Infinera Corporation

Q3 2021 Earnings Conference Call

11/3/2021

spk_0: ladies and gentlemen thank you for standing by and welcome to him for narrow third quarter of fiscal year twenty twenty one earnings call all lies been placed on mute fan any background noise after the speakers remarks there will be a question and answer session if you like to ask a question during this time simply people star followed by the number one on your telephone keypad if you would like to withdraw your question again press star one amitabh pissy he may begin your conference
spk_1: and josh
spk_2: granted had one a hundred third quarter critical to the other two thousand and one conference call copy of today's earnings and invests a slight available of investor relations section of the website additionally this call is they recorded and will be available for replay from a website today's call will include projections and estimates that constitute forward looking statements including but not limited david's butter business plans including a product roadmap sales growth market opportunities manufacturing operations products acknowledging strategy statements regarding the impact of industrywide supplies and challenges and code monkey on a business plan and result of operation is other statements regarding future financial performance including a financial outlook for the fourth quarter of fiscal year two thousand twenty one the statements are subject to risks and uncertainties that could cause and or results to differ materially from management's current expectations actual results may differ materially as a result of there's risk factors including those set forth in an annual report on formed and k for the year ended on december twenty six two thousand twenty as far with the ecstasy and march third two thousand and twenty one and a quarterly report on from thank you for the quarter ended on june twenty six two thousand and twenty one as far with the as on august third two thousand and twenty one as well as subsequent reports filed with are furnished to the guess is he from time to time please be reminded that all statements are made as of today an infant are undertakes no obligation to update or revise and forward looking statements to reflect events or circumstances that may arise after the developers call could a conference call include certain not get financial measures pursuant to regulation to was provided a reconciliation of these non gaap financial measures to the most directly comparable get financial aid and earnings release and events slices painter each of which is available on a better relations section of a website and finally as a reminder will for plenty of time for tonight today but we ask that you limit yourself to one question and one fall in place with that of like to call over to our chief executive officer david heard that canada
spk_3: good afternoon and thanks for joining us today i will begin with the review of the third quarter results and then turned to call over to nancy to cover the details of acute three performance and the outlook for the fourth quarter you three marked another quarter a strong performance with man gap revenue about the midpoint of our outlook range and both nine gap gross margin they're operating margin exceed the high end of the outlook range revenue grew approximately five percent year over year margins think three benefited from the revenue ramp of i six higher services revenue and a shift in the timing of deployment of of systems due to supply constraints these benefits were offset by approximately two hundred basis points of extraordinary costs associated with the current supply chain environment on which i will elaborate short lee okay momentum reflective of market demands remain healthy and quarter with toting bookings up double digit yerba year and well ahead of the growth rate of the optical w d m systems market we ended the quarter with the book to bill ratio well above one and record backlog once again compared to the same quarter last year or prada backlog has grown over fifty percent are record backlog provides greater revenue visibility and positions as well to deliver improve growth and profitability and twenty twenty two we deliver these results against a tough macroeconomic backdrop navigating both the global pandemic and challenging supply chain environment so far and twenty twenty one we estimate that the supply chain dynamics of constrained our revenue growth by four hundred to five hundred basis points gross margin by if people are hundred and fifty to two hundred basis points and operating margins bike three hundred to three hundred and fifty basis points be dynamic have reinforced the importance of our folk a son vertical integration and the associated control of our supply chain our annual business plan is progressing well when measured against the goals we laid out at the beginning of the year and towards our longer term target model for the whole year of twenty twenty one we remain on track to drive revenue growth above the market expand gross margins by three hundred to four hundred basis points and be profitable on and on gap operating base this further them more the demand drivers fueling our business continued to be robust including the unabated growth of traffic and thirty percent plus per year the massive roll out of five g and mobile edge compute the acceleration of architectures embracing open optical networks along with competitive displacements especially against squat way in international markets are a bike or by one strategy that we launched in our investor day combined with our software in service offerings that he comes as well to drive growth and expand market share as we have previously stated our eight by for by one strategy is focused and founded on three we see network transitions the a reflective of corn networks moving to eight hundred gig at services and beyond the for reflective of metro networks expanding a four hundred gag and the one reflective that coherent optics moving out to the edge of the network with the rollout of five ci and mobile eggs computer to see the eight by for by one market opportunities we recently organized our company and the to business groups one focused on optical systems the other on coherent optical modules in addition we enhanced our leadership team by bringing on experience industry veterans tom burns who previously led down that dell technologies networking and solutions business was appointed as the general manager of the coherent optical modules group while ron johnson who served as the head of product management of cisco's optical transport business unit was appointed as the general manager of the optical system screw in it is in addition to time and run we also brought on as mean as the money formerly at momentum to head engineering for the coherent optical modules group and to drive the high volume production a plausible and rough edge marker formally at nokia as head of strategy and corporate development to drive our corporate growth agenda this group of leaders that has the experience and talent to execute our growth strategy now let's turn to additional details from the quarter from original and customer segment perspective year over year revenue growth was strong across the board in a me at a pack and r i c p and cable customers global tier ones though down on a year over year basis do to timing of certain projects and poland of demand ended the first half of twenty twenty one worth were largely stable quarter over quarter we had a record revenue quarter with i see peace driven from new applications footprint expansions and the and boarding of new customers from a bookings perspective we delivered year over year growth in the americas and a mayor well a pack hippa glee a smaller region for us decline primarily due to the timing of certain projects we had a record bookings quarter with our i see peace spanning metro sub sea and long haul applications and covering multiple generations of our products across the region we benefited from our new i six wins strength and some see metro rollouts and new competitive wins we are seeing a growing pipeline a hallway displacement opportunities especially in a mayor and a pack and started converting some of these two wins on a product basis revenue and bookings growth where robots to cross the open optical portfolio the gx compact modular crap platform group double digits year over year and continued to be broadly deployed across all applications metro long haul and sub sea after a very strong first half in bookings for x the am natural platform he continued to grow year over year as we had another good quarter with the gtx six hundred product and added new customers while scaling existing ones on the i six front revenue is ramping our product pipeline and backlog are growing and we have now secured orders from twenty five customers we've recently announced customer wins with the eyes sparkle xeon saudi talcum and telstra and have secured additional wins with several unannounced customers are deploying i six globally with dear ones i cities and enterprise customers across both terrestrial and sub sea networks our recent wins and shipments reinforce our believed that i six remains on track to represent twenty to twenty five percent of our product revenue in two thousand twenty two lines system bookings which are a leading indicator of future high margin transponder sales remain healthy and quarter and we were up again on a year over year basis while the line systems carry lower margins in the short term they are critical to expanding our cuts or footprint and are a good predictor of the adoption of ice six technology on the revenues side line systems game and slightly below our expectations as some of our deployments pushed out to queue for this provided a benefit to are gross margins in the quarter by approximately two hundred basis points which was largely offset by higher supply chain past finally the industry is increasing it's adoption of coherent portables and we believe we're in a unique position to leverage our technical leadership and court see it to deliver industry leading point to point and point to multi point portables by leveraging are in the house he has been designed capabilities us space semi conductor fat integration and packaging facilities we are positioned to have greater control over our supply chain alleviating security and supply concerns while delivering best in class playable solutions interest in our x up optics offering continued to accelerate enrollment in the open xr forum is increasing we now have seven leading global service providers as members of the forum as well of interest from network equipment manufacturers globally trials and proof of concept activities are advancing proving out the technology and business case and setting us up well for revenue and margin accretion beginning in twenty twenty two twenty twenty three we remain excited about the prospects of creating a billion dollar plus addressable market with point to point and point the multi point capabilities of xr are optics as well as the impact it has to our longer term business model as we close our twenty twenty one we remain laser focused on delivering against the financial projections we shared at the beginning of the year we've refresh our portfolio laid the groundwork for vertically integrated plug the bulls are ramping i six and securing important global customer wins looking ahead to do for we see another cool or have continued momentum in our business
spk_4: with healthy demand trends while the industry wide supply chain challenges are likely to remain with us for a few more quarters are que for outlook reaffirms are prior expectations for twenty twenty one to grow revenue above the market and expand profitability may appeal provide additional details on our cue for outlook in or commentary
spk_3: in conclusion i'd like to reiterate how excited i am about the marketing opportunities ahead of us the team we've assembled along with our technology innovations in recent operating results gives his confidence that we are on the right track to deliver the target business model which reflects our expectations of eight to twelve percent revenue growth gross margin in the mid forty he's and double digit operating margins in twenty twenty three i'd like to thank our employees customers and partners for their resilience and support during the year that continued to post formidable challenges in their personal and professional lives bees are certainly unprecedented times i will now turn the call over to nancy to provide the additional financial details of the quarter or fourth quarter outlook
spk_5: and the progress towards our target myth business model nancy they say that good afternoon everyone i will begin by hovering are you free without and then provider outlet for him for my comments reflect our non gaap resolve for your reference we have posted by with financial details including our got to nine that reconciliation turn that the relation website to assist with my commentary overall i am pleased with our performance in the third quarter of twenty twenty one once again the company performed well while ramping new products and winning new customers and a tough business environment as david covered looking for a robust in the quarter of double digit year over year continuing the strength we thought in the first half of twenty twenty one our primary challenge at least over the next couple of quarters will be navigating the industry wide supply shortages as we successfully did it and que three one thing on course to execute against or eight by for by one strategy and delivering on our target business model he had three revenue with three hundred and fifty seven million dollars above the midpoint all of our outlook rings and up approximately five percent year over year relative to iraq that takes some coming into the corner we estimate our revenue with constrained by approximately twenty million dollars from the impact of supply chain shortages through que three twenty one we believe the cumulative impact for revenue from for fighting shortages and then at least fifty million dollars concerning our revenue growth and twenty twenty one by four hundred to five hundred basis points while contributing to our record backlog you three growth march and the thirty eight percent with above the high end of our outlook range of thirty four to thirty seven percent relative to the midpoint of our outlook growth martin came and higher in the quarter primarily due to the ramp a bisects the delay and deployment of certain lines the some from que three the queue for and the benefit of increase services revenue partially offsetting the positive factor with the two hundred basis points of supply chain related costs that we absorbed fifty to one hundred basis points higher than our expectations coming into the quarter on a year over year basis growth march and expanded by two hundred and eighty basis points in history operating profit in the quarter with eight point six million dollars according to an operating margin of two point four percent which was also above the high end of our outlook on a year over year basis operating margin with up twenty basis points but the higher growth marches in the quarter largely offset by higher investments in our be and failed to drive growth to capitalize on market opportunities ahead of us the resulting dps and que three with a loss of one cents per share moving on to balance sheet and cashflow item we ended the quarter of two hundred and sixteen million dollars in cash and research and cast during the quarter we use thirteen million dollars of cash from operation as we increased him and tory by approximately fifteen million dollars after kappa and were can capital investment free cash flow in the quarter with a negative twenty million dollars and we ended the quarter with a zero balance on our credit facility looking ahead to the fourth quarter of twenty twenty one we're encouraged by the continuation of healthy demand and our record backlog and for them que three at the same time we are mindful of the ongoing industry wide supply challenges and expects supply related pressure to continue and there has to the into for for q for the are forecasting revenue to be on the range of three hundred and seventy two four hundred million dollars representing approximately nine percent growth on a year over year basis at the midpoint of the range embedded in our revenue outlook is approximately twenty million dollars with project to supply related impact comparable to the level we're experiencing que three customer demand remain strong and we're secure and he wins with are open optical portfolio setting us up well for twenty twenty two and beyond we are forecasting gross margin to be in the range of thirty seven percent plus or minus one hundred fifty they took place the primary drivers influencing our gross margin include and the approximate two hundred basis points hadn't been from the pushed out of low marks and line system deployment from que three the queue for but considered impact of elevated supply chain related costs of around two hundred basis points comparable to the leveling que three partially offset by a greater contribution from higher margin i six revenue despite the near term pressure we remain on track to expand growth margin by three hundred to four hundred basis points in fiscal twenty one over the previous year we are planning for you for operating expenses to be in the range of a hundred and twenty nine to one hundred and thirty three million dollars as we plan for higher fill commission on the back of record breaking for being here and the invest in our and the to align with our i buy for by one strategy within arm's the our focus remains on high performance coherent optical ended up open optical platform vertical integration and playable we expect to for operating margin to be three percent plus or minus two hundred basis points during the quarter weeks that to utilize cash from operation to provision for inventory and working capital to support the rollout of our new products below the operating income line we assume about five million dollars for net and for success and another five million dollars for taxes finally we are anticipating a basic share circle of two hundred and twelve million shared thank you for in the event that we are profitable on non gaap basis in the quarter diluted share count should be approximately two hundred and twenty two million shares as we have previously stated based on our year to date performance and our outlook for queue for we remain confident in delivering are previously shared expectation for twenty twenty one we continue to plan to grow our revenue slightly ahead of the projected market growth to expand gross margin by approximately three hundred to four hundred days with points compared to point twenty and to be profitable on a non gaap operating income level for the full year we have made much progress putting in place the right team product portfolio and supporting processes to be able to deliver on our a by for by one strategy and long term business model despite the difficulties of navigating a global pandemic and to constrain supply chain i remain encouraged by the team's resilience of execution year to date it is a great time to be a vertically integrated off the phone company
spk_0: our progress and twenty twenty one position of well for increase growth and twenty twenty two and should keep us on a path to achieving our target this of model and twenty twenty three i would like the echo davis appreciation for employees customers partner and shareholders for their continued support josh i'd like to know up in the line up for class
spk_6: at this time i would like to remind everyone if you would like to ask a question please press star than the number one on your telephone keypad and your first question comes from rod hall with goldman sachs your line is open he lived with his appeal of be a high because i can be up abroad for the migration and my job and without the i wanted to check how much in hundred gigs at a new did you see the quarter ambition or comedy sounds like i six is ramping faster than north petition to could you confirm
spk_3: that the gate and talk about what gliding that no thanks appreciate that featured the question so yeah we're not breaking particularly out there the six revenue let's say it's tight single digit in terms of our product revenues going forward and that combined with the bookings give us great confidence for our i breathe
spk_7: we discussed that target next year of twenty to twenty five percent of our product revenues being that he uttered gag i six revenue
spk_3: okay she had it on and that is that a little bit ahead up your expectations for que three
spk_6: yeah i think work or beyond good again i think it's helping it's build capital it's not both the on the shipment side on that revenue side as well as on the booking side of what we're seeing from an order and take
spk_3: okay i'm and lastly i wanted to check or as the supply constraints continue what a foolish that you're twenty two that a new targets may be impacted you well kept going quarter to quarter right now and as you've seen i think we've started out early in the year really quantifying ed ed but the revenue line the gross margin line what we thought those risks would be and he wanted to to and que three and and you know we're we're fighting a way to deliver those we've included a twenty million dollars is nancy said of of that risk in two or into to for so far this year it's been for huh hundred to five hundred basis points that it's really attenuated the the growth as well as two hundred basis points of of gross margin and three hundred to three fifty it's probably too early to call the ball for next year
spk_7: so it you know will i will continue to give you as much clarity as we have on a quarterback quarter basis
spk_0: i sort of pick pick up
spk_8: your next question comes from the line of alexander henderson with meet him and company your line is open
spk_2: after all
spk_3: hello and he going to that that loved comment about the five percent per second just to to put that in contact with the comment of twenty million so i presented
spk_9: on twenty twenty revenue so had one would be around sixty eight million dollars
spk_10: and you're saying it the headwind in the most recent quarter twenty million and so are you then que middle who the adding the admins need to the prior quarter india
spk_3: that the he got it it's things that we would have shipped for the full year when we look at it on a full year basis
spk_9: kill where the is that business long to read that going into that no no that that's part of the you know we keep saying record backlog and i know where you know that there's others in the industry growing record backlog but we are seeing that backlog i continue to grow based on real deployments and real plans that gag continue to be plan for roll up the move within the the constraints you're experiencing is there any differential between the vertically integrated products the to are developing proves the i six persons the supply constraints on what are more open source told products or
spk_3: broadly source products and we certainly see more of an impact in the in the merchants market for packet
spk_11: for things you know chipsets that come to move sling packets around on a network and i think you're seeing that it in the industry certainly less where we have our own fab on packaging capability or on semi conductor
spk_3: indian bought like that so it is more are more profound
spk_9: on the merchant be all the things that that are kind of in the bent metal the power sources the processors the that that that pull in our vertical integration
spk_3: does that imply them as you move more and more your product to i six which and more vertically integrated that the with tears supply chain diminished
spk_9: a i wouldn't say diminish that think it becomes less because you're still putting things into at some point in time a compact modular chassis that has microprocessors fans are other things that were seeing out the and in shortage on the supply chain market
spk_3: right okay great so the if i could go to make sure that i understand the mechanics of what you're saying here in in as we go into twenty two you've talked about the growth rate and twenty three that you haven't really address the growth rate and twenty two and in your comments in my current limit what you are absolutely correct in that so i think what we're gonna continue to do is get our hands around the current supply chain environment where we're at we'd said that in in our analysts say that we expected over the years to grow at that eight to twelve percent i up as we get into twenty two and twenty three but work will further quantify that as we report queue for results and lay out what we see for the year but based on both backlog and the development of the supply chain environment
spk_0: i got it on can think of the for the thank god
spk_7: your next question comes from a line of michael genovese with less part capital please go ahead
spk_2: i think
spk_12: yeah i thought i would go with a question about that
spk_6: you give us the one thirty one number for the the fourth quarter you should really think about next year and the average op ed or quarter is shooting that of being above that number i guess my question is there any
spk_5: cost cutting are pulling back on investment and sally beauty that you've invested in a sex or or should we think about that's sort of scaling am see the not with revenue but an object moving in that same direction with revenue yeah we're on we're absolutely gonna be continuing our investments and are key technologies by them and that is my part of our strategy that we're going to be driving forward and twenty two and well obviously give you more collar on twenty two the david said with our you for results but if you think about the come hair twenty to twenty one and then where we're going and twenty two right and we are in twenty one able to ah return to bonus merit salary increases in this year and we're planning for that and and have plan for that during the sheer against the compare and twenty where we had pulled that back riding in the hope environment at the look forward you can expect us to continue to focus the aren't the investments and as we haven't
spk_6: twenty one and will give you the a little bit more color but our expectation would be the as op that does increase year to year it was not increase critical same rate as the revenue growth that we with it
spk_2: okay great and i'm i would ask about the i see people call it good results there and and interesting commentary on though
spk_3: i guess some is is that mostly all and north america hours that is that spread out and then you know you talked more yeah you'd be talked about that being over multiple generations of technology i'm can talk to me just give us more color on on what's going on yet has great i think when you look at the largest web skelos out there were now covering god virtually all of those was galleries in some way shape or form and were covering with them both in the us but the might as well it internationally when we look at some of their deployments where there are either carrying traffic or having others carry traffic on their behalf and their part of the decision that's going there for sub sea routes and long haul routes we are eating bugs six hundred gag were hitting our traditional two hundred gig technologies as well as eight hundred gig technologies that are going quite well with the i see peace so it is across the portfolio using the compact modular platform
spk_2: again very very strong revenues very very strong order intake and again what gives us more confidence in the supported the new products being twenty to twenty five percent
spk_0: for i six of the product revenue next year
spk_9: great thanks very much actually
spk_3: your next question comes from the line of simon leopold with raymond james your line it's open
spk_6: thanks for taking the question at i think maybe i want to follow up on this this i see p topic specifically
spk_9: appreciate the the vertical disclosures thanks for that we we we see you know a a jump this quarter to twenty percent and i imagine some of that might be revenue rack that that on products you shipped in from new product adoption coming off of kind of that low mid teens trend that you saw prior year in the first half of with twenty two anyone so i guess what i'm trying to get a better understanding of is what's the normalized level and and the outlook as we think about the setup and twenty twenty two and part of what i'm struggling with is now we've got one particular hyper scare lawyer that's growing it's capital spending budget by sixty percent
spk_11: and it's just try to figure out where all that money goes
spk_3: and so my buddy gets thrown at them right yeah and everybody was got that right we want to people that we want to keep that pie so we're
spk_2: i think that the good news is we have more exposure that if i look back to years ago to how many these web scale or we were relevant with at the time with the offering were way more relevant now so where we've got exposure to more of those web scholars and in particular the ones that are increasing their cap acts the most i think we're well positioned
spk_3: with the new technology are in terms of a steady state in terms of what's that mix gonna be between i see peace and and see if be a harder to predict i will tell you we see a nice strong growth here in twenty twenty three with the i see people based on our refresh portfolio and just to clarify the this quarter with this anomalous or as is sort of the the new run rate level well again at is it because of how they're on boarding technologies this was the fact that they they continue to again the world continues to by two hundred four hundred six hundred and that fifth generation a non or gig technologies to service the market i think we saw both an uptick in revenue and and orders that
spk_0: a we'll see how it normalizes i think you guys off and right up how lumpy they are we know how lumpy they are but that trend line over a fourth quarter period next year i would expect to be overall up for us to be growing faster than not than the market than the market average and then are effective
spk_13: recreating thanks take the question some thank you next question comes from the line of met her marshall of morgan stanley please go ahead great banks am i one hundred directly or commentary around the hallway displacement a little bit
spk_3: and the get a sense of where the differentiation as you know is i decide to get a sense of are they adopt an open my systems and maxime transponders and lines are stands just trying to get a sense of where you are finding the most six thousand and of it really is maxine transponders and it was addicts are and some of the timeline displacement thanks no thank you it's good question you should think about the lol a replacement as you know fifty percent plus the that market is in the metro as people tried to remove that is close to the customer is that is and so a big pizza that it takes a long period of time to go do no doubt open line systems and a ship the four hundred gig is helping people accelerate it's kind of to dynamic that once one they want to get rid of while way who they want to read dimension their networks for four hundred gig in the metro and so that is helpful to us that that that trend is there and the trend to open makes it easier for them to do certainly on long haul routes and sub sea routes with open line systems it does make it easier we're just seeing a lot more opportunity in the pipeline than we seen it continues to accelerate and we are seeing people begin to award that business and that business be planned out for deployment in not twenty two
spk_14: any to and it's pretty consistent with i think what we said at the beginning of the year which is we didn't want to get too ahead of our skis we were seeing it in the pipeline we expected when towards the back half of the year and here we are beginning to see those wins and it you know that we have that baked as we said an army analysts day into our growth pattern
spk_0: for twenty twenty two
spk_15: does that help well mannered or was your company i know that that that top of the i appreciate that thanks
spk_3: your next question come from the line of george not work with jeffries please go ahead i got thanks very much some i guess i wanted to clarify i think a huge i said earlier on the call high single digits in terms of i six with that are as a percentage of product sales with that for que three years and prospect who you know exiting the year what exactly was that number yeah sorry let me let me give you a local around that so er that's i think digit for que three product revenue and you know that oh grow in our key for guidance we've got that imputed to continue to grow
spk_15: in the it you know as many have asked if you're going to have twenty to twenty five percent of your product revenues that it that exit rate will grow well i had a single digit into the double digits in to for and will continue to accelerate in twenty twenty two for that average of twenty to twenty five percent and our bookings impact in you three and so far are our forecast in the queue for are very supportive of that great acclaim and is a follow up on that
spk_3: you have a mix of vertically integrated product sales this quarter i sinker he said last quarter the around forty percent of of product feels moved up be now and ah i guess i'm just trying to understand that through to jack already
spk_16: okay about mid forties
spk_15: forty more important but yeah okay
spk_5: great and then when you talk to
spk_3: you know you're in two thousand twenty two being in mid forties gross margins would you know mix of vertically integrated product does that imply out of curiosity
spk_5: the mid forties gross margin and for twenty twenty three
spk_17: for your here for the full year
spk_18: and that isn't the sixty percent range for vertically integrated product
spk_0: gonna okay okay great see the progress their thanks
spk_9: thanks church
spk_6: your next question comes from the line of gym super with citibank the line is open
spk_9: thank you so much given the supply chain his shoes and your company that's doing more and more brutal vertical integration can you shift a shift your fabs up to be just running more shifts or days to pump out more product and then convince customers
spk_3: hey why not get i six now as opposed to waiting for all the supply chain issues or are you already running twenty four seven you simply can't keep up with you seems like if if you crank stuff up you could convince and compels people to move from heist you know bon iver four to six faster her and and they would be happy with delivery or maybe that's is not how it works yeah you didn't when you look gym at the overall supply chain there's a number of semi conductor shortages that it again it's not just on a transponder that you build that you know you put it into a compaq modular chassis and the in l l a line system and you deploy it out over a network there are metro boxes that require packet brought the thing by they go in that are dependent on merchant platforms the good news for us is the
spk_6: transponders we build and and the products we build art that piece of it is within our control but it's kind of like a car is if it's only three tires you're not gonna be able to drive around so we we we do have less of that than if we were fully merchant but but it isn't simply that if you just had a bunch of
spk_19: i six transponders by themselves that you could die run a full network from the metro edge all the way through the sub sea core
spk_0: i understand thank you so much for the details and clarifications
spk_20: thanks jim your next question comes from line of semi saturday with jp morgan your line is open i am ecstatic my question i have to stoop quick ones
spk_3: yeah you referred to the four hundred five hundred basis points head when on group this your because supply constraints just wondering if you think you can recoup some of that is better to man next your are given whole life situations involving the best get us to start limiting fellow the hedwig that you will you wanted you to and been trying to look very well i'm trying to pick is there some upside that supply comes back or the best if you to deliver to belong to model based on strike look at headwinds as we get into next year and i'm follow get it's a good question were a as i mentioned earlier were taken this one quarter to time on the supply chain and and again trying to provide as much transparency as we can to yes the good news is with that backlog it does make us more confident in in a what we had mentioned about the eight to twelve percent as we get into or twenty twenty two but until we see you know the in that you know another couple months of the supply chain situation
spk_21: we'll give you again that that detail in a in our cue for earnings results as well as the the view for the full year for twenty twenty two good news
spk_20: with kind of a starting position that is much stronger are based on backlog and deferred revenue it did certainly again builds are or confidence what we've gotta do is make sure that as we go to the next couple of quarters of supply chain we see that bateman and that attenuation of the supply chain certain circumstances and tom follow up up and going back like pure anything but more of similar to what questions like how does one of the things that we often get off by investors be strong gopnik screwed numbers from the ice
spk_3: but kelly that's a big pool and davis insight that he doesn't do outside it as well but it your experience and you've looked at them in the past like it does it's hypothetically a thirty percent agree that gap a into there's a similar investment in the optics systems are in that dc ideal or is it a different number just because of the architecture decisions they did two point there one of the total optical system spend i keep either typically you know keen percentage compared to the cfp use they can that the i a communication service providers who are about in the seventies right seventy four percent but they are growing faster when you see those big cat back number here's the good news we are position with now more of those i see peace and and the major web scale or which control the that a huge portion of that spend on again when they're growing inside the data center and they're growing all that capability and traffic is growing that the connectors
spk_0: data centers and i think we're seeing that in our order forecast for next year we're seeing that in the order book rates that we had in cute three and in what we'd contemplated anarchy for guidance
spk_6: so we have great exposure now more customers and more opportunity given a refresh portfolio
spk_22: your next question comes from line of for had thoughts are with mk on partners your line is open
spk_3: i'll bet you hoping by question i have two classes course or the pricing and not discounting and weidman give you are walking through what you're seeing how bad in the marketplace i assume we're probably a few rubble lol pricing environment and a related to that you have any plans to pass on you increase the cost you your customers yeah i think that's a question i am not gonna really address i don't want to go through pricing strategy on a on a public earnings call what i will tell you is that you know the more vertical integration we have in our our products the more flexibility it gives us the price performance for our customers tom treating customers poorly in times like this i know because i have supply are some that are being excellent partners in this period some that maybe are passing on some extraordinary costs on we all have long memories and so our job is to continue to deliver a long term business model as well as short
spk_23: term quarterly results and to accommodate for those things and and trade off the fact that i want a customer three years from now to look at their infant era logo and and and think highly of us
spk_3: as it pertains to pricing environment
spk_22: see no no change in our competitive pricing environment over the last quarter since our last earnings call
spk_12: appreciate it at that i wondered who to a revisit your i could be were to go a you buy that from of your
spk_22: well i should be caught murder by monkey generation the pollution from you to what extent are you mean
spk_3: some of your customer who had developed lightbox collusion with kind of feeling the brought to the company folded doing and having you know model will officially be quoted go back to the do like yourself in order to have had on both company shortages are you beginning to see at my blog like it or opportunity break open for you look we do this for a living so got help anybody that that new to that developing this kind of infrastructure and trying to manage in the supply environment i don't want to speak on behalf of any one of our customers that is a very dangerous path to go down but to say i did the major web scale or so
spk_22: again we're we're in a much better position across the are you know that entire our entire gamut of spenders and it again there they are buying multiple generations of technology so they must be having some issues as well as yeah they're great great fortune in the services are still connecting at two hundred
spk_24: four hundred six hundred gigs services
spk_0: appreciate the effort thank you
spk_9: the phone your next question come from alex henderson with see them and company your highness open that some i actually thought that would get the questionable too much power with them to keep to orbit about the occasional point to target the product announcements are you see that how you view eight hundred get cycle person says six hundred and one point two and know is that a look in one a real threat to eat on a good buy gold the the change your the curve you're thinking about on the other gig or do you think it
spk_25: less well positioned
spk_3: obviously it's it's well out into the future as well so you to talk about that because there was a pretty good law border stock girl when location ounces yeah yeah know we all tend to keep each other on our on our toes with product announcements i think we remember when four hundred zr and the are plus with announced it had market and we looked and where it at where it is and where it really hit compared to the announcement i'd other i'd remind folks that are at and eight hundred gigs the to buy a hundred gigs so we have a one point six terabytes solution if i if i use a little marketing ploy here at and by the way that a lot of bandwidth up her dsp out with our customer base so we always believed this is gonna be a long cycle that one point you tear bed announced that was that anticipated it was later than we expected and we actually expected that to to the out didn't know june and there was an earlier color that asked about are indeed is our job is you know spending our and the ad we don't get role everybody off after i six we've rolled a lot of our in the into the metro in to apply bubbles up for point the point point a multi point to help with a vertical integration and and to the next generation which would be more like a three point two terrible that to wave or a one point six terrible one with
spk_11: so we we think that cycle is did this to summarize we have a one point six tara eight hundred gigs solution today
spk_26: and we think that's gonna be a very long cycle based on our design engagements with the still the cfp that are seventy four percent of the markets span and a moron boarding as you can see from the results with the i cities as well
spk_9: the that one getting to that it
spk_3: yeah got their got got got the point them so i wanted to go into the
spk_9: the the two hundred basis points hit the from supply chain issues clearly there are two different categories of costs associated with the these pressures there's the the price inflation associated with individual parts but there's also acts but i then shipping costs logistics cause delays and timing and think that's where that all to play into it i'm given the holiday season really amplifies that significantly as were in the third and fourth quarters
spk_3: good as we go into this easily soft quarter is for some opportunity for that portion of the costs to impact the to to to ameliorate more quickly than say me on the semiconductors and than metal and other things that are harder capacity adds that can can you kind of parse between which how much is hard to know how much we just yeah but first he didn't cover all the categories of of what they can to consider parts expedite the that i've heard all kinds of the prior already service the than her so like seventy five percent of the costs are those parts it increases expedite the broker sees text title and dealer prep that people are charging to get your hands on that few parts that exists for a lot of the geometry that are out there added to do believe it or not some of the simpler networking stuff to carry the more complex waves across the network that's certainly by the number of car go containers that are still stack up an ally
spk_27: the too hard to predict when those costs go down but it's about twenty five percent of the overall costs that we see when you take that two hundred basis points into effect will will i think we've again since the start of the year we've been really try to quantify the stuff out his granular as possible and so when we got to the queue for results will
spk_9: update our view of what we see going into a twenty twenty two on both those categories it's an excellent point to do this
spk_2: the mary question that the wall walton that bill which is the you've had a very steep decline into the march quarter
spk_28: and i know you the want to do too much in the twenty two but
spk_9: i think the with her thought that the first quarter would actually maybe even be sequentially lot based off from the ramp of the eight hundred good product which are you describe is quite speed quarter to quarter to quarter or and less driven by the division so am i get my question is given the bath long
spk_3: given below the implied see the now banality in that backlog should we be expecting one que that would be enough with
spk_9: to consider that so this is the que three riddled call on or her all alex i can't do it
spk_3: i'm in the supply chain environment to too early to dive and day to keep one were certainly encourage by the the backlog the demand and the engagement with the the client base but not can do it is too early
spk_11: the elite logically a able to get better than normal right
spk_0: but again bit bigger backlog but yeah perhaps supply of those back to that you can't drive a car with retires
spk_3: i could month to the dry and yeah it was a prank and shower there are currently no further questions at this time of the call back to david hurt for any closing remarks if i do appreciate the thought of questions that it's an unusual environment where and we are trying to give as much transparency as we can add to guide you through this period and keep our heads down and focused on what we are laid out at the beginning of the year we deliver que three ahead of the midpoint of our guy i guess range we've we've got a keyboard generally in line with consensus we expect twenty twenty one to meet the targets that we laid out when we entered the year we said we'd grow faster than the market we said that we would expand margins by three hundred four hundred basis points despite the impacts of this global supply and a global pandemic environment
spk_0: we could not do that with out there just unbelievable round the clock work of our employees the dedication and teamwork or with our customers and suppliers and the loyalty of our shareholders and those on the phone that out communicate to them so really do appreciate it easier impressive
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