ACIA - Earnings call transcript Q4 2018 | Acacia Communications, Inc.

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Operator

Greetings and welcome to the Acacia Communications Fourth Quarter and Full Year 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer will follow the formal presentation. [Operator Instructions] And as a reminder, this conference is being recorded. I'd now like to turn the conference over to Lizzy Savarese. you. Thank ahead. go Please

Lindsay Savarese

and fourth everyone. December quarter after this operator, results XX, Communications for afternoon close. the and market good you, Acacia afternoon, released XXXX Thank year ended

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

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

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

Murugesan Shanmugaraj

Good us expand of quarter-over-quarter that lifting in our to quarters. total their of the ban. XXXX. activities customer contributed These of believe the catch-up the of fourth fourth the quarter we to XXXX on ACXXXcustomer following sales Thank $XXX and fourth efforts you, significant and update of $X.XX with switch customer with quarter, revenue financial I'll who or I quarter then business prior progress over guidance customers strong revenue. XX% detailed Lindsay. that our of for greater outlook. turn five to the our direct more call in in share. report included quarter revenue our total and completed ZTE the million we as net a everyone who total exceeded a basis. that exceeded million with of router diversify afternoon, of Gavin non-GAAP thanks joining performance the XX% a John ZTE provide to and on and increased pleased of approximately very today. a In anticipated approximately each they hyperscale the fourth review am discussions will with $XX income our all diluted high-end the five in has And in fourth of three our In and or we been metrics plus our per product quarter, customers a portfolio. the Also quarter had XX% start third the Based

Moving some product highlights. to

increased module DCO CFPX the our of shipments quarter a a significantly quarter quarter-over-quarter basis second row. for on fourth in the During

module In of ACXXXX transitioned the to fourth XXXX. we quarter our in production addition,

us that of compared of standalone operators deploying using revenue from each quarter quarter DCO, customers network Furthermore, our to contribution XXXX are half the revenue as XXXX this Our than be they products exceeded to first as ACXXXX second half product XXXX. higher NEM increased our expect our ACXXXX telling ramp. fourth will that XXXX the PIC PIC PIC the revenue XXXX. in CFPX shipments standalone We began begin anticipated systems third to and in second quarter and systems from our anticipate of using

currently difficult ban expenses both Despite and to our in maintain Looking back in We and our well Acacia our at progress XXXX range a technology as across leadership wide our route, market our positions continue execution managing our have the our in XXXX, before execute customer, it beyond. challenging ever our and networking than products efforts, to operating largest prioritizing make continue more believe initiatives. We for to strategic key product applications. these and on XXXX on year products that industry. believe our and portfolio conditions needs customer’s development continued we address and optical a was we of

even focus operational close our XXXX enabled program. we with buyback our efficiencies our us than on sheet XXXX had at end to balance the stronger of stock execution addition, with In a XXXX, under

to update, a discuss moment I to I and like move would product to Before take China. market

recent have and these our in anticipation and had such with operators XG are deployments broadband other the NEM is service by Based of we timing customers discussions, network in China. tender although in-depth of uncertain. discussions activity encouraged rollouts, on We

leading can China demand. Additionally, which equipment believe be strong port spending rolling vendors are coherent in a indicator for reporting we

delays are still challenges trade the market. cautiously the and and with we about the concerns in China Balancing challenges, cause and opportunities demand tariff may remain in significant However, China optimistic XXXX.

they When also growing markets in expanding edge about Moving is often and DCI DCI talk DCI, metro, the XXX market. think long operators submarine are Hyperscale applications, segment and now to DCI edge capacity the links. only sub about products. kilometer people while fastest of haul

the networks global and hyperscale are expensive maintain. links scale a on of build [ph] are to operation and critical Someway for

Several increase utilization the of of performing this available ACXXXX to performance and networks solutions competitive their the want of that the demonstrations currently For market. based the to operators trials reason investment. that recent hyperscale and submarine exceeds solutions use typically both in highlighted in have edge field optics highest

at In over another XX% greater XX,XXX kilometers field NEM XXX to efficiency [ph] reported time. For by was spectral example, our was in transmission customers December a of ACXXXX of field competitive announced for we trans-Atlantic solutions achieving the our one the XXX the trial, single up Marea with carrier's gig cable, demonstration XXXX results where operating gig on link. submarine that than first achieved submarine

optical up an customers in base a our of ROADM due well-suited XXX NEM edge networks to share hyperscale which to advantage of metro telecom, their hyperscale positions which we for believe in trial module a gig systems, open over at is typically XXXX. to operator our demonstrated first system. in customers also XXX transmission well Additionally performance nodes. in multiple to accounts require compete NEM performance core DCI applications our believe line ACXXXX These demonstrate ACXXXX one reported the network kilometer flexible rate results that China We higher

configurable the of our software features these XD ACXXXX the network telecom customers DSP. addition believe We shaping In and that the our cost ACXXXX, positions believe with improves we reduces operators to ownership NEM performance, about of of utilization. including modes total to high we with for our the based on network compete flexible share module opportunities excited Pico well modules are ACXXXX see multi-haul the

XXX core a ago, terabyte said enables its increase Pico XXX a in competitive year today Pico dual of Ethernet competitive products has capacity gig both As our architecture of using capacity a at gig. XX% DSP switch three DSP X.X wavelengths. the that capacity times fabric transmission signals we or offers an single our internal operating and and operating With the XXX products at gig three core

these the more reach XXX density supports when X and mode, gig deployed. Ethernet current factor X ACXXXX form in in Our signals XXX compared ACXXXX as by our products a that modules than competitive higher XX% being doubles transmission three the of competitors our to gig has currently than transmission

based second are in NEM XXXX network first hyperscale of telecom and customers are production they in Our of by us ramping ACXXXX deployments bills quarter telling quarter operators. anticipation the that

we as transition we DCO XXXX, in the shipments in increase quarter product. module our quarter customers For update Acacia with its later, DCO modules. the meet XXX make this our position production fourth would leadership the five coherent CFPX ago an first on low years three this a ACXXXX to of of the gig ramp our I anticipate consumption of to pluggable CFP power today than an for Less Meru with based reason, capability. introduction we now of XXXX this demand over highly more coherent than in product remains introduced differentiated our and established X market, DCO. coherent our years and CFP performance, the expected

currently seeing broader started are the trends on form CFPX with adoption industry's factor We a several module. first of our believe CFPX we industry that based DCO coherent industry

go factor this as aggregation for as preferred will metro the model. become well core likely you form requirements, from First, for pay we benefit commercial solutions a and metro believe solution as access that

this enabling line case DCO the the or industry adoption. broader well DCO. Meru to see and use believe which the open the benefit emerging DWDM CFPX are that IP was architectures with we the Next from not towards trend positioned CFP CFPX We [ph] systems based modules of

addition, form XXX lifecycle will transmission with anticipate gig to extended factor generations. DSP support have this In the in we its multiple ability an that future, across

DWDM these driven Acacias telecoms The telecom has and of a would integrated transport regional our by lowest hyperscale market and like opportunities. with systems modules bit. ACXXXX are compact in systems and aligned believe telecom of the help of the to I pluggable cost observations. industries in highly driven metro closing, use photonics the with double achieving compete make OIF, on DWDM with operators. require the of modules DCI OSFP. factor we increased of network semiconductor These an and positioned distances ZR, be DCI in QSFP DCOs the leveraging trends DCO by Our pluggable being XX favorable These DCO of client will density such more optics toward and pluggable gig gig technologies use applications same generation supporting ZR reaches in transition as XXX DCO metro form modules kilometres. on same performance based hyperscale of the DSP In the customers strengths. and with applications of class will new power we technology edge to being NEM DWDM interface the is accelerate the that focus ZR Furthermore, and edge for couple as in using believe XXX low well in We a compact next thousands XXX standardized which the per to believe replacement modules equipment are XXX kilometres higher well regional

Additionally, networks. operators their telling believe hyperscale modules XXX plan deployment development us they in that our well targeting believe hyperscale XXX transition architectures are in next of ZR XXXX. product our aligns network and we aligned are operator next are We portfolio wider that samples schedule generation with deployments. this in a further pluggable, that interoperable current well where network ZR anticipated begin to mid with later and for XXXX roadmap We both generation production and to

opportunities to Finally that thank of had and execution again and we tremendous focused their and able portfolio provide John revenue is ramps, In the remain instances us opportunity diversification. development portfolio exceptional Acacia were in more roadmap to will like to XXXX. Acacia of product product a call new this beyond for in to many and over now of product the to XXXX. the financial to on our by on challenges results our ahead once would believe product capitalize take with team is With navigate well-positioned entire I I that, were to the powered details on the multiple efforts this in We strength turn control, year, our we several outlook. the team

John Gavin

full our operating and by first of will and performance call of I outlook the XXXX Raj. briefly finally Then XXXX And up everyone. good I our the start fourth financial the for reviewing Thanks, quarter year will for our results I'll before for questions. provide opening quarter XXXX. review afternoon,

with XXXX. based like would we Before change discuss transmission period I in our annual reports. period the on in products. Starting our and the discussing our revenue contribution periodic note for product way speed XX-K we Form I turn report results, a to changes revenue over Historically, our financial are of to on

semiconductors. groups, we three that modules of product products in multiple Given transmission embedded our over going on based period period many have revenue speeds, contribution will pluggable forward and modules, changes discuss

information these more our the each report annual groups of included groups, of our products please Section Form Business on which on the product For of we these our basis and of in that, increased of quarter quarter million in XXXX product the Total third year-over-year group. see revenue revenue in from sales fall description a into XX-K by percent and an XXXX, $XXX.X results. with $XX.X was of by fourth XX.X% fourth filed the of will this on of million, in the primarily module groups. from from the products product With afternoon. to product in our newer over that I the $XX.X semiconductor XX% financial the turn XXXX to SEC quarter driven in by pluggable quarter, revenue our pluggable fourth or ZTE products module driven primarily million increased the newer revenue increase Sequentially

gross margin. Turning to

the in of in of quarter quarter XX.X% fourth XXXX. was fourth to margin gross the compared GAAP XX.X% XXXX Our

XX.X% of in XX.X% and margins level XXXX fixed in costs impact the increase of quarter. non-GAAP gross in fourth our to gross manufacturing, to in the higher compared revenue non-GAAP due fourth Our XXXX. quarter our operating both semi margin the given quarter was reduced of The was in the GAAP

milestone GAAP or adjusted quarter revenue quarter of income XX.X% XXXX customer of support compared or revenue of was XXXX. staffing. income of in GAAP $XX inventory a or by operating and was the GAAP fourth XXXX. of X.X% compared non-GAAP of revenue increase quarter by The we by fourth addition, and in million Non-GAAP our with was intended cost driven associated in product investments the in operating related GAAP variability operating quality XX.X% $XX.X was to in of were XXXX income our EBITDA in $X.X that costs of roadmap from $XX.X operating payments by in the staffing related in our XXXX. and million fourth expenses operating initiatives reduction totaled the the non-GAAP the The million excess development consumption compared with million million technology was and XX.X% driven quarter related in in had compared been XXXX ZTE fourth quarter of ZTE of and associated quarter additional driven quarter with semiconductor additional the partially of the the higher staffing quarter quarter million compared million the quarter million in to of Non-GAAP primarily associated EBITDA fourth In of the year-over-year to income level or also of or in offset XXXX our revenue of revenue increasing for to the to XXXX. was $XX.X operating fourth in of in revenue remediation million XX.X% the band. fourth and expenses our activities fourth $XX.X both in gross $X XX.X% non-GAAP the GAAP product fourth risk operating in in XXXX considered $X.X quarter or XXXX revenue of the And roadmap XXXX. increase quarter, of $XX.X fourth fourth was in of previously XX.X% reported to timing of to due or $XX.X or of revenue costs the and $XX.X XX.X% margin million initiatives. issue by quarter compared programs of XXXX sales and related of at GAAP fourth operating to revenue technology in the XX.X% of income XXXX. to to the that expenses million to million

to XXXX. of the quarter XXXX of compared in XX% Our was GAAP fourth rate in tax effective tax XXX.X% of the fourth effective an quarter rate

in to X% Our quarter compared quarter tax of fourth benefit effective a non-GAAP XXXX. the rate was tax non-GAAP effective X.X% the fourth of benefit XXXX in rate

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

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

fourth quarter the activities from the securities marketable fourth ended sheet. Now XXXX In we balance of cash turning cash operating and and and million generated of with quarter equivalents $XXX.X million to the $XX.X debt. cash, no

was per Turning $XX We per $X.XX or briefly million of diluted to million diluted $XXX.X in year results. XXXX. XXXX share was XXXX million XXXX. million million, XXXX compared operating our from XX.X% share $XX.X year income year-over-year of GAAP a million full $X.XX $X.XX compared net million per Total or net in decrease $XX.X $X.XX diluted per from diluted generated to income XXXX. revenue XXXX. the or was share in full or $XXX.X $X.X activities in Non-GAAP in cash in in to $XX.X share

In addition, demand inventory efficiency we from $XX.X end at a of products as ability operational efforts the the volume end our million result during $XX.X half higher the year XXXX. increased second the consume of inventory for to the in given XXXX at million a of reduced of XXXX, and of to our

Turning to our outlook. next

the million. today's first $XX and in revenue release, press million expect between XXXX to noted quarter $XXX be we total of As earnings in

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

filings with actual our and may forward-looking materially of the earnings in result described SEC. a and our reminder, is factors a differ outlook as As in results release our

operating including year provide for that next in and on changes some and in on full to fluctuation objectives, to aggregate subject manufacturing and of to business investments current fluctuate XXXX XXXX. by on to based number increase overall we XX%. to gross a nature investments Based basis OpEx business strategic In on market I XXXX related additional anticipate would of currently addition, quarterly nature in quarter-over-quarter conditions. XX% are margin making in to and strategic intend the mix are commentary costs. like and factors, on a our product our our expenses continue can non-GAAP the based over changes

China. assess contributor potential our including And revenue. that the the effect. Huawei guidance. are on overall could to not call discussed Huawei will significant on do as so addition have effect as our not not continuing trade broader to regulatory to subject With back that, that Even In we calls actions or impact of are anticipate financial an are against any related been first I most conditions and in we XXXX future in said, a for China developments developments, results. tariffs in currently tariffs a products the quarter turn tariffs and our already now result, to business prior Historically, to impact have Brenda Huawei impact on will That ongoing has market on being questions. monitor a our as

Operator

Thank with Instructions] The you. the [Operator Bolton first question of Quinn from line Needham. comes

Unidentified Analyst

[ph] generation from Michelle Hi, solution taking for Quinn. next guys Thanks with Recently for [indiscernible] to compete give your had color seen you Egenera on prepared solution some on their announcements remarks. Congrats guys. to how results. question. positioned on of the you Vienna made the the to I This the reference we in Could more ACXXXX with platform? expected is ramp back are and on you maybe in XXXX, guys guys which believe my

Murugesan Shanmugaraj

me let at Michelle, that. Yeah, crack

roadmap capacity came the who came the discussions operators thing lot our ACXXXXX first the advantages. that, when the and we of I a out with know, with have the up is up initially with performance you in So hyperscale, we with come own telecom the with

that's my one XXX cores, to DSP up that here so than transport of channels second. So able a two DSP basically X.X kind to DSP, in single has discussions or holding gig we are per terabyte three two did this

do gig are X over And channels so wavelength. to able two XXX or the we gig

capacity. [indiscernible] then We capacity have the increase in or more XX%

a capacity So think performance [ph] I competitive I from reach we of trials, And on than a we about position talked the gig you’re on doubled product. standpoint, as – standpoint more there. at sublink XXX

standpoint are form on density modules out a a XX% modules from ACXXXX and seven we there. from the other factor – than – So higher

gig meet we So set on I you bifurcation needs. data see on bar the a then by is adding happening and current hyperscale, when center. their think that the being you inside XXX infrastructure generation that’s to And talked driven high clearly ACXXXX the

we their that are versions a significant wider And of the We XXX and modules. interoperable of next will the a ZR deployment plus XXX - ZR pluggable, market networks. ZR so of more wider generation believe seeing deployment for address portion

so – have the the you a know, the leading be requirements future are they for we meet. believe need time in to industry we current the we they may generations on we what's and can't and have we delivering needs that whatever pipeline, So at history comment you'll that right of delivering while product market and able products that

we feel the closely aligned we have. that operators think with are alliance portfolio the hyperscale comfortable there our network the the roadmap on with product and at - So we that roadmap I position very

Unidentified Analyst

next for the XG these XG build out and coherent been set for largely And tender on in deployments over guys pioneer that’s additions backhaul [ph] national of both? Perfect. demand guess anticipation and or broadband or Thanks China or And terms backhaul the I seeing direct back backhaul additional activity for other color. you technologies of to in be for XXXX. China capacity or of potential Thanks. one the then all XG are half expect

Murugesan Shanmugaraj

Yeah.

in that many So in there - that is question. questions

regional the activities so for range. just was These and So the are of had of broadband discussions with - operators that activity we cautiously but services providing we are provincial as and these there. I telecom tender the see NEMS tender also optimistic additional XG, - indicated - not we there, a and lot for in-depth out metro it's are have China - building

their outs leading to And traffic that increase and that is the and going regional is topic networks the be indicator talked to that's have sales of good. know, know activity tender coherent build these you to careful and you timing also of other told thing some think solely metro is in strong be about. the going their we the and about as I the And one about are as But is I also have XG that all talks modem said, so clear. us modem are that first that suppliers we is the not

there is but room I could delay adding and also for we optimism the of here, things. think of talked tariff trade uncertainty some a level these little about issues bit some

So yes, activity to seeing going - lot coherent, but going metro regional be is this - of around this on are balance, and a it's be we to bandwidth. this. and A year backhaul is

drivers. shorter and would I participate which the at demand one But something again, this that's mid think we're lower front that be point of of reach is the and optimistic in time. haul XG about not we cautiously China

Operator

line And you. with Venkatesh the comes of our question Thejeswi next from Thank UBS.

Thejeswi Venkatesh

DCO you wonder [ph] comment XX I you end on how have the that actually systems you systems for question. shipping Thank CFPX the customers. to taking for your if or of LAN cards customers are their could many

Murugesan Shanmugaraj

Yeah.

know, it's I think of several you to say safe shipping production are that them So know, units. you

- there's volume products think are with XXXX. a wise that few out I throughout towards more coming

them we systems in systems looking are customers, of many how ’XX, But exactly down be QX we deployed at some QX together. several that strong have break - don't and others. as we than more in are - we of saw come significant I it about, talked or but increase is year, to a some looking are volume as higher these being So

Thejeswi Venkatesh

could the XXX about and if the of over what as wondering And up, quarters? where was few ZR are you follow quick Thank then the color. for next timing with bit to a a talk product, little I you the the you expect essentially

Murugesan Shanmugaraj

Yeah.

the meet we've chips know, You the performance the X are they nanometer These been power expecting. back. that ZR gotten our we've and test and requirements mentioned I as

mid to this our to deliver later production samples going So we on based plan XXXX. schedule - year,

So the to sae is XXXX really in second these year, revenue from going ramping this contribution be per to half. samples small going more the its

Operator

is with you. Thank Troy question of the line next our Jensen And Jaffray. from Piper

Troy Jensen

congrats guidance. and great great the results Hey, on

Murugesan Shanmugaraj

Troy. Thanks,

Troy Jensen

Raj, in gave you make kind information it be QX will just ACXXXX production just lot say you QX? in and to sure in its good expect shipped in right. want I available you heard on product systems it of – us the here, to QX, all But of market did the ramp a

Murugesan Shanmugaraj

No the their end - getting out, systems and at trials, in we've said production customer stages certifications qualification, shipping the being in are either been QX various for we’re I since in product systems going NEMS into as of our QX ready carriers deployment QX.

had a increasing to ‘XX We is we but shipping that have volume QX said so volume, deployment of been their we QX again multiple. QX systems, So product in volume. of we anticipate increase the

Troy Jensen

your kind inventory just now your had prepared in and touch could starts comments concerns customers? for selling. and system on maybe just that where quoting ramp you mentioned of right, a And you just in follow ZTE catch about big with bigger up you right levels the remarks on you maybe you, think QX John if inventory are then And I understood. when with Okay, elaborate spending China some on

John Gavin

right. its Yeah,

and from were they recovered band. did QX we up we’ll trying of a business, as the prepared call that to the an once still catch of So course they his in see as built residual mode up ban expected in – had increase Raj in the of satisfy some after up remarks. was QX ZTE ramp was out process coming said That a

because from $XX So to of impacted based quarter their terms specifically in up that contributed quarter-over-quarter definitely of over quarterly revenue QX contribution, QX million in catch QX growth. a roughly full terms more activity. From they ZTE that of of

a now not As that that's we're inventories Raj QX much what VMI into normal insight you into back told have remarks don't a really layer his We has programs terms that to it we've have how additional their kind for a to relates of business was they by get they're see of us that where But stocking visibility inventory, business. on. exposed said in in - question usual as give difficult of where don't been of be. mode of is ZTE level, to it, can more some may

So we'll time have within that's at that now. be would - lining type some say that inventory China. of inventory terms are position are deployments these the I responding as terms of in things are an much newer to we particular some tenders, potential visibility this they for the of getting but of some possibilities as about There of ready happening in

Operator

question Vijay is from Bhagavath Bank. line with the our Deutsche And next of

Brian Yun

Hi. Vijay. This for is Brian Yun

Just general terms ‘XX the a out Is second half of question story that kind there? a delays of Is XXXX any and view? China activity. in more last can your there through in or or timetables potential call around of tender anything could you XG it in

Murugesan Shanmugaraj

tender change conversations the the it's through a XXXX. listen XXXX, the timeframe mean, that's expansion, and - - When per you are second their on and for right. I been really you I XG Brian. things different Yeah, has customers think the think But that's metro of half at these the the in to of are. – But again, the se, we've in tenders both, expansion factors. middle depending the few networks little know, I necessarily and discussion what the that's their there carriers in a XXXX our with optical know seen in but ring past activity conversation they you not all - the bit discussions of looking capacity there, regional

this the to sure uncertainties the and exactly not of there the tariffs spending. the still are even that could trade we talking though discussions such down about add slow that a year of are deployment of timing and - some So

timeframe But it's is about. know, think I in hard So they until it's speed. supporting to this talk I that in we that time you order these balance, we that happen it deployments, to purchase actual think hard will in that the when say say see see deployments

Brian Yun

break potential in cycles, the contribution meaningful PIC. you products standalone just a revenues on revenue down And question which year? sort even ACXXXX CFPX, rank would drive and Okay. or order, think the you then this Got of think you. Could you most kind maybe product upcoming your when XXXX of about

John Gavin

John. Yeah, is Bryan. This

that take I'll one. So

not So relative lifecycle perspective. to rank of we certainly from we products order but we're to it, forward to kind can would where are going we're guide discuss not - a how going those

deployments ACXXXX during the the that to ramp in now start production [ph] As where they in ready need anticipation versus which QX the that of been we numbers to transferred in their market anticipation prepared that Customers CFPX on process into are has have remarks, his for out their XXXX QX DCO CMs to a product an now XXXX. get been looking ramps. has timeframe a some of builds the transferred at is while as to a of Raj in example, coming do We've the build said of for and to mode.

a some in of PIC to So into and volume is the mentioned market the those being customers their of was products now are designed those starting PIC. into on different from cycles come timeline out then are also a XXXX as starting a PIC that perspective systems of you the little some will module for if of mode into. now And called two to introduction cycle was the ramp it you similar just and ramping a coming bit

So PIC out a now. of kind year-over-year ramping, whereas with out volume that's for into and where but time both a coming period CFPX for ramps will, some more little on coming production ACXXXX in we of while the already been their if you XXXX, and continue are for of cycles early has of been we'll it's volume the

Operator

question Thank Paul Instructions] next Cowen. is of [Operator Our the line Silverstein from you. with

Paul Silverstein

me, got and mostly you'll they're a discrete hoping handful, very all I'm I've indulge housekeeping. but Thanks.

revenue for what you been characterization those quarter. second hyperscale other diversification again, as the us talk you quick you’re then And you I've or there total straight But driving, that customers, collectively, with of can router XX% customer X%, well that the three the nature the new [ph] a ACXXX of what as anything came if ones. think more of those? new couple the On about I say the got the the customers switch more in can the that's the I tell and contribution were and been heard five

John Gavin

is Yeah, John. Paul. This

in the our switch certainly a that that of And customer the revenue would the then top five the typical our was the was would XX%, from we of and roughly it So XX% up customers came QX or in say then them. we've there and base customers. the hyperscale in terms that I five XX% ACXXX was about having - in customer QX longstanding quarter be had little ramped was that discussed quarter, with as have been the again have for of in and in a back relationships XX% router is that significant also customers customer full we we that after quarter in had last quarter really quarter well partial in ZTE coming a discussed greater had factor a customer as others quarter bit earlier quarter top past. the a

Paul Silverstein

have but hear revenue. you heard you also math fear XX% that you thought I I John, I must they had of the I you said were Obviously does customers, work? one thought wrong, X%, collectively said wrong, other I XX% number just

John Gavin

might be Paul, audio it I its XX% Yeah, issue said. an

Operator

And you. question our Morgan Marshall of with line Stanley. next from Meta Thank comes

Meta Marshall

to just questions. I Thanks. Great. wanted of couple a ask

does cloud your you maybe market? customer, your by general talking to having further market. know, necessarily second, just just are And customer kind any seeing the you those is of that And DCOs them. of then kind enabling some competitive you to know, your kind to market in from could DCO CapEx not of competition kind up First, sense to more the the a volatility you're wanted work when in XX% get some but open potentially I of of of

Murugesan Shanmugaraj

Yeah, Meta.

We mean, enablement, as used or that IPO access, prepared I said the a - and aggregation and for signs is the In that see think is see that the I that the system the as open well as we terms of as improve the in an source statement happening. increase we adoption, goal CFPX signs being it's said second of using Metro of of is architectures. line to where before CFPX DCO, enabling my or DCO, adoption of or I DWDM

adopted being overall different it's part - well. Again, is also going [ph] of stages in adoption. So t industry and early few market that a the consortium its So

to Our what their ramp partner they that product based summer we're enabling Meru are be is by saying. coming will

so customers, then increase that overall DCI hopefully the add and continue market to overall. And And the to just itself. moving to the of CFPX adoption the

The think the some QX throughout seeing You of And John we in that have we And continuing we are are trials know, you this I that you the customer well. we you shipments QX before, customer the have good or gone that X some - think adoption year. customer. increased also saw and talked ACXXXX [indiscernible] Tier know, into see about seeing I multiple the space. XX% pretty then selling as and said through

the think I little know you are So is what reports a mixed. seeing bit you're

I is it think saying some growing. of them

on However as optical we a spend in their on this really CapEx DCI between correlation they of as a don't spend basis, DCIM we have mentioned and quarter-over-quarter might the see transport. past, lot what

ACXXXX are we their and our driven we not by perspective segment our do would continuing in implied with CapEx - well particular issues from seeing are expected ’XX. from say So this our primarily contribution I we any

Meta Marshall

guys. Thanks, it. Got

Operator

comes the Thank Sachs. with you. line from of question next [Operator Goldman Instructions] Our Rod Hall

Bala Reddy

Rod. seeing Bala mentioned could from attraction give quarter a thanks you – your traction now about for update on I Maybe taking talk an how my on follow is a that the This - NEM customers? you're what's got you’re you Hi. you good there? up. Reddy Could And and out on seeing could for India in Congrats you questions.

Murugesan Shanmugaraj

Yeah.

a and time. a driven This by was think switch what the customer. a CFPX covered last this are little metro, coming more as I this is So, we - bit we router seeing DCO business

we think what architecture mentioned emerging I evolving know, or DWDM is is IPO had there. that You

they've had - good carriers. some they've so with this And success are and you multiple there know

competitive is it a However, market.

I and it - a so is that quarter-over-quarter also think basis. we mentioned last on could time lumpy, be

I switch the doing So we with could basis. lumpy on quarter-over-quarter and are the well a but router, it be think itself product

Bala Reddy

think margins, have now multiple Understood. gross talk with And especially could about cost structures? how you should you products we about probably varying different that

John Gavin

Yeah.

one. that I'll John. take is this So

at know, fixed terms opportunity really six That in this is new to margin to semiconductor - the how in I breakouts mix in you modules that of that looking in of the and in reflects us really we're the going between So of products And terms you above the at about the a the as costs revenue get at mix manufacturing. on the to point revenue fact that gives XX.X% effectively products, operating beyond know, we're where talked certain contribution non-GAAP level absorb coming operating future. call basis. just said gross we be of once quarter that group I on those the

in PIC the have is. improve we you our on sustain of also ability you and quarterly that product terms modules. they at the because a a as are So if new CFPX, your newer and general be where in ACXXXX, terms semiconductor that the even our mix can help in if us change look margin to of that percent all quarter-over-quarter relative cycles over the products DCO times is in and like the group But change in semiconductor where The factor. a in product

‘XX. second margin. of gross a the absorb revenue our to where half half the semiconductors first better really that down terms to levels, has of since to of module the with groupings of the comes we'll But the how changes level to the and products and be. the really change performance costs ability into a in from that do lot and our manufacturing year lot it of in So And changed between product had mix quarter-to-quarter definitely those revenue

Operator

question next Silverstein Paul Cowen. our from with the And you. line comes of Thank

Paul Silverstein

talk comment heard the a days a wasn't business you, Thank I come for back guys, visibility versus compares visibility year you but I about With XX about versus to ago expecting today you it me. appreciate to you it. can respect larger to ago? China, how

John Gavin

in terms several out maybe customers good I'll quarter as Paul China say the refinement within I is demands a start we've general with relates situation the I'll in say same their or start. that lot to know, visibility on either within of as and This and general their would chime we're it getting that that Yes, some can quarter quarter time Raj the requirements. visibility talked John. there. delivery Even can calls from the becomes is at in. change you in that it's term about I But still better. to timeframes. would changes be of based ability particular product this on move

play the new - since We seeing optimistic call. have that activity we're of activity might some last lot tender the It's talked that over is business perspective that. with just the not was the New And of a and Chinese early. seen course year, where the ZTE have signs Year coming a cautiously although last back still the from yet. There out from still we're over we about

they're DCI correlation a over that market little a about visibility in suspect think seen where of positioning. good products, two markets metro of feeling with we've And so some they downs see DCI, there's between CapEx, or about down. rate. to the some in from be. sometimes just that making month in just there. optical that maybe bit that growth indicate from initial don't very We've seen reports the - been on overall from our seeing our talked in some are you they'll connectivity happening we've that spending lot DCI, position where respective had We clearer those it. insight will trend the Raj DCI in reports is a lot standpoint I side with we recently to of up market We it's activity there India. in investments next additional tend or And terms capacity when up metro. spend get a where spending China is of year-over- or another products well need positioned really feel in of and But some where when we then we're additional market like a invest know,

global metro on a So going there more is activity on basis well. as

Operator

Thank Raj for you. our the floor question-and-answer session. like comments. to back to concludes turn closing This I’d

Murugesan Shanmugaraj

and next and at Thank Brenda. to our Investor our call sessions. progress upcoming - our for on look joining investor Analyst you, today. We you updating OFC seeing you and forward us quarter Thank conferences you joining of our many

Operator

This concludes today's conference.

And for your disconnect time. at participation. may lines thank You this your you

Acacia Communications (ACIA) 21 Feb 192018 Q4 Earnings call transcript