Welcome to the Avago Technologies Limited first quarter fiscal year 2015 financial results conference call. At this time, for opening remarks and introductions, I would like to turn the call over to Ashish Saran, Director of Investor Relations. Please go ahead, sir.
Thank you, operator. Good afternoon, everyone. Joining me today are Hock Tan, President and CEO, and Anthony Maslowski, Chief Financial Officer of Avago Technologies. After the market closed today, Avago distributed a press release and financial tables describing our financial performance for the first quarter of fiscal year 2015. If you did not receive a copy, you may obtain the information from the investor section of Avago's website at www.avagotech.com. This conference call is being webcast live and a recording will be available via telephone playback for one week. It will also be archived in the investor section of our website at avagotech.com. During the prepared comment section of this call, Hock and Tony will be providing details of our first quarter fiscal year 2015 results, background to our second quarter fiscal year 2015 outlook, and some commentary regarding the business environment.
We will take questions after the end of our prepared comments. In addition to U.S. GAAP reporting, Avago reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results. Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. At this time, I would like to turn the call over to Hock Tan. Hock?
Thank you, Ashish. Good afternoon, everyone. As you all are aware, today, we announce the acquisition of Emulex Corporation. Emulex is very complementary to Avago's enterprise storage businesses and aligns very well with the Avago business model. It is a leading supplier of Fibre Channel and related products, selling primarily into server and enterprise storage OEMs that Avago currently serves with our SAS, RAID, and PCI Express switching and fiber optic products. We expect this transaction to allow us to offer one of the broadest suites of silicon and software storage solutions to the enterprise and data center markets. With that, I will turn on to more mundane matters related to our recent business performance, and Tony will provide a summary of our first quarter fiscal year 2015 financial results. Revenue for first quarter was $1.66 billion, an increase of 3% from the prior quarter.
In particular, wireless growth was much better than expectations, with revenue growing sequentially versus the flat to slightly down outlook we had provided during our fourth quarter earnings call. Wired and enterprise storage held up well, but industrial did show seasonal decline. Turning to a discussion of our segments, starting with wireless. In the first quarter, as noted, revenue from our wireless segment grew 6% sequentially. Wireless represented 40% of our total revenue from continuing operations and compared to the same quarter last year, wireless revenue grew 90%, that's 90%. Within the quarter, we saw stronger than expected demand from a large North American smartphone OEM, which shall remain nameless, but which enabled us to achieve another quarter of record wireless revenue.
Given these levels of growth, coupled with our expectation for additional FBAR filter content in upcoming smartphone generations, we expect to remain capacity constrained through the balance of this year, even as we continue to grow our FBAR capacity over the next 12 months. As you know, we have expanded our Fort Collins fab capacity multiple-fold over the past few years, but demand has continued to exceed expectations. Turning to second quarter of fiscal 2015, similar to prior years, we expect a sharp seasonal, some may even call it product lifecycle related decline in demand from a large North American smartphone OEM. This decline is expected to be partially offset by product ramp at another large handset OEM, where our designs have resulted in substantial RF content. We do expect wireless revenue to decline sequentially, somewhat in the low teens.
Year-over-year, we expect to maintain our trajectory of strong growth in this business, with second quarter revenue projected to grow over 65% from the same quarter last year. Our strategy and capability to offer highly integrated RF front-end solutions incorporating very high performance FBAR filters has been a key driver of our success. Moving on to enterprise storage. In the first quarter, enterprise storage revenue came in as expected, growing about 5% sequentially, driven by strength in enterprise and data center spend. Enterprise storage represented 29% of our total revenues from continuing operations. In hard disk drive, revenues grew by mid-single digits sequentially. In server and storage connectivity, we also had a good first quarter with revenue growing in the mid-single digits sequentially.
This growth was driven by the start of the Grantley-based server refresh cycle, as well as a strong attach rate for our 12-gigabit SAS and RAID solutions. Looking forward to the second quarter, in server and storage connectivity, we expect strong growth from increasing adoption of our PCI Express switches and sustained SAS and RAID shipments. While we expect to see seasonal decline in hard disk drives, our custom flash controller business in NAND have been ramping. Putting these factors together, we expect low single-digit sequential revenue growth for our enterprise storage segment. On to wired infrastructure and enterprise segment. Our wired segment performed somewhat below expectations in first quarter, revenue declining by 1% sequentially. Wired revenue now represent the 21% of our total revenue from continuing operations.
ASIC revenue was up slightly on a sequential basis, with strong growth in Ethernet switching, thanks to our various OEM customers, partially offset by declines in carrier routing and high-performance computing. As expected, our fiber optics business declined from the prior quarter. We saw growth in fiber optic shipments into carrier routing, more than offset by expected declines from our standard Ethernet transceiver products, especially 40 gigabit, which took a pause after a strong fourth quarter. However, the second quarter fiscal 2015 in this segment is looking very different. We expect growth in both our ASIC businesses and our fiber optics business. In our ASIC business, we actually expect very strong growth from enterprise switching and routing as well as in storage. In fiber optics, we're expecting more moderate growth in 40G shipments, driven by increasing demand from the hyperscale data center market.
We are also continuing to see strength in fiber optics demand from fiber to the home and LTE base stations, especially in China. As a result, we expect at least mid-single digit sequential growth for our wired segment. Finally, moving to industrial. In the first quarter, our industrial segment performed below expectations with revenue declining by 4% sequentially. Industrial represented about 10% of our total revenues from continuing operations. Resales in this segment declined sequentially in this very seasonally weak quarter, with broad declines across all regions except Asia, which remained stable from that of the prior quarter.
As you know, we recognize revenue on a shipping basis to our distributors, and during this period, our industrial product revenues that is shipped in to our distributors also declined at a consistent rate to industrial resale as we maintain very tight inventory in the channel, less than two months net inventory. Looking in the second quarter of fiscal 2015, we expect sequential recovery in our industrial segment. In particular, we're seeing strength in North America and Europe reflecting this recovery and the need to replenish and the need and demand, I would add, by distributors to replenish the very low levels of inventory at these distributors. We expect to see sequential revenue growth in the mid-teens for industrial business. With this, let me summarize.
I'm pleased to report that we had a very strong start to fiscal 2015, with 3% sequential revenue growth in the first quarter due to strong quarter in wireless, good growth in enterprise storage despite flattish wired infrastructure demand, and a decline in industrial. Turning to second fiscal quarter, as in past years, as you may know, we've always seen sharp second quarter sequential declines in our wireless business due to seasonal product cycles in the handset market. This year is no different, and we are expecting our wireless revenue to be down in the low teens from the prior quarter. However, what is different this year is we expect to offset most of the wireless decline with strength from our three other segments. Wired up mid-single digits, enterprise storage up low to mid-single digits, industrial up in the mid-teens.
As a result, we expect our second quarter consolidated revenues to be roughly flat from that of the prior quarter. With that, let me now turn the call over to Tony for a more detailed review of our first quarter fiscal 2015 results.
Thank you, Hock, and good afternoon, everyone. Before reviewing first quarter fiscal year 2015 financial results, I want to remind you that my comments today will focus primarily on our non-GAAP results from continuing operations, unless otherwise specifically noted. A reconciliation of our GAAP and non-GAAP data is included in the earnings release issued today and is also available on our website at www.avagotech.com. Revenue of $1.66 billion in the first quarter represents an increase of 3% from the prior quarter. Revenue from our wireless segment came in better than our expectations. The enterprise storage segment performed as expected, and we saw weaker-than-expected revenue from the wired and the industrial other segments. Foxconn was a greater than 10% customer in the first fiscal quarter.
Our first quarter gross margin from continuing operations was 59%, which was just above our guidance range of 56.5%-58.5%, primarily due to better revenue mix and higher manufacturing yields. Turning to operating expenses, R&D expenses were $210 million, and SG&A expenses were $83 million, driving total operating expenses for the first quarter to $293 million, $8 million below guidance, primarily because of the lower than anticipated spending on certain R&D engineering materials. Due to capacity constraints, some materials initially intended for R&D projects were instead used to build products for customer shipments, and we expect this to continue in the second quarter. As a percentage of sales, R&D was 13%, and SG&A was 5% of net revenue. Operating income from continuing operations for the quarter was $681 million and represented 41% of net revenue.
Taxes came in at $35 million for the first quarter, slightly below our guidance given a quarter ago. This was primarily due to a change in the jurisdictional mix of income and the retroactive reinstatement in the quarter of the U.S. Federal Research and Development Tax Credit. First quarter net income was $596 million, and earnings per diluted share were $2.09. First quarter interest expense was $54 million. Other income net was $4 million. Our share-based compensation in the first quarter was $49 million. The breakdown of the expense for the first quarter includes $6 million in cost of goods sold, $19 million in R&D, and $24 million in SG&A. In the second quarter of fiscal 2015, we anticipate share-based compensation to be approximately $52 million. Our annual equity grants typically occur in the second fiscal quarter of the year.
Starting this fiscal year, we are switching to a solely RSU-based equity award program instead of a combination of option and RSU awards. Just as a reminder, our definition of non-GAAP net income excludes share-based compensation expense. Moving on to the balance sheet. Our day sales outstanding were 39 days, an improvement from the prior quarter's 42 days. Our inventory ended at $500 million. Days on hand were 67 days, which decreased three days from the fourth quarter as we reduced inventory, which we had built up in prior quarters to support the strong growth in our wireless segment. We ended the quarter with a cash balance of $2.6 billion, and we generated $481 million in operational cash flow. Our first quarter is also when we pay our annual bonuses relating to the prior fiscal year. In the first quarter, we spent $162 million on capital expenditures.
On November 18, 2014, in our first fiscal quarter of 2015, we closed the sale of the Axxia business and received approximately $650 million in cash. On December 31st, 2014, we paid a quarterly cash dividend of $0.35 per ordinary share, which consumed $89 million of cash. This dividend was raised by $0.03 from the prior quarter. Since the inception of our dividend program in second quarter of 2011 to date, our financial performance has allowed us to increase our dividend each quarter. As a reminder, our board reviews and determines our dividend policy on a quarterly basis based on our financial performance and condition, the contractual provisions related to our outstanding indebtedness, and other factors deemed relevant by our board. During the quarter, we did not repurchase any shares.
In the second quarter of fiscal 2015, we anticipate paying approximately $600 million towards reducing our outstanding term loan, which will reduce our annual interest expense by about $22 million based on current interest rates. As we announced today, we expect to invest approximately $600 million for the acquisition of Emulex Corporation, and we currently expect this transaction to close in the second half of our fiscal 2015. We expect this acquisition to be immediately accretive to earnings per share on a non-GAAP basis.
We plan to align Emulex with Avago's business model over the course of our fiscal year 2016. Once aligned, we expect Emulex businesses to contribute approximately $250 million-$300 million in annual net revenue with improved operating margins. Let me turn to our non-GAAP guidance for second quarter of fiscal year 2015. This guidance reflects our current assessment of business conditions, and we do not intend to update this guidance. This guidance is for results from continuing operations only. Net revenue is expected to be in the range of -3% to +1% from the first quarter. Gross margin is expected to be 58.5% ±1 percentage point. Operating expenses are estimated to be approximately $294 million. Taxes are forecasted to be approximately $37 million.
Net interest expense and other is expected to be approximately $49 million, which anticipates paying approximately $600 million towards the reducing of our outstanding term loan within the quarter. Finally, the diluted share count forecast is for 289 million shares. That concludes my prepared remarks. Operator, please open up the call for questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star followed by one on your touchtone telephone. If your question has been answered or you wish to withdraw your question, press star followed by two. Please limit your question to one, plus one follow-up question. Press star one to begin, and please stand by for your first question. Your first question comes from the line of John Pitzer of Credit Suisse. Please proceed.
Good afternoon, guys. Congratulations on the strong results. Hock, I guess my first question is around FBAR capacity and CapEx. CapEx in the January quarter was down sequentially a little bit lower than I would have thought. Are you guys still on target for sort of that $600 million for the year? By how much do you think that that will increase your FBAR capacity, and how do we think about linearity of that spend?
Why don't let Tony take that on, especially on your CapEx?
We're still on track for full year, $600 million. We had probably about $15 million to $20 million that were right on the edge of the quarter that could have gone either way, and that's why we guided to the new number for Q2. As we said before, we believe that FBAR capacity will increase significantly this year.
By the end, or to be more precise, by the middle of next year, we expect FBAR capacity to be double what it is currently.
Hock, that's very helpful. I guess maybe sticking on FBAR as a follow-up. The North American customer comes down in the April quarter, but that's offset by content growth at another customer. I'm kind of curious if you can give us, Hock, an update on what you're seeing relative to FBAR content in the China market specifically, and how you think that might trend over time.
It's never a monotonic increase in capacity, but then it's a question that always we think about real hard. It's just that as more and more phones become multiple band enabled, where you can roam multiple locations. If you ask specific of that broadly worldwide, but if you ask specifically China, there are multiple categories of those phones in China, even if they are smartphone. There are those unique to China, and for those phones that are smartphones that are unique to China, obviously the Chinese LTE bands, by the way, are very much bands that do use a very, what I call, friendly to FBAR usage. Couple that with the tendency to make them Wi-Fi enabled, and then you basically increase the number of bands requiring FBAR in those phones. To answer your question, the Chinese phones tend to be very FBAR friendly.
Now, it's not always that way because there are ways they can do to cut that curtail performance and therefore substitute FBAR for perhaps lower performing saw filters. They do that. There's a mix of that going on right now, particularly with the capacity constraint. Over the long term, from phones that are basically multi-mode, multi-band, 3-mode phones going to 5-mode phones, as they call them in China, you just need a fairly significant increase in FBAR content.
Very helpful. Thanks, Hock, and congratulations again.
Thank you.
Your next question comes from the line of Vivek Arya of Bank of America, Merrill Lynch. Please proceed.
Thanks for taking my question. Hock, you once again managed to surprise us with your acquisitions. If I look at consensus estimates for Emulex, it shows around $400 million of revenues with around $40 million-ish of net income. I believe, Tony, you said about $250 million to $300 million of revenues. I just wanted to get some clarification around those numbers.
Sure. Basically, we'll still go through the same process, where certain parts of the business will be looked at closely. What we believe is that it's going to be closer to that as the exit of 2016. We believe that's the revenue that we can keep long-term. As you can tell with that number, and then we improve some of the operating margin, it's definitely accretive to future numbers.
Got it. As my follow-up, Hock, you mentioned additional FBAR content in next-generation phones with your flagship customers. Is that due to additional bands, or are just traditional filters being replaced by FBAR? I'm just trying to understand, is overall RF content going up in these flagship phones, or are you gaining more share?
No, it's architecture. It's really related to RF architecture, it's an RF architecture that allows a lot more bands to be crammed into very limited space in smartphones, to be able to handle multiple bands for world-roaming phones. It's putting them all into front-end modules, which both includes power amplifiers and FBAR filters. It's really architecture-related and an ability to contain many more bands within the same limited constraint space.
Got it. Thank you.
Your next question comes from the line of Ross Seymore of Deutsche Bank. Please proceed.
Hi, this is Ji Yoo calling in for Ross Seymore. Hock, I was wondering if you can discuss and give a little bit more color on some of the strategic drivers behind the Emulex acquisition.
Oh, sure. I really don't have much at this stage to add on than what I provided in my opening remarks, which is, we believe Fibre Channel is an interest, and Fibre Channel over Ethernet as well, that includes then. It's a very interesting, obviously, connectivity protocol. We are very big in enterprise storage, as you know, particularly after our acquisition and integration of LSI. We do have SAS, as I said, we do have SATA and PCI Express with PLX acquisition and the need for high-density port solution on data center connectivity. We come across Fibre Channel very often, adjacent to the sockets, adjacent to the systems and chips that we provide to those same OEM customers in enterprise and data centers.
It's a very logical and strategic next step for us to add Fibre Channel and Fibre Channel over Ethernet into our suite of component solutions and software.
Thank you. In the quarter, the wired business was down a little bit more than you had expected. Given the performance of one of your customers, Nexus 9000 products, we would have thought that it would have come in a little bit higher. Can you discuss the growth that we should think about for the year in the wired business?
Well, it's probably more where the quarter cuts over and the timing of shipments and all that. By the way, we're not really down more than we expect. We're down 1% overall, and I call that flattish more than down. You're right, it didn't grow as much, but seems like we're making up for it in this current Q2 quarter, where we expect to see high single-digit growth in our ASIC shipments to our various enterprise networking customers.
Could we have the next question, please?
Thank you. The next question comes from the line of Craig Hettenbach of Morgan Stanley. Please proceed.
Yes. Thanks. A follow-up question on Emulex. As you get that portfolio to where you see the business, the run rate X in 2016, can you provide a sense of just longer term what the growth outlook could be for that? Then second, just within Emulex, just your approach having gone to LSI, just some background there.
Oh, well, we see that this Fibre Channel business is really a very sustainable, stable business. We see that long-term, well, medium-term, let me rephrase that, in the mid-single digit growth. It's a kind of business where we see a lot of barriers to entry, obviously, we see a very unique technology which is very hard to replicate. Those are all the criteria that fits our business model. We basically see a necessity to focus on the strength of this business, Fibre Channel, Fibre Channel over Ethernet, all that ties together for a kind of business, particularly coupled with the fact that this Emulex sell to the same kind of the enterprise OEM customers that we currently sell with our server storage connectivity solutions. All that ties together to make sure it's a very natural extension to our enterprise storage business.
We see that our model is mid-single-digit growth annually and improving profitability as we manage this the way we manage the rest of our businesses, as Tony indicated.
Got it. If I could follow up on the ASIC business, if I go back to the Analyst Day a couple of years ago, you had talked about gaining share. Since that time, you even added LSI. Can you talk about where you stand in terms of some of the expected share gains you expect in ASICs and also the visibility, which typically tends to be a little longer-term in that market?
ASICs?
Yes.
I never think of ASICs in terms of market share. Fortunately, I just think, we pick and choose our ASIC customers very carefully, and we support those customers simply because we have very unique technology and very expensive technology in some ways. In ASICs, as you know, the business is tough to scale, unlike standard or ASSP products. Our business strategy in ASIC is very strong IP, and we basically are rather selective about the customers, usually OEM customers and not necessarily OEM customers. We do support certain specific data center customers too, but very selectively. We tend to only select those where we believe we have opportunity to grow our business very well with the particular customer we support ASICs with. To answer your question, the last three years, we've been very successful.
Integrating in the LSI ASIC business to our Avago classic ASIC business before the acquisition, has combined to provide a business that's doing very well in the sense that it's roughly $700 million-$800 million, and it has financial criteria that meets what we need to keep reinvesting and generating really state-of-the-art technology in terms of process libraries, in terms of the best foundries in the marketplace, and the most robust set of IP in memories and processing. It's a business model we believe has been very successful, we like to see the same with, by the way, our storage portfolio.
Thanks for that, Hock.
Your next question comes from the line of James Covello, Goldman Sachs. Please proceed.
Congratulations on the excellent results. Maybe first sticking on the Emulex theme. Obviously, there's been a pretty intense competitive environment over the years with QLogic in that space. When you think about that mid-single-digit revenue growth you're targeting, how much are you factoring in additional incremental competition and balance that against some of the incremental capability that you can add in filters or other things into that market?
We do balance both in. We believe, by the way, that the market is relatively stable. Maybe you call the word bottom out, but I call it stable. What brings in a lot of stability to the market is, Jim, as you probably may know, is Fibre Channel over Ethernet as well, which sort of counteracts some perhaps slight declines in certain situations like Unix-based servers. Overall, we think it's there, and we believe we can bring in certain capabilities, certain features, and performance that will enable us to grow this, not much, but we believe in the mid to low single digits. That's pretty much what all we are looking for.
For us to be able to do that and focus on it totally would also enable us to create operating margins, operating returns on our investment, and operating margin, as Tony indicated, close to the range of what we're used to for the rest of our businesses.
That's incredible help. Thank you.
It won't happen over time. Probably take a year.
Sure. For the follow-up, you mentioned the 90% year-over-year growth in wireless. Can you help us disaggregate that between unit growth in the market and then against new customer wins, and then that architectural dynamic that you talked about driving incremental growth with existing customers? If we disaggregate it between market unit growth, Avago customer wins, and then the third bucket being that architectural dynamic driving increased content, how would you break that 90% down?
Well, Jim, you just answered your own question. Impossible. We are comparing apples and oranges. There is definitely a change in architectural content. As we go into a new architecture of integrating in the front-end modules, multiple bands of power amplifiers and filters in one module, you can compare it to a module that used to have two bands to one that now has nine bands. The content increases, the dollar gets priced differently. I'm not trying to evade your question, I don't have an answer for you except to say that it's very different. The market is evolving towards an architecture. Especially where high-end smartphones, which is where a lot of our applications are, a lot of our products go into, to be honest, into high-end phones. Those high-end phones can afford the rather high-performance, very space-constrained architectures that our solutions provide.
In low-end smartphones, some of them like tri-mode phones in China, where there's only limited number of bands needed, they could probably make do with discrete filters and power amplifiers. They do. We don't really compete much in those areas. We tend to compete it towards new architectural phones. Year-on-year, that has been a distinct change.
Sure. That's very helpful. Thank you, and congratulations again.
Thank you.
Your next question comes from the line of Edward Snyder of Charter Equity Research. Please proceed.
This is [Carlos Menegatto] for Ed. One for Tony. There has been several comments over the last few quarters about your filter fab running full, but you've also said that CapEx to expand FBAR capacity pays for itself well within a year. Given the rate of spending that you guys have had all through 2014, is it safe to assume that the capacity of your FBAR fab was materially higher at the end of 2014 than at the beginning?
Yes, that's correct. As Hock mentioned, we're going to go through another doubling here sometime in mid 2016 or so. No, we still firmly believe that the CapEx spending in FBAR is wildly justified. Again, we're still very with a cautious eye to say that we only build what we need to build. Yes, this last year has been probably earmarked with kind of 100%, and the current year is probably also, as we've mentioned, capacity constrained as well. Not much of the dynamics have changed significantly there.
As a follow-up, along those same lines, about mid last year, you guys redirected a lot of your capacity to your largest customers. Do you feel like you got enough headroom in FBAR to take back or expand your share of BAW filter demand outside of your largest customer this quarter?
I guess the best way to answer your question is the honest way, which is we're very much on allocation of our FBAR capacity today. We've been that way now for the last several months, and we expect to be that way for the next several months.
Thanks, guys.
Your next question comes from the line of Doug Freedman of RBC Capital Markets. Please proceed.
Great. Thanks for taking my question. Congratulations on the strong results, Hock and Tony. If I could ask an FBAR question as well, then I'll follow up with a NAND question. On the FBAR suite, you're doubling your capacity, but if I look at your revenue run rate and you're continuing to run that capacity full, we could be looking at well north of $1 billion in a single quarter for your FBAR business. That business does appear to run at above average corporate margins. Would you like to offer whether there's something wrong in the math that I'm running and whether we should be thinking of a new peak gross margin number for your model next year?
Wow, that's a lot of things you're throwing in the same mix. Number one, $1 billion a quarter sounds fairly extreme, and the reason is simply this. First, we're nowhere close to $1 billion a quarter yet, as you know. I mean, 40% of our revenues right now is not quite there yet, but I know what you mean by doubling of it. It may be one quarter, but it's not the whole year. I just want to make that point. It could get there in one quarter and at the right point at the peak season, but it won't sustain because of the seasonality of product life cycles of the players in it. I hope that answers your question. In terms of gross margin, sure, we have never made any boasts about where that there's been a ceiling to our gross margin.
All we've said is we don't know where it is, over time, as our product mix and our business become more and more efficient and our product mix hit the right spot, hit the sweet spot of certain markets, sure, we do see continuing improvement or expansion of gross margin. You see that last quarter, you'll probably see that again in our guidance this quarter, it's all related to product mix.
Absolutely. No, the numbers have been fabulous.
Thank you.
The one thing I see investors have some questions regarding the business that you sold off that services the NAND controller market versus your commentary on your introductory remarks that you have a custom NAND controller. Can you maybe clear up a little bit or clarify what it is that you sold versus what pieces of the business you continue to invest in?
Yes, of course. Why do you pick up the little things? It is a fair question. Yes, we sold off business as well as intellectual property and capability in developing standard flash controllers for solid state drives. We did that, and we sold that off, and we do not have any standard flash controller capability of no products, no revenues right now in our product portfolio. We sold it all off, happily too, because we believe we are not prepared to keep investing into display, which we believe could get very competitive. Having said that, we do retain some intellectual property and capability within our hard disk drive operating division, where similar capabilities exist in terms of designs, understanding how to develop flash controllers for custom flash controllers.
We do that for very selected customers, sort of in the form of an ASIC flash controllers for enterprise markets, specifically on low volume, on specific customers. We continue to do that because that part of the business retains behind with us, and we have the capability inherent within our hard disk drive division, our SoC division. If it makes money, we'd be happy to do it. It's really not the standard flash business, very different from standard flash business, which we sold off. Okay?
Thank you. Your next question comes from the line of Harlan Sur of J.P. Morgan. Please go ahead.
Congratulations on the solid quarter. On the wired business, the team has been benefiting from the transition to 40G in the data center. However, with some of these new initiatives starting in the second half of this year, around 25G and 50G, does this end up being another growth driver for you guys, for both the ASIC and for your fiber optics business?
Yes, I don't know about whether it can be a new growth driver, but certainly a lot of demand for programs for us to look at to develop services, and from services, developing switching fabric that drives 25 and even 50 gigabit. By the way, we are, I think, one of the very few guys today with working silicon that can drive what they call 56 gigabit PAM4. I got to put in that little bit of propaganda and let you guys know that. That drives the 50 gigabit standards that is now being promulgated through IEEE. This obviously offers us opportunities given our capabilities in these specific areas. Yes.
Yep. Thanks for that, Hock. Then on the enterprise storage with the 12 gig SAS RAID controllers and storage connectivity product segments, can you just kind of help us understand where we are in that upgrade cycle? Is this a tailwind for enterprise storage for the next 12 months or longer? Is kind of more of the near term strength coming from HPC or hyperscale or traditional enterprise or all of the above?
A lot of it is coming from a combination. As you know, as you've been hearing, there's a momentum in enterprise spending and data center build-out and spending, and going on. As that happens, couple that with the launch of Intel Grantley, that supports 12 gigabit from the previous generation of 6 gigabit. Yes, there is a tailwind as we go through that refresh cycle, as it always happens would be the case, in this case, in servers enterprise, driving server storage connectivity. We're benefiting from that, and that's partly why you see our business growing sort of mid-single digits sequentially so far in the last couple of quarters or so. It's helped by this push that launched late last year.
Great.
That won't sustain forever, but so far so good.
Thanks, Hock.
Your next question comes from the line of Steven Chin of UBS. Please proceed.
Great. Thanks for taking my questions. Another question on the networking business, if I can. For your ASICs, I was wondering if some of the recent, I guess, M&A going on in the foundry/ASIC world, if that is benefiting you at all or not in terms of new conversations with potentially more ASIC customers. Also relate to that, can you talk a little bit about the BiDi optics at one of your customers, how that demand is proceeding so far?
Okay. Let me answer the first one. On the BiDi thing, hate to say it, because it's exclusive to a particular customer, I don't really want to comment on it. Sorry about that. I hope you don't mind. Because it's exclusive to a particular customer, I prefer not to comment on it. Coming back to the ASIC consolidation, don't really see that much of it on our side. Part of the reason for it is, as I say, in ASIC, we're not out there looking for market share. We have very unique capabilities in the sense of we're very low power, we're very leading edge process technology through working with TSMC, but we're very robust serializer, deserializer, Robust IP in memories as well as processing.
A lot of that, not just from Avago Classic, but with LSI combined with us, great relationships with selected lists of OEMs, who are somewhat winners so far in the enterprise networking business. As they grow, we grow along with them. As I made the remark earlier, as a particular customer announced a gain in share, we do see benefit of that. Having said that, sometimes we're also supporting another customer who doesn't, so that kind of balances out somewhat. Because of our unique technology and our unique business model of trying to be very selective of the customers we support, which tends to lend itself to very large, successful OEMs, we do not see that much, all this M&A activity you're referring to down at the ASIC businesses.
Okay, that's helpful. Thanks, Hock. Just as a follow-up, in terms of, again, the wired infrastructure business, looking a little further out, beyond the current at least mid-single-digit sequential growth as you're guiding for in Q2, I guess what kind of visibility do you have into later in the fiscal year in terms of this demand for your ASIC business? Whether it's SerDes or other products related to networking. Thanks.
Our visibility tends to be good for one to two quarters. That's it. That's probably the lead time on our products, what we demand for our products and supply chain to support those customers. One to one and a half quarters is as far as we go. Beyond that, no, we don't really have that great visibility.
Great. Thank you, congrats on these strong results.
Thank you.
Your next question comes from the line of Steve Smigie of Raymond James. Please proceed.
Great. Thanks a lot for the opportunity. I was hoping you guys could talk a little bit about the opportunity you see in the optical business this year. What sort of headwinds and tailwinds do you see for that business over the course of the year?
The what?
Optical business.
The fiber optics business, the transceiver business.
Correct.
Well, it's a mixed bag. We participate a lot in the datacom, short-reach datacom, that's nicely chugging along. There's price competition, I'll be honest about it, we try not to play, as I've said many times before, in the standard fiber optics, lower bandwidth products. We tend to go up very fast. We're now doing 40G. Our sweet spot is pushing 40G, including the BiDi that someone referred to earlier, which is a 2 by 20 unique form of 40G, then standard 40G. We're pushing now 100G, and we're working on various forms of 100G and going even beyond 100G for core routing. That's where our strength is. I'm really not a very good indicator of the broader fiber optics market. In terms of datacom, our strength is up towards the high bandwidth.
On the low bandwidth, like 1 gigabit, 10 gigabit, then for some of the storage products, like 8 gigabit and 16 gigabit. 16 is not so bad. You can imagine anything below that, it's a very price competitive environment, we try to not be too engaged in it. I won't say we are out of it. We can't be, because we have to support many of our OEM customers, even though our share is very low. Our focus is really on higher end, whether it's proprietary or not so proprietary, very high bandwidth datacom. That's growing very well as data centers, especially the larger data centers, are pushing from 40G to, in some cases, leapfrogging 40G to go to 100G. Of course, somebody indicated 25 and 50 provides additional opportunities.
When you start talking about 25, you're talking about having to drive short reach or even longer reach native 25, which makes it very tough to produce laser VCSELs, lasers, so to speak, that does 25 gigabit. We are one of the few guys who can do it, and we happily sell that to guys who do 100 gigabit InfiniBand today. We are the supplier of the VCSELs, for instance. That one is one side of it. Our other strength in telecoms is we don't do that much transceivers in long-reach telecoms, except medium reach, few kilometers in data centers. Other than that, for transport, we don't do much at all. We do provide, though, coherent transceivers, but we do it at a component level. We're kind of like an arms dealer, and we do that very well.
For instance, we also do component level to fiber to the home in China. That one, we can't provide enough products for the market, or for that matter, for LTE supporting base station fiber optics. We can't provide enough of those components to those particular markets. That one, we have a pretty full fab, too.
Great. Thanks for that color. Just as a follow-up, turning to the wireless market, you guys obviously have a lot of confidence in your business by ramping the CapEx pretty significantly there. I was hoping you could talk about this in the context of maybe a four or five-year type range. Obviously, some of the great strength here has been driven by the move to LTE, and we're at the sort of LTE Advanced. It seems like, say, 5G doesn't come until maybe 2018, 2020. How do you keep in mind adding capacity versus, you've got a lot of LTE switching over the next couple of years versus the length of time before 5G starts to come in?
Correct. 4G will be with us for a while. LTE will be with us for a while, as you know, because Europe has barely begun to spend any bloody money. Now they are starting to. U.S. already spend their money, and we're in the midst of China, it's all good, not to mention the emerging countries. To answer your question more directly, I kind of hate to disappoint you, but our CapEx plan, we tend to build, and I mentioned that many times before a year ago or two years ago, maybe it's time to refresh that. We tend to lack demand in our capacity builds. We basically see the whites of the eye in demand before we start rushing to build capacity. We don't build in anticipation of demand. We tend not to do that. We don't run our business that way.
Great. Thank you.
If you ask me about 5G, no, I'm not even there. Sorry. Not even there.
Got it. Thank you.
Thank you.
Thank you. I would now like to turn the call over to Ashish Saran for closing remarks.
Thank you, operator. Thank you, everyone, for participating in today's earnings call, and we look forward to talking with you again when we report our second quarter fiscal year 2015 earnings.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.