Good day. Thank you for standing by and welcome to II-VI Incorporated Fiscal Year '22 First Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. I would now like to turn the conference over to your speaker today, Ms. Mary Jane Raymond, Chief Financial Officer. The floor is yours.

Thank you, Alex, and good morning. I'm Mary Jane Raymond, the Chief Financial Officer here at II-VI Incorporated. Welcome to our Earnings Call today for the First Quarter of fiscal year 2022. With me today on the call are Dr. Chuck Mattera, our Chief Executive Officer, and Dr. Giovanni Barbarossa, our Chief Strategy Officer, and the President of the compound semiconductor segment. This call is being recorded on Tuesday, November 9, 2021. Our press release and our updated investor presentation are available on the Investor Relations tab of the website, ii-vi.com. Just as a reminder, our remarks today may contain forward-looking statements. These remarks are given in the context of today only. They are subject to various risk factors and are subject to change, possibly materially. We do not undertake any obligation to update these statements to reflect events subsequent to today, except as required by law. A list of our material risk factors can be found in our Form 10-K for the year ended June 30th, 2021, together with our subsequent filings with the SEC. Our remarks today do not constitute an offer to sell, nor do they constitute a solicitation of an offer to buy any securities. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933 as amended. Finally, with respect to today's call, we will also present some non-GAAP measures for which the reconciliations to GAAP are found at the end of each document that includes those measures, such as the press release or the investor presentation. With that, let me turn the call over to Dr. Chuck Mattera.

Thank you, Mary Jane. Good morning, afternoon, and evening to all of our stakeholders from around the world, including our equity and debt investors, our dedicated employees, and our valued customers and suppliers. Fiscal year 2022 is off to a very strong start. Our backlog increased sequentially from $1.25 billion to $1.4 billion. Our revenue of $795 million represents very strong growth at 9% compared to Q1, FY’21 and was squarely inside our revenue guidance range, despite continuing supply chain headwinds, which affected our ROADM business the most. The shipments of those affected products have been rescheduled to subsequent quarters, and we are working to accelerate our recovery plans. Part of our action planning is to expand our investments in analog and digital ICs to improve the resiliency of our supply chains. This will also help to maintain our market and technology leadership in the next generations of high-speed Datacom transceivers, while lowering our purchased material cost, and establishing new component OEM market channels for us as well. Our gross margin for the quarter was 40%, up year-over-year and sequentially. This was achieved through the launch of new products with higher margins, improved productivity, and ongoing efficiency, and it benefited from our sustained focus on the health and safety of our people first. These improvements are due to the well-synchronized efforts of our employees with key counterparts at customers and suppliers, taking the meaning of partnership to new levels. We are experiencing sustained and sustainable demand. In Q1, revenue grew from contributions from virtually all of our end markets and leadership in the consumer market, where we saw the revenues increased 30% sequentially and 7% year-over-year. Two important indicators of the strength of our organic growth are our fourth consecutive quarter of record backlog, and the sustained growth we're seeing across our markets. I believe one of our most important core strengths is the unique diversity of the market segments in which we have chosen to operate. In communications, our largest market today, we saw further evidence of a super cycle well underway for 200G and 400G Datacom Transceivers, 400G and 800G coherent telecom transceivers, and acceleration of our customer-configured open line and optical transport solutions. Our results this quarter were achieved through a relentless amount of hard work and preparation that accompanies the sustained intensity of a winning team. We made adjustments in the face of market realities, as we continue to balance our raw materials cost increases against product price increases with longer-term and higher share commitments. Taken all together, these extraordinary efforts enabled us to deliver $0.87 non-GAAP EPS at the high end of our EPS guidance range. Turning now to the future, I believe Q2 should be another strong quarter for us. And as you can tell from our guidance, we are still planning on growing sequentially in the quarter. I am excited about our potential this year, and looking out past Q1, we see continued market momentum and strong interest from existing and target customers in our capacity expansions, and R&D investments in technology and our new products. Our targeted investments in R&D and capital are accelerating to support our exciting growth plans beginning in FY’23 and FY’24. In particular, we are stepping up our investments in important compound semiconductor platforms with silicon carbide and indium phosphide, which leverage core strengths of II-VI and the former Finisar. In conjunction with these investments, our plans call for us to invest in new facilities and capital equipment, and we will incur increased costs beginning this quarter as we begin to hire a few hundred engineers and operators along with the startup, proven, and qualification of these new and expanded lines in the U.S. and in Europe. I believe that collectively, these strategic investments will enable us to be very well-positioned to pursue exciting new growth opportunities in the years ahead. When I reflect on all we accomplished in the quarter, I also look back on the two years since we closed the Finisar acquisition, and I'm amazed by the ability of our people to efficiently integrate, deliver on the aggressive cost synergies, and leverage our complementary strengths and portfolios to realize the power of the combination. I believe that we've demonstrated through our new product leadership, operational excellence, and customer intimacy, that we have achieved a substantially different scale and momentum during the last 2 years. A good example of this is that our cost synergies for the Finisar acquisition originally targeted delivering $150 million in 3 years, and that has now exceeded $180 million after 2 years. Another example of our growth strategy in compound semiconductors is our bold investment in silicon carbide materials and devices that will be required at a mega scale during the next decade. We're in the next phase of a large multiyear investment and aim to build a meaningful position in what we believe will become a $30 billion addressable market by 2030, while contributing to the carbon neutrality goals of the world. So, we have an exciting organic investment thesis focused on addressing the mega market trends underpinning mobile, intelligent, and electric. We will leverage our endowments from the past acquisitions and investments, combined with those we're making now, and we plan to make in the future. These efforts should provide us with exciting and sustained organic growth opportunities with market-leading and innovative customers over the next few years, and enable us to further strengthen our diversified base as we move beyond FY’22. Turning now to the Coherent acquisition, we believe Coherent is the gold standard of laser technologies and like II-VI has really great people and the unique position in the diversified markets it serves. Coherent is highly complementary and extremely valuable. I believe that the auction process revealed that the high stakes were clearly understood by all 3 bidders. We have begun to work on the integration planning process during which my team and I have been able to meet well over 100 of Coherent’s senior leaders, and we're energized by the engagements in the common denominators of values and culture. These engagements have given me extra confidence that we are in the process of creating something really special, really unique, and really valuable. With that combination, it's not only going to be a bigger Company, but we set our course on building an even better Company together, aimed at accelerating the new opportunities that lie ahead, while we make our complementary strength to be leveraged. Indeed, we have a lot to learn about and from each other. Coherent has a complementary business model to II-VI and it will allow us to diversify, lower our exposure to any one of our market cycles, and allow us to sustain a steady investment in R&D and capital over the cycle. After closing, we will be able to get busy on targeting revenue synergy opportunities as we work to leverage our increased scale and complementary capabilities to capitalize on new opportunities across our markets. I am very confident in our people's ability to create real value in the years ahead. With that, let me turn it over to Dr. Giovanni Barbarossa, our Chief Strategy Officer, and the President of our compound semiconductor segment to provide us with an update on our results. Giovanni?

Thank you, Chuck, and good morning. In Q4, we delivered growth across our commercial end markets despite supply chain challenges. In Q1, we continue to build on that momentum and as a result, our fiscal year 2022 is off to a strong start. All of our operations are running as planned, producing high yields and quality output. In fact, I'm pleased to report that for the last quarter, we shipped all of our lasers for 3D sensing with 0 defects, our benchmark for the highest quality that we've been striving to set for the compound semiconductor industry. This is a result of a relentless multiyear investment in operational excellence supporting the substantial increase in the volume of lasers that we're producing at our vertically integrated wafer fabs in Sherman, Texas, and Woodward, New Jersey. Our communications revenue grew 4% year-over-year, with most of the growth coming from Datacom. Our 200G, 400G, and 800G products now represent 25% of our transceivers revenue from about 2% a year ago, and it grew nearly 70% sequentially. Thanks to our market-leading platforms, we expect to grow this portion of our Datacom business to one-third of the total by the end of fiscal year '22. It is worth noting that our optoelectronic components for Datacom transceivers enjoyed an all-time external revenue record in this quarter. I'm pleased to report that our IC-TROSA recently won the award for the Most Innovative Product in Optical Integration at the European Conference on Optical Communications, demonstrating our leading innovations in Coherent technology. Our IC-TROSA is the core engine of our 400G QSFP-DD Coherent transceivers which, to the best of our knowledge, have the highest output power in the market. Our remarkably high output power is enabled by our tunable laser and modulator technology based on indium phosphide, and it is truly game-changing as it enables IP over DWDM networks which significantly reduces cost of ownership by eliminating an entire layer of equipment. Network service providers, such as Windstream and data center operators have already started to take advantage of our differentiated offering to streamline their deployment of 400G services with significantly less cost, power consumption, and network complexity. It is worth noting that external revenue for our tunable coherent components and modules acquired to finish, which enable our clear transceivers increased 16% sequentially, a more than double versus Q1 fiscal year '21. A clear sign of the competitiveness of our tunable laser platform and our successful market penetration. Moving to the industrial market, our revenue grew 53% over Q1 fiscal year '21 and was flat sequentially, following the strong Q4. Growth was across all industrial applications and our revenue for components for 1-micron on all fiber lasers are now 50% of our industrial business. As I noted in the last call, we believe we are now delivering more aggregate pump laser power than any other maker of fiber laser components or systems in the world. This is due in part to the economies of scale that we've achieved with our 6-inch gallium arsenide platform by serving multiple markets, including industrial, communications, automotive, and consumer electronics. Revenue from our consumer electronics market, most of which is 3D sensing, was a record for Q1 as it grew 7% compared to Q1 of fiscal year '21, and more than 30% sequentially. During the quarter, the forecast for our global 3D sensing demand increased by 19% for the year before requiring us to operate all of our fabs through 3D sensing, at a high level of utilization for the biggest production. In addition, having been selected as the partner of choice by several of our customers, we are in the process of increasing our investments. Particularly in research, development, and manufacturing, including hiring for nearly 500 dedicated jobs to support the incremental growth from future products, which we believe will enable novel functionalities in our customer's products. Components for the semiconductor capital equipment market grew 18% year-over-year and the demand for these products continues to remain strong. This is partly why we've been successful in increasing prices to support our investments required to expand capacity in response to the strong market demand. We expect to see the demand expand as COVID restrictions relax, and global fab operators can resume production and commissioning of new systems, including for II-VI as we expect to see these numbers of those systems nearly doubled over the next 24 months. In our silicone carbide business, revenue grew 50% compared to Q1 of fiscal year '21 and 4% sequentially. As Chuck mentioned earlier, our investments in silicon carbide are underway and encompass a variety of applications in vertical end markets. We expect to see our substrate business continue to grow and are proud to report that we started pre-production of gallium nitride on silicon carbide on our 150-millimeter substrates at our Walden fab in New Jersey, with full production plans for the first quarter of calendar year '22. With that, let me turn this over to Mary Jane.

Thank you, Giovanni, and good morning. Our Q1 revenue was $795 million, distributed as follows: 50% in North America, 21% in China, 20% in Europe, 6% in Japan, and 3% in the rest of the world. The end market revenue breakdown was 67% in communications, 13% in industrial, 7% in consumer, 6% in aerospace and defense, and 7% in other markets. Our non-GAAP gross margin was 40%, and the non-GAAP operating margin was 18.9%. Supply chain costs and COVID-related expenses were not excluded from the non-GAAP results, which included $4 million in COVID expenses and $2 million to secure parts for our customers. The Company has committed approximately $17 million in additional costs to secure parts from suppliers, which will be realized over the next 3 to 5 quarters, depending on the availability of contracted components. At the segment level, non-GAAP operating margins were 15.7% for photonics and 25.6% for compound semiconductors, with new products playing a key role in sustaining these margins. Our record backlog of $1.4 billion includes $914 million for photonics and $483 million for compound semiconductors. This backlog consists of orders expected to ship within the next 12 months, and we have numerous orders that extend beyond this period as customers secure capacity for what many view as a super-cycle. GAAP operating expenses, consisting of SG&A and R&D, were $221 million in Q1, excluding $20 million in amortization, $23 million in stock compensation, and $12 million in M&A and integration costs. Non-GAAP operating expenses were $168 million, representing 21% of our revenue, and included our silicon carbide investments. Cost synergies from the Finisar acquisition, initially targeted at $150 million, have now reached $180 million at the two-year mark. Additionally, we have officially launched the coherent synergy planning process. Our quarterly GAAP EPS was $0.50, while non-GAAP EPS was $0.87, with total after-tax non-GAAP adjustments of $43 million, including a positive FX reversal of $5 million. The diluted share count for GAAP results was 116 million shares, and for non-GAAP results, it was 125 million shares. Both GAAP and non-GAAP EPS calculations are available in the ending tables of our press release. Stock compensation was $23 million for the quarter, with $4 million in cost and $19 million in operational expenses. We anticipate stock compensation in Q2 to be $19 million. The Company recorded $8 million in non-operating income this quarter, which includes $5 million from positive foreign exchange, or $3 million in non-operating income if excluding FX. We expect our regular non-operating income going forward to be around $1 million. Pre-tax interest expenses totaled $12.2 million, down from the previous $14 million due primarily to a change in the accounting treatment for convertible debt. For the convertible debt, the add-back for EPS calculations is now $600,000 after-tax instead of the earlier $3.1 million; however, this does not impact the overall EPS calculation. The starting income for this quarter is $2.5 million higher because the ongoing interest at a run-rate is $11.2 million rather than $14 million. There was also a one-time interest charge of about $700,000 this quarter that won't recur. The adjustment for convertible debt also means our standard diluted share count for EPS is currently 116 million shares at our income levels. Cash flow from operations this quarter stood at $52 million, while free cash flow amounted to $5 million. We intentionally built up about $50 million in inventory, including nearly finished goods and essential components, to ensure we can ship products as soon as critical parts are available. We paid down $16 million of our debt in Q1, leaving us with a net cash position of $184 million. As of September 30, the value of our convertible debt transitioned to the current portion of long-term debt since it matures in September 2022. The Company had liquidity of $2 billion as of September 30. Capital expenditures for this quarter were $48 million. For fiscal year 2022, we expect capital expenditures to range between $325 and $375 million, or roughly $70 to $100 million quarterly. So far, we have committed $95 million of capital expenditures for silicon carbide. Depreciation expenses in the quarter were $49 million, and we anticipate quarterly depreciation to be around $50 to $55 million going forward. Foreign exchange impacted us with a gain of $5 million, primarily driven by the Swiss franc. The effective tax rate this quarter was 18%, benefiting from renewed high-tech status in several countries, as well as utilizing other tax credits and FDII deductions to offset guilty income. We expect a tax rate of between 18% and 20% for fiscal year 2022. The Company incurred $12 million in costs for M&A integration and other expenses, mainly related to coherent and some for Finisar. Looking ahead to Q2 of fiscal year 2022, we forecast revenue to be between $790 million and $840 million, with non-GAAP earnings per share projected at $0.75 to $0.95. The share count is 116 million for the lower end and 125 million for both the midpoint and the higher end. Details on the EPS calculation, including dividend treatment, can be found on page 16 of the press release, using today's exchange rate and an estimated tax rate of 19%. For non-GAAP earnings per share, we will add back to the GAAP earnings pre-tax amounts consisting of $21 million in amortization, $19 million in stock compensation, and $21 million to $26 million in transaction and integration costs. We expect transaction costs to increase as we enhance planning for coherent, including taking on debt and finalizing year 3 synergies. The actual dollar amounts for non-GAAP items, tax rate, exchange rates, and share count may vary. Before we move on to Q&A, please remember that our answers may contain forward-looking statements, and actual results may differ from forecasts due to several factors including changes in product mix, customer orders, supply chain disruptions, competition, regulatory changes, COVID-19 requirements, and general economic conditions. We ask that each firm limit their inquiries to one question without follow-ups to allow us to accommodate everyone in today's call. We aim to conclude this call by 10:15 AM. Alex, please open the line for questions.

Your first question comes from Ananda Baruah from Loop Capital. Your line is now open.

Good morning, everyone, and thank you for taking my question. Congratulations on all the progress and the exciting developments. Chuck, I want to ask, and anyone can chime in, but in your prepared remarks, you mentioned something about implementing ASP increases along with longer-term and higher share commitments. I would appreciate any additional context on that and if it's something we should consider as we look ahead. Thank you.

Good morning, Ananda. Thank you for your question. Well, we're always trying to position ourselves with customers to continue to drive value for them by scheduling long-term commitments and higher share awards that we can make the most efficient use of our factories on their behalf, and I think that as we continue to feel the pressure of increasing costs, as Mary Jane referred to in the supply chain, we are trying to balance all that out with the best position we can be in with customers for long-term, larger orders. Okay.

I got it. And should we think of this as being potentially incremental to the current revenue run rates across these businesses?

Yes.

Your next question comes from the line of Paul Silverstein from Cowen. Please go ahead.

Thanks, guys. I guess all focus is on supply chain impact, and I appreciate you discussed it during the call, but I'm hoping to Chuck, Mary Jane, that you all can give us some quantification of how much was the impact on revenue. It would seem to be significant given the 55% year-over-year growth in backlog and 12% sequential growth along with your extremely strong bookings. But let me ask you the direct question. How much of an impact was there on revenue? How much of an impact are you expecting this December quarter, and same question with respect to margins?

Good morning, Paul. Thank you for your question. Looking at the high end of our guidance for Q1, we definitely aimed for the maximum. There were several factors at play, with our supply chain being the primary contributor, followed by the supply chain issues faced by our customers. It’s a balancing act, and it wouldn't be accurate to say that it was solely due to the supply chain. It's about the overall logistics involved in scheduling and operating our complex factories, and I think we did an excellent job handling it. For this quarter, we are working closely with our supply chain partners to address these challenges and close the gap. It’s been an all-hands-on-deck effort, including my discussions with the CEOs of several key electronic and integrated circuit suppliers. We are committed to doing everything possible to expedite progress, but uncertainties remain, and we will only know more about their impact on us after we get through the early to mid-December period. We’ve provided our best guidance, and just like in the first quarter, our goal is to reach the high end.

Can you clarify the 43% bookings growth? Are you confident this accurately reflects demand trends, or is there a concern it indicates overordering by customers?

Well, Mary Jane can add to it. I am not sensing or assessing any overordering in the patterns that we have been able to observe. And in discussions with customers, there's no indication of that whatsoever. Would you like to add to that, Mary Jane?

I think that's really right. We've talked before. We watch certain patterns in our bookings to be sure that we can detect items that could be double ordering. And as Chuck made the most important comment, the amount of time that we have spent both with our customers and suppliers to be sure that we're shipping everything we can to them amid the supply chain shortages, there is, I think, a good sense on our part that we are not experiencing double ordering.

All right. The difference between the growth in your bookings and your revenue guidance is clearly influenced by supply chain challenges.

Yes, we need to move on, but as we've mentioned several times, the increase in bookings does not accurately predict what we will ship in the next quarter. We try to emphasize that it refers to a 12-month period for a reason. But yes, you are correct. We should probably move on.

Your next question is from Samik Chatterjee from JPMorgan. Your line is now open.

This is Jo Cardoso, on for Samik. The one question for me is just, you highlighted a lot of investments in your prepared remarks, specifically around analog and digital ICs, as well as silicon carbide and phosphide. I was just curious if you could talk on the level of investments that's necessary to drive those plans, and how should investors think about the timeline of when those investments begin to materialize? Thank you.

Thank you for the question. This is Giovanni here. We have two main investment directions, focusing on silicon carbide and indium phosphide. Both are aimed at supporting various markets and applications. Our strategy has always been to diversify our investments to mitigate risk. As mentioned earlier, we will combine capital and human resources investments to prepare for incremental growth across both platforms and multiple markets. We anticipate that the effects of these investments will not be realized for at least two quarters, so we expect to see results around the middle of fiscal year 2023.

Your next question is from James Ricchiuti from Needham & Company. You may ask your question.

Thank you. Good morning. I was wondering if you could comment on what you're observing in the industrial segment of the business, both inside and outside of China, as there have been some mixed signals, particularly in the industrial laser business within China. Could you provide some insight on that and the outlook for that part of the business? Thank you.

Hi James, this is Giovanni. Thank you for your questions. Our Industrial business has been performing very well. As I mentioned earlier, we have noticed a significant increase in demand for our pump lasers, especially from China, where we support several fiber laser manufacturers. Over the years, we've successfully built up this demand. We are likely now surpassing the pump power of the leading competitor. Consequently, we are experiencing strong demand for our components. It is clear that some companies might lose market share in certain regions, which presents an opportunity for us to gain share in the chip supply as these companies transition away from the incumbent. We view this as beneficial to us.

Next is from Meta Marshall from Morgan Stanley. Your line is now open.

Great. Thank you. Giovanni, I wanted to follow up on your comments that either you're shipping everything you could out of service, and just to clarify whether you were kind of qualified on all kind of client platforms of the major 3D sensing customer. Thanks.

Yes, we are. We're shipping all products that we've been asked to ship and qualified and so forth. So that's absolutely the case.

Next question is from Jed Dorsheimer from Canaccord Genuity. Your line is now open.

Thank you for taking my question. Chuck or Giovanni, could you discuss indium phosphide? It appears that this technology and platform are starting from a lower maturity level, yet particularly with coherent technology, it seems like it could be very important for 1550 and beyond. I would appreciate any details you can share regarding the scalability of this critical technology and its significance within II-VI.

Thanks, Jed, for the question. When we announced the deal with Finisar, we highlighted the strategic importance of their indium phosphide platforms, which have been in development for over 20 years. This technology has a wide range of applications that we believe will be very impactful. Upon acquiring Finisar, our focus was particularly on Datacom and telecom lasers, photodiodes, modulators, and photonic integrated circuits, enabling various modules and subsystems, including the IC tools I mentioned earlier. Indium phosphide has a unique longer wavelength than gallium arsenide, making it particularly useful in optical applications where eye safety is a concern, such as automotive LiDAR, consumer applications, and industrial sensing software. Additionally, we are making strides in electronics for base stations, especially as we transition from 4G to 5G and eventually 6G. We consider indium phosphide to be one of the top technologies we will rely on for 6G amplifiers, and though this development will take 6-7 years, we need to start our efforts now. This investment is significant for us and spans multiple markets and applications, leveraging our wafer fabs to achieve a scale that we aim to make the largest in the world.

Next question is from Richard Shannon, from Craig-Hallum. Your line is now open.

Hi, everyone. Thank you for taking my questions. I’d like to ask about 3D sensing and Vixel rays. It seems you're discussing investments in both capacity and research and development, suggesting a growth trajectory. Many believe this will have a long-term impact, but I’d love to hear your perspective on when you expect to see growth in this area, especially regarding immediate applications in mobile and what you anticipate for future applications like automotive.

Hi Richard. Thanks, this is Giovanni. Thanks for your question. I want to clarify that I didn't mention any incremental opportunity; this is not related to Vixels. We are targeting several applications across multiple markets, and we just need to prepare for the upcoming demand. As I mentioned to Ananda, in about three quarters, we may see that those investments are starting to pay off.

Next question is from Mark Miller from Benchmark Company. You may ask your question.

You indicated the new products help boost your margins. And I'm just wondering in terms of the existing backlog, how does that margin profile compare to what you imposed in recent margins?

I would say that the backlog is generally positive for margins. I don't consider it to be 200 basis points, but overall, especially when you think about most of the supply chain effects leaning towards that side, it likely contributes positively to margins. However, it's not a large figure, but it trends more in that direction than not.

Next is from Amanda Scarnati from Citi. You may ask your question.

Good morning. Can we just talk a little bit about the tenure silicon carbide deal that was announced yesterday? Can you maybe size what this looks like or give a little bit more detail on the opportunity there and other opportunities that you're starting to see within silicon carbide?

Good morning, Amanda. It's another example of our ability, both to market and position ourselves into what we think will be a large and growing supply chain. They've gone through the usual process of evaluating a number of suppliers. We understand from the feedback that we received on our 150-millimeter substrates that we're best-in-class. And so, we believe that on the basis of performance and scale that we're putting in place, and our absolute determination to serve the market at multiple levels of integration, that customers have come to us to be able to generate a long-term and secure supply chain.

Next is from Simon Leopold from Raymond James. Please go ahead.

Thanks for taking the question. I wanted to see if maybe you could drill down a little bit on the Datacom trends. I think in the past you've indicated roughly a 50-50 split between Datacom and Telecom and the communications, but it sounds like it's moving the other way. And within that, if you could highlight the exposure to the hyperscalers. That sounds like an interesting trend that I'd like to hear more about. Thank you.

Hi, Simon. Thanks for your questions. Absolutely, I believe we are really gaining share at the hyperscalers, whether it’s at the 200, 400, and eventually working on 800. It's a great trend. One of the main reasons we were interested in the Finisar platform was because the team is doing a fantastic job regaining share. This is really great momentum for us. I think you’ve got the picture.

I would like to add to that, Giovanni. Simon, since we acquired Finisar, we have not only been able to optimize our global footprint. But based on the diversity of that global footprint, our diverse customers have asked us to align our output from multiple different factories for them. And I think there's really been a very strong attraction to these large and growing customers of II-VI.

Your next question is from Tim Savageaux from Northland Capital. Your line is now open.

Good morning. I wanted to follow up on Datacom, which appears to be your largest business currently. Can you confirm that Datacom now represents a significant majority of your communications and photonics business? Considering the growth in the 200 and 400 gig segments, which saw a 60% increase last quarter and 70% increase this quarter, do you anticipate these trends to continue? Also, is the 100-gig segment expected to remain stable? Thank you.

Hi, Tim. This is Giovanni. Well, we hope we'll continue to grow 70% sequentially forever, but it's not likely to happen. So, I think the growth rates will remain strong as we get more and more slots designed in. And I think one other G is pretty stable. I think the growth in 200G is really significant. We're trying to cut; we are catching up, there's no doubt that's why the growth rate is higher than the market. We believe we're gaining share. It's a very strong momentum. As I said to Simon, the team has delivered on a fantastic job executing and delivering where the best performance, quality-wise from just a functionality standpoint and delivery standpoint, really doing a great job.

Next is from Blake from Bank of America. Please go ahead.

Hi, this is Blake filling in for Vivek. Thanks for taking my question. This builds off a previous question, but as you've highlighted on the call, there are several new strategic initiatives ahead, as well as continued integration from acquisitions that are providing synergies. Moving forward, I was just curious on the view of long-term gross margins, if they can potentially be at the high-end or above that 38% to 42% range, that's sustainable. Thank you.

So, the Company is very focused on improving its gross margin in the long-term since most of the products that over the most of the end markets that have the potential to really change their percentage in the total 100% of the Company. The ones most likely to change their percentage tend to have a higher gross margin. I do think that in the fullness of time the Company will probably move its margin range at the present moment up.

Next question is from Dave Kang from B. Riley. You may ask your question.

Thank you. Good morning. Just wondering if I could get some more color as far as your fiscal second quarter revenue assumptions, in terms of Datacom, Telecom, industrial and consumer trends. Whether they can be up or down sequentially.

Generally speaking, we would expect to see nearly all of them trending up from the first quarter because, historically, the first quarter has been the lowest quarter of the year. We may see some, as we've said earlier, supply chain or interesting seasonality in that December quarter. Sometimes there's a little bit of a toss-up whether Christmas is a bigger effect than Chinese New Year. But generally speaking, I would say that we're expecting to see all of them generally moving sequentially up.

Next is from Christopher Rolland from Susquehanna. Your line is now open.

Hey, guys. Thanks for my question. I did want to follow up on the Datacom angle too because I think there is some growing optimism around a really big 2022 here for everyone playing in the space. Can you talk about your supply situation there in particular? Do you have enough to support, outsize demand into next year? I know Lumentum was out saying they were internally constrained on this side. So, I was wondering on that. And then on the supply front in general, what are the kind of biggest self-inflicted constraints that you see across your product set?

Thank you for your question. Honestly, I don't believe there are any self-inflicted constraints. I think we have capacity for our products, whether they're at the component level, subsystem level, or system level. As Chuck mentioned earlier, we have a big advantage which we are leveraging. Right now, having a diversity of supply locations. For example, we have our high-volume manufacturing team in Malaysia, which is preferred by some of the hyperscalers, particularly in North America, as they want to avoid supply chain from China. That's a big advantage. But in terms of components and devices, which we procure, I want to remind you that we are substantially vertically integrated, including the ICs which we design. Of course, there are some challenges getting ICs from foundries that are wireless suppliers, but so far, as we said in the prepared remarks, the partners that should be impacted the most are actually mostly Telecom partners not Datacom partners. As Simon mentioned earlier, it's kind of shifting a little bit within Datacom and Telecom as Datacom is growing probably faster than Telecom, primarily because we're gaining share, particularly at hyperscalers, then that somehow mitigates the challenge of the supply chain affecting the Telecom pilots. So, I hope this gives you a better picture.

Next is from Tom O'Malley from Barclays. Please go ahead.

Hey guys, thanks for taking my question. In the prepared remarks, Chuck, you talked about digital IC investment, and Giovanni, in response to some other questions you talked about accelerating share gains at 400G. Either one of you, could you just talk about the importance of having a DSP at higher speeds? Is that something that you guys want to do internally, or do you think you can continue to gain share being a customer of a merchant vendor?

Thank you for the question, Tom. While our strategy is ambitious, we are open to either making or buying solutions. We have partnerships to develop our own DSP when it aligns with our needs, but there are situations where purchasing is the better option. Essentially, we are flexible; if we find a more appealing solution elsewhere, we will acquire it. Our main focus has been on optical engines, particularly the IC tools I mentioned, which are compatible with any DSP. Additionally, our unique optical performance features, such as the highest output power, allow for innovative architectures that wouldn’t be possible otherwise. With indium phosphide and fully automated assembly lines in-house, we remain cost-competitive and capable of serving a broad range of customers and competitors, which sets our products apart. As for the DSP, our decision-making will depend on specific applications, weighing factors such as time and cost.

That ends our question-and-answer session, I will turn the call back over to the presenter for closing remarks.

Thank you very much, Alex. We want to thank everyone for joining us today. We look forward to talking to you as time goes on here on our various interactions. We want to wish you all a very good day. Thank you so much for joining us. Bye.

That concludes this Conference Call. Thank you all for participating. You may now disconnect.