Good day, ladies and gentlemen, and welcome to Fabrinet's Fiscal Results Conference Call for the Fourth Quarter of Fiscal Year 2019. At this time, all participants are today's call is being recorded. I would now like to turn the call over to your host, Garla Tunjanian, 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 fiscal year 2019. Which ended June 28, 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 reconciliation. I would like to Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectation These statements reflect our opinions only as of the date of this presentation, and we undertake 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 SEC filings in particular the section captioned risk factors in our Form 10 Q filed on May 7, 2019. We will 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. Sheamus?
Thank you, Garo, and good afternoon, everyone. I am pleased with our record performance for revenue and earnings in the fourth quarter. Especially given some of the unusual business dynamics we experienced during the quarter. Revenue in the 4th quarter was $405,000,000 and non GAAP net income was $1 per share exceeding the high end of guidance. These results also drove strong cash flows in the 4th quarter.
With operating cash flow of nearly $42,000,000 and free cash flow of over $36,000,000. For the full fiscal year, revenue increased 15% to nearly $1,600,000,000 and non GAAP net income increased 26 percent to $3.81 per share. Total operating cash flow for the year was a record $147,000,000, up $9,000,000 from a year ago and free cash flow was also record at 129,000,000, up a healthy 23% from a year ago. As I'm sure you know, the U. S.
Department of Commerce export ban to Huawei that began in the middle of the quarter came as a surprise to the industry. We do manufacture product for some of our we were able to offset that by better than anticipated performance from other businesses. Looking at our business by end market, optical communications revenue $300,000,000, up or up about $2,000,000 from the 3rd quarter and represented 74% of total revenue. Within Optical Communications, Telecom revenue was down $2,000,000 from the 3rd quarter to $215,000,000 or 72% of Optical revenue. Primarily due to the impact the third quarter.
And in fact, we saw a 5% sequential growth to $85,000,000 or 28 percent of optical communications revenue. By technology, Silicon Photonics based optical communications revenue grew 10% from the 3rd quarter to nearly $90,000,000, the highest level in 3 years. And represented 30 percent of optical communications revenue, the highest level in more than a year. Revenue from QSS 28 and QSFP56 transceivers was $46,000,000, up $2,000,000 from the 3rd quarter, primarily from increased revenue from QSFP56 programs. By data rate, 100 gig programs continue to represent nearly half of optical communications revenue at 144,000,000.
Products rated at speeds of 400 gig and above were roughly flat with the 3rd quarter at 23,000,000 or 8% of optical communications revenue. Looking at non optical communications, revenue was a record 105,000,000 up 4% $3,000,000 are up 9% sequentially, though we don't expect to sustain this level in Q1. Automotive and sensor revenue were both stable at $23,000,000 $4,500,000 respectively. Finally, other non optical communications revenue was also stable at 24,000,000. Revenue from new business increased 8% from the 3rd quarter to $165,000,000 and represented a record 41% of total revenue in the quarter.
Last quarter, we discussed an agreement with Infinera, where we would be assuming manufacturing responsibilities for the products being manufactured from Berlin to our facilities in Thailand, and this process is now essentially complete. While revenue from this program in the fourth quarter was immaterial, We expect it to begin to ramp in Q1 and contribute even more meaningfully beyond that. We continue to believe that Infinera could become a 10% customer the end of fiscal 2020, up from single digits in fiscal 2019. Speaking of which we had 1 10% customer in fiscal 2019 and that was again Lumentum with combined Lumentum and our Claro revenue representing 24% of our total revenue in and expanding capacity while enhancing the benefits our customers value most, like our best in class on time delivery, quality and service. To complement our ongoing cost reduction objectives, we recently introduced a new initiative that we call half half 2x.
With the goal of doing has had a number of positive effects already. Through this initiative, we have improved operational efficiency and reduced cycle times for a number of processes through increased automation and optimization and the elimination of non value add activities. This initiative has enabled us to free up close to 120,000 square feet of manufacturing space at our Pinehurst facility in Bangkok. These efficiency gains have effectively increased the available manufacturing footprint at Pinehurst by more than 20%. Half half 2x is an ongoing process whereby we expect to continue to reduce labor costs, improve cycle times and create more manufacturing space within existing facilities.
As such, It means that our previous metric It also means that we may be able to push the build out of a second building at our Chambry campus until fiscal 2021. Instead of later in fiscal 2020. As reflected in our guidance our customers are working through the restart of certain shipments Huawei. With this, we expect the timing of changes in supply chains to temporarily impact some of our Optical Communications business in the first quarter. Combined with the near term slowdown in the industrial laser market, we anticipate a sequential decline in total revenue of approximately 4% in Q1.
From our record performance in Q4. We believe that the impact of these supply chain resets will be temporary and we remain very optimistic over the longer term. Looking ahead to fiscal 2020, we expect to further capitalize on our leading position as the manufacturer of choice for our customers' most complex products. We're particularly pleased with our record financial performance for the fourth quarter, especially given the unanticipated dynamic impacting the small number of our customers. Our revenue growth of 15% for the fiscal year reflects our ability to grow faster than the markets we serve.
Our ongoing half, half 2X initiative is generating exciting results for us that enable us to better serve our customer while improving our efficiency. As a result we believe we are very well positioned to continue to deliver positive long term trends as Now let me turn the call over to TS to discuss the details of our fourth quarter performance and our outlook TS.
Thank you, Seamus and good afternoon everyone. I will provide you with more details on our performance by end market and our financial results for Q4 as well as our guidance for Q1 for fiscal year 2020. Total revenue in the fourth quarter of fiscal year 2019 was a record 405,100,000 and at the upper end of our guidance range, after adjusting for $1,900,000 contribution due to our adopt of ASC 606 this year. Going forward, we'll be both guiding and reporting results under ASC 606. Non GAAP net income was $1 per share and was also above our guidance range even after a $0.01 contribution from our adoptions of ASC 606.
A foreign exchange tailwind of 1,800,000 contributed $0.05 to EPS upside. For the full year, revenue was RMB1.584 billion, an increase of 15% from fiscal year 2018 and non GAAP net income was an increase of 26% from a year ago. For the fourth quarter, optical communication represented 24% of revenue with non optical communications, representing 26% of revenue. Now turning to the details of our P and L. Reconciliations of GAAP to non GAAP measures is included in our earnings press release and investor presentation, which you can find on our website.
Non GAAP gross margin in the 4th quarter was 11.8%, a 30 basis point decrease from the 3rd quarter largely due to shift in product mix partly related to the ban on shipments to Huawei for a couple of our customers. Non GAAP operating expense was $11,300,000 in the 4th quarter, As a result, non GAAP operating income was $36,700,000 and non GAAP operating margin was 9.1% compared to 9.5% in the 3rd quarter, primarily due to lower gross margin. Texas in the quarter were $1,200,000 and our normalized effective tax rate was 4.4% below our anticipated effective Non GAAP net income was above our guidance range at $37,600,000 in the 4th quarter, a $1 per diluted share, as I indicated earlier. On a GAAP basis, which includes share based compensation expenses and amortization of debt issuing costs, net income for the fourth quarter was $33,000,000 or $0.88 per diluted share above the high end of guidance. Turning to the balance sheet and cash flow statement.
At the end of the 4th quarter, cash and investments were $444,700,000, an increase of $35,800,000 from the 3rd quarter. Operating cash flow in the quarter was $41,900,000 and with CapEx of $5,500,000, free cash flow was $36,400,000 in the 4th quarter. For the full year, we generated operating cash flow of 147.4000000 and free cash flows of $128,700,000, both of which are records. Due to the timings of open trading window, we did not opportunistically repurchase any share during the fourth quarter. As such, $62,200,000 remain in our share repurchase program, and we'll continue to evaluate market conditions to opportunistically repurchase share when possible.
I would now like to turn to our guidance for the first quarter of fiscal year 2020, which is now based on ASC 606. As Shamus described, we expect revenue to be between 386 and $394,000,000. From a margin perspective, we expect non GAAP gross margin to moderate slightly from the 4th quarter due to the impacts of annual merit increases and we expect to see gross margin improve during the year towards our target range of 12% to 12.5%. From an EPS perspective, we anticipate non GAAP net income per share in the first quarter to be in the range of 80 to $0.84 and GAAP net income per share of $0.64 to $0.68 based on approximately 37,400,000 fully diluted shares outstanding. In conclusion, we are excited with our record performance in the quarter.
We remain very well positioned to deliver profitable growth over the longer term as leading manufacturers of the most complex Himax product. Operator, we would now like to open the call for questions.
Thank
And our first question will come from the line of Samik Chatterjee with JP Morgan. Your line is now open.
Hi, thanks for taking the question. If I could just start off on the guidance itself, you mentioned a couple of drivers why you have a sequential decline in the revenue going from the fourth quarter to 1st quarter. But if you can just kind of help us with the puts and takes between the fourth quarter 1st quarter, including how much are you expecting in terms of a headwind from the sanctions on Huawei as well as kind of sounds more like you're giving up some share as you do the supply chain reset. So can you just help us think about the quantifying those impacts?
Hi, this is James. Thank you for the question. A couple of things. There's a few things we outlined in our prepared remarks. So let me add a little bit of color.
First of all, on the the we call it the supply chain reset. Our customers have been finding resolution to the Huawei ban. And in some cases, they've been finding that by redirecting certain products to other of their customers, which means they've had to maybe repurpose existing products to suit other customers. So that has presented a few I would call them supply chain challenges, albeit short term and temporary in nature. So that's the first point.
Secondly, as they in terms of the overall demand, let's say for Huawei, I should point out Huawei is not a direct customer of ours. We don't explain anything directly to Huawei. But it does seem just from the industry publications that we've read, probably the same as you've read, that Huawei's total demand seems to be slower due to slowness in China, but also due to maybe some of the stigma we call it hanging over Huawei in international markets like Europe. So we do think that overall Huawei has done. We don't have a good feel for what that might be in percentage terms, again, as we don't by Huawei directly, but we do feel it is it is being a factor if you like in Q1.
And then thirdly, industrial lasers will need to be down. We think for another quarter too, we believe that the worldwide market, especially for Welding and cutting, is down by about 10% quarter on quarter with going to continue for a couple of quarters. And the final point I would make just in terms of maybe the guidance of some of our customers relative to our guidance some of our customers are guiding up on 3 d sensing significantly, which of course is a product that we don't manufacture. We don't participate in 3 d sensing. As regards, are we losing share?
We don't believe so. The short answer I suppose is we don't believe that we've any market share, we believe that we're we continue to be the number one optoelectronics EMS company. As you can see from our results, we just posted record performance for revenue and profit We once again generated significant cash and we continue to work with our customers on new opportunities and to court new customers in new applications. In FY 2019, we believe the EMS industry grew by about 7% The optical industry grew by about 3% and that includes 3 d sensing. And we grew by about 15.5%.
So we don't believe that we're losing any share.
Sure. Got it. If I can just follow-up quickly on the Infinera business that you mentioned, you're largely done with the move up the footprint from Berlin to your Thailand facility. What is was there any margin impact from that movement in this quarter itself? And how should I think about the impact on cash flow as you make that do that transition?
Was that entirely 2019 impact or is there some impact on fiscal 2020 as you do that transition?
So I'll let TS,
let me talk about the cash flow in a moment. Just on the overall impact on on revenue and margin. So in Q4, we had a small improvement in the revenue because of the core anti Infinera business. I think we call it an immaterial. So we had a small amount of revenue that we shipped in the quarter.
It was probably a headwind in terms of margin for the quarter as we did a startup costs. We had a lot of activity going on that we haven't fully covered those costs yet. So in Q4, I would say slightly positive to revenue and slightly negative to our our margin. Then in Q1, we're just beginning to ramp now in Q1. So we're obviously we're buying a lot of inventory We've taken over a lot of inventory from the Germany facility.
But we're just beginning to ramp that this quarter and it will have I would say more of an impact this quarter, but by no means, we won't be up to full volume for another 1 or possibly 2 quarters. And then as regards to cash flow impact, I'll let TS talk about that.
Yes. Good afternoon, Simon. On the cash flow side, any new customer when they get their forecast, we buy inventory. We put in resources, we pay our labor ahead of collections and we give them a nice payment term. In this case, Infinera is a trusted long term partner and we extend the actually the credit on the database.
So I will say in the next 2, 3 quarter, we will see a dip in our cash flow And I expect by the end of the year, the fiscal year, the cash will be pretty much a neutralized or even at that level. Is that helpful?
Thank you. And our next question will come from the line of John Marchetti with Stifel. Your line is now open.
TS, I appreciate kind of the color that you just gave there on the cash flows. Could you maybe talk about just the gross margin in fiscal 4Q itself. It came in a little bit below what we were expecting. Obviously, you had a little bit of a side to revenue. Just curious if you can talk a little bit about that sequential decline in margin, specifically in that fourth quarter.
Okay. So, we're looking at the June quarter, right, from the March quarter. And as you probably know, Seamus just described, we have a scale of a Huawei ban. Okay. The Huawei ban will come as a surprise.
We lost some efficiency, a lot of wait and see a timeframe. And at that point, you know, as a manufacturing guy, you know, if you wait and see a lot of efficiency. So a lot of efficiency over there And also you heard about Korean startups. As with any new product, we start up, we incur the significant startup costs. So they'll drag the margin a little bit.
And we also have a 1 month of merit increase. We started to give all our employee marrying kids starting June 1st. So there's a 1 month impact there. Therefore, the margin dropped from 12.1% in FQ3 March quarter to 11.8% in the June quarter. And that's basically these 2 or 3 factor account for that in a margin erosion.
Okay, okay. And then Seamus, you mentioned obviously in your prepared remarks as the Infinera business starts to scale that they could be 10% customer. And I wanted to make sure that I heard you correctly. Do you think they can still be a 10% customer for the year? Even with a little bit of the slower ramp to start in the 1st couple of quarters?
Or are you saying that once fully ramp, they could they could essentially be a 10% customer. I just want to make sure I think about how to load that potential revenue full year?
Yes. We think well, we certainly think there'll be at that race at the end of the year, but we think there's a good chance there'll be a 10% customer for the full year actually.
Okay. Okay. Thank you. And then just lastly, on the laser color, Seamus, I mean, obviously with that market slowing down a little bit and so much still coming from your primary customer in that laser market. I'm just curious with that market now slowing a little bit.
How have conversations changed or what's your outlook to bring on additional customers outside momentum through Amada and how you're thinking about that for maybe fiscal 2020 and beyond?
So we have a number of customers in the leisure space. We have 3 or 4 of the kind of the big customers in that space. Lumentum is by no means our only customer. Again, from what we can see, let's say, cutting and precision weathering markets seem to be down about 10% quarter on quarter. And most of our customers in that space have guided down.
And a lot of them are talking about significant pressure from Chinese suppliers, who are moving into their space and really producing very low cost products that are our customers are finding it difficult to compete with. So there's kind of two parts of the answer to the short term, long term short term, of course, Of course, it's not good in the sense that a 10% slowdown in the market we serve isn't is not a good thing. However, from our perspective, we think it might not be a bad thing in the longer term because we do feel it will act as a catalyst and encourage our customers to maybe move to outsource faster. Because really for them to compete with very low cost Chinese competitors, they're really going to have to use outsourcing as a tool to allow them to compete. So we do think the competition our customers are facing from Chinese suppliers, albeit causing some short term headwinds.
We believe could act as a catalyst for outsourcing in the longer term. Does that make sense?
Thanks very much.
Thank you John.
Thank you. And our next question will come from the line of Troy Jensen with Piper Jaffray. Your line is now open.
Hey, congrats on the Knight's results. John.
Thank you, Troy. Thank you.
Hey, so is for you. I guess I'd like to talk a little
bit about Silicon Photonics and you had a record quarter here, but 2 of your top 3 customers are merging here. So just thoughts on that combination and what it means to febrivent longer term and then ultimately you can, you know, Silicon Photonics still provide some of the same growth that you've had historically with those 2 firms merging.
Well, 1st of all, it's very early. We don't really know what the impact would be as of yet. Again, historically, when our customers have come together, it's tended to be good for us historically. This one, it's far too early to say. We still think that Silicon Photonics has a lot of legs left and we do feel we're certainly in the EMS space.
We're the leading contract manufacturer manufacturing Silicon Photonics based products. And we do feel where they were the supplier of choice for those type of products. They're very complex products, very difficult to manufacture with high reliability and high yield. We've been doing it for quite a while. So we do feel we have an advantage over our competition the long term impact of, let's say, Cisco and Acacia, we're not sure yet at this stage.
It's very early to say. But we don't right now, we don't see anything negative. We think it's a good combination. They're a good match. And we're kind of excited to see where Cisco tends to intends to take the product in the future.
So within Silicon Photonics is still 3 firms that make up the bulk of that business?
Yes, this would be, yes. But there's also a number of, I would say, smaller, smaller players who have some really I would say really exciting technology albeit that they're quite small in terms of their overall size is quite small, but they do have some exciting technology.
Okay, perfect. And then last question, I'll see the floor. Just thoughts on QSFP28 versus 56 can we see growth in both segments or is it just the 56% going to drive the growth through the business going forward?
Based on the data in front of me, I think across your broad base. So, I see both are growing at Q4, we did 47,000,000, higher than at Q3. And moving forward, we see maybe a little bit of slowdown because some of the consolidation going on with the Oclaro and CIG and so on. So yeah, but now we're still pretty optimistic about this form factor QS-seventy 20 as well as 56.
Thank you, Troy.
Thank you. And our next question will come from the line of Michelle Waller with Needham. Your line is now open.
Hi, thanks for taking the question. This is Michelle on for Alex. So I had just a quick one on SG And A. It looks like it increased about 12% quarter over quarter. And I was just wondering if that is due to the larger revenue for the quarter or if there's any other factors going on there, it just came in a little quite a bit higher than we were modeling.
Okay. Thanks for the question, Michelle. At Q4 about 1,200,000 higher than the previous quarter, because we go to restructuring and try to beef up our sales and marketing function, very important for the future. So we hire EVP and marketing as previously announced. And now he's trying to build his team.
So moving forward, I will expect, operating expense it's about around that level $11,300,000 to $11,500,000 per quarter moving forward.
That's really helpful. Thanks. And, one quick one, on the half over half, 2x, program you were talking about, increasing the manufacturing efficiencies So it seems like that's going to push out the, the build out that you guys were going to potentially have in fiscal 'twenty. In the Chonburi facility or I mean area. I'm just wondering if you can give some detail around that.
I think you said was it 20% increase in efficiencies and what the utilization rate would be based off of that now? And, yes, that'd be helpful. Any color there?
Sure. So our main campus in Pinehurst, most of our existing customers when they have new business that they want to bring our way they really want to bring that business up in Pinehurst. They don't want to have their business split between Pinehurst and Chondbury. So Chondbury, we target more for new new business are bringing in. Therefore, in order for us to be able to grow with our existing customers, we need to be more efficient.
We need to create space. And over the last year or so, we've created about 120,000 square feet of manufacturing space in Pinehurst. So that's it's about a 20% increase in the manufacturing space that we have in Pinehurst, which is just a, it's a really good result, but it means we're able to bring in new business. For example, like the Infinera business, the majority of the Infinera business, the product manufacturing will be in Pinehurst, some of the repair and upgrade business that's a kind of a space hog that will be in Chondbury, but the vast majority of that business will be in Pinehurst. So this is an initiative we've had going for some time.
We've never really talked about it publicly before, but it's really part of the DNA of the company internally about really doing more with less. The name we put on it is half, half 2x. Half the space, half the people 2x the outputs. But it's a way of really doing more with less creating space being more efficient so that we can basically grow the company and bring in new business. And that does mean that we can I mean 120,000 square feet?
It's a lot of space. It means we think we will be able to push out the build out of the next building in Chamboree to fiscal 2021.
Thanks. That's really helpful. Thanks for clarifying. Thanks.
Thank you. And our next question will come from the line of Tim Savageaux with Northland Capital. Your line is now open.
Hi, good afternoon. I'm going to go back to Silicon Photonics for a moment and then up to a higher level question. For Silicon Photonics, I wonder if you can characterize the growth in the June quarter as being driven more by telecom or datacom? And then do you expect Silicon Photonics to continue to grow into the September quarter?
Good afternoon, Tim. This is TS. By looking at the data, June versus March quarter, Silicon Switzerland grew about 10% 82% to 90%. I will say, both segment, telecom and datacom the silicon photonics are growing. I would say maybe the data count grows slightly faster, but both segments are growing.
Is that helpful? And then moving
on to
Q1, FQ1, I think Seamus already mentioned that we might see a temporarily dip Okay. Because, you know, some of the telecom products, go to some rationalization. Again, I think the both sector from June quarter to September quarter might be flat or down a little bit, so from the June quarter level.
Got it. And that kind of feeds into my next question, which is if you look at the overall sequential guide, I guess, down about $15,000,000 mid range based on your earlier comments. Seems like the bulk of that, maybe 2 thirds, I don't know, is on the non communication side. Given the commentary about 10% sequential declines. I don't know if that's what you meant for the overall and optical business, or could you characterize your guidance in terms of non optical versus optical?
And then within optical, what you expect telecom versus datacom?
Normally, we don't break down the guidance into the kind of final detail, but I think Seamus mentioned that the commercial laser right now, the whole industry is down. And so we expect FQ1 will be down from the June quarter. Therefore commercial laser, which is a non optical communication site. And on the optical communication side, you know, we we see essentially, datacom will be down again. Telecom at best may be flat.
Yeah. So count that make up the bulk of the our guidance here,
but
we don't normally go down into silicon level, silicon photonic level or QX-eighty eight level, did you?
I appreciate the color. I really do. And if I could follow-up with one last one, just to understand that supply chain reset narrative, I mean, I think part of the strength of your footprint here is that you are located in Thailand and then ostensibly kind of not subject to a lot of what might play competitors who are more China focused or China based. And in that context, I guess I'm having a little problem understanding what you're referring to with regard to the disruption coming from OEMs, I guess, ostensibly component guys shipping to the Sienna's of the world versus the Huawei's of the world, how do I connect that back to Fabrinet?
So it's really a function, Tim, of if our customers let's say stop shipping a certain product to Huawei, but they have another customer for that product, but it's a slightly different variant or a slightly different flavor of the same product. So they'll have to do, I wouldn't call it a redesign. It's more of an engineering change that might require us to take away 10 components and add 10 other components. So we'll have to go out and source those components. So it's really more, I think one of the phrases are one of our customers they use is repurposing.
For the repurpose existing products. Some and in some cases those products may be already in production or about to start production. So, like I say, we'll require, I wouldn't call it a full fledged redesign, but more of an engineering change that once it goes through, it will create a a component shortage that we have to go and fill. Does that make sense?
Thank you. And our next question will come from the line of Fahad Najam with Cowen. Your line is now open.
Hey guys, thank you for taking my question. Actually Kim kind of asked the questions I was going to ask, but I'll ask them differently. In terms of your Q1 guidance, can you just help us understand in terms of the relative, drivers? Is it the industrial business that primary driver for the weakness? Or is it the optical communication and within optical?
Is it the data column or the telecom, in case without quantifying, you just help us prioritize, which is the biggest driver for the relative weakness. And then related to the second question that Tim asked, if you look at the broad picture, U. S. China trade relations criteria, the one would expect you to be a net beneficiary of this, trade war and we want to think that you would probably benefit from this trade escalation. So it's kind of puzzling if you're highlighting the supply disruption to Huawei as a headwind, but is there a benefit are you seeing from the U.
S.-China trade relations coming towards you?
I find it. Yes, we are, but I think it's maybe slower to come than we would like. There's a number of our customers are talking to us about switching their supply chain out of China and moving it to Thailand. Those conversations are still going on. It's maybe slower to move them.
We would like But I do think you're right. It showed the tariff situation, we should be a beneficiary of that because we manufacture everything all of the products we manufacture, we manufacture in Thailand. So yes, that should be, again, a kind of a medium term tailwind for us. You will appreciate, unfortunately, the 2 things that say component shortages and reengineering supply chains, they don't move at the same speed. When a component shortage happens, its effects is immediately.
When a when a customer decides to move their supply chain, let's say, from China to Thailand, it can take, I would say, best case, 6 months, probably more like 9 months, maybe even up to a year. And the pacing item is usually not the speed at which we can move the product. The pacing item is usually the qualification cycle with their customers. So like I said, there are a number of conversations going on, but nothing of any note to really talk about at this point. But your point is a very good one.
Yeah, certainly the tariffs are a tailwind for us. In relation to the Huawei situation, it's really more of a temporary, I would call it, it's a supply chain challenge that's it's a high quality problem because again, our customers are finding other, customers for their products separate from Huawei. But it does present a short term challenge in terms of just finding the right component mix to be able to get those products shipped and shipped out to our customers' customers. It is very much, I would call it a temporary supply chain challenge. It's not like the components, the supply chain challenges we had over the last couple of years that were kind of industry wide and pervasive and went on for several quarters.
That's not what this is. This is purely a I would say a quarter, a temporary supply chain challenge that we feel is will be very short lived.
Thank you. And regarding the Q1 guidance, if you could highlight, which is the primary driver of the industrial revenue business or the optical to bookings and then from that?
I would say it's both. I mean, the industry lasers, again, that business does seem to be down about 10% and it's a number of our customers have indicated that. The optical communications, we do believe, again, even though many of our customers are back in business with Huawei. That's again, Huawei is a big customer of many of our customers and even though they're back in business with Huawei. A few things to remember Huawei remains on the entry list and those not all not all products have been turned back on and in the it does seem that even with Huawei being switched back on, Huawei's demand is lower in China and in Europe as well.
So we think maybe Huawei is not back on at the same level. So therefore, the our guidance is, it's both, I would say, optical communications and industrial lasers.
Appreciate it. Thank you very much.
No problem. Thank you for that.
Thank you. And we do have a question coming from the line of Dave Kang with B. Riley FBR. Your line is now open.
Yeah, thank you. Good afternoon. So, Seamus, I think you I believe you said that Huawei impact was about $9,000,000 for the quarters. So should we expect that to be like $80,000,000 for the full quarter?
Yes, I don't think so because I think the $9,000,000, yes, the $9,000,000 was, let's call it, half of a quarter. So I guess that's where you're getting the $18,000,000 Right. Yeah, I do think our customers have, let's say, made up some of that. I'm not sure they've made up all of that, but they've certainly made up some of that. So I don't think it's a straightforward is just two times 9.
It's probably a little bit less than that of an impact.
Got it. And then second question is, you have said multiple times that this Huawei situation to be temporary, but my understanding is that your customers that have reported already they talked about EAR versus non EAR. So they were able to ship non EAR products, the ones they couldn't ship, obviously, are EAR products. So that may not be a temporary situation. Just wanted to get your understanding on this situation.
Oh, yeah, it's Duke. I mean, you know, obviously Huawei is still on the entry list and it's up to our customers to get the necessary approvals to allow them to ship to Huawei. And that's the approach we take, we take a very careful approach. We don't ship anything until we're certain that our customer has the necessary approvals. In place.
Overall though, I think with whether the products are on the guess the point I was making, whether the products are on the list or not, overall Huawei demand does seem to be down and they've talked themselves about being down think I read today at $30,000,000,000 over the next 2 years because of the situation. And again, I think there's a little bit of maybe stigma, even outside of the U. S, some European countries are under pressure to not again, I'm not an expert on it, but from what I understand, I guess, same as you would read, a lot of these countries are under certain amount of political pressure, maybe not to purchase from Huawei.
Got it. Thank you.
Thank you, Dave.
Is my pleasure to hand the conference back over to Seamus Grady for any closing comments or remarks.
Thank you. Thank you for joining our call today. We're excited to have delivered strong Q3 4 results, which capped the best fiscal year in our history. We remain optimistic that our leadership as a trusted manufacturing partner positions us for continued success fiscal 2020 and beyond. We look forward to speaking with you again soon.
Thank you and goodbye.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and we may all disconnect. Everybody have a wonderful day.