ACIA - Earnings call transcript Q2 2018 | Acacia Communications, Inc.

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Operator

Greetings and welcome to the Acacia Communications Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now pleasure to introduce your host, Monica Gould, Investor Relations. ahead. go Please

Monica Gould

and for Kevin, this everyone. Communications Acacia after Thank second good quarter results the close. XXXX ended released market you, afternoon, June afternoon XX,

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

I Before new markets third and second timing the our half products, products, and statements there on call discussion, are our I'd the for the Raj, references our and beyond, about customers size and of to it's Statements of ZTE ZTE. and XXXX quarter listing like and regarding and short and to third in other projections expected the long-term and to regarding turn our on market that for today's the note statements during prospects share, and of our our over impact we revenue on the we of no results described ban quarter obligation update particularly the result to could Any DCI business, today's on anticipated statements more from our it guidance the and call markets we assumptions today, size of or demand on China based uncertainties. statements earnings other these to that SEC see risk forward-looking on consolidation make and future for are information goals. forward-looking as and to statements events. our which a of in statements as as information our forward-looking certain differ financial currently based specific and industry press are the as materially regarding and the on our new undertake discussion. refer factors or environment actual Statements on business such filings Please from that impacted release risks and this include expectations cause

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

Murugesan Shanmugaraj

call after for everyone, Good I'll turn Monica. outlook. our thanks the John performance you, and detailed Gavin, who $X.XX end provide of or review the approximately I'll will $XX loss which non-GAAP $X afternoon, total us million over Thank financial business of In our today. million a second share joining more to guidance our the update, and provide range. were in and at basic of XXXX, line with of was of quarter approximately revenue net high guidance range per a

highlights some on quarter. our First, second

we ZTE made results and into we product and XX, XXXX. mix on challenges, ban diversification ZTE effect revenue our negatively the Despite April that good new quarter second by impacted went As anticipated, were related ban progress our product initiatives.

top our revenue quarter, and NEM XX% group. from second China-based customer of this from XX% five a our the revenue, total represented were During including Revenue group. customers our total greater of of customers each contributed our three from newer customer than three newer our group

on from that and revenue dollar are second revenue the absolute a percentage basis. both increased of quarter this We quarter-over-quarter pleased on group an

our our improving demand see to DCI, key markets, for continuing are products and China. We Metro namely in

the We customers. of quarter-over-quarter customer believe revenue guidance, we initiatives. revenue third half are growth a we by are having the first these both in revenue demonstrates XX% diversification midpoint our quarters. We of are our half approximately this with seeing non-ZTE driven opportunities excluding from at growth non-ZTE for revenue second the from of or anticipating Indicative growth opportunities, quarter growth, largely success XXXX ZTE

efforts We and to that through second beyond. the these also the we see half believe benefits of XXXX of will continue

ban believe In growth further improve we opportunities. the may addition, lifting our half ZTE second

also majority more our of Revenue with products DCO is approximately from modules total coming the to revenue pleased CFPX-DCO our are this contribution Sales the our an made We our increased as that total being and of modules. ACO sales continuing by in to our introduced our NEM our systems revenue quarter. revenue second represented CFPX-DCO from newer of are of customers. increase XX%

are samples during shipping continued which by Additionally, multiple the quarter, qualified second ACXXXX being we customers.

update, Before market more discuss I ZTE to like turn general bit to would detail. a I a in

aware, recently you for the in ZTE months. three most of nearly lifted effect was ban are As

We to are assess their demand products. our currently future engaging for ZTE with

as slowly have quarter the ramp the ZTE the communicated anticipate that for capacity us ramp will the to remainder as ramp continue We anticipate shipments started quarters. ZTE ZTE continues to during shipments to third over next to few and they quarter production. of

Although, too we more to it will course. is believe become ZTE to shipments know our when ordinary early

we cautiously over few the continue ZTE's next reasons, that are improve quarters. these optimistic to For may revenue contribution

would I to market a Next like update. provide general

believe this continuing are opportunity for quarter-over-quarter prioritize despite market. interconnect product in in the represents variability development DCI the our largest We market, efforts coherent we to which growth

a ACXXXX they NEM using us customers with high Our are seeing family. hyper-scale customers product engagement of their including level that products, our tell our

we including to under specification NEM are router XXXZR the which and several this in development hyper-scale our are customers OIF. based and our switch customers customers is believe portfolio, positioned looking Due on well to market. of module, strength our the standardized forward by product currently being Additionally, end our

America, also the and in that metro NEM Our to Asia us markets customers North growing. Europe, continue of outside are China tell

and suited India RFQ networks. recent compact well we is showing Given strength coherent believe their also activity our are signs pluggable in of for modules India,

As you have its heard, intent announced likely Infinera Coriant. recently acquire to

of companies. longstanding have business We these both relationships with

business do or continuing short these although believe our engagement projects predict future. any medium in impact. new We and to not impact potential an platforms Coriant on that and the in this many on the have will term, too in penetrated with early opportunities it look to existing well are term forward announcement We is companies, longer our adverse

China at to ZTE prior the conditions both China to at NEMs. we other and improving seeing ZTE the of were ban, market, signs Moving

the Following a ZTE new deployments tender offers ban, there was tenders on while awarded slowdown awards, and previously with based continued.

edge regulatory further demand the for we pick Now second assuming been in that market. that NEMs, up that the video, adverse and China could ban bandwidth the cloud and legislative to lifted impacts ZTE tender continued XXXX, has new activity believe given in no of half or services high

call, increase last our that started primarily we modules. Tier stated driven newer revenue our this group switch X the of router of and significant quarter-over-quarter our customers ACXXXX our we In earnings had by sales saw from in quarter, During products. sampling second and ramping with CFPX-DCO

this progress pleased few that the these making with customer become plus are may customer customers we group are one quarters. in with anticipate We the of next and a XX%

to Next development progress on very an provide efforts. our product of I'm and ACXXXX update I pleased module. the qualification our on would like ramp with our

customers, gig up per ship to are continuing to samples We to and channel. XXX supporting rates including data ACXXXX

ramp and XXXX. using first-pass to Pico end including Tier expect to production to We expect of by continue customers half with to shipments silicon the several also sample DSP the in of in X our ACXXXX second be XXXX, our

to with leading as XX our demonstrates believe DSP DSP complex we a as capabilities. For production first-pass silicon getting Pico, industry

market. fully low-power despite to Moving believe its family strong four CFPX-DCO CFPX-DCO to based market, years available to high demand entry availability this we this Meru DSP. of our our our second product on XXXX on we modules strong. strong low as remain offerings. addressable expand to and will to anticipate the interoperable since We launched demand due been second this the our It XXXX the of We up size systems based continue for ramp CFP-DCO to product half on first competitive To the CFPX-DCO, anticipate this has continuing Oclaro with of for a product product announce enable last and power. established that help half performance, into commercially the we our collaboration additional barrier has

We believe technology Meru module, on also further and power of our family CFP-DCO and recently version based introduced of We variants product leadership. lower our extend our ZR new version this the a these DSP. differentiate our CFP-DCO

PIC. to Lastly, we on believe expand help make that standalone continue to sales continue good addressable We PIC progress will of our market. testing our and customer size of qualification the

we and revenue customers As first see or product half. to increases in half both of for begin shipments, to volume XXXX significant unit this the we volume in second the ramp believe should

takeaways. Before some over I turn the highlight to I John, would like to key call

diversification revenue second on the efficiency new initiatives. quarter, particularly we During focused on development, stayed and operational execution, product

in the being coherent expertise pluggable remains module of of with ACXXXX with to into the The class believe the at is few more models. skills XXX companies sampled size product industry. occasions our development one power gig coherent the density this necessary believe two market. CFPX-DCO even its pluggable than CFPX-DCO We front, challenging CFPX-DCO We only On requirements. currently ZR XXX highly coherent in highest are there believe the is there and are available and our deliver complex commercially we supports channels the module

and we efforts few quarters. diversification subsea our the a customer XX% group XX% will second to quarter We from another off. customer from customer new our applications in be growth as coherent a We paying in next the customer are differentiated router adding benefit revenue believe believe Our we position from to within switch the supporting edge market. as newer well added plus and plus solutions, be overall

the as financial trend to that, and our that revenue the diversify will edge moving now further the coherent believe over for John position and expand to to we and turn applications will With TAM call and well base our provide Additionally, details the help around results other of more I technologies customer outlook. long-term. DCI

John Gavin

Raj, everyone. outlook XXXX quarter. XXXX, also in the will of financial and an the of operating I start update for on ZTE will for before I third second good half provide our for the questions. call and opening performance Thanks, up by I our on the reviewing and then provide will perspectives quarter second additional afternoon,

loss revenue, prior of basic As second revenue in non-GAAP share in from at which quarter XXXX per ban. the with for Raj the XXXX in loss and our Total shipped quarter the to line high million, $XX our was second ZTE non-GAAP million expectations. included $X were mentioned, and our of our was products guidance net revenue range end

basis revenue decrease year-over-year quarter ZTE second from XX.X% due of XXXX lack following the part the in revenue second second the the $XX.X to a Our in in of ban. the quarter million on imposition of large quarter

A the quarter not XXXX. second quarter ZTE second them. year-over-year from revenue XX% second of had second and increased ZTE's our XX% quarter In each customers result our from increase percent customers original than one three eight customer XXXX quarter contributed of quarterly a more the in a group the was our of of to outside of XXXX. revenue our the on newer of by removing and revenue that in During from XX% second newer revenue of customers contributed basis XXXX in as of XX% we ban quarter the XXXX

gross Turning margin. to

to gross XXXX costs compared in by XXXX semi-fixed second was quarterly in lower Our a gross absorbed of base. the was revenue quarter GAAP quarter margin second XX.X% the operation the quarter of XXXX. margin GAAP on in second impacted of higher XX%

our which margin did quarter of issue by impacted disclosed adversely expenses margins of not to a previously gross second impact related GAAP the in XXXX second in the significantly quarter XXXX. quality was gross Our

gross gross million compared recorded by XXXX. to driven quarter quarter which of our to The XXXX of adjustments our second compared XX.X% lower revenue XXXX operating net costs. the period the $X.X non-GAAP and in stock-based margin of compensation ability quarter subsequent inventory expense margin in second in our and which of quality related reserve XX.X% the XXXX million in affected adjustments semi-fixed XXXX the XXXX second in to absorb to to reserve decline was a of and higher issue from excludes from the quarter first $X.X attributable ZTE non-GAAP Our benefit was

continued margin higher XX.X% product in second continued operating totaled increase in compared the in quarter operating was revenue of second Non-GAAP expense related to investments of the of anticipated compared in million $XX.X compared in million in second of expenses exclude roadmap. the expenses our or second quarter or by excludes of million $X.X non-GAAP XXXX operating litigation of GAAP XX.X% revenue in which million were second GAAP or GAAP than of sales of operating expenses driven product $X.X XXXX $X.X $XX.X investment SG&A compared to expenses staffing GAAP quarter income revenue in million revenue or of revenue $XX.X of the $XX.X XXXX. second from non-GAAP the expenses revenue non-GAAP revenue and XXXX, certain Operating in impacted XXXX. of million in in million XXXX. SG&A of product XXXX or X.X% year-over-year of of of in XXXX second the driven our XX.X% quarter our exclude quarter compensation The R&A or the the were in in X.X% million second second the or stock-based $X.X increase of the costs second expenses and technology million in R&D in resources. million revenue second the XX.X% second XXXX. the related XX.X% revenue in second stock-based XX.X% expenses or of Non-GAAP was in of or million X.X% or of roadmap. our $X.X totaled Additionally, of was and in quarter or million quarter $X.X XX.X% XXXX. primarily Non-GAAP revenue costs $X.X modules. up non-GAAP or in GAAP The of $X.X associated a XX.X% of $XX the $XX.X $XX.X of of of $XX loss $X.X of was to million X.X% XX.X% by and million to our XXXX. compared GAAP expenses related and also million million to in R&D million quarter expenses support or which revenue compared second quarter revenue quarter non-GAAP expense quarter was litigation the certain The totaled GAAP the to operating negative increase technology million of of compared quarter SG&A XX.X% gross negative of loss XXXX quarter stock-based mix or XXXX expenses, to support customer by of of and with expense, negative XXXX quarter the XXXX. of in in compensation or shift was revenue of $X quarter $XX.X and revenue and of compensation primarily related of towards increase revenue XX% which of quarter the in second XXXX. second or and $X.X were the million to XX% quarter of in loss second revenue of XX.X% million operating Non-GAAP XXXX

lower inventory GAAP driven quarter by ZTE of the stock-based second first our operating and related profit by benefit million XXXX million XXXX and the issue recorded loss the compensation lower non-GAAP Our Both expense, in costs. $X.X period the quarter $X.X net reserve of million excludes of subsequent for quality to in litigation and of operating margin impacted related adjustments non-GAAP XXXX $X.X gross certain $X.X of quarter million million to of in the was $XX.X negative XXXX EBITDA to second expenses $X.X and quarter technology of million of roadmap. in and of the Adjusted negative increased support was the our million second the quarter XXXX. XXXX. XXXX second operating in in second XXXX in negative in product second $X.X compared revenue quarter of EBITDA positive quarter the compared

tax of effective rate XXXX tax the XX% compares XXXX. XXX.X% up in the quarter benefit of benefit quarter in GAAP a Our of to second rate second

an effective quarter to XXXX in rate in the X.X% result Our reduction in quarter XXXX. XXXX. second quarter effective annualized tax of second of of rate in benefit applying compared compares The benefits quarter rate the XXXX tax of the negative tax as second the X.X% of to a X% in second benefit of non-GAAP a of XX.X% of positive

net the GAAP diluted $X.XX or a share of compared basic loss of to net per in of per Our was GAAP $X.X or loss XXXX. income quarter $X.XX share million $X.X second million,

million the share in of per share compared non-GAAP loss net $X.XX $XX.X Our a non-GAAP quarter or net diluted second or million of was $X.XX income net XXXX. $X.X basic per loss of to

Now cash, turning second of we quarter a the activities of balance to $XXX.X the million from no cash with million debt. equivalents, and cash and Despite challenging and $X.X generated securities marketable quarter, operating sheet. ended

efficiencies, reduce through focus in to able our In addition, accounts ongoing on and are we inventory balances operational second quarter. receivable the

to allowed the would turning July our U.S. XX ZTE and the with of to to ZTE. Before suppliers outlook quarter The of third for briefly discuss other ban I Acacia ZTE. XXXX, lifting reengage like

will optimistic few ZTE that with next We quarters. course business the are cautiously over become ordinary more our

that, relevant this more business providing With one-time and guidance monitor regulatory in release China, XXXX, extraordinary circumstances to of we We third be guidance the and related million million between closely for revenue revenue of quarter million basis continue range the midpoint $XX ZTE as $XX be are noted to a in our activity, anticipate we in ZTE ZTE. around because on press revenue $XX million. expect our today's with ZTE, earnings of quarter. At legislative the to and to to total the third specific attributable $XX surrounding

and $XX.X outstanding. million non-GAAP to net range share expect $X.X $X.XX non-GAAP share earnings million per in range to million of in diluted $X.XX fully the of be to based weighted the per $X.X income diluted on We anticipated average be diluted to shares

to will anticipating margin, product that mix and quarter volume tariff toward already now respect some as impact second our that non-GAAP future business of more the non-GAAP tariff we half perspectives products. additional ongoing shifts will in sales continuing and provide margin newer third monitor gross potential our gross assess impact to guidance we and to increase I increases our on will With XXXX. discussions, tariffs in results. the news anticipate do financial effect not the Regarding are our any

As gross to the such, and range estimate of our range the in of we for margins third the of quarter currently XX% to of be full-year. non-GAAP XXXX XX% XX% in revenue to the XX%

a up and mix, our pricing expenses, manufacturing the products, as As associated operations relative on product our reminder, new of cost scale yields variances, to introduction gross levels. inventory of as production overhead well changes, warranty costs impact fluctuate quality ramp our based with obsolete, charges, new of revenue associated product excess and and margin to and

as associated fluctuate ZTE. with activities the would addition, our of capacity their result near-term, our in due production ramp In to re-engagement be margin gross a and with

we operating the and total be two in growth expenses, from to XXXX continue to non-GAAP thousand For XX% to XX% the XX% year-over-year believe year. down our XXXX to earlier to in estimated XX% range

extent tax We what are the having Kevin rate now will effective quarter to recent call tax With still that, beyond. third Altera Ninth I whether obligations evaluating questions. an Circuit and [de-commissioner] and opinion, will back turn the in our for to the for

Operator

first today from Our Thank coming is Hall question you. from Instructions] [Operator Goldman Sachs. Rod

Your line live. now is

Raghunathan Kamesh

of on is I Thanks gross first Hi, margin. taking this RK behalf for wanted question. about to Rod. talk my

lower in guided. mix that and a quarter, the to talked quarter happened the to I higher you're module XX% than you So about whether reported you numbers And talk know could expected you For why XX% continue? that impacting about margin?

John Gavin

is Hi RK, Yes. this John.

XX.X% been from yes operating levels the quoted one than was give the really And our a of non-GAAP is customer products in in on question original we from producing some we perspective the secondly, natures result to revenue difference QX, our and forecast of margin, a the we cost shift of nature are margin of had that's gross of within going expected anticipated. products. the to couple fixed really to to see why our mix when of factor that expectations, modules done support, a we gross us did than technical operations lower more we that absorb we things, lower back does Your had and have then more quarter challenges the so ability we some

it of such base quarter, module the gross our blend modules on of XX, customers request in XX around a of from into module is terms where more revenue towards that have side buys we the our in more doesn't versus typically shifted mix lower our as the and influence margin. component So

terms $XX we in again do we've midpoint In QX - of with guide to we in of higher what to expect million released QX. the some expect our recovery, see as

a starting of absorption will costs These be rate to newer see higher see more margin then will be into both these products costs. those will the we're lot higher. We come effect the will potential and up margin. our ability gross our for estimates And absorb mix affecting to of QX go so therefore

Raghunathan Kamesh

you. Thank Okay.

Coriant you impact could about think not talk why any the cause of material acquisition would in that you also near-term? the So

Murugesan Shanmugaraj

Yes.

relationships we Let at the said the with me crack take a have Coriant long balance of companies. these penetrated both And as platforms. we standing that other within

to of engaging our both companies company. to So combined and when an projects business opportunity and we look opportunities present new with these on forward grow us this existing the

our there to based those short term any impact penetration of soon we doesn't term So medium two have on or access impact. believe that this longer

Operator

Thank you.

Company. question is Bolton Needham & coming next Quinn Our from from

now is line Your live.

Quinn Bolton

guys. XX% only if wanted kind modules the gross of you just they come to But were job guidance. the in did think see to understand were effect margins I both of and quarter. mix Hi, the the DCOs XX% represented headwinds results revs being and shift CFPX-ACOs margin. that the see Nice back for absorption revenue lower back I and the gross to on last

going So module loan you the on higher think that your are DCOs yet the they're the CFPX-ACOs would shifting so mix the products stronger contributing or volume up mix else there within to I in still that getting just near-term. is and the margins margin here something and not not new on

Murugesan Shanmugaraj

ramping perspective. volumes the Hi, those still Quinn. That's true is in that CFPX-DCO initial

it customer that with versus QX an in moving describing company and what will there within we from in standpoint mix modules quarter. the think again mix chips started QX of the you're where think margins quarter for effect also So in thus will more estimate had the the we within we the that an I have honest from expectation recover estimate

the a that ACXXXX heavier numbers. module heavy things win the the ability that our for gross was QX wait the in only on you able two point a out as QX. impacts mix thus CFP-X-DCO then ramping to as margin keep more in those will quarter in QX not But kick it or to into So into to do

Operator

you. Thank

Kisner from Capital question Markets. Loop next is coming from Our James

now Your live. line is

James Kisner

Thank you much. very

of So Raj it's normal if there's you just business competitors yours ZTE their? or on But variability the their guide quarter. one guess know is between and looks already I going China just ZTE perspective give so what given question knowing kind revenue kind of normal of your to wonder and start any of you're just hazard of on kind that of you like there said and consumption $XX but of there's kind based consumption always going quarters a as with I idea to varied baseline of slow given XX's kind million and course if any basically any not to idea line a kind I if this XX's of mean like you is kind you're be

Murugesan Shanmugaraj

they it. can stages James, as so tender they it with they of of this they is and part there is the current have had already awards them prevent Yes, are it doing so reengagement you they fulfilling early of help started so that

to so and going them believe the are we demand stage power product we at early we point understand started working it mix to However, that shipping to be and slowly ramping our since and is this through requirements and the trying quarter. through the with tanking hard

have statement, is to know quarter, are they told ordinary. to more it's the but be you over in too ramping when what we they become early believe Now going shipment few said as next my us I prepared capacity

not we improve QX optimistic beyond these So this grow next quarters. are that to point, at guiding we optimistic, we cautiously are over the but few are continued revenues to

Operator

Thank you.

Marshall is Stanley. Morgan coming question from next Our Meta from

line now Your live. is

Meta Marshall

think how of Great. kind you was end, missed about are kind talk I slowed could OpEx year, of if would to kind kind the that or before second maybe just are the if newer the DCO how us one new you could spending, throughout new or And new, business taste components, more have not thinking of the type little but ramp just it progression if back? ZTE new, question you you target Thanks. very business China the are separate NEMs you coming to. But a give referring rate may OpEx that you're maybe of just with they that kind of buying of XX% of And tax then - some ZTE XX% you there you just at buying the they had of applying? XX% of customer, a are XX%, what addressed of are of

John Gavin

Meta. is John. Sure, This

which our structure and will ZTE between Raj take the the the you first, and readdress last are did We split correct. in cost of quarter I'll question ban, go of OpEx do we light question is back and scale a full

XX% on we rate ZTE XX% visited of down non-GAAP a made that OpEx light was growth to XX% and in year-over-year that to pull rate. to and trajectory because was the growth total corrections original that Our We ban. of XX%

to I'll we We of ZTE the some And XX% can ban believe things We structure maybe rate and to and even the cost put Raj the back still the in April now for play believe smaller range timeframe. within that XX% the some that but we have land resource issues we XX% supporting again, and have year ZTE, looked that at the to ZTE growth is for address would apply turn back still part. in back that in of of light the with second XX% still that ban. in the year-over-year we've of to

Murugesan Shanmugaraj

before with well other so the the two we've we as the have in China working non-ZTE NEMs. we as with earnings other have Meta China Yes. China on stated calls, engagements and NEM, in been

as modules we particular said of products, well as this XX% CFP-DCO, it for as chipsets. a instance in broad-based this so you CFPX-DCO, So have includes customer, ACXXX

And they've it have of generations been these products. some ramp that does and a products so on few working beginning of to they're

Operator

Thank you.

question from Our Thejeswi Venkatesh from coming UBS. is next

live. now is line Your

Thejeswi Venkatesh

ACXXXX the the tracking Could wanted Thank expectations? to is focus contribution? revenue prior you. on expect I When you product you do how cycles. about really talk meaningful versus

Murugesan Shanmugaraj

let is address me NEMs. by Tejas multiple The Tier designed that. ACXXXX being X Yes.

said, hyper-scale are guys. multiple who we As with Tier we are targeting sampling the X largest

cycle that we And we second quarter will with data want from XXX-gigs. thing contribution the and shipping said to more ramping XXXX. go in we so second the through is and as rates to I including is meaningful of started are, where half that continuing point since the be are the multiple shipping end I XXXX And in coming samples of out we

aware and any not so we is causing. with that we're So shipping delay this of [indiscernible] are

it lines schedules with our volume. we up think of with talked the I some customer that

Operator

Thank you.

coming Our from is Deutsche next question Bhagavath from Vijay Bank. today

Your now line live. is

Brian Yun

is bit CFPX This partnership more for you with Oclaro. on us little recent Can Hey. color give Yun on the Vijay. Brian a

So about also how Thanks. incremental expansion opportunity opportunity the and should the there? revenue TAM we think

Murugesan Shanmugaraj

was part trying a Meru and the made fully primarily extend is being TAM benefits DSP. to CFPX-DCO our of So And announcement we DCO-CFPX. to There was a it a on based pluggable the product. for interoperable have

kinds is to revenue going would for One we're expand look in of adoption introduce, of we think the to take market as quarter, believe of are some in ways. we but second at or available But I expansion, seeing to benefits it in least announced terms I couple this some markets. So this overall. going already collaboration terms the we it's different of a adoption time some of at CFPX-DCOs total in think that, that

benefit product the that [indiscernible] the DSP I is of think be it penetration then we adoption pie selling revenue in fully and interoperable benefit from then would we that gets market. course, the larger from overall ecosystem that of and so And enabling of would this. Meru this of both would the so get course we And That would the DCO-CFPX. an a help

Operator

you. Thank

Silverstein Our next question is Company. & coming from Paul Cowen from

is live. line Your now

Paul Silverstein

Hey, guys. hear me? Can you

Murugesan Shanmugaraj

Paul. Yes,

Paul Silverstein

So I'll apologize if in you're here. interest this call multiple [indiscernible] the early calls

And everybody my power First lower has XXX-gig in INFA that been of off, on making to of OpEx the on to new down to you Raj the expecting landscape Can including - expect trust in hands you back any they. of back, push OpEx you're general is market, others push on but R&D, technology in new best be timeline - just noise out the the were terms consumption many said customers, comparable launches that comparable in commentary being apologies, clear and if how coming again, product the you platforms? John, not neutral cutting a it, next else. landscape, that lot perspective don't XX% in with the

Murugesan Shanmugaraj

it Yes, piece. said, John you Paul, of me part take will as address OpEx let then first the the and

available we should So any for the [indiscernible]. are CFPX some our We we trend I might available. products customers, although market I the that seeing hearing based the perspective and performance thing there MXXX course said be lot we model of other there you not on not CFPX-DCO DSP remains MXXX, another some vendor we the the a more is the merchant The have commercially - becomes merchant towards we're our that But of be designs DSP are this as And are only and understand seeing there, believe having in XX as is discussion, help Meru DSP, as we past it NEM in motioned my months. one in differentiator. before. own said power

been of has this this it while. We the And the don't at year believe CFPX So we also in don't landscape that has point. terms see competition a little changed.

been we position. competitive our well do customers are with and the quite they think in I happy in they have

John Gavin

is And Paul, this John.

the OpEx for to product question, and roadmap. so our schedule we in back did prioritize On April [indiscernible] make a the spending and ZTE, point preserve initially project

nothing - still has changed. we're So

still within range. that net with the year-over-year spending are to We XX% timeline including XX%

We may So spending the within that fits in XX% XX% envelop to discussed QXs with back supporting it that some resource are there. minor calls. back ZTE, we we nothing base originally have with given some but incremental changed

Operator

you. Thank

next Our is coming question Capital from from Tim Northland Savageaux Markets.

Your now line is live.

Timothy Savageaux

Can there. hear Hi, you me?

Murugesan Shanmugaraj

Tim. Yes,

Timothy Savageaux

Okay.

Sorry John, heard guidance is sure right the I XX% about want for margins make that. for XX%that to I was year? which just the to you gross

Murugesan Shanmugaraj

Correct.

Timothy Savageaux

cloud seem extraordinary and color a the great. you some to in other I'm Okay, perspective. sustainable increases there But that OEMs to assumption margins, of from the margin high-XXs that is moderate apply return into QX, is in that if ex-ZTE but ex-ZTE be making maybe revenues double-digit traditional guess would guides, For but I for? focus not question or increase above I about on aid in revenues the instead little my around QX direct guiding to in Well switch, ZTE. improvement is or too and QX gross would guess you're trend, how half? that a mostly seem then that, that kind second router new maybe and well a much characterize on the

Murugesan Shanmugaraj

guide QX the seeing were we a sustain guide rates, or are speculate it the of from NEMs revenue to of really where is in perspective, a an but as going not tell have how going QX we're growth original on to example. more we to larger from the recovery Tim, relates they some you that we're can some Yes.

We introduction the products a are some switch being the getting and a perspective. particularly and have they and ramping customers their of on the into about from growth those of router newer newer products talked customers in market base factor

As you mentioned, obviously ZTE will be factor. a

that, within The of don't figure we And right seeing have India our NEM this two. increases some of for where are know in in or are we that next will in there that are lot positioning over then right going customers market to at a India now some on the quarter activities some on the we point. bids now. Although, the factor

some the and half some and some coming aid of newer half some into the the and factors. newer it's some of original the the out second of moving So they combination on of those conversion the from towards It's the diversification customers recovery are year the board I'd volume their say and really original of are the - ramping of aid now of with some first customers. strength larger of platforms of the products of of year

Operator

Thank you.

coming Dmitry from Our is question next Netis Blair. William from

Your line is now live.

Dmitry Netis

Okay, very Thank guys you great. much.

One So back discussion. two I OpEx to the is have questions.

you could result? getting far a getting as ascertain little us color what's bit what progress? you XX% this sustain mean detail rate as to we that a level out is I the your pushed versus growth as to that had, what originally give you scrubbed of year reasonable of type R&D could XX% As sacrificed R&D? getting What

John Gavin

I the XX% we XXXX, were deliverables don't from hiring top ramp we we the clear, external They issues, of within to expenditures speak timed next efficiency made down to we roadmap readdress the we're we did XX% look the when that I at the we in To silicon range. perspective. so payments say, from more were April, the and some rates cover and adjustments growth hire just just had. to OpEx the we're there because have and the we to to on Dmitry in that so XXXX think to XXXX, We really question, those have runs increases new expenses OpEx want against and X-nanometer a the product within of reassessment impact so that's of at adjusted us at cost and allowed into some some doing, going the that Well spending look rate. the silicon situation able are in We looked on have are address and time definitely XXXX the the any and scheduling the to from out external up to silicon that back people some year some to looked everything for be frame. and bottom of of there getting factor cycle perspective CapEx growth larger but rationalize

Dmitry Netis

Very good.

getting such on as as now a So can't XXX-gig, results. programs major chips the X-nanometer aren't

good news. that's So

John Gavin

either None move their the that changed nor process. timings expected products strategy of items in has

Dmitry Netis

of the are second my of lot would system. it Tier you the west a it. scale talking that of of There's to their sort a nature you trend open even goes of question it Tier line design sure traditional and that's perhaps I trend America that and I of sort you from product approach pluggable lot west that and as open scale down a specifically How goes positive line and to and big the this lot X, system as in vis-à-vis to have. think line is maybe stopping about know hype there your opportunity you're the comes you're the out noise. to module approaching X, kind well? AT&T seems be Now North looming participating There's of on a make here want systems in a open transport vendors here.

Murugesan Shanmugaraj

[indiscernible] we separately. participating use. we At with do own end we do so customers as open end that transceivers, to It their They now. we happening, before several understand level is then we imagine beneficial as as Dmitry, their they're day different have so is the engaging. of requirements, all talked about definitely in about terms the X the where is when to that deliver of is And able with NEMs. that engagements product a Yes, space, a tricky are talk couple buy in this so themes. software system a desegregation and of they our One the they're little well and definitely we of Tier engage as DCI can well are to and that able us you where buying and line

hyper with an working opportunity. So is If get NEMs there engaging - regarding we we they're to scale if with we to opportunity, them - work always almost and don't that but then or work these do with opportunities, other on engage NEMs line of Tier the with DSI we open - engaged X line system largest and opportunity, system we batch. with

Operator

Thank you.

Kelleher is question from coming from Davidson. next Our D. A. Mark

Your line is now live.

Mark Kelleher

that a going ZTE kind recovery for the on at - indicate bringing Is something significantly that recovery look thanks would taking to the would $X that was quarter, with time. going the I pace, specifically to million out ZTE. that were ZTE there back point that go that from March in an ban quarters in December was and two Great, strong invalid question. one is on more of weeks pointing China to it and product of first for Want general If of if the ahead million they of quarter there we were $X there that in the multiply make to? at or

John Gavin

Yes. Hi, Mark. This is John.

time. week So no I retrieve million from to for there's rate think of don't anything period a $X there two

I basis at books, If part three the the hit anything can inventory to quarter. wouldn't of want even not out two, the sometimes the don't into to the see of sometimes their unusual weeks quarter. in a one, you timing be see customers first it, beginning end go it's shipments worked April look We of larger at of in terms I pursuing on that office may the kind you then and was the have they and a How that of date ban run any effect a out, rate XX. as strategy just requested in took their know ordinary course had that been kind business. of ship the or think so of of

size weeks So unusual have two into customer flows shipments, that for historical been of isn't two to a period three size. to of ZTE that was which of that's roughly

Operator

you. Thank

coming is Genovese question from next from MKM Partners. Our Michael

now is Your live. line

Michael Genovese

customer Great, It sounds thanks. like a the new maybe makes own XX% that DSP. company its

why could talk customer customer, all from would theoretically just a become big that like So of the modules. DSPs a sudden XX% has buying a XX-K you your the and budget be

Murugesan Shanmugaraj

it vis-à-vis is. say think not in terms did who I of Mike Yes, that

there think other couple are I there. players

to going point. not this names - So and you're at

we with modules NEMs said, As China to and them. we the all working we are so sell do sets chip and

stated. can have what we that's and share So

Operator

you. Thank

Needham Company. from Our from is Alex coming & next question Henderson

now line is live. Your

Alex Henderson

wire. under in Thank the you. Speaking

Murugesan Shanmugaraj

Alex. Hi,

Alex Henderson

a going and could help put context where we're got question I've into some hello. multipart maybe

or where your was I of into you actions their into product competitive cloud look any the too. to of mix development either at traditional wondering in XXXX. terms business through and respect terms chipset how that we folded service then is ramp comment could of So by if Nokia the with that against as between will And in NEL ACXXXX it selling and providers

next of logic So three those that with? out a kind to in melt and we can kind year of for look us of pieces into the take stream use

Murugesan Shanmugaraj

pipe take in. me can let and this a crack at Alex, John Yes,

of partners. So different have couple of have is reached we have in but terms we one a engagements, ways. throughout We drift NEM - XX-guys, we just some also

always our step, first the don't that's through exactly we what know so we so And get NEM partners. with

shipments So tell our where go shipments not various able exposure guess is NEM to career gauge we're or go, hard exactly also where what it's cloud. I these cloud total to the to it a to and is

is is what there of in terms on more to switch XXX-gig So the going happening - side. migration as

a within for cloud coherent that the edge, the market one other also You're are of key size of seeing cloud is one but size is that. that the that of that's there being expansion the is DCI in for edge happening DCI that lot upgrade and into the expansion category place planned the course

And that are so all regions positioned. talked about products we is our

our with the happy competitive position. edge well example The what are XXX-gig DCI well we for applications. as as think ACXXXX I is DCI both place in

that into comes entering two are as a be factor NEMs that ZR we view have we well, after products would that so course product. pluggable that And form as of then XXX and of smaller

tied XXX-gig to these the other so planned And within upgrades DCI happening are hyper-scale being guys. or

John Gavin

I exposure one switch customers the opportunities of for like router some board thing coming with add well point in in with us larger more and the CFPX I develop a products segments. to on projects think would Raj's ACXXXX That as traditional as work to us. these to that and the gives is DCI overlay new as we

more that able So ship platform our have to products ability opportunities and increases customers to market. into more that with there

Murugesan Shanmugaraj

wanted there remind have is we out and just of each available channels the I I per to believe it [indiscernible] mention sampling product is so you, point we you to unit two the want Alex there. volume, XXX-gig ACXXXX, And other is if look as at that

gives XXX-gig we as two application of and So switch they channels capacity. per and go when you XXX-G bid look the lowest DCI migration, cost them highest the forward having want at the

And is that in these application. competitive that so definitely position develop

Operator

Thank you.

from Fahad Company. Najam today & is final from Cowen coming question Our

live. is now line Your

Fahad Najam

Hey, in. me were If squeezing guys.

of ACXXXX. and your we the Do the timing noted that that is you second of you adoption or some ACXXXX, ramp prospective the XXXZR there diversification a quick of in question for many see market go think or the terms is in about samples for of product further do in to i.e. year. ramping you for markets? different should offsets revenue half any see risk you're one any in But of terms the Just on the shipping it

Murugesan Shanmugaraj

this pluggable as that's way smaller going is two pluggables ACXXXX. beyond XXX-gig different into their One much in that of best there form product. be said further time switch going to it's or I a they to before typically and think and platforms be integrate going used. NEM that transport as their where appose is The more that's are is hyper-scale product ACXXXX it not NEM platforms so deliver It a the these Yes, the to products to behind the - the although pluggable. and could into and factor be NEM and I customers is generation XXX-gig is be router is in to the that to different segments, are can

of XXXZR. XX the year XX the So full start meaningful, of next realistically happening believe the the as the for for in ACXXXX. production we before the see said a towards timeframe XXXXs as year And samples XXXZR we that the of the end the we ramp

So is there timing different application, different definitely for two products. these

Operator

session. comments. of further closing would back Thank you. turn I We reached like over the the end our management any floor to question-and-answer to for

Murugesan Shanmugaraj

by Thank their work a call all or during second wrap around challenging thanking the joining hard all our quarter. you Kevin. for up today. like Thanks, world I to our would employees

forward generating We to talented on our among Our delivering next and excitement progress on largest with service quarter. other some roadmap updating around responsible occasion product providers look are innovative world. hyper-scale you employees for the

Operator

conclude today's That does you. Thank teleconference.

for have and today. wonderful day. this participation thank time You a lines you may your at disconnect your We

Acacia Communications (ACIA) 2 Aug 182018 Q2 Earnings call transcript