Good afternoon, and welcome to MACOM's Fiscal Third Quarter 2018 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, July 31, 2018. I'll now turn the call over to Steve Ferranti, Vice President of Investor Relations at MACOM. Steve, please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to MACOM's fiscal third quarter 2018 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, you can obtain a copy on MACOM's website at www.macom.com under the Investor Relations section. Before I turn over the call to John, I would 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 discussions of the risks and uncertainties that could result in those differences, we refer you to MACOM's filings with the SEC, including its current report on Form 8-K filed today, its quarterly reports on Form 10-Q filed on February 17, 2018 and May 3, 2018, and it's Annual Report on Form 10-K filed on November 15, 2017. Any forward-looking statements represent management's views only as of today, July 31, 2018, and MACOM assumes no obligation to update these statements in the future. The company's press release and management statements during this conference call will include discussions of certain adjusted non-GAAP measures and financial information, including all income statement amounts and percentages 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 be available via webcast for at least 30 days in Investor Relations section of MACOM's website. And with that, I'll turn over the call to John for his comments on the quarter.

Thanks, Steve. Welcome, everyone, and thanks for joining us today. I'll begin today's call with an overview of our third quarter results for fiscal 2018, followed by a review of current end-market conditions and near-term business trends. I'll then turn the call over to Bob McMullan, our CFO, who will review our financial performance in further detail. I'll conclude today's prepared comments with guidance for the fiscal fourth quarter of 2018. Jumping right into the numbers. Revenue for the fiscal third quarter was $145 million with adjusted gross margin of 56% and adjusted earnings of $0.13 per diluted share. Overall, Q3 played out largely as expected as we benefited from ongoing recovery in demand, following the cyclical downturn that impacted our end markets over the course of calendar 2017. During Q3, we successfully exited the manufacturing and sales of the LR4 subassemblies. Our Q3 guidance range had incorporated certain assumptions related to the timing of the close of that transaction, with the midpoint of our guidance assuming $2 million in revenue from a partial quarter of OSA sales. Timing was such that we shipped only $400,000 of OSAs in Q3, which contributed to revenue coming in slightly below the midpoint of guidance, but gross margin coming in favorably toward the upper end of guidance. Overall, on a comparable basis, excluding the contribution of LR4 in Q2, Q3 revenue was up sequentially and gross margin was up 200 basis points sequentially. Looking into the details of Q3. Data Center revenue was $45.9 million, up 8% sequentially. Overall demand for 100-gig connectivity within Data Centers continues to be robust and is shaping up to remain strong through the second half of 2018. This trend is supported by a healthy CapEx environment among leading North American cloud service providers. In total, hyperscale data…

Thank you, John, and good afternoon, everyone. I will review MACOM's fiscal third quarter results and financial position, outline the financial effect of MACOM's exit of the LR4 subassembly business, other product lines and certain production facilities, and discuss the white-box data center transceiver agreement on a GAAP and non-GAAP basis. First, fiscal third quarter's non-GAAP operating results. Non-GAAP revenue in the fiscal third quarter was $145 million, down 26% year-over-year and down from $150 million or 4% sequentially. Revenue for the sold LR4 subassembly business in the fiscal third quarter was $400,000 versus fiscal second quarter revenue of $12.4 million. Adjusting out the LR4 subassembly revenue in both fiscal quarters, revenues would have grown sequentially from $138 million to $144 million or approximately 5%. Revenue by end markets. Telecom was $51 million and 35% of total revenue, down 45% year-over-year. Data Center was $46 million and 32% of total revenues, down 21% year-over-year. And Industrial & Defense was $48 million and 33% of total revenue, up 9% year-over-year. Sequentially, Telecom was down 21%; Data Center, up 8%; and Industrial & Defense, up 10%. Non-GAAP gross profit and gross margin in the fiscal third quarter was $81 million and 56% of revenue respectively, compared to $114 million and 58.5% of revenues respectively year-over-year, and $78 million and 51.6% respectively on a sequential basis. In terms of operating expenses, total non-GAAP operating expenses were $65 million, compared to $61 million year-over-year and $62 million sequentially. Adjusted operating expenses were up 6% year-over-year and up 4% sequentially. Adjusted R&D and SG&A expenses were $42 million and $23 million respectively in the fiscal third quarter. Total non-GAAP income from operations and operating margins were $17 million and 11% of revenue, down 69% in dollars and down 58% on a percentage basis respectively year-over-year;…

Thanks, Bob. To summarize, we've weathered the storm of last year's industry-wide downturn in China and are currently navigating turbulence from lingering international trade tensions. While such macro events are impossible to predict and challenging to navigate, we remain committed to making necessary investments in bringing our portfolio of disruptive technologies to fruition within our targeted areas of global secular growth. We believe we are now exceptionally well-positioned to capitalize on the next phase of infrastructure spending well beyond China, driven by 5G Telecom, Cloud Data Centers, and now a surge in civil and defense spending to address key areas of vulnerability for homeland and international security. To be sure sustaining these investments has created near-term drag on EPS, but we believe we are rapidly approaching payoff. Looking ahead, we believe the future contribution from these will provide significant operating leverage for the company, as we monetize what were previously strategic investments with little revenue contribution. As these efforts come to fruition, we are squarely fixated on getting back to our target financial operating model of 60% gross margin, 30% operating margin, and 60% free cash flow. Moving forward, we're taking it one quarter at a time, guiding based on customer backlog, order visibility and our operational ability to scale these new products and technologies. That brings me to Q4 guidance. For the fiscal fourth quarter ending September 28, 2018, we expect revenue to be in the range of $149 million to $155 million. Adjusted gross margin is expected to be between 55% and 57%, and adjusted earnings per share between $0.15 and $0.17 on an anticipated 66.5 million fully diluted shares outstanding. Operator, you may now open the call to questions.

Our first question comes from the line of Quinn Bolton with Needham & Company. Your line is now open. Quinn Bolton - Needham & Co. LLC: Hey, guys. Congratulations on the nice outlook, especially on the Data Center side of the business.

Thanks. Quinn Bolton - Needham & Co. LLC: John, can you walk us through just sort of this new Data Center solutions. It looks like it created a deferred revenue in the June quarter to the tune of $7 million that you included in non-GAAP revenue and it looks like you're sort of backing that out of your forward guidance. Can you just give us a little bit more color on what sort of led to that being classified as deferred revenue rather than actual revenue?

Yeah. I'll have Bob talk about the accounting treatment. I'll cover the business model and the solutions. Bob, do you want to?

Yeah. So, Quinn, thanks very much for bringing that up front here. So, first of all, non-GAAP is appropriate, we think it reflects an accurate reflection of the business and operating for both the third quarter and the fourth quarter. Basically, we run a multi-quarter negotiation. And we had visibility that we would close in fiscal Q3 and we did include the amount in our financial guidance and the implications of that in that guidance. On the transaction itself, we have met all deliverables. We received customer written acceptance and the customer payment is in transit according to the contractual payment terms. So we felt, again, it's more accurate to reflect as a adjustment to revenue. There are some minor, we think, insignificant open items under revenue recognition rules that will resolve themselves next quarter. Quinn Bolton - Needham & Co. LLC: Got it. So it sounds like just you didn't have sort of all of the quote-unquote accounting Ts crossed, Is dotted to be able to recognize it as actual revenue in the June quarter.

Yeah. I'd like to just point it in the perspective of what we did have and how we guided to include that number and the adjustment is the right way to look at the business and not inflating next quarter's guidance at the expense of this actual. It's just a small inconvenience.

Yeah. Quinn Bolton - Needham & Co. LLC: Understood. And then, John, can you walk through the sort of business?

Yeah. So the solutions model is basically, you can imagine we have a market in the case of CWDM4, which is expected to grow from 3 million to 4 million units to as much as 10 million next year. So there's a lot of end market demand that needs to be fulfilled. So the production needs to be scaled at an industry level. It's very much bottlenecked today in terms of critical components supply like lasers, but also the manufacturers to be able to produce 10 million of these 100-gig transceivers is a big deal. So our solutions model is we've invested very heavily in producing a transceiver, QSFP28 transceiver, which is fully qualified and in production at places that matter in the industry that I can't speak to, as well as the transmit and receive optical subassemblies, the TOSAs and ROSAs. So in this model, we basically transfer those designs and license those to high volume manufacturers, who can then put those into large production facilities and scale unit production to be able to scale that demand. And then on a ongoing basis, we monetize by selling components at merchant – these are merchant market components at market prices. And then we also secure the revenue and the fees to monetize basically what we've invested in at the transceiver level. So it's pretty compelling. The people who are lining up looking to be able to benefit from this, you could imagine being given a design that's already been qualified in places that matter is quite valuable to them. Quinn Bolton - Needham & Co. LLC: And just a follow up on that. Back at OFC, I think you guys had mentioned two partners in the Asia subcontractor space that you'd partnered with. It sounds like this partner that you've announced today is a third partner for this business.

I'm going to avoid the question directly because this is pretty proprietary to MACOM and we do have other negotiations ongoing. So, if I could pass on that till a later date. Quinn Bolton - Needham & Co. LLC: Okay. Understood. Thank you.

You're welcome. Good questions.

Our next question comes from the line of Harsh Kumar with Piper Jaffray. Your line is now open. Harsh V. Kumar - Piper Jaffray & Co.: Hey, guys.

Hey, Harsh. Harsh V. Kumar - Piper Jaffray & Co.: Just wanted to follow-up on the previous question by Quinn. So, my understanding of what you just said is you have the design win or the design. Do you then sell your components to this manufacturer, the high volume manufacturer, or do you give it to them to make the final box? And is the final box yours or theirs to sell?

I'll work backwards of it. It's theirs to sell. So they fulfill demand directly with the cloud service providers. And by the way, it is exactly the same for 5G telecom. The Midhaul is shaping up to be CWDM4 as well. But we basically license them, transfer the design. So we invested in the full transceiver design and the TOSA/ROSA designs. So we've put it into their factories and helped them qualify that. And then, on a sustained basis, we sell them the components to build those. Harsh V. Kumar - Piper Jaffray & Co.: Got it. So you're still in the same business you were which is selling components and nothing really different, except that you're actually going and getting the design win, and that's the big value-add here. Is that like almost a services kind of model?

Oh, yeah. Yeah. In the end, absolutely, it's a solution services model. So there's no design win per se. We designed it in ourselves and you just put it into production in high-volume factories. And like I said, it's already in production, qualified in places that matter. They bring their value to bear, which is very high volume, low-cost manufacturing. So it's a very efficient supply chain. And we do what we do best, which is produce very high volume components at very attractive cost structures. So, everybody stays within their core competence and the cloud service guys get what they want, which is a very efficient scalable supply chain. Harsh V. Kumar - Piper Jaffray & Co.: Understood. Thanks for the clarification. Congrats on making progress. And I'll get back in line.

Great.

Our next question comes from the line of Mark Delaney with Goldman Sachs. Your line is now open. Mark Delaney - Goldman Sachs & Co. LLC: Yes. Good afternoon. Thanks very much for taking the questions.

Hey, Mark. First question is hoping to get some more color on the comment about improved yields for your 25-gig lasers. Do you have any quantification or better framing for us in order to help size the extent of the improvement that the company has achieved? And should we think about just gross additions and the number of lasers that MACOM is going to be manufacturing, or are you going to be transitioning some of the manufacturing of PON lasers over to 25-gig lasers?

Yeah. At this point, it looks like we can sustain comm production and Data Center production, and that's one of the things about consolidating factories. The yields are improving to the point in the 4-inch factory that we don't feel we need the redundancy with the downside of the redundancy on the COGs for the second factory. In terms of the yields, it'd be so inappropriate for me to quantify our yields publicly. But I would say the way to think about it is it's very significant integer multiples times increase in units out per wafer. So it's integer multiples, not percentage multiples. And what it really did is it hit the threshold where we turned on the factory. We were holding back because we didn't want to be inefficient in the capacity utilization. So, right now, we've filled our pipeline for the Lowell fab. So this is from epi, through etching, through the factory, through the front-end, through the back-end and out. So what you'll see in coming quarters is stepped progress as those units begin flowing out of the factory later this quarter. Mark Delaney - Goldman Sachs & Co. LLC: Got it. That's helpful. And then for my follow up on the same topic with the factory that you plan to shut down, can you help us understand what the margin implications could be and when we can expect to see the improved margins from that activity? Thank you.

Yeah. So I'll point out, we did guide, I believe, slightly up on gross margins for guide. So, as we've talked about in the past, we have visibility to continue to improve towards that 60% target gross margin. So, as we enter and exit fiscal 2018 in September, the full benefit of that will start coming into our contribution in gross margin in the first quarter of fiscal 2019. In terms of overall mix, we see improvement across the board. And as John talked about, yield improvement in 25-gig lasers is important to that march to 60% as well. So all this together I think we get there – our line of sight continues to be very positive towards getting to the 60%.

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

Hey, guys. Thanks for taking my question. A couple more on the Data Center. Just want to understand – I think I understand how it works now. $7 million in the June quarter. Is there another part of that payment in September? And I didn't know if you're willing to say what it is. And then I guess this is a partner, so I'm kind of curious about the customer associated with that partner or maybe multiple customers. Any color there. And I guess you'll at some point start shipping chips. So, maybe that's another way to look at it. When do you expect to be selling components to these wins?

Blayne, excellent. To the extent that we can talk about it, those are the points we will. So, next quarter, there is not similar revenue included. So we don't anticipate additional Data Center solutions' contribution revenue, except from a GAAP basis that reverses the deferred. So you will see the reversal of revenue on a non-GAAP basis next quarter. You're correct, our bread-and-butter revenue going forward with that customer will be component sales at market-related prices. This payment is independent. There's no contingencies around component pricing or the like. It is at-market transaction. And those will be the first elements of increase of consumption and growing the revenue. There are some other opportunities to earn additional fees with this customer. And as they become more visible, we think we'll include those in our guidance and report upon them.

Yeah. So let me emphasize the last point there, Blayne. So, in our guide, we don't anticipate any further payments, but we do anticipate further payments from that customer and others on an ongoing basis. But our guide does not assume any.

Thanks. And maybe just a clarification that when do you expect to ship components to this partner? And is there any visibility on the end customers there?

In the current quarter, which is fiscal Q2, we are shipping components.

Sorry. Yeah. Q4.

And I am sorry...

Q4.

I missed...

Timeline. Yeah. Yeah. We are shipping. And Blayne, we can't talk about the cloud service providers behind us. They're very sensitive about talking about their supply.

Thanks. And if I can just squeeze in one more. Obviously, there's a lot of moving pieces on the cash flow. I'm just curious on the computer Ampere minority investment. What's the status there because I saw the write-down was a lot bigger this last quarter?

So there is no – to be specific, no write-down is related to Ampere. We report our share of the LLC under SEC rules in our GAAP financial statements. And the negative contribution was in discontinued operations of $3.1 million in the quarter. We will continue to report that on a GAAP basis as a portion of that goes forward. We do not see any impairment to our carrying value. What we wrote off are, as we talked about, the exit from the LR4 business. The majority of that expense is the write-off of certain acquired intangible assets related to the FiBest acquisition back a few years ago. It's a partial write-down, not a full write-down, because we're maintaining certain design capabilities and resources in place in Japan. Secondarily, the further write-down was about what I would call orphaned inventory related to the shutdown, the planned shutdown of the facility up at 3-inch Indium Phosphide laser fab.

Our next question comes from the line of Tim Savageaux with Northland Capital. Your line is now open.

Good afternoon. And congratulations on all these developments on the Datacom side this quarter. I'd like to try to, now that we're getting I guess a better sense at this $7 million is, I guess, not product revenue, right, but more of a fee. But as you look at the opportunity here, maybe starting with the 10-million-unit forecast for CWDM4 for calendar 2019, and I think we've discussed in the past taking that down to kind of a component opportunity that's in the neighborhood of $1 billion, with the agreement you have in place, with the way you're looking at the cloud opportunity now, what proportion of that 10 million would you say is reasonably addressable by MACOM directly or indirectly in calendar 2019?

Yeah. Good question. So the number one choke point in our ability to address that market was our ability to yield lasers in sufficient quantity. Our cost structure is fantastic, but if you can't produce some, doesn't matter much, right? That we feel now is behind us. The yields continue to improve. And as I said, they hit the threshold at which it made sense to step in with both feet. I think our ability – how much the 10 million can be addressed is a time-dimensional answer in terms of how quickly the transceiver people that we license, because we will continue licensing people to enable several manufacturers, how quickly they can ramp to capture that. I think my speculation is there's a fair degree of consolidation going on in the supply base for those CWDM transceivers right now and we'll probably exit a year from now with a fairly different structure of the industry than what currently exists. And we'd like to think that a very sizable portion of that exiting next year will be based upon our components and our solutions.

Great. Thanks. If I could follow up over on the Telecom side. It sounds like implicit in your guidance is a resumption in growth in Telecom. Can we maybe talk about any more detail about where that's coming from? It sounds like it might be as simple as kind of Backhaul coming back after that pause. And then can you touch on what you're seeing in China Metro/Long-haul as well?

Sure. So, Metro/Long-haul, from a units standpoint, seems to have recovered back to pre-downturn levels. So it's the reason why I made the comment that the inventory correction seems to have fully played out. I think, between Metro/Long-haul drivers, 2.5 GPON and the 10-gig 4G/LTE Backhaul, we view those as really kind of getting back to a healthy state and the new normal. And we consider them just stable cash flow businesses and we're pretty deeply entrenched with our share. They're very, very nice cash flow businesses, but we don't expect that they're going to grow. The growth instead is coming in the 5G Fronthaul, Midhaul, Backhaul. Even the growth in the Metro/Long-haul is really 5G-related. 5G Backhaul is very much like our Metro deployments. So, as it relates to China, it's all about 5G on a go-forward basis over there. And we feel we're exceptionally well-positioned because they're borrowing a lot from what we've been just talking about in Data Centers. Fronthaul is now 25-gig, industrial 10 per inch lasers; it's right in our wheelhouse. Midhaul, 100-gig CWDM4, right in our wheelhouse. So we feel like, as China gets back from this kind of transitional year from 4G and moving into 2019 with 5G, we're going to be having a pretty strong tailwind with that build-out.

Our next question comes from C. J. Muse with Evercore ISI. Your line is now open.

Yeah. Good afternoon. Thank you for taking my question. I guess, first question, as you look to September quarter guide, are you expecting all segments to grow sequentially or is that $7 million deferred in Data Center too much to see sequential growth there? And as part of that, are you including any revenues from ZTE in the mix?

Good question. So, essentially, yes, all end markets are growing at different rates but they are growth. Remind everybody that that number has remained the same as terms of a guide, even though we exited two quarters ago $12 million of LR4 revenue. So I highlight that because the underlying growth exit that business is pretty solid and continues to be improving. And the second question is of that?

Did you include ZTE in the guide?

Yeah. So we're taking a very conservative and minimal approach to the contribution of ZTE in our fiscal fourth quarter.

So, ZTE is engaging very aggressively in trying to get their supply chain rebuilt. It's just fits and starts. They can't go from a standing stop to instant on. There is some revenue actually, but it started de minimis and it remains de minimis in terms of the grand scheme of things. I think more importantly is seeing their demand resume for our customers. Again, we sell to a lot of BOSA customers and subassemblies that ZTE consumes. And basically what happened, just to provide some more color on my scripted remarks, because the carrier saw a fairly quick resolution on the denial order, they seemed to slow-roll things to be able to preserve ZTE's share. They didn't want them to come out of this impaired with the share reallocated to their competitors. So it kind of moderated the demand over in China for 90 days. But right now it's back on and back on hard. It's just without orders in the backlog, we don't guide without clear line of visibility. So, as Bob said, I think that's a conservative stance we've taken. Remains to be seen if there's any tailwinds that come from it, but it's still early days yet. I mean, they're still trying to sort through. They've got a lot of suppliers. They're meeting something like 10 a day. So it's fairly chaotic over there right now.

That's very helpful. And as a follow up, as you think about shutting down that second laser line, pulling lower margin LR4 out of the mix, what are you thinking in terms of cash flow breakeven revenue run rate today?

So I can give you a couple other breakevens real quick. That one, I got to do a little thinking in it. So, look, our EBITDA is growing. The difference to answer that question is really the timing and the amount of CapEx per quarter. We have another quarter here that, again, as we pointed out, the ST agreement coming online as we continue to expand production of the GaN power transceivers requires us to make some capital investment. So it's really on the capital side. And I think if we reduce that from the $13 million level expected next quarter again, that's really the difference between cash flow breakeven on a free cash flow basis. But we also are improving the contribution from EBITDA and we're very, very focused on improving our working capital management and so forth. So I don't have a specific number to point that out, but I think you'll see our free cash flow improving across the line with our revenue growth, our improved gross margins and EBITDA and operating margins going forward here.

Our next question comes from Mark Kelleher with D.A. Davidson. Your line is now open. Mark Kelleher - D.A. Davidson & Co.: Great. Thanks for taking the questions. Just wanted to look at R&D, seemed to take a little step up in the quarter. Were there unusual elements in that step-up? And what should we think going forward in terms of just, in general, what your R&D efforts should be?

Mark, good observation. And some of this increase here this quarter is what I would describe as variable cost, as we come on – we continue to develop new products and new applications, including things as simple as different packaging solutions. And before their products release production, those expenses go through our R&D line. So there is a portion of that R&D expense each quarter. It has grown over recent quarters that is material related, but variable in terms of its timing and the amount. So, therefore, as you see in the guide, we see sort of that number for our operating expenses sort of stabilizing from here going forward. Mark Kelleher - D.A. Davidson & Co.: Stabilizing at that number or that percent?

Around that level, yes. Mark Kelleher - D.A. Davidson & Co.: Okay. That's all I have. Thanks.

Our next question comes from Tore Svanberg with Stifel. Your line is now open. Jeremy Kwan - Stifel, Nicolaus & Co., Inc.: Hi. Yes. Thank you. This is Jeremy calling for Tore. Just a follow-up on the earlier CapEx question. Can you help us understand how much of that $13 million is directed towards your expanding laser capacity? And maybe also how we can look at it maybe a little bit longer term, 12 to 18 months out?

Yes, we can. And most of the – there's three major elements that are consuming CapEx. We have number one, as people know, we are definitely expanding our manufacturing capability here in Lowell by what is in process and soon to be completed over the next three or four months in extension of our facilities and expansion of our facilities here in Lowell. We're adding 60,000 square feet. That is a build-to-lease, build-to-suit facility, although we have decided to invest first this short-term an actual portion of the capital expenditure versus leasing it out over time. Our rates and cost of the returns there are better to fund it upfront today than it is at least it over the 20-year lease period or longer. The second area is in test equipment. As we continue to advance in these new evolving technologies and things that is higher speed, higher performance, different materials, we are buying more and more test equipment across the board. And then, finally, the third portion and the biggest portion is expanding the production capability both in Lowell as well as some of our subcontractors, as well as we're putting additional equipment to be in a position to have the capacity to meet future demand. Jeremy Kwan - Stifel, Nicolaus & Co., Inc.: And can you talk about how long you may have this elevated spending?

So our original target in terms of CapEx was 5% of revenue. We think, because of the cyclical issues in the Telecom space specifically that is depressing our revenue, as we grow, we'll be back to the 5%, 6% level. So this is sort of an anomaly in our view.

Yeah. I think the scenario where that would not be the case would basically be exceeding expectations on top-line growth. Obviously, if you get more growth then you have more opportunity, you have to feed that with more CapEx. But I think that's the problem you want to have.

Yeah. And, again, that's also getting back to our target operating model, which would generate close to 30% operating margin. So, EBITDA would be higher on the first step than it is today.

Yeah. So let me provide some color on what's kind of fueling that CapEx. So we're simultaneously ramping things like 25-gig lasers for Data Centers. We also have the associated transceiver TOSA solution stuff that is taking capital equipment. We've got the L-PICs coming behind the lasers. We've got the GaN for base stations. We've got FEMs for base stations. And believe it or not, now we have panels receiving production orders and active antenna panels. So, as you see the upside associated with this 25-gig laser breakthrough in terms of getting now to ramp, we're feeding very similar things, very high quality customers. And frankly, we have to feed the CapEx to be able to scale that production.

Our next question comes from the line of Harlan Sur with JPMorgan. Your line is now open.

Good afternoon, guys. Thanks for taking my question. Can you guys just give us an update on your L-PIC solution? I know it's being qualified by several customers. Can you just give us an update on these calls, any line of sight in terms of design wins and timing of production shipments? And I assume most of this has been focused on 100-gig. Maybe you can give us some status as well on your 200- and 400-gig L-PIC development activities.

Yeah. I mean, kind of one of our themes now, as you might have picked up, is we're trying to focus on the short-term results and the short-term outlook, trying to stay away from talking about the futures. But, I mean, the way I'd describe the L-PIC situation is we have achieved similar yields, improvements and breakthroughs for the L-PIC as with the lasers. I think the difference is where the lasers are within our internal factories and we can talk about those internal factories. We actually source the PIC wafers from GLOBALFOUNDRIES. So, once you're really going to gate the ramp of the integrated version of the solutions business which is the L-PIC, it'll be gated by GLOBALFOUNDRIES' ability to ramp over this year and next. And that's where – I'm not really comfortable talking about their timing from a supply chain standpoint. But the good news is this, the way to think about the L-PIC is the same Data Center solutions that we've greased the skids with today, the transceivers and the TOSAs and OSA designs, the L-PIC version of that TOSA just drops into that same supply chain. And it's just a more integrated lower cost, more manufacturable improvement to the same solutions model. So it's not like we have to wait for the L-PIC to be ramping our Data Center solutions business. Certainly, the L-PIC is further disruptive in terms of BOM cost and manufacturing cost and manufacturability, but there's a lot of way to go before we're limited by L-PIC availability. But improvements, everything anticipated as expected. It's all a matter now of just getting the PIC wafers scaled in production.

Great. Thanks for the insight there. And you guys have a really nice high-margin kind of sticky catalog business as part of your Industrial segment. I think it's also very diversified. I assume you're also seeing strong demand pull there as well. Can you just give us a sense of what types of applications are driving the demand? And do you think that the broad catalog business is going to contribute to the sequential growth as well on a go-forward basis?

It's a fantastic question. I mean, one of the nicest feelings is that core catalog business – first of all, I mean the last remaining competitors are undergoing consolidation and we're literally turning out to be the last guy standing in some other stuff, which is a very nice place to be. There is a general surge and lift in demand for what I would call legacy programs where we were designed in long ago and then doing our retrofits and upgrades in the field. So there's a rising tide associated with that catalog business. But on top of that, the two things that really are amazing is there's actually some new applications, potentially very substantial applications for use of some of this mature technology that will be continuing to fuel growth beyond just the surge. And then our Active Antenna business is really just an assemble – it's like the Data Center solutions business that we're just talking about, all based upon the same stuff. It's all based upon our core RF technologies, highly proprietary. When we talk about an antenna, AlGaAs was perfected in those antennas. It's all about antenna reception. Whether it's for a radar application or a base station application, it's the same challenge and the same solution. So, that Industrial & Defense business, it's shaping up to potentially grow as fast as our Data Center business, and Telecom and 5G turns on. It's anything but a drag on our growth in our portfolio which is – it's great. When your core business tends to grow like that, that's special.

And I'm showing no further questions in queue at this time. I'd like to turn the call back to management for any closing remarks.

Great. Before closing out today's call, I want to mention that we'll be attending the Oppenheimer Technology, Internet & Communications Conference on August 7 in Boston, as well as Jefferies Semis, Hardware and Communications Infrastructure Summit on August 28 and 29 in Chicago. If you'd like to arrange a meeting at one of these events, please email us at ir@macom.com. That concludes today's remarks. Operator, you may now disconnect the call.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.