Ladies and gentlemen, thank you for standing by, and welcome to the II-VI Incorporated Fiscal Year 2020 Fourth Quarter Earnings Call. At this time all participants are in a listen-only mode. After the speaker presentation there will be a question and answer session. [Operator Instructions]. Please be advice that today's conference is being recorded. [Operator Instructions]. I would now like to turn the conference to your speaker today, Mary Jane Raymond, Chief Financial Officer. Please go ahead, ma'am.

Thank you, Joelle [ph], and good afternoon. I'm Mary Jane Raymond, the Chief Financial Officer here at II-VI Incorporated. Welcome to our earnings call today for the fourth quarter and the year end for fiscal year 2020. 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 Semiconductors segment. This call is being recorded on Thursday, August 13, 2020. Our press release and our updated investor presentations are available on the Investor Relations tab of the website, ii-vi.com. Just as a reminder, any forward-looking statements we may make today during this teleconference are given in the context of today only. They contain risks factors that 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. A list of our risk factors can be found in our Form 10-K for the year ended June 30, 2020, as well as in the Form S3 files with the SEC on June 30, 2020. We will also present some non-GAAP measures for which the reconciliations to GAAP are found at the end of each documents 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. Chuck?

Thanks, Mary Jane, and good afternoon everyone. What a year? Our employees came together and really accomplished a lot in a short time including coping with the pandemic. I am very pleased with our performance and our progress on a number of fronts. On a consolidated basis for fiscal year 2020, we delivered revenue of $2.4 billion with a non-GAAP return on sales of 11%, and record cash flow from operations of $297 million and record free cash flow of $160 million. When we received approval to complete the Finisar transaction, we hit the ground running and leverage the best that Finisar and II-VI had to offer. As One II-VI, we began serving our end markets and customers with great results. Among our many achievements in a short period of time we enhanced our $1 billion Datacom transceiver business and delivered strong operating performance underscored by improved margins. We began stripping indium phosphide based devices to the OEM market a year ahead of schedule. We are on track to deliver double our announced cost synergies by the end of our first 12 months. We strengthen our long-term market position in silicon carbide devices by continuing to ramp our capacity for silicon carbide substrates and by pursuing strategic partnerships that enable our vertically integrated technology platforms. Our sales and procurement organizations drove profound improvements in the organization simplifying our processes, expanding the scale and implementing successful change programs that contributed to our top and bottom line results, while teams of dedicated One II-VI employees worldwide confronted a worldwide pandemic and sustain compliant, safe and secure operations in every country that we operate in. Underlying these accomplishments were four solid quarters of the kind of heavy lifting that a competitive market requires. Our fourth quarter cap this trend of strong achievement with…

Thank you, Chuck, and good morning. 5G represents the most extensive opportunity II-VI has experienced for some time. Our vertically integrated product portfolio includes components, modules, and subsystems that are deployed into all parts of the network. They will continue to grow driven by demand for 5G services. Starting at the base stations, our silicon carbide substrates and soon, our gallium nitride on silicon carbide amplifiers in partnership with SEDI represent a great growth opportunity in the wireless market. Our optical transceivers enabled by our own platforms for lasers, detectors, optics and integrated circuits, connect the base stations to the first point of aggregation in the optical network, where we offer an end-to-end vertically integrated portfolio of transmission, amplification, switching and monitoring products. It is a very exciting and market for II-VI. With regards to the partnership with SEDI that we previously announced, the gallium nitride on silicon carbide program, which relies on our 150 millimeter substrates is on track. And our power amplifiers are meeting the stringent requirements for the 5G base station market. We have hit our scheduled milestone to date, have multiple qualification efforts underway, and expect to be in volume production in the first half of calendar year 2021. We are excited about the progress made to enable rapid adoption and scaling of critical 5G infrastructure with our vertically integrated platform. Our plant capacity expansion for silicon carbide substrates, is also on pace to meet our internal and external demand for RF devices. The competitive advantage of our $1 billion Datacom transceiver business is rooted in the differentiation of our components and their integration. These advantages derived from proprietary device level technology platforms such as indium phosphide, gallium arsenide and analog integrated circuit design expertise dedicated to the transceiver products. All developed -- thanks to the…

Thank you, Giovanni, and good morning. We close our year with a strong performance that demonstrates our experience in integrating acquisitions and picking our market spots very well. On a pro forma basis, our revenue grew 12% in the quarter compared to Q4 fiscal year 2019 and was flat for the entire year. The pro forma measurement gives the effect to the Finisar revenue that was present at the same period last year prior to the acquisition. Our non-GAAP gross margin was 42.3% and 38.3% for the year, nearly at or above the II-VI non-GAAP gross margin for fiscal year 2019. Our non-GAAP operating income margin was 16.7% for the quarter and 13.6% for the year. We delivered $160 million of free cash flow for fiscal year 2020, exceeding the original business case that assumed breakeven cash flow for the first year. We are tracking well against our target of $150 million in annual cost synergies within three years after the close of the transaction. The delivery of our synergies through June 30, or nine months into the first year is $50 million, and we still expect to reach $70 million or double the first 12 months estimate. During the quarter, our total revenue of $746 million was split 72% in communication, 9% in industrial, 6% in aerospace and defense, 6% in consumer, 4% in semiconductor capital equipment, and the rest is in other markets. For the year, the total revenue of $2.4 billion was split 67% in communications, 12% in industrial, 7% in aerospace and defense, 6% in consumer, 5% in semiconductor capital equipment, and the rest in other markets, we had no 10% customers. From a growth perspective in the quarter, sequentially communications grew 25% consumer grew 27%, life sciences grew 12%, aerospace and defense grew 5%, and…

Thank you. [Operator Instructions] Our first question comes from Meta Marshall with Morgan Stanley. Your line is now open.

Great. Thanks guys. Maybe just a question on -- one of your competitors noted that they were selling less directly to Huawei and diversifying with other customers. Could you just give us any insight into kind of what you're seeing in the interplays within kind of customer sets within China that you're selling to? And then, maybe as a follow up question, just some help with kind of thinking about the operating margins and the guidance? Thanks.

Hi, Meta. This is Giovanni here. I'll -- first of all, we have no 10% customer. Okay. So that's clear. We are quite diversified in general, particularly in Telecom and Datacom. And so, there is no doubt that China is very strong at the moment. There's a demand for particularly compound semiconductor devices. We began selling our first indium phosphide lasers and detectors there to become eventually over time a leader in those products. And everything else that we make from wavelength selective switches to amplifiers, to 980 pumps, and of course, an array of transceivers, all in strong demand. But we have been quite balanced in generally across the leaders in the Telecom and Datacomp world. So, I can only say that, we have not been affected by sanctions, for example. But, having said that, I think we still have very good pull from China and from the European, as well as North American customers. So I'll let Mary Jane comment on the margin.

Right. So with respect to the guidance and the Op margin. So first of all, particularly you're comparing it to Q4, the first thing you need to do is reverse out the tax. So we -- if you remember, set the guidance for Q4 with what we expect it to be about a 12% tax benefit. And it was actually 25%. And as we go into Q1, we are expecting about between 20% and 30%. So we use 25% tax expense rate. So that's the first change. The second change compared to Q4 is the share count. So instead of 102, it goes to 116. But with respect to this foundational part of your question with respect to operations, we had a very, very, very good mix in the quarter. And we are being a little bit more cautious on that mix as we start the year because Q1, plus September 30 ended quarter is usually our smallest quarter of the year, especially in some of the more margin rich products of II-VI. So I will say absolutely and setting the guidance, we're a little bit cautious on Op the margin. But generally the biggest changes, especially you're comparing to Q4 on the tax rate and the share count.

Great. Thanks.

Thank you. Our next question comes from Samik Chatterjee with JPMorgan. Your line is open.

Hi. Good morning. Thanks for taking my question. If I can just start with the strength that you're seeing in China, and particularly, I think, Chuck, you also mentioned kind of looking at a multi-year investment cycle here. I think that's one of the questions that we keep getting often from investors to the timing or the length of the investment cycle, particularly in China. So just wanted to ask you based on experience of previous cycles, how are you thinking about the length of the investment cycle here that you're benefiting from on both Telecom and Datacom? And then I have a follow up. Thank you.

Samik, this cycle may not be exactly like the last ones. There's a lot of -- there are a lot of facets to this to this one. Our understanding and discussions with our customers and with our customers customers is that we should expect this to be a multi-year investment cycle. And it might actually have more than one face to it. So we're cautious to begin with. And including if we look back because we can't ignore the past. So our sensitivity and sensibilities are focused on not getting swept up with the tide and getting too carried away with long term projections. But we have to be conscious that there's a value proposition for the things that we do that are enabling a lot of this to take place. And that's only part of the things that are really exciting about this for us. And, of course, we could see it -- we could see a slowdown, and maybe be confused that a digestion phase if it were to come. At the moment, we don't see that. It's strong, as our fourth quarter results suggest, and the momentum that we have suggested is going to continue at least in the near term. Okay?

Okay. Got it. And if I can just follow-up, Mary Jane, good set of results. But what stood out to me the most was the cash flow and the strong cash conversion that it's implying. How should I think about sustaining that free cash flow conversion into next year and what were the primary areas of improvement rate? Because that's a remarkable improvement in the free cash flow conversion? Thank you.

Yes, of course. Thank you. So, well, first of all, we worked very hard on the cash flow conversion this year since it was the first year with a new company. And also, as many of you have commented through this entire year, we had a significant level of debt that we hadn't had before. And it was important to us to be sure that we were able to service that debt. So a couple things going forward. First of all, if you think about the CapEx range I gave, up 190 to 240. During fiscal year 2020, the year we're just leaving, we did two things. One, we were extremely cautious on capital, either because as we started the year we weren't sure how trade was going to play out. Second of all, then because of COVID. The second thing was, Chuck, in particular and Giovanni with our Photonics President as well drove the operations considerably strongly to move beyond, say 16/5 [ph] or in some cases, you know, 10/7 [ph] in terms of operating hours, to really being more across the board 24/6. So our growth operations were always 24/7, but not everything was. And we did that to be able to really start to moderate the curve on CapEx spending. I think as we go forward into fiscal year 2021, first of all, as we've just talked about a lot of the growth that we're seeing, we will have some capacity expansion that to meet it. So that's the first thing. The second thing is I think on the working capital elements. The two companies coming together on the merging of particularly inventory practices probably helped us to get some good savings on the inventory side. As well as cleaning up kind of past due receivables. Those as you know, don't actually keep happening, right? You sort of get them cleaned up to get to a more steady rate. That said, I would still say that cash flow is going to remain very, very important to the company. And while I don't think this will quite be the conversion. I do think that the company will strive to be sure that somewhere in the neighborhood of -- a good call it 30% to 40% of the free cash flow -- of the cash flow from operations is coming -- available to free cash flow. So that's just an estimate right now. As we look at the capacity increases for this year and the investments, particularly in silicon carbide based devices that could obviously move, but those would be the main drivers and that's the main story on fiscal year 2020.

Great. Thanks for color. Thanks for the detail color there. Thank you.

Thank you. Our next question comes from Tom Diffely with D. A. Davidson. Your line is now open.

Yes. Thank you. First, Mary Jane, you talked about how the cost synergies were coming in faster than initially planned. I'm curious, are you seeing additional cost synergies that you weren't expecting? Or is it purely just an acceleration of what you had planned from the beginning?

I would say Tom, if I were really kind of going to call it, it's probably 70% getting the existing ones we thought out faster, and maybe 30% some cost synergies we hadn't thought of. But generally, I wouldn't -- before you take my 150 and multiply it up by 30%. I would say that the part of the synergies in the third year are the more complicated ones that come from process reengineering, right? So getting everybody on the same system, all that sort of jab. As we start that, because that starts in the first year, we see other things that are potentially possible to do. In the supply chain, which is the largest part of the COGS synergies, you don't always know exactly what you're going to find. So generally speaking, I would say it's really mostly receiving them faster. And so at this point, I would not move the $150 million. We're still not all the way a whole year into this yet. But generally speaking, the best way to think about our company is we never met a synergy we didn't like.

Yes. Okay. That makes sense. And then as follow-up, Giovanni, you talked about working on the next generation 3D sensing device. Are there capabilities you need to add or is this more of a efficiency cost reduction effort?

No. We are very much vertical integrated, as you know, there is no further capability that we need to add. It's really about designing new devices, typically high speed devices. So these are lasers array that worked a the works of very high speed. So that's where the new challenges. But particularly when you have strong experience and share in the market with high-speed Datacom lasers, I think it's -- the task is a little bit easier, I think for us than maybe for others. So I think we are well-positioned to have a significant share of that application too.

Okay. Thanks for your time today.

Thank you.

Thank you. And our next question comes from Paul Silverstein from Cowen. Your line is now open.

Good morning. Chuck and Giovanni. Can you all hear me okay?

Yes. Morning, Paul.

Thank you. Two questions if I may. First of all, on the optical components, how big an impact, how quickly can you have now that you're starting to ship into the market? And then if I could return to the Huawei question, I recognize, it hasn't been 10%, it wasn't 10% of Finisar. But if we think about Huawei, not just Huawei direct, but all of those subsystem component suppliers, that that sell into Huawei, many, if not all of whom you sell into, but ultimately, the sale is going through a Huawei system that's being deployed mostly within China, but also by non Chinese cat -- by non Chinese service providers and others. How much is that exposure for all the defined? And how much does that factor into your future revenue?

There are a lot of questions, Paul. Let me all in one. Let me try to take it this way. I have a substantial echo on my end. I hope you can hear me? Okay, Paul. The China market itself continues to be an important market for II-VI. And with regard to your specific question about Huawei, and indirect sales to Huawei. As , our business grows, we're attempting to be to be able to invest in manage and grow with a wide variety and a wide diversity of customers. And we have -- as we operate at three levels of integration; materials, components and subsystems, we have business and serving into a large ecosystem. We don't have the kind of full visibility that I think that you're asking if we do. But for sure, to come back to a simple answer to a complicated question is that China is an important market for us. I think Mary Jane said that, it represented in our fourth quarter 27% of our sales. And there are large players today in the market. And we expect that smaller companies who are innovators are going to represent even bigger opportunities for us in the future. I hope I answered your question, Paul.

Yes. Well, Chuck, the related piece of that will be, I assume your position at Nokia as seen in the other major optical suppliers to assume they were to pick up share from Huawei outside of China, I assume you have an equally if not exact same position, but in a strong position in each of those as well?

We have a leading position into that marketplace, Paul. And the supply chains as they as they become reordered over time. As the supply chains become reordered our enthusiasm for serving all the large OEM equipment suppliers into optical communications market is going to continue to remain strong. And so, we have a handful of extremely important customers. And we will continue to enable them to grow in whichever markets they're participating in, regionally. Okay?

And Chuck, in the optical components, how far how fast is Datacom?

Let's see. Can you repeat the question, Paul?

Yes. Now that you're shipping optical components into Datacom, which Finisar hadn't done historically. How far how fast in terms of impact? What is your expertise?

Okay. I'll ask Giovanni to take that one, Paul.

So the -- there is no doubt, there is -- Paul, there is a quite a strong demand out there. So we have been -- if you want, there couldn't be a better timing for us to really penetrate and gain share in the market. So as I mentioned during -- in the script, we have already started selling [Indiscernible] and shipping in quite high volume indium phosphide lasers, and detectors. And, of course, we're already shipping all the Datacom epitaxial and other kind of sub components like Faraday rotators and the like. And -- but the most important ones were really those that we acquired with Finisar. And as you know, they've been the leading platform, particularly lndium phosphide for years. And so penetrating the market with existing devices, so really very qualified with years and years of reliability data and very competitive platform given the volumes of the internal -- or the internal consumption. I think it's been pretty straightforward and really demonstrating the validity of our strategy in the acquisition of Finisar. At least one of the one of the reasons why we were so much interested in combining with Finisar. So this has been pretty fast. Again, we're shipping today in volume to a number of customers, products have never been on the merchant market before.

Thank you. Thanks, guys.

Thank you, Paul.

Thank you. Our next question comes from Richard Shannon with Craig Hallum. Your line is now open.

Well, thanks for taking my questions. Mary Jane, I think you talked about a fairly rich mix in the June quarter here with some very good gross margins here. While we know that your submarine pump laser business can be very lumpy. You talked about also mix benefiting 3D sensing and Datacom components, which I'd assume would still be a benefit here in the September quarter. So are you suggesting the mixes is going to be less rich here? And if so, can you describe where that's coming from?

Well, I think I said that we have baked into our guide forward, that we may not have as richer mix, but I'm not going to break down the mix by segment. Generally speaking, we -- if you take the mix we had, very, very good operating efficiencies, going into Q1 we'll need to start to expand capacity in some places. As I say, we're just guiding more conservatively on the margin.

Okay. Fair enough. Perhaps I'll follow-up offline on that one. My second question is on your transceiver business for datacom. Chuck, I think you're referred to that as a $1 billion business. Obviously, the Datacom market here is positive, but you're shifting more towards a component strategy. Can you tell us whether you're expecting your transceiver business to grow in fiscal 2021? And if so, how does that that happen? How do you see the mix there?

Okay, Richard. Thank you for your question. I'm expecting the transceiver business will grow in FY 2021. But I'm not going to give you a forecast for that transceiver business growth. There's a lot of opportunity. And as a leading supplier, along with differentiated platforms that Giovanni discussed. I feel very, very good about our prospects, about the demand, about our technology and about our team. And customers have taken note of it, and that's another very important and exciting feature. Giovanni, would you like to add anything to it?

Yes. I want to make sure that I clarify. I don't believe we have ever said, we are going to shift from transceiver to components. We -- I believe our story always been that we intend to become an merchant supplier with a number of components, optical and electronics that Finisar did not have -- the Finisar was not standing on the merchant market before. But we had no intention to diminish or decrease our investments and talents, I believe, market leadership with our transceiver platform. As a matter of fact, I think that we are investing as we said in all the new transceiver designs and we believe that the most important value that we bring to the table and which has been Finisar strategy for many years. And I think we have to revive that strategy, really to have this cross-functional, multidisciplinary team, which is pretty unique under one group in a single company. And it's really the collaboration of the optical and electronics engineers, as well as the packaging and manufacturing engineers, all in the same company, creating some new approaches to transceiver design. And we anticipate that in the next five years, even the transceivers as we think about it now will probably change, will be a significant over time modification, transformation of the form factors or the miniaturizations and so far all driven by speed that requires completely different approaches that were used in the past. So if in the past, assembling a number of components procured on the merchant market was very, very important and necessary to deliver transceiver. I think as we move forward to more advanced solutions, I think the close collaborations of the teams that I mentioned, I think it's going to be way more important to establish the significant share of the market. And I think we are very well positioned to do that. Thanks to both the Finisar and the II-VI team combines in the same company.

Great. Thanks for all your thoughts. So that's all the questions for me.

Thank you, Richard.

Thank you. Our next question comes from Tim Savageaux with Northland Capital. Your line is open.

Hi, Tim.

Hi. Good morning. Well, if you didn't want to answer the transceiver question, we'll see how this one goes. But, Chuck and team, you mentioned the year flat from a pro forma basis. And that's where why a pretty spectacular fiscal Q4. It looks like given what you're guiding to, you're going to see probably double digit pro forma growth year-over-year. And I wonder if you have a view toward what the medium to long term growth rate for II-VI ought to look like as you've had three quarters of experience combined with Finisar. Should we be thinking about a double digit growth company here? Or I'd just be interested in your thoughts there?

So, a couple things. You're right that while on a pro forma basis the company was flat year over year. The benefit of the great performance in Q4 is that it reversed what had been a year to day trend of decline, right? So that's the first thing. The second thing is, back in our Investor Day when we thought about where the growth would come from in our company, we talked about two and a half to four times GDP. And we were expecting, if you remember the mega drivers that Giovanni introduced at the time, the 5G would be one of them. So in terms of being -- would we ever be a double digit growth company? I think it would certainly be fair to say that that's the company's aspiration.

Great. And if I could follow up, just with maybe the puts and takes in terms of your guide for Q1 on the top line. Obviously, you had a much stronger than expected Q4, maybe digesting some of that. And this is -- maybe, I'll touched on a little bit before. Normally the September quarter's one where you see sharp strength on the consumer side, 3D sensing. I wonder if you might have seen some of that earlier than expected in June, or whether that's part of the forecast and maybe you're digesting some of the growth on the com side, as you look at modestly down guide from a very strong Q4?

Right. So let's do a couple of them. First of all, even though it's not as big a percentage of our company as it used to be, Q1, the September 30 quarter is usually the weakest for industrial, right? So that's one that you can't come into. Number two, while I understand there is a view that in a strong communication cycle, there should be ongoing sequential growth for the whole time. The truth is, that even in our company, going from Q4 2016 to Q4 2017, we had a little bit of a dip in communications, even though we deliver 34% growth and communications that year. So, as I look at it, it is true that we could see communications growth into the September 30 quarter, but it's actually kind of a toss up. I think that's what Chuck meant. It's not actually perfect every quarter. So we are looking at whether that might be a little bit flatter. For 3D sensing, we did a very good Q3 and Q4 surprisingly so. And I don't know that we're necessarily saying it will be down for the 9/30 quarter, but as a factual matter, right, I mean, it can be strong for consumer at 9/30. But it has historically been the strongest really at the 12/31 quarter. So what quarters that falls in for the strong second half of the year. We're also trying to a little bit take a bit on that. And then, 3D sensing -- excuse me, life sciences, which is a very small market. It's true. But had some very, very nice growth in the quarter. Of course, we would like to see that continue. That is an important small little market for us. But at the end of the day, it might not be as strong as it was in Q4.

Got it. Thanks very much.

Thank you. Our next question comes from Jim Ricchiuti with Needham & Company. Your line is now open.

Thank you. Good morning. I was wondering if you could provide perhaps some additional color on the bookings that you saw the booking strength. And also maybe discuss some areas of the business where you might be capacity constraint?

Sure. So I would say, across -- we probably had booking strength across the board. The book-to-bill was probably a little bit stronger in Photonics than in Compound Semi. But generally speaking, it was pretty good really across the board. I was busy last quarter, telling you bookings that started with new normal and here we go again. So that's probably the first thing. And your second part of your question was -- tell me again.

Mary Jane, just the areas of the business where you're just capacity constrained.

Yes. Sorry. So first of all, if you look at a little bit vis-a-vis Tim's question, we pushed a lot of the operations to increase their production hours. But I would say, it's probably fair to say we're constrained across all the laser devices around the world. We continue to almost perpetually be constrained on pumps. We have some needs and even some of the smaller components. We're not always talking about circulators, et cetera. And in some cases, some of the transceivers, Chuck, would you like to add anything to that?

Yes, absolutely Mary Jane. Thanks for your question by the way. Jim, good morning. I want to say, I'm going to repeat our wafer fabs are quite busy. And our opportunity to sell lasers at the moment is exceeding our ability to make. And so we're doing something about that. We're focused on the capacity expansions reflected in the capital. But we're also working diligently on productivity, efficiency, and the smartest use of the utilization of the fabs. Also -- because our module business is increasing, and we're forecasting it to increase. Just to address Tim's question, I was pretty clear that I expect the transceiver business is going to grow. And so we have two other places where we need to invest in and that's in the automated final assembly and testing for our transceivers. That that's basically is lasers and automated assembly and testing. And then we have a host of other platforms that we need to continue to invest and to drive our long term growth across other markets and across other technologies.

Chuck, would you be willing to say, how big the silicon carbide business was in fiscal 2020, and the kind of growth you saw?

I'm not sure. Mary Jane, did you? Did you disclose that?

Let me -- I think we did. Let me come back. Let's go on and I'll go ahead and answer it. Let me just…

Okay.

Let's go to the next question.

Yes. I'll answer it. Don't worry.

Sorry, operator. I think we should probably go towards the next question.

Thank you. And our next question comes from Dave Kang with B. Riley FBR. Your line is now open.

Thank you. Good morning. First question is, I know you're only giving guide for one quarter. But in terms of a trajectory, how should we think about fiscal second quarter?

Dave, say a little more. What do you mean?

For December quarter how should we think about whether -- for -- in the September quarter how should we think about in terms of trajectory?

Dave, the backlog that we -- Sorry, Mary Jane. Dave, with the backlog that we have, the visibility that we have, and the drive that we have to continue to grow. We're not going to be able to give you a forecast for the second quarter. But I can assure you that we're going to continue to drive growth in this company. And that's what you could expect us to be doing quarter over quarter, is driving for growth. Okay?

Got it. Yep. Fair enough. And then, just going back to first quarter. Mary Jane, you talked about mix being more conservative. So should we be thinking gross margin to be high 30s to maybe 40%? Is that how we should be thinking about gross margin for first quarter?

I'd say that I would imagine that the margin range overall, just generally speaking, is probably between 38 and 42. And I would expect it would come down, that might not be a bad guess.

Okay. And then just my last question, going back to China. It was about 27%, but no 10% customer. So -- and there aren't that many Chinese customers of Huawei, ZTE, you mentioned FiberHome in the presentation. So is it fair to assume maybe each of them, maybe high single digit type of a customer?

A couple of things. Dave.

…to get to 27%?

Yes. A couple things, Dave. I mean, just keep in mind, we're not only talking about communications here, right? So, first of all, China continues to be a very good market for us in terms of other end markets, primarily industrial for sure. And in fact, it was probably one of the first places our life sciences business began to actually incubate. So that's the first thing to tell you. It's not just communication. But the other thing is that while our Huawei for example is not a 10% customers, it's also not $9.9 [Indiscernible], soyou guys can estimate from there, but our China business is not just in communications. As for -- let me just answer the silicon carbide questions. So the silicon carbide, it's probably north of about 4% of sales at this point. And I'd say overall, it was pretty modest growth in the year, largely because while wireless was very, very strong, EV continued to be somewhat less than it had been in prior years.

Hey, Dave. This is Giovanni, I want to make a comment. I know you listed OEMs. I want to remind you that we are one of the most vertically integrated company in the space. So every single semiconductor lasers needs a governance far devoted. There's only so many companies that make those kinds of devices. We make it in the New Jersey. And you can expect that we sell those kinds of Faraday rotators not to the OEMs and so forth. So as Mary Jane said, number one, we are talking about in general China market. But then if you really want about talking about just Telecom or Datacom, I want to remind that we've made a lot of pallets. We make prisms, gradings, lenses, mirrors, you name them. We go into every WSS that we're aware of. Wavelength Selective Switch that we're aware of and so forth. So there is a number of components, but we sell that go into products of our competitors, for example. And there is a lot of modules and subsystem customers in China. So that you need to count those and there's a lot of them.

Just me just add, let's not forget hyper scale data centers including in China.

Sure. Make sense. Thank you.

Thank you.

So guys, we're going to try and get as many of you went to the Q&A here, even though we're a little bit over time, so let's move on.

Thank you. Our next question comes from Christopher Rolland with Susquehanna International Group. Your line is now open.

Hey, guys, thanks for squeezing me in. I wanted to dig in more on the GE partnership and finished product, silicon carbide. I guess overall, how big do you see the TAM for finished product? And then maybe if you can talk about where your technical capabilities from this partnership, ultimately end of that TAM, how much do you think you can address with this GE acquisition? And the two that you did on top of that most recently? And then and then just lastly, in this market, would you ever consider getting into like on Semi for example, is actually going to get into the inverter market. Is that finished modules and inverters? Is that something that you guys would consider as well?

Okay. Let me take it. Chris, thanks a lot for your question. Talking about inverters today is not in the conversation. So that -- we're focused on laying down a scalable, competitive, vertically integrated platform to carry out the growth of substrate business, establishing, which were not well underway, establishing a silicon carbide epitaxial wafer business through the Ascatron acquisition, making silicon carbide based devices and assembling them in competitive silicon carbide based modules. As I alluded to in my prepared comments today, as well as when we did the fundraising and announced the GE interaction. These technology platforms take time to put in place. This is going to take place over the next few years. But while we're putting it in place, we intend to continue to grow our silicon carbide substrate business, epi wafer business and begin selling silicon carbide based devices. As soon as we're ready to characterize well controlled and excellent quality that meets demanding specifications. So this is going to unfold over the next few years. And this market is going to be huge. So that's -- I think that's the key point. It's going to emerge. And see it's going to continue to grow, we think for decades. And we think it's just an absolutely great time with a great set of assets. And I couldn't be more excited welcoming the Innovion and Ascatron team into II-VI and melding and merging their capabilities with our substrate capabilities. And they're really exciting partnership with GE. Okay?

Yep. Thank you, Chuck. And then quickly, I assume that you believe the demand coming from telco and data center is different than perhaps traditional boom part that we see have a shorter lived optical up cycle here. Maybe you can talk about the subtleties that you're seeing versus other optical cycles that we've seen, that you believe kind of lends credence to sustainability over the long term for a very long cycle?

Okay. Let's ask Giovanni. Giovanni, would you like to comments on that?

Yes. I think the -- I would only talk about the capilarity of the 5G base station network that is necessary. And as soon as you increase 10x, the number of base stations that you need to connect then you get the sense of the amount of input/output of transmission and reception required to connect all of those, eventually to a point of aggregation as I mentioned in my script and so forth. So, the -- we're talking about a significant Increase in demand of optical gears, because of the requirements of an architecture that wasn't necessary for the previous generations. As you know, the every single G has been so far, its taken about maybe 10 years from 2G to 3G to 4G, and so far, and many expect that maybe 5G will go a little bit faster, maybe eight years. But I encourage you to look at the 6G, white paper published by Samsung, which is publicly available, and to get a flavor on how the entire world is already moving to the next step. So when you talk about the cycle, the cycles on next generation wireless connectivity hasn't really finished the 4G yet. We're talking about 5G now, and others, a lot of people talk about 6G too. So it's not going to end quickly, because the need for connectivity increases and continues to increase and drive the new requirements that need new solutions. And -- so I -- there will be ups and downs, of course, over time. But I think the much denser type of network connectivity that is required by the 5G infrastructure. I think, will required a volume deployments that we haven't obviously experienced in the past. And of course, with that all the data storage increase in worldwide will also require an increased level of connectivity that just wasn't there in the past. So I think the demand will be very healthy for quite some time.

Thanks, guys.

Thank you. In the interest of time, we ask that you please limit yourself to one question. And this question comes from Mark Miller with the Benchmark Company. Your line is now open.

Wanted to talk about 3D Sensing. Typically, September quarter is strongest, but there's some belief that some of this demand will be shipping into -- slipping into the December quarter. Is that's your perception?

Go ahead, Giovanni.

I'm sorry, you were talking about the 3D sensing.

Yes. Typically, September strongest, but some of that now might be shifting more into December than traditionally?

I don't know why. I don't see that. But we have the multiple design wins that are ramping. And so, I don't believe there will be any particular pattern of shipments and so far other than maybe what we experienced in the past. I think some of the designs will balance with each other in terms of the demand and the pull in. So I -- yes, I think it will be -- I would expect a similar ramp and the similar demand that we've seen in the past. We just -- I think the volume wise for us it will be -- we expect to as we said, we expect to continue to gain share over time. We have been doing it as you can validate with this growth rate we have reported quarter over quarter, year-over-year. Obviously, we are we are growing much faster than market -- much, much faster than that. So we expect that is an indication of a share gain, and we continue to do that.

Let me just add to that before we finish up. And Mark I'll give you your follow up. But at least for the last few years for our company, the 12 -- maybe for all the years we've shipped, the 12/31 quarter has consistently been stronger than 9/30. So that's what made Q3 and Q4 3/31 and 6/30 being higher than the 12/31. We're kind of remarkable, but generally speaking, we have not actually seen all the shipments going out at 9/30 quarter. Sorry, Mark, go ahead.

Last question for me is ROADMs. I assume that was strong. Can any color on that?

So, yes. Go ahead, Giovanni.

Yes, absolutely. ROADM is an integral part of out in traffic at the fiscal layer, as you know, and as I said, the new network architectures out there that require way more flexibility to provision traffic at the right place, at the right time. Really, increase the demand for that kind of products versus the previous network architectural. So it has been very strong for us.

Thank you.

Thank you. This concludes the question and answer session. I would now like to turn the call back over to Chuck Mattera for closing remarks.

Thanks Joelle. I'd like to thanks everyone for joining and we'll close by summarizing our top four priorities for this year. The first is the care and safety of all our employees. Second, is serving customers and delivering target operating performance. Third, is to focus our employee engagement through our shared values of integrity, collaboration, accountability, respect and enthusiasm of keeping an eye to the future as we continue to foster a workplace that is open, supportive and diverse. And forth, is the balance the capital allocation strategically following our prudent financial policy to enable both short-term performance and to be well-positioned to continue to drive long-term shareholder value. Joelle, with that, I'd like to close today's call. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.