Operator: Thank you. Our next question comes from Christopher Rolland of SIG. Christopher, your line is open, please go ahead.
Christopher Rolland: Thanks for the question, guys. I guess my first question is around gross margin. So, if I look at Optical Comms in particular, you guys were kind of mid-50s a little over a year ago, mid-40s now. Can you talk about the trajectory as we look forward? Is this now the trough, and what is that kind of recovering gross margin look like, and when might we be able to get north of 50 again for that business?
Wajid Ali: Yes, hi there, it’s Wajid. I’ll start off on that. Yes, so you’re absolutely right. Our gross margins have come down year-over-year primarily because our chip businesses, both our Datacom and our 3D sensing businesses have historically had higher gross margins than the rest of our telecom and transmission product lines. And so, as we’ve seen a mix shift, we had highlighted very early on with the NeoPhotonics acquisition that we would see a shift from a gross margin standpoint. Now, we’ve been able to offset some of that as we’ve started going through our synergy actions. And as we go through the $30 million of synergy actions that we had highlighted at the onset of the acquisition, and we’ve highlighted on that, recall, after that, we expect that most, if not all, of that benefit will actually come through in our OpComm gross margins with the factory consolidations and the backend consolidations that we see happening and executing on throughout — we’ve actually already begun most of the planning on it.
But as we execute on it, in fiscal ’24, we’ll see the benefit of that come through. As well, you’ve noted that we’ve talked about the inventory digestion happening over the next couple of quarters within our Datacom product lines. And as that recovers, we should see a favorable impact as well as revenue levels increase as well. So, that’s really our path to increasing our gross margins in our OpComm business.
Christopher Rolland: That’s fantastic. And then just following up on OpComms as well, two other lines of questioning, first of all, I wanted to follow up on your Datacom. So, I believe you pushed out that weakness from the first-half to the full-year. Was wondering did you just get a fresh view on the amount of inventory at cloud customers; I’d like to know why that was pushed out? And then also, if you could perhaps talk about this migration from 400 to 800, does that play into this as well? And then finally in OpComms, ROADM, anything on that market, and would you believe your supply normalized with demand at this point?
Alan Lowe: Yes, that’s quite a follow-on. So, I’d say the change in Datacom outlook in duration of the digestion was twofold. One is inventory; we knew the inventory was there. Secondly, is the cloud growth and the CapEx spending of cloud providers, as their growth slows their need to deploy more datacenters and the interconnections of those datacenters lessens. And so, that’s why we wanted to set expectations that it’s going to take a few quarters to get through that inventory. I’d say that the migration to 800 gig is just economically the right thing to do for those cloud providers. And so, they’re very excited to make that transition. And as we’ve said, that transition will happen late this fiscal year, and ramp through fiscal ’24.
And then on ROADM supply, I’d say that’s the primary area, ROADMs and ROADM line cards, where we’re being impacted the most with respect to the supply chain challenges in ICs that we have. So, I’d say 70% year-over-year growth on high-end and contention with MxN is a pretty good indicator that those are the products that are leading the market. And we expect continued growth in that market as new networks get deployed. So, we’re really excited about the progress on ROADMs and in next-generation ROADMs that we expect to come out in fiscal ’24. Chris, you have anything to add on any of those topics?
Chris Coldren: Yes, I mean I would say that the transition or — I wouldn’t call it transition, the add of 800 gig, because I think 400 gig is still going to grow over the next N number of years, and as 800 gig is added, that only adds to the opportunity. And as we’ve highlighted in the script, that’s an exciting opportunity for us we’re participating today. In some — certain 800 gig architectures that are just beginning to hit the market, but as we introduce the 200 gig EML, that enabled an even more cost-effective 800 gig architecture. And so, a great opportunity for us, and there’s not a lot of inventory of that given that’s brand new, right? So, that should be something that’s incremental growth.
Kathy Ta: Thank you, Chris.
Operator: Thank you. Our next question comes from Samik Chatterjee of J.P. Morgan. Samik, your line is open. Please go ahead.
Samik Chatterjee: Yes, hi. Thanks for taking my questions, I have a couple. Maybe if you can start on supply. And I’m curious; you indicated the supply backlog improving modestly as you look at the March quarter. The feedback that we’ve seen from the industry is that even though the broader sort of supply environment is improving, the problems, particularly around ICs, might be broadening to more suppliers than before. Just wondering what are you seeing? Are you generally seeing this sort of consistent improvement across your supply base or is it similar to what the others — other feedback that we’ve received, that the problems might be broadening across more suppliers? And I have a follow-up. Thank you.
Alan Lowe: Yes, I’d say, in general, things are better. But as we’ve said all along, we need all of the parts to be able to ship a product. And so, as we see analogue ICs and even passives become a problem of — or a decommitment, we’ve seen just surprisingly more decommitments at last minute due to factory issues or COVID issues, or what have you. So, it’s not behind us by any means. And so, I’d say we’re seeing exactly what you said, Samik, which is generally improvement but still have problems that we’re working through, and surprises that we’ve incorporated into our guidance.
Samik Chatterjee: Got it. Okay, helpful. And just to follow-up on Datacom, I think some of the other module makers that have reported have indicated that the 200 gig plus modules are doing well with cloud customers still. And there seems to be a ramp on that front. Just wondering sort of if we should be thinking about your Datacom business being positioned differently with the module makers or module maker customers that you work with. And could you sort of also sort of give us some guidance in terms of is there sort of another leg down when we think about Datacom revenues from these levels that you are seeing as you indicated sort of draws out through the end of the year? Are there — do you see more risk in terms of additional step-downs given sort of what you are seeing with inventory with the customer? Thank you.
Chris Coldren: Yes, I think, Samik, this is Chris. To clarify that the module makers are our customers, and so, I think as we alluded to in the prepared remarks that our view is that there is inventory digestion both at the cloud operator buying transceiver but as well the transceiver manufacturers that are our direct customers also have high levels of inventory. So, you can imagine a scenario where they are continuing to ship at using or leveraging chips that we have already provided. In terms of a leg down, I think, and we’ve highlighted this previously that the March quarter timeframe is where we see the low point for us in the Datacom chip business. I think the new development is just that the ramp back up from that point is probably going to be a little more gradual based on the latest discussions with industry participants.
Kathy Ta: Thank you, Samik.
