Lumentum Holdings Inc. (LITE) Earnings Call Transcript & Summary

Good morning, folks. This is Simon Leopold, Raymond James data infrastructure analyst. We are joined for our next session at the Virtual Tech Conference with the management team from Lumentum. We have the CEO, Alan Lowe. We have CFO, Ali Wajid. We have Chris Coldren, who's -- does strategy; and Jim Fanucchi, who supports from the Investor Relations perspective. So format for our session today is a fireside chat. For the Lumentum team, just let you know that when we merged in, you all got automatically muted. So when you're ready to speak, don't forget to unmute. We've been at the Zoom thing like 2 years now. We're all still trying to figure out that whole new button thing.

But I want to start off every session, unfortunately, talking about supply chain, but I don't want to get bogged down there. I do want to spend more time talking about the long-term and the strategy. But why don't we dig into this a little bit and help us understand what kind of constraints you're seeing, what products are affected and what you're doing about it?

Yes. Well, first of all, Simon, thanks for having us here today. Yes, supply chain is, unfortunately, where I'm spending more time than I would like to in talking to executives mostly semiconductor companies, but we are being impacted by other shortages from time to time. As we finish the September quarter, we had left $30-plus million of revenue on the table that we were unable to satisfy, mostly in the telecom transport side, but some in transmission side. Anything that needs semiconductor chips is having challenges today. As we went into the December quarter and gave guidance for the December quarter, we said that gap is actually growing, but at the same time, we're growing our revenue in telecom transport. So we were able to get -- we are able to get more chips in the December quarter, but that gap, because demand is growing faster than supply, is growing. And we expect that the gap is going to be north of $40 million as we exit the December quarter.

And how long do you think these challenges remain challenges? When do things start getting better?

Yes. Well, I don't have a crystal ball, but I'd say it's with us for at least the first half of the calendar year '22 and we'll see how things sort out. But we are planning on it being a problem. And where I'm spending more and more of my time to try to alleviate the challenges and working with our customers to see how we can get the allocation we need for them and for the carriers as well, mostly in the telecom space again.

And maybe lastly on this topic is just, what are your options for mitigating these challenges? I can imagine there are some products where you may be dependent on very specific parts and other types of products, they're commodities, and you just need to get another supplier? How should we think about the types of components and your ability to address the challenges?

Well, a year or 1.5 years ago, we didn't really think that there would ever be a shortage, frankly. But when things came to be tight, we actually redirected some of our R&D resources to redesign new chips to get [ second ] sources of these chips. And that takes about a year. Unfortunately, it takes away from our new product development, but it's a necessary thing that we needed to do to make sure we have the supply of the critical chips needed to make our ROADMs and ROADM blades and things like that. So we started that over a year ago. We're in final stages of qualification, and we think that'll help alleviate some of the challenges we have starting in the March quarter.

I appreciate it. So I want to move to the bid you made for NeoPhotonics. So you announced that coincidentally with your last earnings report, I believe. And I've covered NeoPhotonics since the days of its IPO, and it feels like the idea that it would be taken out was sort of the ever present [indiscernible] pieces. So eventually, it comes true. So the burning question in my mind is, why now?

Yes, that's a good question. And I think we've looked at NeoPhotonics for years and years and never been able to get the deal done. We felt from our side as well as from the Neo side that now is the right time for a couple of reasons, one of which is the transition to higher-speed transmission rates of 400, 600 and 800 gig are -- is just starting. And if you believe the analyst reports of court count growth rate of 70% CAGR for the next 5 years, it's really going to grow quite rapidly. Now that's not revenue growth. That's port count growth as prices will come down. I think from the Neo side, and I'm not really speaking -- I guess I'm going to speak for Tim, I think they have some great technology, great products and a great team, a really, really great team of people that I think can accelerate our innovation to the next level. That, combined with the challenges that I think they had with some of the hyperscaler customers looking at their balance sheet, worried about whether or not they're going to be able to invest and support the kind of ramps that hyperscalers go through, and that was one of the reasons we agreed to a $50 million loan during the time between signing and closing so that they could see -- the customers could see that we're backing NeoPhotonics and that they have the ability to put the capacity in place that they need to be able to go up a very steep ramp. And so I think the combination of their great technology and a great market ahead of us and the need for being able to have a healthier supplier, frankly, to support those customers that go through that ramp, I think the timing just became the right thing. And financially, because of the synergies and the proximity of our locations next to their locations, I think we're in a unique position in that we will be able to get the synergies we need to be able to drive the kind of financial performance and the benefit to our shareholders.

And in terms of getting this deal completed, I'm guessing that approval from the Chinese government, SAMR, is it the biggest hurdle? Can you speak to either milestones or hurdles to having this deal close?

Yes. I mean I think that this -- I go back and I think about the Oclaro acquisition and the challenges we had there, and we got through that by [ 9 ] months. But there were some customers that were somewhat concerned about the 2 of us getting together. This is a different situation in that the Western customers were pushing us ahead of the deal to do the deal because of the reasons I talked about earlier. And the Chinese customers actually really like the deal given our strength of balance sheet, our ability to invest and the trust that we built up through the Oclaro acquisition with those customers. And so I think from that perspective, if or when the regulatory groups go and talk to our customers, I think they're going to get thumbs up, which should help be able to get the deal through the regulatory hurdles needed.

And how are you thinking about future acquisitions at this juncture?

Well, I think we're a month into announcing the Neo deal. We're starting the integration planning. We're going to focus on that and not dilute our resources. But that said, our balance sheet is still strong enough to be able to think about other acquisitions. And I think we have a funnel of them that we look at all the time and -- but our short-term focus right now is make sure we do this acquisition to the best of our ability and get the financial results to our shareholders that they deserve and then think about the next one. But as you probably maybe didn't see, but the proxy was filed -- the NeoPhotonics proxy was filed last week. And you'll see how long it takes to get from the time you start those discussions until you can sign a deal. It's a long time. So starting those discussions now doesn't mean that we'll close in a month or 2. I mean it takes a good the deal of time to close the deal.

And do you have a certain set of criteria for acquisition targets, things like when it would be accretive or diversification goals? What are you -- what's typically on your list of objectives?

Yes. Well, I mean, I think if you look back in time on the whole Coherent battle, that was really an effort to diversify. And I think that's still a priority of ours. And you might say, well, gosh, Neo doesn't do that for you. But it doesn't, but it does make us even more relevant to the customers we have today. So I would say that as we look forward to new acquisitions or new organic growth, we're looking to get into new markets where photonics could be or will be critically important to those markets and could be really a catalyst for how things are done from lasers to other types of markets that we're not even in today.

So I want to pivot now to some of the business units, and I'll start with 3D. I actually would argue telecoms more exciting, and enough attention is paid there, but I'm listening to my audience. They want to hear about 3D. So we'll knock that out first. I think it was in May when you indicated that you expected the market for 3D sensing components would decline by 20% to 25%, and that was reflective of a combination of unit demand and price compression. And with your results in June and September, I haven't seen that. So how do we think about what you indicated your expectations were last spring to where they stand today?

Yes. Maybe I'll give you my perspective, and then maybe, Chris, you can jump in as well. What we said in May was that the chips on the front of the phone are getting smaller, and therefore, our customers are going to expect a proportional price reduction relative to the size of the chip because our costs come down proportional to the size of the chip. We didn't have any insight as to whether or not our lead customer would be gaining share or losing share. Our comments were really around, hey, all things created equal, our expectations are that pricing will impact the market unless there is a share shift between mobile handset manufacturers, and I think there is and has been. I'd say we probably did a little bit better from a pricing perspective than we had expected in the May time frame. And I think our share has actually done quite well that as we introduce new products that are more difficult, I think we find ourselves in a better position where our competitors sometimes struggle. So I think from those perspectives, we had a better September quarter than one might think. But that said, I think the market -- the chips are actually smaller, but I think our lead customer is actually taking some share and growing volumes. So I don't know, Chris, do you have any other color?

No. I mean, I think you hit all the key points, Alan, other than we had highlighted that we had some major -- other new customers in the mobile space that we had previously anticipated ramping, and we said that they would be a little more delayed. And that was also a contributor to the market comments that we made.

And the other issue coming back to supply chain, that sounds like it may be affecting the smartphone market. So even if you're able to supply your chips for 3D sensing, if other components going into phones are unavailable, are you seeing any changes in the market dynamics because of the supply chain in this particular area?

Our customers don't tell us the reason for the fluctuation in demand. We see a fluctuation in demand. Mix changes all the time. I think as you look at the September quarter, the ramp was, well, different than it was in prior years. And our expectation was that it would come down in the December quarter because of the steep ramp in September. So it's really hard to tell. I think there's a lot of rumors that there are chip shortages impacting our customers' ability to make the product they want. It's just hard for us to give that kind of visibility.

And let me just make sure I understand it is because of the historic variability in your orders, you can't really explain why you might see variability in the current environment versus prior periods. Is that sort of the way to look at it?

Yes. I mean, mix changes all the time between prior year's models, between tablets and phones and all sorts of things that impact our ability to get what our -- get our customers what they need when they need it. And so our focus has really been on making sure we have the product for them when they want it so that there's no reason for them to want to give another order to any of our competitors. And so I do think that there are always changes in mix and changes in volume that makes it hard to tell why there's changes, and they're not that transparent with this.

And I think you may have alluded to my next question on your last earnings call, but for folks who didn't hear, but what are your perspectives on how market share is split and what is largely a duopoly into 3D sensing components? And so in this context, I'm asking about all features, front and back of the phone. Do you see the market share shift continuing? Are we in a loose stable? How should we think about it?

I'll give you my perspective, and I mentioned it earlier, which is any time there's a new, more difficult chip, we tend to do better. And so from that perspective, I think you saw that in the September quarter results where our 3D sensing was quite strong. And I think as we look forward, our focus is really making sure that we are a critical enabler for next-generation devices. And we're working on next year's and next, next year's products that may or may not see the time of the light of day. But I'd say that as new feature sets or new chipsets get introduced, we tend to do a little bit better from a share perspective. But I think it's natural that any customer wants to not be totally reliant on one supplier. And I think from all the pandemic challenges that we've seen across the globe, it's totally normal for a customer to want to have 2 suppliers.

And what aspect of your approach to this market is that you employ an outsourced -- a fab? So you don't actually have full vertical integration for 3D sensing manufacturing. And it's interesting because you're a company that, in some cases, you do vertically integrate; in other cases, you don't. And so you've made a conscious choice here where your competitors is more highly vertically integrated. So my easy observation was, hey, it gave you a time-to-market advantage. Now where we sit today, are you at a disadvantage in terms of gross margin because of the lack of vertical integration? How should we think about that strategically?

Yes. I'd say I'm not at a disadvantage by any means in that when the volume is quite strong, there's the capacity to be able to meet it. And when the volume goes down and it's cyclical or seasonal type of a demand trend, we don't get stuck with all those fixed costs. And so from my perspective, it's good when the going is good and it's good when it's going is slow. So -- and I'd say that our team has done a fabulous job of driving yields to the point where our costs are, I would say, as good, if not better, than our vertically integrated competitor.

So I've got a related question here from the audience I want to ask is, how do you think about your opportunity? And augmented reality or virtual reality devices, how you think about that market?

Yes. I mean, I think that's a new market that's going to accelerate over the next 2 to 4 years, if you will. Right now, we've been providing low-volume samples into folks that are building prototypes and -- I mean, there are some very low volume products in the markets today, but at least our customers -- the little they will share with us would suggest that they are focused on between augmented virtual reality and handsets where the world-facing laser is a critical element of that or there's other devices down the pike. And some are open about having wearables. Others are very secretive about what they're doing. But we see a lot of activity there, and that's where a lot of our R&D efforts today are focused is increasing the capabilities or, in some cases, reducing power consumption and size and things like that, that are very relevant for -- you can imagine if something we're in the frame of glasses as an example, but that's a very different environment from a power consumption and size standpoint than in the handset. So we view that as a significant opportunity that over the next 2 to 4 years will really hit its stride.

And I guess there's some talk about what they call under glass. So here's my iPhone. Currently, the features are buried in this thing we call the notch. And so there's this idea that we'll put the 3D sensing under the screen, gives essentially the phone more real state. Could you help us understand what are the implications to your products in the competitive environment if we see sensing go under glass. What does that mean?

Generally, it means that the laser structures are likely to change yet again, whether that be the type of laser, the wavelength the laser emits at, if you will. And at the end of the day, as Alan alluded to, change tends to actually be a good thing for us in that we are very good at innovation and moving very quickly from an R&D standpoint and have all the kinds of technologies that are needed or spoken about in the industry around -- under glass or in many cases, as we've talked about, customers won't tell us what they're doing or why, but they do ask for unique laser designs with different wavelengths and different optical characteristics that would suggest they could be exploring going under glass. That said, the chips we're shipping today are not radically different than from a functionality in how they operate and how 3D sensing operates from when we first launched almost 5 years ago. And so I think one should be very careful to assume that there's a sea change right around the corner at any point in time in that the technology today works extremely well in terms of its capabilities. Security is something that customers don't want to compromise on. Power consumption is something customers don't want to compromise on. But we have lots of programs to ensure that if or when customers make a decision to move to a new way of doing 3D sensing, that will be that launch partner and that innovation partner.

And just to clarify, so what you're saying is the under glass design is not dramatically different for you and, therefore, would not be a major disruption.

I didn't say it's not going to be a pretty significant change. In fact, it could be something that -- but let me take a step back and say it's not a change in that we don't need to go out and get unique or different capabilities than we have today. It's all well within our -- either our existing supply chain or other technologies we have in-house. But I guess the point is it's not something that's so far a stretch that it's going to completely disrupt who supplies what, at least in my opinion.

No, that's great. I want to pivot on to LiDAR before coming off of 3D sensing. So let's make the assumption that not everybody in the audience knows what LiDAR is and knows what the applications are. So if you could maybe just give us sort of the elevator pitch on what that opportunity means to Lumentum.

Yes. So LiDAR much like or very related to 3D sensing in many ways, right, sending laser pulses out to bounce off of objects to measure distance. And if you can do that on a pixel by pixel basis, i.e., now in an image, you can measure X, Y and Z to get a full 3-dimensional image. Where might that be very useful? Well, one of the most obvious is that you hear about it these days is in the automotive space, either for enhanced safety systems in automobiles to augment a driver or, in a more extreme version, for autonomous vehicles to be able to operate without any human intervention, if you will. And LiDAR gives, in a sense, the computer or the microprocessor that's driving the vehicle a set of eyes, if you will. And for Lumentum, where LiDAR relates to us is much like 3D sensing requires high-performance lasers at a minimum. And so we've got a broad range of products supplying into the laser market -- or sorry, into the LiDAR market, but as well perhaps a little more over the longer term, when you look at what is needed to make LiDAR practical, I would say, to be able to ship into a majority of the vehicles in the world is getting -- or driving price points down to a certain level as well as driving reliability and manufacturability up. When we look at LiDAR module, it looks an awful lot like a Coherent telecom module in many of the same optical components. So something certainly we have developing in the background are LiDAR modules. But the market itself is -- today, we're shipping low volumes into it. But the market, even in 5 years from now, is still not really hitting its stride. It's a 5- to 10-year time frame market before it becomes a very, very significant market. As such, our strategy today is to really ensure that our laser technologies are going into every other innovator, if you will, at the LiDAR module and LiDAR technology level so that -- I don't think the dozens and dozens of folks we're working with today, all of them will be leaders 5 years from now, 10 years from now, maybe some of them will be. And if we can ensure that we're partnered with the vast majority of folks and enable the right technology to win, then our technology will see the light of day, and it will benefit from it in that time frame.

Appreciate that. I want to pivot to the telecom products next. Maybe just if we could hear your take on the overall market outlook for 2022 in terms of what the demand looks like, market growth perspectives, and then we'll drill down on the specifics for your portfolio.

Sure. I think -- and I mentioned a little bit before about the NeoPhotonics acquisition. The port count for 400 above is expected to be very robust. I'd say that what we have seen and what we are seeing is a very robust demand on things like pump lasers and ROADMs. And typically, those are great leading indicators of future demand because you need to build the freeways before you start putting light across the freeway. So the pump lasers are what are used to amplify that signal across the network, and the ROADMs are there to switch the light and direct to where you want to go. So we've seen very, very strong demand in both of those areas that makes me confident that '22 is going to be a good year and typically will last far into the '23 and '24 given the port count forecast and the need for higher, higher speeds and the bandwidth demands just seem to be unrelenting with respect to how much bandwidth is needed to go from hyperscaler to the edge of the network. And so we're seeing, in fact, higher speeds towards the edge of the network that then need to get through the metro and the core part of the network. And that all leads to higher-speed devices and more amplifiers and more networks. So it's a good time, and that's why, again, why we made the decision to go and acquire NeoPhotonics at this point.

And it sounds like the ROADMs or optical switches are the components that are more constrained for you. And I guess one of the things we struggled with is we're not hearing necessarily the same comments from the OEMs. Now there may be a good reason for that. We haven't heard any details from Huawei because it's Huawei. And Ciena reports on Thursday. So we've got essentially 50% of the market that hasn't spoken to us, but the rest seem to be talking about certainly supply chain constraints, but they haven't highlighted ROADM as the bottleneck. So just wondering if there's a little bit of a disconnect between what we've heard from Lumentum and what we've heard from the other OEMs, the systems companies.

Well, I'll let Gary tell you on Thursday. I don't know what he's going to say. But we do try to take care of our leading customers the best we possibly can. And we have -- as I said earlier, we have been able to get the increased output of our telecom transport business in the December quarter. So things from their perspective may be getting better. But at the same time, the gap to fill the demand is getting bigger. So -- and I really don't think there's a bunch of double ordering that's making that an artificial demand. I think that given that in most of the cases, we're a sole source or we're primary source, and there's another source. I think the -- most of the customers are ordering what they need and not really getting everything they need. But we'll see what they have to say. I can usually be a good -- I guess my barometer is how often I get called by CEOs of our customers, and I'm still getting called by them. So that's typically a good indicator that demand is real.

That makes sense. I want to talk a little bit about a new device coming into the marketplace. It's called a 400GZR. So it's a pluggable widget that operates the 400 gig as the name would imply and can plug into routers or optical platforms or switches. And so there's this thought process among the investment community that this is bad for the optical systems market because it's displacing the sale of a network element. What does this particular market emergence mean to Lumentum?

Yes. Simon. I think it doesn't change a whole lot in reality in that at the end of the day, the 400-gig ZR is addressing certain ports in data center interconnect applications that maybe historically, we, in some cases, didn't supply into if that was a very cost-sensitive application for components, let's say. But in other cases, we will be supplying high-performance components. And in the case of ZR now is in those high-performance components, especially of late, have been integrated components where various optical components -- or various optical functions, if you will, are integrated on single optical chips and then integrated in a module. And in the case of ZR, it's now a complete transceiver module. So I think for us, what it does is maybe it's a little higher selling price than the underlying components that go into it. But at the end of the day, what I think it does do is not that it's a ZR. It's the fact that you're transitioning to 100 gig, 200 gig to 400 gig, which is what's really important because when you do that transition from 100 gig, 200 gig to 400 gig, like we thematically talked about across multiple end markets here, whenever the technology is hard and difficult, all of a sudden, there's many fewer folks that are able to succeed there, and it drives more intimacy with the customers in that they need differentiated technology in that market transition, if you will. So today, it's an exciting upside. And one of the driving factors for, as we've alluded to, the acquisition of NeoPhotonics and that they have a 400-gig ZR module that's ahead of us and gaining traction with customers and therefore, again, trying to time things appropriately for the significant market opportunity that's ahead for us.

So let's pivot to the datacom side of the business. So I think earlier this year, you talked about -- you were constrained by manufacturing capacity for a type of laser known as an EML. So maybe help us understand, one, why people could care and where are we today on your ability to manufacture this new type of laser.

Yes. I mean just like on the telecom side, the transition from 100, 200 to 400 is happening. It's happening also in the datacom side. And our EMLs are very unique in that they enable the transceiver makers and the hyperscalers or the other data centers to really get the economic benefit of higher speeds over the fiber within a data center. And so the demand for our EMLs is still extremely strong. And as you said, over a year ago, we started adding capacity that is now in our fab in Japan and is being qualified so that the March quarter should start seeing some benefit of that. We also -- 3 or maybe 6 months ago, we added to that capacity so that in the second half and towards the end of the calendar year, we'll begin increased EML capacity as well. So I think from our perspective, the datacom chip business, because of the enabling technology we provide, is going to be constrained for some time. And that's why we're spending millions and millions of dollars to ramp up that capacity in our fab to be able to meet the demand of those EML chips that our customers need.

And if this 200 and 400 gig end market hyperscalers, where is the overall deployment occurring?

Yes. I mean, most of it is hyperscalers. I mean, we don't see where all of our chips end up, but we are very closely aligned with the hyperscalers to understand what their road maps are and how we can make sure we enable them. And then we sell the chips to transceiver manufacturers who mostly sell to the hyperscalers, whether that be in China or in North America. So -- or in Europe for that matter. So we don't know, but we're aligning very closely with the hyperscalers to make sure that we're investing in the R&D needed for next-generation chips as well.

So I want to pivot over to the commercial lasers segment of the business. And just as a reminder, folks at the beginning of 2021, you had made a bid for Coherent. You ended up walking away and pocketing $218 million for your time. It's pretty good per hour, I'm guessing. So help us understand what -- you did mention this earlier that it was part of a diversification effort, but what was your thinking at the time? And sort of where do you think about this business today now that you're not going to have the Coherent asset?

Yes. Well, we are continuing to grow our lasers business organically. And it's quarter after quarter growing quite substantially as lasers was really impacted by COVID more significantly than our other markets that we participate in. So we're back up to prepandemic levels now, and we're expecting to continue to grow as we've invested in R&D to come out with new products and make it at a more meaningful part of our business. So I'd say on the Coherent deal, we tried to show some discipline around the valuation that we thought was just too much. So as you pointed out, $218 million, that was a pretty good return for that investment and one of the things that triggered our ability to now [indiscernible] our stock buyback that we did a couple of quarters ago.

And...

I guess -- sorry. Go ahead, Chris.

Yes. I just wanted to add, I mean, I think also something to the tail end of your question. If you look at our lasers, it's a segment, so we report our gross margins. Gross margins are excellent, in fact, industry leading. There's -- I don't know if anybody, if there's anybody and maybe only one that has better gross margins than us in the lasers business. And I think it underscores a key element of Lumentum strategy, which is it's not like that lasers business hangs off beside and operates completely separately. It's an integral part of our business and leverages the scale and operations and capabilities we have broadly in photonics. And so it's not that in absence of having the Coherent transaction, we're scrambling to say, what do we do with lasers? It's a great business. And the only thing we say what are we going to with lasers is how do we do more, not how do we do less given we've got something that seems to work really well there. Now we want to be able to scale it up even more.

Well, my next question actually goes right to that point is that I have the impression that one of the assets of Coherent is its sales force. And so why aren't you being more aggressive than perhaps you are in hiring in the sales team? And maybe not strictly targeting Coherent, but are you trying to ramp the sales force with that kind of talent in order to help scale and sell your portfolio to customers you've been unable to penetrate in the past?

Yes. I mean, we've been growing our sales force substantially because if you look at telecom customers, we know who they are, right? We don't need to uncover them. The lasers customers, to your point, we don't know them all, and they don't know us. And so we've been ramping up our sales efforts a lot in Asia, but also here in North America to make sure that customers know us and they evaluate our product. The design cycle for a new laser win is substantial. So 6 to 12 months of kicking the tires on new laser before they put it into the tool, and then it's extremely sticky. So we're working on those new design wins today with this bigger sales force to be able to make sure that we do have long-standing growth opportunities ahead of us.

Is there sort of a typical time frame for a salesperson to become productive? So from higher to when they start generating meaningful commissions?

It depends what their background is, but we're hiring from new grads to experienced lasers salespeople. And so from that perspective, they -- it just takes a willing customer to meet with you, and they become productive pretty fast once those customers find out about our new products and the opportunities that they have to come out with new tools that are differentiating.

And you alluded to this maybe a little bit earlier in terms of the pandemic effect on lasers, but maybe more specifically, you have a long history supplying Amada, the Japanese machine tool company. Understandably, when they stop making cars, they slow down demand. But where is your concentration with Amada today versus diversifying this business?

Well, it's still the vast majority of our fiber lasers, which is a portion of a product line in our lasers business. It's growing. They bounced back very rapidly and expect that they're going to continue to grow. But that said, our micromachining business is actually quite robust. A lot of those lasers go into semiconductor processing as well as things like printed circuit board, flexible circuits, cutting of materials that go into consumer electronics. And so from that perspective, that business is doing quite nicely. And the investments we've been making for those lasers is going to pay off in 2022, for sure.

So believe it or not, we are just about out of our allotted time. And I'd like to sort of close with the following: what do you think is the least appreciated aspect of Lumentum story?

I think we hit on most of them. I think that as we transition after the Oclaro acquisition to divest lower margin, more competitive businesses, we've transitioned to a very high-margin company where gross margins should be north of 50% and, in fact, have hit 55% last quarter. And we're going to continue to drive the chip business where chips are significantly higher gross margin than our corporate average. And so as we add capacity in our datacom business and as we grow in 3D sensing from a concentrated customer base to a more broad Android and AR/VR and LiDAR, I think that the long-term outlook for the company is extremely bright. And so from that perspective, gross margins, gross margins, gross margins.

Sounds good. Well, I appreciate everybody's time today. So Alan, Chris, Wajid, Jim, thank you for joining us, folks. Thanks for joining us. This was our session with Lumentum. This is Simon Leopold of Raymond James signing off. Thanks, guys.

Thanks, Simon.

Thank you, Simon.

Thank you, Simon.