Earnings Call Transcript - VIAV Q2 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Viavi Solutions' Second Quarter 2021 Fiscal Year Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the call over to your speaker today, Mr. Bill Ong, Head of Investor Relations. Please go ahead.

Bill Ong, Head of Investor Relations

Thank you, Grace. Welcome to Viavi Solutions' second quarter fiscal year 2021 earnings call. My name is Bill Ong, Head of Investor Relations. Joining me on today's call are Oleg Khaykin, President and CEO; and Pam Avent, Interim CFO. Please note this call will include forward-looking statements about the company's financial performance. These statements are subject to risks and uncertainties that can cause actual results to differ materially from current expectations and estimations. We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those filings. The forward-looking statements, including guidance we provide during this call, are valid only as of today. Viavi undertakes no obligation to update these statements. Please also note that unless we state otherwise, all results except revenue are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their usefulness and limitations in today's earnings release. The release, plus our supplemental earnings slides which includes historical financial tables are available on Viavi's website. Finally, we are recording today's call and we'll make the recording available by 4:30 PM Pacific Time this evening on our website. I would now like to turn the call over to Pam.

Pam Avent, Interim CFO

Thank you, Bill. Fiscal second quarter revenue came in at $299.9 million, at the high end of our guidance range of $280 million to $300 million. The Q2 results represent a 4.4% year-on-year decline and a 5.3% quarter-on-quarter growth. This sequential growth was driven by continued recovery in NSE and strong OSP performance. Viavi's record operating margin at 22.3% expanded 70 basis points year-on-year and exceeded the guidance range of 19% to 20%. EPS at $0.23 tied the record EPS from a year ago and exceeded the guidance range of $0.18 to $0.20. Now, moving to our reported results by business segment, starting with NSE. NSE revenue at $206.7 million declined 11.7% year-on-year and grew 12.6% sequentially. Within NSE, NE revenue at $180.9 million declined 10.9% from a year ago, primarily due to pandemic-related declines in Field Instruments. SE revenue decreased 17.3%, due in part from last year's stronger than usual demand in data center products. NSE gross margin at 63.3% declined 310 basis points year-on-year. Within NSE, NE gross margin at 62.6% declined 380 basis points from last year, primarily due to lower volumes. SE gross margin at 68.2% increased 150 basis points year-on-year due to favorable product mix. NSE's operating margin at 10.7% decreased 530 basis points year-on-year, primarily as a result of lower revenue, partially offset by lower operating expenses. Now turning to OSP. OSP had a strong quarter with revenue at $93.2 million, up 17.2% year-on-year, driven by strong demand in Anti-Counterfeiting and 3D sensing. Gross margin was at a record 62.7%, up 790 basis points year-on-year driven by higher volume, favorable product mix, and high factory utilization. OSP also delivered a record operating margin of 47.9%, up 970 basis points from last year's levels as a result of higher gross margin and OpEx management. Now, turning to the balance sheet, the ending balance of our total cash and short-term investments was $648.8 million, an increase of $53.3 million sequentially. Our operating cash flow for the quarter was a record $68.7 million. In Q2, we repurchased approximately $17.1 million of Viavi stock at an average cost of $13.26 per share, including commissions. Overall, we have repurchased approximately $68.3 million out of the $200 million authorized under the share buyback plan announced in September 2019. At the end of Q2, cumulatively under this plan, the average overall cost was $12.28 per share. We will continue to be opportunistic in our share repurchase. Now, on to guidance, we expect the third quarter revenue to be approximately $290 million plus or minus $10 million. Operating margin is expected to be between 17.5% to 18.5%, and EPS to be in the range of $0.16 to $0.18. We expect NSE revenue to be approximately $197 million plus or minus $8 million with operating margin at 6.5% plus or minus 50 basis points. The OSP revenue is expected to be approximately $93 million, plus or minus $2 million with operating margin at 43% plus or minus 100 basis points. Our tax expense rate is expected to be approximately 18% to 20%. We expect other income and expenses to reflect a net expense of approximately $3.5 million. The estimated fully diluted share count used in our calculation is 240 million shares. This includes an increase of approximately 8 million shares from Q2 as an adjustment to reflect the estimated dilution impact from our 2023 and 2024 convertible notes. With that, I will turn the call over to Oleg.

Oleg Khaykin, President and CEO

Thank you, Pam. I'm pleased with Viavi’s performance in the second fiscal quarter. Our OSP business segment recorded its second highest revenue quarter and record profitability, and NSE business segment showed its revenue and profitability continued to recover. The NE segment revenue recovery was led by increased demand for Field Instruments as service providers resumed their network maintenance activities and geared up for new deployment projects. The uptick in lab and production and wireless continued to enjoy strong customer demand driven by 400 GigE in fiber and 5G in wireless. We are also seeing growing customer interest in 800 GigE in O-RAN. We see 800 GigE and O-RAN technology as drivers behind the next growth wave for lab and production and wireless respectively. The SE business segment had a robust Q2. Looking ahead, we expect Q3 to be weaker, driven by a confluence of two trends; the reduced spending by service providers on existing networks as they gear up for 5G, and the delays in new projects by the enterprise customers until more staff is able to return to work. That said, we expect SE revenue to start rebounding in fiscal Q4. Overall, we expect NSE demand to continue to improve in calendar 2021 with above-seasonal demand outlook in the current fiscal Q3. Additionally, we expect 5G Field Instrument demand to start picking up in the second half of calendar 2021 as 5G service providers start ramping up their network build-outs. Now, turning to OSP. The OSP business segment finished the first half of fiscal year 2021 with record revenue and profitability, driven by strong demand for Anti-Counterfeiting and 3D Sensing products. Anti-Counterfeiting demand is being driven by a combination of global central bank's fiscal stimulus, inventory replenishment, and new banknote redesigns. We expect the secular strength to be sustainable in the foreseeable future. 3D Sensing demand for mobile devices came in stronger than expected, driven by increased adoption and penetration. With facial recognition applications in the marketplace for more than three years now, we now have a large and growing demand from a lead customer with more customers and devices planning to launch later in calendar 2021. As a result, we now expect 3D Sensing revenue for fiscal year 2021 to increase to 20% year-on-year, up from the initial guidance of 10% to 20% year-on-year. Looking back at calendar 2020, I'm pleased with our performance and execution. Despite the unprecedented pandemic-driven setback to our business in early 2020, we managed to recover our revenue and profits throughout the year finishing it by turning our record quarterly EPS. Our fiscal Q3 is off to a good start, and we look forward to driving continued recovery and growth in calendar 2021. A quick update on the CFO search. We have interviewed many impressive candidates and have narrowed it down to a final few. We expect to announce our new CFO sometime in March. In conclusion, I'd like to express my appreciation to the Viavi team for its strong execution during these challenging times and wish all our employees, supply chain partners, customers and our shareholders to stay safe and healthy. I will now turn the call over to Bill.

Bill Ong, Head of Investor Relations

Thank you, Oleg. This quarter, we will be participating at the Morgan Stanley TMT Investor Conference on March 1st. Grace, let's begin the question-and-answer session. We ask everyone to limit discussion to one question and one follow-up.

Operator, Operator

Your first question comes from the line of Samik Chatterjee from JPMorgan. Your line is open.

Samik Chatterjee, Analyst

Hi, thanks for taking my question and congrats on the strong guidance here. Oleg, I just wanted to start off on the OSP segment and I think what I heard you say is you expect the Anti-Counterfeiting strength to continue for a duration of time. Maybe if you can kind of talk about how long you think this momentum on Anti-Counterfeiting will sustain? And am I reading it right that you're kind of saying this $90 million quarterly run rate of revenue should be the new level for the OSP segment? And I have a follow-up. Thank you.

Oleg Khaykin, President and CEO

Thank you, Samik. So, I think, listen, I mean, clearly, the U.S. is not the only country doing a significant stimulus spend, it's pretty much the norm around the world. And as a result, we constantly see additional orders coming in above and beyond or sooner than we expect it. So, there's clearly the stimulus that is driving some of the upside in the demand. And that's usually coming on top of we should have expected to be already a stronger demand because of many redesigns and additional adoption of our security features was driving additional growth. So, that's coming up on top of it. In addition to that, in the first kind of six months of shutdown, a lot of printer lines have been shut down and they've exhausted all of their inventory, and they're badly in need of replacing existing currency much less providing stimulus cash. So, that's obviously driving an extra layer of demand. And on top of all of it, there's also a very low inventories across the entire supply chain. So, people are trying to replenish their inventory as they need there. So, I expect we're going to see an increased dual level of demand for Anti-Counterfeiting products. I mean, I think it's really we don't unfortunately, we don't get much visibility, but given all the elements, I think in the foreseeable future, in the next 12 months, I expect us to be running stronger than we traditionally have been. And traditionally, we’ve set our base business running around $50 million a quarter plus other business. I think now it's safe to assume that's $55 million, maybe a little more in any given quarter. I mean, there's going to be some things that will come in more in one quarter, maybe less in the other quarter, but overall I expect us to be running pretty tight on the Anti-Counterfeiting products in the foreseeable future. And then 3D Sensing is really going to be a function of customer shipments, and I mean, even though we expected pretty good adoption and penetration, our lead customer I think had a much stronger demand than it was initially anticipated and we are seeing obviously some of that volume coming through driving much stronger results than we anticipated.

Samik Chatterjee, Analyst

Got it. If I can just follow-up on the recovery in the NE business, you talked about the two drivers in the prepared remarks, 5G wireless and fiber, curious kind of which one do you see as having more visibility into particularly, I think when you mentioned 5G wireless, there's this broader concern that most of the Telco service providers have overspent on spectrum auctions. So, does that have a ramification in terms of pushing some of the spend out in wireless infrastructure? Just wanted to get your thoughts on that.

Oleg Khaykin, President and CEO

Certainly. When we talk about recovery, we're referring to the core aspects of our business, specifically cable access and fiber instruments, which have been key drivers of this recovery. The wireless, lab, and production testing segments performed very well in the first quarter and maintained their strength in the second quarter. We anticipate that this segment will continue to thrive. The area of concern you've mentioned pertains to field wireless instruments, which are closely tied to deployment activities. While it’s true that considerable investments have been made in spectrum, there comes a time when companies need to capitalize on those investments. From our viewpoint, we aim to bolster traditional broadband instrumentation like fiber, DSL, and cable, along with our lab and production equipment for fiber and wireless. We expect these trends to remain strong. If we see more deployments in the latter half of the year, we also anticipate that field wireless instruments will contribute. Whether these deployments will be as bold as some speculate remains to be seen. However, it's crucial for companies to start leveraging their spectrum to generate revenue, as the competitive landscape in the U.S. has changed from a duopoly. We are witnessing a competitive race among T-Mobile, Verizon, and AT&T to lead in 5G, which suggests that we might see more aggressive deployment strategies moving forward.

Samik Chatterjee, Analyst

Got it. Thank you for the insight. Thank you.

Operator, Operator

Thank you. And your next question comes from the line of Alex Henderson from Needham. Your line is open.

Alex Henderson, Analyst

It's a great time to ask this because it follows up on what we were just discussing. Historically, the market has viewed you as linked to capital expenditures, but it appears to me that the main driver is actually more related to operating expenditures, particularly in your test and measurement business, especially the Field Instrument sector. Considering the pressures mentioned, such as the spectrum license fees, that's more related to capital expenditures or even independent of them. I believe this wouldn't significantly affect the operating expenditure side of your business. You seem to have advanced the timeline for 5G a bit; previously, you mentioned that demand would start to pull forward at the end of calendar 2021. Have you adjusted your thoughts on this timing and what gives you that visibility?

Oleg Khaykin, President and CEO

Thanks, Alex. That's a good question. I still believe that the second half of 2021 will be significant. Whether we look at the December or September quarter, my insight may not be extensive, but I think deployment will begin. You’re correct that our demand for traditional fiber, cable, and DSL in Field Instrumentation is influenced by operational expenditures. However, equipment sales depend on two factors: networks being built, which require testing and activation equipment, and the maintenance of that equipment. Maintenance relates to operational expenditures, while the demand for building out networks relates to capital expenditures. As they begin constructing towers, certifying them, and transitioning them into operation, we should see an initial wave of equipment sales, with more to follow as the focus shifts to densification and ongoing maintenance.

Alex Henderson, Analyst

If I could follow-up, there is an argument that was made that being much further earlier in the test and measurement cycle, being able to get into the pre-deploy lab, helping to write the manuals that you've built in a competitive advantage that Noritsu couldn't meet. And to that extent, you've got an inside track on the Field Test and measurement because you've helped design the manual. Is that playing out? Is that something that you've got any visibility on that share benefit from?

Oleg Khaykin, President and CEO

I believe that incumbents have an advantage because they are already established, which allows them to influence installations. As a newcomer, we wouldn't have gained much attention without early involvement in labs and deployments. However, being recognized as a 5G expert and collaborating with industry leaders has given us a comparable position. We are confident that our in-depth participation in defining installation protocols and certification standards has provided us an edge. Additionally, we have refined our product offerings and have now released our complete range of products. Our timing has worked out well; had 5G deployments started a year earlier, our product range would have been limited. Currently, we have a well-rounded portfolio, and I believe our products outperform those of incumbents. This should lead to us gaining market share and establishing a significant presence in the market.

Alex Henderson, Analyst

Great. Thank you very much for your answers.

Oleg Khaykin, President and CEO

Sure. Thanks, Alex.

Operator, Operator

Thank you. Next up is John Marchetti from Stifel. Your line is open.

John Marchetti, Analyst

Thanks very much. Oleg, I just wanted to talk a little bit on the OSP business looking forward. You went through on the Anti-Counterfeiting side, how you expect that to kind of play out over the next 12 months or so. And looking at the 3D Sensing, filter, and diffuser business, I'm just curious to get your updated timing, as you think maybe Android starts to get a little bit more involved here as we go through the calendar year? And if there's any concerns around some of the notch changes that are rumored to happen with some of the new phones and things like that? Just to get your sense maybe of that 3D Sensing business would be helpful within that OSP business as well?

Oleg Khaykin, President and CEO

That's a great question. To clarify, the presence or absence of a notch doesn't really matter to us. We are aware of the modules involved, and everything is within our guidance. It’s simply a different design approach. I won't go into further detail, but some of the news coverage doesn't accurately reflect the situation. To simplify, there are world-facing and rear-facing cameras. The rear-facing ones focus on high-resolution facial recognition security, while the world-facing ones are more about photography. I expect that as a technology leader, the market will see an increase in world-facing cameras on phones, along with wider adoption of facial recognition technology. This sector will continue to expand with increasing market share and the ongoing integration of 3D sensing technologies. An exciting aspect of our forecast is the growing activity around 3D sensing for world-facing cameras from various Android OEMs, especially considering the modules that will enter production. We anticipate a mix of diffusers and filters being utilized in this area. We believe that having a world-facing camera on higher-end phones has become essential for enhancing camera performance. After several previous attempts, I think the Android market is on the verge of adopting 3D sensing technology.

John Marchetti, Analyst

Got it. And then if I can just also go back to your comment on O-RAN looking out, you know, as maybe a next leg of investment within that wireless lab, you know, I guess where are we in that cycle from a test perspective? Is it still early days? Are you seeing widespread interest? Is it maybe more geographically concentrated in one area and other any color you can just sort of share on that O-RAN side would be appreciated as well? Thanks.

Oleg Khaykin, President and CEO

Sure. Sure. I mean, it's very early stages. So, operators, I mean, you can talk all you want, right now they need 5G working. So they're tailoring for the initial deployment to the respective names. Just put whatever you want, I don't care if it's proprietary solutions, I'm just getting something that works in parallel in their labs. They're all looking deeper at the O-RAN as a kind of the next thing for themselves. And on top of it, or even leading names are aggressively ensuring that they are O-RAN compliant down the road. And what also O-RAN brings, it brings a lot of new players into the market. So it's no longer just a stock three, four names. Now you have about a dozen smaller companies, who are all looking to play at various horizontal or vertical layers of the network. And they're all buying labs. And so at this point, I would say O-RAN is heavily a lab and experimentation kind of what if focused activity. And in terms of the actual deployment, it just gives me something to the works, and I don't care how you make it work. So that's, I hope that gives you a bit more color on how we see O-RAN happening.

John Marchetti, Analyst

It does. Thanks so much, Oleg.

Oleg Khaykin, President and CEO

All right.

Operator, Operator

Thank you. And your next question comes from the line of Mehdi Hosseini from Susquehanna. Your line is open.

Mehdi Hosseini, Analyst

Thank you. Two follow-ups. Oleg, can you please help me understand how much the strength in your 3D Sensing is driven by the new models, especially the US OEM that introduced and appears to be successful? And how much of your success is driven by increased content? So, smartphone units versus increased content for you? And I have a follow-up.

Oleg Khaykin, President and CEO

The market leader is definitely fueling growth in our 3D Sensing business. There hasn't really been any change in what we've observed. You can assess their market share on your own; we believe they have gained some market share. Consequently, we're now discussing a higher volume of phones, and almost all of these phones now feature rear-facing cameras for facial recognition. This technology is also spreading to other devices like tablets and PCs. Additionally, the world-facing camera in the higher-end models has generated considerable interest. It seems to have performed better than we anticipated. When we consider all these factors, I would say the main driver of the increased volume is simply more units being sold, while the introduction of world-facing cameras is the second main factor. Together, these elements more than compensate for any decline in average selling prices.

Mehdi Hosseini, Analyst

Okay. But would you agree that you have more content and it seems like you may have two different filters or products compared to one in the past?

Oleg Khaykin, President and CEO

Yes. So, in the phone that has both world-facing and rear-facing camera, our content is greater. It's a little different. So I just, I mean, people, let me just give you a little clarification. When people think about lasers, the world-facing laser is actually higher power than the rear-facing laser. And in some cases may be more expensive. For us, that's not how we look at it, we look at it by the sensor area. And the world-facing camera sensor is much smaller. It's the lower resolution than the rear-facing, which is a facial recognition sensor. So in terms of the ASP, the ASPs for the world-facing cameras are much smaller and the ASPs for the rear-facing cameras are bigger because the area is bigger. But the mere fact that before we had zero world-facing filters, and now we have some and it's growing, that's obviously driving upside.

Mehdi Hosseini, Analyst

I see. Oleg, the NSE part of your business seems to be more clear today than three, six months ago. At some point is going to turn and you have new products that hopefully will scale. So I want to stay focused on OSP, is interesting that recently one of the key suppliers in 3D Sensing, they made a bold acquisition of getting into lasers, which was very surprising to me, to me, LiDAR suddenly has become a huge growth driver in that context, would you actually shift your focus if six months ago you were looking into M&As for NSE application, now you're looking more at strengthening your portfolio with the eyes on LiDAR as an end market application? Am I thinking about this the right way?

Oleg Khaykin, President and CEO

We will consider acquisitions for both OSP and NSE. We have a clear roadmap and strategy for each. Regarding momentum, I see it as more of a diversification play for them, to incorporate industrial applications and industrial laser processing. They have their own strategy for that, and I know they have been interested in Fiber Lasers for industrial uses since the days of JDS. I believe this is a beneficial long-term deal for them, making them a more diversified and resilient company, not reliant on a single phone model. This presents a good opportunity for them, and I think it will work out well. For us, while we are exploring options, focusing on a combination of both makes more sense. Going deeper into our existing markets provides us with greater leverage in any acquisition; expanding into new areas may be premature at this stage as we need to enhance scale in our current markets.

Mehdi Hosseini, Analyst

Okay. Thank you.

Oleg Khaykin, President and CEO

Sure. Thanks.

Operator, Operator

Thank you. And your next question comes from the line of Richard Shannon from Craig-Hallum. Your line is open.

Richard Shannon, Analyst

Hi. Thanks for taking my questions. I think, I'll follow-up on the any business specifically in 5G field test Oleg you’ve talked about some confidence in seeing the second half of your calendar year being robust. How would you just describe the kind of inputs to that? What geographically and then how long you kind of see this cycle for 5G field test lasting?

Oleg Khaykin, President and CEO

I believe the 5G field test will lead to a substantial growth period lasting around seven to eight years. We will first see initial deployments, followed by densification, as more regions begin to adopt the technology. This progression is reminiscent of the rollout we observed with 3G. Countries like Japan are already making significant progress, and even in a market dominated by one of our major competitors, we are performing well, which boosts my confidence in our products. Looking at the U.S., I anticipate it will be the next major market for deployment. China has been active for a while now, but the U.S. situation is particularly interesting with three companies competing for 5G dominance. This competition will likely accelerate developments, differing from the previous duopoly where progress was slow. With three players now, it's hard to maintain collusion, which means we should expect faster advancements in the U.S., potentially starting later this year or early next year. Europe, on the other hand, appears to be about a year behind the U.S. regarding deployments, but we should begin to see activity there next year.

Richard Shannon, Analyst

Okay. Thank you for that information. Oleg, my follow-up question is regarding your fiber business units. You’ve mentioned that there has been a strong cycle at 400-gig for at least a couple of quarters. Can you provide insight into when that will transition into a more robust cycle for fiber? Additionally, how do you compare the 400-gig generation with the previous two generations? Do you see it as positive or even an improvement? How do you perceive this?

Oleg Khaykin, President and CEO

I believe the transition from one-gig to 10-gig and then to 100-gig has revealed a trend where the duration between the deployment of these technologies is decreasing. The time it takes to move from one technology to the next is getting shorter. We transitioned to 100-gig just a couple of years ago, and now there's already demand for 400-gig, with customers expressing interest in 800-gig. It seems the pace of deployment is accelerating. We might witness multiple technologies coexisting; for instance, data centers could adopt higher bit rates more quickly while metro areas might take longer to move from 10-gig to 100-gig. Instead of one technology ramping up while another ramps down, we could see all these technologies operating in parallel. This shift introduces entirely new customer segments beyond traditional telecom transport. Additionally, the backplane of data center equipment is increasingly adopting optical technology, which is significantly driving fiber demand.

Richard Shannon, Analyst

Okay, great. That's a great perspective also. All right. Thanks.

Oleg Khaykin, President and CEO

Sure.

Operator, Operator

Next up, we have Tim Savageaux from Northland Capital. Your line is open.

Tim Savageaux, Analyst

Hi. Good afternoon, and congrats on the results. A couple of questions here. First, over on the OSP side or 3D Sensing in particular, you mentioned and we've heard a little bit of this before today about an increasing level of activity around world-facing in the Android universe. And you'd also mentioned that that is a potential source of upside. And I think your Android contribution to 3D Sensing today has been pretty low, if not minimal. And so my question is basically an upside to what baseline when you say that, which is to share with a robust Android rollout in the second half of calendar 2021, your fiscal 2022 drive the same sort of double-digit growth you're seeing in 3D Sensing next year, even with say your top customer sort of flattish?

Oleg Khaykin, President and CEO

Yes. So I would make a little correction. Actually, our contribution to the Android universe in 3D Sensing has been huge. It's just the universe has been fiddly. And it's kind of started and it just fizzled away. So in that respect, the Android market just didn't happen. But we've been engaged with all the major players. And I think this time around, I think later this year, we are going to see Android as mainly world-facing cameras. And for us, it's a double opportunity. It's not only filters, it's also diffusers, so depending which models go into production and which modules get designed in we will get either one or two of our products designed in. And given that Android is so big and if enough players, if they introduced into more than one high-end models, we can see that volume to be quite meaningful.

Tim Savageaux, Analyst

Got it. And I was mentioning your revenue contribution, not your technology contribution.

Oleg Khaykin, President and CEO

Our contribution is significant despite coming from a small base. I believe Android will make progress this year, as failing to do so could result in a significant loss of customer acceptance. We haven't included this in our forecast yet and still consider it an upside. We expect to start seeing results in the next three to four months as customers begin placing orders for various models and modules that will enter production.

Tim Savageaux, Analyst

Got it. And just a quick one on OSP, just want to make sure I heard the number right, the kind of baseline currency run rate, you're looking at $65 million a quarter?

Oleg Khaykin, President and CEO

No, we mentioned that our base business operates around $50 million. I would estimate it to be in the range of $55 million to $60 million, so likely in the higher 50s.

Tim Savageaux, Analyst

Thanks. I have one last question. Regarding the strength you observed in some of your traditional fiber cable field tests during the December quarter, how would you characterize that? Is it due to pent-up demand being released, or is it similar to a more typical budget flush? Additionally, as you anticipate the declines in March, do you view those primarily as seasonal, or are there other factors at play?

Oleg Khaykin, President and CEO

Actually, it's all driven, what I call it the best kind of demand, a lot of customers are seeing significant increase in bandwidth for consumer bandwidth, and increased demand for quality of the network. I mean, for example, I'm doing my call from the office because I cannot rely on my local cable provider to not shut me off during the day, during my call. So I think what we're seeing is actually response by cable companies and telecom companies to kind of consumers demanding more bandwidth and higher quality of service. And that's to me is the best kind of demand you can have because it manifests itself into a longer-term investment with a more sustainable demand over multiple quarters. So it took them several quarters to figure out what needs to be done. I mean, I think many of them are still redesigning their networks, and they're starting to roll it out. And I think the next wave will be, I won't say a wave, but kind of an incremental spend in the U.S., this whole rural broadband, we're seeing already a lot of customers starting to plan and compete for the government money for these projects. And that would be also an additional spend down the road for us.

Tim Savageaux, Analyst

Great. Thanks very much.

Oleg Khaykin, President and CEO

Sure.

Operator, Operator

Thank you. And your next question comes from Meta Marshall from Morgan Stanley. Your line is open.

Meta Marshall, Analyst

Great. Thanks. Maybe expanding on the 3D Sensing opportunity, it's been a while to kind of talk about how you were thinking about timing of the auto opportunity, just with your supply chain partner seeming to think that in terms of maybe 2022 just wanted to get your latest thoughts? And then maybe as a second question, Europe was relatively strong, despite maybe stricter accessibility issues in Europe than in North America in Q4, just anything to read into that pickup that we saw in Q4 out of Europe. Thanks.

Oleg Khaykin, President and CEO

So, I'll say out of 3D. I think listen, we always said, the actual LiDAR and the kind of autonomous driving or assisted driving, that will take longer, it's really not a function of lasers or filters. It's really the area around the whole cost minimization and miniaturization that needs to take place. And I mean, today, we are pretty much working with every LiDAR company out there. And I think 90% of them will be out of business or will get acquired in the next few years. And we still view our automotive as a 2023, 2024 opportunity at the earliest for that. However, there are segments for 3D Sensing already in auto that are being active today, mainly the high-end, which is the gesture recognition in-cabin monitoring and things like that. And we have a pretty good share in that market. It's not a big market, it's very much limited to high-end market, but it's giving us engagement with the customers and positions us as one of the go-to companies for 3D Sensing in automotive. So that's how I see automotive for us. It's really more I'd say longer-term play. For us, industrial 3D vision is our call will be near-term drivers of growth in business. In terms of Europe, actually, the whole EMEA region has been very robust for us even during the worst downturn during the pandemic and it continues to be very strong and it continues to grow. So, we've seen very strong demand and growth in Europe. And a lot of fiber initiatives are going on in Europe with the mandates from governments to roll out fiber to practically every household in Europe. And Europe, as you know, is very different from the U.S. We have cable pretty much connection, almost every house in North America in Europe has predominantly been DSL, and the DSL has run out of steam in terms of delivering broadband. So we're seeing wholesale, I'll say call it fabrication in Europe with fiber being pushed out over the network with a lot of national push behind it.

Meta Marshall, Analyst

Great, thanks.

Oleg Khaykin, President and CEO

Sure.

Operator, Operator

Thank you. Our last question comes from the line of Fahad Najam from MKM Partners. Your line is open.

Fahad Najam, Analyst

Thank you. Thanks for taking my question. Most of my questions have been answered. But Oleg, if I could ask you to help us understand a little bit about more of your opportunity in 5G, maybe if you can peel this onion a little bit more, at least from what I understand there's two aspects of the opportunity one is on the RF side and the other is on the fiber optics, given all these different spectrums that are going to be coming online carriers are especially looking at WDM office or densifying PON so to speak to the front haul carry the radio traffic. Can you speak to us where you are in terms of the opportunity you're seeing? Is it more of the optical side? Or do you think the optical side follows the RF side, maybe a little bit of the dynamics there if you can help us understand the opportunity and how you see this dynamic play out in the optical and the RF?

Oleg Khaykin, President and CEO

Certainly. You make a very good point. We are indeed seeing a convergence between fiber and RF. It's essential to consider fiber and wireless networks together, as everything in the wireless infrastructure is now interconnected with fiber. Therefore, testing aspects like timing and transmission requires evaluating both fiber and RF. We believe we have a unique advantage since our instruments combine RF and fiber capabilities in one unit, allowing users to handle all necessary tasks in field installations with just a single instrument. Regarding 5G, our initial phase focused on achieving significant wins with NANDs in laboratory and engineering settings. This momentum will carry into the deployment of new 5G standards. Our next significant opportunity lies in field deployment, leveraging our established expertise in field instrumentation. We anticipate growth in this area. Following that, we expect to see developments in O-RAN, which involves both traditional players like NANDs and new entrants offering specific network services. These companies are turning to our products for compliance and testing support. Another key aspect of 5G is the emergence of private 5G networks. Many businesses are starting to view 5G as integral to their enterprise networks, which represents an entirely new market opportunity for us, as we haven't previously operated in enterprise networks. As large enterprises begin implementing 5G for internal use, our diverse range of tools, including test equipment, simulation gear, monitoring tools, and assurance software, will be well-suited for the enterprise network landscape. In summary, 5G presents a wealth of opportunities. It's not limited to a single technology, and our focus will be on prioritizing investments across different facets as we navigate this expansion.

Fahad Najam, Analyst

Thank you. And then, if I should ask you a question on the optical side, maybe if you can share with us some data points as to where you're seeing the shift of 800-GIG in higher speeds? Is that beginning to become an increasing portion of your revenue mix? And how should we be thinking about the implications for your module from that?

Oleg Khaykin, President and CEO

The 800-GIG is currently at the forefront of development and is primarily driven by engineering lab demand. It represents the leading optical equipment NANDs, with various suppliers providing optical modules, particularly semiconductor companies that are focused on 800 GIGs. For us, 800-GIG is at the stage of advanced development, and we anticipate seeing some early adopters begin to roll out 800 GIG technology in the field next year.

Fahad Najam, Analyst

Thank you very much. Appreciate your answers.

Oleg Khaykin, President and CEO

Sure. Thanks.

Operator, Operator

Thank you. There are no further questions at this time. I will turn the call back over to Bill for any closing remarks.

Bill Ong, Head of Investor Relations

Thank you, great. This concludes our earnings call for today. Thank you everyone.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thanks all for joining, you may now all disconnect.