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spk12: Good afternoon, and welcome to Sabrinette's Financial Results Conference Call for the fourth quarter of fiscal year 2024. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions on how to participate will be provided at that time. As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Garo Tumajanian, Vice President of Investor Relations. Please go ahead.
spk05: Thank you, Operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the fourth quarter of fiscal year 2024, which ended June 28, 2024. With me on the call today are Seamus Grady, Chief Executive Officer, and Chavez Ferra, Chief Financial Officer. This call is being webcast, and a replay will be available on the Investor section of our website, located at investor.fabrinet.com. During this call, we will present both GAAP and non-GAAP financial measures. Please refer to the investor section of our website for important information, including our earnings press release and investor presentation, which include our GAAP to non-GAAP reconciliation, as well as additional details of our revenue breakdown. In addition, today's discussion will contain forward-looking statements about the future financial performance of the company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in light of new information or future events, except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular the section captioned Risk Factors in our Form 10-Q filed on May 7, 2024. We will begin the call with remarks from Seamus and Chaba, followed by time for questions. I would now like to turn the call over to FabriNet's CEO, Seamus Grady. Seamus? SEAMUS GRADY, CEO, FabriNet Thank you, Gero.
spk02: Good afternoon to everyone joining our call. Our very strong fourth quarter results capped off an outstanding year for FabriNet. Fourth quarter revenue of $753 million was above our guidance range and grew 15% from a year ago and 3% from Q3. We executed very well to produce non-GAAP EPS that also exceeded our guidance range at $2.41 per share. It's also notable that Q4 marked the fourth quarter in a row for both record revenue and EPS for the company. For the full year, revenue was $2.9 billion, an increase of 9% from fiscal year 2023. Our continued focus on cost management helped us to again grow non-GAAP earnings faster than revenue to a record $8.88 per share or a 16% year-over-year increase. 2024 was quite a remarkable year for Fabrinet. Datacom revenue grew over 120% while telecom revenue declined more than 20% for the year due to the protracted inventory digestion across the telecom industry. Our strong results throughout the year demonstrated the strength of our flexible and resilient business model. Entering the fourth quarter, we anticipated continued revenue growth in Datacom and declines in Telecom, and that's what we experienced. We also anticipated a return to sequential growth in automotive revenue, which we also saw. Within optical communications, Datacom revenue continues to drive growth, while the sequential decline in Telecom was more modest than anticipated. In Datacom, 800 gig products for AI and related applications remain the biggest revenue contributor, offset in part by the completion of the wind down of a long running 100 gig program, as we've discussed previously. We are very encouraged by the strong demand trends we are seeing for both current generation and next generation Datacom technologies. We believe that our industry-leading expertise and trusted reputation positions us particularly well to continue benefiting from long-term Datacom growth. In Telecom, ongoing inventory digestion continues to dampen revenue from traditional Telecom products. In the fourth quarter, this impact was partially offset by data center interconnect products as well as contributions from new Telecom system program wins. In fact, we expect recent system wins of varying sizes to begin making more meaningful revenue contributions towards the second half of our fiscal 2025. These new wins make us optimistic about Fabrinet's long-term telecom revenue trends overall. Turning to non-optical communications, we saw double-digit sequential revenue growth in the quarter. As anticipated, this increase was primarily due to growth in automotive revenue, as short-term inventory absorption issues are now behind us. All in all, we had a very robust and successful quarter and year, and we remain positioned particularly well for continued momentum as we look ahead. In fact, in the first quarter of our fiscal year 2025, we anticipate sequential revenue growth from all of our major product categories. Beyond Q1, we continue to carefully evaluate our long-term capacity requirements. In that regard, we have made the decision to break ground on Building 10 at our Chanbury campus during the new fiscal year. Our first building in Chanbury was building 8, with all 500,000 square feet now being utilized. Building 9, which is about 1 million square feet, opened about two years ago and is quickly filling up. Building 10 will be 2 million square feet in size. We expect construction to take approximately a year and a half to complete once we break ground. Capital expenditures for construction of the 2 million square foot facility will be approximately $110 million. Beyond building 10, we have ample space to further increase our manufacturing capacity. We'll keep you posted on our construction timeline as we move ahead. In summary, we delivered a record fourth quarter with revenue and EPS that are above our guidance ranges, as well as a remarkable fiscal year. We're increasingly optimistic about our future, and we have numerous drivers that position us to extend our track record of success into fiscal 2025 and beyond. Now I'll turn the call over to Chaba for more financial details on our fourth quarter and fiscal 2024 and our guidance for the first quarter of fiscal 2025. Chaba.
spk13: Thank you, Seamus, and good afternoon, everyone. We had a terrific fourth quarter to end a very strong year. Record fourth quarter revenue of $753 million was above our guidance range and represented an increase of 15% from a year ago and 3% from Q3. The strong revenue helped produce record non-GAAP earnings per share of $2.41, which was also above our guidance. For the full fiscal year, revenue was a record $2.9 billion, an increase of 9% from fiscal 2023. As in recent years, non-GAAP earnings grew faster than revenue, reaching a new record of $8.88 per share, up 16% from the prior year. Details of our revenue breakdown are included in the investor presentation on our website. And I will now focus my comments on some of the more notable metrics. In the fourth quarter, optical communications revenue was $596 million. or 79% of total revenue, an increase of 19% from a year ago and 1% from Q3. Within optical communications, Datacom revenue was $315 million, or 53% of optical communications revenue, an increase of 63% from a year ago and 3% from the prior quarter. Telecom revenue was $282 million, or 47% of optical communications revenue. Telecom revenue declined approximately 1% from Q3, which was a smaller decline than expected due to continued growth from data center interconnect products. With the optical communication industry transitioning to higher data rates, we continue to see strong growth from 800 gig and faster products that are now clearly the key drivers of our growth. Therefore, we are now breaking out revenue by speed into two categories, 800 gig and faster and below 800 gig. In the fourth quarter, revenue from products rated at 800 gig and faster was $259 million, up 54% from a year ago. Revenue from products below 800 gig was $223 million, up 4% from a year ago. Revenue from optical communications products that are non-speed rated, including rodents, amplifiers, fiber arrays, and other devices, was $114 million, down 5% from a year ago. The historical two-year trend of this breakout is provided in the most recent investor deck on our website. From that breakout, you will observe that in fiscal 2024, products rated at 800 gig and above started to dominate and were the biggest contributor to growth. Although products below 800 gig continue to grow, thanks to 400 ZR programs, which reached 10% of optical communications revenue in Q4. Revenue from non-optical communications saw healthy growth in the fourth quarter to $157 million, up 2% from a year ago and 12% from Q3. This increase was primarily the result of increasing automotive revenue as we have moved past a short-term inventory correction period. Automotive revenue was $86 million in the fourth quarter, up 17% sequentially. As I discussed the details of our P&L, expense and profitability metrics will be on a non-GAAP basis unless otherwise noted. Gross margin in the fourth quarter was 12.5%, a 10 basis point decline from Q3, and was within our guidance range. Operating expenses were $14 million, slightly less than 2% of revenue. Operating income was $80 million, representing an operating margin of 10.7%, consistent with the third quarter. The combination of our strong cash balance and elevated interest rate environment provided record interest income of $11 million. Active gap tax rate was 4.6% in the fourth quarter. We anticipate that our tax rate will remain in the mid-single digit in fiscal year 2025. Non-GAAP net income was a record $88 million, or $2.41 per diluted share. For the full year, revenue was $2.9 billion, up 9% from fiscal 2023. In fiscal 2024, we had two customers that contributed 10% or more to revenue, NVIDIA at 35% and Cisco at 13%. Our top 10 customers together made up 86% of revenue, up from 84% in fiscal 2023. For the fiscal year, gross margins were 12.6%, down 40 basis points from fiscal 2023, primarily due to the absence of FX tailwinds that we benefited from last year. Operating margin for the fiscal year was 10.6%, a decrease of 20 basis points from fiscal 2023. You will note this is a smaller decline than we saw in our gross margin, reflecting operating leverage inherent in our model. Non-GAAP net income was a record $8.88 per share, an increase of 16% from a year ago, with EPS growth again outpacing revenue growth. We maintained a very strong balance sheet throughout fiscal year 2024. We closed the year with cash and short-term investments of $859 million, up $65 million from the end of the third quarter. The primary driver of this increase was strong operating cash flow of $83 million. With capex of $13 million, free cash flow in the quarter was $70 million. For the full year, we generated record operating cash flow of $413 million, a remarkable increase of 94% from fiscal 2023. Free cash flow in fiscal 2024 was also a record at $368 million, an increase of 142% from a year ago. In the fourth quarter, we repurchased approximately 21,000 shares at an average price of $170 per share, for a total cash outlay of $3.5 million. For the full year, we repurchased approximately 212,000 shares at an average price of $186 per share, for a total cash outlay of $39 million. We remain committed to investing in our growth while also returning capital to shareholders with our 10b5-1 and open market share repurchase programs. Since the end of the quarter, our board has authorized an additional $139 million for repurchases, so that we now have $200 million available for share buyback. This is double the size of our repurchase authorization at the beginning of fiscal 2024. Now, I will turn to our guidance for the first quarter of fiscal year 2025. After a year of breaking quarterly records for revenue and EPS, we are optimistic that the first quarter will represent another strong quarter for Fabernet. In fact, we anticipate that revenue will be up sequentially in all of our major product areas. We expect data growth to be driven mainly by advanced high data rate products. We expect telecom revenue to increase from the combination of growth in data center interconnect products and recent new programming. And we believe that automotive and laser revenue will also grow sequentially. Overall, we expect first quarter revenue to be in the range of $760 to $780 million. We also expect strong performance from profitability perspective. Keep in mind that in the first quarter, we will see the seasonal impact of annual merit increases, which puts temporary downward pressure on margins. As in the past, we expect operational efficiencies to offset these cost increases as we progress through the year. Based on recent strength in Thai baht, we expect a foreign exchange revaluation loss in the first quarter. With that in mind, we are anticipating EPS to be $2.33 to $2.40 per share. In summary, we had another record quarter with results that exceeded our guidance for both revenue and EPS. We expect our momentum to continue in fiscal 2025, beginning with a strong first quarter as we extend our track record of solid execution. Operator, we are now ready to open the call for questions.
spk12: Thank you. And as a reminder, to ask a question, simply press star 1-1 on your telephone and wait for your name to be announced. To remove yourself from the queue, press star 1-1 again. Please stand by for our first question. And our first question comes from Samik Chatterjee with JP Morgan. Please go ahead.
spk09: Hey, good afternoon. Thanks for the question. This is Joe Cardozo on for Samik. So maybe first one here, just on the data comm business, curious if you could talk about the timing around 1.6T and whether you think that could start to, or whether that's beginning to materialize as early as your September quarter. And then second part of this question is just like, how are you thinking about 400 gig and 800 gig demand going forward? Both of these look like strong growth drivers in 24, just doing kind of the back of the envelope math here on the new disclosures. And I think in the past you highlighted expectation that 800 gig demand continues as you don't expect 1.6T to cannibalize it. Is that still the same case? Still expectations going into 2025? And does that apply to 400 gig as well? And then I have a quick follow-up. Thank you.
spk02: Thanks, Joe. So yeah, 1.6, we can't talk about the specific timeline for our customer's product before they do, but certainly we're working hard with our customer on 1.6T. But we think that 800 gig will be around for a while. It's used extensively in a lot of the products and the networks we make for our customers. And we think 800 gig will be around for a long time. Our aim, as always, is to be working with the customers on the next generation products while we're building the current generation products. 1.6T transceivers, they're quite complex and they don't ramp up overnight. You know, again, the timing of the announcement of a new product like that is really up to our customers, so we wouldn't really comment on that. But, you know, we're certainly making sure they're ready from a capacity perspective. 800 gigs, like I say, 800 gigs, the demand is very strong. 400 gigs, you know, still remains. But, you know, like I said, the timing of 1.6, we leave that to our customers to talk about.
spk09: No, very shameless. And then maybe just in terms of my second question, and maybe bigger picture, obviously great to hear the news around Building 10 expansion. You know, as we think about the portfolio and what's driving the conviction to break ground there, is this all related to further confidence in terms of around the Datacom business, or are there other areas of the, you know, your portfolio that's driving conviction here and supporting the additional facility build-out? Just curious high-level thoughts, you know, how you're thinking about it and what's driving the conviction there. Thank you. We appreciate the questions.
spk02: No problem. It's really our overall conviction about the overall business. It's not any one particular, if you like, segment. You know, building nine and actually building eight before us, they filled faster than we had anticipated. And, you know, building 10 is a good use of our cash. We have the cash available. We get better economies of scale by building a two million square foot facility rather than a one million square foot. And it's just a a better overall use of the land available to us to build the 2 million square foot facility. And really, you know, we have conviction in the pipeline and in the business. The upside opportunity is significant. You know, if you do the math on the revenue per square foot, it would suggest that the revenue capacity in building 10 should be about 2.4, plus or minus 2.4 billion dollars. So the upside opportunity is significant and the downside risk is very small. Even if we were to build a building 10 and didn't put any business in there for a period of time, the gross margin headwind would be about 15 basis points. So it's very small. So it's a combination of all those factors, the conviction, the business. We believe it's a good use of our cash and it's also good upside potential with very little downside risk.
spk12: Thank you. One moment for our next question, please. And it comes from the line of Carl Ackerman with BNP Paribas. Please proceed.
spk06: Thank you, gentlemen. I've got two questions. First, your 800-gig transceiver revenue to date has been primarily driven by your largest customers. And some investors have been concerned that a push out of the latest GPU would impact your near-term outlook. That does not appear to be the case. So does your September quarter outlook imply that you are seeing a broadening of your Datacom customer base for 800 gigs as several hyperscalers are beginning to deploy broadly 800 gig networking switches?
spk02: So, yeah, I mean, we don't really comment on our customers' product launches. We know that our big customer, as you say, for 800 gig has been NVIDIA And they continue to see strong demand for their products. And our understanding is that they will extend and expand production based on current GPUs to meet the demand that's there. And we're happy to continue to support them. We're working, Carl, on a number of opportunities. We've talked about these before. There's really three categories of, if you like, AI-related growth vectors. outside of NVIDIA. Obviously, we're very happy with the growth of NVIDIA, but we're pursuing others. There's other GPU companies. There's other merchant transceiver opportunities. And then there's hyperscalers who are looking to maybe go direct. And we're pursuing all three. So, you know, our outlook is really a function of continued strength, continued strength in the Datacom business. And, you know, the telecom industry softness that we've seen for the last while we are seeing indications that that demand is beginning to recover so I suppose in in some simple terms the datacom growth looks to be sustainable and the telecom weakness is temporary we think we've also had some success with winning some new complete network system business as well as we will be you know introducing over the next while so we We want to make sure we have ample capacity for that. We've been able to pick up some additional complete network system visits.
spk06: Yep. Thanks for that, Seamus. To that point, could you discuss the breadth of customer adoption and growth of coherent ZR optics using telecom and DCI? And then at the same time, if I may, these you spoke in your prepared comments about new programs within telecom beginning to float into the model the second half of fiscal 25. i'm curious whether the reason to expand building 10 of what appears to be twice as large as your previous plans is driven by the outlook within the telecom programs or if it's driven predominantly by the datacom opportunity that you see thank you
spk02: Yeah, it's actually both. It's the continued strength in Datacom and we believe our ability to pick up additional business there, but also what we see as some recovery in telecom, but also some new wins. We have been picking up some new business. We've had some success with a number of system wins of varying sizes over the last while. If you go back a few years ago, we had the Infinera win, then we had some know considerable success with cisco and more recently we've been awarded um one of these is an award from from sienna actually who's been a customer of ours for for some time but they've been a customer more on the on the component side they haven't been a 10 customer so they they haven't been in the in the 10 chart if you like but they're a very important customer for us and an excellent customer and we're very happy that we've been awarded the manufacturing of the majority share of their next generation network modem business, along with all of the associated vertically integrated optical components. So we'll be making the majority of the modems and all of the optics for those modems. And we expect this program, you know, really in our fiscal Q4, which means this win will be more important for fiscal 26 revenue than fiscal 25 revenue. But over the next kind of six to nine months, we begin to we'll begin to ramp that. And we're very happy with the expansion of this relationship with Ciena. So it's a combination of, you know, returning to strength in telecom plus some additional business we've been picking up in telecom and, of course, sustainable datacom demand and datacom growth as well.
spk15: Very helpful.
spk02: In relation to ZR, sorry, you asked also about ZR. So, you know, our telecom business overall year on year, it's down 20... 23 year on year um but within that we've had we've had some very nice growth in dci which is not just zr but it's it's a lot of it that growth has been vr and we've we have had some some success in 400 cr and also 800 dr and zr plus and right now we have six uh six customers six zr customers of varying sizes so ZR optics, in particular for DCI applications, has been a real source of strength for us, and we've been very happy with the adoption of ZR in the DCI space over the last while.
spk14: Very helpful. Thank you. You're welcome.
spk12: Thank you. Our next question comes from the line of Alex Anderson with Needham. Alex, your line is open.
spk01: Thanks so much. Wow, you got Sienna in there, the systems business. That's fabulous. Congratulations. That's good news. Thank you. I was hoping you might talk a little bit about whether you're going to break that out as a category now that it's become a multiple vendor group as opposed to one or two customers. And then second, within the – you know, the systems business. A lot of systems inventory out there, but it seems to be clearing faster on the system side than the component side. So do you expect the systems business to pick up faster than the overall telecom component business?
spk02: Well, certainly I think our systems business will because we've had some success there. We've obviously had some success on the component business as well, but that is still hampered by inventory digestion. And again, we can't really easily distinguish between inventory adjustments and market demand. So it's not always clear to us. But based on what we are seeing from our customers, it does feel as though inventory digestion, and again, on the component side, for traditional telecom products, it's starting to stabilize. It doesn't necessarily mean we're off to the races yet, and there could still be some remaining digestion but the big year over year and sequential declines we think are largely behind us at this point um on the on the system side yeah so for us we think the system business would probably grow faster in the component business we haven't we haven't broken it out uh that way yet we may as you say at some point in the future um you know up to now we've had one or two customers in that space but as we add to that customer portfolio we we may at some point in the future but not uh We would probably wait until the end of a fiscal year to do that.
spk01: In your remarks, you made a comment that the AI has multiple alternative growth factors outside of NVIDIA. Are any of those three categories that you identified anywhere near the possibility of an announcement? Do you think that that's something that could happen during this upcoming fiscal year, or do you think that's really 26 and beyond type of business?
spk02: Well, as you know, Alex, we generally tend to not announce anything until there's something to announce, as evidenced by the Ciena news. Our approach is to work very hard with our customers to try and win these opportunities, but until such time as we've actually won it, we generally don't talk about it. But there's three, as you said, the three growth factors we're pursuing with vigour and with energy. and working very, very hard on those. We're quite optimistic that there's a lot of business to be won in all three of those areas. And again, the three areas being other GPU companies, other merchant transceiver opportunities, and thirdly, hyperscale companies who want to go direct maybe with their own optical interconnect. So we're working hard on all three of those, but nothing to announce at this point. But we're optimistic, but they take time. They take a long time to land these opportunities.
spk01: One last question, then I'll see the floor. So I think you've talked about pricing pressure being larger than the 10% to 15% normal price pressure that has been evident in this category for, I don't know, the last decade or plus, with the exception of the COVID window. You're clearly selling predominantly into a single customer who's now got qualification from multiple customers or multiple alternative suppliers. The combination of those two with some slowing of the overall growth rate expected in this category in 25 and 26, does it suggest to you that this category could decelerate to pretty modest growth, or, you know, as you have share loss against, you know, your major customer and the pricing pressure is there, or do you have visibility that the new capacity coming on stream from that customer coming in quarter after quarter after quarter is going to continue to drive, you know, solid 5% to 15% kind of growth in which is what you've been producing quarter to quarter over the last year. How do we think about this dynamic from your perspective?
spk02: Thanks. Yeah, we've been growing about 15% compound annual growth rate over the last three or four years. Our top line has grown about 15% each year. Our earnings have grown about 24% in the same period each year. And from a customer's perspective, Cost is a factor, but it's not the only consideration. First of all, in terms of cost, we're very, I would say, confident in our ability to meet any cost targets that any of our customers need us to meet. We're very cost competitive. We have a low cost footprint. We have a very compact footprint and we don't have any redundant capacity in any geographies around the world. So we don't have a capacity overhang that we have to deal with. So we're We're very cost-conscious, we're very cost-competitive, and we're very compact. But our customers really care about several factors. Cost being one, but it's not the only one. Technology and really the ability of their supplier to be a technology leader to make sure they can get to market first with their new products is critical. And then quality and delivery are absolutely critical. And the ability to ramp quickly when an opportunity comes along. So having capacity available is critical as well. And, of course, cost. So it's all of those factors. It's not any one factor. It's all of those factors that we believe our customers are most preoccupied with, and so are we. So we're confident in our ability to continue to grow the business. We don't give long-term guidance. As you know, Alex, we guide one quarter at a time. But I think our optimism about the business is you can see the steps we're taking. to continue to expand our capacity and make sure we're ready for the future. It's a good indication of how we feel. Great. Thanks. Thanks.
spk12: Thank you. Our next question comes from the line of Team Savajal.
spk03: Hey, good afternoon.
spk12: With Northland Capital Markets. Go ahead.
spk18: Yeah. Okay. Sorry about that. My congratulations as well. Thank you, Tim. And let's try and put that in a little more context in terms of the win here. You'd mentioned, you know, Infinera and Cisco historically. I think we started out with relatively muted expectations there, but, you know, clearly, you know, they're very sizable customers for you. I think the increment there is, you know, a couple of $300 million. I don't know whether you said it there. I think you mentioned Ciena was not a 10% customer currently. I assume they will be in fiscal 26. Is that fair to say?
spk02: Well, I guess if you dial in approximately 12 months from now, we'll find out. But it's too early to say, Tim. And I think it's early days. Obviously, it's not early days in our relationship with Ciena. They've been a customer for a very long time and an excellent customer. But this latest win We're just getting geared up to begin to ramp it, so it's early days. But we're very happy with the wind, very happy with the relationship.
spk18: Okay. You mentioned modems. I assume that's the mainline kind of coherent line cards and the associated optics that go with that. And I don't know if you can say this, but would that include pluggables as well, CR pluggables, or maybe you already do that?
spk02: Yeah, I prefer probably not to go into that level of detail. I mean, we do a lot of work with Sienna. Like I say, they have not been a 10% customer. And again, it's not really our place to disclose the specific components we make for our customers, but it's a pretty broad-based relationship and a very successful one.
spk04: Great. Understood. Well done.
spk18: Thanks very much. Thank you. Thank you.
spk12: Thank you, and as a reminder to our teleaudience, if you do have a question, simply press star one one to get in the queue. And our next question comes from the line of Mike Genovese with Rosenblatt Securities. Please proceed.
spk08: Great, thank you. So Seamus, you know, the Sienna win sounds very positive, and the ZR commentary was positive. I'm just wondering, on the telecom side of the world, are there any other green shoots to point out, or are those the two main things, or is there a third and a fourth?
spk02: Well, I think the other couple of comments are on the overall, let's say our traditional telecom business. We do think it's stabilizing. We're starting to see demand coming back. We're starting to see it stabilize. Early days, but we think our traditional telecom business is starting to stabilize. And then the other point would be on DCI. So DCI continues to be a good growth driver, especially 400TR, but also 800TR has been a good, solid beacon of life and growth for us over the last while. They will be the four main telecom comments, if you like. Right.
spk08: And then just to clarify and kind of put your business in context with other people's business in the industry, is it correct to assume that everything you make for the customer is a multi-mode transceiver? Is that correct?
spk02: No, we make all kinds of transceivers, single mode, multi-mode, everything.
spk08: Okay. Okay, so I guess, though, how would you position the products that you make versus other people's products out there, for instance, that use EMLs? Is there significant overlap in those applications, or do you think that they're kind of different products for different parts of the network?
spk02: I think, again, it's probably more of a question for our customers than for us. I mean, we make whatever the customers want us to make. You know, and again, in broad terms right now with our big customer there, there's really two sources, if you like, for products that they have. They have their own design, which we make, their own designs, plural, which we make. And then there's the merchant transceiver suppliers as well. But the puts and takes around, you know, kind of who does what and which one is best suited to which application, we leave that to our customers to talk about.
spk08: Yeah. Okay, then finally, I actually even feel a little bit embarrassed answering this question because it really seems to be trying to read the tea leaves way too closely. But if we just look at the 800G business, and thanks for breaking that out, you know, the sequential growth looks like maybe it was at a low point in the fourth quarter. And from the guide, it sounds like it may be a little bit faster sequentially in the first quarter than it was in the fourth quarter. And is there anything at all to read about the markets? by that?
spk02: I don't think so. I wouldn't read a whole lot into that. We certainly don't read anything significant into that, Mike.
spk08: Okay. Thanks very much. Appreciate it.
spk02: Thanks, Mike. Appreciate it. Thank you.
spk12: Thank you. One moment for our next question. It comes from the line of George Notter with Jefferies. Please proceed.
spk07: Hi, guys. Thanks very much. I wanted to ask about Building 10 and I think the way you phrased it, Seamus, was that you were going to make the decision on Building 10 during this fiscal year. Did you make that decision during the June quarter that you're breaking ground in the June quarter, or did you mean to infer that you could break ground in any one of the next several quarters?
spk02: No, we've made the decision. What we said in our prepared remarks was that we would break ground in the fiscal year, in the new fiscal year, which we're now in. So we've taken the decision to 200, sorry, 2 million square foot facility or will be a 2 million square foot facility. So double the size of building nine and we'll break ground on that in this fiscal year.
spk07: Got it. Okay. So you mentioned it's a year and a half to get it up and running. Is that a year and a half from today? Is that a year and a half from, you know, quarter or two?
spk02: From when we break ground. from when we break down. And I mean, you know, we generally, once we make the decision, you know, obviously these are significant investments and it's a major undertaking, major project. We will typically, you know, make the decision. Then, of course, we have to go out to tender and make sure we have all the permits lined up. So that takes a little bit of time. And then, you know, we'll break ground at some point in the next few quarters. We'll update on that in the future. And then from once we break ground, it's about 18 months.
spk07: Yeah. Okay. Okay, so I can I assume that you're at a 70% utilization rate then right now on building 9 I think in the past you've talked about that as being the Threshold at which you guys make a decision We don't break that number out anymore.
spk02: You can you can assume anything you like really we don't break that number out We did historically and it just wasn't productive and that's the the guideline we had set ourselves in the past that when we get to 70% on on The last building, we would pull the trigger on the next building. But really, like I said, there's very little downside risk to building our next building a little bit earlier. Even if we don't end up filling it, there's really very little downside risk, about 15 basis points. And the upside opportunity is huge. So we're not going to confirm the utilization percentage. Other than to say building eight filled up, much faster than we thought it would, and so is Building 9. It's filling up faster than we had anticipated. So we want to make sure we don't get caught flat-footed if some of these big opportunities, if and when they come our way in the future, we want to make sure we're ready.
spk07: Got it. Great. And then just one last follow-up. So on the Siena win, I guess from the timing of Building 10 breaking ground and then being up and running, I assume the Sienna win is going to come on relatively slowly. Like if I look at Sienna's optical business, obviously there are multiples of the size of Cisco. Cisco is a 10% customer for you. I guess I'm wondering if it's fair to say that it'll take some time to really get that business ramped.
spk02: Yeah, it's really beginning to ramp in early calendar. We call it 2025 or the second half of our fiscal year. So really into the March or even into the June quarter, our fiscal Q4. So the ramp will be more of a FY25 story than an FY, sorry, an FY26 story than an FY25 story. We'll be, and we already are working on elements of it, but we really don't start to ramp it in earnest until the March and the June quarter.
spk07: Great. Thank you. Congrats on the win. Thanks.
spk02: Thank you very much. Thank you.
spk12: Thank you. And that's all the time we have for Q&A today. I will turn the call back to Seamus Grady for closing comments.
spk02: Thank you. Thank you for joining our call today. We're very pleased with our record quarter and fiscal year. We're optimistic that our business momentum will continue into the first quarter as we extend our leadership position in the market. We look forward to speaking with you again and to seeing those of you who will be attending the Jefferies Conference next week. Goodbye.
spk12: And with that, thank you all for participating in today's conference. You may now disconnect. Thank you. Thank you. Thank you. Thank you. Good afternoon, and welcome to Fabrinet's Financial Results Conference Call for the fourth quarter of fiscal year 2024. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions on how to participate will be provided at that time. As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Garo Tumajanian, Vice President of Investor Relations. Please go ahead.
spk05: Thank you, Operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the fourth quarter of fiscal year 2024, which ended June 28, 2024. With me on the call today are Seamus Grady, Chief Executive Officer, and Chavez Ferra, Chief Financial Officer. This call is being webcast and a replay will be available on the investor section of our website located at investor.fabrinet.com. During this call, we will present both GAAP and non-GAAP financial measures. Please refer to the investor section of our website for important information, including our earnings press release and investor presentation, which include our GAAP to non-GAAP reconciliation, as well as additional details of our revenue breakdown. In addition, today's discussion will contain forward-looking statements about the future financial performance of the company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in light of new information or future events, except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular the section captioned Risk Factors in our Form 10-Q filed on May 7, 2024. We will begin the call with remarks from Seamus and Chaba, followed by time for questions. I would now like to turn the call over to FabriNet's CEO, Seamus Grady. Seamus? SEAMUS GRADY, CEO, FabriNet Thank you, Gero.
spk02: Good afternoon to everyone joining our call. Our very strong fourth quarter results capped off an outstanding year for FabriNet. Fourth quarter revenue of $753 million was above our guidance range and grew 15% from a year ago and 3% from Q3. We executed very well to produce non-GAAP EPS that also exceeded our guidance range at $2.41 per share. It's also notable that Q4 marked the fourth quarter in a row for both record revenue and EPS for the company. For the full year, revenue was $2.9 billion, an increase of 9% from fiscal year 2023. Our continued focus on cost management helped us to again grow non-GAAP earnings faster than revenue to a record $8.88 per share or a 16% year-over-year increase. 2024 was quite a remarkable year for Fabrinet. Datacom revenue grew over 120% while telecom revenue declined more than 20% for the year due to the protracted inventory digestion across the telecom industry. Our strong results throughout the year demonstrated the strength of our flexible and resilient business model. Entering the fourth quarter, we anticipated continued revenue growth in Datacom and declines in Telecom, and that's what we experienced. We also anticipated a return to sequential growth in automotive revenue, which we also saw. Within optical communications, Datacom revenue continues to drive growth, while the sequential decline in Telecom was more modest than anticipated. In Datacom, 800 gig products for AI and related applications remain the biggest revenue contributor, offset in part by the completion of the wind down of a long running 100 gig program, as we've discussed previously. We are very encouraged by the strong demand trends we are seeing for both current generation and next generation Datacom technologies. We believe that our industry-leading expertise and trusted reputation positions us particularly well to continue benefiting from long-term Datacom growth. In Telecom, ongoing inventory digestion continues to dampen revenue from traditional Telecom products. In the fourth quarter, this impact was partially offset by data center interconnect products, as well as contributions from new Telecom system program wins. In fact, we expect recent system wins of varying sizes to begin making more meaningful revenue contributions towards the second half of our fiscal 2025. These new wins make us optimistic about Fabrinet's long-term telecom revenue trends overall. Turning to non-optical communications, we saw double-digit sequential revenue growth in the quarter. As anticipated, this increase was primarily due to growth in automotive revenue, as short-term inventory absorption issues are now behind us. All in all, we had a very robust and successful quarter and year, and we remain positioned particularly well for continued momentum as we look ahead. In fact, in the first quarter of our fiscal year 2025, we anticipate sequential revenue growth from all of our major product categories. Beyond Q1, we continue to carefully evaluate our long-term capacity requirements. In that regard, we have made the decision to break ground on Building 10 at our Chanbury campus during the new fiscal year. Our first building in Chanbury was Building 8, with all 500,000 square feet now being utilized. Building 9, which is about 1 million square feet, opened about two years ago and is quickly filling up. Building 10 will be 2 million square feet in size. We expect construction to take approximately a year and a half to complete once we break ground. Capital expenditures for construction of the 2 million square foot facility will be approximately $110 million. Beyond building 10, we have ample space to further increase our manufacturing capacity. We'll keep you posted on our construction timeline as we move ahead. In summary, we delivered a record fourth quarter with revenue and EPS that are above our guidance ranges, as well as a remarkable fiscal year. We're increasingly optimistic about our future and we have numerous drivers that position us to extend our track record of success into fiscal 2025 and beyond. Now I'll turn the call over to Chaba for more financial details on our fourth quarter and fiscal 2024 and our guidance for the first quarter of fiscal 2025. Chaba.
spk13: Thank you, Seamus, and good afternoon, everyone. We had a terrific fourth quarter to end a very strong year. Record fourth quarter revenue of $753 million was above our guidance range and represented an increase of 15% from a year ago and 3% from Q3. The strong revenue helped produce record non-GAAP earnings per share of $2.41, which was also above our guidance. For the full fiscal year, revenue was a record $2.9 billion, an increase of 9% from fiscal 2023. As in recent years, non-GAAP earnings grew faster than revenue, reaching a new record of $8.88 per share, up 16% from the prior year. Details of our revenue breakdown are included in the investor presentation on our website. And I will now focus my comments on some of the more notable metrics. In the fourth quarter, optical communications revenue was $596 million. or 79% of total revenue, an increase of 19% from a year ago and 1% from Q3. Within optical communications, Datacom revenue was $315 million, or 53% of optical communications revenue, an increase of 63% from a year ago and 3% from the prior quarter. Telecom revenue was $282 million, or 47% of optical communications revenue. Telecom revenue declined approximately 1% from Q3, which was a smaller decline than expected due to continued growth from data center interconnect products. With the optical communication industry transitioning to higher data rates, we continue to see strong growth from 800 gig and faster products that are now clearly the key drivers of our growth. Therefore, we are now breaking out revenue by speed into two categories, 800 gig and faster and below 800 gig. In the fourth quarter, revenue from products rated at 800 gig and faster was $259 million, up 54% from a year ago. Revenue from products below 800 gig was $223 million, up 4% from a year ago. Revenue from optical communications products that are non-speed rated, including rodents, amplifiers, fiber arrays, and other devices, was $114 million, down 5% from a year ago. The historical two-year trend of this breakout is provided in the most recent investor deck on our website. From that breakout, you will observe that in fiscal 2024, products rated at 800 gig and above started to dominate and were the biggest contributor to growth. Although products below 800 gig continued to grow, thanks to 400 ZR programs, which reached 10% of optical communications revenue in Q4. Revenue from non-optical communications saw healthy growth in the fourth quarter to $157 million, up 2% from a year ago and 12% from Q3. This increase was primarily the result of increasing automotive revenue as we have moved past a short-term inventory correction period. Automotive revenue was $86 million in the fourth quarter, up 17% sequentially. As I discussed the details of our P&L, expense and profitability metrics will be on a non-GAAP basis unless otherwise noted. Gross margin in the fourth quarter was 12.5%, a 10 basis point decline from Q3, and was within our guidance range. Operating expenses were $14 million, slightly less than 2% of revenue. Operating income was $80 million, representing an operating margin of 10.7%, consistent with the third quarter. The combination of our strong cash balance and elevated interest rate environment provided record interest income of $11 million. Active gap tax rate was 4.6% in the fourth quarter. We anticipate that our tax rate will remain in the mid-single digit in fiscal year 2025. Non-GAAP net income was a record $88 million, or $2.41 per diluted share. For the full year, revenue was $2.9 billion, up 9% from fiscal 2023. In fiscal 2024, we had two customers that contributed 10% or more to revenue, NVIDIA at 35% and Cisco at 13%. Our top 10 customers together made up 86% of revenue, up from 84% in fiscal 2023. For the fiscal year, gross margins were 12.6%, down 40 basis points from fiscal 2023, primarily due to the absence of FX tailwinds that we benefited from last year. Operating margin for the fiscal year was 10.6%, a decrease of 20 basis points from fiscal 2023. You will note this is a smaller decline than we saw in our gross margin, reflecting operating leverage inherent in our model. Non-GAAP net income was a record $8.88 per share, an increase of 16% from a year ago, with EPS growth again outpacing revenue growth. We maintained a very strong balance sheet throughout fiscal year 2024. We closed the year with cash and short-term investments of $859 million, up $65 million from the end of the third quarter. The primary driver of this increase was strong operating cash flow of $83 million. With capex of $13 million, free cash flow in the quarter was $70 million. For the full year, we generated record operating cash flow of $413 million, a remarkable increase of 94% from fiscal 2023. Free cash flow in fiscal 2024 was also a record at $368 million, an increase of 142% from a year ago. In the fourth quarter, we repurchased approximately 21,000 shares at an average price of $170 per share, for a total cash outlay of $3.5 million. For the full year, we repurchased approximately 212,000 shares at an average price of $186 per share, for a total cash outlay of $39 million. We remain committed to investing in our growth while also returning capital to shareholders with our 10b5-1 and open market share repurchase programs. Since the end of the quarter, our board has authorized an additional $139 million for repurchases, so that we now have $200 million available for share buyback. This is double the size of our repurchase authorization at the beginning of fiscal 2024. Now, I will turn to our guidance for the first quarter of fiscal year 2025. After a year of breaking quarterly records for revenue and EPS, we are optimistic that the first quarter will represent another strong quarter for Fabernet. In fact, we anticipate that revenue will be up sequentially in all of our major product areas. We expect data growth to be driven mainly by advanced high data rate products. We expect telecom revenue to increase from the combination of growth in data center interconnect products and recent new programming. And we believe that automotive and laser revenue will also grow sequentially. Overall, we expect first quarter revenue to be in the range of $760 to $780 million. We also expect strong performance from profitability perspective. Keep in mind that in the first quarter, we will see the seasonal impact of annual merit increases, which puts temporary downward pressure on margins. As in the past, we expect operational efficiencies to offset these cost increases as we progress through the year. Based on recent strength in Thai baht, we expect a foreign exchange evaluation lost in the first quarter. With that in mind, we are anticipating EPS to be $2.33 to $2.40 per share. In summary, we had another record quarter with results that exceeded our guidance for both revenue and EPS. We expect our momentum to continue in fiscal 2025, beginning with a strong first quarter as we extend our track record of solid execution. Operator, we are now ready to open the call for questions.
spk12: Thank you. And as a reminder, to ask a question, simply press star 1-1 on your telephone and wait for your name to be announced. To remove yourself from the queue, press star 1-1 again. Please stand by for our first question. And our first question comes from Samik Chatterjee with JP Morgan. Please go ahead.
spk09: Hey, good afternoon. Thanks for the question. This is Joe Cardozo on for Samik. So maybe first one here, just on the data con business. Curious if you could talk about the timing around 1.6T and whether you think that could start to, or whether that's beginning to materialize as early as your September quarter. And then second part of this question is just like how are you thinking about 400 gig and 800 gig demand going forward? Both of these look like strong growth drivers in 24, just doing kind of the back of the envelope math here on the new disclosures. And I think in the past you highlighted expectation that 800 gig demand continues as you don't expect 1.6T to cannibalize it. You know, is that still the same case? Still expectations going into 2025? And does that apply to 400 gig as well? And then I have a quick follow-up. Thank you.
spk02: Thanks, Joe. So, yeah, 1.6, you know, we can't talk about the specific timeline for our customer's product before they do. But certainly, you know, we're working hard with our customer on 1.6T. But we think that 800 gig will be around for a while. It's used extensively in a lot of the products and the networks we make for our customers. And we think 800 gig will be around for a long time. Our aim, as always, is to be working with the customers on the next generation products while we're building the current generation products. 1.6T transceivers, they're quite complex, and they don't ramp up overnight. You know, again, the timing of the announcement of a new product like that is really up to our customers, so we wouldn't really comment on that. But, you know, we're certainly making sure they're ready from a capacity perspective. 800 gigs, like I say, 800 gig, the demand is very strong. 400 gig, you know, still remains. But, you know, like I said, the timing of 1.6, we leave that to our customers to talk about.
spk09: No, very shameless. And then maybe just in terms of my second question and maybe bigger picture, obviously great to hear the news around building 10 expansion. You know, as we think about the portfolio and what's driving the conviction to break ground there, is this all related to further confidence in terms of around the data comm business or are there other areas of the, you know, your portfolio that's driving conviction here and supporting the additional facility build out? Just curious high level thoughts, you know, how you're thinking about it and what's driving the conviction there. Thank you. We appreciate the questions.
spk02: No problem. It's really our overall conviction about the overall business. It's not any one particular, if you like, segment. Building 9 and actually building 8 before it, they filled faster than we had anticipated. Building 10 is a good use of our cash. We have the cash available. We get better economies of scale by building a 2 million square foot facility rather than a 1 million square foot. And it's just a a better overall use of the land available to us to build the 2 million square foot facility. And really, you know, we have conviction in the pipeline and in the business. The upside opportunity is significant. You know, if you do the math on the revenue per square foot, it would suggest that the revenue capacity in building 10 should be about 2.4, plus or minus 2.4 billion dollars. So the upside opportunity is significant and the downside risk is very small. Even if we were to build a building 10 and didn't put any business in there for a period of time, the gross margin headwind would be about 15 basis points. So it's very small. So it's a combination of all those factors, the conviction, the business. We believe it's a good use of our cash and it's also good upside potential with very little downside risk.
spk12: Thank you. One moment for our next question, please. And it comes from the line of Carl Ackerman with BNP Paribas. Please proceed.
spk06: Thank you, gentlemen. I've got two questions. First, your 800-gig transceiver revenue to date has been primarily driven by your largest customer, and some investors have been concerned that a pushout of the latest GPU would impact your near-term outlook. That does not appear to be the case. So does your September quarter outlook imply that you are seeing a broadening of your Datacom customer base for 800 gigs as several hyperscalers are beginning to deploy broadly 800 gig networking switches?
spk02: So, yeah, I mean, we don't really comment on our customers' product launches. We know that our big customer, as you say, for 800 gig has been NVIDIA And they continue to see strong demand for their products. And our understanding is that they will extend and expand production based on current GPUs to meet the demand that's there. And we're happy to continue to support them. We're working, Carl, on a number of opportunities. We've talked about these before. There's really three categories of, if you like, AI-related growth vectors. outside of NVIDIA. Obviously, we're very happy with the growth of NVIDIA, but we're pursuing others. There's other GPU companies. There's other merchant transceiver opportunities. And then there's hyperscalers who are looking to maybe go direct. And we're pursuing all three. So, you know, our outlook is really a function of continued strength, continued strength in the Datacom business. And, you know, the telecom industry softness that we've seen for the last while we are seeing indications that that demand is beginning to recover so I suppose in in some simple terms the datacom growth looks to be sustainable and the telecom weakness is temporary we think we've also had some success with winning some new complete network system business as well as we will be you know introducing over the next while so we We want to make sure we have ample capacity for that. We've been able to pick up some additional complete network system business.
spk06: Yep. Thanks for that, Seamus. To that point, could you discuss the breadth of customer adoption and growth of coherent VR optics using telecom and DCI? And then at the same time, if I may, You spoke in your prepared comments about new programs within telecom beginning to float into the model in the second half of fiscal 25. I'm curious whether the reason to expand building 10 of what appears to be twice as large as your previous plans is driven by the outlook within the telecom programs or if it's driven predominantly by the datacom opportunity that you see. Thank you.
spk02: Yeah, it's actually both. It's the continued strength in Datacom and we believe our ability to pick up additional business there, but also what we see as some recovery in telecom, but also some new wins. We have been picking up some new business. We've had some success with a number of system wins of varying sizes over the last while. If you go back a few years ago, we had the Infinera win, then we had some know considerable success with Cisco and more recently we've been awarded one of these is an award from from Sienna actually who's been a customer of ours for for some time but they've been a customer more on the on the component side they haven't been a 10% customer so they haven't been in the 10% chart if you like but they're a very important customer for us and an excellent customer and we're very happy that we've been awarded the manufacturing of the majority share of of their next generation network modem business, along with all of the associated vertically integrated optical components. So we'll be making the majority of the modems and all of the optics for those modems. And we expect this program, you know, really in our fiscal Q4, which means this win will be more important for fiscal 26 revenue than fiscal 25 revenue. But over the next kind of six to nine months, we'll begin to we'll begin to ramp that. And we're very happy with the expansion of this relationship with Ciena. So it's a combination of, you know, returning to strength in telecom plus some additional business we've been picking up in telecom and, of course, sustainable datacom demand and datacom growth as well.
spk15: Very helpful.
spk02: In relation to ZR, sorry, you asked also about ZR. So, you know, our telecom business overall year on year, it's down 20... 23% year-on-year. But within that, we've had some very nice growth in DCI, which is not just ZR, but a lot of that growth has been ZR. And we have had some success in 400 ZR and also 800 ZR and ZR+. And right now we have six customers, six ZR customers of varying sizes. ZR optics, in particular for DCI applications, has been a real source of strength for us, and we've been very happy with the adoption of ZR in the DCI space over the last while.
spk14: Very helpful. Thank you. You're welcome.
spk12: Thank you. Our next question comes from the line of Alex Anderson with NIRAM. Alex, your line is open.
spk01: Thanks so much. Wow, you got Sienna in there, the systems business. That's fabulous. Congratulations. That's good news. Thank you. I was hoping you might talk a little bit about whether you're going to break that out as a category now that it's become a multiple vendor group as opposed to one or two customers. And then second, within the – you know, the systems business. A lot of systems inventory out there, but it seems to be clearing faster on the system side than the component side. So do you expect the systems business to pick up faster than the overall telecom component business?
spk02: Well, certainly I think our systems business will because we've had some success there. We've obviously had some success on the component business as well, but that is still hampered by inventory digestion. And again, we can't really easily distinguish between inventory adjustments and market demand, so it's not always clear to us. But based on what we are seeing from our customers, it does feel as though inventory digestion, and again, on the component side, for traditional telecom products, it's starting to stabilize. It doesn't necessarily mean we're off to the races yet, and there could still be some remaining digestion but the big year-over-year and sequential declines we think are largely behind us at this point um on the on the system side yeah so for us we think the system business would probably grow faster in the component business we haven't we haven't broken it out uh that way yet we may as you say at some point in the future um you know up to now we've had one or two customers in that space but as we add to that custom portfolio we we may at some point in the future but not uh We would probably wait until the end of a fiscal year to do that.
spk01: In your remarks, you made a comment that the AI has multiple alternative growth factors outside of NVIDIA. Are any of those three categories that you identified anywhere near the possibility of an announcement? Do you think that that's something that could happen during this upcoming fiscal year, or do you think that's really 26 and beyond type of business?
spk02: Well, as you know, Alex, we generally tend to not announce anything until there's something to announce, as evidenced by the Ciena news. Our approach is to work very hard with our customers to try and win these opportunities, but until such time as we've actually won it, we generally don't talk about it. But there's three, as you said, the three growth factors we're pursuing with vigour and with energy. and working very, very hard on those. We're quite optimistic that there's a lot of business to be won in all three of those areas. And again, the three areas being other GPU companies, other merchant transceiver opportunities, and thirdly, hyperscale companies who want to go direct maybe with their own optical interconnect. So we're working hard on all three of those, but nothing to announce at this point. But we're optimistic, but they take time. They take a long time to learn these opportunities.
spk01: One last question, then I'll see the floor. So I think you've talked about pricing pressure being larger than the 10% to 15% normal price pressure that has been evident in this category for, I don't know, the last decade or plus, with the exception of the COVID window. You're clearly selling predominantly into a single customer who's now got qualification from multiple customers or multiple alternative suppliers. The combination of those two with some slowing of the overall growth rate expected in this category in 25 and 26, does it suggest to you that this category could decelerate to pretty modest growth, or, you know, as you have share loss against, you know, your major customer and the pricing pressure is there, or do you have visibility that the new capacity coming on stream from that customer coming in quarter after quarter after quarter is going to continue to drive, you know, solid 5% to 15% kind of growth in which is what you've been producing quarter to quarter over the last year. How do we think about this dynamic from your perspective?
spk02: Thanks. We've been growing about 15% compound annual growth rate over the last three or four years. Our top line has grown about 15% each year. Our earnings have grown about 24% in the same period each year. From a customer's perspective, Yeah, cost is a factor, but it's not the only consideration. First of all, in terms of cost, we're very, you know, I would say confident in our ability to meet any cost targets that any of our customers need us to meet. We're very cost competitive. We have a low cost footprint. We have a very compact footprint and we don't have any redundant capacity in any geographies around the world. So we don't have a capacity overhang that we have to deal with. So we're We're very cost-conscious, we're very cost-competitive, and we're very compact. But our customers really care about several factors. Cost being one, but it's not the only one. Technology and really the ability of their supplier to be a technology leader to make sure they can get to market first with their new products is critical. And then quality and delivery are absolutely critical. And the ability to ramp quickly when an opportunity comes along. So having capacity available is critical as well. And, of course, cost. So it's all of those factors. It's not any one factor. It's all of those factors that we believe our customers are most preoccupied with, and so are we. So we're confident in our ability to continue to grow the business. We don't give long-term guidance. As you know, Alex, we guide one quarter at a time. But I think our optimism about the business is you can see the steps we're taking. to continue to expand our capacity and make sure we're ready for the future is a good indication of how we feel. Great. Thanks. Thanks, all.
spk12: Thank you. Our next question comes from the line of Team Sabajal.
spk03: Hey, good afternoon.
spk12: With Northland Capital Markets. Go ahead.
spk18: Yeah. Okay. Sorry about that. My congratulations as well. Thank you, Tim. And let's try and put that in a little more context in terms of the win here. You'd mentioned, you know, Infinera and Cisco historically. I think we started out with relatively muted expectations there. But, you know, clearly, you know, they're very sizable customers for you. I think the increment there is, you know, a couple of three hundred million dollars. I don't know whether you said it there. I think you mentioned Ciena was not a 10% customer currently. I assume they will be in fiscal 26. Is that fair to say?
spk02: Well, I guess if you dial in approximately 12 months from now, we'll find out. But it's too early to say, Tim. And I think it's early days. Obviously, it's not early days in our relationship with Ciena. They've been a customer for a very long time and an excellent customer. But this latest win... You know, we're just getting geared up to begin to ramp it, so it's early days. But we're, you know, we're very happy with the wind, very happy with the relationship.
spk18: Okay. You mentioned modems. I assume that's the kind of the mainline kind of coherent line cards and, you know, the associated optics that go with that. And I don't know if you can say this, but would that include pluggables as well, CR pluggables, or maybe you already do that?
spk02: Yeah, I'd prefer probably not to go into that level of detail. I mean, we do a lot of work with Ciena. Like I say, they have not been a 10% customer. And again, it's not really our place to disclose the specific components we make for our customers. But it's a pretty broad-based relationship and a very successful one.
spk04: Great. Understood. Well done. Thanks very much. Thank you.
spk18: Thank you.
spk12: Thank you, and as a reminder to our teleaudience, if you do have a question, simply press star one one to get in the queue. And our next question comes from the line of Mike Genovese with Rosenblatt Securities. Please proceed.
spk08: Great, thank you. So Seamus, you know, the Sienna win sounds very positive, and the ZR commentary was positive. I'm just wondering, on the telecom side of the world, are there any other green shoots to point out, or are those the two main things, or is there a third and a fourth?
spk02: Well, I think the other couple of comments are on the overall, let's say our traditional telecom business. We do think it's stabilizing. We're starting to see demand coming back. We're starting to see it stabilize. early days, but we think our traditional telecom business is starting to stabilize. And then the other point would be on DCI. So DCI continues to be a good growth driver, especially 400TR, but also 800TR has been a good solid beacon of life and growth for us over the last while. They will be the four main telecom comments, if you like.
spk08: Right. And then just to clarify and kind of put your business in context with other people's business in the industry, is it correct to assume that everything you make for the customer is a multi-mode transceiver? Is that correct?
spk02: No, we make all kinds of transceivers, single mode, multi-mode, everything.
spk08: Okay. Okay, so I guess, though, how would you position the products that you make versus other people's products out there, for instance, that use EMLs? Is there significant overlap in those applications, or do you think that they're kind of different products for different parts of the network?
spk02: I think, again, it's probably more of a question for our customers than for us. I mean, we make whatever the customers want us to make. You know, and again, in broad terms right now with our big customer there, there's really two sources, if you like, for products that they have. They have their own design, which we make, their own designs, plural, which we make. And then there's the merchant transceiver suppliers as well. But the puts and takes around, you know, kind of who does what and which one is best suited to which application, we leave that to our customers to talk about.
spk08: Yeah. Okay, then finally, I actually even feel a little bit embarrassed asking this question because it really seems to be trying to read the tea leaves way too closely. But if we just look at the 800G business, and thanks for breaking that out, you know, the sequential growth looks like maybe it was at a low point in the fourth quarter. And from the guide, it sounds like it may be a little bit faster sequentially in the first quarter than it was in the fourth quarter. And is there anything at all to read about the markets? by that?
spk02: I don't think so. I don't think there's a whole, I wouldn't read a whole lot into that. We certainly don't read anything significant into that, Mike.
spk08: Okay. Thanks so much. Appreciate it.
spk02: Thanks, Mike. Appreciate it. Thank you.
spk12: Thank you. One moment for our next question. It comes from the line of George Notter with Jeffries. Please proceed.
spk07: Hi, guys. Thanks very much. I wanted to ask about Building 10 and I think the way you phrased it, Seamus, was that you were going to make the decision on Building 10 during this fiscal year. Did you make that decision during the June quarter that you're breaking ground in the June quarter, or did you mean to infer that you could break ground in any one of the next several quarters?
spk02: No, we've made the decision. What we said in our prepared remarks was that we would break ground in the fiscal year, in the new fiscal year, which we're now in. So we've taken the decision to 200, sorry, 2 million square foot facility or will be a 2 million square foot facility. So double the size of building nine and we'll break ground on that in this fiscal year.
spk07: Got it. Okay. So you mentioned it's a year and a half to get it up and running. Is that a year and a half from today? Is that a year and a half from, you know, quarter or two? From when we break ground.
spk02: from when we break down. And I mean, you know, we generally, once we make the decision, you know, obviously these are significant investments and it's a major undertaking, major project. We will typically, you know, make the decision. Then of course we have to go out to tender and make sure we have all the permits lined up. So that takes a little bit of time. And then, you know, we'll break ground at some point in the next few quarters. We'll update on that in the future. And then from once we break ground, it's about 18 months.
spk07: Yeah. Okay. Okay, so I can I assume that you're at a 70% utilization rate then right now on building 9 I think in the past you've talked about that as being the Threshold at which you guys make a decision We don't break that number out anymore.
spk02: You can you can assume anything you like really we don't break that number out We did historically and it just wasn't productive and that's the the guideline we had set ourselves in the past that when we get to 70% on on The last building, we would pull the trigger on the next building. But really, like I said, there's very little downside risk to building our next building a little bit earlier. Even if we don't end up filling it, there's really very little downside risk, about 15 basis points. And the upside opportunity is huge. So we're not going to confirm the utilization percentage. Other than to say building eight filled up, much faster than we thought it would, and so is Building 9. It's filling up faster than we had anticipated. So we want to make sure we don't get caught flat-footed if some of these big opportunities, if and when they come our way in the future, we want to make sure we're ready. Got it.
spk07: Great. And then just one last follow-up. So on the Siena win, I guess from the timing of Building 10 breaking ground and then being up and running, I assume the Ciena win is going to come on relatively slowly. If I look at Ciena's optical business, obviously there are multiples of the size of Cisco. Cisco is a 10% customer for you. I guess I'm wondering if it's fair to say that it'll take some time to really get that business ramped.
spk02: Yeah, it'll really begin to ramp in early calendar. We call it 2025 or the second half of our fiscal year. So really into the March or even into the June quarter, our fiscal Q4. So the ramp will be more of a FY25 story than an FY, sorry, an FY26 story than an FY25 story. We'll be, and we already are working on elements of it, but we really don't start to ramp it in earnest until the March and the June quarter.
spk07: Great. Thank you. Congrats on the win.
spk02: Thanks. Thank you very much. Thank you.
spk12: Thank you. And that's all the time we have for Q&A today. I will turn the call back to Seamus Grady for closing comments.
spk02: Thank you. Thank you for joining our call today. We're very pleased with our record quarter and fiscal year. We're optimistic that our business momentum will continue into the first quarter as we extend our leadership position in the market. We look forward to speaking with you again and to seeing those of you who will be attending the Jefferies Conference next week. Goodbye.
spk12: And with that, thank you all for participating in today's conference. You may now disconnect.
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