Perfect! Welcome, everybody. I'll read the disclosures first. For any disclosures, please see Morgan Stanley website at morganstanley.com/researchdisclosures, or speak to your sales rep. That's it. I'm Meta Marshall. I cover the networking space here at Morgan Stanley. We're delighted to have Lumentum here today. Wajid Ali, CFO. Yeah, the optical transceiver space is all of a sudden, or not all of a sudden, it's come back in vogue for a little bit right now.
We hope for a while.
Exactly. For a while.
Yeah.
So excited to have you here today. Lumentum's story has undergone a number of transformations over the past couple of years, from China buildouts to 3D sensing, to consolidation synergies, and now kind of, as we just alluded to, to the Datacom AI opportunity with the acquisition of Cloud Light. You know, what are you-- would you say are the keys to understanding the Lumentum investment opportunity today?
Yeah, I mean, you know, when you take a look at all the different products we're investing in, and not just the products, but also a lot of where our capital investments are going, we're really trying to be a great partner to hyperscale customers, as well as to NEMs, to help help them solve their toughest problems that are within the data center and outside of the data center. And for the last number of years, what we've been doing is, you know, building out the infrastructure and also gaining a lot of the capabilities, you know, whether they're just very basic capabilities that we refer to now, you know, with our indium phosphide capability or our capabilities at our Sagamihara facility for datacom EMLs.
But really, what we've been doing all along is building out that capability so that we can be a very key partner to many of the customers that are working with us now for us to be relevant, both inside the data center and outside the data center. And so, you know, what you mentioned around some of the, I would almost call them external events that have-
Mm-hmm
... kind of happened while we've been fleshing out our strategy and executing to it. You know whether it's the synergies that are related to NeoPhotonics and us really gaining value out of that asset that we had purchased. Or whether it's, you know, some of the geopolitical issues that we, as an industry, have been dealing with as it relates to, you know, shipping into China and things of that nature. So, I almost view those as, you know, part of the process as we've been going out-
Yeah
... to execute on our business strategy. And, you know, as we sit here today from an investment standpoint, and you take a look at, you know, some of the things that we've talked to our shareholders about and all our stakeholders about, is, you know, how we think we're going to win with 1.6T from a datacom transceiver standpoint. How we're sampling our 800G ZR or ZR+ products to be ahead of the curve, either with a laser or with a module, in order to take advantage of that data center interconnect opportunity. Our 200G EMLs, which we believe we're going to be first to market on, and be shipping, you know, at the end of this calendar year.
And what that'll really do for our average selling prices with EMLs, and how that'll enable—we believe it'll enable the transition to 1.6 T. And also take—to take advantage of, you know, any AOC opportunities that come about with our 100G VCSELs that are also expected to, you know, intercept that opportunity later on in this calendar year. And so, you know, as we talk about that, and you kind of step back and you say: Hey, you know, here's a company that's been building on all these market opportunities and has been lining up the product roadmaps to be able to succeed from a data center standpoint. That's really the investment thesis for Lumentum.
Okay. So, you know, over the past few years, you've kind of narrowed your datacom focus to datacom chips, where you saw kind of the most lucrative opportunity, and you had actually exited the full transceiver market. You recently reentered that with Cloud Light. So, what was it about the asset or just kind of the size of this opportunity that made you kind of decide to jump back into the full transceiver?
Yeah, I mean, I think, you know, we saw a real opportunity from an overall market standpoint and, you know, where the market was going with enterprise-level customers.
Mm-hmm.
I don't think that that opportunity with enterprise-level customers was there many years ago. There's also the fact that, you know, Cloud Light brings with it a unique capability from a design and R&D standpoint, that I actually don't think that, you know, we had many years ago.
Mm-hmm.
And then you combine that with the acquisitions we've done in NeoPhotonics and, you know, gaining some CW laser-
Mm-hmm
... technology and the opportunity for vertical integration with EMLs, it started to look like a whole unique value proposition. And I think that one thing that's come about over the last three or four years, ever since we exited, you know, that part of the business, is really the importance of being a U.S.-headquartered partner to datacom transceivers, and there's very few of us.
Mm-hmm.
And so that's really the reason we went back in and said: Hey, you know, we think that this is the right time to re-accelerate in this part of the market.
Okay. And then not to get too nuanced for a general audience here, but there have been kind of competing laser technologies or kind of ways to view the Datacom market and where the growth would be. In general, I think, you know, maybe 6-9 months ago, people viewed EMLs as maybe, you know, for too long of reach opportunities. They weren't going to kind of see the early growth in AI and data center use cases. So, what is it that's changed about the market, you know, for most estimates to kind of have seemed like EMLs are going to see much more growth with AI transceivers?
Yeah, I think the biggest thing is that 200G EMLs create a pathway to 1.6T.
Okay.
And, you know, you know, 800G products you could do with 8x 100G-
Mm-hmm
... EMLs. But we're seeing a transition, even with an 800G, to move-
Yeah
- to 4 by 200s.
Mm-hmm.
That's really kind of a ... I don't want to call it a pipe cleaner, but it's almost a path to prove that 200G can actually be successful. Now, it could be successful using silicon photonics-
Mm-hmm
and it could be successful using EMLs. Obviously, you know, our thesis is that, you know, there's a lot of power savings that go along-
Okay
... with, moving to 200G. Maybe not half-
Mm-hmm
of what 800 G is, but certainly a material amount. And, you know, when you take a look at a lot of the technology innovations that are occurring, it's not just about speed, but it's about speed at the lowest cost per bit, at the lowest power per bit.
Yeah.
So how do you achieve that perfect, you know, triangle almost, or trifecta? So, that's really what that's really why we see 200G and EMLs doing well as we move forward.
Can you maybe just give kind of a brief, and not to bring you into a CTO versus CFO position-
I would not do well.
But, uh-
I have Kathy here for that.
Yeah, exactly. We might have to bring Kathy on stage. But can you just give a sense for, you know, where you would be using EMLs versus VCSELs versus silicon photonics, and you know, how people should think of those different use cases?
Yeah. No, I think that I think there's a market for each.
Mm-hmm.
you know, you know, historically, you know, Cloud Light did have a very good portion of its business that was AOCs.
Mm-hmm.
Now, they were using a different VCSEL than ours.
Yeah.
And so, there's an opportunity, like I mentioned earlier, to intercept that, for really, I would say, very basic type of data center interconnect-
Yeah
- opportunities. And that's really kind of where you'll see, you know, a market opportunity for that. And then for silicon photonics versus EML, I think that there is still opportunity for both-
Mm-hmm
For both types of, you know, design architectures. It's very customer dependent. Every customer wants to, you know, design their own data center architecture and almost, you know, think through which solution is better for them. And, you know, the customer interactions that we've had, you know, as the Cloud Light opportunity has become ours or has become part of our business, has revolved equally around both silicon photonics and its power-saving abilities versus really 200G providing the highest level of performance and providing a lot of, you know, wavelength stability.
Mm-hmm.
You know, as I look at it, I said: Okay, okay, you know, if we want to be a part of this business, then we want to succeed, then, you know, our ability to offer solutions across all three of those platforms and be able to customize around the design of our customers-
Mm-hmm
- That's an important capability to have.
Yeah.
That's really what we're focusing on.
Okay. So maybe VCSEL is kind of the shorter reach, most basic, and then-
Mm-hmm
- kind of depending on customers-
It's really-
- Silicon photonics versus EML-
It's very-
for kind of anything a little longer.
Yeah, I would almost say we're agnostic about it.
Okay.
You know, although our preference, because of our ability to ship 200G EMLs, is EMLs, and that's-
Yeah
The greatest opportunity, but we're agnostic at some level.
Okay. Maybe that leads into kind of the conversation of, you know, obviously Cloud Light uses... You're not vertically integrated with Cloud Light today.
Right.
You just closed that acquisition. You know, what are the opportunities to kind of vertically integrate that business?
You know, I think the biggest opportunity that's happened with Lumentum joining forces with Cloud Light is our ability to gain the trust of some very large customers.
Mm-hmm.
For them to have the confidence that there's a Silicon Valley-based,
Mm-hmm
... you know, partner that has expansive manufacturing capabilities in Thailand.
Mm-hmm.
You know, ones that we've proven we can, you know, build out and execute to for NEMs customers. And we can apply that same type of model for their demands and for their business. And so there's a lot of cost vertical integration opportunities.
Mm-hmm.
Usually, you know, we'll talk about, hey, you know, we can take our EMLs and put that into-
Yeah
the design of a transceiver, or we can take our CW laser and put that into the design of a transceiver, or our VCSELs into an AOC. But I think that that's actually missing the big opportunity.
Mm-hmm.
The big opportunity is Lumentum being a company with a global footprint for manufacturing and being able to produce outside of China-
Mm-hmm
... in a meaningful way through its access to Thailand manufacturing.
Okay. And then maybe you can just speak to, you know, when you bought Cloud Light, it had one major customer. They're obviously kind of going, or not obviously, but they're going to be going through kind of a design transition that you guys will have to work through at the beginning of this year. But can you just talk about, one, that transition and just the impact to your business, and two, you know, as you just mentioned, you're kind of broadening out that customer base.
Right.
So kind of, what are the offsets in terms of that digestion with other opportunities to expand the customer base?
Yeah, and I mean, if you, if you step back and you say, "Okay, well, why is that transition happening?
Yeah.
Well, the transition is happening because that large customer wants to move to designs that have lower power.
Mm-hmm.
And so, you know, it has nothing to do with... It has nothing to do with us or with Cloud Light in itself.
Mm-hmm.
It's really the desire to move to lower power. And so, we're going to be moving from, you know, 1 800G flavor to actually 2 800G flavors with that customer.
Mm-hmm.
I think that digestion will then be followed on with sampling of 1.6T product by the end of the summer.
Mm-hmm.
Then hopefully some production volumes of 1.6T, you know, kind of as soon as you get through the whole sampling process and things like that. But I think, you know, what you're seeing is you're seeing that transition happen for good reason, really for power reasons. And then, you know, how you kind of have the offset with that particular customer is with 1.6T, and then after that, diversifying to other customers that are also evaluating our ability to meet their demands with 1.6T as well.
Mm-hmm. Okay, and then just broadening that customer base, you know, from one customer, just how long does it take to kind of qualify other customers? Just when do you think you guys will kind of have more, more customers?
I think from a production standpoint on 1.6T with our current customer, it's probably an end of calendar 2024 event.
Mm-hmm.
Even if we had a design in with those other customers, we probably wouldn't be able to announce it.
Yeah.
But you know, a reasonable assumption would be, you know, the first part of calendar 2025-
Okay
... if we were able to, you know, kind of get over all the technical and qualification hurdles in a timely way.
Okay. And, I mean, you know, there's a lot of enthusiasm about 800G and 1.6T, and, you know, you guys are clearly leading on the 200G EMLs. Just what are other bottlenecks that we should be thinking of, of, you know, what is kind of the inhibitor to some of the-
Yeah, no, I-
transitions?
... That's, that's a great question because it's not all about us.
Right.
Right? It's the supply chain ecosystem has to work alongside us in order for us to be able to execute on that ramp.
Mm-hmm.
So whether it's the DSP or whether it's the switching technology, and I'm not going to mention vendor names, but I think...
Yeah
... you know, people know who they are.
Right.
And you know, those partners within that supply chain ecosystem also have to kind of come along. They have every economic incentive to do so.
Mm-hmm.
and I think that our end customers are also involved in ensuring that there is alignment-
Mm-hmm
... to make sure that that happens. But yes, there are things that are not, within Lumentum's,
Yeah
... kind of execution abilities for that to happen.
Assuring alignment is a nice way of saying heavy arm-twisting-
Correct.
... I think is what you meant to say.
Yeah.
Okay. And so, you know, just in terms of 1.6Terabit, just what is your thinking, just in terms of when you're thinking that ecosystem kind of comes together?
Yeah, I mean, our internal plans are for the first part of calendar 2025.
Okay.
And so, we're marching along from a CapEx standpoint, from a planning standpoint. You know, we've got our operations team. I think our operations leaders were there two weeks ago in Thailand, you know, working through the space planning of our-
Mm-hmm
... of our various buildings to say, "Okay, if we have one customer, what does it look like? If we have a second customer, you know, what does that space planning look like, and what does that mean from a tools investment standpoint, as well as from a layout standpoint?" So, you know, there is a team that's currently working on that internally at Lumentum.
Okay. And then, you know, in at the same time as kind of all this was happening, you were also kind of going through a digestion period on your datacom chip business that you had with kind of a different end customer or different customer set. Just how have, kind of, you know, how has that business evolved, you know, post-Cloud Light or even post kind of the inventory digestion we're going through? It seems like we're back on an upswing now.
Yeah, I mean, you know, the end demand for those 100G EMLs has been driven by the 800G transceiver opportunities-
Mm-hmm
... across the various hyperscalers, right? And so, you know, that's gone through its normal price curve, I'd say.
Mm-hmm.
and so that's why I think it's really critical that, you know, our ability to ramp, our customers' ability to qual on 200G is very important. Because although that'll give a better cost per bit, for our customers, it will raise average selling prices for us.
Mm-hmm.
And then it can kind of reset the tone of what that datacom business is. But really, you know, that end customer demand is being driven by 800G transceivers, which has you know created pull for us. You know, in the last couple of quarters, we've been on allocation because as we went through a bit of the downturn at the beginning of calendar 2023-
Mm-hmm.
You know, we had reduced costs quite significantly there, and then when the demand came back, we had to go through, you know, the training and bringing back some direct labor-
Mm-hmm.
for us to ship. But we've been, you know, ever since June, we've been shipping more the sequential quarter than we did the quarter prior on the datacom side.
Okay. You know, as we move to faster speeds within the network, there's kind of been more of a discussion of either linear drive optics or co-packaged optics, or basically, kind of eliminating the traditional transceiver structure. You know, just how would you explain how you see participating in some of these opportunities? And what are some of the timing you see for some of these opportunities?
I mean, so, I mean, linear drive optics is doing very well right now.
Mm-hmm.
And so, you know, we know of the parties in the current ecosystem that have been benefiting from linear drive-
Mm-hmm
... as it's happening right now. I'd say that that is a lower value add-
Mm-hmm
from a partnership standpoint, for a company like Lumentum, because we really want to be part of the customization-
Mm-hmm
that's needed in order to deliver the final solution. Linear optics doesn't really give you that type of-
Sure
-opportunity to do so. Co-packaged optics, I think, I think you do need our CTO here,
Yeah.
To talk through that. But, you know, it's, it's something that I've been hearing about for years, on the business. I'm sure it'll be a topic of discussion at OFC.
Yeah.
We're almost agnostic. I think that if there's, you know, co-packaging opportunities, you know, we're certainly there to help build customized solutions for our customers. Our thesis right now, just based on, what we've been investing in, is that, you know, 1.6T with EMLs and 1.6T with silicon photonics are really where the market opportunity is, and it's where we can add value.
Mm-hmm.
So therefore, we can, you know, make more margin than we would on a linear optics type of product.
Okay.
That's kind of our thinking around those things.
Okay. The CTO will answer at OFC.
Yeah, yeah, we can-
The rest of that question.
Good question, yeah.
That's helpful. So, with the market moving so fast from 800G to different generations of 800G to 1.6T, you know, how do you think the traditional cycle dynamics of datacom either apply or don't apply to this cycle? 'Cause I think, you know, for those of us who have followed this space for a while, there's kind of been this, you get really great margins for a while, and then everybody ramps, and the margins come down, and you just kind of rinse and repeat with these cycles. But are we getting to a point where, you know, these cycles are so fast and the opportunities are so big?
Yeah. I will be the first to admit that the 800G to 1.6T transition seems to be happening a lot faster than even I thought.
Mm-hmm.
Again, I'm sure internally at Lumentum, we were aware of it.
Yeah
... but I, I was a little bit surprised by how fast it was. Because the 400G to 800G transition took 4-5 years to happen.
Right.
You know, 800G to 1.6T feels like it's under 24 months.
Mm-hmm.
And so, you know, so being first to market, or we believe we're going to be first to market with a 1.6T product, I think, I think really, you know, gives us a lead over, over the competition and makes us a, a really important, partner as part of the overall ecosystem for delivering 1.6T. So, I, I think this is one of those times that, you know, being fast to market, and the market's changing so quickly, is actually going to be to our benefit.
Okay. So, we don't have enough time at 800 gig to see that margin digestion, as we might have kind of in a traditional cycle?
Yeah.
Okay. I'm going to jump into telco, but I just want to ask if there's any questions, maybe on the data com side of the business before, figure it's a good point to initially stop for questions.
Hi. Just on data com EMLs, I think that business maybe peaked at $200 million of annualized revenue at some point in the past, before this kind of digestion. Can you just level set for us, what applications in the data center were those chips really being used for? Because it would be helpful to understand how that continues to recover, and then we kind of layer in this 200 gig EML ramp with 1.6T and beyond.
Yeah. I mean, the great question. So, I think the, you know, the primary application that was being used for was 800G transceivers. And so, you know, we were shipping in to, you know, all the known partners, 100G EML chips, for those 800G transceiver opportunities that customers were shipping to. And so that was really where it was. On 200G, you know, the transition, some of it will be driven by four by 200G architectures or designs. And then most of it, we believe, will be, you know, coming about when we start shipping eight times 200G. That's the way we're thinking about it.
Got it. Okay. We'll jump into the telecom side of the business. You know, that business has undergone inventory digestion headwinds, you know, both on just telco and optical system side. Just how do you think about recovery there and, you know, will it lag systems vendors because we have to get through their inventory as well? Or just kind of how do you see that timing of, you know, when you could start to see demand come back there?
Yeah, I mean, it, it feels like the inventory digestion has gone on longer than we expected.
Mm-hmm.
It's a combination of things. One is, I think that the demand during the COVID era period was exacerbated by a shortage of supply.
Mm-hmm
... just generally in the market. And I think that our partners also wanted to make sure that they had enough. And then I think that there's been some, you know, end customer demand drop-off that wasn't expected.
Mm-hmm
... you know, from our NEMs customers, or their customers.
Yeah.
And so, you know, the combination of those two has exacerbated the amount of time that this inventory correction has taken place. You know, our thinking up until now has been that it would be a mid-calendar year 2024 timeframe, where we should start to see a bit of an uptick. And as we're getting closer to that time, I think we'll get more information around it. But it's still a little bit hazy, I'd say.
Mm-hmm.
You know, whether it's you know the middle part of this year or whether it's in the third quarter of this calendar year-
Mm-hmm
... is still a little bit unknown. But we are—we have been kind of floating at the bottom for a couple of quarters now as it relates to telecom inventory.
Okay. And just, you know, how does that telco timing impact or recovery timing impact attainment of NeoPhotonics synergies?
Okay
... which you were kind of in the midst of?
Yeah. No, so I think, I think the NeoPhotonics synergies have gone quite well. You know, when we had originally acquired NeoPhotonics, we had said that we thought we'd find $60 million of synergies.
Mm-hmm.
A year later, last year, we increased that to $80 million. At the most recent conference call, earnings call we had, we raised that again to $100 million. Really there's been kind of three components to it. One has been some of the public company costs and the operating expense-
Mm-hmm
... savings from, you know, really getting onto one platform from a product standpoint. The second part that took a little bit longer has been the manufacturing consolidation.
Mm-hmm.
And so just, just in December, we finished the consolidation of two of the manufacturing facilities in NeoPhotonics. And so we should start to see some synergy benefits from that. Then as that's, that's occurred, we've seen some incremental operating expense synergies. But then the last piece is really, you know, vertical integration opportunities-
Mm-hmm
... you know, with things like, you know, vertically integrating our RFICs and our TIAs. That's gonna take a little bit longer, but I think the bulk of it, you know, I think, you know, two-thirds of our total synergies we had achieved approximately, plus or minus, by the end of December. You know, we should be able to get through the majority of the remaining by the end of this calendar year. Then what'll be really left is some of the vertical integration opportunities. So to your question, you know, how does revenues being down impact us? I think that it impacts us in two ways. One is, once the vertical integration opportunities happen, then we've got to take a look at what volumes we're able to achieve on those.
And then secondly, some of the manufacturing savings that we've been able to achieve have been masked by our overall underutilization at a company level. And so, you know, as revenue comes back, we should be able to see the benefit of that.
Okay. Maybe moving on to the industrial tech business. You know, I would say in my conversations with investors, this is probably, like, the black hole of their understanding. You know, you've seen inventory consumption at a large customer and kind of continued macro weakness. Just what gives you confidence on that industrial laser inventory should be corrected over the next six months, and just traction you're seeing with kind of newer products, newer customers?
Yeah, I mean, fortunately for us, our ultrafast products have, have done quite well.
Mm-hmm.
They've been offsetting some of the inventory corrections. We're in close contact with that large customer that's within our lasers business. They've been going through some inventory management themselves, as you know, there's year-end and things like that. You know, the forecasted demand that they're seeing really gives us some ability to say: Okay, later on in calendar 2024, things should normalize. We saw this happen back in 2019 as well.
Mm-hmm
... where we had a couple of really good years, and then, we had a correction for a one-year period of time, and then things, you know, normalized again.
Yeah.
And so that's our thinking around it. And hopefully, you know, continued ultrafast laser success provides some buoyancy to that recovery.
Just in terms of kind of broadening out that customer base, you know, I know you've kind of made recent traction, but just, you know, is there any aspiration? Like, how should we think about the broadening out of that customer?
Yeah. I think the broadening out of that customer base has happened, but it's been slow.
Mm-hmm.
You know, we've added new customers as our ultrafast lasers have come on board. But yeah, it's been slower than we'd like, certainly.
Okay. Okay. I'm gonna jump around here to a couple of different segments. You know, 3D sensing, much smaller portion of revenue at this point, largely, I would think, de-risked. But, you know, do you see any further downside risk or, you know, offsetting potential opportunities for, you know, a rebound in that business?
Yeah, I mean, you know, all the readings through our R&D projects that we've been working on, you know, give us confidence that our end customer wants to have multiple suppliers in that-
Mm-hmm.
In that part of the business. It brings about the most innovation and the most opportunity to make sure there's security of supply. So, we certainly think that we'll continue to be a part of that business, but it'll be at a much lower rate.
Mm-hmm.
I think the real opportunity for us is what comes out of some of the AR/VR investments that we've been making.
Mm-hmm.
You know, those are probably a couple of years out in terms of actual financial benefits for us.
Are there opportunities to kind of expand that customer base beyond kind of what has predominantly been kind of a singular customer?
I wouldn't put that into the base case-
Yeah
of our investment thesis, but yeah, certainly there is.
Okay. And then you mentioned upfront, kind of the ZR opportunity. You know, obviously, I think you guys made some acquisitions of DSP teams, but, you know, haven't traditionally kind of been known as having that full stack. Can you just kind of say where you are there and where you see kind of the biggest opportunity there?
Yeah. I mean, you know, we, we believe we're first to market with-
Mm-hmm
800G ZR and ZR+ products. And, you know, with the 400G ZR+ product, we were only able to sell the laser.
Mm-hmm.
A lot of that had to do with the fact that the ramp of that product happened when NeoPhotonics was standalone.
Mm-hmm.
As it's become part of Lumentum, the confidence around being able to build, you know, full modules for 800G ZR has increased substantially. And so, you know, there's an opportunity for us to be first to market. We're already sampling 800G ZR products.
Mm-hmm.
So, there's a real opportunity for us to be first to market there, but also the opportunity to actually sell the full module rather than just the laser. So I think that, you know, customers need to decide how quickly they want to move to that speed.
Mm-hmm.
But certainly, I think as soon as you know, one customer does, others will follow along pretty quickly.
Largely cloud customers?
Yes. Largely.
Okay.
Thank you. Yes, largely cloud customers.
Okay. All right, perfect. So let's get into your sweet spot of financial questions. You know, one of your priorities has been to lower fixed cost base, you know, to help margins as the top line recovers. What have been some of these initiatives to lower those fixed costs? And, you know, just where are we in thinking of where they primarily are focused?
Yeah, no. So I think, you know, some of the manufacturing synergies that I spoke about earlier, that's been the first place that we've been focused, because that'll really not only just give us a lower fixed cost base, but also give us more nimbleness in our ability to service our customers.
Mm-hmm.
I think that that's really important for us to know where our products are going to be shipping from, rather than have three or four manufacturing facilities. That's an important part of our fixed cost base. The other is, you know, some of the advantages that we've had with the IPG acquisition. We've got a great team, you know, down in Brazil.
Mm-hmm.
And that's really allowed us to expand our capacity from an R&D standpoint, to take on new R&D projects that might not make sense, you know, with a Silicon Valley-based R&D team, but more with a lower cost, but, you know, very capable team in Brazil. And then the third thing is, you know, just generally been our operating expenses. We've been, you know, trying to bring that down on a quarterly basis to below $100 million a quarter. You know, we're not. We're still not there yet. We're still north of that, but we're working through how we can bring that down below $100 million a quarter.
Okay. I mean, just given, maybe the reduction of the 3D sensing business, some of the offsets that you've seen on demand, integration of NeoPhotonics, integration of Cloud Light, I think there's some misunderstanding of kind of what the margin structure really is-
Yeah
-of this business at this point. So you just mentioned kind of the $100 million OpEx, I'm assuming, quarterly-
Quarterly.
Quarterly -
Yeah,
OpEx from that standpoint. But just, you know... I know we'll get to some of the stuff at OFC or other places, but just how do we think about what the margin structure of this, is of this business at this point?
Yeah. So I think, you know, very much so, especially with Cloud Light coming in, we're very focused in on the operating margins of the business.
Mm-hmm.
'Cause the gross margins have gone through a little bit of a structural shift, and I agree with you.
Mm-hmm.
OFC is probably the right spot to talk about that.
Yeah.
But I think, you know, kind of step one is for us to get to a double-digit non-GAAP operating profits.
Mm-hmm.
You know, the way to get there the fastest is really for our revenues, on a quarterly basis, to be north of $400 million a quarter.
Okay.
And so, you know, with some of the telecom recovery that we're expecting later this year, introduction of new products, you know, Cloud Light revenues potentially picking up, you know, we should be able to see, you know, a path to that. And so, you know, right now, our real focus is making sure we can quickly get back to double-digit non-GAAP operating profits for the company on a quarterly basis.
Okay. Any last questions from the audience?
Just on the data center interconnect piece, you know, that 400G ZR business grew pretty strongly last quarter. Given the power draw from AI, it seems like there's a lot of demand for new sites and new builds on the data center side. How do you think about DCI intensity and spend over the next few years? Is this potentially a wave of very strong spend for multiple years moving forward?
That's a great question. I think that's really what we're hoping for with our new 800G ZR+ products, is to be able to intercept and take advantage of that expected increased spending that's gonna happen, you know, in the pluggables part of the market. And so, yeah, no, I think we're very much aligned with that comment.
All right.
So maybe just a last question from me. You know, a lot of initiatives there. How are you thinking from a capital intensity standpoint or just kind of a CapEx standpoint, kind of-
Sure
Some of the spending that needs to take place?
Sure. I mean, so last year, fiscal 2023, we spent about $130 million of CapEx.
Mm-hmm.
The CapEx was much more focused in on ensuring we had sufficient capacity at our Sagamihara facility for EMLs and building out our indium phosphide capabilities in Caswell. So I think that that envelope of CapEx spend stays the same, at least for fiscal 2024. But it'll be much more focused on ensuring a revenue ramp for Cloud Light.
Okay.
For the Cloud Light, former Cloud Light products. And so, you know, the envelope will be similar, but it'll be targeted to, you know, making sure that we can ramp up at the appropriate time for customers for 1.6T.
Okay, perfect. Well, I think we did some good work not being engineers.
Thank you
... explaining this. It was a pleasure having you here today.
Thank you so much, Meta.
Thanks.
Thank you.