Lumentum(US:LITE)2023-11-08 16:49Financial Data and Key Metrics Changes - Net revenue for the first quarter was $317.6 million, down 14% sequentially and down 37% year-on-year [166] - First quarter non-GAAP gross margin was 34.9%, down sequentially and year-on-year, primarily due to product mix and factory underutilization [17] - First quarter non-GAAP operating margin was 3.3%, which decreased sequentially and year-on-year [17] - First quarter non-GAAP net income was $23.4 million, with non-GAAP diluted net income per share at $0.35 [18] Business Line Data and Key Metrics Changes - Cloud & Networking segment revenue was $229.7 million, down 19.8% sequentially and down 36.2% year-on-year [20] - Industrial Tech segment revenue was $87.9 million, up 4.3% sequentially but down 40.1% year-on-year [44] - Cloud & Networking segment non-GAAP reporting profit was 10.4%, decreased sequentially and year-on-year [20] Market Data and Key Metrics Changes - Robust cloud data center demand is the strongest growth driver for the Cloud & Networking business, with expectations for strong growth in 2024 driven by AI and computing requirements [7][12] - Industrial lasers demand is expected to remain soft into calendar 2024 due to customer inventory digestion and macro factors impacting end markets [154] Company Strategy and Development Direction - The company is focusing on two large and growing end market segments: Cloud & Networking and Industrial Tech [8] - The acquisition of Cloud Light is expected to significantly expand Lumentum's served opportunity within data centers, with anticipated growth of over 30% in Cloud & Networking revenue in calendar 2024 [31] - The company is committed to investing in innovation to meet customer needs and is navigating a transition period while delivering on product roadmaps and synergy attainment from the NeoPhotonics acquisition [33][34] Management's Comments on Operating Environment and Future Outlook - Management noted a tale of two dynamics in the market, with strong demand from data center customers but continued headwinds from networking and industrial customer inventory digestion [15] - The company expects a return to growth in Cloud & Networking shipments in calendar 2024 as customer inventory levels are reduced [22] - Management expressed confidence in the long-term growth potential driven by AI and machine learning applications [152] Other Important Information - The company is consolidating NeoPhotonics' back-end manufacturing facilities, expecting an under-absorption of capacity during Q2 and Q3 [19] - Cash and short-term investments decreased by $69 million sequentially to $1.94 billion due to various expenditures, including the acquisition of a wafer fab in the UK [155] Q&A Session Summary Question: What is the assumption for the contribution from Cloud Light in the guidance for the December quarter? - The revenue from Cloud Light is expected to contribute from the closing date, with about seven-and-a-half weeks of revenue included in the guidance [168] Question: Can you provide an update on the trends in the ZR market? - The company is still under-shipping end market demand, but there is visibility for inventory reduction and potential improvement in the ZR market [27] Question: How is the non-Cloud Light datacom business tracking? - The company is ramping capacity and expects to see growth in the datacom business, aided by the Cloud Light acquisition [52] Question: What is the margin profile of the Cloud Light business compared to the existing Cloud & Networking business? - The Cloud Light business is currently operating in the low-teens for operating margin and high-teens for EBITDA, with expectations to improve over the next 24 months [87] Question: What are the expectations for telecom market recovery? - The company indicated that while there is muted demand, it does not expect a decline, as they are still shipping below end customer consumption [136]