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

Pleased to see all of you here in person. We are also webcasting this event. So greetings to our webcast participants. So I'm Kathy Ta, as you all know, -- welcome to Light 2023 Lumentum Investor Technology event. Today, we're going to be focusing on what's coming on the technology road map. We are going to have a financial presentation at the end and also Q&A following Wajid's financial presentation. We will be making some forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially from those projected. For more information on the risks, please refer to our most recent Form 10-Q, which is filed with the SEC and available on our website. These forward-looking statements are made as of today's date, and momentum assumes no obligation to update such statements, except as required by applicable law. Okay. So it's my great pleasure to introduce say speakers. You folks all know Alan Lowe, our CEO. He'll be starting our presentation today. As I mentioned, Wajid Ali, our CFO, will be ending our presentations today. Chris Coldren will be available for Q&A. So you folks all know the people on the top row of this chart. -- who you may not have met before our business unit leaders, which I show on the second row, Wupen Yuen, who is the General Manager of our telecom transmission business unit, Doug, who is the General Manager of our Transport business unit, Nicolas , Datacom business unit, Jason, imaging and sensing and Alex commercial lasers. So we'll be going to presentation in that order that you see on the screen , And as I said at the end of the presentations, we'll have Wajid come up and give a financial update, and then we'll open it up for Q&A. And with that, it is my great pleasure to welcome Alan up here to the stage. And I think, Alan, you already depth.

Certainly, our prompt starting 5 minutes early. so hopefully, everybody is ready. I'm super excited to be here today to tell you about,what's going on in Lumentum, what's going on in our markets and to introduce, as Kathy said, some of our more -- Some of our leaders within the company to take you through why they're excited and why they make me excited to be part of Lumentum and the outlook for our business. I do think as we look across the board at some of the things that we've organically developed as well as inorganically acquired recently, we do have the broadest set of photonic toolkit to address the ever-changing needs of our customers and their customers. So why don't we just dive right in, and we'll get going on the key messages here today and what the team will be elaborating on as we get into the details. So I do believe we are at a new era when it comes to networking and it's really driven by some catalysts and changes that are happening at the edge of the network inside the data center with artificial intelligence and machine learning, all of which are driving tremendous amounts of demand for network capacity. And that really plays well for Lumentum with our photonic integration capability and innovation that really starts at the chip level, and we have the broadest range of chip capability in the industry. As I said, the edge of the network is moving from very low speeds to now 10- and 25-gig tunables, and that used to be at the core of the market years ago. And that just as a result of the demand that the edge of the market is putting on the network. And that trickles back all the way into the metro and the core of the network, which makes it an exciting time for us at Lumentum. As we look at new applications and new markets, we're seeing that Photonics provides more precise use cases for things that are done maybe less precisely, if you will. And that comes into play with industrial applications, automotive as well as things like AR/VR that are exciting new opportunities that Jason will talk about shortly. Wajid will talk about at the end that we are well on our way to attain the synergies that we set out to. And in fact, we're going to commit to higher levels of synergies today, which will allow us to really drive growth in our earnings per share. So it's an exciting time. And then if you look at our balance sheet, we're very well positioned for further growth, both organically as well as inorganically as we look forward. We participate in a large market. The 3 markets that we play in, we estimate the total addressable market to be in the $25 billion range. And over the next 5 years, that should grow to $40 billion on its own, due to these catalysts that I talked about and the drive for relentless demand for capacity in the networks. 76% of our revenue in the second quarter, the December quarter was in our core optical telecommunications and data communications. So the network that really is at an exciting point as I talked about earlier, as bandwidth requirements on a large base, are growing very rapidly. So -- and again, that really plays well for our photonic integration. As we look at our other markets in Imaging and Sensing, 13% of our business last quarter, but really an exciting time as we look forward to new applications that will be utilizing our photonics. And we've been investing over the last 3 to 5 years on things like automotive, industrial applications that will pay off in the -- over the coming years. And then as we look at advanced manufacturing, a huge market, $10 billion market, and we're a small player in that market, but growing market share rapidly as we've been investing in new laser applications, especially in the ultrafast laser market space that open up new applications, new markets for us, like in the solar cell processing market. So again, another opportunity for us to really gain market share from the incumbents, where our innovation and new product introduction is really driving the customers to come to us first and be the partner of choice for them. As I said, the market for data is -- data bandwidth and capacity is growing very rapidly. And if you look at over the last several years, it's been growing very rapidly, but on a small base. And as the networks of the world continue to get larger, they -- if you're not looking on a non logarithmic scale, it's going through the roof. And this is really what enables us to provide our customers with a competitive advantage, so driving photonic integration, power consumption, lower -- smaller size from the data center to the edge of the network, subsea scaling and in the metro and core markets. So again, a very exciting time for us at momentum. What I want to talk about next is really kind of the change that has happened over the past several years in the ability to put more data across a single fiber. And the limits of being continuing to be able to do that. So if you go back in time, post-2000, the invention of Amplifiers and DWDM applications allowed Lumentum prior JDS Uniphase to really innovate and provide customers with the ability to put more and more bandwidth across the networks in the world. And that lasted for some period of time and then coherent was introduced and 40-gig coherent was the cool new thing, and that's transitioned to 100-gig and 200-gig and 400-gig. Today, a lot of our components and modules play a key and critical role for our customers. As we look forward, today, we're also supplying components and modules for 800-gig. And I suggest that you come to our booth and we have a demonstration of our 800-gig ZR. So pretty leading-edge product that I think are components, and again, integration or photonic integrated picks are really enabling us to come out with state-of-the-art new products to address that. 1.6 terabits being announce-- We're, again, critically enabling a part of that ecosystem, and it's really an exciting time. But I'll let Wupen talk in more detail about why Shannon limit really is starting to come into play in a meaningful way. And that, again, is a good thing for us. So more and more fibers are going to have to be deployed to carry the bandwidth that is required by the networks of the future. And that means more complexity with respect to ROADM technology and our leadership over the last decade in ROADMs is really going to play out well for us in the coming years. I think as we look forward, if you assume that we're right about the data requirements in the network in the future, photonics is going to continue to be a bigger and bigger part of that spend in the networks. How are we going to do that? It's through that photonic toolkit that I talked about earlier. Really starting at the fundamental chip level. The acquisitions that we made this past August gave us capabilities in DSPs and silicon photonics, as well as in RFICs where we didn't have that in the past. So along with all of our optical level of wafer fabs and ship capability came these things. So we have those toolkits at the fundamental level that really enable us to have the smallest size, lowest power consumption, broadest range of product and technology to meet our customers' needs. We take those integrate them into components or however, our customers want them and sell in a module space. So components that enable us to put multiple chips or integration of chips on a single -- integration of multiple functions on a single chip into a package that enables our customers to really meet the power requirements and cost requirements that the networks require as we go forward. We are also critically enabling our customers when it comes to modules and subsystems. And you can see at the top of the chart there, we provide very highly integrated modules and subsystems to meet the needs of our customers, whether that be in ROADM line cards or Amplifier line cards or multifunctional cards that address the customers' needs and their customers' needs. So across the board, I think we have a competitive advantage as a result of the photonic integration capabilities that we have, and we supply our customers at the level that they want to be supplied. So again, very, very exciting for us. Okay. Where do we play across the entire network? And there's some things that are fundamentally going on that are catalysts for change around, as I said before, starting with the data center around artificial intelligence and machine learning. So optics within the data center are going to grow dramatically with respect to the change in AI, which require more and more lanes of communication and higher speed lanes of that. So that will drive the need for higher speed lasers and higher speed interconnects and we're very well positioned for that, and Nicolas will be talking about that more. There's also data centers popping up all over the world. And the only way you can connect those data centers that are in remote locations is through subsea cabling. And so we play a critical role in subsea cabling and amplification of those subsidy links that are connecting these data centers in the countries where they are located. And as I talked about before, the access and 5G, as 5G continues to be rolled out, higher speeds are at the edge of the network, and we help enable that. But really more and more higher-speed applications of 10- and 25-gig at the edge of the network really again drive the need for higher speed metro and long-haul bandwidths. And you can't do that on the existing fiber today. So you need to add fibers and add ROADMs and add complexity with respect to ROADMs and the team will talk about that as well. Okay. Shifting gears away from optical communications to new applications in automotive and industrial and consumer. As I said earlier, we've been investing in these markets and some are starting to pay off. We have a level of business in automotive LiDAR that we think will grow significantly over the coming years. Security, we've been investing in as well, and that's really going to continue to be an investment. I think that will come to fruition in a meaningful way in the coming years as well. But there's also the industrial applications around warehousing and logistics and things like that, that we've been looking at and investing as well, in fact, having some customers come in and see what can photonics do for the applications they have today that are not using photonics. And their eyes light up. And so it's really, really interesting what you've been able to do to address new markets and get into that, which will be product and revenue in the coming years as well. Alex will talk about microelectronics and the investments we've been making in our commercial lasers business. But as I said before, our investments in ultrafast lasers over the past several years is coming -- is paying off as we get into things like solar cell manufacturing, display manufacturing and things like that. So again, an exciting time. AR/VR, Jason will talk about that, not only for consumer applications, but for industrial. So across the board, new and exciting markets that we're learning more about. And in fact, we hired our first Chief Marketing Officer. She's here in the room, Caroline Pan, to help us assess what's going on in these markets and help us figure out our go-to-market strategy in these markets because some of them are far afield from what we do today. We are also recognized in our effort for ESG, and we published our second CSR report in September. I suggest you take a look at it. We're very proud of the accomplishments. We've set out very aggressive goals, and we've been on that journey for the past several years, and we are being recognized. In fact, by Newsweek, and it's hard to see on the bottom right-hand side of the screen. We were ranked by Newsweek #3 in the telecommunication and software industry, so up significantly from the prior year. We're continuing to make this a priority for our company, not just because people are watching, but because it's the right thing to do. So again, pretty exciting time for us with CSR. Okay. That's pretty much of the introduction. I'm really excited to have the team that the investment community doesn't get that much access to come up and talk to you about what Wupen will talk about, how are we going to continue to be out front in our coherent components, high-speed modules. And as the transition to higher speeds and Shannon limit gets into the way of continuing just on our current path. So Wupen will talk about that. Doug is going to talk about our continued leadership in ROADMs and how we can help our customers in the transport area, really drive down costs as the bandwidth requirements grow dramatically. And then Nicolas will talk about what's going on in the data center, not just the next generation of EMLs where we have a leadership position, but what's going on in -- how are we addressing AI and machine learning? And what does that mean for that business? And then Jason is going to talk about our imaging and sensing and the investments we've been making to get into new markets, and so that's an exciting time. And then as I said earlier, Alex will talk about our investments we've made specifically in high-speed or high-power fiber lasers, but also in our ultrafast lasers. So again, thank you all for coming today. It's an exciting time to be able to with you our breadth of management. And with that, I will turn it over to Wupen. Position of NeoPhotonics. We're super excited to have him on board. Wupen?

Thank you. Hello, good morning. My name is Wupen Yuen. I came in here from NeoPhotonics acquisition. I've met some of you in the past. So I'm so excited to be here at Lumentum, which is a much bigger platform, deep technologies. And today, I want to explain to you a little bit about what is the transmission business? And why -- what is our strategy? And why we believe that can result in strong growth going forward, especially in the era of the, let me call the post Shannon era. So before I get started, what is the transmission business? It really is -- we're dealing with all the data transmit and receive of optical fiber. The deal with how to manage the light inside the fiber. I deal with transmitted received data through the fiber. And the only objective or the biggest objectives actually of transmission is given the total capacity required. What is the lowest cost per bit way of moving data from point A to point B. So with that, that's actually start with thinking drive the thinking about how do you actually give the technologies to really enable that to happen. Hopefully, I can explain to you and you take away with, Oh, this is interesting, and admin is so well positioned to benefit from the continued growth of the 40% CAGR of data. Okay. At Lumentum, we have been working on the leading technologies for data transmission for the longest time. In the last 20 years from JDSU to Lumentum, now with NeoPhotonics. We have the best laser technologies. We have the best transmitter receiver technologies. In combined, we've been able to actually support our lead customers, such as Infinera and others to also help them to advance their network, their deployment of the leading technologies to really, again, drive down the cost per bit and enable the capacity growth of their deployment. So David heard is one of our partners, and then we continue. Going forward, we will continue to invest in the leading technologies, both in the transmit and receive functions and even more into the module space, where it complements our customers investment also, right? So we look forward to a multiyear long-term relationship with our lead customers throughout our industry. And as we continue to get into more into the module space, our customers had also growth, from the traditional network equipment battery called NEMs into now more of the direct users such as the cloud space or in the MSO space because now these guys are -- because of traffic growth, now they need to also access the higher speed, most cost-efficient solutions going forward. So now going forward, our customers set will expand for not only the NEMs, but also into the direct users of our technologies. So where do we play? Well, like Alan just talked about, we play in all the market segments. The coherent transmission is critical to bringing the traffic over the oceans going through the long haul and metro areas into the data center interconnect, connecting all these distributed data centers near the -- in the metro area. And finally, in the access and 5G, which you don't hear a lot about, actually, that's actually a very interesting area because with all this remote working and also the edge cloud and more and more traffic now actually generated even data processed around the edge of the network. That's how to drive the demand into the metro area of the networks going to the core and back and forth. And that whole access 5G area is actually is very, very exciting. The growth rate is also very fast. I will explain a little bit about why that's the case and what we're going to do to play in that area. Again, one thing here that matters here really is our strategy is going to be very simple. It's what towards vertical integration. The reason I was explaining a little bit about that for different market segments, there's a different requirement of the optics. But end of the day, actually, how we differentiate technologies, how do we branch on performance, from cost, from a scale point of view, that actually matters. And then the fundamental volume invasion strategy is going to be really, really critical is not only creating a value differentiation, but it also is very difficult to duplicate because it requires years and years of investment, not just on the design, but also on the manufacturing technologies, which is really critical. And that's what actually we tend to be pretty unique in our industry going forward. So let me with the long haul and metro area of the network. So this is the network where you really think about how can I transmit the data for the longest distance as possible. Why is that? Well, because you really don't want to -- you want to make sure that the regeneration stations is far part, right? That's the new cost. And also you want to say going to the highest bid possible that will allow you to use less wavelength per -- given the amount of capacity -- So over the last years, you can see that the technology always move into the highest speed possible. The highest speed possible, give you a longer distance. It also gives you less transmitter receivers needed for given bandwidth and that then result in lower cost per bit. And therefore, you can see that in the next -- the next several years, you're going to see 400G and above to grow at a much, much faster rate than the market, right? And over here, the 20% plus CAGR actually plays into our strength. The strength is, let me go to the next slide, that we want to approach the highest e] rate longest distance possible, you really need the best technologies. That is -- you cannot really deal with inefficiencies at interfaces. You cannot deal with the performance degradation because you don't have all the things optimized. This is a space where the technology, leading-edge performance really make a big difference and customers actually willing to pay for it as well. And over here then the vertical integration of technologies from the laser to the modulator, the receivers to RF/ICs, the whole thing combined together enables momentum to produce the best performance solutions out there. So that's for the long haul and metro for long-haul area. Now for the metro area, the things are slightly different. Metro is a complex environment, right? You've got to have a really good performance still, but not -- probably not as good as long haul. Still though, you have to find a way to say, give you a really good performance. But in the metro areas, you actually want to be pluggable. You want to say, "Hey, I don't want to really put all the traffic all together because you don't have the bandwidth need yet, right?" And therefore, you want to say, "Hey, can I do a pluggable solutions, pay as you grow, right?" So over there, then you want to have a really good performance but also integrated into a solution that's pluggable. And look at this then. So over here, we provide -- Okay. Over here, we provide this ZR, ZR+ solutions that actually enables the metro applications. But again, overall, the whole story starts with the bottom level, the chip level design and integration. And then we integrate that into different solutions go into the long-haul networks and going to the metro solutions. Again, The work on solution allows us to combine the solution in the right way to fit the customer needs going forward. Now let's come back to the edge of the network a little bit. So we talk about the work-from-home environment, the 5G access and the cable instant MSO market now. Over the last several years, we see a tremendous growth of the bandwidth requirement going to the edge and it's not stopping. We're seeing the overall update of infrastructure towards the edge of the network and the associated deployment of new equipment and new bandwidth into that the edge of the network. That ranges from 10G per wavelength to 25G per wavelength. And then you can imagine over time, as a traffic continue to grow, that would then tail, Tail into actually connect into 100G per wavelength, 200G per wavelengths . Yesterday, I was talking to a major a wireless a provider. Now with 6G, which is not coming yet, but with the 6G technology, now antenna will generate 400-gig of traffic, right? You can just imagine now from 10G, 25G, 100G, 200G, 400G, there's also a continued evolution of the requirement of bandwidth towards the edge of the network. So here, we're actually very excited about it because now these new dimensions, new opportunities that's driven by the data is also now in our total addressable market, right? And then in the meantime, with all the data now being flowing around, data are now being processed in data centers, The data center interconnect market has also been growing really rapidly. So overall, this whole market area is going about 30% or more at CAGR, and we're actually very well positioned in there. Again, our technologies are very well suited now in the module format to serve this market. So over here, the requirement is a little bit different. While the long-haul is high performance, metro is good performance but pay as you grow. Over here, the cost efficiency is really, really important, right? Because the volume is really big, and the customer need to deploy a bunch of them at a given time, high-volume technologies. And therefore, the cost efficiency is critical, right? Again, over here, our vertical induction strategy, it's not so much of a performance play, although that still matters, it is not becoming how can you get to the lowest cost solution possible. And this is where, again, the integration of technology matters, especially at the chip level, right? Because you don't want to package all kind of stuff, just put it all back together, all the stuff together into a bag. We want to integrate it smartly to lower the cost. And this is also where our technology integration into the DSP space matters a lot, because DSP is a pretty important part of the cost of the product. And that only in the DSP now, we're able to drive down the cost to be probably the best in the industry, right? So overall, this is about photonic integration, is about vertical integration, and this is what's needed to serve this fast-growing edge space and also the DCI space, and that's our strategy going forward. Okay. So we discussed a lot about what's now pretty much, right? We discuss all these 400G solutions, I mean energy solutions, trade solutions. But what's next? Where is the market going? Where is technology going? So really, you have probably heard of the word talk about already before. [ Shannon ] So basically, what happens here is really this Shannon limit is the fundamental -- physical limit of how much data you can transmit given the amount of optical bandwidth. Okay. This is a fragmental limit of the physics. So C, here is the capacity. How many bytes you can transmit. D, is hertz. How much bandwidth you have. And this term long-term here basically is given the single most ratio, what's the maximum capacity you can transmit. So over the last 2 decades, as Alan pointed out. With technology improvement, speed improvement from 10G all the way to now 800G now. And with the DSP becoming better and better at it, we are now extremely close to the limit. What does that mean? That means the capacity per bandwidth is not going to improve anymore. We're stuck by the low 2 term. Okay? That's a huge implications to the optical networking and technologies. That covers actually between Doug business and the transmission business. The reason for that is now you really have to increase the optical bandwidth now. You cannot just be staying in the sea band. It doesn't work anymore. The seabands being -- that seaband bandwidth can only put so much data through. So that is a really, really big deal. That will cause all the changes going forward. And this is we're actually getting us really, really excited because you're going to have a major implications, not just transmission business, but also on the rod designs and also on the amplification designs, you're going to see the whole slow change in the next 10 years or so. So we talked about, right? So the very simple answer to that question really is, okay, well, if a C-band doesn't work, let's make the bandwidth broader, right? And therefore, one of the very first step is let's go from C-band to C- plus L-band. So now L-band is not an option anymore. L-band is a must, right? So now we actually recently we've demonstrated is C+L tunable laser. You already know that we have the best tunable lasers in the world, which actually leads to all the transmission -- long-distance transition that in the world, and we have just demonstrated that C+L tunable laser in the smallest nano ITLA form factor. It's not a product yet, but we're actually developing this into a product. We are also developing the technologies of the modulator and receiver to actually have the whole solution of C+L, right? So this is the very first step that we're going to take and to expand into the so-called beyond Shannon limits era. You also hear Doug talk about the C+L solutions. Now as a company, we're now going to put together an entire solution to address the C+L band to address the Shannon limit challenge of the industry. Now let me talk about something a little more complicated. So let me spend time here. So we're going to work out CSDM or Carrier and Special Division Multiplexing. So let me tell a story here a little bit. Now you will heard about Shannon limit being the fundamental limit of how much data you can transmit for optical bandwidth. In the meantime, there's also a second limit being reached. That's the Moore's law, okay? As Moore's law now being -- everybody knows like 5-nanometer, 3-nanometer, 2-nanometer the scaling, the speed scaling of silicon is gradually also being reached. What does that mean? In the past, we've always been able to scale the cost and bandwidth by going to a higher speed note. We go from 100G to 200G to 400G to 800G to 1.6T , right? Every time you increase the bandwidth, you increase the speed of the wavelength, you drop the cost by future settlement-- by definition, right? The problem actually is with now the Moore's law being approached, the speed will gradually just announced a 200-gig with Logic 6. The Nokia just announced 130 gigawatt call the PSE6, right? It is questionable what is beyond that? My personal actually is [ 20 gigawatt ] might be the limit around there, right? So now without that scaling, with all that speed scaling, what do you do? You now need actually more carriers. So you now need more from a single carrier, single wavelength per channel, you now need to use multiple carriers for channel to continue to scale the per channel bandwidth. So that's going to be an interesting solution because that will have a lot of implications on how we design and build lasers and transmitters and receivers. Basically here, this trend here will dictate the use of photonic integration because you cannot be building in the same way or we build #1, #2 and #3 is all in discrete. It's not going to work. The scale of the -- the power is not going to scale. The cost is not at scale, then we actually run into a wall. So this is where photonic equation really, really matters. And this is where we have the strongest strength because now our all internal applications, internal design capabilities will enable us to address this in a very unique way. And then in the meantime, in Doug's business, we will now have to go through special division multiplexing. And that will be a lot more about what this really means. It basically means that in the multi-rail, multi-fiber, not just multiple bands, you need a multiband plus multiple fiber to address all this traffic, right? Again, keep in mind that the channel is being reached the Moore's laws being reached, the combined the fact of this is that you need multiple carriers, multiple fibers to really enable the bandwidth of the traffic of the capacity of the network to too grow going forward, right? So we're calling this term here called the carrier, especially multiplexing. This is going to be a multi -- probably a decade-long trend going forward, but the positioning technology development starting now. So we talk about this, right? So again, now going to the CSDM world. Today, we're using -- we're enjoying the high-speed possible in individual sense. Today, you have a laser, you have to receive a modulator, you may integrate into an integrated solution into a module. Great. This is really good news. 1.6T, WaveLogic6, PSE6, all this is fantastic. Going forward, though -- going forward, though, we want to go speed above that. We want to do 2.4T, you want to 3.2T things like that. You will now need 2 wavelengths, 2 carriers or 4 carriers going forward, right? Again, you cannot do it the same way. You cannot be doing -- laying it out individual laser -- individual modulators. Now you really have to integrate them into a single chip. And therefore, integration, our own factor ability is going to be sound really, really critical. And in the meantime, the design optimizations of all the interfaces, the RF optical interface, the DSP RF interfaces, all the interfaces have to be totally optimized in order to drive the cost down, drive the power down, drive the footprint down. Therefore, our belief is we have to go through -- sorry, photonic integration to really reduce the cost per element in this world, when multiple churn has to be used at the same time. You want to be in the question to really drive on the cost per element and then use drag on the cost per -- So our strategy of internal lies, all the good capabilities and then to produce the best solutions for the industry is our strategy going forward in the supposed channel world. So as a summary, our strategy is putting all the components, the laser, modulator, receiver, RF, ICs and DSPs under our own ownership. Continue to drive the technology, drive the speed and use the best solutions combinations to serve the long haul, metro and the DCI and edge space. And we believe that our unique position in industry with the scale and technologies will position us very, very strong for the next 10, 20 years, in not just on transmission business unit, but also in other business units, which Doug or team will then tell you more about the story of CSDM. Thank you very much.

So Doug?

Some of you in the back to come up, there's space up here in front, and we're going to drone on for about 2 more hours. So I'm not sure you want to stand up for the total length of that. Okay. Good morning, everyone. My name is Doug Alteen, and I have the pleasure of running the transport business unit, and we talk about the insatiable demand for bandwidth. We know it's coming. It's going to continue to come. We can't predict with certainty where it's coming from, but we know the need for bandwidth is not going to decrease anytime soon. We also know that the optical networking infrastructure is a critical part of being able to scale as Wupen talked about, as we move from a single band to multiband to multi fiber, if you will. 3 things I guess, I want to talk to you about this morning is really, the demand for bandwidth is going to require scalability, and it's going to require agility. And we believe our product portfolio is the broadest in the industry. And we believe that we are well positioned to lead into that CSDM era. So in our business, there is, as you know, not a tremendous number of customers. From a transport perspective, we think that having strong relationships with those leading customers in our industry is super critical for us. It allows us to do something we call co-development, so developing customers developing their solutions while we're developing our solutions and it provides us with a feedback loop in terms of continuously evolving and driving the cycle of innovation. And that's really important because the technology continues to evolve, and we want to be partnered with leaders across this segment. Okay, some orientation. So the way -- and sometimes I find it useful to talk about the space that I'm in by way of analogy. So if you think about the U.S. interstate highway system, ROADMs kind of look like the inner exchanges, if you will. The ROADM allows you to get on and off that interstate highway allows you to change directions North, South, East, West. It allows you to get into and get out of metro regions. And they vary significantly in size and complexity. So that's a part of it. The other part of it is, as you're traveling down the highway, you need to refuel or you need to recharge. And that's what the Erbium-Doped Fiber Amplifier also known as the Optical Amplifier and I may actually use a term Amplifier for linguistic simplicity this morning, but those are an essential element of that ride down the interstate highway. And so those elements are super critical. We have a very strong position in ROADMs. We are extremely well positioned in Amplifiers and the Pump lasers that are at the heartbeat of those Amplifiers. So that gives us a really comfortable position in the middle of the chart that you see. Now you move on to the subsea side of things. We provide the vast majority of Pump lasers that go into fiber cables, and I'll talk a little bit more about subsea, but we provide the vast majority of Pump lasers and passive optical components into that environment. On the access side, it's a little less sophisticated in terms of the kinds of equipment that we provide, but passive components are an essential part of that segment for us. And then increasingly, we're seeing interest in demand for optical switching in the data center. And we believe the linkage in terms of optical switching with our pedigree around ROADMs is a linkage that we believe is going to allow us to be successful in that space as well. So from a portfolio same kind of message that Wupen gave you, from chip level all the way up to subsystem levels, super important. We need to make sure that we've got the highest reliability components that are going into the subsea market. We need to be able to then take those components and package them into modules. And then in some instances, and this module packaging and the combining of modules is then packaged up into what we call subsystems. And subsystems is a really important business for us because it allows us to take individual functions and deconvolve them in ways that our customers can. Customers can buy Amplifiers They can buy ROADMs, we can start to take some of those elements apart and combine them in novel ways that allow us to improve performance, lower cost, lower power consumption. And those are really critical attributes as we go forward. The other lovely thing about subsystems is it's kind of an ODM market in some respects. It's very sticky, very sticky. So 40% growth from the amount of bandwidth that's required. We think that fundamentally, as we start to bump up against Shannons limit, we need to find a way to address that. And we are looking at C-band today. We are delivering a considerable amount of our product in what's called XC or extended C-band today. And we also deliver a lot of products in the L-band, and about to deliver products in XL band. So we have components, modules and subsystems that allow us to address basically all of those different segments within the C-band and the L-band today. But what's going to be required is we're going to require a more sophisticated set of products that allowed us to do that in a more integrated way. So what we're going to talk about in the next couple of charts is really all about the CSDM era and what it looks like from a telecom transport perspective. So scalability is really important. One of the things that we have a long track record of is lowering the cost per port in our ROADM configurations over time. And that's extremely important because it allows us to take which in a largely footprint compatible way, it allows us to take in an existing customer slot and put more ports, lower cost per port, increased density. And the seamless integration is not to be underestimated. As you go in and design into a customer platform, the qualification times are not insignificant. So being able to drop product into existing slots is really valuable and important for us. If you take a look at some of the leadership positions from early single 1x9s, Twin WSS, so really in the same form factor as a single WSS combining 2 WSS. And some of the products we're announcing at -- one of the products we're announcing or we've announced this week is our Twin 16x24 WSS. And that really is footprint compatible with its predecessor and 8x16. So same form factor, a lot more ports, a lot more scalability, which is extremely important. Scalability is going to be critical as we start to move to C+L and the movement is taking place. We have networks that are being deployed today with C+L. Not a majority of networks to be clear, but C+L is being deployed without question. No competitors got our depth and breadth of product portfolio, and that's extremely important. I'm talking about ROADMs. I can apply a similar story with respect to our Pump lasers. So our ability to go from single Pump lasers to dual Pump lasers to Okta Pump modules is extremely valuable, important being able to integrate all of those components is going to be essential as you start to increase the number of fibers that you're trying to light up and doing that in a cost-effective way. So Wupen showed you a similar chart about moving from C-band only kind of networks because we're running out of available capacity. We are deploying XC. So in certain markets, XC, extended C-band is very common, that provides about a 20% improvement. And some of our customers will say that's really not enough. Being able to provide more capacity is important. And if I'm going to make the investment, I'm going to make the investment to C+L versus C to extended C. Basically, we need to transition to double amplify spectrum transitioning to C+L. And what we have today, and we announced the product this week, but what we have today is we have C-band solutions, so C-band ROADMs and L-band ROADMs. And as I say, they're being deployed in networks as we speak. But guess what? What you're talking about is 2x the capacity at 2x the cost. So that's not particularly attractive from a scalability perspective. Scaling has got to be cost effective. So what do you do? How do we tackle that? On the left, you take a look at the traditional C-band network architecture today, twin ROADMs, allow us about 5 terahertz, 4.8 terahertz of amplified bandwidth. Start to move to the right, functional integration allows us to start to combine those WSSs. So we are actually, again, another announcement today this week at OFC, we are announcing an integrated WSS that combines C-band and L-band in the same footprint as our existing C-band WSS or ROADM, if you will. Doubling, effectively allowing us to double the amount of amplified bandwidth in the same kind of footprint. So these are capabilities that we think are not uniquely belonging to Lumentum, but we feel very confident in our ability to deliver the products required at scale. So volume manufacturing of these things is not to be underestimated. And we've shipped over 0.5 million ROADM. So we have a pretty good handle on what it means to scale and to increase that amplified bandwidth. Wupen talked a little bit about this chart. Basically exhausting -- so we go from C to C+L, we're still going to run up against a fundamental limit. So what do we do next while we start to add more fiber repairs, quite frankly. That's how we're going to allow us to continue to grow and double amplified capacity in the network. So the first step, let's deploy 2 fiber pairs along the network growth. Utilizing both C&L band in both of those fiber pairs. And this is where spatial division multiplexing allows us to take the capability along multiple paths but integrated from a ROADM perspective. So now you start to look at from today intergraded C+L and now we're starting to light up multiple fibers. Same network architecture. This is really important. So what we're not doing is we're not requiring our customers and our customers' customers to rearchitect their networks. They're able to drop this capability in today. And it's important to note, when we talk about lighting up more fibers, fiber cables have tons of fiber inside them. So it's not a question of having to lay out more fiber. It's lighting up the fibers that already exist inside those cables. But we'll leverage from a ROADM perspective and from an Amplifier perspective, we'll leverage capabilities around photonic integration. And what we also call functional integration to allow us to go after and provide that density that's required to lower the cost of amplified bandwidth. From a subsea perspective, CSDM is already happening today. So subsea carries virtually all of intercontinental data traffic like less than 1% is carried via satellite. So it's significant. There's over 500 subsea cables deployed today. over 1.3 million kilometers of subsea cabling under the sea. And there's about 75 cables in the planning, construction or commissioning phase today. So it's an active space. It's critical infrastructure in many countries. And what we're also seeing is a transition -- sorry, it's already happened, actually, from who's driving and who's owning those cables. So we're seeing data center operators take either a full ownership position or take a lead position in terms of those cables in order to drive and own as much of the fiber under the sea as they possibly can. But from a CSDM perspective, we're going from 8 pairs, 16 pairs, 24 pairs today. So that's already happening. Now the challenge you have under sea is, of course, you've got capacity and bandwidth constraints. You also got power constraints. You can't run any more electrical power down that fiber cable. So what you've got to do is you've got to have more cost-effective components that allow you to amplify more spectrum, more fiber, but within a constrained power envelope, extremely important. And as you, I'm sure, already know, repeaters or the Amplifiers under sea, they're not getting any bigger. So you need to be able to put all that capacity and capability in the same form factor. And so how do you do that? You do that with ultra-dense componentry, right? And again, an announcement this week is on a next-generation Pump laser for undersea application that is going to allow us to shrink the size of the component add more of those components in a given amount of space and allow us to leverage that capacity in that fiber that's already in the ground or under the sea. So a lot of technology, We've been 20-years-plus developing Amplifiers and ROADMs into the optical communications space. And the fundamental technology that's used in that space has got applications in adjacent markets. Here's just a couple of examples. On the left is data center switching bit of a hot topic these days. And we think given our capability with WSS, so the one -- here's some similarities between optical switching in the data center in ROADMs. You need to have a capability to design this -- these kinds of products, you need to have a capability to build them and scale them in manufacturing, extremely challenging. We think the pedigree that we have around ROADMs will serve us well in this particular space. And this is a real market. I mean the OpEx and the CapEx savings that customers are telling us they can see with optical switching inside the data center is very, very interesting. Another one is taking Pump lasers. So again, an example of kind of functional integration, taking Pump lasers ganging them together in optical configuration. So we put 8 Pump modules inside -- or 8 Pump lasers inside a module, and that gives us a high-power Pump module for satellite communications applications. And the customers that we're dealing with here are at the very early stages in terms of the number of satellites they want to deploy. And so the amplification opportunities there are, quite frankly, really strong, and we're very excited to be participating in that space as well. So as I wrap up, our leadership position has really been driven by a broad base of technology and what I would also call persistent innovation. It allows our customers to -- it allows us to support our customers through years and years of bandwidth -- increasing demand for bandwidth and relentless focus on driving down the cost of amplified bandwidth. The growth is going to continue unabated. So we're going to go from C-Band. We're going to C+L Band, integrated C+L and then multi-rail network. So we see that we have the vision over the next 5 years of what that looks like. And we believe we've got the product portfolio through what we call functional and vertical and functional integration. And that's really around combining optics, combining that with electronics, wrapping that with software to provide a whole class solution that our customers can deploy. So extremely important. And our technology and leadership innovation also allows us to extend into markets that we historically haven't served, and we think that's a great opportunity for us going forward. So thank you for your time. And now I'd like to turn the floor over to Nicolas, who's going to talk to you about Datacom.

Okay. So my name is Nicolas Herriau. Like Wupen, I have joined Lumentum through the acquisition of NeoPhotonics. So it's really my pleasure to manage this business segment. And especially with all the leadership that we've had in the laser for the last 30 years, you will see that a lot of what we do in the Datacom business is directly to lasers. Many different type of lasers supporting all the interconnect use cases. And our leadership in that laser field has been there for 30 years and continuing to lead the leadership. So we will see a lot of expertise on the best lasers that we are supplying. Datacom is about supplying the photonics for all the use cases of the data centers. Data centers connectivity, links within the data centers, but also we are addressing interconnects between data centers and connections up to 2 kilometers. The connection within the data centers are usually short connections and about a few hundred meters. So -- obviously, we have been supporting the data center globally, the Ethernet market. But also, as we are going to discussing , there is a new market that is developing, driven by NVIDIA about high-performing computing. And this is the engagement that we've had for about a year, where we are trying to understand what are the photonics issues that they are trying to solve related to the new application that they are serving with artificial intelligence, machine learning. And all those new deployments are facing some breakthroughs in terms of interconnect. And we're trying to understand what they are to offer new solutions with our lasers, detectors and other platforms that we have to provide a better solution to . So this is an engagement that is continuing, and there is some product that we are proposing and announcing at this OFC that is supporting and trying to solve issues for this platform. So the statement that we are supporting is actually complementing what Wupen and Doug has presented. So what they supply for the market is to provide the connections and the Datacom is actually providing the question within the data centers. So it's all basically related to lasers. And you can see that there's various families of lasers from DML, EMLs, who are the most high-performing lasers, which are modulated. VCSEL is a category of laser that is used for a very short reach within the data centers. And there's a new category of lasers called CW or continuous waves, that are starting to replace gradually some of the existing technology by adding more attributes in terms of performance and having the ability to also have more paralism as we try to grow the bandwidth in the data centers. We are also serving the Access 5G market. It's a market you usually addressed with the DML market, and that's part of the portfolio of expertise and that's an extension of what we do with Datacom. So if we get the infrastructure today, Datacom are mostly supported by the Ethernet infrastructure, which is on the left. And this shows the history of the bandwidth that is being achieved at a data center. A few years ago, we were at 100G. We are starting to -- the market is developing -- deploying 200G and 400G, and we are already developing the lasers to support the next generation 800G and 1.6T. The growth of this market is still very large, driven by the number of data centers that are still growing and the size of those data centers. The number of interconnect within one data center is exponentially growing. So the market is continuing to grow at about 12% annual growth for the next 5 years, and that will drive the need for all the lasers that I presented before, the other families for what you have. This market now is being supplemented by an emerging markets, which is driven by the NVIDIA super port, which is available today. This market is trying to change the interconnect to better face the challenge that machine learning and artificial intelligence algorithms are providing. Those are very different attributes that are needed compared to search and content distributed in data centers. For example, the latency is very important, and that drives a new set of photonics around the architecture to solve those problems. There is -- this market is developing very fast. It's emerging, but we expect that the volume -- we'll catch up with the Ethernet market probably in the next 5 years. So if you think of this as a growth for photonics, it doubles in about 4 to 5 years, the number of connections needed and therefore, the number of lasers and photonics and detector needed to support that. So now that we understand the 2 segments, I want to dig into the different lasers that are supporting different for use cases. There are 3 laser categories. One is the intra-data center, EML and DML which are very high-performing lasers. And for those lasers, the goal as you connect to the previous slide, is to always provide the next generation of speed. And therefore, you have to use high performance laser and to try to reduce the cost by being more efficient. We are the leader in those lasers. Those lasers that we do come from a platform we have for 30 years now. 30 years of expertise and continuously driving the next generation rate of competition. So we believe that this market for us is still continuing to be where we continue to grow our EML and DML business as we transition from 100G to 200G, and this is happening now in terms of technology deployment. And this is going to continue to show the growth for the Ethernet. Those are distance about 200 meters to 2 kilometer. But then for connections that are much shorter reach, there is a trend that is happening now in the data center, which is -- today, those connections are supported by copper cable. And the TROSA's copper cable is their ability to go to the next level of speed is limited compared to is optics. And so we start to see a migration from copper to optics cable in the short-reach data center and that creates a new opportunity for Lumentum to provide more global supply of lasers. If you think of that segment in the data center for a shortage, those are even higher volume than those that we have a longer distance to connect few kilometer. So the opportunity for Lumentum as this position is happening from copper to optic cable for the short reach is tremendous. And that's -- it's something that is very well also aligned with our manufacturing capability and all the investment and technology we are placing to be able to support and grow at that level. Now as I mentioned, there is a transition also happening between high-performance modulated lasers that are serving the DMA EML today, the data centers to lasers that are not modulated but where the attribute is to provide more power and more parallelism. So for example, you can put those laser into array and provide more bandwidth as one engine solution. So those lasers are now already deployed today, but the need for more power is growing. Today, those leases are supplied at 40 megawatts to 70 megawatts. But infrastructure like AI and machine learning cluster and high-performance computers are wanting more power for those lasers. And so from discussion with our customers, we understand that 300 milliwatts is needed today. And actually, we are trying to push the limit to see if those lasers can go to 500 milliwatts. And then this discussion with NVIDIA to see if 1 watt laser are actually interested to solve the problem. So that's the trend we are in. Those lasers that we are developing, we have special technologies to be able to go in very high power. And we have announced already 350 milliwatts, and we are already in the lab producing some lasers that could go to 500 milliwatts. So this is another axis of growth for our lasers as the AI EML market starts to grow. That's going to be a large expansion for this family of lasers. I want to spend some time now and that's the Ethernet kind of road map for lasers and try to explain why our leadership in EML and DML is important to stay ahead of competition as we migrate into this road map. So about 10 years ago, when 100G was introduced, it's basically 4 lasers at 25G, and there was a simple modulation. To be more efficient and to go from 100G to 200G, the new modulation scheme was introduced. And the benefit of this modulation was that you need more high power -- sorry, high performance laser -- And that road map was actually very good for our EML, which is a leading performance laser in the market. So that trend road-- the way for us to be able to continuing to be the top vendor of EML. And as you can see, as the gigabit is increasing and it changed -- doubled every 2 or 3 years, one way to do it is to double the number of lasers. So from 200G to 400G, you have 4 and then you can go to 5 to 8 lasers. But to make it more efficient, our customers are asking the laser to increase the speed, so they can reduce the number of components in their devices. And so the race for us has always been to deliver the next-generation speed laser to replace the previous one, and keep the number of components the same and increase the capacity of all the system. So this has been the rest in the last few years, and now we're at a point where as we want to intercept the next-generation 800G and 1.6T. We have to introduce to market the 200G per lane EML. And that's a laser that we're already supplying to our customers. It will be available in mass production at the end of the year and intercept exactly the time when 800G is going to be deeper to the market. So that's -- and there's actually an eye diagram to this laser. And that's going to enable a large growth for us as we continue to be the leading high-performance laser for this trend. So one, as we talk about the differentiation between the Ethernet data centers and the machine learning clusters or AI clusters, There is also a transition in the architecture, and that's driven by the different needs between the application. Today, the Ethernet is mostly supported by pluggables, the same pluggables that Wupen presented before for the coherent. Those are the same time of pluggables but they are direct detection technologies. So we sell our photonics lasers and detectors to integrators that assemble them with lenses and this is a discrete platform. They put them in modules and then they sell to the data centers to put in a switch. This is a very discrete platform, a very low level of integration, and therefore, the assembly cost is pretty high. In that market, we are supplying the lasers. The gross is continuing. But then if you look at the way AI compute market is trying to solve, the road map is they want to disaggregate the optics and the silicon photonics. So the picture on the right kind of compares the transition between the Ethernet and the concrete were all the silicon photonics blocks are now integrated into one platform, which is what I call a Silicon Photonics, box on the right here. And that creates a need for the laser to be separated, and those are for more benefits for the platform. And that creates a new opportunity now to create instead of supplying only the laser to those integrate the transceivers, they press an ability for us now to integrate more functions around the laser. So if you look at the engine that I described here, you have an array of laser, and then there is a channel routing, which is basically a PLC or a SiPho chip that we attach with our lasers to create an engine that is used by the AI compute market with the silicon. So that creates opportunities to sell more lasers in one engine. In that case, it's an 8-array laser. And to connect also to my previous message about the power, each laser here is intended to be 100 milliwatts. So when you have 8 of them, the solution is already providing close to 1 watt of power to be distributed in the data center to provide data. So that's a transformation in the way the photonics is being used. And we see it as an opportunity for Lumentum because first of all, we are a leading company for high-power lasers. We have the ability to put them in an array, which is important for the architecture that compute market is using. And also, it has the ability to now for us, combined with other materials like silicon, photonics and PLC, and integrate a solution and provide more content to our customers and then providing the lasers. So when you look at those 2 markets, the first one will continue to grow with our next-generation EMLs. And on the right side, we see it as an opportunity to sell different lasers and create a leadership because of our ability to do arrays and very high pero lasers. And I think the SiPho and other materials around to make an engine. Also, one comment about this is that this platform is very highly integrated. It means that it will support the fast growth that this market is doing in the next few years. So we talked about the components. So obviously, the foundation of our business in the Datacom is to supply photonics. So I summarized in the bottom of the slide, the various elements that we are also paying today, mostly lasers and you can see the different categories of lasers, but we also supplying photo detectors to complement the laser on the receive side. And we are also supplying IC. So therefore, we have now the ability to combine all those elements. And as we migrate from supplying lasers on the Ethernet to supplying engine to the AI market, there's ability now to integrate more of our components into solutions. And you can see that it includes so called a wave guide, which can be silicon photonic or it can be internal with our fab on glass. So that's the foundation of our growth in terms of product and offering, but it is also very important that we spend a lot of energy and research in the operation of delivering those solutions. So we have 3, we believe, 2 axis of expertise. One is high manufacturing, we control our fab every lasers we do except the VCSEL, but most of the lasers we do are internally designed and produced. We have 3 different fabs. And one key aspect to be able to grow high volume and fast is to invest in automation. We are investing a lot in laser testing at wafer level. Everything we do is wafer level, and that's very important because it allows us to scale much faster for the need of our customers. And the last element is that if you actually think 2 years ago and a few of you may have heard it from the data centers, there was a time when you plug a module into the switch, and it was not working, they took it and throw away because it was -- the cost of this element versus the rest was still very small. That because of the need to be more efficient in data center. This concept is changing and actually now data centers And AI and ML clusters are actually asking for the reliability level to be extended from before. And that's also a transition because it actually refocus the market to those who have the best performance and the best reliability. So for example, in our case, we have sold 1.7 billion VCSELs with 0 field failure. And that's very powerful because that shows the way the platform in terms of manufacturing, which will apply across all our components of VCSEL to CW lasers for ML market, AI market and the EMLs, we apply the same philosophy of pushing the limit of liability. And that's actually an attribute that is actually positive to enter those new markets and continue to win in the photonics market. So just to wrap up, a few takeaway message. As you understand, we believe that the photonics growth is actually very large, continue to expand, especially with now a new market that is developing. It is, as I said, good for all our products, EML, silver laser and VCSELs. So we expect the growth of the 3 category to expand and continue to accelerate. And obviously, having now the ability to do engines also increase the ability to try content and new product as we bundle lasers and other functions. So very excited to see that the need for photonics is growing our leadership in driving the next solutions that are needed with our customers is doing very well, given the ability to be always the first one to deploy the next generation of lasers. And so that's a very exciting time for us, especially with those 2 markets continue to expand and all the opportunities for the different photonics options that we have. So thank you very much. And I will pass it now to Jason, who is leading the Imaging & Sensing business.

Appreciate it. Thanks, everybody, for giving me the opportunity to dust off my jacket and try to remember how to put it on. Let some exciting stuff the last hour or so kind of makes you want to jump out of your seat. I'll see if I can continue that trend. All right. So as Nicolas mentioned, my name is Jason Reinhardt. I have the privilege of working with our Imaging & Sensing colleagues. And partnering with our customers on a daily basis to innovate and differentiate and add value into the markets that they serve and the solutions they provide. And I'm going to try to continue the story. It started with Alan, there were some key words. Hopefully, you jot it down, and if not, I'll tell you about 15 more times, hopefully before the end of my talk. The first one is a Photonics toolkit that's been built over 30 years, right? Doug mentioned persistent innovation. He also mentioned co-development. We've talked about different markets in different application spaces in those first 3 talks from our different business unit leaders, where we're starting to see applications beyond the typical communications realm, start to take hold and photonic capabilities. And I'm going to talk about that a little bit more about how we've enabled this journey from over a decade ago into where we're going next, how we're starting to see this proliferate into more -- more markets and more and more application spaces. And as Alan mentioned, we're getting new customers coming in and talking to us about their application problems and their eyes are being opened to what Photonics can do. And so I'll talk about that a little bit. But first, Imaging & Sensing. You knew us last year and up until December is the 3D Sensing business unit. And so why the name change? And it's really along the lines that I just mentioned. It's to be able to convey to all of our stakeholders, internal and external, whether those be partners or customers, investors, that we're more than just a 3D VCSEL supplier into the mobile handset market. We really see the opportunity to take photonic capability and solve a lot more problems in a lot of new markets that are really addressing different sensing and imaging capabilities. So we'll talk about that a little bit more. So let's start with the customer testimonial, I won't read David's comments here. But this could be any one of a number of customers that we partner with. You've seen a few other customers in the other segments talk about these same types of themes, right? Technologically advanced solutions that are being codeveloped with our partners in a way that allows them to bring value to problems that are being portrayed and realized in the market. And that's what we're doing with TROSA, and we're doing it with a number of other customers that you already know and a few other brands and logos that I'll put up on some slides a little bit later today. And it's really about advancing technology to differentiate as our partners solve problems in the ecosystems that they plan and serve. So I've been on this journey since the beginning, and I'll talk a little bit about that. Starting more than a decade ago with gaming into game consoles, and a variety of different technologies that served a couple of different generations in that space. Moving into PCs and laptops and then exploding onto the scene with mobile handsets, right, in smartphones. Our different laser technologies have allowed 3D depth sensing to really take hold and take shape in the marketplace. And that's now moved into a whole host of new applications, some of which Alan mentioned earlier and some of which in the consumer space, you see here on the right-hand side of the slide. So more technologically and technically advanced third, fourth, fifth generation designs are starting to come out, and they're stretching limits, right? They're bringing new capabilities. They're bringing new opportunities. And all of these require greater and greater precision these new application spaces do. They require a longer range. They require us to be able to meet and exceed a wide variety of different operating parameters, right, especially as we proliferate into these new application spaces. Each one has a little bit of a nuanced location need that requires different operating parameters. So this capability is being deployed or is being designed in to deploy in these areas that you see on the right, whether it be VR, AR, not only for consumer, but also I'm sure you've all read about different military applications, as well as business environment applications that these could potentially go to, right? Whether it be payment authentication, Security and access control, we're really targeting that tagline on the bottom, right? Unlocking greater precision and higher fidelity for consumer applications. That's our goal. And that's just paved the way into new growth markets, right? We've been the leader in the mobile space. We've been the leader in the PC space. We've been the leader in the game console space. We'll continue to be the player that our customers want to rely on and need to rely on to lead in those spaces. But we also see that not only proliferating the other consumer electronics market applications that I mentioned, but into these other application spaces as well. And some of these are the same as what Alan mentioned earlier, and some are a little bit different. And I've delineated on the slides here in some of the sub-bullets. Some of the potential application uses in these different spaces that would take our technologies and put them to use. And so conventional solutions that are being deployed today are going to start to convert and are already starting to convert to optical techniques. And so why? Why do they want to move from what they're doing today into the photonic realm? Well, essentially, photonics and optical techniques are more effective and often more efficient as well. And so they're faster. They're noninvasive and they come with what we've tagged as my tagline today, higher fidelity. And those higher fidelity needs are being seen more and more in these application spaces that don't have a lot of photonic knowledge, right? The background in optics isn't there. And that's what we bring to bear and Alan mentioned that as customers come into our labs and they talk about their problems and they see what we offer. Their eyes are open and they're wowed. You can see in the blue and the green here, some of the key parameters that are starting to drive that, right, and why these optical techniques are taking place. Whether it be accuracy, resolution, speed, range, Nicolas mentioned quality, right? When we talk about consumer, we always think about brand, right? And when we're able to say 1.7 billion VCSEL arrays deployed without a single field failure, that's pretty powerful. Well, brand is important in every industry, right? Every industry is relying on their ability -- our customers' ability to be able to deliver and continue to meet their customers' needs. And so this is critical. And this is just starting to take hold, right? This transition is going to be broad. It's going to be wide ranging and it's going to be very long lasting, right? As we started to see this a decade ago with game consoles, right? This isn't easy. It takes a little bit of time, but it's very, very long lasting. And maybe the key takeaway, if I can leave you with one thought, right? It's if electronics has been the engine of innovation for the last 100 years, we're at the precipice of photonics taking over that, as that innovation engine, right? I won't be around in 100 years. But in 100 years, I hope that we can look back and say, Photonics was the catalyst for innovation for the last 100. And that's what we're starting to see, and it's getting customers very, very excited. So I've got automotive up here on the far left, and we've talked about the automotive space for a long time here at Lumentum. And we're really starting to see this now take off. We've been discussing LiDAR for years. I think everybody is well aware of the benefits that it brings to the driver experience and the whole environment that surrounds that driving experience. And whether it be providing VCSELs or providing coherent lasers that both Nicolas and Wupen talked about earlier, there's a variety of different techniques that can be deployed. And there's always a struggle with. Is it going to be LiDAR or is it going to be RADAR and camera. It's a battle between the two. It's really not a battle, right? This is a collaboration because it's all about safety, and it's about the user and those that are affected by the user experience. And so it's going to be combination of these technologies that are going to be deployed in future vehicles. And you saw the quote from David Lee at Hesai, right? Hesai is already a market leader in this space as deployments are ramping aggressively in China. And we're playing not only in that area, but I'll show on the next slide with a number of different brands across the world as we look to work with our customers and how to digitize the automotive environment. Sounds really simple, right? Just taking all of that information and trying to make decisions on how best to keep drivers and occupants and the environment around them safe. It's really not that easy, right, which is why we're seeing the adoption curve now starting to take off after talking about this for 5-plus years, right? And what this requires is it requires deployment at size. The capability from a performance perspective. At cost points that allow not only proliferation into the industrial fleets, but also into the consumer vehicle markets, right? And to be able to do that with the right heat dissipation, the right power dissipation and the right manufacturing volume and quality. These are all hallmarks of what Lumentum brings in our Photonic toolkit, right? And so I talked about building on the things that you heard from Wupen, Doug and Nicolas, we basically take that within the Imaging & Sensing business unit and tackle these new market areas with those same types of solutions, right? whether it be leveraging one material system or one type of laser technology, our design expertise is critically important. But so is our manufacturing volume, our manufacturing reliability, our overall quality. And then the ability to take this into next generations, right? There's something that's very much needed that isn't often discussed is the ability to continue to innovate in these spaces. And allow more and more value to be extracted by our customers, right? And we expect this, as you can see on the graph on the right, we expect this market to be doubling year-over-year, right? This is what we're starting to see in the emerging spaces, these LiDAR devices are being deployed, and we expect the rest of the world will take place in very much the same way. And so this is all leadership areas that Lumentum has demonstrated in our core business markets that we can now take into working with customers like the ones you see up here on the slide. Whether it be LiDAR solution providers, whether it be Tier 1s or whether it be the OEMs and the brands, the logos that we drive around each day themselves who don't really like us to show their names, unfortunately. But we're working with everybody in the space, right, to be able to deliver solutions that will meet the market needs, and it's across a variety of different platforms and a variety of different technical solutions to be able to do that. But Automotive is just the start, right? Alan has showed some slides and I talked about the application spaces in the beginning. This is just starting to proliferate, right? So not only is optical faster, more efficient, less invasive than technical solutions, but it's actually a pretty simple in concept way of creating solutions. And so I'm a simple person. I stacked -- you just had to generate light. You have to deliver the light and then you have to detect the light. Thankfully, I don't work in our R&D team or our engineering team because the simplicity really ends the creation of those boxes and the words on the space, right? And so in order to generate the light, there's a lot of different application requirements that come in to bear, right? Whether that be speed, whether that be power, whether that be the light signal is pulse or it's modulated or a combination of all of those different things, right? We have a 30-year history of being able to do these in a highly reliable way at a very cost-to-value equation or equitable way with our customers to be able to generate that light signal. But then once you generate the light signal, you've got to direct that light signal. You've got to condition that light signal to be able to be useful in the environment that the application needs, right? That's where Doug's solutions come in and talked about our experience in WSS and other types of photonic capabilities. We can now direct and condition that signal to be able to be useful at the targeted environment, the targeted work environment, whatever that may be. Whether that be in a small local or whether it be outside of an auto develop, right? And then once that light has been generated and it's been pushed into its environment, we need to be able to take that information. We need to be able to detect the return light signal, right? We able -- We need to be able to decode that, to demodulate that to be able to provide useful information to our customers so that they can provide the value to solving the problems they need. Well, as Alan mentioned, we do that at a variety of different layers, right? We do that at different layers of integration. And so at the top, you see our integratable value-add, right, because we need to be able to do this at size. If we look in a mobile handset. That's a pretty small device if we look at a car, who wants a big, huge LiDAR device in the next car they drive? None of us, right? We want to make sure that we can be able to provide that at the right size and with the right level of integration and capability to meet the problems that we need. And when we think about those other spaces, whether they be in consumer or whether they be in industrial or biomedical. There's going to be different requirements around each of those, right? In our 30 years of experience, again, that photonic toolkit is what we bring to bear, right? In these new markets, just as in the markets that I talked about that we've been winning at and we'll continue to win at. The conventional methods for doing things are being disrupted, right? And just within the last couple of weeks, Alan was able to witness a couple of our customers in one of our labs, looking at an application problem set and saying, "Wow, this is really cool. It's really amazing. We didn't have any idea that this capability was even out there." And then when we start to talk about 1.7 billion laser arrays that have been deployed without any failures, and we start to talk about our ability to scale and our ability to ramp and our ability to do that reliably and to be able to do that cost effectively and then continuously innovate. Kind of sells itself in the end, right? And that's really the message. There's a lot of growth that's starting to emerge beyond consumer. We will continue to win and be the leader in the consumer market space, right? But we're also starting to see not just automotive take off, but in the coming years, a proliferation along a number of different application spaces that are really taking the core technologies that you heard from our first 3 business units and grouping these together and being able to provide the solutions that our customers need, where they need them. We expect that our Lumentum addressable market in this space will double in the next 5 years, and we're really well positioned, right? We've got the toolkit. We've got the customer intimacy, and we've shown that we can do this in a variety of different ways, in a continuous fashion over the last 30 years. So I'm super excited about it. I'm looking forward to answering any questions you have at the end. But I'll bring our fearless leader from our Commercial Lasers business unit, Dr. Alex Schoenfelder, up to wrap up our time.

Thanks, Jason. Good morning, everybody. I have the pleasure, I'm Alex Schoenfelder. I have the pleasure to work with our Commercial Lasers team at Lumentum. We are in the markets of micro and macro materials processing, right? What makes a difference in those markets is the precision with which that processing happens. And so that is our key differentiator in these markets. And when you go to the show floor here at overseas, you don't find our products here. It's unfortunate because I would have liked to show you some of those, they're very exciting product. So we go to other shows, and we have other customers than the communications space. But we do have a couple of things in common that are important. If you look at the components that we're using in our products, look pretty much like the components that you have seen on the previous slides. If you look at the assemblies of our products, they look very much like that. And in fact, when you go to our manufacturing sites in Asia, there's lines that are next stage other that produce communication products and commercial laser products. So that is really the base commonality between the -- my segment, the other segments that you heard about today and one of the main reasons why we are in this business. The first to customer statement. We are customer focused, obviously, on other customers than a communication teams. One of the key customer statements here from Amada, who is a leading supplier of machine tools out of Japan for sheet metal processing, highlights our partnership. They're not only a customer of ours. They are a partner of ours for more than 10 years. We have developed multiple generations of fiber lasers that are highly differentiated in terms of the beam quality that we achieve. And Amada, as a machine toolmaker takes advantage of that by differentiating their machine tools with that beam quality capability, and that's how they win in their markets, right? So that's really the key message here. It's a partnership, and it works the same way with other customers as well, but Amada is one of our most important customers in the commercial laser arena. I will give another example of that and the use case of that later in the presentation. So what markets are we in? Industrial markets and microelectronics markets and where do we play? We play at the OEM product level. So we make OEM laser systems, which are then integrated by our customers, the machine tool makers, into products that sell to a very large and very different customer base, right. Industrial customer base or customer base of semiconductor manufacturing, so very different customers. It is -- those 2 segments are key segments in the $10 billion market that Alan was talking about earlier. And those are the areas that we are focused on. We are a small player in these segments, but we are highly profitable. And that gives us also a good footprint to establish further growth. right? Whether it's in the microelectronics space. Alan talked about ultrafast lasers that we're investing into. That's a fast-growing area in microelectronics manufacturing. That's where we have focused in the last couple of years, and we'll see a lot of movement there and ability to take share from others, better incumbents. Now historically, we have played in fiber lasers and pulse lasers. Fiber lasers for cutting welling applications, pulse lasers for microelectronics applications, semiconductor applications. And we have grown nicely. And by adding the Ultrafast segment to that, we achieved an additional growth acceleration. And especially in new and upcoming applications, such as semiconductor advanced semiconductor manufacturing, as well as battery manufacturing for electronic vehicles, right? A lot of the battery foil production benefits from using ultrafast lasers in the production process. Display manufacturing, pretty much every consumer electronics display is processed multiple times with a laser, mostly ultrafast lasers. Solar cell manufacturing, historically used pulse lasers, with longer pulses, but now moving increasingly to using ultrafast lasers in the production process as the layers become thinner and thinner and become more susceptible to heat impact. So those are the areas that we additionally are growing now with our investments in ultrafast lasers. Focusing in on the industrial applications. Cutting welding the majority of those applications. Additive manufacturing is still emerging sort of. What are the industry trends? Obviously, productivity. But as productivity means making more products for the same machine in a given amount of time. It's actually very simple, but difficult to realize. The quality of the part itself is also increasing in terms of the demand on the quality because the parts need to be used downstream for further assembly. And the edge quality of the process that we support is super important for higher quality -- higher value used on stream. New materials. Automotive, for example, is using Way more aluminum materials. So you've got to be able to cut aluminum, which is a different beast compared to stainless steel, for example. And then obviously, these machines are kilowatt class machines. So there's a need to have greener manufacturing consume less power per produced part, right, which is another challenge and a trend in this industry. Now how do we address that with our products? We make fiber lasers up to 12 kilowatts of power. But what our key differentiation is the beam quality of that laser beam that's being produced that generates, as I noted earlier, a key differentiation of our product. And we achieved that by obviously smart design of the laser itself, but increasingly so by using vertical integration for all the components that go into those lasers, the parts I was talking about earlier. Fiber on one side, specialty fiber, which we design and produce in-house and the semiconductor laser chips that are used to Pump these fiber lasers are also producing our fabs, designed in-house packaged in-house, right? So fully vertically integrated on both branches. And that really drives better and more differentiated beam quality for us. Better beam quality means having a sharper tool to process the metal. And what matters there is not just the power of these systems, 12 kilowatts is a lot of power. What matters is how small of a spot can you put that power into? So it's -- so it is the intensity of that spot that matters. And in this picture to the right, you see a bright red dot in orange, larger orange circle. That is the density that we can achieve in the bright red dot. And our customer and the orange circle depicts the typical spot size of our competitor's laser beam. So our intensity is much higher, spot is much smaller. How is the customer using that? Amada deploys their LBC technology to now start rotating that spot in that envelope while the laser is cutting a piece of metal. So that creates that line that you can see here in the picture. So what does that do? The result of that is 2x productivity when making parts in an Amada machine relative to a competitor's machine, 30% power savings because it can be done with 30% less laser power. And the parts exhibit better edge quality, so they are more valuable downstream and further use. That's a pretty powerful example on how differentiated beam quality can lead to much faster cutting on one side, but also intercepts with the other industry trends that I talked about earlier. Now assuming in. On Moving on to the microelectronics side of the business. Here, we're talking about production of parts at a micron level accuracy. Key applications in that space are, for example, the high-speed antenna manufacturing. We talked about 6T earlier. The antennas have to become more and more precise. And when they are produced, they're today often produced with ultrafast lasers. Display manufacturing. OLED displays are already produced with picosecond lasers and probably next-generation display to produce the femtosecond lasers, even shorter pulse lasers for reasons of less heat input. Semiconductor chip separation, packaging and connecting our key applications. What are the industry trends in this microelectronics space were precision to the micro level matters. And feature size reductions, right? The parts get smaller and smaller, that have been combined into the final product. The final product requires to consume less power, less and less power, while the device perform needs to be increased, right? I mean this is orthogonal almost, right? So those are key trends. Many different materials and increasingly different materials are being used in these assemblies. So the complexity of those materials is increasing, and the functionality of the parts manufacturer is increasing. For example, displays -- OLED displays, they were flat. Now they will become foldable. You have to process default, right? Nobody has done that in high-volume production so far. Now our investments into ultrafast lasers opens up a path to intercept with all these trends, right, and grow the opportunity space for us -- the opportunity to replace incumbents who have played maybe prior generations with our products. How does our ultrafast laser portfolio intercept with the industry needs, right? Obviously, productivity, again, even as in the industrial space and the microelectronics space productivity is key. Power and again, beam quality and the same arguments that I mentioned earlier, apply here as well vertical integration to achieve that better beam quality, our way to intercept with that need 24X7 manufacturing and extreme process stability. So the process need to be held during the production time is key. And so historically, these kind of lasers were scientific lasers, but we industrially harden those lasers, and there are no industrial-grade lasers that address that particular trend in -- or need in the industry. Application tailoring, we're talking about pulse lasers. So the pulse sequence, right? Do we combine the pulses in routes or how do we trigger the process has a big impact on how the process the application works. We have proprietary policy management to address that industry need. And lastly, obviously, cost and supply. We are talking about high-volume manufacturing tools, right? They are increasingly under cost pressure, but our vertical integration helps us to control our cost, ensure we have security and supply, in addition to providing us with that differentiation of vertical integration relative to key performance metrics like being quality. So we really have a differentiated solution for our OEM partners in that space as well. So in summary, we are in the large markets of materials processing, micro and macro. We are a rather small player in that space. We have high profitability. So we've seen a great opportunity for us to grow and take share from the incumbents. Our key differentiation is around precision. Beam quality is one factor. There's other facts. But the vertical integration down to the component levels that we control gives us the differentiation at the precision level. We see significant opportunities for us to grow in new markets like display manufacturing, electronic vehicle battery manufacturing, solar cell manufacturing and advanced semiconductor manufacturing. Thank you. And with that, I'd like to introduce the next speaker, Wajid, our CFO.

Okay. Everybody hear me, okay? Yes, at the back. All right. I got a few thumbs up. All right. Let's go to the next slide. All right. Good morning, everyone. Thanks so much for being here this morning. Really great to see a lot of familiar faces. And hopefully, you'll stick around afterwards and we can continue some of the conversations. I'm really glad that the general managers of our business units have had an opportunity to come up and talk about their views, their thesis is on how the market is going to grow and how our various products fit in with our view of the markets. And so it's really great to make those introductions. And frequently, you hear from myself, Alan, Chris and Kathy. And so I'm really glad that everyone else has also had a chance to make an introduction about the businesses. You can see from -- like Jason talked about, there's some very common themes. And the common themes are that we have a very strong thesis around the growth of our markets, the products that we're investing in, in order to satisfy our expected customer demands within those markets. And so some of the key takeaways that I'm going to talk about here, pretty much fall through from the investments and the customer relationships that we've got that each one of the general managers spoke about. Now we've got some trends that are also happening when you take a look at the overall company as well. You can see that we've really shifted the mix of the business from being about 30% consumer market, consumer business and a 70% networking and communications market. And all of you have seen that the mix of our business has shifted more to actual market, especially with the recent acquisition of NeoPhotonics as well as the acquisition of our DSP Investments. And so with that, our product mix has shifted, and that's had an overall shift in terms of our financial model, and I'll talk about that in a couple of slides. All of you also know that history we've done very well integrating our acquisitions. And in the slide or 2, you'll see that with those acquisitions, our earnings per share have grown quite substantially over the last couple of years. And as we brought on NeoPhotonics into our portfolio of products, we made commitments around what we felt were the synergy attainment possibilities around that. And as Alan mentioned right at the beginning of the presentation, we think -- or we're quite confident actually that we see more synergies coming from that. And those synergies are really important because all of the products that Doug and Wupen and Nicolas and Jason and Alex talked about, they've got to be funded somehow. And so it's really those acquisition synergies -- the incremental acquisition synergies that we're seeing that are going to allow us to continue to fund those R&D investments so that we can drive the revenue growth as well as drive an improved financial model versus how we see fiscal year '23 panning out. So with that, we expect our non-GAAP EPS to grow faster than revenue. Historically, we've been able to do that. We see no reason for that to change. And as Alan mentioned earlier, we're very well capitalized for growth. Inorganic growth has been a key part of our capital deployment strategy. But you'll see from the R&D investments that we're making, our organic investments, both in R&D and in CapEx are quite critical in terms of getting the capacity investments that we need to meet that future demand. And we've got a great balance sheet to be able to go ahead and do that. Okay. So like I mentioned earlier, when you take a look at last year versus where we're expecting this year to come out just from a product mix standpoint, you can see that the consumer part of our business is going to be approximately 10% to 12% of our overall revenues, probably closer to 10% as we exit the fiscal year. And from an overall year perspective, probably in the 12% range. Historically, it's been much larger than that. And I think none of that is new news to everyone. The good thing for us, though, is that we -- our mix, our product mix is shifting to where the market is growing. And so you heard a lot of CAGR figures from Wupen and Nicolas and from Doug. Well, those CAGR figures work very well in terms of where our product mix is today and where we expect it to be moving in the future. And our R&D investments are very much aligned to where our product mix is. Now obviously, this has a little bit of an impact in terms of our overall operating margin model. Historically, we've been able to achieve operating margins in excess of 30%, primarily because we had a much more substantial chip business. But from what you saw in terms of the product portfolio that each one of the general managers presented, we're going to be vertically integrating and moving more towards components and subsystems in terms of the overall mix of our product revenues that we're going to see in the future, at least, in the midterm, over the longer term, some of the investments that we're making in the imaging and sensing business should also play well into our financial model and help us improve our operating margins even further. So like I said earlier, we've integrated our acquisitions quite well. And we see no reason for the integration of NeoPhotonics to be any less successful. If anything, we're not only seeing success from a synergy standpoint, we're also seeing success from a product rationalization standpoint, how we're going to market with our customers. The importance we're seeing in terms of being able to provide a one-stop partnership to many of the critical customers that we've got that we've developed very good relationships with. You can see historically, we've been able to grow our earnings per share at a rate greater than revenue, and we continue to expect that to be the case moving forward as well. So our R&D investments. So our R&D investments have generally trended in the 11% to 12% of revenue and our SG&A expenses have generally trended in the 9% to 10% of revenue. This year, we've taken a material step-up. And we've taken that material step up really because we've been seeing these growth trends in the telecom market play out. And as time is passing by, our confidence in our thesis continues to strengthen. And so with that, we're increasing our R&D investments. Our R&D investments are expected to be, I see people taking pictures. These slides will be available on our website at what time today, Kathy?

9:30.

9:30 Pacific Time. They will be on our website. So no need to take pictures. Unless you're taking pictures of me, which is which is fine as well, I guess. So you see we have about a $60 million increase in R&D investments year-over-year. A lot of that increased investment is in DSP. And Wupen talked about the importance of DSP to our overall product portfolio and how we believe we will be able to strengthen our position in that ever-growing market. And so we're certainly committed to that. But we've got another $30 million to $40 million worth of investments that we're making in R&D to help support an array of products that will help continue to support the growth of the business. And moving forward, you'll see a financial model in a couple of slides. Our thinking on the financial model is that our R&D as a percentage of revenue will continue to stay about at this level, the 13% to 14% level. And so any decreases that you see in operating expenses really will be coming from better leverage of SG&A like we've done historically. Okay. So like I said earlier, in order to be able to fund these R&D expenses and R&D investments, as well as improve our operating profit model, we've got to continue to invest in capital so that we can meet the ever-growing demand of our customers and really improve our overall manufacturing overhead for the manufacturing footprint that we've got out in the market. And so many of these things, I think, have kind of come through from previous discussions that we've had. The first one really around increasing our -- expanding our gross margins. Many of the things that we continue to do as part of our synergy actions, which I'll talk about on the next slide, flow through on the gross margin side. But it's really our competitive advantage is that allow us to have pricing power in the markets that we play in. And so investments in developing internal capabilities and being able to integrate those into our final products is really what's going to allow us to have stronger pricing power in the market. And also targeting capital investments so that we've got -- we can leverage capacity as a competitive tool in order to be able to win the trust of our customers because they rely on us to be able to meet their ever-increasing demand. And so both from an R&D standpoint on our vertical integration as well as making sure that we're making the right investments in CapEx are extremely critical to our overall ability to optimize profitability and to continue to be able to invest for growth. Okay. So on the synergies. So all of you may remember when we first announced the NeoPhotonics acquisition, we had committed to $50 million worth of synergies, $20 million of it coming from operating expenses and $30 million of it coming from cost of goods sold. And we've had a very successful last few months. Actually, within the first year, we expect to beat our first year targets. You can see that we're expecting to be able to exit fiscal year '23 with approximately $30 million worth of run rate synergies exiting our June quarter. And then over the next 2 years, we've actually been able to increase our target from being $50 million and moving it up to $80 million. And a lot of it really comes down to some of the product rationalization opportunities we see within the transmission portfolio as well as the opportunity to really vertically integrate some of the components we have into our final products and some of the cost savings that we'll see from that, as well as manufacturing footprint consolidations, that now that we're under the cover, we can see that we have much more opportunity there as well. And so we're officially increasing our synergy target from $50 million to $80 million. And you'll see on the next slide that that's very important in terms of us being able to achieve our overall operating margin target. Because we do see some negative headwinds from a product mix standpoint, which is what I talked about on the very first slide that I presented, that we do have the chip part of our business declining. And so with that, we'll see some headwinds from a product mix standpoint. But really, it's the expectation of synergies delivering over the next 2 years that will help us get to our target operating model. Okay. So I'll show you the full model in a couple of slides, but I at least want to make sure that all of us are thinking about the operating margin target in the right way. And so if you take a look at the first column, the 21.9% represents where we expect or what the consensus estimates for fiscal year '23 for the full year being at 21.9%. And then relative to that, how do we think about our midterm operating model? And when we talk about the midterm, we're talking about 1 to 2 years from now on a run rate basis, on a quarterly run rate basis, how do we think about our mid-term operating model. And so you can see versus where we're going to -- where the consensus has us at the end of this year. There is some negative headwinds from a product mix standpoint, primarily because at the very first part of this year, there was a transition that was happening in the share normalization within our 3D sensing business. And so our fiscal Q1, our September quarter had a larger mix than we're expecting moving into the following fixture year -- fiscal year. So really just that transition causing a little bit of a negative headwind as we move forward. But then after that, you can see some of the expectations we've got around organic growth from what each of the general managers presented as well as the incremental synergies that I just showed on the last slide, really pulling up our operating margins in the midterm from 23% to 25%. And then after that, we've also put out there our long-term model, which revolves around continued organic growth, continued vertical integration, continued opportunities from a cost optimization standpoint, both from a cost of BoM standpoint as well as our expected leverage on our SG&A expenses, really moving our long-term model to 26% to 28%. Okay. All right. So capital allocation. And so as we move forward, I get this question a lot. How are you thinking about capital allocation. So first of all, I think all of you have access to our financial statements. We've got a very strong financial profile. Our overall cash balance exiting this last quarter was approximately $1.7 billion. Our debt-to-EBITDA on a net basis is actually quite low. We've spent a lot of capital up until now purchasing -- repurchasing our shares out in the market. We've also continued to make investments and inorganic opportunities that we believe line up with our thesis around where the market is growing and where we feel like we can add value to continue to exceed our customers' expectations. But at the same time, we're also increasing our R&D investments. And so the organic investments that we're making as well we've been very open about that some of them will take a little bit of time to pay off. We think that they're very critical in terms of our ability to continue with the earnings per share growth curve that you've seen from us in the past. Okay. So 3 columns here, pretty straightforward. You've got our fiscal year '23 consensus estimates in the first column, and what those consensus estimates are. The bottom operating margins line up to the slide that I showed 2 slides ago in terms of what we're thinking from a midterm model standpoint and how we're thinking about our long-term model. You can see that our expectation in the midterm is gross margins revolving around the 44% to 46%. And we've put some revenue parameters on there as well because as you can appreciate, with our manufacturing footprint that we've got, it's extremely important to be able to put some revenue parameters around there because that's really how the model works from a manufacturing overhead standpoint. And with our business moving more towards modules and away from chips, although our gross margins are staying flat, we expect with the incremental synergy actions that we've talked about on the last slide, we should be able to improve our operating margin to 23% to 25% in the midterm. You can see overall operating expenses declining as a percentage of revenue. And as I mentioned earlier, that's really coming from improved SG&A leverage with our R&D expenses staying at about 13% to 14% of revenue in the midterm. And then our long-term model in terms of how we're thinking about the business as our automotive LiDAR opportunities play out as well as we see continued growth in our Telecom and Datacom businesses as well as our Lasers businesses, is our gross margin moving up to 46% to 48%. Our operating expenses, again, the same type of thinking around where some of the savings come from and that really flowing down to our operating margins. And like I said, again, this will be on the website in a couple of hours. Okay. So some of the key takeaways. So we're recommitting our synergy targets, moving that up to $80 million. We see a clear path of improving our operating margins by 500 basis points versus fiscal year '23. We expect to continue to invest in R&D and capital investments that support the growth of the company. And overall, that should help us lead to earnings per share that grows faster than our revenue. Okay. So with that, and we'll have a lot of time for Q&A afterwards. So you're welcome to ask questions then. So with that, I'm going to pass the mic back to Alan for some closing remarks.

Thank you, Wajid. And just to be clear, I was looking at the cameras that we're taking pictures and no one was taking a picture of you. So -- thank you, everybody, for coming. I hope it was more than 2 hours of droning on and that you actually got some takeaway value today. I'll wrap up and then we'll turn it over to Q&A with the slide that I started with, but hopefully, you got a better sense of what it means to us now because I do believe we are in a new era of optical networking. And I'd say that our markets are growing very rapidly as a result of some of the catalysts that are going on in our markets. We are entering new markets. And I think as Wajid just went through the financial model and acquisition synergy target improvement and noise that the team is making here. Hopefully, you've got a better flavor for what it really means, especially getting some access to the general managers that run our business. So with that, why don't we open it up to questions? And if you could go to the microphone, Alex, go to the microphone and introduce yourself. Introduce yourself and -- you can go to that Microphone.

Yes. So just making a couple of organizing comments here. So we have 2 standing microphones over there, so please queue up. Please say your name and your firm. I'm also going to take questions from the virtual audience. So those on the virtual audience, just put in your question in the chat facility and then I'll read it out to the room. So let's start with the first question with Tom.

Tom O'Malley with Barclays. Thank you for putting on the event. I really appreciate it. So the first one is for Nicolas. So you showed a really interesting slide that I really haven't seen before talking about kind of like 400G Ethernet, and then a transition to an AI tech deployment. Could you just talk about what your content looks like in those 2 different types of deployments. Obviously, you've got EML, DML lasers today. You're saying it's CW lasers in the future. Like one, that looks like a completely different integration. Is that an InfiniBand type of deployment? And then just talk about what that content looks like between the two?

Sure. Thank you for your question. So you're right, on the Ethernet market today, it's mostly driven by EML, replacing some of the application with DML is consolidation because of the high performance of the laser that is needed. So this market is very clear. It's stressing the next to the red, and it's mostly EML. For the AI market, today, there's solutions being used today, but there's a lot of transition happening. We believe that as a transition, they're going to use some of the EML to piggyback on the existing solution. But as I mentioned, they want to solve some of their key attributes for their infrastructure, and therefore, they need new solutions. EML serves for some times, but they want to migrate to the next one where it is going to be mostly CW laser where the modulation will be done on the SiPh side. Because of this segmentation between the 2 material that creates a need for a non-modulated laser. So it's going to be CW. And then the question is, will it be -- which power? 350 milliwatts up to 500 milliwatts? Will it be 8 lasers of 100-milliwatt or will be 1 bigger laser at this stage. Those are the discussions we are trying to figure out as we talk to them at the partnership to understand what is the best way for the laser -- the photonics to solve the problem. So it's going to be mostly eventually CW, but then there's a lot of opportunities for different flavors. And for us, as I said, it's also not only on the laser anymore. It's adding other functionality, which is the fiber -- the wavelength management and integrating with other functions.

So this is more like a partnership with the individual...

I mean it's partnership in a sense that they help us to understand what are the attributes that they're trying to solve. But I think globally, it's going to be a more general market. And I think eventually, this kind of technology evolution may also eventually go and affect Ethernet in the long term.

Okay. Helpful. And then just a follow-up. I think this was Jason. But just on the 3D sensing market, moving away from that into other sensing applications, auto. You showed an interesting chart about LiDAR, and I think you used amused, but could you talk about what your unit expectations are through '27 that are getting you to those levels. And part of the slide was China EVs. Is there a view that they're going to use U.S. materials in their EVs? I think you're seeing more in-sourcing there? Like what's the risk given how big of the addition to growth was from them, China EVs?

Yes, sure, I'll take a crack at that. Good question. Your name is Tom? Tom, great. So a couple of aspects on that question. So first of all, in regards to the unit growth, right? So those are assumptions that we've taken from market analysis as well as what we're hearing from customers as well as our view, right? And so that's millions of units, right? And then each solution, and essentially, each provider will have a little bit different content level that goes in there. So there's not going to be a set number, whether it be 2 LiDAR devices, 4 LiDAR devices. At CES this year, right, there were all sorts of solution providers showing any different number of LiDAR configurations, right, that all use our capabilities and technologies. And so we can talk more, but those were our projections based on that market space. And then in terms of what's China doing, right? We'll all have to see in the end, right? We know that they're deploying today. We know that they're deploying U.S.-based material today. Obviously, we've got a very close partnership with Hesai, who's leading in that market. And you saw the numbers, and they've shared their numbers and expectations as they just launched their IPO recently as well, right? I think that, that will continue to happen. But there obviously will be in-sourcing. And I would say probably a desire to in-source within China as much as possible. And so our goal is to continue to out-innovate, right, and to deliver differentiated solutions so that we can be the leader in that space. And then obviously, as people catch up, we just need to continue to outpace them. Does that address your question?

Alex Henderson over at Needham. A couple of quick questions. First, what's the definition of long term?

So just to give you a full answer on that. So our view on midterm is 1 to 2 years, and our view on long term is 3 years and beyond.

And the second question is, is there a risk in the back half of this calendar year that ROADMs are going to see a glut, double, triple ordering potentially, causing a flattening of that business given the high rate of growth versus the end market sell-through?

Doug, do you want to take that?

There's always a risk, but from our perspective, we've got a pretty broad base of customers. So some customers have publicly stated they've got lots of inventory. But we're seeing demand that we're, quite frankly, challenge to fulfill from a component supply perspective. So we still see component supply inhibiting us in the next few months, probably a quarter to 2 quarters in being able to fulfill demand for some of our products to key customers.

And the last question is, what's the crossover time for the 3D sensing consumer decline to be offset by growth in traditional -- or newer end markets? When can we expect that to flatten out and then start to turn up as a category?

Maybe I can start, and then I don't know, Wajid, if you want to weigh on some of the other areas. So great question. Obviously, we talked about the market. We know very well that we had an oversized position in the consumer handset space, and that's been normalized now. The expectation for the next year is that it will be a down year in comparison. And then I expect to start to see growth in -- we're in '23 today. So let's just say, a year from now, right? And then we'll start to see a return to growth, and the beginning of the proliferation of these new markets are going to take place. And obviously, auto being the first driver of that.

Yes. And just like from a model standpoint, we've got a little bit of growth built back into, when I say 1 to 2 years in the back half of the 2-year point on some of the initiatives that Jason and his team are working on, but a lot of that really proliferates long-term model.

Chris Rolland, Susquehanna. I guess just a follow-up on that. I mean, just looking at the slide broadly, it looked like consumer was maybe 10% was an expectation for '23. So would you be expecting less than $200 million there? And then just broadly, if you can talk about this, how you feel the setup is for you? I think there's -- the Twitter sphere has been talking about some lost share from you guys, how you guys view that? And then finally, you guys talked about some increased investment in imaging and sensing. Is that for other applications outside of consumer?

Why don't I start? Okay? And then so Wajid can talk about the overall model. But based on when I talked about, you know where our revenue was likely going to be for this year for imaging and sensing, right? And I indicated that it will be down over the next year. And so Wajid can work those percentages or it sounds like you have a pretty good guess as to what that's going to look like. And then as far as the Twitter sphere, right, I won't comment on any specific customer or any specific slot, but I will say that it's been a competitive environment over the last handful of years, right? We expected that to become more competitive and some normalization of our share to take place. I will say that there's nothing in any of our customer base from a slot perspective that it's a surprise to us. And let's take our largest 3D sensing, our imaging and sensing customer right now. There's a number of slots that are a customer, let's call it 5, right? And so we may hold majority share in one or in multiple or in none of those slots, right? But there's always an opportunity to go back in and continue to fight for more share and slots where we're either not in today or have a lower share than what we'd ideally like in something.

Great. My second question, as I think about growth in absolute revenue dollars, like you have a lot of new cool emerging markets, I want to know the big chunky ones, maybe the top 3 that you guys see out there. I think this AI opportunity is super interesting. I don't know if we had content numbers around that. But I'd like to kind of double-click into that. And then just finally, one little question on AI. I think you mentioned, Nicolas, something about opportunity for these new AI endpoints to be larger than Ethernet. What was the context on that? How broad? Was that just in these AI pods? Or how did you see that?

Yes. Nicolas, why don't you take the last question, and maybe we hit Doug and Wupen and Alex at what are the biggest opportunities as we look forward?

Yes. So for the AI, when we look at the growth, it's obviously going to be very big. We don't have yet complete numbers. Analysts are starting to look at -- put some models on it. But just the numbers from the 2 or 3 big ones mentioned, and there are 2 coming, their volumes are already very big today and they are trying to transition their volume today plus the additional one into this new platform with the technology that we presented. So yes, it will take a few years. It's not very clear exactly when it's going to be at parity with Ethernet, but it's very clear that the growth is tremendous. And we see it coming not only from one customer, but globally for probably 3 of the biggest ones, were addressing this market of high-performance computing.

And was that Ethernet replacement in these pods?

No, no. It's an addition. So that's why one of my comments is that when this market is in full blown, it's doubling pretty much the Ethernet market in a few years. Ethernet markets continue to grow. I mentioned 12% CAGR, that's the growth that is happening in Ethernet. AI is going to match that volume eventually. So they are independent market today, but eventually, the technologies that will be applied to AI willing, I think, spillover in the Ethernet eventually also.

Doug?

Okay. From a transport perspective, we've got 3 ROADM platforms that are launching in calendar year '23. One of them is a third generation of our high port count platform. The other 2, I mentioned here, an integrated C+L platform. And the third also mentioned here is basically our next-generation 16X26 ROADM. So 3 big platform introductions in calendar year '23, literally, in the next 6 months. That's going to drive substantial revenue, we think, in kind of the back half of calendar year '23 and into '24 and beyond. Beyond that, we think that optical switching looks very interesting, and it's an area that we're pursuing quite aggressively.

Inside the data center.

Optical switching inside the data center, yes.

So from a transmission point of view, I think there are actually, I would say, 3 things -- 2 things. First one is actually the adoption of 25G pluggables into the 5G applications, right? And then frankly, cable may also upgrade to 25G. So that's one, first big opportunity. Second one really is all the transition to 800G. All this announcement recently, higher baud rate, 800G, both in kind of the component form, also in the pluggable form. These 2 will really drive the -- probably for the next several years of the growth on the transmission side.

Alex?

Yes, maybe 2 comments on lasers. Solar cell manufacturing is an area that we haven't traditionally played in, and we see more traction in that space. And that's -- it's one of these industries that is still growing at an exponential pace. The first terawatt deployment worldwide took more than 10 years. The second terawatt deployment to 2 terawatts of installed capacity took 3 years. So it's still significantly growing. And there, we see some key opportunities with ultrafast laser deployments. The second area is electronic vehicle battery manufacturing. The processes for the next-generation batteries are still being looked at, right? And ultrafast lasers may play an increasing role in cutting the foils or processing the foils and the way that quality and capacity of those batteries is improving. That's another key area for us.

Ananda Baruah, Loop Capital. Two, if I could. I guess, the first one is sticking with AI. If the momentum in AI that's manifested in the last couple of years continues to, and it sounds like you guys are pretty optimistic. How does that impact your -- how does that impact your data center and your Datacom business? And is that contemplated -- that kind of action contemplated in the current forecast? And then I have a quick follow-up.

Nicolas?

Yes. So I think the way it's going to grow is still kind of not clear about the timing. It's happening already. Technology is being deployed. The choices are being defined. So it's going to grow. Probably, it has actually already a market. Much is so by EML. But the new solutions are going to be implemented in the next -- starting in 2 years, and then obviously, that's what we call a short term. And the long term is where actually the growth is going to happen. So that's from a technology and adoption perspective.

Got it. Yes. And is there an attractive incremental impact to your Datacom and Data Center businesses when that occurs?

Yes. So we see them fairly independent in the way they grow. So I see it as an opportunity that is on top of what we see for the Ethernet. But eventually, there will be some few years on the road, when the technology is more mature. There will be some synergies between the technologies and there will be some adoptions in both. And then the growth will probably also be faster in the Ethernet for the solutions.

Cool, that's helpful.

And the good news for us is that because those solutions have more content from our product once it starts to go into the Ethernet and accelerate the content that we supply.

Well, okay, that's awesome. That dovetails into my second question, which is with the sort of the technology changes in the transmission and transport businesses, it looks like there is also more content that was going along with those changes. Does that also imply there could be ASP increases or ASP uplift when those occur? And Wajid, you also made comments in your remarks about increased pricing power. So could you just sort of would love to get an answer to the first question. And Wajid, maybe tie some price on power context in there as well.

So I mean, from my side, obviously, it's an increase in ASP because we bundle more product into one engine. So it's actually a very large increase compared to selling just laser. So we see a large benefit from actually that perspective.

Yes. And my pricing power comment really comes down to the uniqueness of the product integrations that we are doing. And it will really help us stand out, not only give us a cost advantage, but really provide an integrated solution that gives us that type of pricing power as well. And so we should be able to benefit from both sides in terms of the operating margins of those products.

Maybe I could just add to that because it's -- it's really the customer is willing to pay for the value, right? It's -- we don't like to use -- I don't like to use the term pricing power because that's a negative for our customers. I think when we provide the customers with a way to lower their overall cost of switching parallel fibers, they're willing to pay for that because the alternative is having, as Doug talked about, 2 ROADMs to do -- that's 2x the cost. And so if we can do it for 1.6, that's a win, and they're willing to pay for that. So I think it's the value we create for our customers more than pricing power per se.

Ruben Roy from Stifel. I have a cost question to you, I guess. So on the 25-gig pluggable discussion in the data center, with all the sensitivity around cost per gigabit, can you kind of talk about where we are from your perspective on the cost of moving to 25-gig pluggables into the data center?

Well, actually, the 25-gig is not for data center itself, right? It's actually for connecting maybe the remote data center to a headend, like, aggregation side, right? So here's how we look at it, right? So today, for example, in the MSO market, the first application of 25-gig will be tightly to allow 2 streams of 10 gig to be carried onto it. So it's, again, another kind of cost per bit play, right? So basically, 25-gig now should have the value of 2x the 10-gig, right? But you're not going to charge them 2x but otherwise they don't switch, right? So therefore, there is a 1.5x, 1.6x kind of value of the 10-gig, if that answers your question.

Yes. That's helpful. And then a quick follow-up for Alex, on the commercial laser side of the business. Obviously, a big TAM that you're talking about. A small market share today. Can you maybe talk about how you define success in terms of market share? It seems like it's a slow-moving market, right, in terms of gaining share? And how you see that playing out over the next, I guess, 3 to 5 years?

Yes. So as you noted, the commercial laser market moves at a different pace than the communications market. And for us, that means we do engage fairly early and make our investments into new platforms. New platform developments takes years, unfortunately, to get a foothold with the customers and in the application space, but then it will last for many years to come. And so I don't see a significant movement other than from investments we have already done, and I talked about, to gain further share in the next -- in the midterm, right, that's what you define it. But in the longer term, there's opportunities for us to gain obviously significant share. We're right now, probably, in our SAM a 10% player, right? And so to go just to 12% or 15% in the next couple of years is definitely possible. And then that's the organic story, right? And then there's obviously also an inorganic story, but...

Jeff Koche with Raymond James. Two questions. You talked about capacity growth being 40% per year, but then in a separate side, you talked about 400G plus being 30% plus. Maybe you can just talk about the dynamics there? And is there something going on like maybe traffic within the data center versus without that's driving the difference there, maybe it's dollars to capacity, I'm not sure. And then secondarily, we are hearing -- just back to 3D sensing, I just want to be very specific, we're hearing that you might be seeing some competition from Sony on the Illumination socket. Can you confirm or refute that?

Okay. First question on that. So the data center 40% growth, they actually is the raw capacity, right? It's like how many bits is going through how many -- I don't even know what the order of magnitude, it's how many bits. And the market growth really is the value, right, of the other components, the modules and the solutions that we provide into the market, right? So these two are not -- you can say the TAM growth is not at the rate of the capacity growth, which makes sense. Otherwise, you're going to really -- everybody going to go bankrupt, right, by deploying those fibers. So really, the TAM growth is slightly below. It's actually lower than the capacity growth, which makes sense. That's our high-speed optics really for. But going to higher speed, you lower the cost per bit as you evolve going forward.

Jeff, I'll answer this first -- your second question, which was actually the first question as well about the Twitter sphere. I think those were very related. And so I won't comment specifically about a certain socket at a certain customer with a certain competitor, but I'll reiterate what I mentioned earlier, which is: one, we know what's going on with the sockets and all of our customer space, and so there's nothing surprising there. We have expected new competitors to be able to come into the space. And this is hard stuff that we're doing, but there are very capable competitors out there. We just have to make sure that we're out-innovating and out-developing them with the collaboration with our customers. So I won't confirm or deny directly.

George Notter from Jefferies. I guess I wanted to ask about kind of dovetailing on the 40% growth topic. I mean, this business is kind of a hamster wheel in a sense, right? I mean you're always writing down. You talked about Moore's Law, you talked about Shannon's limit. So you give customers more capability, more support for bandwidth growth and yet the business grows in more pedestrian types of growth rates, I think, historically. So like as we approach sort of Shannon's limit, Moore's Law is less applicable, I mean, is there a way that you guys can participate more linearly with bandwidth growth? Or at least closer to linearly with bandwidth growth?

Yes. I mean I'll comment, and then maybe Chris can chime in as well because he's sitting up here and he has to say something. But I'd say to the point of if customers had to pay even half of what the bandwidth growth requirements are, meaning if their costs were going up 20% per year, there's just no way they're going to pass that on to us as in consumers, right? You don't want your Internet bill to go up 20% a year and your phone bill to go up 20% a year. So the key, at least from my perspective, is to continue the photonic integration and vertical integration to provide our customers with solutions that don't have them spending as much as the growth rate needs. And so that's kind of where we've been all for the past, I don't know, 20 years, and that's what makes us valuable to our customers. I don't know, Chris probably has something more eloquent for it.

No. Well, I think what I would add on is if you think about traditional service provider type end markets, I think that's a fair comment other than hearing the points that were made earlier in the presentations around how we're -- kind of these technology barriers where or loss of physics barriers, if you will, that the technology will get around to, we can't break the laws. And that shifts more and more value to the sort of lower for component physics, if you will, of a network versus some of the things that have historically been valued in the network. But I think secondly, from a broader growth comment, a theme that I think you're picking up on or hopefully came through in the presentations is, not only are we investing in vertical integration and photonic integration to drive performance and capability in the core, the core technology from N number of years ago is now pushing out to the edge, whether that's access DCI, where volumes are much higher. And Doug had highlighted even in the subsea cables, right, which is sort of a niche, but it's very telling because it's very unique in its requirements that used to be driven by traditional telcos or joint ventures between telcos now being driven by cloud operators. So I think you're seeing a sea change in who's driving the end market. And when you look at the amount of connections, for lack of a better word, and how networks are being architected from a cloud-centric world, that's driving a lot more bandwidth, not in the Internet, but in -- behind the curtains to drive what ultimately goes out over the Internet. So that combination of, not only as Alan highlighted the being able to deliver value to enable you not paying a 40% larger cable bill every month, but also this core technology value shifting more towards the photonic level and then more markets becoming sort of core technology shifting outwards to the edge, all of that enables us to grow more than, I think, what you're alluding to of when folks think about a traditional service provider market of only spending 3% more per year or whatever it might be. I think there's an opportunity to grow a lot faster than that, given how many things are moving into our markets.

Got it. So it's a TAM expansion story, I think, is the way to say that.

There's one more point to add to that, right? One is actually is when we go to the parallelism or the CSDM world, the front equation and the main equation is 2 things add together really dictates that you've got to have scale. Without scale, you cannot do it, right? And the barrier to entry was for that equation getting really, really high going forward. So I guess, our view is actually is that going forward less and less people were capable, even who have the scale to invest in the level of technologies to really be able to bring us into the CSDM world, right? So I think going forward, the dynamic competition will change, for sure, in addition to the market growth.

Got it. One other one. Obviously, one of the big themes of the trade show is pluggables. It has been a theme for some time. You guys, I think, made a play there, of course, with the acquisition of the division from IPG. I was interested in the increase in R&D investment and the DSP investment. I mean I guess, originally, when you guys made that acquisition, you were kind of talking about a more limited investment. It sounds like there's a larger investment now in the DSP program. Like, is there something that's changed recently in your thinking about where you need to be with that or what that team looks like or how much investment it needs?

You can comment on the DSP thing, and then I can comment on the overall R&D.

Yes. So DSP, definitely, wouldn't have not changed our goal. From day 1, when we acquired IPG Photonics group, we had the same target. So we're actually on schedule with doing the development. We'll probably be adding a little bit incremental resources to make sure that we have the team fully rounded with all the expertise needed to get it done. But no change on DSP plan.

So the rest of the R&D that Wajid talked about going from up $40 million or $50 million year-on-year. Part of it is DSP, part of it is the NeoPhotonics acquisition, where we haven't -- we haven't rationalized a lot of the products quite yet. But additionally, we talked about entering new markets, and you can't do that for free. And so as we look at industrial applications for photonics and medical application for Photonics, we are spending money there. And nothing to announce yet, but I think it's going to pay off, and we'll talk about that more in the future.

Okay. I'd like to check to see if there's any other questions. Anyone else in the room that would like to ask a question? If not, I don't see any questions on our chat. So I'd like to invite anyone that doesn't have a booth tour set up and would like one, please come and see me afterwards as we have a number of different time slots that I can guarantee that there will be people that talk to the demos. So just come up and see the afterwards, but I really appreciate all the engagement, all the attendance, all the interests. And yes, thank you for attending and look forward to our next session.

Thank you, everybody. If you have any feedback on the session, we would love to improve the next one. So please provide it to Kathy. And again, thanks for coming today. Appreciate it.