James Moylan: It is low range. Low 40s, not below 40. Now look, there’s a range in gross margin and mix can change. But our expectation is low 40 percentages. So what is that? 41%, 42%, 43%, I don’t know. But it’s some number like that. And it is absolutely related to a mix change toward line systems and a way for modems. And there’s nothing sinister about that. It just has to do with the flow of our deliveries and the fact that, as we said, we won a lot of new projects, a lot of new deployments and they start with line systems. So that’s it precisely, and that’s why we think it will be low 40s in Q2. We believe that we will average 42% to 44% for the year. I do want to say, though, again, that our expectation is to return to the mid-40s and maybe even beyond that, we’ll see with — as our business mix changes more.
But we’ve had a lot of change. We’ve had a lot of exception costs, and we’ve had this mix shift between modems and line systems, which should equalize over time and get us back to the mid-40s.
Gary Smith: Jason, we will take one more question please.
Operator: The next question comes from Fahad Najam from Loop Capital.
Fahad Najam: I apologize if I’m going to ask you to repeat on the backlog, I hate to revisit it, but it’s too early here in the West Coast. So could you remind us what portion of your $4.2 billion in backlog was longer duration meaning beyond the next 12 months? And then I have the real question that I wanted to ask you.
Gary Smith: Faha, I can’t hear you very well, but I think the question was what percentage going in of the $4.2 billion was outside of FY ’23? I don’t think we — I don’t think we broke that down.
James Moylan: I would say that a lot of it would be taken by customers if we could deliver it to them a very significant percentage of it would be taken. But lead times, component availability, et cetera, are sort of disturbing the situation as we know.
Fahad Najam: Got it. Now to my question. On your WaveLogic 6 product announcements, you also announced the WaveLogic 6 nano, the 800-gig ZR, which seems to suggest that if you — I guess the timeline wasn’t announced, but I’m assuming it’s first half ’24. And if that’s the case, it sounds like you guys are preempting the existing market leaders in the 400 gig, you have pluggable market by kind of accelerating the cadence. How big of an opportunity do you see for Ciena in ’24, maybe ’25 really from ZR, how big of a catalyst could that be to your business, especially in cloud?
Scott McFeely: Yes, I wouldn’t look at it as trying to disrupt necessarily the natural flow of 400 gig ZR. It is the next step that customers that are interested expect to take. And there’s a whole ecosystem around moving to these generations, including the entire switch fabric has to get upgraded. So we are doing it because there are some efficiencies or doing it in parallel with our WaveLogic 6 Extreme and we want to be ready for that market. But I wouldn’t necessarily think it was driven by trying to disrupt the 400-gig ZR market. We just think it’s the natural evolution for our customers that play in that space.
Gregg Lampf: And thank you, everyone, for joining us today, especially, again, as Jim said, those of us on the West Coast at OFC. We’re looking forward to meeting with a lot of you in the next couple of days and we’ll see you then. Thank you very much.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
