Wajid Ali: Meta, I will start off with the broker fees. And then Alan can talk about the DSP side of it. Basically, what you saw happening is, as inventory was being flushed out with the increased supply, the broker charges were a little bit higher. And so the reason they were lower last quarter is not because our purchases were lower, but it was really just the time that it took for it to go through the lead time offsets in our manufacturing process, pick up the rest of the components that were needed in order to ship the final product. And so, with the improvements we saw in fiscal Q2 in our ability to actually deliver to our customers, you would see a corresponding increase in that charge simply because of a swing from inventory into cost of sales.
So it’s more of an accounting matter rather than a business issue. We have actually seen our purchases for broker bought inventory decreased and we expect it to decrease in the coming quarters as well as it’s just a couple of components suppliers that we are now struggling with to fulfill our demand, Alan on DSP.
Alan Lowe: Yes, thanks for the question. Very excited about the team that we brought on from the IPG acquisition, not only on DSPs, but also RFIC’s from NeoPhotonics and what both companies, both acquisitions bring to us on silicon photonics. But on the DSP front, we’re focused primarily on getting the tape out done for our first DSP, and continuing to drive our roadmap, but primary focus is get the tape out done, get the product into our ZR and ZR+ module. And then we’ll see what happens from there. Our primary focus for the DSP is internal consumption, to really drive the cost of the ZR type module down to the lowest possible cost point. And the DSP was the last piece that we needed. So we have all of the other components.
If you look at ZR, the tunable laser, the modulator, the receiver, the RFICs and the DSP, we’ve got it all. So we are the broadest range, or broadest provider vertically integrated on those modules. And so as we finish up that DSP, I think we’ll have a very, very competitive offering at 400G. And then we’re going to, we’re going to continue to work with the merchant market on next generation DSPs. But we are filling out our roadmap and building up a team to be able to do more than one DSP at a time, so very, very exciting time.
Kathy Ta: Thanks, Meta.
Operator: Next question comes from George Notter of Jefferies. George, your line is open. Please proceed.
George Notter: Hi, guys, thanks very much. You mentioned you made some organic cost reductions in the business. I guess I’m just curious about what segments of the business you’re taking cost out? What types of costs, anything you can tell us that would be great.
Alan Lowe: George, it’s mostly on the G&A side, a little bit on SG&A. But primarily, the reductions that we saw during the quarter were on the G&A side, where we see a little bit of opportunities from a product rationalization standpoint, we’re doing that as well. But any savings that we’re getting from that, we’re reinvesting into R&D. So that’s really the way to think about it.
George Notter: Got it. Okay, thank you very much. And then any sense for what the NeoPhotonics contribution was in the quarter in terms of revenue impact? I know you guys gave us a number for last quarter. I think it was $73 million over two months, but just curious what that looks like now?
Chris Coldren: Hey, George, this is Chris. Well along in many of our integration plans, we’re not going to be breaking out any separate NeoPhotonics contribution. The teams or one team working together, products are beginning to be rationalized. So it’s a little difficult to say what is NeoPhotonics, what is Lumentum at this point for all Lumentum.
Kathy Ta: Thanks so much, George.
Operator: Thank you. Our next question comes from Ruben Roy of Stifel. Ruben, your line is open. Please proceed.
Ruben Roy: Thank you. Thanks for letting me ask a couple of questions here. I had a follow-up for Chris, on the commentary around 3D sensing. I just wanted to make sure I understood this correctly, Chris, when you think about the drivers of the downtick in the business, you’ve got overall demand, you’ve got share which you talked about in pricing, I believe you said pricing and pricing environment is normal. And you did talk about the share kind of being kind of where you thought it was going to be. So the way to think about I guess, for this fiscal year is demand, obviously lower. But as you look ahead with consumer now down around 10% or so of revenue, do you think the pricing environment is going to be similar for next year? Do you think we’re going to grow off of that level? Any detail there would be helpful. Thank you.
Chris Coldren: Yes, I would say, as you highlighted the year-over-year performance is primarily driven by the share normalizations, we’ve talked about, we’ve had an outsized share position for many years, and so it was really just a question of when and how steep that reduction would come now that we’re more normalized, I think that that is largely behind us. Pricing, as you indicated is normal, there’s nothing unusual going on there over the past five years of this prices have come down in general, unless there’s a change in architecture, if you will, where a chip gets bigger or smaller, that causes an adjustment in price. And then from that point forward, there tends to be more year-over-year price downs, like we get from our IC suppliers, and very normal as volumes go up.
This year obviously, in the past near-term, the last quarter, and looking ahead, there’s obviously more going on there with regards to supply chain disruptions that are customer and perhaps lower consumer demand. But I think as we look ahead, our focus is on one, continuing to do well and the customers innovation partner of choice in the consumer space, but as well broadening out into other new applications, we’ve got extended reality, we’ve got automotive, and then what’s perhaps even more exciting over a longer timeframe is in the industrial markets, where sensing technologies will impact manufacturing factories, warehouses, and that’s an area where not only can we supply lasers, but we can supply modules and subsystems, leveraging a much broader base of technologies that Lumentum offers.
So, I think there’s a lot of tailwinds more broadly, when we start talking about these expanded use cases, in new applications, these new applications, perhaps of higher dollar content, and things like automobiles as an example, or even extended reality headsets tend to add more sensors per a given device. So that amplifies the dollar opportunity per unit. Does that answer your question?
Ruben Roy: It really does. Thanks for all that detail, Chris. If I could just ask a very, I hope a quick follow-up in terms of the initial revenues being recognized out of auto, IoT, et cetera. How would you characterize those revenues, are those sort of still proof-of-concept revenues, I guess what I’m trying to get at is, is their line of sight to an inflection in some of those non-consumer markets for 3D?
Chris Coldren: I’d say it’s more than proof-of-concept as, especially in China, the adoption of LiDAR is becoming a reality. And so I’d say that that inflection point isn’t in the very short-term with respect to ramping, but I’d say that these are going into vehicles that are going out on the road. And so I’d say that fiscal, by the end of fiscal ’24, we should see a meaningful pickup in that business. And we’re excited about the broad range of customer engagements that we have and the design wins that we’ve been awarded. So, it’s more of a long-term investment that we’ve continued to make and in the coming years, it should be more meaningful.
Kathy Ta: Thank you, Ruben.
