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Viavi Solutions Inc.
2/2/2021
Ladies and gentlemen, thank you for standing by and welcome to the Avi Solutions second quarter 2021 fiscal year earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then the number one on your telephone keypad. If you require any further assistance, please press star zero. I would like to hand the call over to your speaker today, Mr. Bill Ong, Head of Investor Relations. Please go ahead.
Thank you, Grace. Welcome to VRB Solutions' second quarter fiscal year 2021 earnings. I'm Bill Ong, Head of Investor Relations. Joining me on today's call is Oleg Hykin, President and CEO, and Pam Evans, CFO. Please note, this call will include follow-up statements about the company's financial performance. These statements are subject to Some of these that can cause actual results to differ materially from our current expectations and estimations. We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those filings. The full looking statements, including guidance we provide during this call, are valid only as of today. reality undertakes no obligation to update these statements. Please also note that unless we state otherwise, all results except revenue are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss the usefulness and limitations of today's earnings. Plus, our supplemental earnings slides, which include historical financial tables, are available on DRB's website. Finally, we are recording today's call and will make the recording available by 4.30 p.m. Pacific time this evening on our website. I would now like to turn the call over to Pam.
Thank you, Bill. Fiscal second quarter revenue came in at $299.9 million, at the high end of our guidance range of $280 million to $300 million. The Q2 results represent a 4.4% year-on-year decline and a 5.3% quarter-on-quarter growth. The sequential growth was driven by continued recovery in NSC and strong OSP performance. The AVI's record operating margin at 22.3% expanded 70 basis points year-on-year and exceeded the guidance range of 19 to 20%. EPS at 23 cents tied the record EPS from a year ago and exceeded the guidance range of 18 to 20 cents. Now moving to our reported results by business segment, starting with NSC. NSC revenue at $206.7 million declined 11.7% year-on-year and grew 12.6% sequentially. Within NSC, NE revenue at $180.9 million declined 10.9% from a year ago, primarily due to pandemic-related declines in field instruments. SE revenue decreased 17.3% due in part to last year's strongest unusual demand in data center products. NSC gross margin at 63.3% declined 310 basis points year on year. Within NSC, NE gross margin at 62.6% declined 380 basis points from last year, primarily due to lower volumes. SE gross margin at 68.2% increased 150 basis points year on year due to favorable product mix. NSD's operating margin at 10.7% decreased 530 basis points year on year, primarily as a result of lower revenue partially offset by lower operating expenses. Now turning to OSP. OSP had a strong quarter with revenue at $93.2 million, up 17.2% year on year, driven by strong demand in anti-counterfeiting and 3D sensing. Growth margin was at a record 62.7%, up 790 basis points year-on-year, driven by higher volume, favorable product mix, and high factory utilization. OSP also delivered a record operating margin of 47.9%, up 970 basis points from last year's levels, as a result of higher gross margin and OpEx management. Now turning to the balance sheet. The ending balance of our total cash and short-term investments was $648.8 million, an increase of $53.3 million sequentially. Our operating cash flow quarter was a record $68.7 million. In Q2, we repurchased approximately $17.1 million of the AVI stock at an average cost of $13.26 per share, including commissions. Overall, we have repurchased approximately $68.3 million out of the $200 million authorized under the share buyback plan announced in September 2019. At the end of Q2, cumulatively under this plan, the average overall cost was $12.28 per share. We will continue to be opportunistic in our share repurchase. Now on to guidance. We expect the third quarter revenue to be approximately $290 million, plus the combined $10 million. Operating margin is expected to be between 17.5% to 18.5% and 18%. in the range of 16 cents to 18 cents. We expect NSC revenue to be approximately $197 million, plus or minus $8 million, with operating margin at 6.5% plus or minus 50 basis points. The OSP revenue is expected to be approximately $93 million, plus or minus $2 million, with operating margin at 43%, plus or minus 100 basis points. Our tax expense rate is expected to be approximately 18 to 20 percent. We expect other income and expenses to reflect a net expense of approximately $3.5 million. The estimated fully diluted share count used in our calculation is 240 million shares. This includes an increase of approximately 8 million shares from Q2 as an adjustment to reflect the estimated dilution impact from our 2023 and 2024 convertible notes. With that, I will turn the call over to Oleg.
Thank you, Pam. I'm pleased with VIAVI's performance in the second fiscal quarter. Our OSP business segment recorded its second highest revenue quarter in a record profitability, and our NSC business segment saw its revenue and profitability continue to recover. The NE segment revenue recovery was led by increased demand for field instruments as service providers resumed their network maintenance activities and geared up for new deployment projects. Optical lab in production and wireless continue to enjoy strong customer demand driven by 400 gigi in fiber and 5G in wireless. We are also seeing growing customer interest in 800 gigi and O-RAN. We see 800 gigi and O-RAN technology as drivers behind the next growth wave for 11 production and wireless, respectively. Business segment had a robust Q2. Looking ahead, we expect Q3 to be weaker, driven by a confluence of two trends. The reduced spending by service providers on existing networks as they gear up for 5G, and the delays in new projects by the enterprise customers until more staff is able to return to work. That said, we expect SE revenue to start rebounding in fiscal Q4. Overall, we expect NFC demand continue to improve in calendar 2021 with above seasonal demand outlook in the current fiscal Q3. Additionally, we expect 5G field instrument demand to start picking up in the second half of calendar 2021 as 5G service providers start ramping up their network build outs. Now turning to OSP. The OSPI business segment finished the first half of fiscal year 2021 with record revenue and profitability, driven by strong demand for anti-contrafeiting and 3D sensing products. Anti-contrafeiting demand is being driven by a combination of global central banks' fiscal stimulus, inventory replenishment, and new banknotary designs. We expect the secular strength to be sustainable in the foreseeable future. 3D sensing demand for mobile devices came in stronger than expected, driven by increased adoption and penetration. With facial recognition applications in the marketplace for more than three years now, we now have a large and growing demand from the lead customer, with more customers and devices planning to launch later in calendar 2021. As a result, we now expect 3D sensing revenue for fiscal year 2021 to increase to 20% year on year, up from the initial guidance of 10% to 20% year on year. Looking back at calendar 2020, I'm pleased with our performance and execution. Despite the unprecedented pandemic-driven setback to our business in early 2020, we managed to recover our revenue and profits throughout the year, finishing it by tying our record quarterly EPS. Our fiscal Q3 is off to a good start and we look forward to driving continued recovery and growth in calendar 2021. A quick update on the CFO search. We have interviewed many impressive candidates and have narrowed it down to a final few. We expect to announce our new CFO sometime in March. In conclusion, I'd like to express my appreciation to the VIAVI team for its strong execution during these challenging times and wish all our employees, supply chain partners, customers, and our shareholders to stay safe and healthy. I will now turn the call over to Bill.
Thank you, Oleg. This call will be participating at the Morgan Stanley TMT Investor Conference on March 1st. Grace, let's begin the question and answer session. We ask everyone to limit discussion to one question and one follow-up.
Certainly, after a minor class of questions, you will need to press far then the number one on your telephone keypad. Again, that is far then the number one on your telephone keypad. Your first question comes from the line of Sunneek Chatterjee from JP Morgan. Your line is open.
Hi, thanks for taking my question and congrats on the strong guide here. Oleg, I just want to start up on the OSP segment. And I think what I heard you say is you expect the anti-counterfeiting strength to continue for a duration of time. Maybe if you can kind of talk about how long do you think this momentum in anti-counterfeiting will sustain? And am I reading it right that you're kind of then saying this low $90 million quarterly run rate of revenue should be the new level for OSP segment? And I will follow up. Thank you.
Thank you, Sameek. So I think, listen, I mean, clearly the U.S. is not the only country doing a significant stimulus spend. It's pretty much the norm around the world. And as a result, we constantly see additional orders coming in above and beyond or sooner than we expected. So there's clearly the stimulus that is driving some of the upside in the demand. And that's usually coming on top of what we have expected to be already a stronger demand because of many redesigns. an additional adoption of our security features was driving additional growth. So that's coming up on top of it. In addition to that, in the first kind of six months of shutdown, a lot of printer lines have been shut down and they've exhausted all of their inventory and they're badly in the need of replacing even existing currency, much less providing stimulus cash. So that's obviously driving an extra layer of demand. and on top of all of it um there's also very low inventories across the entire supply chain so um so people trying to replenish their inventory as they need that so i expect we're going to see an increased level of demand of um for anti-counterfeiting products i mean i think you know i it's really we don't unfortunately we don't get much visibility but given all the elements i think uh in the foreseeable future in the next 12 months i expect us to be running um uh stronger than uh we traditionally have been and you know traditionally we said our base business running around around $50 million a quarter plus, you know, other business. I think now it's safe to assume that it's 55, maybe a little more than any given quarter. I mean, there's going to be, you know, some things will come in more in one quarter, maybe less than the other quarter. But overall, I expect us to be running pretty tight on the anti-counterfeiting products in the foreseeable future. And then 3G sensing is... really going to be a function of customer shipments. And, I mean, even though we expected pretty good adoption and penetration, our lead customer, I think, had a much stronger demand than it was initially anticipated. And we're seeing, obviously, some of that volume coming through, driving much stronger results than we anticipated.
Got it. Awesome. If I can just follow up on the recovery in the NE business, you talked about the two drivers in the prepared remarks, 5G wireless and fiber. Curious, which one do you see as having more visibility into particularly, I think, when you mentioned 5G wireless? There's this broader concern that most of the telco service providers have overspend on spectrum options. So does that have a ramification in terms of pushing some of the spend out in wireless infrastructure? Just wanted to get your thoughts on that.
Sure. So, I mean, when we say about recovery in any, you know, that's the old, you know, bread and butter of the business, the cable access, fiber, field fiber instruments. That's what's really been driving the recovery. The wireless and lab and production tasks. was very strong in Q1, it continued to be strong in Q2, so that business continued to be strong and as far as you can see, it's not going to decrease, it's going to continue to be very healthy and strong. So the only thing, the area that you're bringing up is the field wireless instruments, right? And that's really going to be linked to the deployment. So I do agree they all spend a lot of money on buying spectrum, but at a certain point they have to start monetizing. So from our perspective, just to strengthen our traditional broadband field instrumentation like fiber DSL cable and strengthen our lab and production equipment for fiber and the wireless lab, we see those trends continue to be pretty robust. And to the extent the second half we start seeing more deployment happening, we expect also field wireless instruments to contribute. Whether they're going to really start in the second half, I tend to believe that they will start. Whether it's going to be as aggressive as some people think is another matter, but they need to start monetizing the spectrum and generating revenue because It's no longer a duopoly in U.S. where you could kind of take your time and do it. I think there is in some ways we're seeing emerging a race to claim the 5G crown between T-Mobile, Verizon, and AT&T. So I do believe that we will see a more aggressive deployment rather than less aggressive deployment when it starts.
Thank you for the insight. Thank you.
Sure.
Thank you. And your next question comes from the line of Alex Henderson from Newtown. Your line is open.
It's actually a great time to ask it because it was kind of a follow-on on what we were just talking about. You've historically been seen by the street as tied to CAPEX, but in fact, it seems pretty clear to me that the predominant driver is actually more OPEX relevant to your test and measurement business, in particular the field instrument business. As you look at the pressures that was mentioned, i.e., the spectrum license fees going out, that's more of a CapEx or even independent of CapEx phenomenon. I would think that that would not have much impact at all on the OpEx-driven side of your business. You seem to have pulled forward the timeline for 5G a little bit. I think you were talking about at the end of calendar year. 21 being the point where it starts to pull forward that demand. Have you changed your thinking in terms of the timing, pulling it forward some, and what gives you that visibility?
Thanks, Alex. A good question. So, no, I still say second half of a calendar 2021. So, I mean, whether, you know, you're going to take December quarter, September quarter, I mean, I, you know, I'm not that, my insight is not that great, but I do believe that they're going to start deploying. And remember, you're right, our field instrumentation demand for traditional fiber, cable, and DSL is driven by OPEX. But remember, for us, the sales of instruments are driven, there's two drivers. When the networks are being built, they need equipment to test and turn them on, and then when the equipment is being maintained. So maintenance is driven by OPEX, the build-out demand is driven by CAPEX. So when they start building these towers and certifying and releasing them into operation, that should have the first wave of equipment, and it will be followed by subsequent waves as the densification and maintenance starts taking hold.
If I could follow up, there was an argument that was made that being much further earlier in the test and measurement cycle, being able to get into the pre-deploy lab, helping to write the manuals, that you've built in a competitive advantage that Noritza can't meet. And to that extent, you've got an inside track on the field test and measurement because you've helped design the manuals. Is that playing out? Is that something that you've got any visibility on that share benefit from?
Well, I think, you know, listen, I think the incumbents always have an advantage because they're already there. So they are also obviously influencing installation. Now, being a complete newcomer in the absence of being in the lab and in the early deployments, we wouldn't get a time of day. However, being seen as the 5G expert, coming in with all the NAMs and everybody else has given us an equal seat at the table. And we do believe we're going to have an advantage having been intimately involved in specifying installation protocols, certification criteria, and things like that. And through that, we also fine-tuned our product definition. And at this point, we have released pretty much the full suite of products. So in a way, our assumption on timing worked very well. We had the 5G start deploying a year ago. We would have very thin... instrument portfolio. Today, I'd say we have pretty much rounded off all the corners, and I think we have products that are better than the incumbent's products in that space. So we do believe that that should result in us picking up some share and carving out a chunk of the market for ourselves.
Great. Thank you very much for your answers.
Sure. Thanks, Alex.
Thank you. Next up is John Marchetti from Stifel. Your line is open.
thanks very much uh oleg i just wanted to talk a little bit on the osp business looking forward you went through on the anti-counterfeiting side how you expect that to kind of play out over the next 12 months or so in looking at the 3d sensing filter and and diffuser business you know i'm just curious to get your updated timing as you think you know maybe android starts to get a little bit more involved here as we go through the calendar year And if there's any concerns around some of the notch changes that are rumored to happen with some of the new phones and things like that, just to get your sense maybe of that 3D sensing business would be helpful within that OSP business as well.
Okay, yeah, no, it's a good question. So first I'll say notch, no notch. Really, no matter, we really don't care whether there's a notch or no notch. I mean, we know which modules we're in, and it's all within our guidance. So it's just a different way of designing things, and I'm not going to further opine on that. There's a lot of what I've seen in the news, you know, not entirely accurate understanding of what different things mean. The way I would kind of make it easier, there's the world facing and rear facing. Rear facing is a high resolution kind of facial recognition security, world facing is more camera related. And I do expect that the technology innovator in that space will see more world-facing cameras or more phones, as well as having ubiquitous facial recognition as well. So that business will continue to grow with their market share and the continuous adoption of 3D sensing technologies. What I think could be an exciting upside to the whole forecast is is the Android, because we are seeing much more animation around 3D sensing for the world-facing camera from various Android OEMs. And depending which modules and which models go into production, we're going to see a combination of diffusers and filters playing into that space. And, I mean, we do believe that having a world-facing camera on higher-end phones is now a must-have to kind of tie the camera performance. And I do think the Android, you know, after several false starts, is about to start adopting 3D sensing.
Got it. And then if I can just also go back to your comment on O-RAN looking out as maybe a next leg of investment within that wireless lab. I guess where are we in that cycle from a cost perspective? Is it still early days? Are you seeing widespread interest? Is it maybe more geographically concentrated in one area or another? Any color you can just sort of share on that O-RAN side would be appreciated as well. Thanks.
Sure. Sure. I mean, it's a very early stage. So operators, I mean, you can talk all you want. Right now, they need 5G working. So they are tailing for the initial deployment to the respective NEMs. Just put whatever you want. I don't care if it's proprietary solution. Just get me something that works. In parallel, in their labs, they are all looking deeper at the ORAN as kind of the next thing for themselves. And on top of it, even leading NAMs are aggressively ensuring that they are ORAN compliant down the road. And what also ORAN brings, it brings a lot of new players into the market. So it's no longer just a top three, four NAMs. Now you have about a dozen smaller companies who are all looking to play at various horizontal or vertical layers of the network, and they are all buying LabXen. So at this point, I would say O-RAN is heavily a lab and experimentation and kind of what-if kind of thing, focused activity. And in terms of the actual deployment, it just gets me something to the works, and I don't care how you make it work. So I hope that gives you a bit more color how we see O-RAN happening. It does. Thanks so much, Oleg. All right.
Thank you. And your next question comes from the line of from Susquehanna. Your line is open.
Thank you. Two follow-ups. Oleg, can you please help me understand how much of the strength in your 3D sensing is driven by the new models, especially the US OEM that introduced and appears to be successful, and how much of your success is driven by increased content, so smartphone units versus increased content for you, and I have a follow-up.
Well, so I think clearly the market leader is driving almost all of our 3D sensing business, and I mean, there's really been no change to the, you know, what we've seen, there's a couple things. First of all, I think you know, you guys can make your own assessment on their market share. We believe that they picked up some market share. So as a result, we're now talking about higher volume of phones. Then within those phones, I think almost universally now, everything has a rear-facing camera for facial recognition, and it's proliferating into other products like tablets and PCs. And then, of course, the world-facing camera on the higher-end models really got a lot of interest. So I think it probably came in stronger than we would have expected. So I think we take all of these things together. I would say the bigger driver in terms of the increased volume is just surely more volume. And the second biggest one is the introduction of world-facing cameras. And between the two of those, it's more than enough to offset any ASP erosion.
OK. But would you agree that you have higher content? To me, it seems like you may have two different filters or products versus one in the past.
Yes. so in the in the phone that has both world facing and rear-facing camera our content is greater um it's a little different so i just i mean people let me just give you a little clarification when people think about lasers the world-facing laser is actually higher power than the rear-facing laser and in some cases maybe more expensive for us that's not how we look at it we look at it by the sensor area and the world-facing camera sensor is much smaller. It's a lower resolution than the rear-facing, which is a facial recognition sensor. So in terms of the ASPs, the ASPs for the world-facing cameras are much smaller, and ASPs for the rear-facing cameras are bigger because the area is bigger. But the mere fact that before we had zero world-facing filters, and now we have some, and it's growing, that's obviously driving upside. I see. I'll say good rule of thumb is 2 to 1 in terms of content. So if you think about the total area, it's one and a half.
Sure. Now, the NSC part of your business seems to me more clear today than three, six months ago. At some point, it's going to turn and you have new products that hopefully will scale. So I want to stay focused on OSP. It's interesting that recently one of the key suppliers in 3D sensing, they made a bold acquisition of getting into lasers, which was very surprising to me. To me, LiDAR suddenly has become a huge growth driver in that context. Would you actually shift your focus if six months ago you were looking into M&As for NSC application? Now you're looking more in strengthening your portfolio with the eyes on LIDAR as an end market application. Am I thinking about this the right way?
You know, we look at acquisitions for both OSP and NSE. We have a clear roadmap and strategy for each. I think you're talking about a momentum. I think my view on it is it's more of a diversification play for them. you know, to add industrial and kind of the industrial laser processing and things like that. So, I mean, they have their own strategy for that. I know even from the days of JDS, they were always looking at fiber lasers for industrial applications. I think it's a good deal for them. Longer term will make them a more diversified, more resilient company, not depending on any one particular model of the phone. So I think that was a good opportunity for them and I think it worked out quite well. For us, what we are looking is we are looking combination of both. I think going deeper still makes more sense for us. It gives us much bigger leverage in any kind of acquisition. Going wider is probably a bit too premature for us, as we need to continue to drive scale in our existing markets.
Just a quick follow-up. Given the changes in the market, would you say the priority in optical sensing now seems to be higher than NSC in the context of M&A opportunities?
You know, I wouldn't say higher or lower. I mean, both are priorities. We have our kind of target list in each business, and it's really a matter of which one becomes more actionable sooner or later. And in both cases, we get tremendous operating leverage. it's uh i mean we are we are equally we don't need to choose either or we can do and here it's really comes down to more worthy action ability now the only difference is in optical space there's a very handful of companies and most of them are fairly small in that respect they don't really move the needle so and in case of nsc there are some bigger players as well so i mean we do look at um and the area around lidar i mean that's a very interesting part for us okay thank you sure thanks thank you and your next question comes from the line of richard shanis from craig helen your line is open
Well, I think you're taking my questions. I think I'll follow up on the NE business, specifically in 5G field tests, Ola. You talked about some confidence in seeing second half of your calendar year being robust. How would you describe the kind of inputs to that, both geographically and then how long you kind of see this cycle for 5G field tests lasting?
Well, I think, you know, really the 5G field test, I think it's going to be a super cycle, kind of seven, eight year run. Initially you're going to have initial deployment followed by densification, and then more and more geographies are going to roll out. It's similar to what we saw with 3G and things like that. So, you know, how aggressively things start, I think it's already happening in countries like Japan, and we are seeing some pretty good traction. And even though we are in the home turf of one of our major competitors, we are doing pretty well in that market, which gives me confidence that our products are quite good. In terms of the U.S., I think U.S. will be the next thing. I mean, clearly there's China, and that's already been going on for quite a while. In terms of the next big deployment, markets will be U.S., And, you know, in the U.S., we have an interesting situation of three players now vying for the 5G crown. That's why I think we will probably see things happening sooner rather than later because there is now a competition. It's no longer a duopoly with... Two major players kind of moving at a kind of wink-wink, nod-nod type pace where they take their time. Right now, with three players, it's very difficult to sustain a collusion or anything like that. So I think things are going to happen much quicker in the U.S., maybe starting sometime later this year. I think that the next one would be Europe, and I think Europe is really about a year behind U.S. in some deployments, and we probably should start seeing some things happen in Europe sometime next year.
Okay, great for that caller. Oleg, my follow-on question is in your fiber business series. You've talked, I think, for at least a couple of quarters about a fairly robust cycle of 400 gigs. Maybe if you can give us a sense of when that turns into a robust cycle in terms of fiber. And then how do you see the 400-gig generation versus the last two generations? Is it at least as positive or even better? How do you view that?
Well, I think the, you know, if anything, I see, like, you know, we went from 1 gig to 10 gig, 10 gig to 100 gig. What I've seen with each one is generation, the amount of time between the start of deployment of one and start of deployment of another technology, you know, that time has been getting shorter and shorter. I mean, we only went to 100 gig in earnest generation. um you know a couple years ago and now we're already seeing 400 gig and we already know our customers want to see 800 gigs so um it's um i think you know the fiber is really uh from my perspective i think the uh the the time of regional deployment is shortening and we may see multiple technologies coexist. I mean, we may see data centers moving to higher bid rates sooner and metro areas kind of transitioning from 10 gig to 100 gig slower, but we'll be seeing all these nodes coexisting in parallel rather than with one ramping up, the other one ramping down. and um and it just uh just completely new customer segments it's no longer the traditional telecom transport i mean we see the back plane of all the data center boxes is becoming optical and that's really driving a lot of the fiber demand okay great that's a great perspective also like thanks for that sure
Next up, we have Tim Savageau from Marginal Capital. Your line is open.
Hi, good afternoon, and congrats on the results. A couple of questions here. First, over on the OSP side, or 3D sensing in particular, you'd mentioned, and we've heard a little bit of this before today, about an increasing level of activity around world-facing in the Android universe. And you've also mentioned that that is a potential source of upside. And I think your Android contribution to 3D sensing to date has been pretty low, if not minimal. And so my question is basically an upside to what baseline when you say that, which is to say that a robust Android rollout in second half of calendar 2021 your fiscal 22 drive the same sort of double digit growth you're seeing in 3D sensing next year, even with, you know, say your top customer sort of flattish?
Yeah. So I would make a little correction. Actually, our contribution to Android universe in 3D sensing has been huge. It's just universe has been piddly. And it kind of started and it just fizzled away. So in that respect, the Android market just didn't happen, but we've been engaged with all the major players. And I think this time around, I think later this year, we are going to see Android. And it's mainly world-facing cameras. And for us, it's a double opportunity. It's not only filters. It's also diffusers. models go into production and which modules get designed in, we will get, you know, either one or two of our products designed in. And, you know, given that Android is so big and, you know, enough players, if they introduce into more than one high-end models, we can see that volume to be quite meaningful.
Got it. And, yeah, I was mentioning your revenue contribution, not your technology contribution.
Our contribution is on a very small base. But, yeah, I mean, I think Android is going to happen this year. And, I mean, otherwise they will really lose out big on customer acceptance. So I think, I mean, we haven't put any of it in our forecast. I mean, we're still treating it as an upside. So we clearly have it. if it we'll probably start seeing uh over the next three to four months um as customers start placing orders how many models and how many modules will go into production got it and and just a quick one on osb just want to make sure i heard the number right the kind of baseline currency run rate you're looking at 65 million a quarter Let me start in terms of the, we always say our kind of base business, we're on 50. And we say, I'd say 55 to maybe 60. So I'd say a higher 50s type range.
Got it. Thanks. And last one for me. To the extent that you saw strength in some of your traditional fiber cable field tests here in the December quarters, I mean, to what extent – Is it possible to characterize that versus pent-up demand releasing, or would that be the same as a more traditional budget flush? And as you look to the declines in March, do you see that as being principally seasonal in nature or any other drivers there?
um actually it's all driven what i call it the best kind of demand um you know a lot of customers are seeing significant increase on a bandwidth for consumer bandwidth and increased demand for quality of the network I mean, for example, I'm doing my call from the office because I cannot rely on my local cable provider for not shutting me off during the day during my call. So I think what we're seeing is actually a response by cable companies and telecom companies. to consumers demanding more bandwidth and higher quality of service. And that, to me, is the best kind of demand you can have because it manifests itself into a longer-term investment with a more sustainable demand over multiple quarters. So, it took them several quarters to figure out what needs to be done. I mean, I think many of them are still redesigning their networks, and they're starting to roll it out. And I think the next wave will be, you know, I won't say a wave, but kind of an incremental spend in the U.S., this whole rural broadband. We are seeing already a lot of customers starting to plan and compete for the government money for these projects. And that would be also an additional spend down the road for us.
Great. Thanks very much.
Thank you. And your next question comes from the line of Samantha Marshall from Morgan Stanley. Your line is open.
Great. Thanks. Maybe expanding on the 3D sensing opportunity, it's been a while since you kind of talked about how you were thinking about timing of the auto opportunity and just with your supply chain partner seeming to think that it's getting closer, you know, maybe 2022. Just wanted to get your latest thoughts. And then, you know, maybe as a second question, you know, Europe was relatively strong despite maybe stricter accessibility issues in Europe than in In North America, in Q4, just, you know, anything to read into that pickup that we saw in Q4 out of Europe. Thanks.
so um i'll say first out of 3d i think uh you know listen we always said the actual um like lidar and the kind of autonomous driving or assisted driving uh that will take longer and it's really not a function of lasers or filters it's really the area around the whole cost miniaturization minimization and miniaturization that needs to take place and I mean, today we are pretty much working with every LiDAR company out there, and I think 90% of them will be out of business or will get acquired in the next few years. And we still view automotive as a 23, 24 opportunity at the earliest for that. there are segments for 3d sensing already in auto that are being active today mainly the high end which is the gesture recognition in cabin monitoring and things like that and we have a pretty good share in that market it's not a big market it's very much a limited to high-end market but it's um getting giving us engagement uh with the customers and positions also the kind of go-to company for 3d sensing in automotive So that's how I feel automotive to us. It's really more, I'd say, longer-term play for us. And still, I'd say consumer devices and industrial 3D vision is what I call the near-term drivers of the growth in business for us. In terms of Europe, actually, the whole EMEA region has been very robust for us, even during the worst downturn during the pandemic. And it continues to be very strong and it continues to grow. So we've seen very strong demand and growth in Europe. And a lot of fiber initiatives going on in Europe with the mandates from governments to roll out fiber to Europe. practically every household in Europe. And Europe, as you know, is very different from the U.S. We have cable pretty much connecting almost every house in North America. In Europe, it's predominantly been DSL, and the DSL has run out of steam in terms of delivering broadband. So we are seeing wholesale, I'll say, call it fabricification in Europe with fiber being pushed everywhere in the network with a lot of national push behind it.
Great, thanks. Sure.
Thank you. And our last question comes from the line that's ahead, Najam from MKM Partners. Your line is open. Once again, your next question and your final question comes from the line of Fahad Najam from MKM Partners. Your line is open.
Thank you. Thank you for taking my question. Most of my questions have been answered, but Oleg, if I could ask you to help us understand a little bit about more of your opportunity in 5G, maybe if you can peel this onion a little bit more, at least from what I understand, there are Two aspects of the opportunity. One is on the RF side, and the other is on the fiber optic, the PON side, given all these different spectrums that are going to be coming online. Carriers are essentially looking at WDM optics, or densifying PON, so to speak, to try and carry the radio traffic. Can you speak to us where you are in terms of the opportunity you're seeing? Is it more on the optical side, or do you think the optical side follows the RF side? Maybe a little bit of the dynamics there, if you can help us understand the opportunity and how you see this dynamic play out between the optical and the RF side.
Sure. You know, you bring up a very good point. In fact, we're seeing fiber and RF converging because you cannot talk about RF without talking about fiber and wireless network and vice versa because everything in the wireless infrastructure is interconnected today with fiber. So you need to test your timing, transmission, and all these things. You have to test fiber as well as the RF. So what we feel is we have a unique opportunity here is all our instruments come with two in one. We have an RF instrument and fiber in a single box. So you only need to bring one instrument to do everything that you need to do in the field installation or qualification. But in terms of what we're seeing is, in terms of 5G, so clearly the phase one for us was really winning big with NAMs in the lab and engineering development. And it is going to continue as the new 5G standards are rolled out and new instantiation. The next big wave for us will be really the field deployment, so which plays to our traditional strength and field instrumentation. We see that growth. And the next wave after that is what I would call O-RAN and its combination of traditional players like NAMs and service providers, but also a lot of the new entrants into the markets who are coming in, you know, offering service or a particular part of the network. And they're buying our products to help them to be compliant and testing. And the other big element I think emerging in there for 5G is the private 5G networks. Because I think in many cases, 5G and the enterprise network is going to become synonymous, as more and more companies view 5G as effectively their enterprise network. And that's a completely new market for us where we haven't really played. We haven't played in enterprise networks. And as large enterprises start deploying 5G for their private purposes, it plays very well to our toolkit across the entire VR. So it's the test equipment, simulation equipment, monitoring equipment, as well as the assurance software that goes into the enterprise network. So I look at 5G, and it's not any one technology. There's a lot of opportunities. It's really what we focus on is where do you want to put more money, first, second, third, and how these things are going to roll out. But the number of opportunities in 5G is huge for us.
Thank you. And then if I should ask you a question on the optical side, Maybe if you can share with us some data points as to where you're seeing, you know, the shift to 800 gig and higher speeds. Is that beginning to become, you know, an increasing portion of your revenue? And how should we be thinking about the implications of your margin from that?
So the 800 gig today is very much a bleeding edge of development, and it's very much an engineering lab demand. So it's leading optical equipment NAMs, and they are suppliers for various optical modules. That's who is playing, and the semiconductor companies. That's who is really doing 800 gig. So to us, 800 gig today is really the kind of advanced development, and I think we will probably start seeing next year 800 gig being rolled out into the field with some early adopters.
Thank you very much. And lastly, if I could. One of the large chip makers, Broadcom, talked about unveiling their co-packaged optics chips in 2022. So does the shift to co-packaged optics create an incremental revenue opportunity for you with these customers?
Sure. I mean, that's actually, you know, as semiconductor companies kind of trying to do more vertical integration with the co-packaging optics and things like that, I mean, they start buying the same equipment that the module manufacturers and used to do or the NAMs were. So it's actually semiconductor business for us is, I mean, a very active space in selling high-end optical testing systems.
Thank you very much. Appreciate your answers. Sure. Thanks.
Thank you, Darnold, for the question at this time. I will turn the call over back to Bill for any closing remarks.
Thank you, Grace. This concludes our earnings call today. Thank you, everyone.
Ladies and gentlemen, this concludes this conference call. Thank you all for joining.