ACIA - Earnings call transcript Q3 2017 | Acacia Communications, Inc.

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Operator

Greetings and welcome to the Acacia Communications Third Quarter 2017 Financial Results Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Monica Gould, Investor Relations for Acacia. Please go ahead.

Monica Gould

good and Stacy, you, afternoon, everyone. Thank released XX, XXXX Communications results close. for September ended quarter third this the Acacia afternoon market after

Gavin, If live it a release receive at ir.acacia-inc.com. section you our is website did press being call Raj earnings webcast of our Officer; of copy our you me on With a be on available website. Executive the Officer. replay from of obtain Financial Chief the This call Investor and Chief our Shanmugaraj, are will and and John Relations Investor Relations may section not President today's

press forward-looking events. statements refer discussion. a based make today today's that and actual these our information to our could earnings Any obligation from risk Before markets see about more beyond, release I the there to result are the forward-looking over on such, based and, projections in Please uncertainties. are for cause quarter of on expectations Raj, and discussion note market statements our of our that our SEC are assumptions to as factors I'd future statements, fourth prospects other and currently our materially differ the on size include on and turn results statements information no like risks and statements the we customers call it on or references forward-looking for described today's update to we to as and that as share, this products call XXXX new and during which the the certain and undertake filings new to as business we environment specific of of

turn of measures not the that, GAAP performance. We report a the our certain to call to that understanding Reconciliations measures non-GAAP In measures, addition to addition GAAP. Raj. found reporting, And press release. with in can non-GAAP enhance these of to we today's I'd earnings the non-GAAP to GAAP be of measures, do U.S. believe description like these to conform in financial over

Murugesan Shanmugaraj

Good I'll and financial you, call our to on following will an and of then aspects everyone, John business, our for turn outlook. thanks some provide and which with update the provide us I'll more today. Thank over of highlights, we'll Monica. the Gavin, detailed financial afternoon, joining a who performance macro begin review

our execution third with pleased quarter results are the We of in and XXXX.

of non-GAAP in Our from in a on EPS XX% increased while the quarter income XXXX quarter-over-quarter net in quarter XXXX, from guidance $X.XX and third while XX% non-GAAP to upper $X.XX the diluted $XX.X million to increased net end increased diluted to for guidance Revenue was revenue periods. $XX $XXX the in basis XX% million and above same million from of million of second came the non-GAAP our $XX.X range, our income range. non-GAAP EPS

our customers, newer the in Revenue customers our we results quarter, CFP second a a result of increased delayed by as driven for issue. continued and XXXX. which from original third of basis customer up our on of revenue for second group, X XX% quarter-over-quarter XX% outside in accounted define as of the quarter XX% Our revenue from XXXG of were combination of third quarter quarter were in well as our of the and demand Flex recovery that the a products as quality shipments global our

in During quarter XXXX. the the revenue, our XX% represented was more the customers which fourth that one was a of that XX% than quarter, each customer of we hyper-scale of customer X third direct had

quarter. X As in in among was few the X were quarters, last top-tier top revenue contributors third the of the case newer customers our to the

to our announced to the the also third the newer our David directors from of audit group. customer Tier revenue of are quarter, board XX Aldrich X and customers we Additionally, top In contributors addition committee. X of

to Executive him of Chairman has and and David's the addition of Board to addition experience our leadership board, Skyworks an its serving excellent board. Solutions company the global In Chairman. made technology our also is in David on guiding a

shift In XXXX, China. a to Mobile there in year-over-year China market by backbone market significant update starting driven was China me expansion. Let the with growth a the

in However, to XXXX, transition slower provincial buildouts been have anticipated. the than

earlier China expansion, in quarter At timing As that our has may stated time, second the since which order to rates that been some visibility had third did any provincial near-term during that specific we not we have you the quarter recall, into we improved Mobile call earnings backbone of the this seeing were due completed. we indicated year, buildouts. one

planning several we due improvements around in provincial our flow remains and challenging. in been to buildouts, these our not have there any order visibility the are buildouts, While near-term discussions seeing China

Mobile we as the well However, remain tender recent like to Unicom bandwidth be of applications long-term broadband China by further believe the is expected Mobile announced China in Furthermore, timing more XG. trends anticipate buildout. backbone the buildouts with as to deployments unclear. driven believe quarter, provincial the We by continue be to is than this China this growth the enabling anticipated initiative gradual supported although China later saw we strong to tender, is China which these and video we

to that data DCI increase bandwidth there by In with with some center of seasonality the We believe quarter-to-quarter the hyper-scale holiday centers drive dynamics their in this the data add seeing half a some of to market, spending between some and centers. Turning season. to DCI variability along improving inside increase providers data the XXXX inside spending was XXXX, first lot we market bandwidth further will bandwidth are around beyond.

consumption analyst, for be XX% important years. low space for edge are We below focusing for AI, our XXX optical the our Acacia DCI push to this closer are demand where particularly ACXXXX, new is product the at Signal kilometers growing. are we end market. important that solutions, user, to coherent the next optimization interconnects the As the coherent Industry coherent for coherent cloud grow demand and power rate believe projects and high-capacity will in data distances edge market these developments in of X an requirements. in ports operators these applications our like important continues

start example, update growth. and ramp. XXXG selling number product expect we of a addition you DCI roadmap, provide sell message ACXXXX. in which are the that us and deployments the our new had products products today, in these XXXX, seeing X our into I'd In have For that, market, as the X customers starting of the increased This will NEM customers Europe further North has market. told help upcoming With to an at it believe our of they to enable drive we we with us requirements products that America. to XXXX NEM also similar our increase We're in our from that like sell hearing will future market to meet on with and metro

our XXXX. make and second We with CFPX-ACO DCO progress of that contribute continue revenue and collectively in anticipate half good they the will to XX% of products our approximately

these quarter, that ACO half volume continue hyper-scale the through to of will production CFPX-ACO shipments third XXXX we we our anticipate ACO demand to ramping in our the began that to were ramp utilize in to the platforms direct Platforms XXXX. able module second During this volume customer. product and for increase and

CFPX-DCO "unrivaled his reviews Our the in performance during getting quote, ECOC analyst As customers CFPX-DCO the third our CFPX-DCO. we call, for that consumption." in and our over brief quarter in industry. have product our quarter commented One coverage is, power completed we qualification second and favorable mentioned in industry XX is earnings

build sales in growth various improve. we module to and Hyper-scale our XXX customers that product end increase are customers customers have are deployment DCOs our stages while their China, per size, and module success like market Our of as power in market. our the CFP CFPs gig. and anticipate conditions this that with qualification anticipate capacity reducing or will we In further consumption carriers of CFPX-DCO adopted cost on looking and

Our By power we supports for consumption increasing per each, the and gigabits X X ASIC, this modules Silicon X able offer second. a using per terabits requirements. XXX is that wavelength, support coherent second form that capacity second module, these Photonic of we're per factor low-power ACXXXX PIC are competitive well-suited XXXG. solution gigabits reducing in which per by the X.X is By cost than and XXX wavelengths smaller per our using DSP to XX%

in turbo ramp ASIC, These In and applications. for on as DSP our addition, enable features, fourth enhanced which product advanced We the FEC. PIC our and consumption power rate, QAM low customers a this combination testing is qualification several cloud of and believe code and features of cycles. integration include performance, fractional their We patented features a progressing. will Pico networking. Customer ACXXXX that can qualification supports baud variety software-defined our is sales well-suited ACXXXX based cost, of level quarter modulation anticipate of the tunable carrier to conclude of product our begin standalone for also XXXX make the new

during discussed our our consumption designs. low coherent legacy displacing optical are of small call, with our PICs silicon in quarter we components power second As customers' seeing earnings footprint and their some

standalone As we of expand our addressable such, sale the believe will the PICs of market. our size help to

own in build ACXXXX enabled legacy to our time-to-market to levels cycles the we high-performance developing complexity and low-power, our the applications cost like are product in ASIC form These products. and modules rates certain of some early complicated complex our advantages and CFPX-DCO smaller getting are DSP factors provide would Historically, cycle the Later modules cards and more due in optical merchant we've line insight life given into life higher integration, with of product data we've to cycle, as components. more innovative increased custom sold their I modules. drive life our Now of highly product for in like using and products China. customers these

standalone help believe would that observations this integrated addressable the with life this PIC industry like market performance replace chipsets of components our merchant and on PIC modules optical life some trend then although sales selling legacy to to later in making sales and product reason, close challenging by to to our continue will in we will cycle cycle grow For fully ASIC expect China. the meet our size increasingly our We believe requirements. share we early DSP along I and and in of of product modules trends.

designs analysts' this card their line rates, our mix optics into with architectures DSP We are and believe published Moving is to of closely and a higher transitioning and from Acacia's ASIC architectures commentary. and integrated. industry data ACO where that DCO plays consistent to away predominantly indicate are trend customers the new DCO baud strengths

deliver ability both factors, form Our pluggable our DSP us photonics high-performance silicon to low-power high-density board-mounted. range allows and solutions integrated ASIC of to a using and design products in

providers These require to upgrade Another rapidly industry a providers In solutions trend client able a becoming like power their want develop hyper-scale interfaces that hyper-scale that to suppliers with we optics. are portion a router shorter comparable innovative optical higher-capacity cases, switch or want favors into many and is interconnect market. trend Acacia providers to size solutions. be the seeing This of larger cycles. and to are optical DCI directly plug

namely We products With in the factors rapid a DCOs, order or such quarter. as that the Internetworking we we've industry there's in XXXG performance Acacia power-optimized customers by be pluggable coherent call deliver CFPX in higher-capacity to of markets With down competitive and market smaller, outlook is to our product be industry-leading we the for trends, these John products. innovation our Acacia We cost long-term the more our to strategy DCI believe in will they and low-power that, detailed for confident implement of based Forum, that QSFP turn on position require can Optical CFP growth. remain on to believe and same to cycle and expertise the for made focused double-density our being with These demonstrated help recommendations our in driving for continue I'll well-positioned products review more interfaces form the needs coherent serve. opportunity over OSFP. financial and our interfaces fourth market, DCO ZR migration an client

John Gavin

of good afternoon, financial by quarter third our and Raj, and performance XXXX. up of before operating will I will the everyone. provide opening fourth questions. quarter the outlook reviewing Then our call Thanks, for I start to XXXX for the

end revenue Total of revenue guidance guidance of net the and decrease on the was of quarter. in income XXXX the million, from for $XXX.X third year-over-year We are quarter a in upper share a XX.X% our that third our XXXX. of million income the basis report per exceeded third $XXX in quarter net our non-GAAP and to pleased non-GAAP range range our came

of newer to from quarter, in revenue quarter, In XXXX. of customers total XX% had deploying direct that of X third XXXG outside represented we also customers customer of third XX% which the our the the our the than was of the more of total of XX% customers compared product During X to Flex quarter XXXX. a one quarter revenue that in revenue, each was our XX% customer our hyper-scale increased revenue original fourth third

margin, XX.X% expense gross the in third to to third Turning was in our announced in compared margin, XXXX. quarter we XXXX. XX.X% of third and gross that quarter the of the to the XX.X% third the compared margin Non-GAAP quarter which the quarter, gross XXXX the costs compensation excludes impact to stock-based of related quality was GAAP of issue in second in XX.X% quarter

were on related but negatively production and to operations the improved basis margin the Our related the overhead third quarter, our a to lower in by of quarter-over-quarter GAAP quarter non-GAAP XXXX. second costs costs due revenue impacted from semi-fixed and gross

GAAP margin for second from the our quarter non-GAAP In margin due costs was prior quality related the third the anticipated above in slightly addition, to estimates. million gross our our reserve reduction a gross issue %X.X in quarter to

revenue, the product expenses our operations quarter of costs gross the million, reminder, XX.X% revenue margin impact stock-based or quarter were million in XXXX new associated and and of $XX.X the scale compared revenue, relative third well of third can the XXXX. new mix, the of changes to fluctuate operating which to in yields of expenses, of compared of million, operating associated XX% of pricing XXXX, to quarterly expense, a quarter or XX.X% Non-GAAP with GAAP based introduction or revenue, in XXXX. of as XX.X% as $XX.X product revenue, quarter costs production expenses, the exclude of on impact manufacturing As overhead totaled our levels. or $XX.X of the the of in $XX.X products, million, third our ramp-up third compensation

increase. additional revenue, support discussed XXXX the XXXX second GAAP during milestone due or year range was roadmap, XX% we call, to that XX% by primarily GAAP XX% compared our now non-GAAP quarter On in new R-and-D of expenses R-and-D be SG-and-A to expenses increase of quarter during in basis. quarter to million, third our million, or SG-and-A R-and-D payments $XX.X primarily XX.X% related in line million, XXXX costs the third in or services. in quarter. of $XX.X quarter revenue, the expenses a the expenses operating X.X% in totaled development expected our our we third personnel quarter in expenses headcount compared third second quarter during or earnings revenue, in revenue, was first expenses XX.X% or million, operating to As third for We and revenue, quarter quarter or in headcount expenses $XX.X we increase a the XXXX. of revenue, Non-GAAP of as of expenses XX% the for PIC employee primarily to development more professional quarter $X.X ASIC of GAAP stated payments full development to earnings and the the totaled third million, the X.X% XXXX. and compared related of new in with of calls, revenue, to to third the X.X% GAAP of as were of programs. or in on related million, the $XX.X third driven and increase were increase was and SG-and-A non-GAAP The in anticipate quarter of quarter expenses milestone $XX.X of increase XX.X% of X.X% our million, and came XX% third foundry The Non-GAAP to as to to the an of of $X.X or well in year-over-year non-GAAP compared the that year-over-year of ramped timing and XXXX revenue, that million, XXXX. XXXX. $X.X

quarter from and our XXXX. products discussed, $XX.X us roadmap was of XX.X% X.X% the invest that million, of of maintaining XXXX. million, down to many quarter the revenue, third $XX.X in third development pace $XX.X ahead of goal income we in of the was the XXXX, in we revenue, see compared income continue growth with of million, of in revenue, GAAP in revenue, of XXXX operating market. that bring quarter we support of quarter our third As previously or XX.X% organization of the million, Non-GAAP XX.X% number of operating the or or new third the in to R-and-D $X.X of or to strategically and opportunities

quarter for reserve Our from from costs quarter the issue, stock-based efforts will remediation completed profit of gross the third of our sales third anticipate expenses XXXX third third in the the scaling have quality also and benefit of a $X.X excludes in quarter part to filed, to new non-GAAP the $XX.X the as be was million million for this third of was the in of issue, anticipated development million. substantially our operating operating in that anticipate the $X.X related million as in product third in lawsuits the $XX.X costs reduction as from quality to was resulting the and EBITDA compensation million continued compared to to operations. though action reduction in $XX.X in XXXX of from quarter our fourth compared the million do reserve XXXX the of expenses associated The class EBITDA, lower quality income the million in XXXX. a a EBITDA quarter of $X.X driven increases in the issue decrease which, We resulting issue. million benefit defend litigation to been $XX.X quarter expense million in to increased volume in excludes the Adjusted that well related we quarter, our we $X.X respect by support XXXX. to $X.X our the related quality primarily with quarter lower in

as excess effective as was The primarily resulted from our XXXX geographical in of third Our from on share-based the XXXX of decrease XXXX. recognition negative profitability from tax taxable ongoing in positive XX.X% to tax benefits compared the in well a X.X% quarter a a third quarter rate from compensation XXXX. GAAP GAAP change to tax the change in in awards rate of

Our the compared per our net quarter XX.X% XXXX to in quarter favorable third $X.XX and the diluted shares, of to million compares product support non-GAAP the the share $XX.X of for to XX.X% revenue, and of driven effective third of third profit third income partially of compared fully tax per provisions. XXXX positive tax our The operating lower scaling income or or translates share quarter per continued fully the of rate $X.XX million, offset decrease $XX.X on million quarter XX.X share Based diluted tax in XXXX. sales of on X.X% to to profitability lower rate diluted net in volume decrease earnings earnings revenue, $X.XX quarter third was change in and $XX.X the XX.X% the changes share of XX.X our a of our and third a third decrease of third in per XXXX. revenue, gross GAAP quarter XXXX. weighted-average by of of non-GAAP diluted count XXXX primarily development of net of new earnings XX.X% of quarter GAAP in expenses increases revenue, XXXX diluted in in this in or and in share was XXXX of driven a quarter quarter million, to of in was XX.X% the by of of to our diluted of by based negative in geographic income from GAAP effective million, and the was The a from or in earnings was weighted-average share $XX.X shares. a third Non-GAAP non-GAAP XXXX. count compared million, $X.XX the This XXXX. operations GAAP non-GAAP

and ended $XX.X of activities quarter. the of to quarter million marketable with resulted We first securities balance the in during million the $XXX.X XXXX, Now, cash sheet. the of third and turning generated $X.X from months debt. operating third which no of nine equivalents cash We million operating cash, activities from

GAAP All net of this income. cash generation was driven our by

the Now, I like turn of for quarter to outlook to would XXXX. our fourth

fourth As with in $X the $XX million be on between earnings noted based expect $X.XX of $XX share we and to net XX.X to today's the $X.XX revenue per shares income diluted press $XX of XXXX to earnings million in in quarter total million range million be an outstanding. release, anticipated and million non-GAAP of to non-GAAP

in buildouts have delay quality timing multiple unclear, and including the buildouts, interconnects challenges new to headwinds, intact we lower-than-anticipated as few provincial believe of quarter. products throughout of recover. the the remains driving XXXX in challenges the and development We China advanced provincial market. advantage over our overall announced remain in well-positioned that, optical The opportunities technology, our remain in and issue innovative Despite DCI next that that second the creating the the China investments market slowdown customers, we the through conditions of visibility faced quarters given the take fundamentals market we from rates for market the these order in

of to X to better our of needs and Our customers metro, in product continues portfolio serve markets China. the DCI growth expand the

after Raj believe I Stacy? We remarks. with which, summary some strong wrap well that will now balance up will for to the up continue will the back open call growth. turn call Stacy model sheet and to to future our for questions, position us operating

Operator

Instructions]. [Operator

with Our from comes Vijay question Bhagavath first Deutsche Bank.

J. Yun

just Vijay. have X questions. on Yun for Brian is This I

hyper-scale the insight Facebook double Acacia plans Could more at hyper-scale First, then, that customers? increase, ACXXX to can with CapEx trends benefit customers conversations from And in would cloud be specifically types the XXXX. demand with on helpful. your recently Any ACXXXX or the second, give us module? color you noted your into of

Murugesan Shanmugaraj

let take crack So that. me a at

our think I that are -- we more about the we the said DCI in optimistic -- market in the the we script, than in we second inside half as moving in DCI are seeing of slowly the data half the building first connecting lot half. in we the investment center They outside, into data first spent and centers. were the that a see bandwidth

If you as first look we at reach And by you guys, the the know, second dynamics, is is revenue some hyper-scale as directly improving what the seen half revenue in cases we've well as indirectly. bit. the a half up quite over

are with And our they deploying quarter-to-quarter are holiday fluctuations the started we have -- some we ACXXX bullish more season. product seasonality we so do around so said and have, before, seeing we although as

And into so from believe we XXXX of -- is half as we caveat, move second for the well. positioned DCI into well market as us moving XXXX with that

market guys just a as good can't as as, In of this. on the really a a DCI NEMs. the we We both well ACXXXX interest terms for on ACXXX, the of products, that's directly hyper-scale the see from the of lot getting from getting of you and opportunity any particular comment lot category know, pull-through as is customer one

about product can this second we very deployment. so half. we the in samples point, one are about not, specifically talk the excited half, ramps first customer at ACXXXX. the And obviously in any That But

Operator

Dmitry next Blair William comes Our Netis with and question from Company.

Dmitry Netis

question. high-level I of then maybe a have couple and a clarifications

other usual front of of the were kind customers. customers you top-X suspects? three the had With exception ICP, customer the On the

John Gavin

would XX% John. is Yes. they some the customers. Yes, greater be Dmitry, previously of this reported

Dmitry Netis

Okay.

and you China, in in So X oX Europe. that fair? had Is China

John Gavin

that Repeat I'm please. sorry.

Dmitry Netis

European One Tier is then the are the Chinese and X customers. X other

John Gavin

Correct.

Dmitry Netis

all the million much? what CFPX-DCO do see then it the part? Or how if so, great. will half, Does for DCO in this said, of come half that and second actually the revenue And if take you from in had the math if you $XX the QX you guidance some XX% midpoint second according like, to as the million sounds kind Okay, ACO well? ACO, part $XX of of in on And you the of category. implies

Murugesan Shanmugaraj

Yes.

breaking ACO at it. we it can is The ahead earlier has I of ramped a in So component a it no, terms ramp. well. of DCO the take have parts. individual But not good crack a We're as quarter the into and

But ramping in it excited cycle. So is well. That as for in there 'XX. this earlier DCO as are we is product revenue QX about know, is, and is the you some it obviously

Dmitry Netis

Okay.

should contribution? low-single type Or we it Like be revenue expecting? what be that? even mid-single So digits, digits could than higher

John Gavin

Is question, or your the in percentage-- Dmitry, quarter

Dmitry Netis

Well, like it sounds I the to QX, in going come Yes. mean DCO in only is right, part? it

John Gavin

Yes.

As where behind from qualification said, ramping bit further the is was little DCO Dmitry, a a Raj ACO and perspective.

So be it will higher QX. moving up in volumes into

Murugesan Shanmugaraj

There Yes. as get do well. quarter DCO revenue third We there not so as revenue sampling was is on all well. fourth It's sample revenue at back-ended into quarter.

John Gavin

We don't break down the exact percentages by product.

Dmitry Netis

right. though ask. I'll I All

the there's sense gross are? gave. to some QX, Can that for you are how I you here, to it hear component the out the a quarter. the call margins of didn't guess, in haven't the margin margin, guidance math, margins fourth the but OpEx get bottom I out, versus I guess clarification. us shakes margin I you gross another then line And guys give Okay. done where

John Gavin

terms what's in more normal on QX. typical We much for a QX. specifically expect rough quarters, QX going from modules. in not margin non-GAAP But points QX and basis We We're weighting a to been to X that much us, that of it's Dmitry. mix between give to last chip we'll quarter, chips more lower that. Yes, guide idea, don't you QX, a gross on improve just we The resume resume and believe to level and in fourth normalized to basis on margin. back a about up we the guide in did XXX

where we see be. should XXX mix-dependent for at basis But would another that in it us this point to But on in mix. give what terms based So time improvement of point that's there point basis XXX that is QX.

Dmitry Netis

improvement, Got sure. Sequential it. correct, John? to Just make

John Gavin

Yes, correct, yes. Dmitry. That's improvement, sequential

Dmitry Netis

modules last here. on high-level you've and -- that a picked If had may, something -- in up of sort sort I the I I really question. product just there, chipsets not Raj's time of Okay. heard you kind product come thought are and been is want one this modules the this cycle. loud then putting the product cycle and later that clear I've but type the early out comment an

model? architectural for if of migrate take What's and is what maybe this you the at seems the going years just now? forward, what a that and norm own a of say, the module a that well, years standpoint a and mix It or And X way it which their the thought to of so, now line to impact is would the guys to becomes sort -- then from would look modules, addressed. like X the customer DSPs And be time-to-market new from PICs say card. kind let's

Murugesan Shanmugaraj

Yes.

So, I fact. were I that all specifically comment. -- We China not clarify was where in addressing -- to want about the customers, Dmitry, global

was to in that specific China investments. they where customers more can So do

ASIC. have own other trying even As outside it China customers using modules to we after design to completely our of pertains, their have card do who line back gone

within I and hard. to is they mean to because buy the customer China. products I the new very well I continue And I move, they so do it's think I us you address the with that's as is some would even it. -- these this and grow it cases, And are for trying are there was norm, -- as goal as not call to share there, what would as cases, obviously our complicated they

we a And early Pico the factors, so for time. into long stays form as quite smaller get

for So we to as into cases, well. longer. able sell applications, anticipate as line the for will we in do being And cards, some they there be PIC margins migrate certain

plus is working the share the within point the customer. module with leave So And that's goal you we to components be that sales want providing I overall growth will even the towards. are

it's We see, a customer. grow in to share So I shift dramatic not this. don't shift except that the mean, we within that itself any change

Operator

Genovese MKM Our next question comes from Partners. Michael with

Michael Genovese

than that of the from mean $XX something of quality help because it quantify I issue? pushed of just point the First, was revenues million of of like range? clarification. in in the million Can into size $XX less terms XQ us you sort a were XQ to the

John Gavin

see, This last did terms But would will, knew difficult capacity exactly a business that shipped of over on challenges had quarter. turns that's to increase to very by us out revenue is we in It's and you that quarter in had affected how comes because call John. this small get group. quarter might say, have the the business, question the the QX. the of, and of later amount for gauge total that. a have so Welcome much been amount. into however, it's that QX, delivered, We some to Yes, of if we in small the some we

Michael Genovese

components qualification work I that? mean that we we actually impacting that already should and is their see then, gears stages, to in customer up following shift this the of underway? takes XXXX China start Switching on the Okay. purchasing in but could modules discussion later early the timing shift to cycle. When a move is through XXXX, in of that What expect, as patterns? life to

Murugesan Shanmugaraj

that not for and it I kind with so I cards still line mean, product a about what shipping familiar what question hard that going say into product. developing think are earlier, this doing. -- was been that the Yes. fast for customers They're was mean -- X statement a that CFP-DCO, that we've our that will we made is don't I them the was are not years, it's asked, I is example, a of it's a

applications. has So module, And years. the this been CFP X is for specific module, for that shipping

smaller smaller, any the I them. a would and anticipate the years, years shipping mean -- in they but factor X do has few guess of not pluggable be that CFP-DCO the to at at years are the first form know do to don't happening good guess, we they X that this to we plans that's So us. doing been anything for product, have because a point few a for

John Gavin

a model this something long our is we've customers earlier, for From of John. Raj as with Mike, And some select business again, said time. perspective, this that strategic is a done

customers model from doesn't DSPs of will, buying to for how or from that, cases. cycle just later products a parts when really has what perspective, if out, chips do this been. that's vice It's were our So the of applications, life cycle designs mix, they're of from how through we versa just modules in roll of change these it some specialty to explaining some the within tend that's those and our you

Operator

Instructions]. [Operator

comes Tal America. question Bank next Our of from with Liani

Daniel Bartus

on Bartus Dan is This for Tal.

a China, And the do products, So what look for want Chinese more about the that I factor the then product think when what to of provincial have like those you mentioned builds? or guess is, it. those? to I for on ask to does you might products carriers wanted related clarification, in whatever competition too, because expect form what XXXX, you clear, to But builds be

Murugesan Shanmugaraj

Yes.

Dan, So, this Raj. is

me take Let that.

all the well will much that So has is in build backbone in and the been X we anticipate, have the that we the -- are CFPX-DCO used today are CFP in provincial pretty which been X X -- the as used the buildout. ACXXX used we shipping, ACXXX, as actually, has that and products be the CFP-DCO, believe products the what the products

CFP a with, come on We high-performance based low-power, we is that our also high-performance have XX-nanometer latest have out ASIC. which

So that additional benefits as well. performance provides

So continue we play products provincial the anticipate X to buildout. all well to in

Operator

question Paul next with from Silverstein comes Company. and Cowen Our

Paul Silverstein

and indulge hope apologize to earlier. on the you on you'll was others because going and I'm I the call me to another call

with to doing of public the where where technology, you how we using you, their one and stands, but update MXXX So look changed? competitive cards folks all? you're DSP and much at of related landscape and apologize competitive from making your could Raj ball It's is on And the look the claiming question, if couple went the in and us basis But, questions. roadmap issue. is think if issue you can you grid at at and do looking parts, view we landscape like-for-like update either who noise and the it's really new respect Inphi, if ASIC how a themselves, on of you at the take the is I time age-old repetitive. John, array shifting if your lot And on at if to us performance you versus which I back can your that line about a to work integration related it's will things, better a change

Murugesan Shanmugaraj

let Paul, Yes, take me that question.

specific view, landscape discuss other commentary. companies' a So the hasn't lot. obviously our really we But changed whole can't in

I one anybody one power. it think can XX-nanometer factor said, -- these is still you also our And out the a support get. product, is smallest for there that we the as we it CFPX-DCO, which build -- which can is quite example, that the the designs high-performance form because the hard are only is smaller

well into they there, And at like sector that especially that markets will competition, if so are be high-performance we And the and this into very then well believe we China selling markets while. product the well, be as for a CFP have well-positioned. markets, where adopted you selling the and as will of whole these look adopted

with designs more in ASICs, winning and are on with well, designs believe about are high-capacity high-performance distance end ASICs, ACXXXX We that ourselves high-performance And we we this. continuing the talked the Pico-based as earlier. we to

ACXXX Denali links ultra-high And has performance. so been products, for trans-Pacific across our example deployed many requiring the

and major our market. or say position And and it any are look customer at do the I have China think comfortable our at very we not issues in overall we so with if in we

more I we as talk going probably market the for to good competitive go. But both designs, doing as architectures to about is, us, other in pluggable the are it. you're as share actually and well the high-performance there's all into been from move ACO the towards to way more see saying because DCO, a when DCOs We are that's gain position continuing and we've segment people DCOs in opportunities along think segment. And it coming

creating be market. believe strengths, a we what into DCO plays actually would of our more it So

Operator

comes Davidson. Mark question D.A. next Kelleher Our with from

Mark Kelleher

in just wanted to guidance QX. for the on I focus revenue

your a the got there. DCI lot You've market, you've of way; improving got going dynamics some things

shipping. doing midpoint down Yet, new well. is of the got products You've the sequentially. The about ACXXX XX% is guidance

incremental great. where China break And has just trying down trying it as to out could Is Is DCI percent that most. for understand more? you that be I'm just it just a So a you're slowed seeing understand as to if follow-up, I'm China would of one revenue has weakness quarter? guidance. slowed the

John Gavin

is This John. Mark. Hey,

of look from So in is the guide it, majority really from where terms QX, of we the at China. in it's if QX it you are

not prepared process. provincial had much-anticipated Raj on visibility the said buildout remarks, seeing yet his we're As the from

the were we orders is now that We process stated on but that happen, QX in backbone through. also Those that of the call had coming extension QX complete. saw some did

side we driving And up of the side QX But, revenue saw, go today especially gave. half business. from the bit that what's as our some so in business the 'XX little of China is visibility quarter-to-quarter really a guide Raj earlier, to half had DCI first of seasonality direct There's for mentioned second of our half-over-half. of hyper-scale the meaningfully

then overall still the was think a aspect to of the for driving in percent your from revenue. be QX. So good I QX China but of to a for that the in little guide is down And account question, going bit terms other our it's market us, last what's part of

QX. there customer lead QX in was in Our XX%

Operator

and Fahad comes Our with Najam from Cowen Company. next question

Fahad Najam

your in half take DCO just customer, second about for CFPX-ACO I wanted I 'XX. North your million customer, and already hyper-scale that's that you're your guidance CFPX-ACO and $XX doing If approximate comment revenue your to the revisit suspect that's revenue CFPX-ACO. and I about from America a

$XX guidance, taking is little DCO? mix. the us minimis understand saying from help the Just million, would it Or DCO? combined if, better revenue $X on are that a approximately of CFPX-ACO So de be the $X-or-so or bit midpoint from DCO your you million, maybe and be million, would

John Gavin

about earlier is John. We this This talked bit a in had Fahad. the call. little Yes,

ACO, that DCO mentioned from the was. where already, of In standpoint, qualification bit little the had ahead terms a that a Raj market of through was out

have some we So the would traction business. in now the there in DCO had second of the some But first of activity part from half, ramping the product. seeing occur we're the QX on side ACO

both now combination. a up the going what We're to it the product it's moving to So down are, ramp are curves. breakdowns suffice specifically products in not and production break say but by that

Operator

with Morgan Marshall from Stanley. is question Meta Our next

Meta Marshall

it to down like kind customer. over into going from this looks the And And dig in understood the just around a kind at numbers be XX% second-largest be wanted a to XX least that doing of rate, -- I bit kind your looking little at the XX-Q, like they're run as of into if year. market, I it. going customer we're DCI or to was down a of

who such explaining use? vendors decline, of Or they drop end customers get off for is stiff that customers that So kind in customer. that they're context going helpful you're kind It of kind they caused a be with what direct a diversifying to now? that that of diversifying use? primarily Is just just would

Murugesan Shanmugaraj

not it Meta. our get on details because had We're of customers' going business they into their Yes, to call.

quarter-over-quarter You're multiple are they right, pretty engaged design. in on us that year-over-year, with for down of much generations basis significantly They us. are product

the that they they they in bigger it's lost don't share major did but they are And they XXXX. believe ICP to that solutions. alternate ICP. In had and talk was of about that much a to coherent using have the not a -- They So at share providing same interfaces losing not we XXXX, share. it share had did account, reduce

reduction pretty product, as it products. coming And so do that without have on the much was a ICP. new they well-positioned they a new are some well, of And ICPs in these our

much they earnings a and they've seen on calls. space in they've downturn indicated their ICP what pretty it's so said. their that significant had And It's

Operator

Clark question with Sachs. next comes from Godman Our Doug

Douglas Clark

give it XX%. indication taxes. on spending financial just use happening, I to is do qualifications And margins have of on want that's being questions, draw grow that we XX%. commentary I secondly what fourth down? year quarter sure just and rate little gross of to basically if you understand of next up a or understood if keep up of again of rate your expect kind to kind on being XX% kind up of decline? make any guidance. again OpEx a peak comments OpEx kind being the we the full-year and tax And to flat be on a then, or going is XX% Can this recoup comments R-and-D, should two going back of you If it point bit, implied to I your that to on some

John Gavin

Yes, I'll that. Doug. This John. is take

range So In to, a some in have tax rate. a say, of negative you're That QX of be XX% correct. probably terms XX% effective impact negative in the also will definitely That's in QX. point the that happened carry We'll of what and this forward QX things rate expect still in our at effects we time. QX. see we'll some of in affect in

that. how would bridge that's So you

that development continue expect making in calls; a OpEx, make 'XX, front. on talked previous right. XX%. In to In R-and-D our product the do XX% this to did investments non-GAAP in to from investments about we maintain to to allows us We've It to you're adjustment of very on year-over-year about to that growth are from terms strategic us. talk We 'XX total XX% XX% operating down expense that 'XX. I being say XX% year-over-year year-over-year we would our we to over would there growth some products any maintain higher number done lot recent and it versus have of growth exercises numbers the sizings. in year not in some the pace on 'XX OpEx produce. be that 'XX, and and rate Generally, while guiding in somewhere a do XX% the have innovation done planning perspective, we're

Operator

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

Timothy Savageaux

was either or that the similar well kind to, of I any of And past one operators? have question a in in hand. customer do you expect you quarter, the the expected back that and that part you regard customer on to continue might for to I as front. guided come that have a for did. XX% 'XX the customer quarters to direct that on commentary was they web-scale for CFPX-ACO? the are customers One to offer your said wonder is, if I with list I web-scale part that XX% And think XX% question, customer, your this you that that then QX think you'd previous of

Murugesan Shanmugaraj

Yes.

as had news, before, DCI ramping long-haul their DCI good this the the in is and ACXXX we that indicated customer, think is I both So Tim, market.

took So continue they to while are ramping. little ramp. And the a it

But quarter-to-quarter where to well, especially see some that's do there we as XX% they as guys before, it with well. we comes hyper-scale a customer. the came down as is [indiscernible] these variability So and being when into said seasonality

that lower ACO. so it every because terms ramp said. I and was product. XX%. This it that was they product, And are will -- the ACXXX significantly be before But to won't they -- is in was going to I not And as it say quarter as of I'm the be sit the not think continuing

hyper-scale not to shipping, that I are before, XX% mean scale. ACXXX another -- to so the said reached customer and ACO And a we as we has

predictions that before the through I a about of limited not is platforms particular in that that the and think that XXXX, any making said see the size using or ACO being using customer. we're platform continuing we number we but there is XX% it

Operator

our And Needham Bolton and Company. Quinn last will be with question

Quinn Bolton

Just said the wanted where the the a card I largest CFP-DCOs, on be not DSPs to your looking they'd clarification that just line is be question think silicon based would just looking to Is on correct? clarification. other and you PIC quick and then sure a Raj, make solutions. customer in China use in-source want to you that the

Murugesan Shanmugaraj

are I from will was was CFP. doing they is that -- doing the be mean and, are they they there buy and continuing not CFP-DCO to we that addressing, -- CFPX-DCO? own know, they I course, are what CFP-DCO not is their that of Quinn, question what is And

well -- ACXXX. would will before, other do that line applications. additional as have There's designs. cards. as And They they for well buying as card CFP I an for mean said they DCO-CFPX custom solutions and designs, But be I have so line they CFP-DCO as do have, CFP they use ultimate as more

mix a we're buy modules of to continue will the of and where use see -- to legacy the from ACXXX well. they they to continue be them us, their ACXXXX -- they're some buying going of these anticipate and, products applications mix we platforms come as but as us pluggables, then to we're for course, So -- a from buying see not just other I products going

Operator

Shanmugaraj Raj the like for to closing over remarks. now floor turn would to I

Murugesan Shanmugaraj

work to the for their our up I all employees like quarter. Thanks, by would this world hard wrap Stacy. thanking around

and the leadership employees We providers talented Acacia's creating around Thank responsible hyper-scale we progress to roadmap, among development providers term. innovative Our well-positioned look next market long the are for quarter. updating coherent technology We which you. to our and no our are forward believe in position delivering market is excitement service world. extend leading you

Operator

Thank This your you for participation. concludes today's teleconference.

this You may your disconnect at line time.

Acacia Communications (ACIA) 3 Nov 172017 Q3 Earnings call transcript