Fabrinet (FN) Earnings Call Transcript & Summary

Okay. I think we'll get started. So thank you, everyone, for attending day 3 of Bank of America's Global Technology Conference. My name is Ruplu Bhattacharya, and I am part of the equity research team here at the bank covering IT, hardware and technology supply chain companies. This is the first year that we've gone tech in the sense that we're doing this conference virtually. And we've had a great response. We have over 150 corporates and over 1,100 clients registered for the conference. By the way, for the clients who are listening in, you can e-mail me your questions using the text box that's on your screen, and you can do that in real-time as the chat is going on. So today, we're honored to have with us Seamus Grady, who is CEO of Fabrinet. Seamus joined Fabrinet in September of 2017. But really, he is probably one of the most experienced people that I know of in the EMS industry. I mean prior to Fabrinet, he was at Sanmina for 13 years, where he was responsible for various divisions including the Sanmina's European EMS operations, Medical, PCB division and Mechanical Systems division. Prior to that, he was at Lucent. And prior to that, he was at a company called Manufacturer Services Limited, which you know today as Celestica. So certainly, he has seen many ups and downs in the EMS market and we're grateful to have him on today. Also from Fabrinet, we have CFO, Csaba Sverha, and he has been with the company since March of -- he became CFO in March of 2019. But prior to that, he also has experience with Sanmina. He spent 13 years also with Sanmina. And so he also has a lot of experience in this type of an environment and with the industry trends that are happening. So both of you, Seamus and Csaba, and also we have Garo from Investor Relations. If -- he's also been a veteran of this industry. So thanks to the team. Thanks to everyone for attending our conference today.

Well thank you, Ruplu. And thank you very much for the very flattering introduction. We appreciate it.

All right. So Seamus, to start off with. I want to start off with a high-level question. In this environment, are you seeing more OEMs outsource? Or do you think COVID-19 and the U.S. trade war encourages more OEMs to in-source versus outsource? So just give us your overall high-level opinion of outsourcing in this environment?

So I think maybe the first thing, Ruplu, is we don't reflect, I suppose, the contract manufacturing space as a whole because we're quite specialized in what we do. But we do believe more and more industries will turn to outsourcing to remain competitive and are turning to outsourcing to remain competitive. We have not seen any particular trends towards more in-sourcing as a solution to, whether it's COVID-19 or U.S.-China trade wars. If anything, we think both the COVID-19 and the trade wars could actually be a catalyst for more outsourcing. But in general, I suppose our experience is that outsourcing in general is on the rise. And there's 1 or 2 notable exceptions, some companies still do some in-house manufacturing for their own reasons. But for the most part, I think the majority of companies really embrace outsourcing as a strategy. And like I say, if anything, whether it's COVID-19 or trade wars with China, it should act as a catalyst for even more outsourcing.

Got it. Something related to this is, I want to touch on your manufacturing footprint. One of the themes that investors have been focusing on is the U.S.-China trade war and all of the manufacturing disruptions that happen in China in terms of whether it's COVID or bird flu or SARS. So the question is, if OEMs were to move their manufacturing out of China, do you think Fabrinet can be a beneficiary? Do you have white space in other regions where you could accommodate such a OEM manufacturing shift?

Yes. We're already having some of those discussions. I mean most of our manufacturing is in Thailand, which, of course, is an ideal location to move business to from China. We've already actually done some of that. Cost-wise, Thailand is quite competitive with most of China. And also the ease of doing business in Thailand. So some of our customers have already made the decision to move business out of China, and we're having discussions with others. I think what maybe slows down those discussions is the on again, off again nature of the tariffs and the discussions, it makes it more difficult for customers to plan. So -- but in a funny way, that indecision or volatility, whatever you want to call it, we feel is kind of a catalyst for us and should help. As -- again, as customers try to get a more stable supply chain, some of them are deciding that they want to get out of Chinese manufacturing locations. So for those customers, for those companies, Thailand is an ideal location. We have space in Chonburi. So we have 2 locations in Thailand, one in Pinehurst, the main campus in Pinehurst and then our new campus up in Chonburi. We have more, let's say, for new customers, we have lots of space in Chonburi. And we have enough land there to really triple our manufacturing footprint. So we have lots of space to grow and plenty of capacity to take on any new business that comes our way.

Got it. COVID-19 is obviously the topic on everyone's mind. So maybe can you remind us on what you're seeing in terms of supply and demand? And given the environment we're in, can you talk about your top 2 to 3 focus areas for the next 12 months? And maybe Csaba also from a CFO standpoint, if you can give us your top 2, 3 focus areas for the next 12 months?

Yes. I think we have seen both of -- some supply constraints and demand constraints. But for the most part, it's more of a supply constraint than the demand constraint. As you can appreciate, a lot of the products we're manufacturing with expansion of networks around the world and everybody working from home, most companies are investing and expanding their networks. So that's good for us. The constraints for us have been more supply related. It's settling down a lot, though, I would say. Last quarter, our March quarter, the impact on the supply side was mostly on components coming out of China. And then this quarter, there has been some impact on various locations like the Philippines and Malaysia, less so out of China. So really, we remain very vigilant on the supply side. Another area for us, if you look at automotive -- on the demand side for a moment, on the automotive market, which is about 7% or 8% of our revenue, it's currently seeing pressure, and we expect demand to moderate in that market for the foreseeable future. But then on the other hand, the optical market, which is about 75% of our revenue, continues to see strong demand. And we're more supply chain limited than anything else on the optical side, but the demand remains quite strong. And really, we're a service company. So our top focus area is customer service. And that makes -- that includes really making sure that we smooth out supply constraints so that we can meet our customers' needs. So we work very hard with our suppliers and our customers to make sure if components are in short supply, we have to get them. And usually, there's -- Ruplu, there's more than one approved supplier for every -- from -- in almost all cases for most part numbers and the bill of material for a product, there's 2 or 3 approved suppliers. So for us, it's about really making sure that the second sources and the third sources are ready to produce and ready to ramp up, should the need arise. So that kind of supply chain agility, which we pride ourselves in, is a really, really important aspect of our business. And then I'll let Csaba -- I'll turn it over to Csaba for the second part of your question.

So from financial perspective, obviously, we are in a very fortunate position. We have a very strong and very healthy balance sheet. So we have about $465 million cash as well as we are continuing to generate free cash flow. So from our perspective is really to make sure that we keep our costs down. We are making sure that we are generating healthy ROIC going forward. So again, we are in a fortunate situation. So we don't have to do any constraint planning from cash or liquidity perspective. So we are in a very good situation.

Yes. Maybe if I could just add to that. I think one of the advantages we have as well, Ruplu, our fixed cost base is very low. Our fixed cost base runs at about 7% of revenue. So when there is, let's say, a crisis like coronavirus or whatever it might be, we're able to respond very quickly. When there's an upside, we're always able to make sure we capture the upside, but when there's a downturn in the world economy or in demand overall, we're able to react very quickly so that we preserve our margins. And that low fixed cost base really helps us out.

Yes. No, that makes sense. And thanks both of you for giving us your focus areas. I want to touch on each of the end markets. But before we get into that, maybe for the investors who are new to the story, can you -- Seamus, at a -- again, at a high level, can you talk about how Fabrinet is different from other EMS manufacturers? Like everybody is trying to get into different end markets, but how are you different? I mean how would you say -- what is your competitive advantage? And how do you compete? And what are you seeing in terms of you versus others?

I think one area we're quite different is that we're highly specialized. We're not a general EMS company who goes after every type of business under the sun. We really focus in on a few key areas. So optical communications, industrial lasers, automotive sensors, they are the 4 areas we focus on. So the common thread, if you like, between all of those markets is they're optical or optical-like in nature in terms of how we put the products together. We're, I would say, a high mix, low volume -- or probably more accurately, a high complexity any volume. That's really what we focus on. So we focus on very high complexity products. What makes us a little bit different, I think, if you look at most EMS companies, the vast majority of their manufacturing space is traditional kind of EMS manufacturing space with SMT lines and whatnot. And then they have a little bit of clean room space. In our case, it's probably more like 70% clean room space. So most of the products we assemble are produced for our customers, we're producing in a clean room with very rigorous requirements in terms of cleanliness and everything else. So that makes us quite different. We also focus on making sure we're heavily involved at the early stage of product development with our customers. So we have, I would say, probably proportionately more new products than most of our competitors. And the third area where we're quite different is our expansion policies. We're very focused on profitable growth. So our expansion policies are such that we don't take on, what I would call, bad business just to fill up factories. We're really focused on making sure we get the right customers and that we're building the right products for those customers. So that we can continue to grow the company and maintain our margins and expand our ROIC.

Yes. No, that makes sense. And talking about margins, maybe I want to ask you about gross margins. One of the things that I think differentiates Fabrinet is you've got stellar, very high gross margins versus some of your competitors. So maybe can you talk about that, what leads to such -- that kind of margin performance? And maybe talk about -- I think on the last earnings call, there were some supply chain disruptions that you were seeing. How is that impacting your gross margins?

Yes. I think our gross margins are about twice -- roughly twice that of our contract manufacturing peers, roughly, not precisely, but roughly twice that. We run at about 12% gross margin typically. So our gross margins are much higher. Our OpEx runs at about 3% or a little bit less than 3%. So gross margins are higher. Our operating expenses are lower on a percent to revenue basis. So therefore, our operating margin typically runs at about 9%. It probably varies kind of 8.5% to 9%, but that's the kind of range. And a lot of other contract manufacturers don't have -- most contract manufacturers don't have gross margins of 9%. They'd be quite happy if their gross margins were 9%. First of all, it's not because we go out and quote higher prices or charge to customers more. We don't. We have to be competitive. And with every piece of business we win, we have to compete with all the other guys out there and win. So it's not because we go out and quote higher prices. But we do have, I would say, less business in our portfolio that's maybe detrimental to our overall gross margins. So -- like any company, when we report out, we report roughly 12% gross margins, a little bit less last quarter. But that's a blend of products that are obviously higher than 12% and products that are lower than 12%. We just have fewer products down at the low single digit margins, I would say, than most of our competitors. The other important factor for us in preserving and expanding the margins is new products. So margins are highest in the early stages of manufacturing, for any product. And where we can identify and implement the most cost reductions in the early stage of the product, we can make our customer more competitive, we can preserve and expand our margins, and it's just a win-win for everybody. And then the other area, we're very, I would say, conservative when it comes to M&A. We don't have a huge manufacturing footprint from historical M&A activities or anything like that. And we've really been focused on growing revenue through organic growth and greenfield growth. So we don't have a big footprint of factories around the world that we need to keep filled. So there may be some of the areas. So growth by greenfield is very important to us versus growth by acquisition. It takes more effort, but it's worth it in the long run. And so it's a combination of all those things, I would say. And of course, we like to think we run very lean as well. We're a very efficient organization. I mentioned our fixed cost base earlier. We just run very lean as a company. So it's a combination of all those things.

Got it.

n terms of the supply chain constraints related to COVID, I think that we had a fair amount of, I would say, gross margin headwind last quarter. A lot of it was to do with just expenses that we had to incur to keep our employees and their families safe that we're not able to readily pass on to specific customers. They're kind of general expenses we had to incur, be it in personal protective equipment or, for example, in China, we have about 1,200 people in our Casix custom optics operation there. We flew most of those employees back after Chinese New Year rather than have them coming back over land. And we did that at our expense. We also put people up, again, in China, as they come back after Chinese New Year. We rented out entire hotels, so that we were able to quarantine people, our employees before they went back to work. So we incurred a lot of expenses and also PPE equipment. So those type of expenses were a real headwind on our margins last quarter. But -- and we've guided then, I think, for the full year, we said that we'll be in the range of 11.5% to 12%, whereas gross margin, whereas, historically, we've been guiding, let's say, 12% to 12.5%. So a little bit of gross margin headwind, but we do expect it to be short-lived, and we're certainly not happy with 11.5% to 12%. That's not a new normal for us. That's a new abnormal for us, and we'll be working very hard to get the margin back up to where it belongs.

Right. But like you said, even 11.5% is quite good compared to the competition. You touched on revenue growth. Maybe just a question on what do you think is more important for Fabrinet? Is it revenue growth? Or is it margin expansion? I mean which one would you prioritize over the next couple of years?

Well it's -- I suppose the short answer is both, but it's profitable revenue growth. We want to grow our revenue, but not if it's at the expense of our margin. We think it's very important that we preserve and maintain our margin. Margin expansion, margin growth is quite difficult because we still have to be competitive. We have to take care of our customers. We have seen some, I would say, some of both, let's say, revenue growth and margin growth, but it's just a constant challenge to make sure we grow the company consistently at/or above the growth rates of the markets we serve, but also preserve our margins. So we have to achieve both. In other words, if we were to run off and do an acquisition to grow our revenue, but if our margin dropped to 10%, I don't think -- the people listening to this call, I don't think would be happy with that. But similarly, if we were to get rid of customers and shrink our company and maybe slightly expand the margin, that wouldn't be a good idea either. So we just like to -- it's a tough task. We have to keep on top of it all the time. But for us, it's really about both. We have to grow the company at/or above the growth of the markets we serve and we have to kind of, I would say, preserve the gross margin and really expand the operating margin by making sure we keep our OpEx in check. If that makes sense?

Yes. No, that completely makes sense. I want to now talk about the optical end market because it's such a large part of your revenues. Can you, again, for those who are new to the story, can you talk about what does Fabrinet make in this end market? How large is the TAM for you? And talk about Fabrinet's competitive advantage in the optical end market.

So yes, it's a good question. So the optical market, first of all, it's about an $11 billion market just based on the, let's say, research data that's available out there. It's about an $11 billion market that's growing at about 12% compound annual growth rate, according to the industry analysts. So that's the overall market size. If you estimate manufacturing, once you take out the customers' gross profits and you look at their COGS, so you can estimate that the manufacturing costs are about 60% of that market size. And we have about 50% market share of what's outsourced. So about 25% share of the total COGS, if you like. If you consider that $11 billion market, 60% of that is manufacturing and manufacturing-related activities. So we have about -- like I'd say, about 25% market share of the total market, but about 50% market share of the outsourced optical communications manufacturing in the world. And how we arrived at that number is we estimate that about half the industry outsources manufacturing, and we have about half of what's outsourced. We're focused on the most complicated, high-speed and really next-generation components and products. That include transceivers, ROADMs, amplifiers, it's all of the equipment that's needed for all of the most current and next-generation networks. Our advantage and really maybe some of the secret of why we're so successful, it's really our manufacturing know-how. If it can be designed and if it can be manufactured, we know how to do it. We can do it, if it can be manufactured. Sometimes, as you can appreciate, our customers, they come up with some great ideas, but it's very difficult to manufacture. So we really work with the customers to make sure we help them make the products easier to manufacture, so that the yield is higher and so that their margins are better and our margins are better. We pioneered -- really outsourced silicon photonics, which merges, if you like, a laser light source onto a silicon wafer, and we continue to advance our manufacturing and packaging expertise in this area. And I think the next wave of development after silicon photonics will be co-packaged optics. We're very much engaged there as well. So really, it's about being a specialist, first of all, being really good at what we do because we're a specialist and then making sure we keep on top of and keep engaged with all of our customers on the next-generation products. If you miss the next-generation products, you won't have a problem today or this year, but a couple of years from now, you'll have a problem. So that's where we focus an awful lot of our attention on is making sure we're always engaged with the customers and winning the next-generation products.

Yes. That's a good overview. I definitely want to talk and go a little bit deeper into the optical market. But just looking at the growth in the market, the optical market has grown -- has seen strong growth over the past several years. Do you think this market continues to grow? Or -- and at what rate do you think it grows? Or do you think what investors should kind of factor in some slowdown as we look over the next couple of years?

So I would say, we're not really industry experts as such. We read the same publications that you or anybody else can read. We're manufacturing experts. But the industry analysts estimate the market growth to be around 10%. We certainly don't see the need for any slowdown. We don't see any slowdown in the need for increased bandwidth and capacity. And our goal is to grow at least at and hopefully, faster than the markets we serve by winning new customers and new programs at existing customers. So like I said, the industry experts say that the market is set to continue to grow at about 10%. We see no reason to disagree with them. And it just seems to be that the demand for bandwidth is just insatiable and never ending. So long may have continued.

Got it. One thing that's rising or is supposed to be a driver for growth is 5G. So specifically, can you talk about what are you seeing in terms of 5G programs? Are those programs coming in? Or are they -- because of COVID, are they getting delayed? And overall, how do you see 5G as a revenue driver for Fabrinet? How big can this be for Fabrinet?

Yes. We think 5G can be a great revenue driver, but really it's more indirectly. So I would say, yes, it can and will be a revenue driver for us, but indirectly. 5G doesn't directly impact us since we're a few levels removed, let's say, from the ultimate network that's installed in any particular country. But at the transport -- if you like the transport and transmission level, 5G will require more bandwidth and speed. And that's what the backbone components that we build really enable for our customers. So it's the transport and transmission equipment that creates that backbone that the 5G network needs. That's really where we're very, very strong. So as 5G networks get rolled out around the world, for the most part, the backbone has to be put in before the 5G network rollout, so that there's capacity there. So we do see it as a real driver. But like I say, it's more indirect than direct for us.

Got it. I want to address the 2 subsegments that you report, datacom and telecom. Can you talk about the products in each of these and how are they similar or different from each other?

Yes. I think the -- at a certain level, communications technology is not really different in a telecom or a datacom domain from our perspective. We're moving photons around really fast. Where it differs, to a certain extent, is kind of the regulatory requirements and the applications. So telecom for us, telecom means equipment that's placed outside of a data center, including equipment that allows data centers to communicate with each other. So data center interconnect, we classify as telecom. Datacom, for us, is what goes on inside the data center. So that's how we separate telecom and datacom. And then -- so the difference really is that datacom is short reach and telecom is longer reach. Also, datacom components generally operate in a dry climate-controlled, nice cool environment, while telecom components have to survive in more punishing environments. So that's -- the regulatory piece is that the telecom components have to be able to withstand higher temperatures, lower temperatures, higher humidity, et cetera. The end customers are different, of course. With our customers, customers in datacom, being data center operators. So I feel like our customers' customers are the data center operators like Google and Amazon. And our telecom customers' customers are the big carriers like Verizon and Vodafone. So we don't supply directly to those 4 that I mentioned, Google, Amazon, Verizon and Vodafone, but our customers do. So they're dealing with different customers. Like I say, the datacom customers are the big data center operators. And our customers -- telecom customers are the big carriers, again, Verizon, Vodafone, T-Mobile, et cetera.

Got it. You talked -- you mentioned silicon photonics. Maybe can you talk about the demand trends in QSPF28 (sic) [ QSFP28 ] versus 56 transceivers? What would you say is -- again, coming back to the competitive advantage question, like how do you see the demand trends? And what advantage does Fabrinet have in silicon photonics?

So silicon photonics, first of all, it's a packaging process, which merges, if you like, a laser light source onto a silicon wafer to reduce power consumption and heat, so that you can transmit those optical signals over long distances with very low power and heat requirements. Because typically, and again, if you take a data center, power and heat and sometimes they're the same thing. The more power you're consuming, the more heat you're generating and the more difficult it is to cool the data center. You can be very constrained in a data center for both power and heat. So silicon photonics really solves that problem. You can run with much lower power and heat. And for us, the process is that you need to have to manufacture those products in volume successfully. We invested in the processes ahead of the demand several years ago, probably 6, 7 years ago, if not more. And we believe we're the leader in outsourced silicon photonics manufacturing now as a result of those investments we made 6 or 7 years ago. So that's back to what I talked about earlier about always making sure we're working on the next-generation products, so that we can see around the corners so that we know what's coming our way in terms of future products and future technologies. You mentioned QSFP28, QSFP56, there's a whole myriad of other -- they're just form factors really. So QSFP56, QSFP28. There's QSFP double density, OSFP. They're just the form factors. And a lot of the current generation products have the QSFP28 form factor, which continues to see very healthy demand. And then some of the newer higher speed products have the QSFP56 form factor, which a lot of the next-generation products use that. So we're -- whatever the form factor is, we're really form factor agnostic, if that's the right word. We don't mind what the form factor is as long as the customers come to us to make those next-generation products.

Got it. Can you maybe talk a little bit about pricing? And maybe in the datacom space, are different products to the -- with the double density products, even though it's a different form factor because it's double density, do you see better pricing there? Just -- maybe just talk to us about pricing trends in this space.

Really for us, what excites -- again, the form factor, we don't really mind what the form factor is. That's the customers -- our customers will fight it out amongst each other. And in the end, hopefully come to us to make the products. So -- but the way we think about it is newer devices with higher capacity always command a higher price for our customers. So if the customer is able to generate higher margins, then they're generally happy for us to make a little bit more money. Whereas if the customer is building -- so for example, a 400-gig or 600-gig transceiver commands a higher margin for our customers than a 10-gig product. So when the products become or when the components become kind of commoditized, they are no longer interesting for us. And we're really focused on making sure we stay producing and are always producing the next-generation products. So like I say, the newer devices with a higher capacity always command a higher price. But of course, to succeed, the pricing has to be cost competitive on a per gigabit basis. So generally, we see our customers -- there's a -- the initial focus is time to market, and that's where we have a real advantage. We're very, very good at helping our customers get those new products launched, so that they can capture market share and command a higher price. But then very quickly, we have to -- we have to help the customers get the cost down. We work very hard with the customers. The customers do a fantastic job, and we help them in redesigning the products. We help them redesign the supply chain. The biggest expense or the biggest expense item in any product is material cost. So if we can help the customers drive out cost, it's to their advantage and it's to our advantage. And really, what we manage to, if you like, optimize, is fundamentally cost, based in the form of yields, better component pricing, and we're continually finding ways to reduce cost to remain competitive again, so that our customers can preserve their market share, first of all, but also their margin. Generally, our view of the world is if we help the customers to be very, very successful by preserving and growing market share, preserving their margin, there's hopefully a little bit left for us to be successful and to make a profit as well.

Okay. Seamus, you just mentioned data rates. So maybe I'll ask you, can you talk about demand trends that you're seeing for the 100-gig programs versus the 400-gig programs? And what percent of your optical revenues are 100-gig versus 400-gig versus from amplifiers and from ROADM?

Yes. So our -- first of all, we believe that 100 gig will be around for some time. It's still -- the demand is still very strong for 100 gig. 400 gig is starting to pick up, especially in the telecom space. And it could also move into the datacom space as well. But for now, it's quite strong in the telecom space. We don't really control that shift, and our goal is to be just ready and helpful to our customers as they introduce new products. As I say, we don't necessarily reflect the contract manufacturing space as a whole, but generally, we believe that more and more industries will turn to outsourcing. And as they do, we're -- so like I said, we're -- we don't mind whether it's 100 gig, 400 gig, 800 gig, 1,200 gig. The important thing for us is the manufacturing building blocks that we want to be real experts in. The question you asked about 100 gig and the split between the different -- if you like, different speeds and technologies, I think I might turn that to Csaba for that. I don't have the data at hand right now. But actually, I do. Just one second. I think I do. So, yes. So for us, if I look at last -- let's say, last year, within our optical business, 100 gig still represents about 55%, 56% -- 51%, sorry, 51% of the total revenue. 400 gig is low single digits. So 100 gig is still the dominant part of our revenue, I would say, in optical communications.

Got it. I want to touch on something. I think you mentioned on the last earnings call. I think you indicated that one of your telecom customers was going through an inventory correction. When do you think that's going to be behind us? And how do you see demand trends emerging there?

Yes. We think -- so what the customer has told -- I mean, we called it out because we wanted to make sure it was clear that there was a single customer inventory correction, if you like, issue rather than an overall industry trend. The customer in question, they actually talked about it as well on their earnings call. But we do believe it's a 2 quarter for us, a 2 quarter issues. So last quarter and this quarter, and then we do expect in the, let's say, in the September quarter, we expect to be back to normal levels of production again, the September quarter and the December quarter. So we think it will be largely behind us this quarter.

Got it. We're actually out of time, but I want to take another couple of minutes because there's -- the other part of your business is the industrial laser business. So just if you can take a couple of minutes, just talk a little bit about your thoughts about that part of the business. How do you see that growing? What's the TAM? And what's your focus area? Or what's your growth projection or thoughts on how you want to manage that part of the business?

Yes. So that's a very -- it's a very interesting opportunity for us. And we do have a fair amount of business in that space today. And the focus for us is on industry lasers. The market -- the industrial laser market is very large. It's much larger actually than the optical component market, but we estimate that less than 10% of it is outsourced, 10% of manufacturing is outsourced. So it's a bigger market, with a much lower outsourcing penetration. So in that sense, it represents a much bigger opportunity over the longer term. We do some work there right now with lasers making up about 11% of our total revenue. And as far as we know, the other large contract manufacturers, they don't talk about industrial lasers as a separate segment. They talk about industrial generally. But like we say, we like to focus very much and make sure we're specialist. So for us, the focus is on industrial lasers. Again, it's a huge market. It's about 11% of our revenue, and it's very underpenetrated in terms of outsourcing. So we think it should be a real winner for us over the longer term. And we believe that the industry is really ripe to leverage outsourcing to remain cost competitive because, like I say, most of what they do today is in-house. And a lot of it is done in high-cost western locations, be it in North America or Europe. And we just believe we're very well positioned to capitalize when that outsourcing trend, which inevitably will happen when that starts to happen. And it's more of a longer-term project for us. It won't be this month or this quarter or even next quarter. It's certainly over a longer period of time. We think it could be a huge part of our revenue over the longer term.

Got it. Okay. So we're out of time. Thank you. Seamus, thank you so much for attending. Csaba, thank you for attending and Garo, thank you always to be in touch with you, and thanks to the team for coming today. Thanks to all of the investors who have dialed in. I know we had a couple of different questions in the pipeline, we weren't able to get to. So if you have any questions that you want us to pass along to management, please feel free to e-mail me, and I'll make sure it gets to Seamus. And again, thank you, Seamus, for attending. Thanks, everyone, and hope you have a nice day. Thank you.

Thank you, Ruplu. We very much appreciate it. Thank you.

Thank you.

Thank you. Bye-bye.