II-VI, Inc. (IIVI)’s Fiscal Year 2015 Second Quarter Earnings Conference Call Transcript

Ted Morea – Barrington Research Associates, Inc.

I’m sorry, the fiber lasers.
Francis Kramer – Chairman

I think we’re seeing more intensity on pricing just because of the substitution of fiber lasers for CO2. CO2 product manufacturers are trying to be more price-competitive, so there is pressure to drive down those component prices.At the same time on the fiber laser because everybody is trying to get that early share, we’re getting pressure there. It’s not – it’s a just a little more intense than it’s been. And I think the most intense is China. Does that flow over to other places in the world? Yes, because they’re trying to sell into China.
Ted Morea – Barrington Research Associates, Inc.
Okay. Okay. And then on Photonics Group, just curious, what do you think your exposure is to the North American Tier 1 carriers? I mean, you’re talking about a little bit of weakness there or at least delays. So just curious like, what percentage of that business is co-related to North American Tier 1s.
Vincent Mattera – President

Well, they’re an important part of our business. We’re designed into virtually all of the optical network equipment companies. So it depends on their ability to capture the business with the carriers. In the end, the carriers will pull everybody forward. That’s probably the best way, I can say it, that’s where we experience some of our push-back in the quarter.
Ted Morea – Barrington Research Associates, Inc.
Okay. And so if we think about maybe that business being a little bit flattish sequentially, what are your assumptions for annual price decline in that business for the calendar year 2015?
Vincent Mattera – President
For the calendar year 2015, I would say more generically because I don’t have calendar year 2015 in front of me. But typically we have been reporting that customers are asking and negotiating for roughly 2% to 3% price downs per quarter. We try to offset that with improvements in our operating efficiency, in our cost reductions in the factory and then introduction of products that have enhanced features, but that’s pretty much the menu.
Ted Morea – Barrington Research Associates, Inc.
Okay. And 2% to 3%, that’s in line with historical figures?
Vincent Mattera – President
In the aggregate, yes.
Ted Morea – Barrington Research Associates, Inc.
Okay. And so final question still on Photonics Group, I think you were talking about some product introductions there and whatnot. Can you talk about on the 40 gig QSFP+ transceivers? What the competitive dynamics are there? And do you need to introduce a multimode fiber product, because I believe you have – it’s currently single-mode, do you have to introduce a multimode product?