Operator: Thank you. And our next question, coming from the line of Harlan Sur with J.P. Morgan. Your line is open.
Harlan Sur: Good morning. Thanks for taking my question. In telecom, it just seems that all aspects of wired and wireless infrastructure spending continues to be at low levels and obviously making it, I think, a little bit difficult for you guys to clear some of the excess inventories. But it does seem like quarter over quarter declines are shrinking. So, does it feel like the telco business is at a bottom after three to four quarters of other shipping consumption? Have things like orders started to sort of flatten out here in telco?
Steve Daly: So, unfortunately, I don’t know the answer to that question, Harlan and you’re correct that the telecom, our telecom segment has come down significantly. In fact, I think that the performance we had in Q4 was, I think, at a three-year or four-year low. So, just a few quarters ago, we were in the low $60 million run rate and we had been at that run rate for four quarters. So, we really can’t say with a lot of confidence where that’s going in the broader sense. Year-over-year, down 24%, when we look out into our fiscal ’24, we think that the data center will continue to be a strong market for us. We think the defense market will be a strong market for us and we are the most worried about the telecom market. We think that certainly it’s weak now and when it turns and how it turns and who turns has yet to play out.
Harlan Sur: Yeah, I appreciate that and then on the data center segment, in addition to the strong demand pull for AI, which is obviously driving a lot of strong demand for 100 gig per channel solutions from you guys, there’s been one large cloud and hyperscaler that up until this point in time has not started their broader data center footprint upgrade to 400 gig, which is more like 50 gig per channel. Is that US player finally starting to deploy 400 gig? Or is still most of the data center strength for you guys still around AI and maybe some incremental networking capacity build outs?
Steve Daly: Yeah, so without talking customer specific, I would say that the strength that we’re seeing we saw in our fiscal ’23, and we think we’ll continue to see will be at the higher data rates. So 200, 400 and 800 short reach multi channel devices that can support those data rates and then we have different levels of penetration at different accounts and we’re by no means omnipresent in the in the industry. We’re a small player, but we have solid relationships, not only with some of the ASIC manufacturers, but also the merchant DSP manufacturers, we want to support them. If they’re offering a DSP, we want to make sure that we have our drivers and TIAs designed in as reference components if possible. So that’s where we’re positioning ourselves.
That’s our focus. And then again, I’ll just highlight that we’ve done a lot of work over the past three years to four years, developing a laser portfolio that would be competitive and we have a variety of lasers in low rate production right now. It’s been a bit disappointing in the past 12 months in terms of getting sort of a breakout for that product area, but we have some great technology there, including CW lasers, which can support silicon photonics and also laser arrays, which can support next generation systems.
Operator: Thank you. And our next question coming from the line of Mark Lipacis with Jefferies. Your line is open.
Mark Lipacis: Hi, thanks for taking my question. I had a couple. I did have a question on the 50% increase. You suggested that Wolfspeed is adding into that, which is why it’s higher. So is there — so would we think about a normal productivity improvement of another 15% organically and then the balance added from Wolfspeed? I’m wondering if you are accelerating on what appears to be a kind of a flattish or slightly growing R&D expense base.
Steve Daly: Yeah, so I would say there’s sort of two pieces there. One, we will have a full year contribution from our European Semiconductor Center. So there’s a segment of products or a grouping of products that will come to market in 2024. So that was not there in ’23 and then, of course, there’ll be a Wolfspeed contribution and then there’ll be some modest growth from our existing base MACOM. I think that’s the way you should really look at it. I’ll just add that a lot of the work that our linear module systems group does, we don’t really include those in the product count. Most of their work is custom development and not made public.
Mark Lipacis: Got you. Okay. That’s helpful and then, if you look at your revenues here, like peak to trough, assuming things don’t go down from here, it looks like your peak to trough revenues are like down 18%. Can you share with us your view to what extent is that decline, an inventory correction versus just a drop off of end market consumption of your products? Thank you.
Steve Daly: Thanks for the question. So I think certainly inventory is an element of it. There’s also end demand and you see major carriers throttling back some of their spending. So there’s certainly shifts within the end user community, let’s say, in certain segments of the telecom specifically. I think generally speaking, industrial and defense budgets are going up and will continue to go up. So that will be a secular benefit to our business. I think we’re in a good spot in the data center for the next few years and certainly on telecom, there’s broad base weakness due to a variety of reasons, some of which you’ve highlighted. We are not good at predicting the future and we would definitely get it wrong. So we’re aware of the situation where as a result of that, we’re being very conservative with our financials.
We’re focused on generating cash. As Jack highlighted, we have been very reserved on our capital spending. When we look at making investments, we want to make sure we get good returns, whether that is investments internally or looking at targets and acquisitions. So this is the time when you want to be sort of conservative and generate cash and that’s our posture as a company and with that, if we can continue to grow our portfolio and strengthen the portfolio, I think we will do just fine.
