NeoPhotonics Corporation

We stand by. We're about to begin. Good day, everyone, and welcome to the Neophotonics second quarter 2021 conference call. This call is being webcast live on the company's website at www.neophotonics.com on the events page of the investor section. This call is the property of Neophotonics. and any recording, reproduction, or transmission of this call without the express written consent of Neophotonics is prohibited. I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us to discuss Neophotonics operating results for the second quarter of 2021 and outlook for the third quarter of 2021. On the call today are Tim Jenks, Chairman and CEO, Wupin Penn, Chief Product Officer, and Beth Eby, Chief Financial Officer. Tim will begin with a review of the company's business in the second quarter and a discussion of relevant market trends. Wupin will provide a summary of products, technologies, and growth drivers for our highest speed products. Beth will then provide financial results for the second quarter and provide the outlook for the third quarter of 2021 before opening the call for questions. The company's press release and management statements during this call will include discussions of certain non-GAAP financial measures and information, including all income statement and balance sheet amounts and percentages other than revenue, unless otherwise noted. These non-GAAP financial measures are not prepared in accordance with GAAP and are not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. These financial measures and a reconciliation of gap to non-gap results are provided in the company's press release and related form 8K being filed today with the SEC and can be found in the investor relations section of the Neophotonics website. Material contained in the webcast is a sole property and copyright of Neophotonics with all rights reserved. Certain statements in this conference call, which are not historical facts, may be considered forward-looking statements that involve risks and uncertainties. and include statements regarding future business results, product and technology development, customer demand, inventory levels, economic and industry projections, and subsequent events. Various factors could cause actual results to differ materially. Some of these factors have been set forth in our press release dated August 3rd, 2021, and are described at length in our annual and quarterly SEC filings. Now, I will turn the call over to CEO, Tim Jenks.

Thank you, Erica, and good afternoon. Neophotonics again delivered strong results in the second quarter with revenue of $65 million. Both revenue and gross margin were in the upper end of our guidance range. Products for 400 gig and above applications grew 100 percent over the same period last year and were 46 percent of total revenue. We achieved these results despite ongoing supply chain challenges as we mentioned last quarter. The strong demand we're seeing for 400 gig and above solutions suggests that growth in 2022 could be higher than in past years. We believe accelerating demand for our 400 gig and above products is still in early innings. As the market continues to move to these higher speeds, we believe we are entering a new era of growth. Our core coherent components for 400 gig and above applications have driven most of our 400 gig and above revenue to date. We expect to see cloud hyperscalers and telecom carriers increase their capex spending and deployment rates for these products and our 400 gig coherent modules. We've been sampling our 400 gig coherent module solutions to cloud and hyperscale data centers. We expect cloud data centers to begin deploying 400 ZR coherent links in the fourth quarter. We believe we are at the beginning of a broad market expansion for 400 ZR and 400 ZR Plus based networks and applications. This expansion has started with adoption of coherent interconnects into cloud service provider metro networks. Rapid adoption of 400 ZR and 400 ZR Plus in cloud metro applications will be followed by cloud content providers similarly adopting 400 ZR and 400 ZR Plus for longer distance interconnects significantly expanding our served market. The cloud and hyperscale interconnect market is expected to soon rival the telecom market in high-speed interconnects. AI-enabled applications such as autonomous vehicles and machine learning will rapidly expand traffic and bandwidth requirements in the edge cloud market. are huge megatrends that we believe will expand ZR applications and deliver accelerated growth with each overlapping cycle for at least several years. Our high-speed component products for 400 gig, 600 gig, and 800 gig are used by virtually all leading network equipment manufacturers in cloud and hyperscale networks. Also, our ultra-narrow line with tunable lasers are the laser of choice for 400 gig and above. such that we are designed into several other customers' 400ZR modules. These products are beginning to ramp now, ahead of module deployments in late 2021 and 2022. Our 400ZR modules are in later qualification phases with leading hyperscalers. Our target customers have wide-ranging volume plans. We believe that our 400ZR and 400ZR Plus modules are industry leading in performance and in maturity, and we expect initial deployments toward the end of 2021. The industry's momentum of innovation and growth continues to move in our direction with ever higher performance requirements. As this occurs, our high-speed and high-performance optical components will increasingly be the differentiator, and we believe that neophotonics can capture a larger share of this value. Before turning the call over to Wu-Pen Yuen, I want to highlight additions to our executive team and board. This past month, we appointed Bradford Wright as Senior Vice President of Global Sales. Brad brings to Neophotonics 25 years of experience in the optical communications and semiconductor industries. Most recently, he was the head of worldwide component sales and applications at Cisco Systems, following its acquisition of Acacia Communications, where Brad was vice president of sales. We have added two new directors to our board. Kimberly Cheney brings deep experience in legal and regulatory affairs and has a background in the aerospace and automotive industries. Sherry Savage brings a strong background in finance controls, contract manufacturing, and related business models. Ms. Savage is serving as a member of our audit committee, while Ms. Cheney is serving as a member of our nominating governance committee. We're delighted to have these high caliber directors on our board. With that, I'll turn the call over to Wu-Pen Yuen, our Chief Product Officer.

Thank you, Tim, and good afternoon. We have talked about three key elements of our coherent product suite for the highest speed over distance applications. First, our 400 ZR pluggable modules. Second, our extended reach 400 ZR plus modules. And third, our coherent components, including our industry-leading ultra-pure light tunable lasers. Our 400ER pluggable modules, such as our QSPDD, are for use in data center interconnect applications with reaches of around 100 kilometers. These modules comply with the Optical Inter-Networking Forum's implementation agreements and have been successfully tested at multiple hyperscale data center customers demonstrating interoperability with other leading vendors' 400ZR modules. Our 400ZR QCPDD modules utilize our vertically integrated silicon photonics coherent optical sub-assembly, or COSA, and our low-power consumption ultra-narrow line-width nano-ITOA tunable laser. And it can be operated over temperatures ranging up to 80 degrees Celsius in extended temperature data center environments that reduce cooling requirements. Our 400ZR modules have completed telecordia reliability qualification and have passed 2,000 hours of high temperature operating life tests. Our 400ZR modules are now in general availability and are shipping to customers while continuing our later stage qualification work at hyperscalers. Our extended reach 400ZOP plus QSP-DD pluggable modules serve metro distances. Our ultra-pure light tunable lasers and high-performance coherent components, coupled with the latest 7 nanometer generation DSPs, increase the reach of our QSP-DD modules far beyond D-side distances to metro reaches, expanding our served market. We successfully demonstrated our 400ZOP plus QSP-DD coherent pluggable modules transmitting 400 gigabits per second over a distance of 800 kilometers in a 75 gigahertz space, EDFA-amplified DWDM system enabling a record for total fiber capacity for IP over DWDM in a QSP-DD module. For even more stringent applications, we now integrate our Indian phosphide coherent modulator and receiver with our nano tunable laser into CFP2 DCO modules to match performance of embedded or chassis-based systems operating at 400 gig at a fraction of the size and power consumption. We have demonstrated our multi-rate CFP2 DCO coherent pluggable module transmitting at a 400 gigabits per second data rate over a distance of 1,500 kilometers in a 75 gigahertz space DWDM channel plan using only standard EDFA amplifiers and without costly Raman amplification. We believe this is the industry's longest demonstrated transmission distance for CFP2 DCO module and enables our covering all Metro-Rodent applications and providing an upgrade path to 400 gigabits per second operation for Metro-Rodent networks with pay-as-you-grow flexibility. Each of these new important new products demonstrate our leadership in high speed over distance performance. Moreover, each of these new products is adding a new growth revenue stream on top of the accelerated growth we are already delivering from our high speed 64 gigabit and 96 gigabit suites of coherent components. Beyond 2021, We see great potential for these 400 ZR Plus pluggable modules to include Cloud Metro, regional, and long-haul applications. Lastly, the foundation of all of our coherent products is our coherent components, including our industry-leading ultra-pure light tunable lasers for high-speed chassis-based systems operating at 400 gig to 800 gig and for our pluggable modules. Showing our continued scale and leadership in components, we recently announced that we have shipped a cumulative total of more than 2 million of our ultra-narrow language tunable lasers since initiating shipments in 2011. For chassis-based ultra-high performance systems, our tunable laser, receiver, and modulator products have broad market acceptance due to their performance, quality, reliability, and availability. We continue to serve the highest speeds and are now shipping 96 gigabit versions for 800 gig systems and are developing 130 gigabit versions for 1 terabit per second and beyond. In another industry first, we recently demonstrated the required optical performance for 800 ZR and 800 ZR plus BCI and metro optical networks. We transmitted 800 gigabits per second over a distance of 600 kilometers with only EDFA amplification, again, not requiring Raman amplification. This demonstration used our Class 70 coherent driver modulator, CDM, and coherent receiver, micro-ICR, along with our ultra-narrow line-width tunable laser. These components point the way to 800-gig pluggable solutions when paired with next-generation 5-nanometer DSPs. Our core capabilities in coherent optics technology are now gaining traction in new market applications, including inter-satellite communication links for low Earth orbit LEO satellites and for industrial and transportation applications of LiDAR. For coherent LIDAR, we have multiple engagements with our high-performance optical solutions in applications including autonomous vehicle navigation. These include both key components derived from our communications product lines for certain systems, as well as more integrated chip-scale LIDAR solutions. With that, I will turn the call over to our CFO, Beth Eby.

Thank you, Wu-Pen. And good afternoon. Neophotonics continued to execute well through the second quarter. Increased demand for our high-speed products resulted in better-than-expected revenue and gross margin. As Tim mentioned, revenue was $65 million on strong demand for our lasers and 400-gig and above products. In the quarter, we had three 10% customers. As we said last quarter, we restarted shipments to Huawei in Q1 for a limited set of products, and we expected their quarterly revenue to be in the mid to high single-digit millions on a run rate basis. Q2 was somewhat higher at 14 million, given the lack of shipments in previous quarters. We do not expect Huawei to be a 10% customer for the year. Non-GAAP gross margin of 21.7% was above our range as a result of favorable product mix and the shift of approximately 1.5 million from cost of sales to R&D expense for materials related to the new product introduction. The shift is an accounting timing issue. Product margin of 37.6% was offset by the expected levels of excess capacity charges. We expect these underutilization charges to drop as we ramp volume and complete the consolidation of our indium phosphide production as we announced last year. Non-GAAP operating expense for the second quarter was $24.4 million, higher than expected due to the cost of sales to R&D shift I previously mentioned. Non-GAAP operating loss for the quarter was $10.3 million, due primarily to excess capacity charges. FX loss was $1.1 million, or an impact of two cents a share. Tax expense allocated to Q2 was $0.2 million lower than last quarter on lower profits in our foreign jurisdictions. This resulted in a non-GAAP net loss of $11.4 million and a loss per share of $0.22. This is $0.03 better than the midpoint of our estimate as a result of the higher revenue. I will close out my discussion of the second quarter income statement with a review of our GAAP results. Second quarter gross margin was 15.2%, down from 21.8% in Q1, mostly on a 3.3 million inventory EOL write-down of a product that we were shipping to Huawei. This charge was taken due to uncertainty that we could ensure continued compliance throughout the supply chain for this product. Operating expense was 26.2 million, up 1.8 million from Q1, mostly on the materials charged to R&D expense. Operating loss for the second quarter was $16.3 million, and that loss was $17.4 million, which included the inventory write-down, stock-based compensation of $2.3 million, and $0.4 million of amortization, accelerated depreciation, and other costs. Turning to the balance sheet, we finished the quarter with $95 million in cash, investments and restricted cash, down $16 million from Q1 on new product startup costs, the payment of 2020 variable compensation, and the pay down of debt. Net inventory was $44 million, down $2 million on the product EOL. Days of inventory improved to 72 days, even as we continue to buffer critical inventory and support the new product ramps. Looking to Q3, we are seeing the expected increasing demand for our leading 400 gig capable components, particularly our lasers, and the increase in demand for our modules. However, we have a new chip shortage due to a supplier timing decommit that has an $8 million adverse impact on revenue in Q3. We have mitigation actions in progress and have widened our range to allow for the possible outcomes meaning we have confirmed supply and inventory to meet the low end of the range, we have confidence in the actions to reach the midpoint, and are working mitigation actions that could allow us to reach the high end of the range. While we have sufficient demand to achieve non-GAAP break-even in Q3, the supply chain limitations are extending the timing to reach operating profit to Q4. As a result, the company's expectations for the September 2021 quarter are revenue in the range of $76 million to $84 million, gap gross margin in the range of 24% to 29%, non-gap gross margin in the range of 25% to 30%, gap diluted earnings per share in the range of a $0.20 loss to a $0.10 loss, and non-gap diluted earnings per share in the range of a $0.10 loss to break even. These numbers are reflective of approximately 52.5 million basic shares. Looking forward to the rest of the year, we expect to grow revenue at an accelerated rate approaching the levels of one year ago and consistent with our growth target of 25% to 35%, excluding Huawei. This reflects the continued high demand for 400 gig and above capable products. Over the longer term, market size estimates for 400ZR and 400ZR Plus pluggable modules continue to increase. As we gain confidence in the strength and size of our module ramp, we may review our capital structure to ensure that we maintain the flexibility to be able to support customer-forecasted ramps. Last year, we lost significant revenue following tightened BIS restrictions on Huawei. In parallel, we accelerated our pivot to cloud-focused customers. As we embarked on this new path, we said the number of 400 gig and above coherent ports being shipped each year is approximately doubling. We would have new 400 ZR module products that would ramp in 2021. And we expected to get back to non-GAAP operating profit in Q3. Even with the supply chain issues, we are on track to those goals for the second half. Our 400 gig and above capable revenue grew 100% year over year in Q2, and we expect total year over year growth to be 100% or higher. We are in later stage qualification with target hyperscale customers for 400 ZR, and we expect to achieve non-GAAP operating profit break even now in Q4. We are pleased with our company performance over the last year and are excited about our path forward and our additional growth vectors in the hyperscale market. With that, the operator will now open up the line for questions. Melinda?

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, Please make sure your mute function is turned off to allow your signal to reach our equipment. We do ask to please limit your questions to one question and one follow-up. Once again, that is star one if you would like to ask a question. We'll take our first caller as Paul Silverstein from Cowan & Co.

I've got a handful of related questions. Hey, Paul. Hey, good afternoon, guys. I've got a handful of related questions starting with, I just want to check my math. Did the math right for Q3, your non-Huawei business, you're expecting to be up around 40% year-over-year? Is that accurate? For Q3?

Q3 sounds a little high, but not out of the round.

You said Huawei was $14 million in Q2, and you're expecting it to be mid-to-high single digits in Q3, right? If I take the $80 million midpoint and I back it out around... five to eight million dollars of revenue that would suggest about 70 to 72 all right i'm sorry that's about right all right all right i'm looking at the numbers yep that raises the next question given the risk attending huawei can you give us any insight i know there's some sensitivities here but can you give us any insight What are you shipping to Huawei for what use cases? And where's the confidence that two or three quarters from now, that revenue is not going to go back to zero?

As we said a year ago, we're not going to rely on or depend on Huawei. And we'll operate the company accordingly. If they're on a very small number of products, And they're not a 10% customer. That's the level of risk that we will have. But we don't know what the future bears there. So essentially, it is several million dollars and a quarter, but it's a relatively small percent.

And Tim, the components you're shipping to Huawei, do you have visibility? Is that going into these 5G optical build-outs?

We don't expect that they are, no.

All right, my last question. IPG raised some concerns about the China market this morning in general. Any insight you can share what you're seeing in China, what your expectations are for the backup of the Airbnb onto?

You know, in the China market, there has been, you know, some reports of additional tenders, primarily related to 5G, so it has a limited impact on our business. There's also some views that there could be share shifts between the network equipment companies in China, although in our case, we're selling to all of them. And so specifics of IPG, I couldn't comment on. But for us, it's a smaller dependence for our overall direction and our overall business.

Thank you, sir. Moving on to Tim Savigo of Northland Capital Markets.

Hey, Tim. Good afternoon. A lot of numbers flying around there. It all sounds pretty good, so I think it's good. Anyway, let's start with a comment you made on the call about accelerating rate of growth relative to past years. in calendar 22. I think you said that. Obviously, we have a challenge here with comparability when we talk about past years. Are you talking about 400 gig in particular there, or can you give us some more color on that comment?

There are two things I'd comment on. In our prepared remarks, we said that our growth is heavily dependent on the growth in 400 gig, and we see that the 400 gig and above growth, you know, has different pieces. The 400, 600, 800 is driving components for embedded or chassis-based systems, and 400 gig coherent modules going into the data center is driving It's really two potential revenue streams from 400 gig and 400 gig ZR plus. And so we see these all as potential positives. And in terms of additional revenue streams for our company, we think these are important. And in contrast to... You know, the last several years, this is a position where we think that we're well positioned and we have the potential to take a larger share of the business and the value from this. I hope that answers your question.

Was there anything further, sir?

Sorry, I was on mute there. Don't cut me off. No, Tim, that does not answer my question. So let's try it across two different axes here. One, I think, is it 25% to 35% ex-Huawei growth that you reiterated, something along those lines? Do you expect that to accelerate? Or you talked about 100% growth plus 400 gig. Either one of those two, can I... try and tie you down in terms of acceleration, what you're referring to there?

Yeah, so year-to-date, our ex-Huawei growth is about 15%, and based on the questions that the prior analyst asked, if you took those numbers, our ex-Huawei growth for Q1 to Q3 would move into the 25% to 35% range, and we think that would continue through the year. So it is the case that our 400 gig and above revenue in the second quarter was 46% of our total revenue, and it grew 100% over the prior year. So our overall growth rate is not as high, obviously, as our 400 gig and above growth rate. but these are the parts of our growth equation that matter, the component growth, the 400 ZR module growth, the 400 ZR plus module growth, and then the laser growth into other customers' 400 ZR modules.

Thank you, sir. Moving on, we'll take our next question from Fahad Najam of MKM Partners, LLC. Please go ahead.

Thank you for taking my question. Hi. Can you just help us? I know you released this information in the 10Q, but can you give us the other 3% customers that you have, 10% customers that you have, what the revenue contribution was?

No, we just described that we have three 10% customers as required.

Yeah, we don't name them except in the K1 required.

Okay, but what was customer two and three? What was their revenue contribution?

So we've got in our usual filings, we will be saying that the top five customers are 77%. Okay. All right.

If I heard you correctly, did you just say that you had $8 million of component headwinds in your Q3 guide, so all else being equal at the midpoint, your guidance would have been 88 million for Q3 if it wasn't for the component shortages. Did I hear you correctly?

Yes, you heard me correctly. Demand is not our problem at the moment.

Thank you, Mr. Najam. Next, we'll hear from Alex Henderson of Needham & Company.

Thank you. So, I guess the primary question really is the timing of when the 400-gig product start to ramp in the ZR format. Have you actually started any production of it at this point? When do you think you might actually be producing it, getting to material production rate of, say, 1,000 units a month, which I think is the level you stated in prior periods? would be considered production volumes. Is that going to happen in 3Q or is that going to happen in 4Q? Any sense of timing? And similarly, you've talked about qualification, but have you actually got orders for these three new products in hand at this point?

Let's see. That was a lot of questions, Alex. Let's see. It is the key question on what is the timing of production volumes. We are producing. The product is in production. We have announced general availability for 400 ZR modules. The current production rates are light relative to our capacity. We think that actual deployment levels could begin in Q4. And what we see right now, as I said in my prepared remarks, is, you know, we're also designed into several other companies' products. And so, you know, people who are using our lasers are, you know, for their supply chains, are ordering lasers for delivery because they expect similarly to be shipping some modules in Q4.

So you're not willing to say that you actually have meaningful orders for the 400 gig ZR at this point?

I'm willing to say if I do. We don't have large production orders because people aren't deploying yet.

Alex, did we lose you, or are you still there?

Thank you, Mr. Henderson. We're moving on to Michael Genovese of West Park Capital.

Great, thanks. Two questions. So, number one, can you just talk about what you're seeing in China in terms of 5G, metro, long-haul demand? Is anything improved in the last quarter, and what do you think about the back half of the year?

So, for 5G demand, you know, Our exposure in 5G demand is principally component level, and we're seeing some additional business because of China Telecom tenders, but for 5G, as we sell components into that market as opposed to higher ASP products, you know, it's fairly modest. So, you know, metro and long-haul deployments where we are more heavily represented, those are still a bit muted.

So no change in visibility there or updated expectations of when it may get better?

Yeah, I... I actually can't answer that, Mike. I don't know. We pay close attention with customers, but it's not as significant to us, and it has been relatively muted, and we can't tell you precisely when that turns around.

Okay, fair enough. Okay, so second question. I guess I just want to hear more color on what you're saying about a hyperscale 400 ZR opportunity. When you expect meaningful hyperscale deployments of 400 ZR, and is the gating factor their qualifications and their timing, or the gating factor is supply? And just remind us what you said about the timing of that whole project. Thank you.

Yeah, so... The gating factor is their qualification and their deployment. You know, have to have both. And as we said a couple times in the script, we're in the later qualification phases with a couple of different customers, but, you know, it ain't over until it's over, right? So, you know, we're not going to say that – you know, we're putting it in the forecast or anything at particular numbers until each of those wickets are suitably passed. And we do have our expectations on timing. We do have our expectations on, you know, our preparedness because we have put production capacities in place. We have gone to general availability. We've put our supply chain in place, but we do have to have the final qualifications and production and deployment orders. And you're right in saying that in the script, well, we didn't say that. That's correct.

All right, thanks a lot.

I appreciate it.

Thank you, Mr. Genovese. Moving on to Simon Leopold with Raymond James.

Thanks for taking the question. I wanted to just get a better understanding of the Huawei business in the June quarter specifically. Was this something that you had anticipated when you offered the forecast for June? If not, I'm just imagining that Huawei was better and therefore something else was worse in the June results. So just want to make sure I understand what you were initially assuming and what the delta was.

Simon, I think we said it straight out, is we were expecting mid to high single-digit millions, and we got 14. Not, frankly, a shock because they were light or to nonexistent in the prior quarters.

So if we took, you know, five out of that 14 to make it a nine, you would have been at 60 million, the low end of your guide. So I guess was there, I'm really trying to get at, was there something that was a little weaker in the quarter? Maybe, maybe let me just ask it that way.

Well, the, the I would answer that by saying, you know, when we guided to the second quarter, we saw softness and that is as it played out.

Okay. And I wanted to see if maybe you could unpack the ZR opportunity a little bit and, and, maybe not specific quantification, but I think of you as having two dimensions of sales opportunities from ZR products. One, selling lasers to other module manufacturers, and the other is selling your own ZR modules. How should we think about the general trend for you as a component supplier versus to other manufacturers as opposed to selling modules to end users?

Well, let's see. You know, I think in the beginning of Wu-Pen's prepared remarks, he talked about actually three parts of it. There's ZR modules and there's ZR plus modules. So ZR modules, for example, would be OIF standard modules. ZR plus are for longer reaches, Cloud Metro and longer reaches. And then the third piece would be lasers into other modules. And so, you know, the one that turns on the earliest is the lasers because other people are anticipating supply chain needs. And then how we see ZR and ZR plus turn on, if you will, those depend on customer timing and customer products. we have qualification work going on for both what we would call our 400 ZR standard products and you know as both ZR and and ZR plus and you know I would say that between the two you know modules and components you know the you know the the opportunity over the next year or so they're they're probably pretty balanced between those two

Thank you, Mr. Leopold. Next, we'll take a follow-up question from Paul Silverstein of Cowan & Company.

I'll actually take it offline. I appreciate it.

Thanks, Paul.

And once again, as a reminder, if you would like to ask a question or pose a comment, you may do so by pressing star 1. Once again, that is star 1 if you would like to ask a question. And next we'll hear from Tim Savagell of Northland Capital Markets with a follow-up.

Well, I was going to surrender, but I'm going to try one more time. Another comment. Pardon me?

Go ahead, Tim.

Thanks. And this is another comment, at least I think I remember hearing, which is getting business back to previous levels. And I think you're Talking about before Huawei went away. So are you guiding to $100 million plus Q4 here effectively? I think you are.

We're guiding to somewhere in that range. And we've held our 25% to 35% growth for the year. So we're getting there.

OK. I made it. Fantastic. Congratulations.

Yeah, in the third quarter of last year, we were $102 million, and we lost about $44 million as a result of that. So essentially, we have a lower break-even point right now, as Beth talked about, but we're also seeing demand that would allow us to approach those levels. So yes.

Got it. Great. And one last one, I promise. as you look toward the end of the year, how material a ZR module, and I'm talking about just modules now, not components. Um, would you expect that to be guessing that could be, you know, could that be 10% of revenue in Q4 as we exit the year? And just as an aside, might that be cloud guys, but also spread across carriers as well. And that's it for me.

Yeah. You know, the, uh, uh, you know, in response to the, you know, prior questions, you know, those revenue streams, you know, haven't turned on in a major way at this point in time. And, you know, we have seen the deployment schedules shift to the right, as you well know. And the timing, you know, for Q4 is As time passes, it's possible that 10% becomes a bigger stretch goal depending on when people actually start buying and in what quantity. But certainly, it's in our capability to produce at that level. We obviously have to have the orders and shipments, but it's certainly possible for us.

And thank you, sir. There are no further questions at this time. Mr. Jenks will turn the conference back over to you.

All right. Thank you to everyone for dialing in. We thank you very much for your interest in neophotonics. We do appreciate the diligent work of our employers and our suppliers really to drive progress in the current environment. We look forward to updating you in the future and meeting with shareholders again soon.

have a good evening thank you and that does conclude today's conference we do thank you for your participation you may now disconnect