So, I think we’ll have to wait on that and give you an update on our CapEx plans for Cloud Light on the next call or some future meeting. As far as the 800 gig ZR ramp, I think we’re still at the demonstration stage today. And again, positive feedback at ECOC. We’ve got to get from where we are today to beta samples and qualification samples, and then it takes a couple thousand hours of testing to get to production. So, I’d say that’s really more of an early fiscal ’25 and late calendar ’24 type of initial ramp. But again I think we’re positioned quite well with what we think will be first to market on that product. So, very, very happy with progress there.
Meta Marshall: Great, thanks.
Kathy Ta: Thank you, Meta.
Operator: Thank you. Our next question comes from the line of David Vogt from UBS. Please go ahead.
David Vogt: Great. Thanks, guys, for all the color. I’m just going to try maybe triangulating again on this Cloud Light transaction. So I think, Alan, in your prepared remarks, you suggested that the business should accelerate to about 30% growth in calendar year ’24. If I just do some really quick math, does that assume your legacy business returns to growth in ’24 based on sort of the disclosure that Cloud Light has about $200 million of revenue growing, obviously relatively rapidly? And then in conjunction with that, from a margin perspective, I know you talked about it on the last call, as it being sort of a slightly accretive transaction with regards to the first 12 months post-closing. But can you maybe share with us sort of the margin profile of this business relative to the existing sort of Cloud & Networking part of the business pre the transaction? Thanks.
Alan Lowe: Yeah, let me take the first question and then I’ll have Wajid talk about Cloud Light margins. So, I think you’re right about the growth rate. And again, as I said to Meta’s earlier question, feedback has been very positive. And when we turn those — that feedback into orders, we could grow faster. But again, I think that’s a little early. But the impact on — I don’t think Cloud Light has any impact on the legacy business except that we’re very much closer to the cloud customers. And we’re not going to guide more than one quarter at a time. We’re actually not going to split up legacy versus Cloud Light in the future. But I’d say that as we talked about, we do believe we’re under-shipping end market demand and inventories are reducing.
So, we do anticipate that in the first half of ’24 that there’s probably a pickup. More matching our shipments within customer consumption, probably in Q4. So, I would expect that we would see a pickup in Q4 from today’s level. But Q3 is a little bit hard to call right now. Wajid?
Wajid Ali: Yeah, David, so on the margin profile, we certainly see a lot of opportunity with Cloud Light. With the rapid growth that we’re expecting in the business, there’s some natural leverage that we should see at Cloud Light. And there’s also a lot of opportunity with our existing manufacturing footprint to help that part of the business grow while utilizing some of the manufacturing capacity that we’ve also got. And then, probably the most important thing, which our R&D teams are going to be working with their R&D teams over the next few weeks, is really our plans around vertical integration. And those plans around vertical integration can provide quite a bit of upside from an in-feed standpoint on their own raw materials.
So having said that, what we’ve communicated previously is that the Cloud Light business is currently operating in the low-teens from an operating margin standpoint and in the high-teens from an EBITDA standpoint. Our expectation that we’ve communicated is that, through the opportunities that we see that we can certainly get that business into the high-teens from an operating margin standpoint over the next 24 months. As the teams dig in more with their R&D teams, we’ll be able to update our thinking around that in future quarters, but that’s currently where our thinking is in terms of the business.
David Vogt: Great. Thank you, guys.
Kathy Ta: Thank you, David.
Operator: Thank you. Our next question comes from the line of Vivek Arya from Bank of America Securities. Please go ahead.
Vivek Arya: Thank you for taking my question. First question, I know you gave a 30% growth potential for Cloud Light, but that’s more like a three to five year. Is it fair to say that they’re growing faster than that? When I look at a lot of the compute deployments, they are growing like a 40%, 50% type of CAGR. So, is it fair to assume that at least in the near- to medium-term, Cloud Light could be growing more at a 40%, 50% rather than a 30% rate?
Alan Lowe: Yeah, I think that’s fair. Given the introduction and rapid growth at 800 gig, we expect that Cloud Light should be able to grow faster than that 30% CAGR. That is a multi-year number. As 800 gig has been introduced, we highlighted that Cloud Light’s revenue in the most recent quarter was more than 50% 800 gigs. So, we’ll be highly leveraged to the growth of that as customers at the leading edge of AI deployments continue to shift to the 800-gig speed.
Vivek Arya: Thank you. And for my follow-up, I just wanted to kind of double check the accretion math or the potential accretion math. So first of all, when you say something is accretive, are you talking on an EBITDA level? Are you talking on an operating income level? At an EPS level? So, if you could define what accretion means? And let’s say if you define accretion on an EPS level, then is it immediately accretive, or will it be accretive sometime in the fiscal year when we put in all the puts and takes of the financial income, right, that is being lost on other fab consolidation activities and so forth? So, when is it actually potentially accretive on an EPS perspective in your opinion?
Wajid Ali: So, Vivek, we’ve communicated this earlier. We believe it’s immediately accretive to earnings per share. And the way we do the math on the earnings per share is the operating income we expect to generate from Cloud Light on a standalone basis without synergies and compare that to what we’re earning in our short-term overnight money market rates. And so, we just take a look at those two to determine accretion. And based on that, the transaction is immediately accretive. And that accretion only improves as we go through some of the synergy actions I spoke about earlier.
Vivek Arya: Understood. Thank you.
Kathy Ta: Thanks, Vivek.
Operator: Thank you. Our next question comes from the line of George Notter from Jefferies. Please go ahead.
George Notter: Hi guys, thanks very much. I’m just curious if you guys have gotten any other feedback on the Cloud Light acquisition from your other datacom customers. I think obviously you’re competing with some of those folks increasingly. I’m just wondering if in the last week or two you’ve had any more feedback. Is this something that becomes problematic for the rest of the datacom business or non-issue? Thanks.
Alan Lowe: Yeah, thanks, George. As you can imagine, I’ve had many discussions with our very important transceiver customers to assure them that our partnership is still very solid and they’re very, very important to us. And I think there’s plenty of demand to go around. And we’ve acted like strong partners with them over time. So, I’d say that the alternative is that they buy from another competitor or they buy from someone that they’ve trusted for years. And so, I don’t see any negative implication with respect to our transceiver customers and their demand on us for EMLs, VCSELs, and DMLs for that matter. So, I think so far so good. The feedback has been positive. And we have not seen any demand shifts as a result of the announcement from a week or two ago.
