Lumentum Holdings Inc (LITE) 2018 Q1 法說會逐字稿

Good morning. My name is Dan and I will be your conference operator today. At this time, I would like to welcome everyone to Lumentum's fiscal first quarter 2018 financial results. (Operator Instructions). Chris Coldren, Vice President, Strategy and Corporate Development, please go ahead.

Thank you, Dan. Welcome to Lumentum's first quarter fiscal 2018 earnings call. This is Chris Coldren, Vice President of Strategy and Corporate Development. Joining me on today's call are Alan Lowe, President and Chief Executive Officer; and Aaron Tachibana, Chief Financial Officer.

This call will include forward-looking statements including statements regarding the markets in which we operate, trends and expectations for products and technology, purchasing trends, Lumentum's expected financial performance, expenses and position in our markets. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. We encourage you to review our most recent filings with the SEC, particularly the risk factors described in our 10-Q filing for our fiscal first quarter ended September 30, 2017, that will be on file with the SEC later today. The forward-looking statements we provide during this call, including projections for future performance, are based on our reasonable beliefs and expectations as of today. Lumentum undertakes no obligations to update these statements except as required by applicable law.

Please also note unless otherwise stated, all results and projections are non-GAAP. Non-GAAP financials should not be considered as a substitute for, or superior to, financials prepared in accordance with GAAP. A press release with our first quarter fiscal 2018 results is available on our website, www.lumentum.com, under the Investor section, and includes additional details about our non-GAAP financial measures and a reconciliation between our GAAP and non-GAAP results.

The website also has our latest SEC filings, which we encourage you to review, and supplementary slides relating to today's earnings release. Finally, a recording of today's call will be available by 11:30 a.m. Pacific Time this morning on our website.

Now, I would like to turn the call over to Alan for his comments and first quarter business highlights.

Thank you, Chris, and good morning, everyone. This is a really exciting time at Lumentum. Since our last call, we have made excellent progress on our strategic goals. Despite the headwinds in the Telecom and Datacom markets in the first quarter, we returned to strong sequential revenue growth.

We rapidly ramped our 3D sensing revenue, received significant new orders for these products and made excellent progress on next-generation design-ins at numerous customers with our VCSEL and edge-emitting lasers. We also received our first high-volume order for edge-emitting lasers from an Asian-based consumer electronics customer. In April of this year -- since April of this year, we have received more than $300 million of 3D sensing customer orders, which we began to ship in earnest over the past few months.

Other notable milestones include achieving production readiness on our 100G transceivers in our new Thailand factory and surpassing 20,000 units of twin TrueFlex ROADMs shipped since their introduction. These types of ROADMs are central to next-generation network architectures, and the level of shipments shows our continued leadership in this area. This is indeed an exciting time at Lumentum.

During the first quarter, we shipped approximately $40 million of 3D sensing revenue. Revenue was limited by bottlenecks in equipment capacity, which have since been resolved. We've shipped more 3D sensing revenue in October than we did during the entire first fiscal quarter. We expect monthly shipments to increase throughout the end of the calendar year due to strong demand for our products. Yields to date have been consistent with our expectations. Noting that we only provide guidance one quarter at a time, we believe our 3D sensing revenue could remain at similar levels in our upcoming March quarter when compared to our second quarter, based on customer feedback and order rates.

Like many in the Telecom and Datacom industries, we had headwinds in the first quarter. China has been reducing inventory levels for several quarters now. As inventories decline to targeted levels, demand should increase. However, the timing of this recovery is uncertain. We are seeing increased demand from our Chinese customers on certain product lines. These include ROADMs and CFP2 Datacom transceivers. Demand for other product lines, notably coherent components, remains muted.

As anticipated, demand from North America Telecom customers was down sequentially in the first quarter as these customers also look to reduce inventory levels. In the second quarter, however, we expect North American Telecom demand to increase as inventory levels are worked down. Our Datacom revenue declined by $5 million sequentially due to weaker-than-expected demand on 100G products.

As highlighted earlier, our new Thailand factory is now production-ready for certain 100G Datacom transceivers. We believe our own factory will help with our cost competitiveness, capacity and time to volume. We will also be completing qualification of our short-reach 100G transceiver products in the second quarter, which will further expand our 100G Datacom opportunities.

Our commercial lasers revenue was down slightly quarter-on-quarter with an increase in kilowatt fiber lasers being offset by declines in other lasers. We have made significant progress in rectifying previously highlighted challenges in the production of our Gen3 fiber laser. We expect our fiber laser business to be on a growth trajectory over the coming quarters. In our lasers business, we recently secured some significant new orders, which has helped to drive our book-to-bill ratio to more than 1.5 to 1 for the quarter.

Our photonics technologies are increasingly critical enablers of leading-edge communication, industrial and consumer applications. Demand continues to grow for bandwidth across the world's data centers and communication networks. In addition to traditional communication service providers, baud operators are increasingly driving new deployments of optical networks and submarine cables. Hyperscale data centers continue to transition to 100G.

We continue to make excellent progress with our ROADMs globally and we believe our new product pipeline will further our leadership position over time. In addition to capturing a large share of initial network deployments this year in China, we are now sampling new advanced ROADMs specifically designed for China's next-generation networks. We believe this positions us extremely well as the ROADM supplier of choice both in the near term as well as the longer term in China. We expect China ROADM growth will be a meaningful growth driver for Lumentum in the coming years.

Manufacturers around the world are increasingly using advanced laser-based techniques to increase productivity and precision and to enable new processes. Leaders in next-generation consumer electronics, virtual and augmented reality, as well as the automotive industry are looking to laser-based 3D sensing to enhance capabilities and enable new applications. Our investments in new products and technologies position us very well for all of these future trends.

At Lumentum, we are focused on accelerating the speed and scale of cloud, networking, advanced manufacturing and next-generation 3D sensing applications with our photonics technologies. Our strategy to invest in growing markets, to develop the best products and technologies and to foster close relationships with market-leading customers is succeeding and makes the future bright at Lumentum.

I will now turn it over to Aaron for more details on our financial results and our guidance for the second quarter of fiscal 2018.

Thank you, Alan. Net revenue for the first fiscal quarter was $243.2 million, which increased 9.2% sequentially and declined 5.8% compared with the same period last year, (inaudible) softer Telecom demand.

GAAP gross margin for the first quarter was 28.2%. GAAP operating margin was 1.1%. And GAAP diluted net income per share was $0.11. Our first quarter non-GAAP gross margin was 34%, increased 100 basis points sequentially and declined 20 basis points compared with the same period last year. Non-GAAP operating margin for the first quarter was 11.8% and increased 260 basis points sequentially. The increase in operating margin was primarily due to the 110 basis point increase in gross margin from favorable mix and also improved operating leverage from the increase in volume. Non-GAAP earnings per share was $0.43 based on a fully-diluted share count of 64.5 million and included $700,000 of interest income and a $1.5 million tax expense.

Now for some additional detail. Optical communications revenue was $207.9 million, an increase of 11% sequentially and a 5% decline compared with the same period last year. During the quarter, we significantly ramped our consumer and industrial revenue, which includes 3D sensing, while both Telecom and Datacom declined sequentially. Telecom revenue, at $110 million, declined 8% sequentially and 33% compared with the same period last year. Datacom was $45.2 million and declined 10% sequentially and increased 2% compared with the same period last year.

Consumer and industrial revenue, at $52.3 million, increased 217% sequentially and over 500% compared with the same period last year. The significant growth for consumer and industrial revenue came primarily from our 3D sensing ramp for consumer mobile applications.

Optical communications gross margin, at 34.7%, increased 360 basis points sequentially mainly due to the favorable mix of products as well as the sequential increase in volume for our 3D sensing products.

Commercial lasers revenue was $35.3 million, a decrease of 1.7% sequentially, the decrease of 11% compared with the same period last year. As Alan highlighted, we've made progress on the production of our new Gen3 kilowatt fiber laser and grew fiber laser revenue by 19% sequentially, $12.9 million. During the quarter, fiber laser production was constrained due to materials and therefore we were unable to satisfy our customer demand. First quarter commercial lasers gross margin was 30% and decreased 12 percentage points primarily due to writing down excess in obsolete inventory from older generations of product. Looking forward to Q2, we expect commercial lasers revenue to increase approximately 20% with gross margin returning to the range of low- to mid-40s%.

Operating expenses totaled $54.1 million or 22.2% of revenue compared with last quarter at $52.8 million or 23.7% of revenue. R and D expense was $32.5 million and SG and A expense was $21.6 million.

Our balance sheet remained strong, exiting the first quarter with cash and short-term investments of $532.5 million. Capital equipment additions were approximately $26 million in the first quarter. Our investments in both facility improvement and equipment to bring up our manufacturing facility in Thailand accounted for approximately $15 million of the spending.

Now on to our guidance for the second quarter of fiscal 2018, noting again that all projections are on a non-GAAP basis. We expect Telecom and commercial lasers revenue to increase sequentially. Additionally, our 3D sensing revenue will increase materially in the quarter. We project net revenue for the second quarter to be in the range of $345 million to $375 million with operating margin in the range of 21% to 23%, and earnings per share to be in the range of $1.05 to $1.25.

Now, I will turn the call back over to Chris to begin the Q&A session.

Thank you, Aaron. I'd like to ask everyone to limit discussion to one question and one follow-up. Dan, let's begin the Q&A session.

Your first question comes from the line of Meta Marshall from Morgan Stanley.

I just wanted to kind of get any -- I know you guys mentioned having very little direction kind of out of China -- but just what is kind of the latest read that you're getting out of there from any visits or any visibility into kind of as you head into calendar year 2018, what you're expecting in that market? And maybe just kind of timelines for ROADM deployments would be helpful there.

I think, in general, as we said in the pre- comments, there is still inventory of certain products, and I'd say mainly in the coherent components for us. Other products are, in fact, being expedited; ROADMs, for instance. I've been getting personal love notes from some of our customers in China to speed up delivery of ROADMs. So I think it's hard to say when the full recovery of everything or when the inventory will be totally burned off. But I do think they're doing a good job of reducing the inventories, and I would expect that calendar 2018 to be up from 2017.

Okay. And then, just a follow-up question. There has obviously been a lot of reports about kind of breakage issues in the assembly of 3D sensing modules. And just to get a sense of -- do you believe that you'll have to kind of over-ship into kind of components or module builders in this cycle to kind of make up for that breakage? Or are those kind of reports ill -- or not correct at this time?

Yes, Meta. We can't comment on our customers, our customers' yields or production volumes. It's just not appropriate. So I'd prefer not to comment at this time.

Your next question comes from the line of Michael Genovese from MKM Partners.

I have a few questions. Just first of all, on the quarter itself. Just specifically in the optical comms business, was it there, or was it in 3D sensing, or was it across both, where things were just a little bit lighter than what you expected going into the quarter, coming out of the quarter?

Yes. So this is Aaron, Michael. In terms of softness, so again, as we had indicated on the prepared remarks, there had been some inventory management from our customers, especially on the Telecom side. And so in terms of the softness, a lot of it was in the communications space.

Yes. But I think as we went into the quarter in our last earnings call, we had expected to be able to produce more 3D sensing. And as I talked about, we did have some bottlenecks that have been resolved. And so through the first quarter, the demand was certainly stronger than what we had produced, but we weren't able to get the product out that we had expected. And as I said also, that in the month of October we shipped more than the entire first fiscal quarter. So those bottlenecks are resolved and I think we're in pretty good shape with respect to ongoing production of our 3D products.

So was 3D sensing about $40 million in the quarter? A little bit less? A little bit more?

It was $40 million.

Yes, okay. And can you talk about the gross margin trajectory there? I mean do they start lower and get better going into the next quarter and the quarter beyond?

Yes. So, Michael, in terms of the gross margins related to consumer and industrial, it's above our corporate average. So in terms of the production yields, it's basically at our expectation. So in terms of starting low, ending higher, there hasn't been anything noteworthy there than what we'd expect.

Okay. Last question for me. I mean you said that, I guess, in March we should think about a consistent revenue level in 3D sensing with December. What about in June? You've got this new Asian edge-emitting customer coming in, but I assume your primary initial customer will be down in June. So just sort of in big -- taking broad swaths at it, since it's not guidance, how should we think about June for that business?

Yes. So we typically don't provide long-term guidance, Michael. And in terms of the customer orders that Alan did mention in the prepared remarks, so it's exciting for us that we've received something with the edge-emitting technology. But in terms of what exactly those volumes will look like in the June quarter, we're not prepared to really comment on that at this time.

Okay. Final clarification, actually here. Just in terms of your guidance for 2Q versus 1Q, I mean should we think that the base business, lasers and optical comms, are flat and that any sequential change is entirely driven by 3D? Or are there puts and takes in the base business as well?

Yes. I think, as we said in the prepared remarks, we expect lasers to be up approximately 20% sequentially from Q1 to Q2 and, of course, bonding recovery and gross margins back to where we expect lasers to be. We also expect Telecom to be up from Q1 to Q2. So it's not all coming from growth in 3D sensors.

Okay, so it's -- final -- I'm sorry for so many questions. I'll pass it after this, I promise. But it's a pretty big range on the revenue guide. Is that -- is the range primarily attributable to 3D? And what would determine whether we are at the bottom or the top of the range?

I think that the range is big because the increase from Q1 to Q2 was big and pinpointing the amount of growth between Q1 and Q2, there is uncertainty on the downside as well as on the upside. So our ability to produce 3D sensing, our level of China's ROADM deployments picking up, and North America; I think there is variability in all of that and that's why we've tried to factor it into the guidance for revenue.

Your next question comes from the line of Patrick Newton with Stifel.

Just to put a fine point on 3D sensing, given all the puts and takes; Datacom, it sounds like you're implying is down, Telecom up, lasers up. And then midpoint of guidance, I'm getting to about $145 million, plus or minus, in 3D sensing revenue for the December quarter. I wanted to make sure that that's ballpark.

Well, I think we're going to avoid giving guidance specific to the product lines, but I think you can take my comment about October revenue for 3D sensing being larger than the entirety of Q1 and extrapolate from there.

Great. And then I guess, given your commentary on the March quarter being similar to December quarter levels, is there any concern on your end of inventory over-builds? And is there any assumption built in there on a competitive landscape? It definitely seemed to indicate that you're not anticipating any material uptick of supply from competitors.

I'd prefer not to comment about competitors because I think we're expecting competitors to come online and produce some product. I can tell you that I'm not concerned about short-term inventory buildup, given the pressure that we're under and the constant help that we're getting from our customers to produce more. So I think just directionally the March quarter seems like it's going to be in line with where we are in the December quarter from an output and demand standpoint 3D sensing.

Okay. And just one more if I may, I guess for Aaron, is just on the margin profile of 3D sensing. You talked about how yields are progressing nicely. I think it was two quarters ago you guys had publicly stated that you anticipated margins to be greater than 50%. So I would assume that that is still the case. And I think one can infer, backing in, that we should anticipate in the December quarter that your gross margin would be north of 40%. Or are those all fair assumptions?

So in terms of the specific margin for 3D sensing or the application, we can't really comment specifically on the amount or the percentage, Patrick. But in terms of -- it is above our corporate average. And for the December quarter, in terms of what's implied here with our guidance, yes, in terms of the 40% range, in terms of somewhere around the midpoint, it's a fair assumption based upon --

Your next question comes from the line of Alex Henderson with Needham and Company.

I was hoping we could go into a couple of sort of trajectory thoughts on 3D sensing. Are your orders growing faster as you look into the first quarter? Do you expect your orders to grow faster than your production? In other words, will you be able to work down backlog or will you be sustaining backlog as we come out of the first quarter? And is it possible that your backlog might actually increase as a result of the time of the ramp of some of those products?

I would say we don't expect any major change in our backlog. The only variable, I think, is really where and when we start ramping in a meaningful way on the China-based consumer electronics customer that we mentioned in the pre- comments.

And so do you have any sense of when that would feather in? Would that be something you would be feathering in, in 2Q-ish timeframe? Or is that more in the -- beyond that? How should we be thinking about the timing around that?

Well, I think we just wanted to add a proof point about the broad customer base and engagement that we have. I think -- that's one of many that we're working with, and I think that you can expect that our customer base to continue to broaden through the calendar year and adding multiple customers by the end of calendar '18 to our 3D sensing portfolio.

So if I were to look at the additional new customers coming on stream over the course of '18, would that imply a continued sequential demand growth over time as those feather in? Is that the right way to think about it?

Yes. So, Alex, I think it could imply that. And so as Alan had mentioned, having this initial edge-emitting customer as well coming in with orders will bode well for a good, healthy 2018, calendar '18. And the seasonality of these types of consumer applications do have peaks and valleys, but in terms of what we're doing and seeing at the outset of these programs could take away some of those -- the lumpiness in '18 and '19, the way we look at it. It could be a trajectory that's upward.

And just on the pricing side for these products, as I understand it, your pricing is kind of locked in through calendar '18. Is that correct?

We have price commitments for a part of '18. And certainly for all of the orders that we have, those are certainly firm. And I'd say that we're in the midst of negotiating with many of our customers for the back half of '18 as well as into '19.

Okay. Two last questions, if I could. Can you just tell us whether ROADMs were flat, down or up in the most recent quarter and whether you're expecting ROADMs to be up again in the December quarter?

Yes. They were down in the September quarter, expecting them to pick back up in December.

And then on the Datacom side, can you give us a little bit more granularity what happened there? Is it a function of pricing or is it a function of volume? I know you said the 100 gig was a little weaker than you had expected. But can you give us some sense of where that weakness metastasized?

Well, I think it's a combination, Alex. I think certainly we could sell more 100 gig Datacom if we dropped our pricing. And so I think from our perspective, the client side of the Telecom business is good. Margins are fine. Pricing is more rational. Hyperscale, as I continue to say, is pretty tough. And so I'd say it's a combination of us choosing not to lower the prices for hyperscale until we have our next-generation product ready. And that will be in calendar '18. And we're getting orders as customers need product for hyperscale-type stuff. But we're pretty comfortable with the client side on Telecom, both on CFP2 LR4 as well as QSFP28 LR4.

Your next question comes from the line of Joseph Wolf with Barclays. Your next question comes from the line of Troy Jensen with Piper

I understand the pricing on the VCSELs are fixed here for the near term, but going forward, can you talk about what you think ASP erosion is going to be in that product category? I know for most of us we assume kind of, what, 12% to 15% annual erosion for optical comm. Do you think that the VCSEL business will be more or less than that?

You know, Troy, I think it's hard to say at this point in time because we have a myriad of different customers buying at the chip level or subassembly level. So ASPs will fluctuate by customer. But if you're talking about pure average selling price takedown for a given customer, I think it's a matter of demand and supply and how that plays out over the short term. And I think, at least for the foreseeable future, there is a stronger demand than there is supply and so therefore prices won't come down as much as one would expect.

Although, these are large customers that have a lot of purchasing power so they -- I would expect the prices to come down. But at the same time, I do expect our costs to come down as our volumes go up. And we pre-negotiated that with some of our supply chain to make sure that as we go up in volume, our costs come down so that we don't impact our margins as we look out quarters and years.

Yes, okay. And just a follow-up. You guys made a comment a 1.5 book-to-bill for the industrial lasers. Was that all industrial lasers? Was that just fiber lasers? And what drove such a big growth in the bookings?

It was a combination of both our solid-state lasers as well as our fiber lasers. I think right now the semiconductor industry is driving a strong demand for our micro-machining lasers. And as Aaron talked about, our inability to meet our fiber laser ramp demand had some pent-up fiber laser orders that we're trying to get through in the next couple of quarters. But it's strong demand and that's why we believe that the trajectory of our lasers business overall will be going up over the next few quarters.

Your next question comes from the line of Simon Leopold with Raymond James.

First, I wanted to maybe ask an earlier question in a different way, and trying to get a better understanding of how you get paid or when you get paid on the 3D VCSEL business. Do you get paid based on what you ship to the module assemblers? Or do you get paid based on what actually ends up ultimately in a phone? Is that something you could help us understand?

Yes. We have terms with our customers and not specific to 3D sensing, but across the board, that we get paid a certain amount of days after either we ship it or after they receive at their dock or their country. So this is no different than our normal business and how we transact with our customers.

So to just clarify that. So if the yield falls out somewhere down the supply chain and it's not because of the VCSEL failing, you still get paid on that product. Correct?

Yes.

Great. Thank you for that clarification. I just want to come back on the ROADM business. You provided a little bit of commentary. I have a vague recollection in that you were somewhat capacity-constrained when that business was running in sort of the 60-plus million quarterly level. Just want to get an understanding of what your thoughts are in terms of capacity needs for that business.

Yes. I think you're right. Your recollection was good. We were at 60-plus million a quarter a few quarters back and it was tight. I think we've been adding capacity, but more importantly, improving the yields of both our WSS modules as well as our blades. So I think we're comfortable with where we are from a capacity standpoint as China ramps up, and I think it will ramp up in a meaningful way in '18. So I think we have capacity to far surpass the 60 million a quarter. I think it's just a matter of when that demand comes to fruition. And every indication is from China that things are looking pretty good there.

Great. And just one last one. You talked about introducing some new products for Datacom. Are those products oriented towards the QSFP28, PSM4 or CWDM opportunities? And if so, are they non-hermetic platforms basically targeting the very low-cost part of the market or some other form factor?

Yes. I'd say that the products we're introducing both this quarter as well as in calendar '18 are both CWDM4 non-hermetic type of low-cost platforms as well as our short-reach VCSEL-based SR4; so from 100 meters to 300 meters, using parallel VCSEL arrays for 100 gig within the data center. So those are the products we're introducing in the short term. We have cost reductions even on QSFP28 LR4s. So all new products are QSFP-based and we've got a broad portfolio there.

We are working on 400 gig at the same time and we're very pleased with the progress we're making there. But again, that's probably more of a 2019 meaningful contribution to our revenue.

Your next question comes from the line of Mark Kelleher with D.A. Davidson.

I just wanted to go back to the fiber lasers for a second. You said that there was some constraint due to some materials issues there. Can you size that? Can you just kind of just give us an indication what that might have been had you not had that issue?

Yes. So in terms of the fiber laser production issues that we've had, we brought out our Gen3 version a few months ago and in terms of trying to ramp it, we did have some constraints on specific materials so we didn't have all of the equivalent sets of materials. In terms of what Alan had said in the prepared remarks, our book-to-bill was 1.5 to 1. So we did have more than just a few million dollars that we left on the table.

Your next question comes from the line of Doug Clark with Goldman Sachs.

I was just curious, to the extent that you'll comment, on kind of the economics or ASPs of an edge-emitter for 3d sensing versus what you're seeing VCSELs today, if it's kind of above or below and by how much.

Well with edge-emitters, we actually do, in most cases, a small subassembly and put a bare chip onto a carrier and burn it in and test it at that level. So in general, I would say it's probably the same to a little bit higher ASPs per unit than we get for VCSELs where we sell typically, today, at the bare die level. Margins should still be above corporate average.

Okay, great. That was really helpful. And then you mentioned $300 million in orders. Based on your comments, I just wanted to make sure that it's fair to assume that a vast, if not all, of that -- a vast majority, if not all, of that is coming from kind of the current large customer today or if there's a component that's other new products that are on the come.

Yes. We'd prefer not to answer specific customer order rates and things like that.

Okay. And then, one on Datacom. Would you comment on how large QSFP28 was in terms of revenues in the quarter? I believe last quarter it was around $24 million.

Yes. It was around $24 million last quarter. Q1 was a tiny bit over $16 million.

And I guess to ask a little bit more about that, the drop off. So you talked about pricing and price discipline there. Is it you're just not participating in certain wins because of pricing? Or was there actually a pause in demand by any of the hyperscale or customer bases?

So there's a tiny bit of both. So you can recall that over the last couple of quarters, we had built up a lot of LR4 and CWDM backlog as we were fulfilling all of our CFP2 backlog. And that's because both products share the same production lines or facilities. In terms of what we saw in Q1, the dynamics of the drop off here was tied to both our unwillingness to go and drop price to go take a lot of volume, and then also there was a tiny bit of price erosion in some of the different business that we did fulfill as well as (inaudible).

Yes. But I'd say it's a mix. Especially in the hyperscale, the demand is not as great as it was advertised to be and that makes pricing dynamics even tougher. So I'd say the consumption of QSFP28s in the hyperscale was down from expectations of 6 months ago and we didn't chase down the price.

Your next question comes from the line of Richard Shannon with Craig-Hallum.

Maybe a first couple quick ones on 3D sensing. Alan, can you state whether you're going to be able to ship to all of your customers' needs for the December quarter or not?

No.

Okay. That's helpful to know. Also in 3D sensing, the $300 million of orders, is that, just to clarify, does that go through the end of the December quarter or is that farther out?

It's further out.

Further out, okay. Can you state how far your orders are going for 3D sensing currently?

Well, I think that most of those orders have request dates between now and early in the March quarter. The lead time for the product, it's almost a quarter, so would imagine that as we get within a quarter of the end of January, that those are the orders we're getting now.

Got it. Okay, thank you for that. A couple more quick questions. On the topic of ROADMs in China, I couldn't figure out whether you're trying to imply something in your answers to some prior questions here. But do you have any expectations of timing as to when we see larger deployments of, I guess, the current ROADMs or the next-generation ROADMs that you're excited about?

Yes. I think we still sell a substantial number of ROADMs even today that go into China, but are shipped out of China as our customers are winning business outside of China. I'd say that we are deploying ROADMs in China today. It's not massive. But I'd say that they're gearing up for it to be a meaningful part of our revenue growth expectations in calendar '18.

Okay. But you don't have an expectation of more specific timing than that?

If I were to tell you that, I'd be making something up.

Okay. Then don't do that. That's fair. Last quick question for me. Can you help us -- an earlier question was talking about the ASPs for the edge-emitter lasers for other 3D sensing applications. Can you give us a sense of the scale, the unit volumes of potential applications here? Obviously, it's lower than mobile is. But can you give a sense of what that might be?

Well just for clarification, the order we talked about in the script was edge-emitters for mobile devices and a mobile customer in Asia. So these could be of similar scale to other large consumer electronics customers.

Your next question comes from the line of Tim Savageaux with Northland Capital Market.

I have a question and a follow-up. I will eschew the steam-of-consciousness approach. The first question is on the subject of consolidation within the optical communications sector. Given a couple of things: one, it looks like you're going to have a 40% customer here in the December quarter and that's a fair bit of concentration and I wonder your views toward managing that over time. And two, you've obviously got a currency that's relatively strong. I'm wondering if you might be able to kind of update your views on, especially as you reference pricing in 100 gig Datacom kind of competition across the board, on Lumentum's kind of viewpoint and interest in consolidation within the optical communications sector.

Sure. Well let me address your comment about customer concentration. I think anytime you launch a new technology, you have a lead customer. But I feel very, very comfortable with where we are broadening that customer base for 3D sensing, both in the mobile application space as well as AR/VR and, in a few years, autonomous vehicle. So I'm very comfortable with where we are with regard to that.

As far as consolidation in the industry, as I've said all along, consolidation is a good thing. I think you have to also have a willing buyer and a willing seller. And we'll see how things go out. We talk about it all the time and we determine when is the right time and what is the right target. But at this point in time, we don't have anything really to comment on, other than to say that consolidation would be good.

Okay. And my follow-up really is with regard to potential on the 3D sensing side, how you expect kind of unit volumes, pricing and competition to combine to impact your market opportunity going forward. Which is to say, at least what we tend to hear is expectations for significant volume increases at your lead customer as 3D content increases and moves to other devices. Is that consistent from your point of view? And as you look at mixing in, you mentioned pricing for the back half of the year. I don't know. Maybe you could relate 3DS, 3D sensing pricing trends to web-scale Datacom pricing trends and tell us which is worse or which is better. But as you manage those factors, and you mentioned new competitors coming in as well, do you expect to be able to kind of grow your business with your main customer from your kind of current 100% share level even considering increased unit volumes when we factor in pricing and competition?

Well, I'm not going to comment on whether we have 100% share or what our expectations are with any given customer. But I will say that our expectations with the product pipeline that we have, both with existing customers as well as new customers and the one we talked about, China-based mobile manufacturer, gives me high confidence that the demand, both in the short term as well as the long term, is going to continue to be very, very solid and very strong. And I think that's why you've seen some of our competitors go out and buy capacity to be able to address this market. And I think that's healthy for the industry, and it will have more and more consumer electronic customers designing in the types of products that we're making today and then therefore drive additional demand. So I think from our perspective, we're focused on continuing to drive our costs down and to continue to have the kinds of margins that we expect for investments that we have made for 3D sensing. And we're pretty confident that things look pretty good at this point in time.

Your next question comes from the line of Joseph Wolf with Barclays.

Operator, let's go to the next question.

Your final question comes from the line of Dave Kang with B. Riley.

A couple of questions. First, did you give out the ASP of edge-emitters? And second question is regarding other customers that you're working with. Are they for VCSELs or edge or both?

Sorry, Dave. The first question was what?

ASP of edge-emitters.

Yes. I think what we've said in general terms, selling a bare die is probably lower ASP than selling an edge-emitter that goes onto a sub-mount, in most cases, and so therefore. But a lot has to do with the size of the chip, right? So we have edge-emitter customers that have large chips and their ASP is higher. And we have ones that have smaller chips where the prices are lower. So it's really a function of what kind of power they're looking for from the edge-emitter and that drives the size of the edge-emitter and the ASP. So it's going to be a range of ASPs. But in general, I would say for a similar size chip, edge-emitters will be slightly higher priced, but there will also be at the next level of subassembly that we provide to the customer.

So it sounds like there are multiple applications, not necessarily just facial recognition. Is that correct?

Yes. We can't comment on the applications, but I would say that we're working on many different applications. Our customers are pretty confidential and quiet about what it is. But I can say that, based on some of the customer expectations on power, and that implies the reach capability of the different devices, we're working on many different types of applications.

So once again, on my second question about other customers. So it sounds like you are working on both VCSELs as well as the edge-emitters. Is that correct?

Several of each, yes.

Got it. And the last question is, what's the latest status on your ACOs?

Yes. So Dave, good question. We've been late to market with that product. We had sampled some customers and actually came to the conclusion a couple of months ago that it was best to redirect those resources that were working on the first-generation 100 gig, 200 gig ACO and redirect them to next-generation coherent components to get ahead. Our customers were fine with it, which tells me that's the right decision we made. And so therefore we're really working on next-generation stuff, and whether it's ACO or DCO or the components, to really leapfrog the competition where we were significantly behind the lead guy there and they had gobbled up all of the market share for quite some time. So we made a tough decision. I think it's the right decision. But we're really focused on next generation of coherent components and modules.

And we have no further questions at this time. I would now like to turn the call back over to Mr. Alan Lowe, President and Chief Executive Officer, for his closing remarks.

Thank you, Dan. I want to thank our customers for their business and again thank our employees for their hard work in growing our business and putting us into an excellent position in the market. We are in the middle of a worldwide expansion of bandwidth. Photonics are increasingly becoming critical to manufacturers and to next-generation, high-volume 3D sensing applications making the future bright at Lumentum.

We regularly discuss our business at investor relations events. These events are listed on our website in the Investor Relations section and are regularly updated. This concludes our call for today. We would like to thank everyone for attending and we look forward to talking with you again in another 3 months. Thank you.

Thank you to everyone for attending today. This will conclude today's call and you may now disconnect.