Good afternoon and welcome to MACOM’s Fiscal Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of today's conference call, instructions will be given for the question-and-answer session. As a reminder, this conference call is being recorded today, Tuesday, April 25, 2017. I will now turn the call over to Steve Ferranti, Vice President of Investor Relations at MACOM. Steve, please go ahead.

Thank you, Nicole. Good afternoon everyone and welcome to MACOM's fiscal second quarter 2017 earnings conference call. Joining me today are MACOM's President and Chief Executive Officer, John Croteau; and Senior Vice President and Chief Financial Officer, Bob McMullan. If you have not yet received a copy of the earnings press release, you can obtain a copy on MACOM's website at www.macom.com under the Investor Relations section. Before I turn the call over to John, I'd like to remind everyone that management's prepared remarks and answers to your questions contain forward-looking statements, which are subject to certain risks and uncertainties. Because actual results may differ materially from those discussed today, MACOM claims the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. For more detailed discussion of the risks and uncertainties that could result in those differences, we refer you to MACOM's filings with the Securities and Exchange Commission, including its current report on Form 8-K filed today, Quarterly Report on Form 10-Q filed on February 1, 2017, and Annual Report on form10-K filed on November 17, 2016. Any forward-looking statements represent management's views only as of today, April 25, 2017, and MACOM assumes no obligation to update these statements in the future. The Company's press release and management's statements during this conference call will include discussions of certain adjusted non-GAAP measures and financial information, including all income statement amounts and percentages other than revenue referred to on today's call unless otherwise noted. These financial measures and a reconciliation of GAAP to adjusted non-GAAP results are provided in the Company's press release and related Form 8-K, which was filed with the SEC today and can be found at the Investor Relations section of MACOM's website. For those of you unable to listen to the entire call at this time, a recording will also be available via webcast for at least 30 days in the Investor Relations section of MACOM's website. With that, I'll turn the call over to John for his comments on the quarter.

Thank you, Steve. Welcome, everyone, and thanks for joining us today. I'll begin today's call with an overview of our fiscal second quarter results for 2017, and then turn the call over to Bob McMullan, our CFO, who will review our financial performance in further detail. I'll then conclude today's prepared comments by providing a summary of our execution and key highlights during the quarter, followed by an update on our 100 day integration plan for AppliedMicro and guidance for the fiscal third quarter of 2017. Straight to the results; I'm pleased to report that for our fiscal second quarter of 2017 revenue came in at $186.1 million. Adjusted gross margin was 58.5% with adjusted earnings coming in at $0.63 per diluted share. Looking at our end markets, networks was up sequentially with and without the contribution of AppliedMicro were on 46.3% year-on-year inclusive of the acquisition. Multi-market grew sequentially and was up 19.3% year-on-year while Aerospace and Defense was also up sequentially growing 23.3% on year-on-year. Now, let me turn it over to Bob to review our fiscal second quarter financials in further detail.

Thank you, John, and good afternoon, everyone. I will review MACOM's fiscal second quarter results and financial position before I would like to provide comments on our GAAP fiscal second quarter results and operating cash flow. MACOM'S fiscal second quarter generated a GAAP net loss of $130.1 million and an EPS loss of $2.14 per share respectively. The results include expenses related to the acquisition of AppliedMicro closed on January 26, 2017 including the non-cash amortization of inventories stepped up to the fair market value. Transaction expenses, certain change in control, payments to former AppliedMicro employees and a non-cash evaluation reserve of $88 million for MACOM’s deferred tax asset recorded as the majority of the $89.8 million income tax expense recorded during the second quarter. Such step-up amortization transaction expenses and change in control payments are common in acquisitions. Prior to the AppliedMicro acquisition, MACOM had an $88 million deferred tax asset balance representing the estimated after tax value of U.S. NOLs and other tax credit carry-forwards primarily from MACOM's previous acquisitions. The current need for the deferred tax asset valuation reserve and the associated P&L expense during the fiscal second quarter was because of the AMCC acquisition and related expenses and the Compute business will cause a MACOM U.S. tax loss in fiscal 2017 [adding] to other U.S. tax losses over the last few years. AppliedMicro added an additional [$70] million to the deferred tax asset balance. MACOM under GAAP rules had to evaluate the reliability of total $158.6 million balance on an all or nothing basis with the data that can change quarter-to-quarter and year-to-year. Today it is influenced by MACOM's previous U.S. tax losses over the past few fiscal years which led us to record the valuation reserve reducing the deferred tax asset carrying value to zero.…

Thanks Bob. Let's dive right into it. Last quarter was a watershed moment for MACOM. We saw a fascinating dichotomy between cyclical weakness in our carrier based optical businesses which was more than offset by strong growth in cloud data centers. This underscored our previous realization that this is in fact a separate and distinct growth driver for MACOM and what is arguably the strongest area of cyclical growth in the electronics industry today, cloud data centers. Based on that realization, we've made the decision to focus our resources with top priority on fueling that breakout in what we believe is shaping up to be a predictable, high value growth driver for the Company for many years to come. With rapidly developing backlog, program awards and customer commitments, it's now clear that 100G in greater optical connectivity in data centers is real and are bigger and far sooner than anyone in the industry has predicted including us. In aggregate, revenue from our network businesses grew sequentially as well as year-on-year with and without the contribution of AppliedMicro. Global demand in metro and cloud data centers more than made up for a very strong headwinds in Chinese carrier based deployments in PON and provincial networks. Once again this highlights the virtue of our diversification strategy across regions and markets channels and products which is once again delivered growth despite choppiness and notoriously cyclical carrier deployments. Last month at ROC we observed a distinct transition from a carrier centric to a client centric focus for the show that included MACOM. For those who attended ROC, it was readily apparent from our announcements and our product demonstrations that may come as well positioned with a portfolio standing high performance analog, lasers, silicon photonics, optical subassemblies and mixing [indiscernible] across all protocols and form…

Thank you. [Operator Instructions] Our first question comes from the line of Harlan Sur of JPMorgan Securities LLC. Your line is now open.

Good afternoon and thank you for taking my question. You delivered gross margins, they were good but they were nevertheless in the lower half of your guidance range. It seems like given the growth of the different segment, it was probably mix related but I wanted to get your views on the profile in March and if you could be just help us understand what are the drivers that are going to take gross margins a 100 basis points higher in the June quarter?

Harlan, thanks for that question. There is a mix influences of growth margin. We sees the opportunity given the higher margin data center business and the heavy demand in that marketplace that really flush out more of the power PC embedded revenue that was booked on the last time buy when we acquired AMCC in that margin brought us slightly down. So that has a backlog now that we are still working through towards the end of the year but as that product continues to decline onto the last time buy situation that's how we get the extra 100 basis points.

100 plus?

100 plus.

Okay. Thanks for the color there. And then that's a good seg win. My next question which is as we think about the June quarter in your revenue guidance at a high level it would seem that the full quarter [indiscernible] of the AMCC'S business is driving most of the incremental revenue growth because you still had a third of the connectivity and embedded business to recognize which would then imply that core MACOM is essentially flat sequentially. Is that the way to think about it? If not could you help us understand what's going and what's not in the June quarter? Thanks.

Yes. So parts of the portfolio they have nothing to do with AMCC like AMD and multi-market, we are actually growing low single digits. So that's not entirely accurate including the networks businesses low single digits so I would say the one thing that we want to be very clear about and I think I was emphatic is there is no question that there is a cyclical weakness on the carrier-based side of the business. Par remains weak, visibility is low, but you have got the China correction happening with the Metro/Long Haul provincial deployments so there is no question that there is some headwinds in demand. At the same time we are more than offsetting those with the cloud growth and great backlog, great order intake. So it's really a mix bag. So if we didn't have those headwinds in China I think things would be materially stronger.

Okay. Just my last question. As you talk about prioritization of the data center focus maybe John if you help us understand what segments or product areas or manufacturing capacity are you going to take resources from? Is it going to be your PON business which is obviously kind of weak here maybe over the near term or your Metro and Long haul business? Any color would be greatly appreciated.

So I don’t think it had any impacts on the Metro Long Haul but one of the bottlenecks we have short term is availability of material, potential wafers for laser production and actually our revenue for wafer on the data center product to 25 gig is higher than that from 2.5 gig, so it's logical in every sense of the words strategically as well as tactically to allocate scale us materials to data centers. So there is – it's kind of fortuitous frankly that the PON business is soft. We are certainly ramping epitaxial supply but frankly that data center demands is way faster and way bigger than we ever anticipated. If you asked us, probably did ask us 90 days ago we did not anticipate a turnaround as hard as it is. Another interesting thing that there is we actually are hiring back all the people that we had like growing Africa we have downsized Africa to a development fact and we find that we just can't ramp low well fast enough not equipment capacity but product qualifications so we are actually turning Africa back on its production fab to service that short term demand. I think the other place that we bottlenecked is we have awful lot of qualifications going on right now. Part of the stuff we talked about pushing out was qualifications on high one space products. We have got the GaN qualifications we have got 25 gig laser qualifications. We have got the last of the metallic qualifications in Lowell and there is just infinite resources to complete all of these new product calls. So those are some of the trade offs and again we talked last quarter about sticking on mix and that's what this is all about.

Great. Thank you.

You are welcome.

Thank you. Our next question comes from C.J. Muse of Evercore. Your line is now open.

Yes. Good afternoon. Thank you for taking my question. I guess first question to revisit in an earlier question, can you share with us what AMCC contributed revenue wise and here I would love to hear what was put in data center for the core business and where the power PC revenues resided and then how we should think about the incremental growth in business into June?

See J, we don't break out acquisitions after they are embedded but generally to answer the balance of the question, the majority of the connectivity business is in our network business some of it's in data center some of it is in other non-optical businesses, there is a small insignificant portion that's also classified under the embedded PC business as multi-market.

Yes that's product in sales and printers clearly not a network application.

Okay. Well I guess it's maybe to help us model and understand the gross margin driver, could you help us understand what came through in low margin in margin how should we think of that falling off in the coming Qs?

So the revenue would probably be about the same for the next couple of quarters. It's the – that's not the headwind that it is this quarter because the mix of business in the other product areas are stronger for the higher margins. So what we setup is to keep it consistent over the balance of the fiscal year for the embedded PC products yet the higher gross margin data center business products mix is going to push the margin higher.

Yes, actually so if I can provide a little more color. So, there is very healthy growth in the underlying connectivity business quarter-on-quarter which is the stuff that’s long term preserved. That is why we did the acquisition. The issue of the embedded Power PC business is an issue of how much we want to bleed and how much dilution we can afford on the gross margin line. So as we said last quarter and we did last quarter the next quarter to we are going to be stick handling that mix so that we don't dilute things too much but we get that backlog behind us.

Got you. I guess as my follow-up, when you talked earlier about supply elastic market as you service the cloud data center. I am curious how do you think about the gross margin profile there today and overtime and as you concentrate your time energy investments on that business does that change the operating profile of the model near term?

No, if it changed it would actually be accretive. Data center business today the high performance analog stuff and the laser margins are at the upper end of our portfolio. And the reason is there is subtle point here but very important. We are talking about we have engineered solutions from the analog specially the lasers and L-PIC which are really geared for scale capacity and cost structures and lot of that is revolving in L-PIC capacity technology for the lasers. This is the same reason why we could take permanent share in PON arguably the most cost sensitive market competing with localized Chinese competitors and have gross margins that are very attractive and very accretive to our corporate average. So because we have those things engineered for cost and design for manufacturer we can supply what is shaping up. I mean the market for connectivity is $40 million grown to $50 million per year-on-year growing projected to be $70 million a few years out. Your question is what's the mix of 10G versus 40 versus 100G and my comment about supply elasticity is we are now hitting the cost per bit such that it seems like literally every unit that we can manufacture will actually ship and drive that conversion from 10 gig or 40 gig up-to 100 gig. In fact we are actively engaged with these customers for 400 gig. So it's literally right now an insensible demand but I think one of the strongest element of MACOM is we engineered the stuff for cost, it's not re-pricing or telecom products at low gross margins. That’s profound difference. Great question though.

Very good. Thank you.

You are welcome.

Thank you. Our next question comes from the line of Blayne Curtis of Barclays. Your line is now open.

Hey guys thanks for taking my question. Maybe just on the optical business. John, you talked about PON being little bit weaker you would hope that it would bottom just kind of curious your updated thoughts as to is there still inventory and have those other suppliers not backed out and on the flip side you saw strong growth in your data center business. I don't believe you are shipping 25 g lasers yet but you talked about having the fabs ramp back up so can you just talk the timing of bringing 25 g lasers to revenue?

Yes 25 g is in volume. It's $7 million of revenue both in the form of lasers and embedded in our optical sub-assemblies and our TOSAs so that is in production. The task before us is scaling that from low millions to many millions. So it's and it's now you explain to what we did with the PON when we acquired Buying Optics. We had to scale that in capacity to be able to take that share that's exactly what we are facing this year, a very much in an analogous task and eminently doable. I think I missed the front end of your question.

Just update on the PON market, why I think you said specifically with bottom it sound like it's getting worse.

No. it's not getting worse just we haven't seen clear recovery and it behaves like a commodity market so until the order intake is there and the demand is firm I don't want to be in the business of declaring recovery. But yes there is no question the inventories have been burning down, where they burn down and how well the market, the end market performs is where the ambiguity is. So the message I want deliver is we are not planning on some big recovery to be able to achieve our guidance.

Got you. And then I just wanted to ask on A&D side, you had good 20% year-over-year growth at one point you are hoping for maybe even better. Just kind of maybe an update there in terms of some of the trajectory on A&D?

Yes so we are backlogged to be able to achieve what I have previously said which is 40% year-on-year growth. Frankly as we face some of these tradeoffs or priorities specifically qualifications for high role space and some of the metallic stuff that's non perishable fungible backlog. We can push that out into subsequent quarter or quarters and focus the priorities instead on the 25 gig lasers where the 25 gig it's the reason why I am emphasizing on the scripted remarks that short term execution is imperative . It's going to be determining long term shares so pushing out some what I would call tactically and debacklog that's non-perishable is a very logical thing to do in the concept of stick-handle mix.

Got you and then sorry for the third one but in that stick-handle mix, I just want to understand Bob's comment you expected this embedded Power PC business will shift through the fiscal year or when do you envision the shipment will start?

Blayne the way the order book is coming and remember we noted in last conference call that there was a last time buy issue here. So we have backlog that we can stick-handle that it will proceed to the end of the year and thereafter we don't expect any more business.

Yes. I think the comment last quarter was we are planning to get all of it behind us in this fiscal year. So we can exit the year clean. This was again this was a surprise to us with the business coming in and we executed last time by before closing and there is nothing we can do about how they manage the business between signing and closing. But the quicker we can get through that to be honest the earlier question about gross margin dilution is a bit frustrating for us because the rest of the business is performing quite well in that respect and it's just optically blends out our gross margin. So it's little frustrating.

Thanks guys.

Yes.

Thank you. Our next question comes from Quinn Bolton of Needham. Your line is now open.

Hi, John and Bob congratulations on the nice strength in data center. John, I just wanted to come back to your comments about the China business you talked about clearly seen in the inventory build in the December quarter and you are kind of working through that in March and I think you said your script that it might get worsen in June and I just wanted to clarify was that comment specifically around China Long Haul and provincial network build or refrain back to your PON business.

No that was specifically the provincial deployments, not PON.

To the 100gig, sorry go ahead John.

Yes, it’s not PON. We are not talking about PON getting worse. PON is eventually getting better it was specifically we started to see some correction the end of last quarter in the 100 gig Long Haul Metro stuff, specifically in China. There would be more pronounced in June.

Okay, and this is a sort of a follow up question on that, I think you have give the splits for optical at 68 million and base center 57 million in the March quarter, it sounds like the optical bucket because of that headwinds in China, the optical bucket probably down but more than offset by growth in data center, is that the right way we would be thinking about in the June quarter?

Yes I believe that's correct, I don't have those numbers in front of me but that's the still positive, that's correct.

Second question, you talked about again on the silicon going through calls now and I think you said expect first order in the December to February timeframe, is that the right timing for us to be thinking about the first production revenue in that December to February timeframe.

Sorry for the confusion in my scripted remarks. So we have the initial programs which would generate revenue as soon we complete the customer calls as planned prior to that but those are just the first two programs one 900 MHz program and 1.6 GHz program, what I referred to in December to February was the 20 additional programs that we have line of at site two where products aligned and we're delivering on customer requirements for those programs my comment was we've got to get through the gates of these first program call before we can secure a business on the subsequent ones. So it would begin to ramp earlier than that but when you talk about really building material revenue you got to get beyond the first two programs and that's December to February.

Got it and then last for you just on the 25 gig laser business, obviously a lot of data come module venders have internal laser production but I think there are number of players in the optical margin space especially in the Asia that they don’t have internal laser production. So I was just wondering if you can comment or do you see in demand from both sort of the captive marginal houses that have internal laser productions for your first shipments to some of the folks that don’t have internal laser production.

So it's both. We're obviously very sensitive to not be disclosing people who also have internal supply but the reality is and I think over time it'll become more obvious, our Etched Facet Technology is singularly and uniquely geared for the capacity supply chain flexibility and cost structure for data centers, taking nothing away from the laser capability our cost structure is something that we can thrive in a market like PON with a value proposition closer to 100 gig to 400 gip level. So I think even those people with their own captive laser supply recognize that and will be a transit I would expect a transition but they'd be inappropriate for us to comment further about those customers and their decisions.

Thank you, John.

You are welcome.

Thank you. Our next question comes from the line of Tore Svanberg of Stifel. Your line is now open.

Yes, thank you. First question is on data center. So if you just look at your portfolio now, John with the IP portfolio I think you mention in your presentation that you want to be number one in five for data center, can you talk us where you stand there and is there anything else you need to investment at this point to kind of become number one in five.

No, I think we're complete. To be clear we're already number one in the analog content laser drivers CDR and so on I think based upon my comments I just made on the 25 gig lasers I think we're destined pretty quickly to be number one, is a millions of units nice hundreds of thousands to put in context the hundred gig Long Haul Metro data center market even though it's growing 40% compound growth this year and next year it's still only 250 growing to 500 units, we're talking about tens of millions of units two orders of magnitude higher for these lasers so we'll get that economic advantage its then palate into the OpEx which is the silicon photonics with the foot chip laser so and the economics of that start attacking manufacturing costs so we have that. For both CWD and M4 so well before you need M4, NE5 and then you get the icing on the cake as I described it which is the PAM4 single lam 100 gig but also the Quad 400 gig PAM4 and a zero ambiguity with the solution is for 400 gigs. And by the way the real subtlety is with the TOSA/ROSA capability that we picked up aside us, we are not delivering spot components we're providing components at a fully validated to people who can wrap those things and mass volume. So I would challenge people to find someone else with anything close to that portfolio and capability.

That's really helpful and moving into to China, would you be able to share with us what percentage of MACOM’s business is in China for the optical and do you have any visibility at all sort of beyond the June quarter because obviously we heard a lot about the near term weakness but there are some suggestions and maybe second half is going to come back so do you have any visibility at all beyond the June quarter?

Yes, there are two areas of weakness of PON and there's that inventory correction the overall market is not that ugly it's modestly down for two and a half gig, now 10 gig is ramping but it's just not material in 2017 compared two and half gig and it is going to be growth driver for 2018, we've got a great position there but that's future but for PON its inventory situation that was built up with these local Chinese competitors that are now out of business. So that will covered just as the inventory drains the real salient issue of these provincial deployments I mean looking back to September and especially December quarters were like 80% to 90% year on year growth in a market that's growing 40%, some would say 40% port growth still a max I mean those inventory builds and that’s what started correcting and I think June is the bottom of that and if the provincial deployments move forward as expected I think the back half of the year should be a strong recovery.

Very good thank you and just one last question on GaN, so you mentioned that the two initial deployments and then 20 other engagements and December to February timeframe contribution potential from those, were you referring to revenue contribution for those 20 or with that more going to be the timeframe when the calls would be completed with those 20?

So the call issue is much more of the first customer qualifications of programs where they qualify not just again technology but the products in the in entirety designs and the whole thing. Once we get past that gate, we will be able to proliferate into these additional programs through the gate and we have line of site again we have teams that have been servicing these base station guys for decades literally so we've got access we've got all the required customers, we have opened up all the requirements we're delivering on those requirements as the giant gate to get through these first calls The second designs the second wave there that 20 that I referred to becomes infinitely easier once you get past that that initial gate.

That's really helpful thank you John.

You are welcome.

Thank you. [Operator Instructions] Our next question comes out Mark Delaney of Goldman Sachs. Your line is now open.

Good afternoon. Thanks very much for taking the questions. My first question is help me to get up with better understand of the new step segment classifications within networks, so I think you said 50 points fixed for data center, can you help us understand how much of that is tied to the hyperscale cloud customers or is any of that on promised at the data centers.

That revenue set includes the revenue on the OT [indiscernible] and it applied Micro as well right.

Traditional standing data centers versus cloud.

Yes I have to apologize I don't have off the top of my head the legate but I would call the legacy OTM [indiscernible] revenue is coming in from AppliedMicro but a big chunk of that right now is the analog content go into the cloud guys. And a very healthy contribution from the 25 gig laser, those in the form of standalone and TOSA’s. So it's really a combination of so I apologize, I just don't have the numbers in front of me to just slip the two.

Okay I understand that was the optical piece which I think was 67.9 million this quarter in the December quarter it was 82.5 million that decline for 82.5 to 67.9 was any of that because of this new creation of the data center category so we have got apples to apples the December quarter number would have been lower in optical or is that the in apples to apples decline with an optical?

It was not apples to apples. The previous number we quoted included data centers and what we said, starting this quarter we would separate the two provide greater transparency, net pulling out data centers apples to apples, we are actually up.

Okay and then I just trying to understand a little bit more on the provincial decline of the company seen in China, I think the last quarter the commentary was the only issue the company was seen was in was in PON as I recall and it spread and I know the forecast is very difficult, we just can’t at the start of the business but may be you can help us understand a bit more about what was surprising to you guys? What had you been expecting, what your customers and have been telling you and why did that not materialize as you had been anticipating 90 days ago?

Specifically in the PON or…

The provincial Metro which is now weaker than I think the company had expected 90 days ago.

Yes, I think what we knew that during the exuberance of the September and December quarters when we go back we were trying to provide some cautionary stuff about diversification as there was clearly an inventory build, the market was not growing at 80% to 90% year on year. So that is not a surprise I think some of the timing of the provincial deployments pushing out and some of the behavior of the customers very recently in recent weeks that's a little bit of a surprise and that's what's behind my comment about things being a little more pronounced in the June quarter. But until the provincial deployments start moving forward we're going to be dealing with customers who are kind of locked up.

Yes, Mark Long Haul, Metro on a apples to apples basis did grow this quarter. So we have had substantial growth than prior quarters. It just didn’t live up to that past growth expectations

Mark, what I was just looking through the spreadsheet I have in front of me here. It looks like the legacy part of the AppliedMicro portfolio is about 20% of that27% of total, so about 5% of our total would be legacy on a price.

That’s very helpful, thank you.

Thank you. Our next question comes from the line of Harsh Kumar of Stephens. Your line is now open.

Hey guys I was wondering if you could, John or Bob, give us a sense of how big PON and maybe Metro was in this quarter for you? You gave us a good data on date centers, so I was wondering get the other part.

So PON is probably at its low level is under 10% down from few points under 10% of where it was in Q1 and the second part of the question was Metro same thing but we don't break out Metro…

Actually Metro Long Haul was up. So at the beginning of the correction in China but our share gains outside of China actually more than offset what's going on in China.

Okay but I was wondering if I get a percentage so we can get a good idea like how the optical piece is made up of?

It’s not in hand though.

I can get it later Bob. Would you say that maybe I think in some of the earlier calls you would have said that may be you are expecting some initial revenues and [indiscernible] this particular quarter at least the first part of the ramp, I know you said that that's coming later and then there's an additional piece coming in December and February. Is there a reason why it's getting pushed out and just kind of the standard stuff that happens or just early sort of qualifications stuff?

Well certainly in the last ninety days, I apologize if I miss-communicated 90 days ago but very consistent that the qualifications for these initial customer programs are early June that we're still on track with those dates. So if I created a different perception I apologize. But I mean there are certainly delayed from what we had hoped a year or two ago and it's just a long arduous process of getting locked down on these programs and completing all the intensive qualification issues and to put a little color on that you got to realize for base stations you're talking about a product that spends decades in the field, so reliability and qualifications are much bigger deals than, for instance, a consumer product than a handset, but those schedules have been locked for over 90 days now.

I got you. Thanks, and for the last one, I know there was a Compute piece that was up for sale, and I know you're working on your 100-day plan; do you John and Bob feel reasonably comfortable about the potential for maybe possibly selling that business?

Yes. Selling the issue is to whom with what structure transaction, right. We are really stuck that we really can't make public comments at this time because we have got a process going and telegraphing the type of interest and who and at what valuation would be so in inappropriate, but we have had our heads down working that process from the day it closed. We are right on track from the schedules that were locked down there. We just reviewed options with our board, and now we are moving to the next phase, the next round, and those who are still in the process are being informed.

Got it. Thanks guys.

I have your answer. So long haul optical data center interconnect this quarter was 26% compared to 28% last quarter.

Awesome. Thanks guys.

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

Hi John and Bob. Thank you for taking my questions as well. I guess a few from me. I will start in the data center space. For the June quarter John, are you expecting material growth in [LPEC] or is that coming after June?

So it will be after June. So we have production units and we are completing the designs. I think in the December quarter where we would start seeing the first volume production, but we have the production devices completing qualification. Qualification is not a big issue as it is with GaN, both the customer designs and ramping into production is just the phase that we are in right now.

Okay, and when you talk about imperative in the short-term to execute on the data center side, is that specific to [LPEC] or more broadly across data center customers, and curious why that is the case, is there some specific window you are trying to hit here or are you just shifting your strategic focus to that area?

We are absolutely shifting strategic focus. I mean let me give you the context and you can do the math. So in the long haul metro market, which is fantastic, it is growing 40% compound growth from around 250,000, 255,000 units in ’16 up to around 350,000 on the path towards close to 500,000 over a two-year period. It is great and wonderful. To put it in context the unit portsmarket, the number of ports in data centers is 40 million going to 50 million, going to 70 million. That is the TAM. Currently it is 10G, and we are converting 10G and 40G up to 100-G, so if you do the math on the content, and it is, a multibillion-dollar opportunity for us. It is analogous to the magnitude of handsets and smart phones in the compound semi-space. It is a big opportunity. We are very well positioned, and the first thing that comes to mind it is execution on everything, including by the way the PAM4 platform that AppliedMicro comes in with, but the first thing that is paramount is ramping 25 gig laser production. It is in production. There was very material multiple millions of dollars of revenue in 25 gig lasers, enabled revenue in TOSAs, but ramping to the tens of millions of units as we did for PON, I mean we are shipping at peak 5 million to 8 million units per month of 2.5G PON. We need to do the same thing with 25 gig. And we are right on track to do that. It is right within our wheelhouse. It is just there is a lot of execution to be able to ramp that and get the yields up to where they need to be. To be able to deliver – when we do that we uniquely have the capacity, supply-chain flexibility, and we play a very strategic focus role in the industry for those cloud data center guys. The optical industry is not geared to supply that magnitude of units, that magnitude of ports. We have the HPA business, the previous Mindspeed business in Newport Beach that has done that. They are in a lead position in the industry as we rollout the lasers, and lay out the lasers literally on top of the LPECs. That is when we stand alone and then the PAM4 stuff let us in, there is just a lot of operational execution to be able to ramp from what we have done today with analog, which is 1.6 million units in the first half of the year to 10s of millions of units across these products. There is a lot of execution, but if you do the math, you will see the reason why it is unquestionably it dwarfs all else that we do.

Okay, I appreciate that perspective John. That makes a lot of sense. Last quick question from me, you talked about within the optical carrier business some share gains in China offsetting a little bit of weakness there. Can you characterize where those share gains are coming from?

Actually the share gain is outside of China.

Outside of China, okay.

Yes, and it is North America and Japan, where we – from day one we have had a very strong position with certain Japanese customers and there is an insatiable demand that they have servicing Metro and DCI. This is DCI data center interconnect. Not within data centers, but still coherent. But I mean, we are supply constrained in that space as bizarre as it sounds because some of the product is different than that from China.

Got it. Okay, great. That's all that questions from me guys. Thank you.

You're welcome.

Thank you. That is all the time we have for questions today. Let me hand the call back over to Mr. Croteau for any closing remarks.

Very good. So before closing out today’s call, I want to mention that we are going to be hosting a number of investor events over the coming months, including analyst forums in Boston and New York, where we will be focused on our cloud data center opportunity in more detail. That will be during the week of May 15. Stay tuned for additional details. We will also be attending a number of investor conferences during the quarter including the J.P. Morgan conference in Boston, May 23; the Craig-Hallum conference in Minneapolis, May 31; and then two events in San Francisco, the Stifel Tech, Internet and Media Conference on June 5, and the Bank of America Merrill Lynch Global Tech Conference on June 6, followed by two events in New York, the [Stephens Spring Conference] on June 7, and the Citi Conference on June 8. If you would like to request a meeting at one of these upcoming events, please email us at ir@macom.com or contact your sales representative directly. We look forward to providing an update and reporting on our continued progress on next quarter’s call. That concludes today's remarks. Operator you may now disconnect the call.