Earnings Call Transcript
COHERENT CORP. (COHR)
Earnings Call Transcript - COHR Q3 2024
Paul Silverstein, Senior Vice President, Investor Relations
Good day and thank you for standing by. Welcome to the Coherent Corp Fiscal Year '24 Third Quarter Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Coherent's Chair and CEO, Dr. Chuck Mattera.
Chuck Mattera, Chair and CEO
Thank you, Paul. The excitement continues at Coherent where we delivered another solid quarter. Before diving into the details, I will comment briefly on the CEO search process. As previously disclosed, our Board has retained a leading executive search firm to help identify and establish a selection committee to evaluate CEO candidates for approval of both internal and external candidates. Our focus is on preparing for and selecting a new CEO with the necessary skills, knowledge, and experience to seamlessly and successfully succeed me and to help ensure Coherent's sustainable growth and success. With that said, I will not comment on it further during today's call. Rather, I will focus my brief remarks on our super-exciting performance in Q3 and the exciting setup for Q4 and fiscal year '25. As I have stated previously, leadership development is among the CEO's most important responsibilities. For the quarter, we delivered solid sequential improvement in revenue and EPS, both of which came in above the high end of our guidance. Due primarily to unexpected issues that we've already resolved or expect to soon resolve, the non-GAAP gross margin was below guidance, but rigorous operating expense discipline and controls allowed us to deliver non-GAAP operating margin in line with our guidance. The highlights of our third quarter include an almost 7% sequential increase in revenue and a $0.17 or almost 50% sequential increase in non-GAAP EPS. Another strong quarter of AI-related datacom demand for our 800G datacom transceivers. We now expect this strength to continue in the current fourth quarter and into fiscal '25. Despite the macroeconomic backdrop, our diversification strategy has helped distinguish us from the rest of the pack.
Paul Silverstein, Senior Vice President, Investor Relations
Thank you, Chuck. We will now open the call for analyst questions. This call is scheduled for a full hour. As we have approximately 20 analysts that cover the company, we ask that each of you limit yourself to one question and one follow-up. Please direct your questions to Chuck, who will decide who is best to respond. Victor, please open it up to questions.
Operator, Operator
Our first question will come from Samik Chatterjee from JPMorgan. Your line is open.
Samik Chatterjee, Analyst
Hi, thank you for taking my questions and congrats on the strong results here. If I can just start with datacom. And when you started on this ramp, which has been pretty impressive, you did have the benefit of a lot of visibility into the orders from your customers. I think at that point, you had almost like a year's visibility in terms of orders based on how you're communicating about orders. As we now move into fiscal '25 and lead times are coming down, just curious what kind of visibility are customers giving you in relation to demand for fiscal '25, what do you think are the key growth drivers for the 800 gig or datacom business in total in FY '25? And have a follow-up. Thank you.
Chuck Mattera, Chair and CEO
Thank you, Samik. Lee, would you like to?
Lee Xu, EVP, Datacom Transceivers
Hi, thanks for the question. This is Lee Xu. Our outlook versus a quarter ago did not change. We still see strong growth in overall 800G and AI-related demand, and our customer interaction has been improving. And as you can see in the past few quarters, our 800G ramp-up from FY '23 is $20 million or to $50 million in our Q1, a little bit over $100 million in Q2. And this quarter, we reported close to $200 million and we project in Q4 of more than $250 million. So we still see further growth in FY '25, but in our field, the lead-time for people to order 800G transceivers is coming down. And that's why we are - when we forecast our 800G revenue, we are being more prudent. But in terms of trend, our forecast from our key customers, there is no change.
Samik Chatterjee, Analyst
And for my follow-up, if I can just quickly ask on the supply side, we get a lot of questions from investors asking about if there are supply constraints either on VCSELs or any of the other components going into the datacom transceivers. Particularly as you plan ahead for the ramp in fiscal '25 or the growth in fiscal '25, how you're managing around those sort of visibility around supply, any key bottlenecks that you see that you need to resolve? Thank you.
Lee Xu, EVP, Datacom Transceivers
Thank you for that key question. We largely resolved all the material constraints, whether it's internal or external. So we feel confident on our capability.
Operator, Operator
Thank you. One moment for our next question. Our next question will come from the line of Simon Leopold from Raymond James. Your line is open.
Simon Leopold, Analyst
Great. Thank you very much for taking the question. The first thing I wanted to see if you could unpack a little bit was, in the prepared remarks, Chuck, you mentioned the gross margin being a little bit softer than what you had been anticipating. Could you help us understand what are sort of the key drivers and expectations for how gross margin can improve over time? Is it as simple as getting utilizations up or is it more about the cost-reduction and synergies? Help us understand sort of the key levers and the targets. And then I've got a follow-up.
Chuck Mattera, Chair and CEO
Okay, good morning, Simon. Thanks for your question. Rich is ready to go.
Richard Martucci, Interim CFO
Thank you, Simon. Obviously, management team was a little disappointed in our performance in Q3 on the margin. We detailed out the one-time really transitory items in Q3. As we move forward, we still are targeting a 40% gross margin by the first half of FY '26. There are many positive drivers that we have to achieve this. First is really the incremental volume and the mix as well. Without a doubt, we're going to need the increase in our industrial as well as instrumentation markets. Those are typically sales that come through our networking or our materials and laser segment, that will strengthen the margins as well as our strength in supply chain and buying power, that also is a key factor.
Simon Leopold, Analyst
Thank you. And then as my follow-up, I'd like to sort of get some sense of your vision of where the AI opportunity can go. It looks as if you're expected to exceed your prior expectations for this fiscal year. I imagine it's maybe a little bit early to give us details on fiscal '25, but if you could give us some guideposts of how you're thinking about the 800 gig and above business evolving beyond the next quarter? Thank you.
Chuck Mattera, Chair and CEO
Simon, thanks. I think we'll take a step back and talk about the market because we're expecting to lead the market. So Sanjai, why don't you just give a quick summary?
Sanjai Parthasarathi, Chief Marketing Officer
Okay. Thanks, Chuck. Hi, Simon. Thanks for the question. So we just - in our investor presentation, we have a chart that talks about the market, the growth and inflection that's happened with AI. Over the next few years, we still see a very strong growth in 800G. It's - over the next five years, it's growing at a 60% CAGR and that's 800G and beyond. So the market is strong. We're projecting very healthy growth for the market and that's where it is today. That's great.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Ruben Roy from Stifel. Your line is open.
Ruben Roy, Analyst
Thanks very much and congrats team on the execution and solid results. I guess, Chuck, I wanted to follow up on Sanjai's commentary. Which is - the question, I guess would be sort of around longer-term expectations and the CAGR. The CAGR has been moving around on kind of your overall datacom transceiver expectations. So I think in the shareholder letter last night, 21%, which is great, but it's down a little bit from the previous assumption. And so I guess the question would be, what are the moving parts in terms of how you guys are thinking about the longer-term CAGR? Is that you part - are there parts of telco in that? Or is it just datacom that you're considering and any kind of additional detail on how you're thinking about longer-term growth would be helpful? Thank you.
Chuck Mattera, Chair and CEO
Thank you, Ruben. Thanks for the question. Sanjai?
Sanjai Parthasarathi, Chief Marketing Officer
Yes, Thanks, Ruben. Thanks for the question. Yes, we did take it down a little bit from our last report. Two things happened. One, CY '23 was much bigger than what we had originally anticipated. And then over the long-term, we've taken down the sub 800G numbers a little bit. So we are still projecting 21% over five years, and I made the comment earlier about 800G and beyond. That is still growing at the same kind of clip that we had previously anticipated. We keep getting data points from our customers and end customers. So we are constantly revising our view of the market. Hopefully, that answers the question.
Ruben Roy, Analyst
Yes, it did. Thank you, Sanjai. And then for a follow-up, I had a gross margin question as well, given that datacom transceivers are a meaningful part of the way the gross margins move around. I guess, can you give us a little more detail on some of the corrective actions around the transceiver yields? And as you look out into fiscal '25, do you think some of those corrective actions are applicable to the 1.6T ramp?
Chuck Mattera, Chair and CEO
Ruben, yes, sure. Lee?
Lee Xu, EVP, Datacom Transceivers
Hi, Ruben. Thanks for the question. This is one of our key targets for our operations, the datacom transceivers. First of all, we were transparent in terms of - we had a slightly unexpected yield issue impacting our 800G ramp-up in Q3. And that problem has been resolved and we'll see on the datacom a significant margin improvement. We think that will further improve our datacom transceiver margins. So going forward, because of our vertical integration, because of our kind of being a leader in the high end part of the market, we are quite confident of our gross margin and also the net margin. So does that answer your question?
Chuck Mattera, Chair and CEO
Yes. Thank you.
Operator, Operator
Thank you. One moment for our next question. And our next question comes from the line of Thomas O'Malley from Barclays. Your line is open.
Thomas O'Malley, Analyst
Hi, good morning, guys. Thanks for taking my question. I want to ask on the timing of 1.6T. You guys are saying fiscal Q1; your competitor last night was kind of talking about the end of the calendar year, maybe beginning of the next calendar year. There's really only two major customers who are doing 200G per lane at 1.6T. Could you talk about is that sampling in the September quarter, which is fiscal Q1, when do you expect volume production? And is that across multiple customers or just concentrated amongst one or two? Thank you.
Chuck Mattera, Chair and CEO
Okay. Thanks, Tom. Good morning, Tom. Lee, please.
Lee Xu, EVP, Datacom Transceivers
Okay. Yes, thanks for being so clear of what we have published. Yes, we are ready to sample 1.6T or 200G per lane based transceivers starting on our fiscal Q1. We do expect our volume shipment to start at the beginning of calendar '25 of our Q3 fiscal year. And so far everything's going as expected and we're excited about this new opportunity.
Thomas O'Malley, Analyst
Helpful. And then the second question was around silicon carbide. You guys described just an issue during the quarter. Historically, you've had a customer in electronics that's made it a little bit easier to kind of solve for the revenue in the silicon carbide business. Could you just maybe give us a little more color just because that customer has gotten so small, where that revenue has gone from a silicon carbide perspective? And then you talked about some strong growth in the out quarter. Any additional details on where that went in the quarter and where you're expecting over the next couple?
Chuck Mattera, Chair and CEO
Yes. So Tom, as I understand it, you're trying to plumb our data in the electronics market for sensing versus silicon carbide and you'd like to have a clear view for silicon carbide. Sohail will give you the color that you need, I think.
Sohail Khan, EVP, Silicon Carbide LLC
Hi, Tom, this is Sohail Khan. The - in Q3, we - our silicon carbide had some operational issues about - we mentioned about the power failure and that power impacted - power failure impacted the factory which limited our ability to deliver to the plan. All those actions have been put in place. We were able to get everything back within 30 days. I am looking at a very good strong Q4 and we expect that we will grow more than 50% from Q3 to Q4.
Operator, Operator
Thank you. One moment for our next question. And our next question comes from the line of Meta Marshall from Morgan Stanley. Your line is open.
Meta Marshall, Analyst
Great. Thanks. Congrats on the quarter. A couple of questions from me. Maybe just first on, you noted that your expectations for kind of growth in sub-800 gig declined and that was what led to the kind of industry or change in the industry growth rate. But just what are you seeing in terms of just anything - any commentary on sub-800 gig demand? And then the second question, not to harp on the gross margins piece, but kind of understanding the overhang to fiscal Q3 and the yield issues that you've resolved both in silicon carbide and datacom. But with most of that seemingly resolved given the answers you've given today, just what is the reason for kind of a slower Q-on-Q pickup than you had been forecasting kind of last quarter? Thanks.
Chuck Mattera, Chair and CEO
Just Meta, good morning. Just repeat the last part of the question.
Meta Marshall, Analyst
Yes. So last quarter, you would have implied kind of about 100 basis point, 150 basis point increase between fiscal Q3 and fiscal Q4 and that seemingly kind of come down to about 80 basis points. And kind of understand the overhang to fiscal Q3, but what is the difference in kind of a smaller jump up between fiscal Q3 and implied fiscal Q4 gross margins?
Chuck Mattera, Chair and CEO
I think, Rich just give a big picture, if you would, please.
Richard Martucci, Interim CFO
Yes. So the margin resolution in Q3, as we mentioned, are pretty much done. We're still in the middle of ramping, as Lee mentioned, our 800G product and our yield plans that we have going forward. So the other piece of this is the majority of the increase quarter-over-quarter is coming from 800G as well as Sohail managing silicon carbide. And the past, we did mention that the silicon - the 800G product is at our gross margin average. So it's really part of a mix issue as well quarter-over-quarter.
Chuck Mattera, Chair and CEO
Let me add Meta, to be clear. While the problems have been resolved for resolving, there's a tail in terms of a ramp back up to where we need to be. It's just not a flash cut. So we're confident about the corrective actions and the like, but we still need to establish that target yields and they'll come on different product lines will come within this quarter. So there's a little bit of a tailwind to the quarter. Is that clear?
Meta Marshall, Analyst
Yes. No, that's perfectly clear. And then just any commentary on sub-800 gig demand?
Sanjai Parthasarathi, Chief Marketing Officer
Okay. Thanks, Meta. This is Sanjai. So over the five years, the sub 800G is essentially flat. That's our latest projection. The 800G and above, as I said earlier, is growing at a slated to grow at a 60% CAGR. So the sub 800 is - I mean that's our view of the market.
Lee Xu, EVP, Datacom Transceivers
Sure. From our own kind of internal forecast point of view, we see indeed, just as Sanjai was saying, the sub 800G is roughly flat for the next few quarters, but we do see some pickup three quarters from now. And so that's - I think the overall is healthy.
Chuck Mattera, Chair and CEO
We'll be opportunistic. We'll be opportunistic about it. We're definitely trying to expand the share of wallet with the largest players. We've told the story about 400G in the past. And when it comes, if we can turn our capacity into it and make a real good business out of it, we'll be there.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Karl Ackerman from BNP Paribas. Your line is open.
Karl Ackerman, Analyst
Yes, thank you. I wanted to focus on the telecom portion of your business for a moment. Clearly, you and peers in the ecosystem have pushed out the recovery in telecom from what was roughly June of this year to the end of this year and perhaps even the beginning of 2025. But within that, there seems to be some pockets of growth as well as softness. For example, last week, one of your peers had spoken about a recovery in metro long-haul, while cable was a bit soft. I'm curious if you have seen similar commentaries within the telecom. So if you could just double-click on the opportunities you see within telecom, what's working, what's not working as you progress toward that recovery in that market? That would be very helpful.
Chuck Mattera, Chair and CEO
Okay, Karl. Good morning. Thanks. Beck, please.
Beck Mason, EVP, Telecom
Sure. Thank you for the question. So we do see some mixed areas of strength and weakness in the telecom market. One area of strength we have seen is in the China market. There we see build-outs by most of the major carriers going on with new C+L networks. We expect that to continue through the year. I think the other thing for us where we see a growth opportunity coming in FY '25 is really on the digital Coherent optical pluggable market space. We have several differentiated products coming to market, including our 100 gig QSFP28 ZR that has tremendous demand from our customer base. Our view of what's going to happen in the market and with our growth may be a little bit decoupled from what some of our competitors are seeing. Did that help you with your question?
Karl Ackerman, Analyst
Yes it did. I'll see you on the floor. Thank you.
Operator, Operator
One moment for our next question. Our next question comes from the line of Jed Dorsheimer from William Blair. Your line is open.
Jed Dorsheimer, Analyst
Hi, thanks for taking my question. So one and a follow-up. I guess, first, just on the silicon carbide, maybe as an additional clarity, I know you had that the power outage, but wondering if you could give an update on progress on your 200-millimeter development activities and any metrics that you can provide? And then I have a follow-up.
Chuck Mattera, Chair and CEO
Okay. Thank you, Jed. Sohail, please.
Sohail Khan, EVP, Silicon Carbide LLC
Hi, thanks for the question. 200 millimeters is going quite well. We are supplying pre-production quantities to multiple customers. The feedback from the customers is very good, both from quality as well as their ability to bring their lines up. From our standpoint, we are ready and we are adding capacity more to ramp and we will see a much more contribution coming in next fiscal year.
Jed Dorsheimer, Analyst
That's great. Thanks. And then as a follow-up, you know, clearly there's a lot of demand in the Datacom side of the business, and it's fantastic that you guys are playing well into that. As we think out a little bit, I'm just curious, something that's a bit out of your control, how you're thinking about the power challenges and specifically lead times around things like transformers seem to be limiting data center growth. And I'm curious you know how a company that's selling components into that market is thinking about some of those structural challenges in developing with respect to AI? Thanks.
Chuck Mattera, Chair and CEO
Hi. Thank you, Jed. Giovanni, would you like to take that?
Giovanni Barbarossa, Chief Strategy Officer
Yes, of course, we read about it. We know Elon Musk is worried about the transformers for the transformers. I mean that's a very well-known challenge. We keep focusing on ultimately what's driving our demand? Recently, you've seen that the optical bandwidth required by GPU is actually growing. It's not only the number of GPUs per cluster is growing. Demand is strong in terms of number of GPUs. But what's very important for us is the increase in optical bandwidth required by GPU, that's driving the need for 1.6 data and beyond. This will continue for quite some time as the GPU requires more bandwidth.
Chuck Mattera, Chair and CEO
Thank you, Giovanni. Jed, it's particularly focused on the total energy required by the system. Hope that was helpful, Jed?
Jed Dorsheimer, Analyst
It is. Thank you, Chuck. I appreciate, and thanks Giovanni.
Operator, Operator
Thank you. One moment for our next question. And our next question comes from the line of Mark Miller from the Benchmark Company. Your line is open.
Mark Miller, Analyst
Congratulations on your progress. I was just wondering if you can give us some color on ROADMs and also are there any new opportunities coming along for VCSELs and where are you positioned in that market?
Chuck Mattera, Chair and CEO
Okay, good morning, Mark. Thanks for your question. We'll take it in two parts. First, Beck will take the ROADM question. Giovanni will address the VCSEL question. Beck?
Beck Mason, EVP, Telecom
Yes. Thanks, Mark. I'm actually really excited you asked that question because one of the most important new trends in ROADMs is really the drive towards C+L network deployments, which have been kind of on the drawing board for many years and are now finally really coming and being deployed. And one thing that we have that really no one else in the industry has is a true C+L ROADM. We double the capacity in the fiber. So all of the new networks being deployed today include both C and L. And we're the only company that has a ROADM solution that actually covers both bands simultaneously in a single part, and that's driving a lot of upside opportunity for us as we go forward. So we think that's a positive long-term driver for us.
Mark Miller, Analyst
Okay, great. From the telecom systems or to the Datacom laser, VCSEL. Giovanni?
Giovanni Barbarossa, Chief Strategy Officer
So on the VCSEL, at OFC, we reported the progress that we have been making on the development of 200G VCSELs, which we think would be a game-changer in the industry as many customers, well as generally even competitors kind of ruled out the possibility for VCSELs to go even above 100G. The good news is that we also had our main competitor, probably the only competitor that we have on this space, they're also reporting progress on it, which is very positive for the industry because this industry will need at least two suppliers to support the growth. We are also working on 400G VCSELs for the future. So we'll keep the roadmap going. If you ask in general about VCSELs, I also wanted to mention the progress of multi-junction VCSEL for behind displays applications, which is required for increasing the power coming through the display. This is also something that we have been working on and will provide further growth for the total line.
Chuck Mattera, Chair and CEO
Thanks, Giovanni.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Ananda Baruah from Loop Capital. Your line is open.
Ananda Baruah, Analyst
Yes, good morning, guys. Thanks for taking the question. Really appreciate it. I guess a little bit bigger picture on transceivers, you know, as you guys progress - and as the market progresses from 800 to 1.6, 2.2. Interested in understanding you know, any net-new technical hurdles and challenges sort of that could occur necessary to be successful there? And I guess any, I'm going to call them business-related dynamics that are going to increasingly manifest that will take to be successful there. And wondering if you guys have a share gain opportunity in that context and what's that whole dynamic could look like? And then I have a quick follow-up. Thanks.
Chuck Mattera, Chair and CEO
Lee?
Lee Xu, EVP, Datacom Transceivers
Hi, Ananda. Thanks for the question. This is Lee Xu. So this is a very key question. Thanks for asking that. For this development, it is indeed getting higher and higher data rate. The technical challenge is getting more complex and - but to us, there are several advantages also that we got to use a higher portion of our internal lasers and components. For the current 800G shipment, so far is only a small number of companies that would be able to support that in high volume and we expect similar things on the 1.6T and 3.2T. We do think that we can gain market share over the next few years.
Chuck Mattera, Chair and CEO
This evolution of the market is going to play right into the strengths of Coherent, and we will continue to invest, innovate and use our imagination across both the laser and the transceiver to deliver disruptive capabilities. The optical circuit switch is just one example of the kind of innovation power in the company and the ability of the company to catalyze new markets that may have billions of dollars' worth of opportunity for us. Thank you for your question, Ananda.
Operator, Operator
Thank you. One moment for our next question. And our next question comes from the line of Dave Kang from B. Riley. Your line is open.
Dave Kang, Analyst
Thank you. Good morning. Regarding that OCS, just wondering if I could get any update, how big is it right now? Any new customer wins and who are your main competitors?
Chuck Mattera, Chair and CEO
Okay. Thank you, Dave. Julie, do you want to take that?
Julie Sheridan Eng, Chief Technology Officer
Sure. Yes, Dave, thanks for the question. So yes, as Chuck was just saying that optical circuit switch, I think is a great example of the power of innovation of our company. I'm sure you saw our demo and release at OFC where we're using our liquid crystal technology. We shipped into the undersea market, so it's very, very reliable. We saw a market opportunity where we could use that same technology for a different market need in the optical circuit switch. We're engaged with many multiple customers and we expect shipping samples all within the next few months. We could see revenue on that product by our fiscal year '26. We feel like we have a strong position there.
Chuck Mattera, Chair and CEO
Thanks, Julie.
Dave Kang, Analyst
Thank you. And my follow-up is on 800 gig. You mentioned that orders were down sequentially from very strong fiscal 2Q. Just wondering what to expect during this quarter?
Magnus Bengtsson, Chief Commercial Officer
Sure, I can take that. Thanks for the question, Dave. As we noted in the shareholder letters, lead times have come down and customer ordering patterns have normalized within lead-time, whereas a couple of quarters ago, they ordered many quarters out. So I think we're back to a more normal order pattern.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Jim Ricchiuti from Needham & Company. Your line is open.
Jim Ricchiuti, Analyst
Hi, thank you. Good morning. What drove that 30% increase in laser bookings? I'm assuming the ELA display business was a big driver. Can you say what the bookings, how it performed excluding display?
Chuck Mattera, Chair and CEO
Yes. Thank you. Good morning, Jim. Magnus, take it.
Magnus Bengtsson, Chief Commercial Officer
So yes, orders in the quarter, we saw a good uptick in display orders. I think that drove the lion's share of the uptick. We saw orders from capacity increase in China and we expect similar order performance in the display market in the current quarter in Q4.
Jim Ricchiuti, Analyst
Got it. Thank you.
Magnus Bengtsson, Chief Commercial Officer
Precision manufacturing right behind it also saw an increase and I think that will see a further increase in Q4, and then in the semi vertical, mostly flat.
Chuck Mattera, Chair and CEO
Thank you, Magnus. Please go ahead, Jim.
Jim Ricchiuti, Analyst
Yes, that actually ties into with the next question on precision manufacturing. What's driving that? Is it a case of easy comparisons or are you guys seeing a turn in this part of the business?
Magnus Bengtsson, Chief Commercial Officer
I think what we're excited about is what we're doing in the welding space targeted towards EV applications, where we have broad customer engagements and we're seeing increasing depth in terms of customer engagements. We've seen a little bit of an uptick in China in the broader market in China, but we haven't yet seen the broader market turn. So there are some pockets of upside rather than a broad comeback in precision manufacturing.
Jim Ricchiuti, Analyst
Thank you.
Chuck Mattera, Chair and CEO
Thanks Magnus. Thank you, Jim.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Tim Savageaux from Northland Capital Markets. Your line is open.
Tim Savageaux, Analyst
Hi, good morning. I want to come back to the order and backlog discussion. And I guess the commentary was about more normalized, but you've seen orders come down, I think three quarters in a row now and I think the book-to-bill was below one in the quarter. It sounds like you don't expect to see that again as lead times normalize. But what should we expect for the direction of overall orders and backlog for the company heading into fiscal Q4 here?
Chuck Mattera, Chair and CEO
Yes. Rich, just in general, Rich?
Richard Martucci, Interim CFO
Okay. So in general, our book-to-bill, quarter-over-quarter, we did see in Q3 a below one book-to-bill. Really we expect the year backlog to remain flat pretty much year-over-year. But we still believe that a majority of the strength in the markets in terms of long-term will increase the total backlog. We're expecting a book-to-bill really around one in Q4.
Chuck Mattera, Chair and CEO
We're focused on it, Tim. It's a critical success factor going forward. So we're totally focused on it as a team. We will have more to say about '25 in 90 days from now, but it's a top priority in the company.
Tim Savageaux, Analyst
I appreciate it. And just a quick follow-up. I think there was a comment about the customer base broadening out and I believe specifically in 800 gig, but maybe in Datacom generally. Along those lines, I wonder if you can address kind of concentration in Datacom, whether you had any 10% customers overall in the quarter. What sort of major customers are driving the Datacom segment at this point?
Chuck Mattera, Chair and CEO
Yes, we report 10% customers once a year, as you know, at the end of the fiscal year, Tim. We won't have any comments on that. But we can give you just a general flavor for the broadening of the base, which we saw evidence of at OFC with just a tremendous amount of interest from the industry fanning out to additional layers in the market.
Lee Xu, EVP, Datacom Transceivers
That's right. We - as of the beginning of the shipment of 800G, we have two major customers that we reported that, and we all know who they are. And now in the past quarter, we have over four customers that ordered significant amounts, multi-million dollars from us. We are also in the past two quarters have multiple design wins of our 800G, various 800G products. We think going forward into FY '25, the 800G is going to have a much broader customer base.
Chuck Mattera, Chair and CEO
Great. Thank you, Lee.
Operator, Operator
Thank you. One moment for our last question. And our last question for today will come from Richard Shannon from Craig-Hallum. Your line is open.
Richard Shannon, Analyst
Hi guys. Thanks for taking my question. Hi, Chuck. I wanted to talk a little bit about the margin structure here as you get to your 40% growth and above 20% EBIT margin. I really kind of want to look at the time in the past where you've done that, which is the first half of fiscal '22. Looking at the margin structure by your three segments. And specifically, I'm curious whether you expect to be able to get the networking back up in kind of that 19 plus percent EBIT range to enable that or can you do it with that being not as high? And also maybe if you can suggest what kind of revenue levels are required to get to that kind of margin structure, that'd be great. That's my only question. Thanks guys.
Chuck Mattera, Chair and CEO
Thank you. Richard.
Richard Martucci, Interim CFO
Yes, I think you were 100% right. We have achieved over a 40% margin and the revenue range of that was over $1.3 billion. So as we cross that $1.3 billion mark on the top line, this really comes down to the mix.
Chuck Mattera, Chair and CEO
Richard, do you have a follow-up?
Richard Shannon, Analyst
No, that's all for me, Chuck. Thank you.
Chuck Mattera, Chair and CEO
Thank you, Richard. Okay.
Paul Silverstein, Senior Vice President, Investor Relations
Thank you, Victor. I want to thank everybody for joining us on the call this morning. Just a heads-up, next week on March 14th, we will be hosting our third in our series of investor market webinars that will be on our instrumentation market. The goal is to help give you insight into the various aspects of our business. If you'd like to join, it will be accessible on our website. Once again, thank you all for joining us. We look forward to talking to you throughout the day.
Operator, Operator
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.