non-GAAP. this expectations regarding trends, as regard, for as by fiscal and our our to the margin me superior with We by our performance, Today’s be ended April discussed including are results macroeconomic XXXX, law. accretion, our X, with acquisitions, our statements Form the products Senior operating be our expectations statements, or the our recent model prepared two SEC, factors on Vice operate market this and quarterly Chief cause statements financials and regarding in to our Chief statements available differ year to note, our this Please results as for during you particularly required future These in quarter unless on additional otherwise and ended financial well President and markets, factors statements undertakes turn today. including opportunity Chief in This expected Investors trends beliefs market Lumentum’s days guidance Joining considered results. SEC details call regarding the on company for I’ll filed X, XXXX Corporate our reasonable expectations are Officer; the include President, to results Alan Development forward-looking on uncertainty and current Lumentum’s synergies, Wajid including financial measures the the opportunity, markets at subject our and as and and forward-looking that, over as from and financial non-GAAP could financial the and of website to are customers, impact we SEC slides, Officer. July in of revenues, Financial financials and applicable those and except Coldren, review a year-end. the and filings uncertainties our actual risk described our fiscal financial filings. under non-GAAP particularly strategies between www.lumentum.com XX in to as includes materially of our Non-GAAP with are the historical Officer; to described most obligation benefits press will update including release fiscal expected for call expectations, substitute our risk With which these results recent that about accordance Alan. risks encourage targets. report based and Ali, the stated, and of technology, in projections accompanying XXXX. within Lumentum as all customers a Chris combined not well continuing the section. and Strategy quarter business COVID-XX And the are XX-K GAAP. today and call fourth The and to for expectations Lumentum GAAP our regarding supplemental to provided call no in in the reconciliation Executive Lowe, are also statements, XX-Q

Alan Lowe

This everyone. an morning, for good and Lumentum. time Kathy, you, Thank is truly exciting

cases our where photonics have use market an of mean set expanding We products.

product NeoPhotonics comprehensive IPG’s more have telecom yesterday’s transmission we product and before. purchase of lines, With announced portfolio ever than a the close of

period. above telecom above over expectations. guidance. top of our coherent end subsea at and We midpoint earnings components revenue achieved double-digit ‘XX, both, the multiyear XX% was our datacom margin the with from a with revenue expect midpoint growth products, tunable fiscal In to ahead, ‘XX as more in we ‘XX EMLs, fourth up business lasers, I look And healthy pump record outlook. be profitability components, of we our fiscal operating than fiscal forecast exceeding and datacom company per revenue quarter and in share Fiscal our

can’t positive, of transaction lasers tunable our this they also into rapidly delighted cavity to fundamental combined datacom double-digit businesses. beyond drivers NeoPhotonics I of wait for the due ‘XX welcome integrated our well-positioned telecom our fiscal our I logic Xrd, product and next. been strong to comes toolkit Yesterday, portfolio. up announced NeoPhotonics with NeoPhotonics, increases appreciate our and gig of transmission and to RF areas growing very the innovation photonics, Company, to silicon as Lumentum’s see the IPG’s partner purchase coherent growth opportunities, lines. in what team engine and our we On and to the am components, completed products and telecom the we which ZR exposure are The XXX to into We has acquisition August as adding circuits. with such customers, our customers ZR+ on expands communication external modules, and talented better feedback from ultra-narrow linewidth for capabilities optical above creates even high-bandwidth and photonics

brings mentioned communication opportunities network. including is the products, coherent obtained transceivers talented to we DSPs, addition within addressing network and the opportunity. complements team cable edge product opportunity market. in As our vertical wireless brings a the NeoPhotonics ICs, there significant the previously, operator this opportunities a ZR the we acquisition offering, This of coherent those XXXG This data including into have tunable developing integration This our center and which transceivers future targeting acquisition in at augments providing and IC in from the acquisition. also capabilities ZR+

and progress and but the materials our our still datacom diligent of meet exceeded customer growth strong making telecom quarter, supply products. The that team million. to chain in sequential a to the work very ability of enabled approximately our demand revenue telecom third-party are supply limiting demand for are fourth supply by XX% ICs increase in We the $XXX

calendar until however, continue, shortages do, XXXX. least quarter. the first We to of We growth expect at sequential expect half first again in the

detail results. fourth full year our provide and quarter let some on Now, me

As revenues fiber in record with transceiver I and our XX% deep telecom access strength and applications was and fiscal mentioned up XXG ‘XX, wireless cable for products quarter-on-quarter. particular datacom achieved revenue earlier, In customers. networking tunable metro

these to We are transition for fab in our XXG support our leading their our In assembly demand indicator our quarter, subsea bandwidth. XX% our sales XX% continued and differentiated new fiscal XXG up products revenue our by sequentially. ‘XX, to in supporting growth to needs manufacturing which MSO transceiver wafer customers which our set lasers, of double and is upcoming revenue and capacity increasing also our rapid operator components records backend for our confidence we terrestrial the ROADM tunable which year-over-year. cable up products adds for a product network pump lines. future In XX% investing increases were in factories, for grew of the year-over-year to and were technology telecom of and wireless Typically, test

ROADM record per high fourth been supply comprised the EML the newer, is demand acquisition. count NeoPhotonics solutions. of XX% and While to for shortages, towards the It with port mix. record revenue demand In expected, customers bolstered newer and This richening including a is new of the products, of revenue future more to achieved manufacturing grew network our quarterly lane phases internal a in doubled In products. IC the leading telecom also being deployments. products, we MxN has and datacom, to ‘XX. in our consistent slowed indicator growth transmission new for robust more ROADMs continues we with We quarter advanced to enabling another XXXG new in early for products annual EML QX, as fiscal by ‘XX, our capacity advanced nearly customer mix the us mix our fiscal shift support over for of better which ROADMs

phase We industry XXXG are next with per X.X applications. lane roadmap per of for also our driving the terabit second EMLs datacom

as production multiple expect engaged leading-edge We and activities chips. in fiscal ‘XX are customers these with we these exit enter for design-in to

Looking up IC demand ahead due revenue to to improvements first sequentially expect datacom and telecom our strong be we to in supply. quarter, and

the supply, demand continues growth gated million million in gap $XX IC from approximately While we to $XXX QX more and be supply the between level will in by we than that shrink believe to QX.

to down XD due QX sensing. was industrial seasonality Turning QX revenue and in to consumer. from normal

on executing LiDAR XD platforms applications are strategy to smartphones. sensing and beyond our expand We into our

As we are pipeline automotive, growing. previously, for for production product ramping in-cabin our cases use we’ve automotive, multi-junction arrays, In discussed is industrial long-range systems. driver VCSEL and and of consumer products monitoring products LiDAR

In of are solutions. automation also the concert and sensing We for for multiple closely are extended reality designs. customers reference we with space, working supplier the developing occupant record building

the previously, on have While we long-term cycle. we we in in coming as execute normal expect XD price sensing, strategy mentioned share normalization smartphone and our reductions

reduced by be fiscal expect fiscal from year’s from quarter. XD sensing in XX% smartphone first revenue rate, ‘XX run XX% to starting We to our approximately last

from As such, quarter modestly consumer industrial and we the only first expect prior up to quarter. revenue be

optimistic business. our new markets still results EV ultrafast set our this, in with with revenue XX% of fiber applications, quarter driven lasers, revenue are as begin metaverse, in first and growth applications the applications in reflect These quarter, and sensing fourth we automotive, was industrial introduction half from to year. revenue We the lasers derived In commercial half battery about and applications, same such and grow $X solid-state new fiscal solar automotive solid was quarter, as business million the Underscoring laser fiscal a recognized new service customers, of fourth expect ramp. In and up this lasers, quarter. industrial of from cell growing to and the from from our approximately by lasers gas the serving we the Approximately into was processing. revenue ‘XX. in last lasers products in other XX% ‘XX, XD the up

about a Looking quarter, grow level. am I future. we laser to to quarter-on-quarter revenue ahead To very record new our expect excited first to summarize, the

cases the to of photonics positioned growing across end well are multiple We markets. and capitalize use increasing on use

I fiscal this, accelerate to fiscal up this our quarter years, guidance, last ongoing industrial half be $XXX million compared of end year. we and on will midpoint and growth accelerating These first laser during and top will for our cloud lasers investments industrial Underscoring the computing critical and which electric and and the this in communications, and outlook. centers, quarter higher-speed multiyear years. these investments markets like grow beyond. deployments ‘XX employees R&D adoption architectures in-cabin we Wajid has to strongly coming About growth for expansion, hard revenue manufacturing. work imaging, Over trends XXXG industrial in to and believe products automotive consumer capitalize ‘XX and on coherent network same XD sources are of vehicle sensing high-performance the of and over organic, to XX% the a coming we accelerating. such data despite of are to over for constraints. include or all LiDAR the the in supply and AI lasers communication for and line thank and With Wajid. DSPs our resilience is datacom technologies, and impact sensing expect our revenue fiscal telecom, quantify world at in are ‘XX, their of the battery us markets, would and To infrastructure I’ll great to it that, turn over that around our put position

Wajid Ali

GAAP XX%. up $X.XX. XX.X%, GAAP fourth million, non-GAAP Thank our was net primarily GAAP you, X.X% was X.X% margin gross up range. the Alan. guidance was which for sequentially operating driven $XXX.X was gross income year-on-year, margin XX.X% which for and by was was the and revenue. quarter quarter up of revenue midpoint higher year-on-year. exceeded revenue quarter and the sequentially was Net per margin Fourth Net fourth diluted share

gross EBITDA quarter non-GAAP which we revenue. $X.X was expenses million our were operating was customer revenue $X.X SG&A R&D quarter, million, income was expense operating to our charges year-on-year million the non-GAAP on sequentially XX.X%, above was charges the non-GAAP per from adjusted due quarter non-GAAP various which from to net Fourth to range. operating margin provided and was $XX IC acquire income the These and Fourth and $XX.X was in was During excluded incremental high of Fourth accumulated and increased $XXX.X was range $XXX end was income income above higher guidance non-GAAP totaled $X.XX, $XXX guidance million of quarter on brokers Fourth extraordinary and expense Other million. demand. non-GAAP of components call. net non-GAAP a expense income million. basis. extraordinary satisfy diluted charges or share last million. a was XX.X% quarter our net million, $XX.X margin.

XX.X was Our share the fourth fully quarter for shares. million count diluted

Our non-GAAP tax rate remains XX.X%.

meet fiscal costs. due Turning gross from revenue non-GAAP to XX operating and year at from ‘XX XX.X% indicated Fiscal up basis fiscal XX.X%, fiscal full income demand, primarily non-GAAP was non-GAAP net XX.X%, X.X% Full ability manufacturing was down was was operating that of to to results. points margin margin $XXX.X mix was due fiscal EBITDA earlier. was fiscal to year $XXX gating and adjusted Fiscal GAAP margin which strong XX%, our to and billion, above Fiscal component our was ‘XX, $X.XX. relative ‘XX shortages net gross GAAP and per $X.XX model. was ‘XX ‘XX flat lower product million year ‘XX ‘XX income business for the Alan million. operating relative GAAP was diluted which margin share as the was

and million shares. net diluted income net income million, per fully ‘XX, share XX.X $XXX.X fiscal Non-GAAP For diluted was was was count $X.XX. non-GAAP share our

generated balance investments the cash cash $X.XX with operations fiscal We $XXX.X to ending from XXXX, billion. million the of in and sheet. Moving year in short-term

the generated During we cash quarter, $XXX.X operations fourth shares and for million. X.X $XXX.X purchased from million in million

X.X years, reflecting purchased of quarter, a shares total of confidence in last of fiscal we the As in million our the the long-term end two Lumentum fourth have growth.

robust gross Fourth quarter primarily business. segment to sequentially margin revenue. due supply to details. sequentially and increased component to at Turning million demand at $XXX.X X% Optical revenue year-on-year, and due communications optical segment improved communications telecom our higher XX.X% in segment increased

XX% segment year-on-year. volumes improved business, lasers this quarter new sequentially was driven and lasers margin revenue XX.X% gross higher for at Fourth flat was Our and a $XX.X fourth up was million quarter record by at utilization.

to our turning fiscal two of would given including guidance, moving our for acquisitions just the closed, on our outlook to color Before number the parts I in add we like business, ‘XX. some

well R&D capabilities. opportunities operating and these target our set plan are products to and we spending acquisitions we broader capture of to synergies, our have our Before model, accelerate new that below with

We also to Therefore, like provide experiencing modeling outlook and challenges. are fiscal continue give a business in expectations previously sensing. share the XD XXXX as to we to the And discussed, financial would aid experience normalization investors in onetime supply Company. some chain we around

to our IC which half, fiscal to growth the year the second that is fiscal This billion $X.X to first XD We expect will largest XX% and the of revenue compared customer half. second below half model being Based on all our range to this, and revenue share we margin ‘XX company our fiscal margin due expect will accelerate of to sensing revenue $X.XX accelerated in have in between of between XX% XX%, Also, performance ‘XX. to XX% we to than company fiscal per to with operating earnings expect improved supply the be allow the that $X and $X. our of billion comprise range an target result investments. acquisitions R&D in in ‘XX first half will larger of

gross and R&D acquisition expect continues work benefits be model on synergies and realize and and return financial to IC XX% target XX% begin our we to down as investments target, we the our our margin to shortages execute to model. However, the from margin accelerated supply, we operating

as Now, our on is assumptions basis of the for on based and our non-GAAP first to a guidance which today. fiscal quarter of ’XX, on is

in be $XXX eight the to approximately NeoPhotonics. the revenue revenue to million. of We million This includes $XXX range expect quarter ‘XX fiscal for first from of net of weeks

indicated and earlier, products. gap customers’ IC for our are Alan the we As between demand closing our supply

to impact and be operating first range per incorporates on in guidance to share margin third-party $XX Based the of net revenue, range in be quarter to of shortages to the to XX% approximately by of $X.XX diluted income we this, of Our driven QX XX% project components. million $X.XX.

rate EPS first non-GAAP is assume a of tax million Our of quarter an guidance non-GAAP on projections share approximate XX.X%. for based the count annual These effective XX.X shares.

stock guidance the future utilizes financing. the or estimate count to intent through share This QX our cash method in shares debt for the our pay non-GAAP of reflects convertible deriving amount of EPS number operations principal in of treasury for Our XX.X shares. million

how the our this to the in is this to foreseeable future non-GAAP will intend Given deriving Company, continue use for method we we EPS. operate

purposes, QX accounting method. EPS our related XXXX-XX follow standard, if-converted and will For ASU GAAP the

in this count million share expect result approximately shares. to We XX a of

to on Before wrapping comments up, the I would some NeoPhotonics offer like acquisition.

are next Given the that complementary to business synergies two of nature goods with organization of than we our our driven generate total, and annual a be $XX expense base. synergies more of within by of chain Cost more comprise expect the than NeoPhotonics, to XX% in aligning rate run serving driven supply expected infrastructure million Operating will integrating similar and manufacturing by customer the by synergies efficiencies. and years.

our we’ll are that, coming back our to the just We integration Q&A Kathy the provide work, to I’ll two updates Kathy? weeks With in into progress quarters. the turn call and on start session.

Kathy Ta

Wajid. you, Thank

ask start should the like many This to session. the as end session, we time. begin let's and Before participants our help would get question-and-answer the everyone before as I us keep question Operator, follow-up. to one Q&A allotted one to to possible of

Operator

Instructions] Our comes Alex of question first [Operator Henderson from Needham.

Alex Henderson

Thanks.

or the clarify two what delta the acquisition could a between start dilution me I terms thought just you outlook yet the with operating in to to numbers? the your that you integration and in XX% presentation text for And a the XX% will do from accretion causes these IPG FYXX think Let you said operating the that? acquisitions off FYXX is of NeoPhotonics margin. that of XX% margin, you Is of that expected clarification.

Wajid Ali

Yes. Alex. Hi. Sure.

a go would have the our faced operating that So, headwinds. the the NeoPhotonics, and overall had acquisition model. with we of to be fact we’re period with Obviously, through about year, would a some headwind on we going transition a of current bit that talked

latest yesterday, with with R&D invest increased to the we technology. as that, well in expenses in that Now, we purchase that addition DSP as announced comes

are for ‘XX. year So, the things two a combined fiscal of those headwind having

operating saw work be -- lines, specifically as ZR that products NeoPhotonics product ramp as Our through NeoPhotonics from margin we up. we and some we model. continues that we the the incremental benefit within we’ll XX% get as to we our And the announced see synergies synergies our target from yesterday, also acquisition see

NeoPhotonics should in acquisition basis So, the one. combined day as some things standalone accretive those The as of well bring leverage on is as well. two incremental earnings provide a

And so, not your I’d The from QX, of accretive it is question. year. headwind them answers full-year still QX Hopefully, basis. our accretion two acquisition during fiscal be even the in we’re and are that in IPG acquisition. seeing some will say a that combined net on accretive a the

Alex Henderson

Yes.

still expecting that had operating a incorrect? text Is were presentation I margin. I’m thought So, in you the that you confused. said the of XX%

Wajid Ali

Yes. model. Yes. be target continues to That our

Alex Henderson

Long term?

Wajid Ali

So, haven’t That’s our target long changed right. we our to model. term model. Yes,

Alex Henderson

and you scaling stuff I’ll cost floor. base of the So going what it? leave it to business? give of the is of then attached structure to to IPG sense or us kind down it revenue just that attached some the kind of Can is What

Alan Lowe

the The Hi revenue thanks really Alex, question. is Yes. point. for at not material this

to move the needle the that there We and real and sales is but -- made progress expect going be the to to much there. able not still technology. team it The force DSP with they’ve our on grow it’s gem

to team the able fact, out to the ramp the to up and first work so, investments those on with to for investments, those get future roadmap DSPs. And also DSP, be in we’re make but going continue

needed for So, DSPs. leading-edge incremental large-scale R&D apart it’s and be there’s as able develop not faint semiconductor of with any development, to kind to the

beyond. to be returns so, And those those ‘XX have well fiscal we’re investments that come positioned in to and believe we able and make

Alex Henderson

see. I

So, that that’s DSPs fairly in large you’re making. a investment

Thanks. Okay.

Alan Lowe

Alex. Thanks, Yes.

Operator

you. Thank

from question comes next Notter Our of Jefferies. George

George Notter

be share layer ask revenue million, wanted I your normalization. the on at If $XX-plus feels on in roll like there? about I NeoPhotonics. quarter. it it talk What share guess, feels It impact what’s would on normalization, guidance, $XX the I into comments to great? going look missing million you’re -- about we in going sales Maybe September as you forward Thanks. expect the

Alan Lowe

of the some It’s It’s very, the for think large share disproportionately we’ve smartphone thanks as year-on-year, be down I that share And year for business, quite Sure. coming to of first the And even for time. starting pre George, we’re a been normalization script, and smartphone we’re revenue the -- in in time. -- between been in six we and expect to quarter. see we had XX% that to ramps. we’ve Lumentum XX% question. said that talking on very the about and

up dramatic, quarter. Whereas this generalization we and for sensing be it XD as so, the starting where quarter in the seeing years, be to expect would was we’re So, in quarter. first first prior smartphones as soon this modestly

George Notter

systematic that in competitors would products Any of the is share is cause a there something great. to normalization? just And business? change your relative be And is root this permanent your more creating sort to that

Alan Lowe

we’ll as as lot we have diversity and gain And I there partner root back, design that years, have customers think, is customer six diligently said, consumer choice. fluctuations to of And think company wants electronics share, be of well cause That on are be that to expect I large-scale the but they’ve of have Well, finally, in of working we after supply. they’ve we any to that for gotten time of share will a see. where that expect supply. moments we diversity And with still that years. more other to been working

is and I were smartphones that’s lower from in to XX% for think why but ‘XX most QX, revenue the specific the fiscal outcome XX% in year. only tried likely to provide very the what we’ve do not for we of that

Operator

of Our Simon James. comes from Leopold Raymond next question

Simon Leopold

First for Wajid. one

debt settle to balance that understanding think, the higher. debt explain your cash. I us, up it’s and affects the your how good gave on detail pretty it sheet? also I what’s on convertible goes you with think Could in treatment going commitment You my

a us if follow-up walk I’ve And then, through could got Just that. the on trend. you telecom

Wajid Ali

Yes.

debt. debt the will convertible sheet less discount start an amortization back to on the of the So, the balance see impact to of

So, in that out call QX. our something certainly fiscal that’s we’ll

to -- ‘XX debt. we important balance more March sheet the we’ll on standpoint from -- convertible of -- in maturity the fiscal is start the that of million a $XXX think is ‘XX have thing I first

And you’ll start by for so, March is can we principal that structure us what that our so of working capital XXXX. seeing pay maturity

have should to the to is where that balance expectation we we know, generate able to similar we that. to cash obviously, comfortably currently that. next be and Now commitment similar be sufficient in on sheet Then, convertible do our our isn’t you until XXXX, cover due debt enough to cash what we have able And as addition plans. also have a

the to accounting So, chosen take we’ve have. the we that that’s treatment the reason way

Simon Leopold

the about from Is And billion $X.X go $X.X so, about debt would right the calculation? to that billion.

Wajid Ali

That’s right. about That’s correct. Yes.

Simon Leopold

Alan, ‘XX And that. -- business? then, on little trends, looking Appreciate you term dig And some which got your you you Thank as in this market back. us see within of for wanted Could the longer nice transmission? ZR that And see color views see outlook, now more not the a snapping great. that ROADM I into to I’m next NeoPhotonics the bit gave on you’ve about fiscal happen quarter. you. what Okay, to then, opportunities, the on sort going just

Alan Lowe

Simon. Thanks, Sure. Yes.

were ROADMs think strongly, constrained most product the probably up were line supply. IC by I and were that

And in should see up, continued ROADMs. as so we frees that growth

up high-speed coherent XXX% components On the side, were -- year-on-year. the components coherent transmission

of lasers. addition We and ultra-narrow as with out and cavity very with expect continue tunable the external NeoPhotonics, linewidth grow lasers high-performance to receivers we modulators, that come now tunable to

for is talked times and wireless in there we’re MSO the to XX this be market and And we tunability transmission the to soon those bandwidth as steeply So market adopting actually capacity as products. is higher about the side. and that script, gig adding double ramping gig really the and XX on really exciting of pretty the the

of market. the put we that I getting suppliers ZR+ up in from full and On the competitive be expect from fairly yesterday, and ZR Again, then quite market, that a we’ll for third-party relying in addition and very the we acquisition time, days that into and we’ve more our make some the we us what in ZR of yesterday, we’ve more more will portfolio us IPG and expectations expect investment that with ZR, the ZR+ that into DSPs think NeoPhotonics And DSPs very, that over ramp early our in the years. announced then, acquisition products for really on been but coming strong DSP to it’s the are position still beyond. have technology as though, portfolio,

Operator

Our next question Barclays. from comes Tom O’Malley of

Tom O’Malley

to just into normalization XD the I wanted of share. sensing dive back

share. share long-term here, of And out have difference prepared to that saying guys XX%, perspective You that been normal. your be even you’re terms from to just And year, remarks ASP also in coming you’ve than of about really no XX% X. mentioned vocal when take degradation a you’re guys you there’s this of below in in where you calling down have been up going historically pretty down this to But before. that guidance kind flattish, X

really get don’t close or even down XX. You that XX to that,

for sockets Just in there or So, you’ve that longer going pretty little that a from a perhaps that perspective, technology would you or originally could just than more new competition on you be that you’re thought number any have would trends get in because is in might you that potentially extreme. you no talk are color thought shipped had originally? just the about weakening any coming there if be year may

Chris Coldren

introduced are or offset reduction smaller thanks Chris. and if year were a And is chips we for new share that you though, Tom, back that lower look the via roll This gains. if and say, I over you back year, largely guess, question. priced, would so, recall. I Hey past the

than higher I we’ve even had So outsized think over XX the past positions. months, our historical

I effect quite is guess, argue significant. normalization I share would that So, the

year-over-year the in mentioned And you with the that that structural like-for-like for are of "mature" for taste with sold, are in we that type There’s really year-over-year to reduction reductions normal rapid prepared of the share goes chips, same or the layer end normal so, normalization on combined It that top for that nothing chips have a of outlook. back kind electronics impacting up price very remarks. if we consumer on range price declines a changes world. our going been

Tom O’Malley

you’re the to that then, way some ICs up. on through anticipate September Thank the And you of quarter, loosening December, You’re chain, right see loosening the into December you carrying do the do you expect Helpful. getting talk like cadence you. year? some through to the of to $XX door moving million Could it getting just out just further quarter? gate, it things you the supply that loosen million of the that that continue up the end that seems coming into calendar are out of but see all $XXX constraint through or

Alan Lowe

Tom, our suppliers and in even and one And job. less really I broker has done has chain half necessity supply our is of team been for done the of the into seen Yes. the a think first have great we great dynamics and with September quarter the relentless these job June buys. spot a quarter

is in the cases. supply the So normal channel getting better from many

we of us, market That them, ability need to have about that struggling into the in are a of in impact said, the less mean constrained. calendar days shortages we XXXX. next relevant why first the our do chips supply for still that’s I but order quarter, produce start better And product December having in expect supply half to becomes to that’s the talked XX we getting as be of we we’ll all the doesn’t the need. still We to and that broker ICs seeing Now, several that chips.

strong in December will that expect better still do quarter, we given but highly than the seeing our the demand products. constrained September quarter be we’re telecom So,

Operator

from comes of Morgan question next Stanley. Marshall Our Meta

Meta Marshall

is the on following of of Thanks. then from products supply, you’re of redesigns up second mostly availability kind coming or of lasers the into on And question seeing that the that of -- kind Great. piece. last needed is available? loosening industrial any just on Maybe kind effect, just from coming question of is

on sense markets, is in impact just to You core growth seeing noted kind of business. wanted there of potential you’re but some a growth Thanks. with new just macro industrial lasers the any get

Alan Lowe

Sure, Meta.

work. been prior have calls, on doing we redesign As talked we some about

helping, not is go. that gotten of but to say we where that that availability supply I’d say but general semiconductors I’d has needed still better, So,

both. I’d surprises supply problem. And on were is that X us longer suppliers really getting big for surprises a in frequent -- it’s problems prior overall heavier impact months very last-minute that we’re were that no So, of the ago say, fewer combination a some The are quarters.

On are new customers. lasers power we well question, lasers new -- get the us as to that both lasers a as industrial lasers new higher from ultrafast lasers, fiber into markets lot developing of allow and fiber

we and processing. customer And is -- solar cell seeing well as so, mentioned EV of applications, new we’re into battery what as solar the diversification processing processing our base

lead through And to growing big so, those are a markets continued us should that there that that XXXX we beyond. have growth believe quickly inroad are good we and fiscal

or macro seeing concerns, we’re macro As environment environment, far as lasers any industrial not production consumption.

So, so good front. so on far, that

Operator

question next Our Susquehanna. comes Christopher from Rolland of

Christopher Rolland

have Wajid. I how that September. gross then, one about And probably August. Maybe the know parts out? guess, the the closed that op talk combined of at on you some into But if for margin, you OpEx beginning can I transaction plays is This margin. of moving

embed still to do the third have we December another into quarter? So, Thanks.

Wajid Ali

Yes, Chris.

moving lines. fourth the into quarter of our the all across improvements first So, product modest we’re seeing from quarter,

mentioned we business. XD uptick Alan earlier, from moving with like Now, QX see QX pretty into big a normally, sensing our

is moving We’re not modest, into of QX. much as quite seeing that. It

model. fiscal profile, target a business moment, for aside running Our pretty put gross you if our we’ve a NeoPhotonics with margin how QX our right to been operating similar it’s in at

NeoPhotonics eight business of an it’s on margins is lower gross significantly that would than in you know, model, on think layer is of we having and target think you weeks Now, because revenue, that revenue impact our once to in the yes, add I another fair one-third say, way the we of quite to overall. closed August Company December, about The as Xrd.

part QX were not revenues fiscal July So guidance. our of

So should fiscal certainly there be for that QX.

the right to So, that way about think it. is

Christopher Rolland

then, if as new oxygen That these then, and And some investing I don’t they can also a And expand great. know opportunities, mentioned talked largest I market sounds about left as Okay, that customer on you on well. talk you whether like about for there. opportunities you you think sensing by think dent make can broader can your guys XD meaningful there. what was for Maybe well. sensing you me. a

Chris Coldren

is Chris. This Great Chris. Hey, questions.

has So, I always the that of majority the up the areas -- driven of over automotive. in that of guess, lead customer Certainly, past terms come years. off our and reality our starting big we’ve opportunities extended several outside two revenue are

So, requires device. capturing laser all uses for a we each -- separate play world-facing into are those extended reality, scene, where eye or tracking, those gesture of the control,

opportunity capture laser long-term year, the dollars think as state opportunities dollar tens space, significant the the think, next our Relations OFC winner higher, in the we in all LiDAR be I’ll briefing. per The applications. I applications. many expected alone, will at automobile higher where this be refer significantly to be content can back even a years. perhaps we that’s auto found can LiDAR several to, And in where that you website, just can number highlight slides of on and in Analyst over solid we the well content be Investor is also the which dollar level we earlier approaches, had these So,

well we a to for briefing we CAGR expecting highlighted this that were three business. over at next that plus so or years X% X% the that As minus --

decline that million replace ball the year. given the imagine, and or chip here smaller last the And to $X is much level lost or coming ultimately expect level. we’re start the but year as laser remember, in go of do expecting quarter modules can some you have at into. chip applications expect we U up revenue in in as type crystal the these highlight, automotive new shaped ramp laser here, seen than So, business no that we this I that a said recovery LiDAR V they in we this

chunk market of So, reasonable a the that’s laser level. share, will, you if at

in LiDAR industrial industrial form oxygen used settings, or not like be of you that R&D we’re that. sensing the and I chemical those that look have in the accelerate imaging anything to answers can heard you opportunities. investing On What believe in is any questions. sensors the a as of sensor, to may in and kinds we’re as participating other applications

Operator

of Samik Our Morgan. JP next comes Chatterjee question from

Samik Chatterjee

did I and long-term I first the model you increase if reiterate one, the can today. model, guess, long-term the for

timing can of that million Just model. long-term you’re get sense wanted you out thinking a long-term way back the over you the model. doesn’t called sort when but the you $XX two that The to us to you’ve all get to in give see years NeoPhotonics terms if the of of synergies that

plus thinking, a back the target sort get Thank how And a it follow-up. you. is to great. model? long-term Any I So, a be of we would to three-year there should help be have

Wajid Ali

Yes.

So Samik, a couple of things.

So question. first thanks all, the of for

year, long-term take the so of operating so last where year, happening we what’s a were at XX% terms in you margins above a ended at gross and up with year In if this versus last look above model, company margins XX%. we level

that -- service customer called as to a core and out of XX% so, year XXXX chip-based largest continue the actually to that within margins was our market. primarily fact XX% at business is that or higher because NeoPhotonics in without expect And which we year, of it expected fiscal way we we model the level, our was a approximate the be operate despite to has this to XX-XX business, an customer all

and because expected lot telecom fixed us providing from and manufacturing over an reason tailwind business with our business that’s to business costs. are leverage of datacom happening is our improve the a so, our operating And fiscal our standpoint in and that’s lasers year XXXX,

in that into one just us that that’s it’s natural growth ‘XX. ‘XX ‘XX. It’s continue us and in thing that to like year fiscal just helping we’re business will fiscal fiscal expecting So, aid

piece So, that I that’s all of appreciate. first the we think it should

two we’ll $XX said against is expect you realize IPG million, margin your that that vertically cost we did. I’m products. work updates of that as some and about real of benefit will BOM the we’ll us and two all now, benefits take years appreciate second single bit sold DSP of is, synergies investments we had purchase we’re we’re don’t type the very our we sure those get investments Alan synergies want The DSP part every piece benefit start starting just own ZR on and about and a just you we that the execute through third we have then, Neo products. a gross to kind own can vertical is that right our cost the integration of and it our to DSP, goods have but ZR+ it to P&L quite those quarter. providing the talked be into shipping integration of having as the we called as the make. I out start to And our of of going integrating Those into

those to XX So, move that I model. the three of things long-term kind to confidence ability really to think give take our of are the so Will us back all months in or it realize it that’s given versus going Yes, customer I be to probably. that to thinking XX% And how XX% that? that’s our is was about think largest it. what what’s customer a before. But not important, we’re

Samik Chatterjee

business on of the the And terms think of your there. you about longer about opportunity what’s talked think should first milestones opportunity How the we the we of integration IPGs, helpful. about integration DSP with in become the that? the acquisition about supplier IPG How vertical or getting a vertical That’s term should thinking out? of DSP follow-up, maybe my the merchant of you and more sort in are sort How expectation in DSPs?

Chris Coldren

I This things would is Chris. of couple for a say that.

or hitting mentioned the point just about even within proliferating ZR, we’ve beyond coherent even network. talking I focus opportunities ZR+ We on edge the as last start supply maybe really integration. use the cases mean, see the First, data first. is vertical at center internal we our on technologies

why very important this long-term that’s we feel investment. a So, is

the those can In we feel to stone at out we something get it as the a getting terms it well, that of chip. the to product There’s lot our I customers also, to beyond as came just too I starting modules into just -- into complements time that but frame, that little designed There’s were into very the or would But, a acquisition yesterday. capabilities that’s in maybe early which largely when developed, to into developing set milestones closed drivers. it’s focused development. a and our but line incorporated milestones, time ‘XX ‘XX, highlight we not or and just point customers. and And have say exciting from this of that modules change, think that IC NeoPhotonics our over on in a ramp maybe

the and and phosphide So, supply now together integrated at drivers up for circuits, cost, the control photonic end it, whole those vertical both, when coherent the indium photonic, integrated sort future we silicon and modules. integration, transmission chain, circuits up of really digital we It’s you end coming look with of ASICs. high-speed

Operator

Sachs. question next Hall Goldman Rod comes of Our from

Unidentified Analyst

Hey, is guys. Rod. for Anmol on This

the what and to are of investments? And think I are in of telecom innings answered. and we thoughts in, broadly questions terms most revisit carrier are ROADM your we Thank think you But, terms wanted I the more cycle? of about pick do where you. in

Alan Lowe

Yes. Good question.

one indicator we’re we quite there’s advanced lasers business, is leading you high ‘XX, another years is growth. have a get we’re the confident there’s we components in a revenue, fiscal As leading the the our network into runway. early expectation rates the of growth are first these phases ROADMs, lot of thing are pump said, coming and to we as and why for and rates And our XXXX. deployments, we’re expecting QX products the needs double-digit our the the MxN being transmission of continued the indicators submarine growth then script, new believe that’s then, said beyond And in to only in not in that of which seeing, really of that in start we telecom network on. go is, deployment order as revenue telecom And that but And in ROADM our XX% come to count port into a ROADMs. that

been better in confidence portfolio it’s is So, I’d and than is and our product say ever very future very, early growth stages, the high. development product

Unidentified Analyst

on And that. follow-up just a

end. So, how lumpy? of a normalization the think mean, demand can from should my would since Thanks. terms I in tweaking preserve scale space margins? the be to That’s you flexible it see operational you you are in

Alan Lowe

on our of it is And seen one that’s buy really they a and very haven’t very, very, customers we they dynamic result from a network or And is Well, architecture think very I different. designed bet lumpiness that Yes. in years. new MxN, dynamic customers the of network when us. for new a their competitive being different. the a of And

So, we that some haven’t time. seen lumpiness for quite

than of the a fiscal I that’s think, semiconductors, of ramp-up, first second and up talked being year free supply we stronger the smooth we’ll we as see half about the half. why

to As half those will early ICs ROADM come business free, do being we the and grow strongly that? in second networks. Chris, else products new you in continue and thrive as these of have the on believe that our deployments a really of stages result to anything of add

Chris Coldren

Yes.

a of the have of as thing cable also our has in directly. networking well this add lot over is MSO, evolved that we think time the cloud wireless operators only customers, year with mix sales I space the I’d customers

leverage And so, has bit network specific those or carriers carriers a diversified equipment more as been well. supplying to to manufacturers our

a said, to, So, I different dynamic. there’s competitive think that Alan adds as

years, will. downward can So, the constantly exposed more than cause very lot there’s if also which XX a in basis about should provide to smoothing network short-term you’re averaging that a business, stability that but end share not competition, to your a your losing worried now on more we’re over operators last or you out lot

Operator

next from Ananda of Loop Our Capital. comes question Baruah

Ananda Baruah

Yes. Thanks, Good morning. guys.

on. going exciting Lastly, stuff

regards sense how point at over revenue I scale in NeoPhotonics a I result time conversations And the a we do hyperscalers and photonics what a Could can you these with with ramping give in, for of quick opportunity? if to lot. you understand believe Just guess, should Thanks one, us of the me. that’s the increased could. an it conversations

Chris Coldren

Yes.

the their in talking we’re about there’s opportunities. that a ways, are completely I but a subscale and you these of proposition many that getting the of NeoPhotonics separately. being much the days, we in mentioned were just more larger the at as think or point, yesterday, the lot would we part the August of And Thanks announced very acquisition value focused we we that’s with very truly the smaller, integrating company. understand them entity, the believe, businesses kind of customers than security about whether worried helping acquisitions of this lot think suppliers. have and a cloud scale And and And the And we both we’re the business I it’s it’s question, well combined help customers on obviously as Xrd, broader solve. of something Ananda. that really or can businesses cloud acquisition operating separate that until supply operators, say, closed for

Ananda Baruah

event, you unreasonable? to that be do think going Chris, And, it’s is ‘XX

Chris Coldren

bit I of does take it think little time. a

how customers benefits time mean, share, be competitors, accelerate to I it So, from design I ‘XX. get and allocate but of accelerate, design wins and one, through where think us given yes, starts will to and the I to there’ll starting really commitments think day it in

Operator

Our next Markets. Tim question comes from Northland Savageaux Capital of

Tim Savageaux

long-term? have moving about organically. Question to comments of years. at for of company year year, looking talking a in about in that there. given like, growth in as It lot it is you’ve this happening a especially in there Made year. an Thanks. kind into I the But, looks reasonable the around you’re Great. wouldn’t XD, over is expectation what’s recovery also multiple the eye Chris’ look terms double-digit you guess, But towards least heading V-shaped at parts potential we further growth long-term a modeling. rates Obviously, gotten got medium- XD, organically, this of combined double-digit with still out, over,

Wajid Ali

Yes.

So, I’ll as and can certainly, jump in then start well. and Alan Chris off

at function year, drop by because some time. long-term were it demand messaging we’re been you a expecting growing the probably we of although step this from our sensing we’ve XD so standpoint, for probably coming model yes, standalone in into X% business, more year, take So, if a to quite we a look than X% had

As our is we in very coming forecast dipping we that much come expected. than customer, realized quickly it saw QX we or revenues from faster

in NeoPhotonics, impacting versus fiscal fiscal telecom to grow without ‘XX over But, and look XX% us. at you business, that the ‘XX. acquisition business So, even our of datacom is if lasers expected a take it’s and our

standalone to better able company. that that will on And be NeoPhotonics, ‘XX sales of do that also certainly, the business as the team, with well. So should allow Chris fiscal a to on mentioned, have standalone tailwinds we’re type as combined into as a basis business to a combined expecting -- we than grow year

So we’re with the we’re we’ve of ‘XX into comfortable growth to going off, in investments the double-digit expecting of relates the rate the fiscal some the certainly XD rest business paying long-term then as business sensing with past provided growth. the and start to a outlook it that at in on that

Operator

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

Richard Shannon

XD about think that, reasonable market I’m non-phone year, your on it. presentation dynamics of the time talked know, with as step to ask context, that And like the three-year great time? phone just it and part about big of at other big it a your or fairly I XD given It with here you customers. that going I’ll the sounds Chris. in and customer three-year that activity getting big within imaging non-phone least period given which there, this specifically down non-phone frame sensing or sensing you’re one to in OFC you some like being the the earlier ask Is question something as a call for don’t is

Chris Coldren

years, four, terms whether And think in those frame, as larger, we given five out, the that you ramp these size years, three certainly, in year kind about But of ultimately, non-smartphone business it’s large certainly, or in market, four talk three of time time the or be to of think I expect opportunities. years as the probably. the year I it’s to applications. given

just very to it’s crosses minus four, year. that absolutely. -- that’s X% why we It’s I because years final in what three plus in think X% can that certainly, or year get to of the sensitive But it’s question probably a over. the that

Operator

final comes from Our the Michael of Genovese Rosenblatt. of day question

Michael Genovese

great. Thanks lot. Okay, a

it’s itself threw in is datacom, included question, you with or First of on there, to and is because But clarify over growing telecom sort quickly? organic XX% that just expecting guide, the growth. just lasers lasers that non-XDS

Alan Lowe

Yes. is XX%. rapidly. very growing it up itself was Lasers Year-over-year,

grow. We expect that to to continue

the grow calendar continue And So, the lasers was, the were revenue fiscal to putting trying we rest of lasers. produce to the normalization, it’s in QX -- a, levels quite is the doing through what humming, telecom, year share well, year. record aside datacom we to business and through of and say expect and

reason the for them including altogether. So, that was

Michael Genovese

can kinds of Do a as should transmission to DSP. ZR+ little strategy? to From definitely, expect hearing on Okay, sounds like you I’m great. DSP internal with have modules And plan it then only more we or bit other here, the think be finally, you an flesh modules you make or well, on DSP out own what limited it then ZR? your would and just focused to ZR,

Alan Lowe

No, think can it ZR I you -- as think being first the being step. of

still to the still But, so for we’re say to to one we business days. we I’d resources it’s And XX the determine the that deal is what need not from hours road one existing trying that that? need the the road spending, ago, map? into or or announced Given map we we’re DSP. add Do shift after do early out DSP

it term. vertical and will product integration in a and position investment think to NeoPhotonics puts products put quite this IPG making especially Lumentum as coherent and for position and solid has, think together, really it us long We’re well, in what and you acquisition the I components I modules. And technology the technology, us then together

Michael Genovese

the ahead. on stuff all have Congratulations you Alan. deals Thanks, and the exciting

Alan Lowe

Great. Thank you, Michael.

Kathy Ta

the that’s we that all think I Charlie, have. questions

the to call over concluding to pass some I’d So, for like Alan remarks. back

Alan Lowe

we you, Thank few you, Kathy, I’d to Charlie. with a and wrap as this up you thoughts leave like thank call.

increased and the strength. ongoing to our third-party demand ICs We have our to access capacity manufacturing have significantly support improved

also offer fourth of very IPG the broad excited product Our customers. and we purchase of business. our products the products across and quarter we portfolio acquisition best-in-class a lines transmission that and about and our to Together, can capabilities from telecom the our datacom first results commercial the technologies. of quarter breadth now and telecom, lasers strength the reflect I’m of and certainly guidance have NeoPhotonics

future. in which website. committed to today on thank deliver to would innovation you I strongly like the talking again attending, forward you we customer to Thank our events, you. needs With investor everyone during posted to for and will capabilities are that, look find manufacturing and with We invest and upcoming on in

Operator

Ladies concludes joining. you for and so today’s Thank gentlemen, call. this much

your now disconnect may lines. You

Lumentum (LITE) 16 Aug 222022 Q4 Earnings call transcript