800 gig will continue at a pace, and if anything will also grow as 1.6 grows. So it’s a bit of an unusual – normally when there’s a – let’s say in the datacom world, when a new technology comes along, it tends to cannibalize the old technology. But certainly, as we go to higher speeds, 1.6 and beyond, it doesn’t seem like the 800 gig is going anywhere, is going to decline. So we’re quite excited about that.
Operator: Our next question will be coming from Tim Savageaux of Northland Capital Markets.
Tim Savageaux: Congrats on the strong results. Maybe it’s kind of related to the answer to the last question there. I was going to ask, certainly coming out of OFC and over the last quarter, about your impressions of the size of this AI connectivity market and hope you might have some impressions just because of the kind of specificity of that comment about 1.6 sort of being additive to the mix and 800 gig continuing to grow. I’d be interested in kind of – I guess, at what point you came to that conclusion on the one hand, and how does that speak to the overall size of the opportunity versus what you might have thought a quarter or two ago?
Seamus Grady: I think, if you like, the view that we have that 1.6 will be additive and will not cannibalize 800 gig, that’s really a function of looking at the architecture of the products that are in the pipeline, that are – it’s in the public domain. If you look at NVIDIA’s website and you go to their GPUs, you go to their products, you look at the architecture of those products, 1.6 is additive to 800 gig. It doesn’t appear to be cannibalizing it. When you look at the number of connections, it does not appear that 800 gig gets cannibalized when 1.6 terabit comes along. So it’s less of an opinion, I suppose, Tim, and more of a – it’s just math. When we calculate out what’s required, it seems like 1.6 will come along and 800 gig will continue.
So that’s really what’s behind that. So no particular change in our perception the last 90 days. I guess what we’re all waiting to understand and waiting to see is the timing of the ramp of 1.6 and then, of course, the magnitude of that ramp, will it be as steep as 800 gig? I guess that remains to be seen.
Tim Savageaux: And as you assess that here over the next couple of quarters, I imagine that might necessitate some capacity planning on your part, so I’ll ask for my quarterly update on any plans for increased capacity or facilities expansion.
Seamus Grady: The perennial building 10 question. Yes, it’s something we evaluate all the time. We have a little bit of space freeing up with the 100 gig program transferring out that frees up a little bit of space for us in our Pinehurst operation. But nevertheless, it’s something we evaluate very regularly, at least every quarter. And nothing to announce at this point, but what I will say is our Building 8 is basically full at this point. Building 9, the expansion of capacity into Building 9 is going very, very well. We’re very happy with how that’s been going. It’s really ahead of all of our expectations if I was to go back even a year or 18 months ago and try to predict where we are right now. I think we’re very pleasantly surprised with where we are right now.
And we just want to be ready for the next wave and the next phase of growth that might come in our direction. Three things have to happen, Tim, for us to capitalize like we did in the last several quarters. The demand has to be there. We think that’s pretty certain that the demand is there. We have to have the capacity. And then third, we have to execute. So we do very well when it comes to execution. We have a good reputation in that regard. And capacity is really not a problem for us. We were able to capitalize on a very steep ramp and continue to ship significant volume to our main customer. But we’ll be looking at capacity and looking at capacity additions closely over the next while. I think the pace at which we’re expanding in Building 9 is probably ahead of schedule and we’re very optimistic about the future demand.
We’ll just make sure we’re ready and that we have capacity because it’s very low risk, Tim, for us to add additional capacity if we were to add another building. It’s about ballpark $55 million to $60 million of CapEx, which will add about a million square feet, there or thereabouts, and will give us capacity for an additional – depends on the products, but probably $1.2 plus billion of additional capacity. And the gross margin headwind for us to do that is about 10 basis points. So it’s a very tiny downside, if you like, in terms of the financial headwind, but the potential upside is huge. So it’s very low risk for us to do that. But again, nothing to announce on this call, but certainly we would expect to be – we continue to evaluate it and I would say stay tuned for the next while.
Tim Savageaux: Maybe just one more thing on that, can you remind us of kind of what the time frame is from kind of making the call there to breaking ground and then being able to ramp capacity?
Seamus Grady: I think from when we kind of make the decision, I would say until we’re up and running, it’s probably 18 months, there or thereabouts, plus or minus. So we can do it pretty quickly. We have the recipe figured out at this point and really we will do more or less a repeat of what we’ve built before. We might make some small changes, but for the most part it would be a very similar building to Building 10, albeit the mirror image of Building 10 if you know the geography of our Chonburi campus. We would build, like I say, a mirror image of Building 9. But about 18 months, there or thereabouts.
Operator: And I would now like to hand the call back to Seamus for closing remarks.
Seamus Grady: Thank you for joining our call today. We delivered another strong performance that exceeded our revenue and EPS guidance for the third quarter. We anticipate closing out another record year and believe we are well positioned to extend our success beyond fiscal 2024. We look forward to speaking with you again and to seeing those of you participating in the J.P. Morgan and B. Riley conferences later this month. Goodbye.
Operator: And this concludes today’s conference. Thank you for your participation. You may now disconnect.
