Viavi Solutions Inc. (VIAV) Q1 2026 Earnings Report, Transcript and Summary

Good afternoon. My name is Jale, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viavi Solutions Fiscal First Quarter 2026 Earnings Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Vibhuti Nayar, Head of Investor Relations. Please go ahead.

Thank you, Jale. Good afternoon, everyone. And welcome to Viavi Solutions Fiscal First Quarter of 2026 Earnings Call. My name is Vibhuti Nayar, Head of Investor Relations for Viavi Solutions. With me on today's call is Oleg Khaykin, our President and CEO; and Ilan Daskal, our CFO. Please note this call will include forward-looking statements about the company's financial performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations and estimations. We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those filings. The forward-looking statements including the guidance that we provide during this call and our expectations regarding the acquired business are valid only as of today. Viavi undertakes no obligation to update these statements. Please also note that unless we state otherwise, all results discussed on this call, except revenue, are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their usefulness and limitations in today's earnings release. The release as well as our supplemental earnings slides, which include historical financial tables, are available on Viavi's website at www.investor.viavisolutions.com. Lastly, we are recording today's call and will make the recording available on our website by 4:30 p.m. Pacific Time this evening. With that, I would now like to turn the call over to Ilan.

Thank you, Vibhuti. Good afternoon, everyone. Now I would like to review the results of the first quarter of fiscal year 2026. Net revenue for the quarter was $299.1 million which is above the high end of our guidance range of $290 million and $298 million. Revenue was up 3% sequentially and on a year-over-year basis was up 25.6%. Operating margin for the first fiscal quarter was 15.7%, above the high end of our guidance range of 14.6% to 15.4%. Operating margin increased 130 basis points from the prior quarter and on a year-over-year basis was up 570 basis points. EPS at $0.15 was also above the high end of our guidance range of $0.13 to $0.14, and was up $0.02 sequentially. On a year-over-year basis, EPS was up $0.09. Moving on to our Q1 results by business segment. NSE revenue for the first fiscal quarter came in at $216 million, which is above the high end of our guidance range of $208 million to $214 million. On a year-over-year basis, NSE revenue was up 35.5% as a result of strong demand for lab and production as well as field products and was mainly driven by data center ecosystem as well as the acquisition of Inertial Labs. NSE gross margin for the quarter was 63%, which is 210 basis points higher on a year-over-year basis and primarily driven by higher volume and favorable product mix. NSE's operating margin for the quarter was 7.5% compared to negative 4.6% during the same quarter last year. NSE operating margin was above the high end of our guidance range of 5.4% to 6.2% primarily driven by higher fall-through. OSP revenue for the first fiscal quarter came in at $83.1 million, which is in line of our guidance range of $82 million to $84 million, and was up 5.5% on a year-over-year basis. The increase in revenue for the quarter was primarily a result of strength in Anti-Counterfeiting and Other products. OSP gross margin was 52.3%, down 300 basis points from the same period last year and was mainly due to unfavorable product mix. OSP's operating margin was 37.1%, which is below our guidance range of 38.1% to 38.5% due to product mix and higher manufacturing costs. The operating margin decreased 250 basis points on a year-over-year basis. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q1 were $549.1 million compared to $429 million in the fourth quarter of fiscal 2025. Cash flow from operating activities for the quarter was $31 million versus $13.5 million in the same period last year. CapEx for the quarter was $8.5 million versus $7.3 million in the same period last year. During the quarter, we successfully refinanced our $250 million, 1.625%, 3-year convertible notes due in March 2026 with $250 million, 0.625% 5.5 years convertible notes due in March 2031. As part of this transaction, existing convert holders exchanged about $100 million for the new convert and the remaining $150 million raised will serve to pay off the balance of the March 2026 convert. This remaining $150 million is included in the cash balance of $549 million at the end of the first fiscal quarter of 2026. In conjunction with this transaction, we purchased approximately 2.7 million shares of our stock for about $30 million. We have almost $170 million remaining under our current authorized share repurchase program. The fully diluted share count for the quarter was 227.9 million shares up from 224 million shares in the prior quarter and versus 228.6 million shares in our guidance for the first fiscal quarter. Moving on to our guidance for the second quarter of fiscal 2026. In mid-October, we successfully closed the acquisition of Spirent's High-Speed Ethernet, network security and channel emulation business lines from Keysight. The acquisition of these business lines is expected to add about $200 million of annual revenue run rate, which is above our prior estimate of around $188 million. We also concurrently closed the previously announced $600 million Term Loan B, which was used to fund the transaction at close as well as general corporate purposes. In addition to the acquisition of Spirent's business lines, we expect the second fiscal quarter revenue for Viavi to reflect continued strength in many of our end markets. Our guidance includes financial performance of Spirent's business line for approximately 10 weeks. For NSE, we expect continued strong demand for lab and production as well as field products driven by the data center ecosystem. For OSP, we expect quarter-over-quarter revenue to be lower, in line with seasonality of lower demand for both anti-counterfeiting and 3D sensing. For the second fiscal quarter of 2026, we expect Viavi revenue in the range of $360 million and $370 million. We expect total NSE revenue between $283 million and $293 million, including revenue from Spirent between $45 million and $55 million. OSP revenue is expected to be approximately $77 million. Operating margin for Viavi is expected to be 17.9%, plus or minus 60 basis points. Total NSE operating margin is expected to be 13.6%, plus or minus 70 basis points. This includes Spirent's contribution, which is expected to be slightly accretive to existing NSE margin for this quarter. OSP operating margin is expected to be 34%, plus or minus 50 basis points. EPS is expected to be between $0.18 and $0.20. Viavi stand-alone EPS is expected to be about $0.18 and we estimate Spirent contribution to EPS is in the range of $0.00 to $0.02 after allocating pro rata interest on debt. Historically, Spirent's agency revenue has been stronger in the second half of the calendar year. This strength in revenue is reflected in the guidance for the fiscal second quarter. We currently plan to leverage the complementary product portfolio and capabilities and record NSE as one business segment going forward. Our tax expense for the second quarter are expected to be around $10 million, plus or minus $500,000 as a result of jurisdictional mix. We expect other and other income and expense to reflect a net expense of approximately $12.2 million, which increased mainly due to the interest on the TLB, and the share count is expected to be around 228.7 million shares. With that, I will turn the call over to Oleg. Oleg?

Thank you, Ilan. The first quarter of fiscal '26 saw the continuation of strong momentum from the fourth quarter of fiscal '25 coming in above the high end of our guidance. It was also significantly up year-on-year and countercyclically up quarter-on-quarter. NSE revenue in Q1 grew approximately 35% year-on-year, primarily driven by strong demand from the data center ecosystem in aerospace and defense customers. The data center ecosystem, which includes high-performance semis, optical modules and NAMs drove strong demand for lab and production products in support of the AI data center build-out. We saw strong demand across all optical networking product lines, the 800-gig and 1.6 terabit Ethernet test, chip-to-chip interconnect and protocol test and a broad range of production test equipment. In addition, we are now also seeing a growing demand for our traditional field instruments by hyperscalers as they build out and operate their new AI data centers. We expect this strong momentum to continue well into fiscal 2026. Lastly, with the recent acquisition of the highly complementary Spirent's High-Speed Ethernet product line, we have further strengthened our position in the data center ecosystem, significantly increasing our business footprint there. Our Aerospace and Defense business also saw another strong quarter of growth, driven by continued high-end demand for our positioning, navigation and timing products. We expect the strong demand to continue throughout fiscal 2026. The service provider business was generally stable during the quarter. The gradual recovery in fiber was mostly offset by the continued soft demand for wireless products. We expect this trend to continue in the medium term. Looking ahead, we expect strong quarter-on-quarter growth in NSE driven by both the continued strong demand from the data center ecosystem and aerospace and defense customers for Viavi classic products and the incremental revenue from the recently acquired Spirent product lines. Now turning to OSP. OSP saw strong year-on-year revenue growth, driven mostly by recovery in anti-counterfeiting in other products. The 3D sensing demand was in line with seasonal expectations. We expect fiscal Q2 to be down quarter-on-quarter, in line with the seasonally lower demand for both anti-counterfeiting and 3D sensing products. In summary, we expect the strong start in Q1 to continue throughout fiscal '26, supported by the stabilization and recovery of our mature end markets, including the service providers, anti-counterfeiting pigments and 3D sensing. And the continued strong demand by the data center ecosystem and aerospace and defense customers. In conclusion, I would like to welcome our new employees to Viavi and thank the Viavi team for its continued strong innovation and execution. Lastly, I would also like to thank our customers and shareholders for their continued support. With that, I will now turn it back to the operator for the Q&A.

[Operator Instructions] Your first question comes from the line of Ruben Roy of Stifel.

Great to see the progress and congrats on the closing of the Spirent business. I guess the first question, like would be as you continue down the road of diversifying your revenue. Maybe you can give us an update of what the mix is. If you think about your kind of core telecom service provider revenue in NSE versus some of the new products that you're selling into hyperscale. And then obviously, you've been talking a lot about aerospace and defense doing very well with expectations of continued growth. So maybe if you could just give us the mix as the first question.

Sure. Thanks. So I would say if we look at our exit of the fiscal year, we did about 50-30-20, so 50% service provider, 30% data center ecosystem and 20% aerospace and defense. And as we close the Spirent business, it's about, what, 45%, about 40% and then the remainder. So 45% is service provider, 40% data center and 15% aerospace and defense, purely as you average it out. So we are now getting to the point where the data center revenue is almost approaching the traditional service provider, which significantly derisks the volatility of the service provider spend and the aerospace and defense continues to grow as well. So I think as we look forward, we are going to probably, I would say, exiting this year when we see data center ecosystem so fast a service provider and service provider will still grow, but it's growing at a much lower rate than data center and our aerospace defense will also continue to grow. So we'll have a much more balanced portfolio and less, I would say, dependent on the neurotic service provider spend.

Great. And if I take Spirent out of the guidance, it looks like my math is right, you're still growing around 10% sequentially on that core NSE business, almost 20% year-over-year. And I was wondering if you could maybe break out given that service providers still sort of mix with wireless still having some headwinds, et cetera. If you think about that growth on the core business, can you break it out between sort of what you're seeing in data center versus the aerospace and defense business?

Sure. So I think the -- when we look at data center, we look at everything that pulls into data centers. So we're going to see a very strong demand, believe it or not for our field instruments, but it's a field instrument by the data center ecosystem. It's these specialist fiber companies that are doing now interconnect. I mean, you probably saw some very interesting dynamics with NVIDIA investing in the Nokia, I can elaborate on that. But what we are seeing is, initially, it was all about building our data center, then they realized the fiber interconnect between data center is c***. So they said, okay, we cannot accept the traditional fiber network providers. So there's been a significant investment and emergence of the specialist fiber interconnect companies that are now spending quite a bit of money really improving the reliability and performance of the fiber networks. And we're actually seeing that is driving also the revenue of our traditional, what we call field instrument business. Then, of course, the classical data center, the 1.6 terabit, 800-gig, the production -- optical production test equipment continues to grow very nicely into the December quarter. And there's going to be an additional momentum building as far further into the March quarter. And aerospace defense will continue to gradually grow on a continued basis that he has been doing. And the only, I would say, kind of the cylinder in our engine that is still fairly weak is the wireless business due to the wireless spend dynamics by the major wireless carriers. But you saw a very interesting thing. Just as we said about 2 years ago that eventually somebody will wake up that the fiber is awful, and they'll start investing in fiber, and that's already happening now. So this whole thing is trickling down from data center into fiber networks. Well the next bottleneck that is not ready for the whole AI ecosystem is the wireless RAN. And that's why, actually, we were not surprised at all that NVIDIA put in $1 billion into AI-RAN in Nokia, and we do hope -- I mean, we are seeing -- that's really accelerating the 5G advanced and 6G development, we will likely pull this in closer. And we know the others are seeing it and they're also going to be start scaling their investments. So we do think our wireless business probably would be kind of the last cylinder in the engine to turn on into the next calendar year. So that's kind of hopefully gives you a good color on all the elements of the NSE business.

Yes, absolutely. If I could sneak one in for Ilan. Great to see the operating margin guidance for NSE, obviously, Spirent's starting to contribute there. But can you give us maybe how you're thinking about operating margins as you sort of run rate the business to full quarter, kind of exiting fiscal '26 and into fiscal '27?

Sure. Thanks for the question, Ruben. So currently, including Spirent, we are towards kind of the $160 million a quarter. I believe that, obviously, we are still working on or just starting to work on integration, et cetera. So probably for the early part of 2026 calendar it can reach maybe $5 million higher or so at around the $165 million range.

Your next question comes from the line of Mehdi Hosseini of SIG.

Two from my end. Oleg, let's assume wireless doesn't come back. It was kind of a worst-case scenario. Given the Spirent and the baseline assumption that it would be $0.08 accretive and the strength in fiber and perhaps a slightly higher growth rate for smartphone next year. It seems to me that you should be exiting calendar year '26 at close to like $1 annualized EPS. And if wireless were to come back, there will be growth above that target. And I'm not asking for a guide, but given the scenario you laid out, wireless could come back and just be extra and help you with a higher earning power. Any thoughts here would be great.

Well, so I mean, as you can see, we -- just as our business started thinking from the cutback in service providers in 2022, I mean, we had a significant operating deleverage. Well, now that we're going in the other direction, we're getting significant operating leverage where every incremental dollar just drops right to the big chunk of it drops to the bottom line. So I mean you're right. I mean getting up to -- if things continue as they are, I mean, it's entirely possible we'll be running around close to $1 a share next year. I mean your words in [ god ears ]. And you're right, wireless is a significant incremental catalyst once it gets going because it's really been one of the segments that's kind of been left behind in this whole recovery. And I mean clearly, as it starts turning around, it will be a major contributor to the bottom line.

Okay. Great. And just double clicking on the OSP and given the upcoming changes to the form factor for a smartphone application, should I assume that some of the past pricing pressure is going to abate and go away? And at least you should have some operating leverage there without contemplating what the real smartphone unit growth would be?

Sure. I think you're right. I mean it's a more maturing segment. I mean, the volumes, I mean, we're fairly saturated in that market. So the only incremental growth comes from the unit growth and maybe greater adoption of the world-facing 3D cameras. But we are seeing actually also incremental upticking of the facial recognition technologies with the Android players in Asia. Not the big ones like Samsung, but it's mostly the Chinese. So we do think it will provide some additional growth. And there, we sell wafers to module integrators. And so it provides a bit more leverage there. But also the automotive market with LiDAR and Asia is becoming a big consumer of the 3D sensing filters. Now we got to put it in perspective. It's kind of hard to compete with 300-plus million units. I mean, automotive is like maybe 10 million. But let's say, it's a nice welcome growth in the unit volume. And in terms of the ASP erosion, I think it's fairly stabilized at this point. And I'd say the volume is the only thing that matters right now in terms of growing the revenue in that segment.

Your next question comes from the line of Ryan Koontz of Needham & Company.

If we could double-click on the data center opportunity. I think that's been a little bit of a quiet market for you in terms of, I think, investors understanding your exposure there. Great to hear your working that up. Look, do you feel like your execution in that customer segment is where it needs to be today? Do you invest more in go-to-market and do those customers have different product requirements that you might need to re-spin new products for data center? Or is it largely the same products as your traditional OSP's.

Well, it's a great question. We've been investing in this business for the last 3 years. And the term that I've borrowed from distribution business is turns and earns, and let me just clarify what I mean. So what we're seeing today, as we shifted from telecom service providers driving the road map to the data center driving our road map, you're going from anywhere 6 to 8 years between the generations of products to about 2 to 3 years, see a very much faster turnover of the technologies. It means you got to deliver your products now every 2 to 3 years but also because it is driven by engineering labs and new product development, it comes in at a much higher margin. So you are turning the product portfolio much faster, which means you don't have this like a long value of waiting for the next generation, and you're earning higher percentage gross profits because it's a first to market always wins big. So in that respect, we really like it because it's increasingly the size of the market for us and it's accelerating the revenue velocity for us, and we get paid for the value we deliver by being always the leader in this market. So today, I mean, the reason I use word the data center ecosystem is because our products don't just address a particular segment to address everything along the entire value chain. It's your processor companies. You all know who they are. It's your physical layer, communication companies like SerDes and the module integrators. It's your system companies, optical gear, like Ciena [indiscernible] Cisco and so on and so forth. And it's actually ultimately the actual hyperscaler who have extensive internal R&D, developing anything from optical modules to MEMS switches to full-blown data center equipment. So I mean, this is like the best thing you can have and you're dealing with engineering budgets and the intense competition where everybody is trying to be first to market with a better technology. So I mean, this is like truly living inside of tornado and our team loves it because that's actually plays very well to our traditional strength to be at the bleeding edge of bringing leading-edge technology to the optical networking.

That's super helpful. Would you say like you had...

And actually, I would add one more thing...

Sure.

I would add one more thing. We talk always about speeds of 400, 800, 1.6, 3.2, that's a network speed. What you also have in parallel is chip-to-chip interconnect. You go from PCIe 3.0, 4.0, 5.0 today is 6.0 and then will be next year 7.0. So every time you move to a higher speed, you need a corresponding PCI Express next tender as well. So your -- it's a TikTok. You deliver your network speed, which immediately needs wholesale replacement of all the chip-to-chip interconnect. So that's a force multiplier on the whole data center growth.

Yes. That's really great. And would you say you have a similar set of competitors and similar share in the data center relative to your legacy customer base?

Well, I would actually say, where we play at a purely the Layer 0 Layer 1, we have a significantly greater share because that's traditional strength of JDS UniPhase, Viavi, we are very strong in it. With acquisition of Spirent, we have now added Layer 2 to Layer 7 capability as well. And there it's a -- there's 2 major competitors in that space. I mean, clearly, one was Spirent and the other one is Keysight through their acquisition of Ixia. So I would say, today, it's Viavi and Keysight, there are big players in that space. And there's about maybe 4 or 5 additional smaller players playing in individual layers kind of all over the world. But it's very much, I would say, a major players because the level of intensity and speed with which you have to bring out the products. It's not a low-budget game. It drives quite a significant R&D spend. So I would say, in that particular space, I'd say it's Keysight and Viavi.

Great. And maybe just a follow-up, if I could, on the aerospace and defense area. Can you kind of characterize those products are those P&T like modules you're selling in typically? Or what's the fulfillment model look like? You're selling to drone companies and the like or defense companies?

Yes. So it goes into everything. So we have a smorgasbord. We can sell you inertial measurement unit. It looks like a chip in a specialized package then we can sell you a module that has multiple of these chips with our controller and logic that does the inertial navigation system or we can sell you a full-blown inertial navigation system with sensor fusion receiving sensor data from cameras, the satellite antennas and everything else. So we have a full solution and depending which customer we engage and what their relative capabilities are, we'll sell them individual components, we sell them the modules or we sell them the complete solution. So if you're looking at the -- some of these drone companies, I would say, in Central and Eastern Europe. I mean, you may -- they may buy the entire solution. If you're dealing with a more sophisticated U.S. companies, I mean, they may be buying modules or individual components that go into their critical systems. But it's all about autonomous vehicles, payers, ground, sea or undersea. I mean, you name it, that's what we are servicing. And the nice thing about it, it's the same platform that can address all these different markets, including the mining, agricultural and surveillance drones and all these things that you need. If you think about the fully GPS independent autonomous kind of robotic vehicles.

[Operator Instructions] Your next question comes from the line of Michael Genovese of Rosenblatt Securities.

Look, I think my phone broke up because I think you gave a new annual revenue number for the HSE acquisition, but I just didn't hear what it was.

Yes. So Ilan, go ahead.

So basically, currently, once we close the transaction, we got a little bit more insight. Currently on an annual run rate, we believe it's about $200 million, including the emulation piece, the channel emulation. And prior to that, we thought more about $188 million. So yes, it is higher right now.

Okay. So I guess my question is...

Spirent business, right?

Yes, yes, yes. And so my question has to do with, does that change on higher revenue or any other reason kind of bring an accretion date sooner than 12 months? Or are we still thinking 12 months before it becomes accretive?

So it depends also on seasonality. Remember that there are stronger half fees on the second calendar half. So that's the reason that this quarter, we see some positive EPS, most likely in the first calendar half, it's a little bit softer. But when you think about it from a full calendar year, yes, it's slightly higher, but when you compare it to our fiscal year, the dynamic changes a little bit.

Yes. But net-net, clearly higher revenue makes the accretion sooner rather than later.

And then I think most of my questions were asked, but I just want to ask specifically on large service provider like AT&T, Verizon or the cable companies. If we look at the wireline part of the network. We heard weak wireless from you on that. But and then it sounds like a lot of the optical activity is being done by optical specialists. But is there anything to say about the Tier 1 large cable and telcos on the wireline side? Is there any trend there that you can call.

I would say gradual recovery. I mean fiber is growing. But we do know there's going to be some big RFPs coming out from major cable operators and the service providers. And it's more -- now when I look at the fiber, we are now starting to segment them into professional grade fiber operators and kind of consumer grade. So AT&T is more of consumer grade. So they just continue like -- they keep talking about adding a lot of fiber customers. And that ultimately is great news to us, and I just want to hear -- when I see the money, I'll believe it. I mean they did make some pretty bullish announcements. And we do think next year, there will be accelerating some buying. So it all plays very well. But then there is also this whole category of what I call professional grade fiber operators, emerging companies like [ Lumen ] similar companies in Europe who all they focus on is interconnecting all these data centers. And I'd say the next one will be, how do you connect them all to the wireless baseband -- I mean, base stations to the towers because you now need to bring a reliable 10-gig, 100-gig traffic to the -- all the towers. So we do expect the combination between the traditional and the professional grade fiber operators continue to grow nicely into next year. But even -- I'd say, take the base, the base business, the traditional service providers it's all goodness because it's a high tide that raises all the boats. So we cannot call it as a base business and all these other companies who call them speedboats. So it's your profession grade fiber operators the semis, modules, NEMs, these are all kind of speedboats that are growing much faster than the overall market. But I mean, it is encouraging to see even the -- your base service providers starting to spend more money.

Your next question comes from the line of Andrew Spinola of UBS.

Just one for me. Wondering if you could provide a little bit more color on the business -- the Spirent business that you acquired. With the margin profile on that business consistent with the overall business, was it better or worse? And when I'm thinking about modeling that post the 12 months when it turns accretive, do you think you can drive the margin in that acquired business in line with maybe your targeted 20% for NSE? Or do you think you can do better? How should I think about that?

Well, so I think this -- that business is both higher gross margin than the average NSE and it's higher operating profit than average NSE. So it's net-net accretive and I do believe that through integration and greater efficiency, we can actually expand their margins further. And I think we do have -- I think, on cost of goods, we should be doing a lot better because we have now greater scale in the parts procurement and greater leverage of engineering and sales resources.

And Andrew just specifically on the gross margin, we see it from the mid- to high 60s, which is, as Oleg mentioned, definitely above our corporate average. So it's a nice contribution there.

Got it. And is that business seeing the same acceleration that you're seeing in the rest of your data center business?

Yes. Well, I mean, probably not the same percentage because it's a much bigger -- from a much bigger base. But absolutely, they have a very exciting product called -- there's a traditional HSE high-speed Ethernet test that you sell to chip companies, the modules and systems and enterprise data centers. And then there's a whole different flavor called AI, HSE, which just generates AI workloads so you can test your network on how good it is to run the AI traffic and AI data. So that piece is growing even faster.

I see. And I wanted to ask one last question actually on the data center business. I'm trying to think about that business in terms of units versus what other growth drivers you might have. So how much of that business is -- so if the number of switches being produced doubling, tripling, what have you, how does that translate to benefits for you? Are you seeing most of your growth because of the growth in units in these products? Or is it that there's just a lot more investment in R&D, new SKUs, new players in the space? How should I think of that?

It's a combination. So when we talk about sales to the lab, i.e., to the R&D equipment, it's a number of companies, number of projects, number of chips. And remember, I also said the very fast product turn cycle, right? Like every 2, 3 years, next generation. So that drives the more like the lab sales are driven by projects, right? So it's a number of companies, number of projects and how quickly one generation transitions to the next. And when we talk about production, that is driven purely by units. So the more units you're producing, the more you're shipping, the more you need to buy to set up more production lines. So this is more like if you think about contract manufacturers, the more lines they add, the more equipment they need to buy.

What's the split in your business between unit-driven business versus project-driven business on the data center side, roughly?

We don't really split it. That's dicing it every thing because it's effectively the same product, the same technology packaged into different box.

Your next question comes from the line of Tim Savageaux of Northland Capital.

Congrats on the results and the guide. And I want to focus in on there, in particular. First, on Spirent, you mentioned a larger base interested in what context you meant that. But it sounds like given what you're guiding to, and I don't know if you're 50-30-20 going to 45, 40 15, I'll just assume that's fiscal '25 versus fiscal '26. But it seems like Spirent's going to be well above 50% exposed to data center. Is that fair to say -- go ahead.

Yes. So I mean the percentage just gave you, that's exiting this calendar year. It's like exiting December, the mix, including now the new Spirent business. Now in terms of their exposure, I would say, if I define the data center ecosystem, I'm in line's share of their business is data center ecosystem. But they also have enterprise and enterprise data center. So I mean -- when I say data center ecosystem, it's chips, modules, systems and hyperscalers. They also have the enterprise, like, say, financial insurance and other companies we their own -- we test their own firewalls and things like that. So that's -- I would say probably it's an 80-20 split probably.

Okay. That makes sense. And looking at the organic guide, which is still pretty impressive, I guess, [ $310 million to $320 million ] and understanding you're getting a healthier Spirent contribution despite the shortened time period and you explained that. But as you look at that, and kind of asked this a little bit before, but we've seen some pretty good numbers in terms of what some of the big U.S. carriers are looking to spend in Q4. I might have looked at that organic number and thought an old-fashioned budget flush. Apparently not, it doesn't look like you're building much in there. Am I right, for the traditional Tier 1 telecom providers, are you looking at that to be flat [indiscernible] Q3 to Q4?

No, there is some incremental traditional. Sorry. So for the traditional. Sorry, guys, for traditional, there is some incremental growth, but I mean, I won't say budget flash, I mean the incremental demand is coming from what I call the professional grade kind of Tier 2, Tier 3 focused players. I mean you can call it budget flash, you can call it. But I think their stuff is driven by projects that they and contracts that they signed with hyperscalers. And what we are seeing now increasingly I mean what we used to call -- you have field instruments where we would sell 90-plus percent to service providers, we are now seeing like a 1/4 up to 1/3 of revenue is going into the whole data center-driven service provider ecosystem.

Okay. So you look at that organic growth going September to December.

Yes. So we've all seen the Verizon, AT&T saying that next year, they're going to expand. Hey, if that happens, that will be just like a further tide that will raise all the boats.

Got it. So it looks like anything...

Tim also for -- we're not guiding for March, but it's not that we see anything materially different going into March.

So I mean the one the only thing I'd say about Tier 1s, every 0.25% drop in interest rate, for example, for a lot of cash for them to do things, and there's a lot of pent-up demand. I mean basically, it's like they've been sweating the assets for the last 3 to 4 years. And these things like anything else, it wears out, it needs to be updated. And so I do think as they're getting a little bit -- they're feeling better and more comfortable with the debt load, the interest load. And I mean, they've all been sending all the right signals. So that's actually quite encouraging, and that's a positive thing for us. It will be further, I would say, accelerator or a boost to the overall demand.

That concludes our Q&A session. I will now turn the conference back over to Vibhuti for closing remarks.

Thank you, Jale. This concludes our earnings call for today. Thank you for joining. Have a good evening.

This concludes today's conference call. You may now disconnect.