Good day, ladies and gentlemen. Welcome to Fabrinet's Financial Results Conference Call for the Fourth Quarter of Fiscal Year 2020. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions on how to participate will be provided at that time. As a reminder, today's call is being recorded.
Would now like to turn the call over to your host, Garo Tomaginian, Investor Relations.
Thank you, operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the fourth quarter of fiscal year 2020, which ended June 26, 2020. With me on the call today are Seamus Grady, Chief Executive Officer and Chappas Ferra, Chief Financial Officer. This call is being webcast and a replay will be available on the of our website located at investor. Fabrinet.com.
Please refer to our website for important information, including our earnings press release, and investor presentation, which include our GAAP to non GAAP reconciliation. I would like to remind you that today's discussion will contain forward looking statements about the future financial performance of the company. Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinions only as of the date of this presentation, and we are take no obligation to revise them in light of new information or future events, except as required by law. For a description of the risk factors that may affect our results, Please refer to our leasing SEC filings in particular the section captioned risk factors in our Form 10 Q filed on May 5, 2020.
We will begin the call with remarks from Seamus and Trauma followed by time for questions. I would now like to turn the call over to Fabrinet's CEO, Seamus Grady, Shimi?
Thank you, Garo, and good afternoon, everyone. During the fourth quarter, we demonstrated flexibility of our business model as we generated financial results that exceeded our guidance ranges, while we continued to strictly observe enhanced measures to monitor mitigate the potential impact of COVID 19 on our employees, customers, and operations. I am very proud of our team and ungrateful further efforts in helping us achieve these excellent results. Revenue in the fourth quarter was $405,000,000 or $5,000,000 above the high end of our guidance range, driven by less severe supply constraints than contemplated in our guidance coupled with stronger than expected telecom demand at the end of the quarter. From a profitability perspective, as we anticipated, our fourth quarter gross margin fell short of our target 12 to 12.5% but improved from the 3rd quarter at 11.8%.
Continued efficiency gains more than offset the slight headwind that we continue to see from efforts to mitigate the potential for COVID-nineteen infection. That said, we remain fully committed to returning to our target gross margin range of 12% to 12.5% and expect to do so during fiscal 2021. From an operating perspective, we continue to run a very tight ship with SG and A expenses coming in just under 3 percent of revenue in the quarter. We continue to expect SG and A expenses to be a lever for operating margin improvement over the longer term. As a result revenue upside in the fourth quarter largely fell to the bottom line, resulting in non GAAP net income of $0.96 per share.
In the fourth quarter, we produced a substantial $46,000,000 in operating cash flow and $31,000,000 in free cash flow, We anticipate that cash flows will remain we produced record revenues of over $1,640,000,000 and non GAAP net income of $3.73 per share. Total operating cash flow for the year was Looking at some of the details, the quarter played out much as anticipated with sequential revenue growth in both telecom and datacom while the industrial laser and automotive markets showed sequential declines. As a result of these dynamics optical communications grew to 78 percent of total revenue, with 22% coming from non optical communications. Optical communications revenue of $315,000,000 also represented slight growth from the 3rd quarter. This includes the anticipated impact of an inventory correction at one of our customers as we discussed on last quarter's call.
Within optical communications, telecom revenue was $229,000,000, up more than $5,000,000 from Q3. And datacom revenue was $86,000,000, up $1,000,000 sequentially. We believe the inventory issues that impacted our telecom business in Q4 will be largely over in the fiscal first quarter, which when combined with the increasing demand we saw at the end of the fourth quarter, should contribute to strong telecom growth in the first quarter. 4% from the 3rd quarter to $90,000,000 or 22 percent of total revenue. Revenue from QSFP28 and QSFP56 transceivers also continued to grow and was up 6% from the 3rd quarter and 18% from a year ago at $54,000,000 or 13 percent of total revenue.
By data rate, revenue from 100 gig programs of $159,000,000 was down slightly from $161,000,000 in the 3rd quarter while products rated at speeds of 400 gig and above grew by nearly 50 to remain strong, while those at 400 gig and faster data rates should continue to trend upward. Looking at our non optical communications business, revenue of $90,000,000 moderated as expected from $103,000,000 in the 3rd quarter, due primarily to anticipated sequential declines in revenue from the industrial laser and automotive markets. Industrial laser revenue was $41,000,000 compared to $46,000,000 in the 3rd quarter and automotive revenue was 27,000,000 compared to $31,000,000 in the 3rd quarter. Sensor revenue was $3,000,000 in the 4th quarter, consistent with the prior quarter, and other revenue was 19,000,000, representing a 3,000,000 sequential decrease. As we look to non optical communications drivers in the first quarter.
We expect to see continued softness in industrial lasers and automotive, reflecting broader market conditions However, we remain optimistic about opportunities in these markets over the longer term as the COVID-nineteen impact settles down. We also believe that current ramps of new automotive products such as lidar sensors from Veladine will soon begin to offset some of the weakness in traditional automotive markets. As we look ahead, our new product introduction or NPI capabilities will continue to be an important factor for winning new business. By partnering with customers during the design process, we can provide quick turnaround prototyping services help them improve design for manufacturability and enable them to accelerate time to market before we begin volume manufacturing. We provide these NPI services in Thailand as well as closer to our U.
S. Customers in Silicon Valley and now also in Israel. Our Israel operation is up and running as well as being fully ISO 9001 qualified. And we completed our first revenue shipments to customers in the fourth quarter. We're seeing good traction with new customers in Israel and are excited about this additional on ramp to volume manufacturing in Thailand, which we expect to replicate the success we've seen at Fabrinet West in Silicon Valley.
All in all, we remain optimistic about the markets we serve and in particular, the demand trends that we see for the products we are producing for our customers despite the COVID-nineteen headwinds. Our optimism is also reflected in our increased customer penetration and diversity as measured by the number of customers contributing more than 10% to our total revenue, which we disclose annually. We had 3 10% customers in fiscal 2020 compared to just one in 2019. Increasing the diversity of our major and revenue from Acacia and Infinera each increased in 2020 to represent just over 10% of revenue for the year. Our top 10 customers overall represented 79 percent of revenue.
Our ability to quickly transfer and ramp complete network Systems was illustrated by our successful transfer of Infinera's network systems products in 2020. We expect further evidence of the success of our proven transfer capabilities to be demonstrated with the transfer of Cisco products currently underway at our Chiangburi campus. This program remains on track to ramp at the end of the calendar year. We continue to monitor the increasing demand from existing customers for additional capacity and consequently have begun the next capacity expansion of our Pinehurst campus. We have begun the process of relocating some existing office space in order to expand our manufacturing footprint at Pinehurst, enabling existing customers to further expand capacity at that site.
We expect this expansion to add approximately 100,000 square feet of manufacturing space at Pinehurst, an increase of 10% from our current manufacturing footprint at this campus. Even with these investments in growing our business, we anticipate generating significant free cash flow again in fiscal 2021. When combined with a record cash balance of nearly $500,000,000 at the end of fiscal 2020, we are very favorably capitalized entering the new fiscal year. As such, our board has increased our share repurchase authorization up to $100,000,000. This expanded buyback program reflects our commitment to returning value to shareholders while continuing to invest in our long term We delivered a strong 4th quarter with revenue that was above our guidance and we are confident that we can deliver an even stronger performance in the first quarter.
We ended the fiscal year expectation that we will continue to generate significant cash flows are enabling us to step up our share repurchase activity and return additional value to our shareholders. We entered fiscal 2021 with investments already underway to expand our manufacturing footprint in support of growing demand. And with our new facility in Israel now contributing to our growth. While we remain vigilant in keeping our employees safe, We're very proud of the excellent results we delivered in fiscal 2020. Our track record demonstrates that our strategy is working and we are more optimistic than ever about the future.
Now I'd like to turn the call over to Chaba for additional financial details and our guidance for the first quarter of fiscal 2021. Chad?
Thank you, Seamus, and good afternoon, everyone. I will provide you with more details on our financial results for the fourth quarter and our guidance for the first quarter of fiscal year 2021. We were very pleased to deliver financial results that exceeded our guidance changes in the quarter. Upside in the quarter, was due to a smaller than anticipated COVID toward the end of the quarter. At $405,100,000.
These results also include an impact of an inventory correction at a particular customer which was in line with our expectations at approximately $15,000,000. We believe these corrections are largely behind us at this point. Now turning to the details of our P and L. A reconciliation of GAAP to non GAAP measures is included in our earnings press release and investor presentation, which you can find on our website. We continue to follow 6 safety procedures in our facility to keep our customers, employees and their families safe during the pandemic.
While the costs associated with this are a slight headwind to gross margin, it other efficiencies, we were able to drive a sequential improvement from 11.2% to 11.8% in the 4th quarter. We remain committed to gross margins in the range of 12% to 12.5% and believe that with continued efficiency efforts we can return to that range during fiscal 20 21. Non GAAP operating expense during the quarter was $11,900,000 or 2.9 percent of revenue. Resulting in a non GAAP operating income of $36,100,000 or 8.9 percent of revenue. We expect that the improvements we can generate in gross margin going forward will largely be reflected in improving operating margin as well.
Taxes in the 4th quarter were $600,000, and our normalized effective tax rate was 4.1%. Non GAAP net income was $36,000,000 or $0.96 per diluted share, a 0 point 0 $4 increase from the third quarter, despite lower revenue, due primarily to our improved gross margins. For the full year, revenue was 1.64000000000 Non GAAP gross margin was 11.7 percent and operating expenses were 2.9% of revenue, resulting in non GAAP net income of $3.73 per diluted share. On a GAAP basis, net income for the fourth quarter was 28,000,000 or $0.75 per diluted share. In addition to share based compensation expenses, amortization of debt issuance costs Our GAAP result for the 4th quarter included a nonrecurring goodwill impairment expense and other expenses.
Turning to the balance sheet and cash flow statement. At the end of the fourth quarter, cash restricted cash and investments were a record $195,500,000, an increase of approximately $30,000,000 from last quarter. Operating cash flow was 46,200,000 and with CapEx of $14,800,000, free cash flow was $31,400,000 in the 4th quarter. Our cash flows for the full years were also strong. Operating cash flow was a record $150,700,000 and free cash flow was $108,300,000.
We did not repurchase For fiscal 2020, we of $58.37 for a total cash outlay of $20,700,000. From a capital allocation perspective, our first priority remains maintaining sufficient funds for working capital and maintenance cap closely followed by risk mitigation, which includes FX hedging and maintaining balances that we believe would carry us through unanticipated risks. Like natural disasters or prolonged economic downturns. Our current cash balance efficiently covers this operational safety and security priorities, as well as an allocation for opportunistic M And A. We expect to continue to generate strong cash flows in the years ahead, We now believe we can leverage cash generated in a balanced way by reinvesting in growth while also more aggressively returning value to shareholders.
As such, our board has increased the size of our current stock repurchase authorization from the remaining $41,500,000 to up $200,000,000. In addition to our shares automatically, even during periods that our open market program has been restricted. We believe that this overall capital allocation strategy which is focused on maintaining ideally serves all of our stakeholders, including employees, customers, and shareholders. I would now like to turn to our guidance for the first quarter of fiscal year 2021. We are encouraged by growing demand trends in communications that we believe will more than offset the current softness we are seeing in other markets.
We expect the stronger telecom demand that saw at the end of the fourth quarter to continue in the first quarter. We expect datacom and industrial laser revenue to slightly decrease, and we believe traditional automotive revenue softness will continue, partially offset by growth from advanced automotive technology programs. We expect total revenue in the first quarter to be in the range of $410,000,000 to $430,000,000. We are optimistic that we can drive continued efficiencies in gross margin, even with seasonal cost increases that we typically face in the first quarter. From an earnings perspective, we anticipate non GAAP net income per share in the first quarter to be in the range of $0.93 and GAAP net income per share of $0.77 to $0.84 based on approximately $37,700,000 fully diluted shares outstanding.
In conclusion, we are very pleased to have exceeded our guidance changes for the fourth quarter and to deliver record results in number of key metrics for the full year. We are optimistic that stronger demand trends in telecom do more than offset headwinds in other parts of our business, and we are top them that we can continue to deliver strong value to shareholders as they look ahead.
Thank questions. Our first question comes from Sameet Chatterjee with JP Morgan. Your line is now open.
If I could just start off with, the outlook here, particularly in relation to capacity additions and quite a strong outlook. Can you seeing strength across your businesses? What are your customers communicating to you in terms of capacity additions required over the over fiscal 2021 and we did see your CapEx tick up a bit here. So are you kind of are we looking forward to a more material increase in CapEx in fiscal 20 or you Brian will it be have you already cycled past the CapEx additions that you needed to do for your customers? I have a follow-up.
Thank you.
Yes, I think, hi, Sumeek. I think, that would be a fair assessment. The CapEx increase that you saw was additional capacity we've been adding throughout the year. And then as we've communicated in our prepared remarks, 100 roughly 100,000 square feet of manufacturing space that we're adding at the Pinehurst Campus where we're relocating a number of office spaces into one location and then effectively building a new building and converting existing office space into manufacturing space. And that would yield, as we said, about 100,000 square feet of additional capacity.
As we've said previously that our existing customers for the most part who are in the Pinehurst campus, they really want to stay in Pinehurst. So as their business expands, we have to expand our footprint somehow in Pinehurst. Rather than try to force the customers to relocate to Chombardy. So really Chombardy is aimed at capacity additions for new customers. But we were quite, I would say, quite optimistic about the demand trends we're seeing in the marketplace, not notwithstanding, let's say, the COVID impact from our perspective, I think the way we're thinking about COVID right now is it's a we're in the new normal situation now.
So we factored it in. We've taken it into account And the demand that we're seeing is really what's driving the increasing capacity that you're seeing is, talk about here.
Got it. Just following up on gross margins here, you did mention that you expect to be back in the long term range of 12 half during fiscal 2021. Just help me think about outside of the revenue as it kind of as we go through the year, probably you'll have sequential growth in revenues as we go through the year. But outside of that ramp, what are the other drivers here? Because I think you mentioned of the COVID impact, you should be seeing cycling past that in the first quarter itself.
So what are the other drivers to think about timing when you get back to that range?
Hi, Salig, this is Chella. So if with regards to our gross margin projections for the next the next fiscal year and fiscal quarter, obviously, as we mentioned in our prepared remarks, we'd like to think that the COVID-nineteen impact is becoming part of our existing business model now. So other than that, and all the social distancing related expenses, which we anticipate to continue, we are anticipating to offset that with the operational efficiencies. If you look at our performance in Q4, we were able to increase our gross margins by about 60 basis points from continuous efficiency improvement. So typically in the first quarter, we see a bit of headwinds from annual night increases and obviously the ongoing expenses that we foresee from COVID-nineteen, we are working hard and diligently to offset those by productivity and efficiency improvement.
So such as automation and all those productivity improvement actions that the operations is driving through. So other than the revenue and operating leverage, We are working hard to improve the efficiency. So again, we like to think the COVID related headwinds are going to be offset in a longer term and we can return to our target gross margin range during fiscal 2020.
Yes. And if I could just maybe add to that, Samika, if you take our the headwinds and the tailwinds that we're looking at right now, so the headwinds Obviously, as Trevor mentioned, the COVID headwinds that are now just part of the normal, the normal way that we do business and that's probably 20 to 25 basis points of a headwind, that were additional costs for carrying with all of the protocols to do with COVID. Secondly, we have the merit increase that we implement yearly. So, even though we're in a COVID situation, We want to make sure we take great care of our employees. So we have implemented merit increases for our employees that presents a headwind mostly in Q1 in this quarter.
And then the tailwinds, obviously, again as Trevor mentioned, the efficiency improvements that we've been able to generate frankly, very tight cost containment and cost control. We keep our costs under very tight control. You'll see our OpEx, for example, it's 2.9 percent of revenue I don't think there are too many other EMS companies with that kind of OpEx. So therefore, the leverage we get as we grow the company a lot of the incremental gross margin drops to the bottom line. So we get the leverage there.
So again, a combination of all of those factors, we feel we're in quite a quite a good place in the sense that the headwinds we know about them, we factor them in and we've managed to claw back the vast bulk of it so that we can improve the gross margin as we go forward.
Thank you. Our next question comes from John Marchetti with Stifel. Your line is now open.
Thanks very much. Seamus, I was wondering if you could go back and talk a little bit about the strong telecom demand that you saw that came in towards the end of the quarter. Curious if that was across multiple segments if it was really geared towards geographies that maybe were starting to come out of COVID a little bit earlier than some others or any kind of color there that you can provide would be helpful.
Yes. So the telecom revenue growth that we saw was really a combination of the maybe the inventory correction that we had seen in the prior quarter, coming back as we had expected coming back last quarter. And then we did see some growing demand at the end of Q4 and into Q1. Like I say with the effects of that inventory correction, And also at some of the higher, I would say the higher speed, the higher rated products. So the higher end products that we saw coming back.
And we we as we look into Q1, we do see, telecom being continued to be quite strong actually. And Doctor. Travis, if you'd add anything to that?
No, as you mentioned, Seamus, been pretty much across the board. So telecom was pretty strong and we see uptick demand in the higher data rate programs. John. So that's what we have seen. Again, it's hard to tell whether it's a particular geography or particular customer that we feel good about the strength in the telecom demand that we saw and we expect to continue that in the next quarter.
Got it. Understood. And then maybe on the supply chain side, Seamus, you talked a little bit last quarter and through the quarter. About some of the challenges on the supply chain side and making sure that that was being adequately planned for. Just curious where that stands now.
It sounds like from your remarks, the bulk of that is behind you. And you feel like the supply chain is also getting back to normal. Just want to make sure that I read that correctly.
Yes. I would say the supply chain challenges John, we're always I would say borderline paranoid about supply chain because if you're missing that last resistor, you can't ship. So we're always completely paranoid and remain very, very vigilant on supply chain. I think the way I would characterize it, John, is we have a good feel for what's going on. We feel we have our arms around it, but I wouldn't say it's behind us.
We always start every quarter with a big, big nut to crack in terms of the challenges, the supply chain challenges we have. And then we have just we believe I would say the best supply chain team in the industry, we just go after it every quarter every every day, not every quarter every day. And really go after those challenges to make sure we get our fair share. And in some cases, our own fair share of the parts that are out there, the parts that are on allocation in some cases. It's a little bit different to maybe prior supply chain challenges.
If you go back a couple of years or you have the MLCC situation Right. At this time around, it's more widespread, which makes it a bit more of a challenge. You could look at that a couple of ways say when it's spread across multiple commodities, therefore, no, there's no one commodity that's going to become a gotcha. But there really are still, I would number of challenges. We feel we have our arms around us.
And the biggest impact we feel right now is maybe less to do with leaving revenue on the table and more to do with with revenue and output being non linear. So we will be a little bit more back end loaded than we'd like to be. We'd like to produce in a very linear fashion. So that we can produce the quarter. If you look at our production or operations, we like to be kind of flat loaded for the quarter, not always possible, but we certainly target to be to be level loaded.
And this quarter, we feel we're a little bit more backend loaded. So a little bit of an impact on linearity more so than on actual outputs, if that makes sense.
Yes. And just to follow-up on that, Seamus, I mean, obviously that has a little bit of an impact on margins. But do you see customers are you asking customers then place orders with a little bit longer lead times just so you can make sure that you have your arms around that supply chain? Or is it are customers still pretty much behaving same way on the order side?
Yes. No, that's a you've hit the nail on the hedge on. That's exactly what we're doing. We're working with customers to make sure we we go beyond the normal component lead time. Because if in the end of when components are tight, when components flies tight, Whoever, whichever customer makes a commitment to the supplier to to order beyond the component lead time, we'll typically get the parts.
So we're working with our customers to make sure because as you know, once we order beyond lead time, we can't be financially responsible for that. We have to make sure that our customers, if you like, underwrite that. So that's really what we're working on right now. Is to make sure we have that arrangement in place to kind of a 3 way understanding with our customers. If you like underwriting any orders we place beyond the component lead time and then the supplier is honoring that that they see value.
The component suppliers really see value in when we're able to give them orders beyond the component lead times. So that's really the challenge we have right now. So work through all of that to make sure we secure our sharing parts
Thanks very much.
No problem. Thank you, John.
Thank you. And our next question comes from Alex Henderson with Needham. Your line is now open.
Thank you very much. Just a couple of mundane ones to start off with, if I could. Could you give us some sense of what's going on for your tax rate Obviously, it's moving around a lot because of the exchange rate moves in the government. I think it's talked about giving some discounts. Can you give us some guidance on what we should be using for FY 2021?
No, hi, Hi, Alex, this is Cheva. So basically, if you see our tax rate was slightly down year on year in fiscal 2020, our effective tax rate came in at about 4.14%, which was slightly below last year. Again, as you mentioned, certain movements around So in the longer term, for modeling purposes, we are still anticipate the tax rate to be around 5% range and below 5%.
Thanks. And then the second one I wanted to ask more, more pointed is around the systems business. Clearly, it's a pretty big nut coming down the pike. You have 2 potential customers impacting the numbers first one, obviously had an inventory correction. That should be falling out sequentially.
But I don't think it fully falls out until December quarter. And then you have a second customer coming in quarter from that additional customer, or is that really going to be metastasizing as a revenue driver starting in the March quarter? Into the June quarter. How do we think about those feathering in?
So we've actually started some of that transfer. It's not meaningful in terms of revenue this quarter, but we actually do have some of that transfer activity going on. And it's more of the if you like transfer and qualification type activity that's going on. And we'll be ramping that over Q2 and Q3 and I was into Q4 actually. I think it will be not
relevant this quarter. Did you mean the June quarter or the September quarter not sure what you meant.
I mean the September quarter.
Thank you.
Yes, it's not particularly meaningful. Meaningful in the sense that we'll have a number of programs and part numbers in the qualification loop the qualification process, but not particularly meaningful in terms of actual ship revenue in the quarter. I think the December quarter Yeah, it will become it will start to become meaningful, I think, in the December quarter, but it's probably really more out into the March and June quarter that it becomes quite significant and quite meaningful. The other customer that you mentioned from our perspective, we think the inventory corrections are largely behind us. We understand they may have inventory corrections still going on but they have more suppliers than just a fabric.
So it may be affecting those other suppliers. We're not quite sure. And then of course there's other system companies and it's really part of our strategy. We're not trying to target every company in the world, but there are a handful of companies who we feel would be a really good fit where we can we're currently supplying, let's say, the optical components to those companies that even if Huawei gets kicked out of networks around the world, those other companies will benefit from that. And in the end, they'll come back to our optical components suppliers to get those optical components.
And so we should end up if you like being neutral from that point of view. And then the upside for us is as those companies then start to hopefully pick up Huawei business around the world and become customers of Fabrinet for system level business, we're quite hopeful that it should represent an opportunity for us to grow our business in the system space.
Just to fine tune it a little bit. So is it a sufficient, positive sequentially from the December quarter into the March quarter to offset normal seasonality. Is that the right way to think about the magnitude of it?
I think that would be a good way to think about it, yes. That would be a great thing for us.
Thank you. Our next question comes from Tim Savageaux with Northland Capital.
Congratulations on the results. You'd mentioned a combination of factors. I mean, it looks like I certainly expect the telecom business to decline. And it looks like it was up about $20,000,000 relative to where my expectations might have been. And you mentioned a couple of factors.
1, kind of less supply headwinds to accelerated telecom demand. Looks to be on the 400, 600 gig side toward the end of the quarter. If we look at what you might have expected to end during the quarter and how it ended up, it's I'm not kind of in the range here where you expected telecom down. It was up pretty nicely. And how would you apportion the upside via those 2 factors, less supply issues versus increased demand?
So I think we had anticipated that, COVID would impact us to the tune of about 25,000,000 dollars, $30,000,000 in the quarter. That's what we have factored into our guidance. And the actual impact was probably much smaller than that. It was in the $10,000,000 to $15,000,000 range, thereabouts. So I think it's a combination of a number of factors.
I think that's a big factor. Also the customer as you mentioned, with whom we had the inventory correction. For the most part, that has self corrected this past quarter and we're back to to where we would like it to be. So a couple of factors. And then as you said, the the higher bandwidth, higher speed products, we did see an uptick in demand there towards the end of the quarter.
So a few factors impacting the telecom goals there.
Yes, and helpful to kind of quantify that COVID impact Question on the datacom side. I guess both results and guidance given some pretty broad based strength we're seeing in cloud, 100 gig datacom modules, in particular, kind of across the ecosystem from the module level down the IC level. Flattish, flat to down, I think a little surprising in that context. I wonder if you could talk about dynamics on the datacom side. When you did see an uptick in QSFP here, in the June quarter, We look like you expect that to tick down a little bit.
I wonder if you could talk about what's impacting the datacom Yes.
So a couple of things. So first of all, I think some of the kind of historical pricing, maybe price erosion that we had seen the kind of outsized price erosion that we had seen historically, that's going to settle down. Now we're back to, I would say, normal levels of price erosion in the datacom space for us. We do have a couple of, I would say, customer specific program transition things going on where maybe an existing program is tapering off at a particular customer where the new generation product is beginning to ramp, but hasn't fully ramped to the extent that it's offsetting the declines in the program that's ending, if you follow me. So that's that's really what we see going on in datacom.
Overall, we're quite optimistic about datacom, I would say. We haven't we don't believe we've lost any share or anything like that. It's more of a like I say, a customer, a program transition that's going on where one particular product is ramping down as another one ramps up.
Okay. Thanks very much.
Thank you. And I'm showing no further questions in the queue at this time. I'd like to turn the call back to Seamus Grady for any closing remarks.
Thank you, operator. Thank you for joining our call today, everyone. We're pleased to have exceeded our guidance in the fourth quarter. Our track record of success demonstrates that our strategy is working and we have never been more optimistic about our future. We look forward to speaking with you again next time.
Until then, goodbye and stay safe.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now