VIAVI Solutions Fiscal First Quarter 2027 Earnings Call - VIAVI SOLUTIONS INC

Good afternoon. My name is Jonathan, and I will be your conference operator today. At this time, I would like to welcome everyone to the VIAVI Solutions Fiscal First Quarter 2027's earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like ask a question, please press star 1 on your telephone keypad to raise your hand. end. If you wish to remove your question, press star 1 again. At this time, I would like to turn the call over to Vibhuti Nayyar, Head of Investor Relations. Please go ahead. Thank you, Jonathan. Good afternoon, everyone. Welcome to VIAVI Solutions Fiscal First Quarter 2027 Earnings Call. My name is Vibhituti Nayar, Head of Investor Relations for VRV Solutions, and with me on today's call are Oleg Haykin, our President and CEO, and Ilan Daskal, our CFO. Please note, this call will include forward-looking statements about the company's financial performance, outlook, and longer-term growth strategy. These rest on a number of assumptions, such as sustained capital spending particularly by data center ecosystem service providers and aerospace and defense customers our ability to maintain or green market share and develop and deliver new products on time adequate component availability and stable macroeconomic conditions these assumptions are not exhaustive and And Additional Assumptions, Risks, and Uncertainties are discussed in our filings with the SEC. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current estimations and expectations. Please review our most recent Annual Report on Form 10-K filed with the Sec on August 13, 2026, and our quarterly SEC filings, particularly the risk factors described in those filings for additional information regarding the assumptions, risks, and uncertainties underlying these forward-looking statements. These forward- looking statements, including the guidance that we provide during this call and our expectations regarding the end market, revenue growth and market expansion are valid only as of today. VIAVI undertakes no obligation to update these statements. Please also note that unless we state otherwise, all results discussed on this call, except revenue, are non-GAAP. We reconcile these non-GAP results to a preliminary GAAP financial and discuss their usefulness and limitations in today's earnings release. The release, as well as our supplemental earnings slides, which include historical financial tables, are available on VIAVI's website at www.investor.viavisolutions.com. Finally, we are recording today's call and we'll make the recording available on our website by 4 30 p.m pacific time this evening with that I would like to turn the call over to Ilan. Ilan? Thank you Vibhuti. Good afternoon everyone. Now I would Like to review the results of the first quarter of fiscal year 2027. Net revenue for the quarter was 469.3 million dollars which is above the high end of our guidance range of $450 to $460 million. Revenue was up 5.9% sequentially and on a year-over-year basis was up 56.9%. Operating margin for the first fiscal quarter was 29% above the high end of our guidance range of 26.7% to 27.5%. Operating margin expanded five percentage points from the prior quarter and on a year-over-year basis was 12.7 percentage points higher. Operating margin included a net benefit of about 110 basis points from tariffs refund of approximately $11 million, which was offset by the additional one week of some variable costs. EPS at 47 cents was well above our guidance range of 40 to 42 cents and was up 13 cents sequentially. On a year-over-year basis, EPS was up 32 cents. EPS includes a net benefit of about $0.02 from tariff refunds and from the additional one week of variable expenses. Moving on to our Q1 results by business segment. NSE revenue for the first fiscal quarter came in at $376.1 million, which is above the high end of our guidance range of $360 to $368 million. dollars revenue from spire and product lines was 52.7 million dollars on a year-over-year basis nsc revenue was up 74.1 percent as a result of continued strong demand for our lead and production and field products driven by the data them as well as the acquisition of spire and product lines. We also saw strong demand for our aerospace and defense products. NSE growth margin for the quarter was 66.2 percent which is 310 basis points higher on a year-over-year basis and was mainly driven by the tariff refunds and product mix. NSC's operating margin for the quarter was 25.5% versus 8.2% during the same quarter last year. NSC operating margin was well above our guidance range of 22.6% to 23.6%, mainly as a result of higher fall-through. OSP revenue for the first fiscal quarter came in at $93.2 million, which is also above the high end of our guidance range of $90 to $92 million. On a year-over-year basis, OSP Revenue was up 12.2%, driven by strength in 3D sensing and anti-counterfeiting and other products. OSP gross margin was 57.1%, up 460 basis points on a year-over-year basis, primarily driven by higher volume and favorable product mix. OSP's operating margin was 43.2%, which is in line with our guidance range of 43% to 43.4%. OSP operating margin increased 600 basis points on a year-over-year basis. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q1 were $535.3 million, compared to $656.7 million in the fourth fiscal quarter of 2026. Cash flow from operating activities for the quarter was $104.7 million versus $31 million in the same period last year and was driven by higher net income and timing of working capital. CapEx for the Quarter was $12 million versus 8.5 million in the period last year. During the first quarter, we purchased about 3 million and 949,000 shares of our stock for about $150 million at an average share price of $37.98. We have about $18 million remaining under the current authorized share repurchase program, And our Board of Directors has authorized a new buyback plan of $500 million. Our capital allocation strategy will continue to focus on organic growth, potential M&A targets, as well as opportunistic share buybacks. The fully diluted share count for the quarter was 266.2 million shares, up from 227.9 million shares in the prior year and versus 268 million shares in our guidance for the first fiscal quarter moving on to our guidance. For the second quarter of fiscal year 2027 we expect the second fiscal quarter revenue for viabi to be up sequentially driven by continued strength in our key end markets. We expect quarter-over-quarter growth to continue throughout the rest of the fiscal year driven by tailwinds in our end markets. For NSE, we expect second fiscal quarter revenue to be up as a result of continued strong demand for lab and production and field products driven by the data center ecosystem as well as aerospace and defense customers. For OSP, we expected quarter-over-quarter revenue to lower in line with seasonality of lower demand for 3D sensing and anti-counterfeiting and other products. For the second fiscal quarter of 2027, we expect VRB revenue in the range of $505 and $515 million. We expect NSE revenue in fiscal quarter 2027 between $426 and $434 million. OSP revenue is expected to be in the range of $79 and $81 million. Operating margin for VIAVI is expected be 29.3% plus or minus 30 basis points. NSC operating margin is expected 28.1% plus of minus 30 base points. OSP operating margin is expected to be 35.7%, plus or minus 20 basis points, and EPS is expected to be between 50 cents and 52 cents. Our tax expenses for the second quarter are expected to be around $12 million, plus or menos $500,000, as a result of jurisdictional mix. We expect other income and expenses to reflect a net expense of approximately $3.5 million. And the share count is expected to be around 264 million shares. With that, I will turn the call over to Oleg. Thank you, Ilan. The first quarter coming in above the high end of our guidance, our fiscal 2027 is off to a good start. The year-on-year performance was driven by strong growth in many of our end markets. NSE revenue in fiscal Q1 grew approximately 74% year-over-year, primarily driven by continued strong demand from the data center and aerospace and defense customers. More specifically, the data centre segment, which includes high-performance semis, optical modules, NAMs, and hyperscalers drove strong demand for lab and production and field instruments in support of the scale-up, scale-out, and scale-across applications. In addition to the traditional lab and product end markets, we also expanded our TEM to include the semiconductor packaging and test. With the adoption of NPO and CPO technologies, we expect the semiconductor packing and test segment to become a major new growth area for VIAVI. The September quarter marked a major milestone as we commenced the initial shipments into that segment. Data center demand for our products remains very strong, and we expect continued robust growth in this segment in calendar 2027. Our aerospace and defense business also saw another quarter of strong year-on-year and quarter-on quarter growth, driven by demand for our positioning, navigation, and timing products. Our communication and avionics products are also seeing robust demand. Our T-Rex system was recently selected by the U.S. Army's Threat Systems Management Office to create complex, realistic, electromagnetic environments across newly opened Army test ranges to support drones, counter drones, and interceptor development. This is potentially a sizable growth opportunity for VIAVI over the next several years. We expect strong momentum in our A&D business unit to continue into calendar 2027. The service provider business, which includes field instruments, wireless, and service enablement products, was up, driven by stronger-than-expected seasonal demand. the highlights included increased demand for our fiber monitoring systems in support of fiber buildouts and for our cable instruments in supportof DOCSIS 4.0 and DAA cable architecture in addition we are seeing early signs of a multi-year refresh cycle from service providers as they begin to upgrade and replace the equipment purchased in 2020 through 2022. wireless products remains the only low light in the service provider segment due to the anemic spend environment that said we remain optimistic about the medium-term prospects for our wireless business as ai ran and 6g development start to ramp up lastly our osp business unit also saw strong year-on-year revenue growth driven by 3d sensing and anti-counterfeiting and other products products. Looking ahead to Q2, we expect a very strong quarter for NSE. We expect NSE revenue to be up quarter-on-quarter, driven by strong and growing demand from the data center and aerospace and defense customers. We also expect seasonal tailwinds from service providers. Conversely, we expected OSPI business unit to be down quarter-and-quarter in line with the seasonally lower demand for both anti-counterfeiting and 3D sensing products. Net-net, we expect the quarter-on-quarter growth to be meaningfully up with strong NSE demand more than offsetting seasonally weaker OSP quarter. To summarize, our fiscal 27 is off to a very good start, and we expect a strong momentum to continue into the second half of the fiscal year. During this quarter, we suspect to reach $2 billion revenue run rate, which is ahead of our prior expectations. As we look ahead at our diverse end markets, customer dynamics, and the expanding VIAVI end market footprint, we expect the current growth momentum to continue over the next several years. We see four major drivers supporting our growth strategy. The first one is the continued growth of the data center segment driven by continued investment in scale-up, scale-out, and scale-across applications, expanded VIAVI TAM, including semiconductor assembly and test and fiber manufacturing, increased fiber penetration and densification in the data centre, and faster product replacement cycles. The second driver is continued airspace and defense growth driven by strong demand for our positioning, navigation, and timing products. The third driver is multi-year service provider refresh cycle. And the fourth driver, longer term, is a recovery of the wireless business driven by 6G and AI ramp. Okay. In summary, I would like to thank the VIAVI team for their continued strong innovation and execution and thank our customers and shareholders for their continuous support. With that, I will now turn it back over to the operator for Q&A. We will now begin the question and answer session. Please limit yourself to one question and one follow up. If you would like ask a question, please press star 1 to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimal sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ruben Roy from Stifel. Your line is now open. Please go ahead. Ruben Roys from Stiefel. Yes, hi, thank you for taking my questions, and congrats, Ilan and Oleg, on the outlook to a $2 billion run rate. Oleg, you talked about the strength going into the December quarter and some of the drivers there. I'm wondering, if you think about this 14% or so quarter on quarter guide for NSC into the fourth quarter, can you maybe walk us through how much of the step up is coming from the traditional data center ecosystem versus spiron seasonality, which I think is strong typically in the December and then A&D? So, yeah, I mean, I think if you – actually, every one of our product lines is growing into December quarter. I mean clearly I would say field instruments and service enablement is benefiting from seasonally stronger service provider spend. But I would say if I look at the, you know, projected NSC growth, I would say probably about a third is coming from the data center growth, about probably a third coming, actually about maybe 40% coming from data center growth. About a third ist coming from aerospace and defense, and the rest is a service provider. So it's actually in the NSE business, we're seeing nice growth across the board, anywhere between 10% to 30%, depending on the product line. Okay. Yeah. Okay, helpful. And then as a follow-up, Elon talked about expectations for sequential growth to continue through the fiscal year. Typically, March is a seasonally weaker quarter, and I assume some of these data center tailwinds are continuing as you think about calendar 27. Oleg, you also talked about entering the optical plane of semiconductor test, and we've been talking about things like NPO and CPO. Can you talk eye-level about the revenue opportunity for that new area of your business, who the early customers are, and uh if some of those revenues are considered in the in the guidance for um you know continued sequential growth through fiscal 27. thank you sure yes i mean the so you know traditionally our 11 production you sell into contract manufacturing uh mostly making um um i'll say the fiber optic modules you know pluggables uh as we see the uh npo and cpo penetrating we're now actually opening a whole new market segment which traditionally would be known also as a offset outsourced assembly and test and that's selling our optical test products into the kind of probe stations at the foundry and of course then the multiple insertions at the final assembly and test so that's a completely new market segments for viavi we made our first shipments this quarter, and we think this could be, you know, a sizable segment in a couple years. I mean, north of $100 million for Viali just by itself. So, it's a nice growth market, and it's a, I mean – clearly, an attractive, more predictable segment than many of our service provider segments the other area is you know we talked about also densification of fiber and um you know making these massive parallel connectors and that's um just like we are now seeing demand for our products in the semiconductor supply chain we're also seeing a marketing opening up with the fiber optic and the connector manufacturers so that's two new market segments that we are entering above and beyond our traditional kind of pluggable uh testing so that's the um a very attractive and it's clearly driven by market size and the volume and to the extent we see more densification more multi-core fibers more integrated silicon photonics closer to the asex that is going to be the principal driver of demand in those markets in terms of customers those are all the usual suspects i think you pretty much you know all the major um ai ai um processor and optical switch as well as the ethernet switch vendors who are the early adopters of the cpo and npo technologies great thanks for the the detail I like. Sure. Your next question comes from the line of Ryan Kutz from Needham and Company. Your line is now open. Please go ahead. Great. Thanks for the question, and yeah, great outlook, guys. I want to ask about a couple of product cycles within the data center and try to gain an understanding of where we are from your perspective, maybe starting with You have the 1.6T optical modules. Obviously, we're at an inflection point here. And from your perspective of selling test gear, has a lot of that production capacity been built out now for you? Or is there still a lot ahead for Viabi here in terms of selling into the production capacity side? I would actually say it's still very early innings. I mean, if you use baseball analogy, you're probably more like a second, third inning. I think the 1.6 peak will be probably sometime in the second half of next year. I mean in terms of approaching the high volume. I mean today we're still the highest volume shipments is 800 gig. 1.7 is just kind of starting to ramp up. And I can see 800 and 1.8 running concurrently for quite a while. But it will be probably until the end of next calendar year where the 1.6 will surpass 800 at the earliest. Got it. Helpful. Thank you. And maybe on some of these new OCS products that are coming to market for optical switching, I assume your fiber testers monitoring have some potential here to sell into this new product cycle. How would you assess that opportunity for you? Well, that one is, I think OCS is probably, from point of view of test content, is probably one of the biggest sweet spots in the market in terms of the dollar content for ports. So it's clearly, as these volumes grow, it's a very attractive segment for us. Got it. Great. and then um with regards maybe to shifting gears over to your uh defense and aerospace side uh any color there in terms of kind of you know product mix i assume this is mostly uh is it still dominated by your pnt into the drone ecosystem or are there other um products that are contributing much there i'd say it's um the drone eco system uh both aerial uh ground uh sea and undersea uh drones um followed by the um alternative gps to genesis so it's all the products to you know for anti-spoofing and jamming equipment where you need to provide resilient timing and navigation uh systems so it kind of including retrofitting in the field system as well as the new products being launched got it maybe one last if i can squeeze it in around um around wireless you talked about that you know hopefully hopefully bringing some uh recovery there um are you thinking that this opportunity that where um spacex is talking about building a new terrestrial carrier is that a real opportunity for you to sell your field gear into that and probably lab well i mean clearly if anybody is going to be doing it you have to develop the equipment so that'll stimulate um some of our sales uh but i think um i view it also as a positive because it's by introducing kind of the new player in the into the market and um you know clearly you know i know as much about as you you are in terms of all the initial pronouncements um i think it's all going to be uh feeding into the 6g and the airn deployment with the non-terrestrial network component so So I think the sooner somebody gets moving, it will be more of a change in equilibrium where things are kind of being currently in a limbo mode. I mean, there's R&D going on, and we're selling into that. But until things kick into high gear with the planned deployment, that's when you'll actually see volume picking up. So we welcome more innovation. Yeah. Thanks, Oleg. Sure. Your next question is from the line of Michael Genovese from Rosenblatt. Your line is now open. Please go ahead. Thanks very much. There's a lot of interest out there, Oleh, in NPO, CPO, so just any more color you can give us on whether there were revenues there in September or whether they really start in December. and if they're more on the npo or cpo from your perspective um and just any other color you can help give us on on that as a growth driver in 27 and beyond i think people would appreciate um i would say the i mean as i said that our first our first milestone uh shipments were in the september quarter um think of it as a single million dollar uh shipment just early beginning uh it's accelerating in the december quarter it's going to continue uh there's a little echo it will continue to accelerate into the march quarter and so on and so forth so it's um it started kind of it's we initially shipped in september and it's ramping in every quarter uh since that um going forward and it predominantly supporting a cpo um i think I think there may be some designs or NPO, but I think the overwhelming mix is supporting CPO. Okay, thanks for that. And then on the operating margin, I mean, the operating income rose more than the revenue did in the quarter. So even if we back out the full $11 million tariff refund, I'm getting an incremental operating margin about 70%. 70%. So does that seem right to you? And since in the past, you've mentioned numbers that are more in the 40s, maybe in the 50s, you know, was that too low? And are we actually looking at a higher incremental operating margin, you Know, just based on the evidence here? Well, I think the probably, you Know, all things being equal, you Know, there's always leading component versus lagging component. I mean, eventually you bring up some Apex costs and some bonuses and things like that. So early on when you get this incremental cost, disproportional amount falls to the bottom line. But I think also I wouldn't say it's 70. I think it's probably more in the high 50s, low 60s for this particular quarter. But I think the conservative good way to think about it is in the low to mid 50s as an incremental I'll fall through to the bottom line. Yeah, and Mike, also, you know, some of the operating expenses this quarter, it's about timing, you know, similar for the December quarter. Usually when you get to the March quarter, there is a little bit uptick, you know. The operating expenses. All the statutory expenses. And others, et cetera. So, similarly, you know when we kind of hiring kind of R&D, et cetera. So, it's all about timing. Nothing else. But I think you bring up the point, as we've been saying it for several quarters, We have a significant operating leverage in our business model as revenue goes up because effectively it's just higher volume, not necessarily more work content or more headcount and things like that. And the other thing is, of course, as you noticed, our tax expense is now in the single digits, which is the second operating leverage driven by our heritage from JDS Uniface where we inherited massive NOL. So that's finally all falling into place and we're seeing very strong both operating as well as the appearing leverage at the gross margin as well operating margin as well in that profit. The effective tax rate this quarter was down to 8%. So that kind of I think historically low for us. Yeah. Great. Okay, perfect. And then I'll just get one more in here. You know, just, I mean, this is a fantastic guide. I mean especially considering how much OSP is down sequentially. I mean it's a really, really strong guide. You the stock, I think given where the stock is and the reaction is not as strong as I would expect, I'm going to think it's pretty clear that there's still credit concerns rattling people and now there's the politics and sort just worry you know general worries about data centers um so just you know you've got good perspective on a lot of things um do you have anything to add to help us kind of think through those issues well you know i i take a you know I I think I agree with you I think the uh somehow we are being treated as the AI play which is we have a significant portion of our business exposed to data center but remember data centers I think The data center is not going away the new technology is going to continue to go into data centers um the refresh cycle of technology in data centers about three to four years okay so uh the same technologies that go into idea centers will go into even regular cloud data center okay and um you know only a portion of the data center business is driven by volume of investment i mean then let's not forget we also have expanded tam we're getting into semiconductor tests and into the fiber optic and connector manufacturing uh test it doesn't matter if it's ai data center or the cloud data center replacement it's still going to be a new market and then the whole thing is the shortening of product cycle densification is all that so i think only a portion of a data center spent for us is i mean the big portion is driven obviously by the capex but we are still very much lagging what was being spent or being committed we're still way behind that curve in terms of what the actual demand going to be and that's only the data center then there's the airspace and defense i mean if you look at it you could think about maybe there'll be less defense spending but i'll tell you one thing there'll be a hell of a lot more money spent on anything autonomous such as drones and the you know these lower cost uh weapon systems which require its own in internal pnt and we are very well positioned for that market and last but not the least you know um we had a lot of sales in 20 to 22. uh all of these products are very long in the tooth and there'll be a probably a multi-year we're approaching multi-air replacement the refresh cycle from service providers and that's kind of like the tide that raises all the boats so i think if somebody just takes it purely viavi is um ai play i think they are um grossly undervaluing uh the diversification of our end markets and what we're playing in and you know eventually uh wireless is also going to recover so today it's been for the last three years it's been very much of a headwind eventually it'll become a tailwind and that's obviously will kick in um another uh another uh stage of the uh growth so you know i feel pretty good about our business we are not a one-trick pony we actually fairly well diversified and there's multiple technology cycles that are favoring us and not only ai but the ai is clearly a big one yeah mike you know uh i made that you know in the prepared remarks we specifically highlighted that we see a continued growth you know in the next few quarters uh and that's uh you know that's updated it's it it does not change you know due to the political kind of aspect that you know you mentioned earlier i mean ai is not going anywhere and data centers will continue to i mean anybody thinks that the ai is dead i mean it's delusional because there's still the rest of the world and i mean there's a fundamental competition so i think It may not grow as rapidly, but it's still going to grow. And it's a pretty sizable investment already being committed. So, I mean, that's just kind of my view on it. Yeah, perfect. I appreciate the comments. Thank you so much. And I'll just say one more thing. We have never overhyped it. I mean there's been a lot of companies kind of got ahead of themselves. We always took a more measured and conservative view of how it's going to grow. In fact, we probably were a little too conservative. We thought we'll hit 500 million run rate the end of next calendar year. Then we updated it to the middle of the calendar year and now it's pulled in to the end of this calendar year, so if anything, we would probably should be accused of being overly conservative in that respect, so in a way, it kind of plays out. Your next question comes from the line of Andrew Spinola from UBS. Your line is now open. Please go ahead. Thank you. Oleg, along those lines on AI, I'm wondering from a high level, have you seen any changes in the buying by your customers, whether anyone has adjusted spend here or there or cut back in places, or is it pretty much the same as it's been? well actually you know i would say in many ways we have seen our expectations we were lagging the actual demand and if anything we've been getting more surprised by the increase in the span so i think we're playing catch up to a large extent i mean we as i was saying you know just before um you came on as you know we thought we hit 500 million the end of next calendar year and you know we have had to pull it in almost pretty much the entire year so i don't see any slowdown but then again i would say we probably were thinking much more conservatively in our outlook so to the extent there will be some pullback it still represents um an upside for us and that goes again to our prior remark also that we see continued growth in the next few quarters so So, again, it doesn't change anything for us. Got it. Elon, I have a question on the NSE margin, right? As they mentioned earlier, quite strong in Q1 and the guide for Q2. Just wondering, are there any residual Spirant synergies that are flowing through here in H1, or is this all related to scaling the business? this is all um scaling the business uh transparent integration was already completed um at least two three quarters ago it was pretty fast and successful and uh everything that you see right now is the leverage that we have from the growth that we are experiencing and uh i think like this quarter even last quarter we're seeing initial products which were kind of co-designed i would say or maybe integrated and uh probably next calendar year we're going to launch products that are fully integrated between spire and and the um vi portfolio so i think in that respect uh the product lines i mean the organizational we are fully integrated the product line wise i think we are already i'd say 25 percent there uh probably exiting next year we should be at over 75 percent got it and one last one oleg for you um you know a couple of years ago when I started covering you guys, I think the market was much tighter. Margins were a lot lower. You were a smaller business. You've obviously scaled up with Spirant and obviously AI's data center has given you a lot of scale, much better margins. And I'm wondering, as you approach this business, does anything change for you in terms of your longer term thinking, in terms OF where you're investing, what markets you're going after? And one of the things I'm particularly curious about is you're talking about the semiconductor test and some of your success in some of these other markets. I'm wondering if you're capturing more share on the R&D side, if you are seeing that, and if that's part of your strategy potentially going forward. Well, so I think, you know, when you started covering us, we were still heavily exposed to the service provider field instruments. But, you now, actually, gross margin-wise, maybe low 60s is not that much lower. But there, you know, because the company was a smaller size, the burden of R&D and sales was much higher. As a result, you had a much lower operating margins than NSE. So the single biggest driver of expansion of operating margins is the top line growth, right? On top of it, you now, bringing Inspirant, it clearly comes at the higher margin. So that kind of helps the overall picture. But even you look at it, Inspirants had the nice growth, But it's, you know, low teens. I mean, our organic business grew about 50% year-on-year for the September quarter. So it's just purely, pure VIAVI with no acquisitions, right? So in that respect, you Know, the products we're getting into, you know, clearly just the volume of sales, a lot of it just falls right to the bottom line. As we talk about the growth, I mean clearly one of the big areas we focused was the R&D test, and that is kind of deleting the market. But the single biggest volume that scale up when we talk about semiconductor tests is the production, right? So, clearly, we are in every lab for every high-performance semi-company when they are testing their PCI Express or their 1.6 terabit, you know, Ethernet and so on and so forth. but it's the volumetrically what drives the revenue and volume is when it goes into the production test. And by production test, I'm talking about not only the traditional testing in and out of the pluggables, but it is now up to five insertions from the wafer probe to the known good dye testing to the optical engine test to the assembled substrate and the optical engine all the way to the final test and that's the piece where we are seeing our growth happening and we started shipping in the first quarter into that market and the other one is also came out as the complexity densification is going on you're going to multi-core fiber and you go into massive parallel fiber optic connectors we're now seeing our equipment also being pulled into the fiber optic and connector manufacturing supply chain so it's going well beyond the traditional kind of um you know optical module test and you know uh the last but not the least i think is the ocs we've been in this market for many years now the volumes that were fairly low but now they're starting to scale and we're seeing a lot of demand for our products also driven by the OCAS growth. That's great. Hope that helps. Thanks a lot, Oleg. Thank you. Thanks, Andrew. Your last question comes from the line of Tim Chabageau from Northland Capital Markets. Your line is now open. Please go ahead. Good afternoon. Congrats on the great results. And I want to go back to the commentary on the CPO-NPO opportunity. And I think you mentioned expectations that could be $100 million plus business. And I want to try to relate that to what your customers are seeing, right? Lumensum just talked about a $5 billion order there, I'm sure, over multiple years. But can you relate revenue at that level to opportunity for VIAVI? Should we be thinking something, I don't know, low to mid single digits in terms of, you know, if this is a $2 billion annual business for your customers, is it $100 billion for you? On the one hand, on the other, would you say the same thing about OCS in terms of that potential to get to $100 million plus as you did about MPO? So when I talk about $100 plus, it's purely semiconductor. That does not include OCS, right? this is more like your uh ethernet switching or ai processor and things like that ocs is a different animal um there uh the amount of content per port is quite significant because you know also the time the testing is quite sizable so i would say i mean generally you know people say you know uh they're gonna do two billion dollars my question becomes over is it like an annual run rate or is it like over three years or what have you right clearly i mean from there we can let's let's say it's annual capacity annual well i mean to support uh that much uh that probably would be in the um uh tens of millions of dollars maybe approaching like between 15 and 100 million dollars Great. And, you know, I was only trying to say as you look at the OCS, yeah, up to 5% of your revenue. Beautiful. No, what I was trying to say is to the extent we're talking about the CPO opportunity, would OPS, oh sorry, OCS be be of a similar magnitude over time or greater understanding they're not related to each other um I think the um CPO with the switches and Asics is a higher volume opportunity because I mean they just volumetrically it's a much bigger volume business right because think about when you go to a CS you're really getting into the core so you don't need now you have a lot of test time for one of them because you could have like 300 by 300 switch but it's sitting as kind of you know at the center uh if you go i mean when you talk about the cpo with asics and uh um you know uh cpus there's many more of them uh on the edge and you need multiple insertions so there's i mean it's kind of hard to tell because i think the there's not enough data points to really see how things will shake out but there you have a much bigger volume of asics right unit volumes are much higher and you need uh multiple insertions so i'd say my bet on that is probably going to be some would be maybe i'll say ocs is a lower volume but higher value for you for uh shipment and the uh cpo with the asics it's a much higher volume and lower value for shipment Great. Thank you. If I can put one more in there. You mentioned organic growth at 50%. I'm going to assume the data center growth was greater than that on a year-on-year basis, and also now is more than 50% of NSE revenue. Are both of those fair statements at this point? Yeah, so if I look at September quarter last year versus this year, so, you know, NST was $216 million in September 26. Sorry, and today it's $25. And then today it is $376. So there is a $160 million growth, okay? $52 million of it is aspirin. So you back it out, It's about $100 million growth. And I would say the data center, yeah, it's clearly more than 50%, right? And I'd say aerospace and defense is the second highest. And I'll say aerospace in defense and field instruments are, I would say, a little bit north of 50%. And data center is, I mean, like, almost, you know, 2X. Great. We're talking growth rates there, I assume. But thanks. Growth rates, yeah. Thank you. We have now reached the end of the Q&A session. I will now turn the call back over to Thabuti Nayyar for closing remarks. Thank you, Jonathan. This concludes our earnings call for today. Thank you for joining everyone. Have a good afternoon. This concludes today's call. Thank you attending. You may now disconnect.