Good day, ladies and gentlemen, and welcome to the Fabrinet Financial Results Conference Call the first quarter of fiscal year 2020. Session and instructions on how to participate will be given at that time. As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Garo Tumaginian, Investor Relations. Sir, you may begin.
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 first quarter of fiscal year 2020, which ended September 27, 2019. With me on the call today are Seamus Grady, Chief Executive Officer and TS Ng, Chief Financial Officer. This call is being webcast and a replay will be available on the Investors section 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 reconciliations. I would like to remind you that today's discussion will contain forward looking statements about the future financial performance of the company. Both of these statements are subject to risks and uncertainties that could cause actual results to differ materially management's current expectations. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them and neither 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 recent SEC filings, in particular, the section captioned risk factors in our Form 10 K filed on August 20, 2019.
We'll begin the call with remarks from Seamus and TS followed by time for questions. I would now like to turn the call over to Fabrinet's CEO, Seamus Grady. Seamus?
Thank you, Garo, and good afternoon, everyone. We delivered a strong performance in the first quarter with revenue and earnings that were above our guidance. Demand trends appear to be stabilizing in most of the end markets we serve and we're optimistic that we are positioned to deliver strong results the second quarter. Revenue in the first quarter was $399,000,000, a slight decrease from the record 4th quarter as expected. But a 6% increase from a year ago.
Non GAAP net income was $0.86 per share, exceeding the high end of guidance as gross margins improved to 12% in the quarter. Looking at our business by end market, Optical Communications revenue of 302,000,000 was up about $2,000,000 from the 4th quarter and represented 76% of total revenue. Within optical communications, Telecom revenue of $230,000,000 increased 7% from the 4th quarter and represented 76% of optical revenue. This growth is particularly notable considering we have expected telecom revenue to be flat at best. Further, we expect this momentum to continue in Q2.
Datacom revenue was $73,000,000 in the quarter, an expected decrease from Q4 of 15%. Datacom represented 24 percent of optical communications revenue. We believe this decline is primarily of broader industry trends and not due to execution or competitive issues. In fact, based on anticipated near term demand, We believe datacom trends could be nearing a bottom and we expect datacom revenue to be roughly flat in Q2. By technology, Silicon photonics based optical communications revenue decreased from the 4th quarter to $77,000,000 and represented 25 percent of optical communications revenue.
Revenue from QSFP28 and QSFP56 transceivers was $45,000,000, down slightly from the fourth quarter. By data rate, 100 gig programs continue to represent nearly half of optical communications revenue, at $147,000,000 and products rated at speeds of 400 gig and above were up strongly from the 4th quarter at $38,000,000. Or 13% of optical communications revenue. Looking at our non optical communications business, revenue moderated sequentially as expected, $97,000,000 from $105,000,000 in Q4. As anticipated, revenue from industrial lasers declined from the 4th quarter and was $41,000,000 compared to $53,000,000 in Q4.
These same demand trends seem to be persisting, so we anticipate industrial laser revenue to be roughly flat in Q2. Longer term we remain optimistic about our potential to further penetrate the industry laser market as more manufacturers inevitably turn to outsourcing to better compete in this global market that is in fact larger than the optical communications market. Automotive and sensor revenue were both stable at $24,000,000 $3,500,000 respectively. Finally, revenue generated from other non optical applications grew 15 percent sequentially to $28,000,000, mainly from Fabrinet West. Farbonet West has been a great success for winning business for our offshore volume manufacturing sites.
We have seen numerous programs migrate from early prototyping in Farbonet West to volume production in Thailand. At the same time, Ferbridge West has been an enabler for us to win business in new markets and with new customers that might have otherwise gone to competitors. As such, we have been focused on establishing a similar model to Fabrinet West, in Israel. We already have a number of customers there and we believe we have the opportunity to grow our business with these customers as well as attract new ones. We have signed a lease for a building in Yock 9, which is a former Semiconductor Manufacturing facility.
It is already equipped most of the infrastructure we need for advanced packaging and a failure analysis lab similar to what we have to support NPI in our Bangkok facilities. We have hired a general manager for Fabrinet Israel we are targeting to be up and running early next year. In summary, we believe we are off to a good start to the fiscal year with revenue and earnings that beat our guidance ranges and return to gross margins that are within our target range. We're optimistic that our telecom strength will continue and that datacom trends appear to be bottoming. In addition, We're excited to have achieved important milestones towards establishing a second new product introduction facility at Fabry's Israel.
Combined with our continued leadership as a contract manufacturer for the most complex products, we're very excited about our future. Now let me turn the call over to TS to discuss the details of our first quarter performance and our outlook. TS?
Thank you, Saba and good afternoon everyone. I will provide you with more details on our performance by end market and our financial results for Q1 as well as our guidance for Total revenue in the first quarter of fiscal year 2020 was $399,300,000 and above the upper end of our guidance range. Non GAAP net income was $0.86 per share and was also above our guidance range even after a foreign exchange headwind of $1,900,000 and a mark to market loss on interest rate swap contract of $1,700,000. These losses accounted for approximately $0.09 per share. 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 are pleased to see non GAAP gross margin in the first quarter improved to 12%, a 20 basis point increase from the 4th quarter as efficiency more than offset the impact of merit basis. Non GAAP operating expense was $11,600,000 in the first quarter. As a result, non GAAP operating income was $36,200,000 and non GAAP operating margin was 9.1% flat with the 4th quarter. Taxes in the quarter were 2,200,000 and our normalized effective tax rate was less than 5%.
We expect our effective tax rate to be 5% to 6% for the full year. Non GAAP net income was above our guidance range at $32,200,000 in the first quarter or $0.86 per diluted share as I indicated earlier. On a GAAP basis, which include share based compensation expenses, and amortization of debt issuing costs. Net income for the first quarter was $25,900,000 or $0.69 per diluted share also above the high end of our guidance. Turning to the balance sheet and cash flow statements.
At the end of the first quarter, cash restricted cash and investment were $436,400,000 compared to $444,700,000 at the end of the 4th quarter. Operating cash flow in the quarter was $2,600,000 and with CapEx of $6,300,000, Free cash flow was an outflow of $3,700,000 in the first quarter. During the quarter, our working capital increased to higher than normal level in support of a major new program transfer. This will begin to sell. Correct?
In the second quarter, as we start to consume the transfer inventory and collect receivables. We did not repurchase any share during the first quarter. As such $62,200,000 remain in our share repurchase program and we will continue to evaluate market conditions to opportunities with purchase share when possible. I would now like to turn to our guidance for the second quarter of fiscal year 2020. As Shamer described, we expect a strong second quarter and anticipate that revenue will be between $408,000,416,000,000.
From a margin perspective, we are optimistic that we will see efficiencies continue to drive incremental improvements in non GAAP gross margin within our target range of 12% to 12.5%. From an EPS perspective, we anticipate non GAAP net income per share in the second quarter to be in the range of $0.91 to $0.94 and GAAP net income per share of $0.74 to $0.77 based on approximately 37,700,000 fully diluted shares outstanding. In conclusion, We are excited with our strong performance in the quarter. We remain very positive about our long term prospect for continued leadership in the marketplace. Operator, we'll now
Our first question comes from the line of John Marchetti of Stifel. Your line is open.
Thanks very much. I appreciate you taking my question. A quick one first off, Seamus. I was curious if in this order there was any revenue associated with that, that transfer program coming in and if there is some of that in the guidance for next quarter as well.
Hi, John. Yes, we had some revenue from the transfer program. As you may notice from our cash, we did burned cash in the quarter and in large part that was due to inventory that we purchased in the early part of the quarter. And then our shipments, as you can appreciate, with a big transfer like that, we did have some revenue, but it was pretty much back end loaded in the quarter. So, we have some receivables that, that fell into this quarter.
So yes, we did have, some revenue in the quarter and we continued it's in our guidance for this quarter as well. And we think it will be probably largely ramped I think by the end of this quarter. We're a little bit ahead of schedule. I know previously we mentioned we thought it would be out into Q3. We think it would be largely ramped by the end of this quarter.
So just to be clear by the end of this quarter, you expected that whatever you're shipping for that program will be coming out of your production and not just out of inventory that you purchased?
Yeah, we didn't purchase the only inventory you purchased was raw material. We didn't purchase any finished goods or semi finished goods or anything like that. So everything that came everything that was in our revenue last quarter was product we produced. And that's been the same this quarter. It's just that there'll be hopefully a little bit more of it this quarter.
We expect to be fully ramped up this quarter.
And then if I can switch gears, you had a pretty significant sequential increase in the 400 and above speed segment there. I'm wondering if you can talk about if that was with existing customers and there's more demand related if there's some new customer activity mixed in there. Just any color you can give us behind sort of that ramp that's fairly steep in the 400 and above?
It's a combination, John, of both existing and new customers. I would say the majority of that revenue came from existing customers. As you can appreciate, any volume from new customers will be small in nature, but the majority of the revenue the revenue increase on the 4 100 gig systems from existing customers.
And then lastly, if I can't, just curious about your about the datacom business getting a little bit better. What sort of visibility do you have there? And I guess what's changed over the last quarter or so to make you feel a little bit better about that? Thanks very much.
No problem, John. I think we feel like about the datacom business we think is maybe bottomed outflattened. It was down last quarter as we said there. As expected that our datacom revenue was down. And we think it's kind of bottoming out.
So this quarter, we think last quarter was probably a low point and we think it's flattening. So we're not exuberance, I would say, we're not guiding any huge increases on datacom, but we do feel I think our telecom business we think is quite strong and will be up at our datacom business we think is is still a little bit flat, I would say. That's really based on the forecast in orders we have from our customers. We We have about typically 13 weeks rolling visibility. So we have some pretty good visibility and that's based on on the visibility we get from our customers, John.
Thank you, John.
Our next question comes from the line of Alex of Needham.
We can talk a little bit about this program that you're moving over from Berlin. Obviously, you've given guidance here for the full year fiscal year ending 'twenty that this could be 10% plus of your revenues. It doesn't sound like in the first half, it's anywhere near that. Can you talk a little bit about the cadence of when you think it can achieve or exceed that, that, full year mark because I would assume at some point has had to cross over and be more than 10% to get to that level for the full year?
The 10% comment that we've made previously was in relation to Infinera as a customer in total, which would be the combination of the previous if you like existing Infinera business that we already have plus the transferred business from Berlin. So the 10% comment was not related to the Berlin business alone. The Berlin business is in addition to the existing Infinera business. So that may explain the the disconnects there. I'm not sure if that's helpful.
Well, so I'm assuming that it still isn't over 10% at this point in time or anywhere close to it. So the comments still still stands. When do you think that that program gets to a point where it's driving the type of revenues that would put them at over 10 percent as a customer?
Well, as you can appreciate, we just report to 10% customers at the end of the fiscal year. We think we'll be ramped on the transfer business by the end of this quarter. And that should put us at that run rate, we think, for the full year.
All right. So a second question, if I could, on the ROADMs versus ACODCO, there seems to be a shift, a fairly significant shift at that, between what I would call optical switching, and, transmission, in several companies' commentary Can you talk to what extent you have exposure to a flattening market in the switching bit market and to what extent you think the acceleration in transmission can offset that?
So Alex, this is TS. Again, as you know, most of these programs, we bill for one customer. And if you listen to the earning call, they they essentially they, you know, they are saying, for the short term, it's pretty flat. And in the long run, they still believe that, you know, is going to go up. So basically, whatever they say is applied to us because we only have one customer on the modem, okay.
Right. But question really was to what extent can you use transmission to offset that over the next couple to 3 quarters? Do you have enough visibility on transmission And do you sustain your share, of the business when it shifts between those two segments?
Alyssa, I think we do. I think the shift between let's say transport and transmission, we have a number of customers in that space that should help us offset But we don't have visibility 2, 3 quarters out. We really just have that kind of rolling 13 week visibility, but we we hope to be able to capitalize on that as the as that shift begins to unfold over the next few quarters. We have have a good number of customers in that space. So we hope to be able to capitalize on that.
One last question then I'll see the floor. You had indicated in past quarters that you were experiencing some lack of availability on some passive components and other, fairly low cost, but, critical components that are part of your production sets has the supply constraints on those products, ameliorated? So that's no longer a drag, or are we still absorbing that?
Yeah, I think that that if you like passive supply constraints that was plagued in the whole industry, if I go back maybe three quarters ago, something like that, that seems to have a base as ameliorated at this stage. It's pretty much behind us. We think there's always we start every quarter with some challenges that our supply chain team have to go and secure, but that's just kind of normal course of business. But that overall, I think industry wide passive constraint that was there 9 months ago a year ago, that seems to have a basis at this stage. There's always certain short here and there, but nothing of any significance.
Thank you. Our next question comes from Samik Chatterjee of JP Morgan. Your line is open.
Hi, this is Joe Carissa on for Sonic Chatterjee. So for my first question, I wanted to dig in on the gross margins. I think last quarter you guys guided for moderation from Q4 to 1Q. And so I was just curious if we can double click there and just figure out what has changed and what the variance was in when you guys initially guided there and what changed from what you guys reported in the first quarter?
Hi, this is TS. For the first quarter, as in my prepared remarks, we say the efficiency is more than offset in a merit increase Typically, July, July, August, September, we start giving a increase for the whole year. So that resulted about 20, about 20 basis points better than the previous quarter, June quarter. So June quarter were 11.8 and then moving to 12. Moving forward, Q2, we don't guide gross margin.
But if you just walk backwards based on the guidance, it still show improvement from the 12%. So we are very happy that we are back to the 12 to turn a 5% range and we'll continue to maintain that.
Yes, let me just read the ad. So, a lot of the good results we had on gross margin Q1 it's really down to very tight cost control and efficiency gains from our team, our internal team, the operations team, our supply chain team, really do an excellent job keeping our cost under tight control and, you know, realizing efficiency gains. So it's mostly driven by like I say, efficiency gains and cost containment.
And then for my second question, relative to your commentary around the industrial laser market, it kind of seems like you guys are suggesting a little bit more headwind or continuation of the headwinds that have been impacting that market, while one of your biggest customers in the last earnings call kind of suggested that that market was chopping off, if not, actually improving. So can you kind of explain what you guys are seeing there? Are you guys expecting it to trough in December and then improvement after there or whatever visibility you can provide will be helpful.
Yes, I think that's probably a fair assessment. That industry is going through a tough time right now. Competition is fierce. Spending seems to be tightening up So that whole industry is going through a pretty, pretty turbulent time. We have a number of customers.
We have probably 4 customers in that space right now. One customer being our bigger one. And really our shape and size in that market a function of what's going on with our customers. So, we're not immune from what's happening with our customers. So, it's pretty flat.
I would say the leisure market is pretty flat. Longer term, we do remain quite optimistic as I might have mentioned in my prepared remarks. We do remain quite optimistic about the laser market because we think that some of the price pressure that the big companies in that space that the Western World Companies, if you like, are feeling we believe they will turn to outsourcing as a way to offset that pressure and will outsource more and more because to a large extent, a lot of the companies in that space they in source quite heavily. They don't outsource that much. So we think we're very well positioned with the capabilities and experience we have.
We think we're pretty well positioned to capitalize as that industry looks to outsourcing. But overall demand, I'd say short term is kind of flat as some of our customers have indicated.
All right. Thanks guys and congrats on the results.
Our next question comes from the line of Tim Savageaux of Northland Capital Markets. Your line is open.
Hi, good afternoon and congrats on the results.
Thanks, Tim.
Yes, first question is on the 10% customer side. Did you have any 10% customers that's out of your traditional customer, large customer in the quarter?
Well, as we said, we only report the 10% customers at the end of the year. We think we're probably tracking we've mentioned Infinera will likely be a 10% customer. There's a chance there's another 1 or 2 who could become a 10% customer for the full year, but it's it's probably too early to start flagging that at this stage. But we certainly feel we'll have 2 by the end of the year, possibly 3. Outside chances there would be 4, but it's probably more like 3 at the end of the year.
Okay. Appreciate that. And looking at telecom growth in the quarter, especially in the context of seeing the Silicon Photonics line down pretty reasonably. I wonder if you could characterize that 7% sequential growth in telecom. And I'd also, I guess, I'd mentioned that in the context of your commentary on 400 gig growing so strongly and being mostly from existing customers.
But can you characterize the sequential growth either in the results or outlook or both in the context of contribution from new programs, your ramp with your new customer versus existing business or existing customers?
Yes, a lot of the growth in telecom in the quarter, a lot of that did come from our new customers, a big big portion of them come from our new did come from our new customer. 400 gig growth is predominantly from an existing customer And then the decline in Silicon Photonics, you know, some of our Silicon Photonics businesses is telecom related, but some of it's actually datacom related. So the overall, so I suppose the 2, the 2 are possible telecom growth and a decline in Silicon Photonics in the sense that the the decline in Silicon Photonics is mostly, for the data, the datacount customers.
Right. Understood. And any realizing you don't guide by these specific segments, but I wonder if you have any kind of anecdotal commentary as you look forward to that telecom growth continuing. Do you have any kind of similar thoughts around what you expect out of silicon photonics as you head into next quarter and throughout the year. And you expect that to return to growth at some point
Silicon photonics, I think a lot of it, I think on the telecom side, we think it's going to remain strong. And also on the datacom side with several of our customers, 1 or 2 of our have experienced a little bit of softness in the data center. So that does affect us on the Silicon Photonics side. But overall, we think, and again, we only guided quarter time. But overall, I think the sentiment out there that we hear is that telecom, you know, will be quite strong and Datacom is a little bit flat and will continue to be flat, we think.
Great. Thanks very much. I'll pass it on.
Thank you, Tim.
Thank you. Our next question comes from Alex Henderson of Needham. Your line is open.
Thanks. I was hoping you could give us the geographic play.
In terms of shipment, no more changes, North America Shire of 50%. And the rest are split between China, the rest of the world, Southeast Asia is also a big portion. You know, we ship quite a bit to, So it's the Asia country.
And can you tell me what you said about the growth going forward in telecom again. I'm not sure I got it right in my notes. What what was your expectation for telecom growth sequentially into the port, CY 4Q, FY 2Q?
Well, we haven't guided specific growth for telecom. I guess the discussion was really more around overall sentiments. The sentiment where we hear from our customer, I think, is that telecom will remain, we think, quite strong. Datacom is flat, but we haven't given specific guidance for our telecom revenue for what we think it will do in the next quarter.
I see. One more question, if I could, around the, Israel operation. When would you expect be able to actually generate some revenues from that, facility. Is that 6, 9 months out, or how far out does that take
I think we'll be we're targeting to be up and running and ready to rock and roll in the early part of next year. So the kind of January to March timeframe. So we'll be ready to do business, but it takes a little bit of time then to win the business, grow the business. But I think it should be contributing to a certain extent in the I would say in the June quarter. We would expect to see some revenue emanating from there in the June quarter.
Maybe a little bit earlier, but that's that's what we're thinking right now, Alex. So right now we're fitting out we're fitting out the building and we're kind of fortunate to building. We got has a lot of the infrastructure because it was semiconductor manufacturing facility originally. It is a lot of the facilities infrastructure already in place. So that, that shortens the timeline for us.
And we're planning to install the full suite of equipment, S and T equipment, optical packaging equipment and, very importantly, for our customers, full failure analysis capability there. We'll replicate all these on a smaller scale, the same set of capabilities that we have in Bangkok actually.
Do you see that facility as being roughly comparable size to, Fabrinet West?
It's a smaller facility. In terms of square footage, it's smaller. The Farm And West facility, it's a great location, it's a great facility. The building itself is probably a little bit little bit bigger than what we would actually need. So it's a smaller facility.
I think in terms of square footage, it's about
20,000
roughly 20,000 square feet. So it's an ideal size actually for what we need. And similar to Fabinate West, it's not going to be a huge revenue generator in and of itself. The main purpose of Fabinate Israel will be to win customers that we then transfer to Bangkok. So we'll try and replicate the success we've had in Fermit West in Israel.
See. Can you, give us any sense of, what's going on in terms of your factory utilization, in your facilities when you might need to start moving on the next facility. Can you give us an update on that?
Yes. So we continue to create additional space at our main campus in Pinehurst. And win new business in Chonburry. It's hard to say, Alex, really, because we've been very successful. We've probably surprised ourselves how successful we've been at gaining efficiencies and freeing up space in Pinehurst.
So we're growing our Pinehurst facility, our Pinehurst revenue on the same footprint We're adding our new business into Chonburi. It's really hard to say at this point when we'll be ready put it this way, if everything we have in the pipeline lands, we'll be, we'll be hurrying up but not everything we'll learn. So I think we're still very, very optimistic, I would say, about the need for us to grow Chonburi And like I say, if everything we have in the pipeline lands, we'd have to get going quickly. But it's very hard to put a date on that. I'm not being evasive.
It's just it's quite hard to put a date on it because Like I say, a lot of the growth with our existing customers will be in Pinehurst, whereas Chandra will be more for the newer customers.
All right. One last question, if I could, since it sounds like you don't have too many in the queue. The 400 gig commentary, can you talk a little bit about you know, whether that's, on the telco side, whether that's 400 gig or a 600 gig, I assume that that's mostly 600 gig product within that mix for telco. Is that correct?
It's a mixture of 400
In datacom?
Yes, it's mostly 400 gig.
In datacom, that's 400 gig, but what about on the telecom side?
On the telecom side, yeah, there would be 400 gig. Majority, 400 gig,
yeah. So, yeah, for the excluding the 1 point excluding the 600 gig, the 1.3 terabyte that's excluded from the number Seamus just quoted.
All right. Thank you.
Thanks, Alex.
Thank you. Our next question is a follow-up from John Marchetti of Stifel. Your line is open.
Thanks very much. Seamus, if I can just follow-up a little bit on that Israel site, it seems a little bit of a departure from the last couple of quarters where it seemed like you had actually been backing off a little bit on the expectation there. Curious if something changed in the environment or you just found an opportunity even just the site itself that made sense to kind of move forward here that sort of changed at least what I perceived to be the trajectory of that business. And then just secondarily, if you can comment at all about the mix expected in there, I'm curious if this is mostly non the full type of revenue that you think you're going to go after in this market or if it's similar to the Pepper Net West, where it'll be a little bit of a mix of everything?
Good question. I think on the timing, on the trajectory, we've always been, I would say, quite bullish on the need for us to bring up a facility in Israel. The holdup really, John, was just frankly being able to find the right location. We think Israel is a great location. We have 3 or 4 existing customers there.
So we'd be looking to service their needs and also grow grow our business there. So and our the customers we have, we spoke to them and they're very supportive of the idea. Our holdup, if you like, was just literally finding the right location. There's a lot of let's say incentives, government incentives to build you know, in locations that would not be ideal for us. We're you know, if you look at what we've done in Fairmount West, we're right in the middle of Silicon Valley.
Location is very important. It's the same in Israel. So it was really about just finding the right location and we've done that now. We've managed to find the right location. As to the mix, I mean, our existing customers, let me just think for a moment, are all optical communications companies.
And mostly datacom. Yeah.
And mostly datacom. Our existing Israeli customers are all active communication companies, multi datacom. So we would be looking to obviously, we continue to grow our business for those companies and add other communications companies, but also other non communication companies that are in our technology fleet products and items of, precision contact products such as LIDAR and other applications. We're not limiting ourselves to optical We are limiting ourselves to high technology complex infrastructure type products that will transfer to Thailand. Thanks, Tom.
Thank you. We have a follow-up question from Tim Savageaux of Northland Capital Markets. Line is open.
Thanks. I wanted to focus back on your commentary on the pipeline. And I wonder if you can give us an update as to what extent kind of customers, OEMs, moving supply chains out of China is contributing to that pipeline. I guess in past calls, you characterized that as a tailwind, but pretty far out. I wonder if now that another quarter has passed, you can give us an update on kind of what type of opportunities you might be seeing from there's kind of shifts in global supply chains?
Thanks.
So that's I would say that's still a tailwind, but still quite slow to move. Some of the pipelines that I referenced earlier is, I suppose, a function of that, but it's really more a function of just continuing to grow our business with our existing customers and also adding new customers. We have a few big, I would say, big opportunities in the pipeline. And some of the things that we're we're quite excited about are some of the opportunities really moving up the food chain for us, moving up into the full system build, full network systems. With the business we've transferred from Berlin that gives us experience now with that full network system.
We have some other business in that same space. So, you know, we think we're kind of uniquely positioned, I suppose, in our industry and that we're approaching the full system build from the if you like from the bottom up we're producing the most complex high technology components within the network system. So we think it makes sense for us to move up the food chain and produce the modules and the full system that goes with that. So that's in large part what we're targeting, Tim. And like I said, we have some pretty exciting opportunities that we're pursuing.
If I could just follow-up on that quickly. In your I imagine that comment in terms of moving up to this full systems level remains focused on optical communications, optical transport, or are there kind of other parts of the networking universe where you see those opportunities?
It's mostly, as you said, optical, infrastructure equipment, the networking equipment, we're not planning to become you know, if you like a general large system producer for, let's say, storage equipment or anything like that. That's just not in our sweet spot. It really only makes sense for us when we're producing a large portion of the high technology components and content that goes into those systems. So and it also makes sense for us you know, let's say it doesn't make sense for us to produce large systems where we're not producing any of the content, if you know what I mean. So we would not see ourselves as just in December.
We would see ourselves as a high technology producer of the industry's most complex technology and components. Therefore, it makes sense for us to produce the full system. Does that make sense, Tim?
Sure, guys. Thanks very much.
Thank you, Tim.
Thank you. At this time, I'd like to turn the call back over to Shane Grady for any closing remarks. Sir?
Thank you, operator. Thank you all for joining our call today. We're excited to deliver strong results and a positive outlook as we continue to position the company for continued growth and diversification over the longer term. And we look forward to speaking with you again soon. Thank you and goodbye.
Ladies and gentlemen, this concludes today's