Viavi Solutions - Earnings Call - Q4 2025

Executive Summary

• Q4 FY2025 delivered at the high end of guidance: revenue $290.5M (+15.3% y/y), GAAP EPS $0.04, non-GAAP EPS $0.13; non-GAAP operating margin 14.4% and adjusted EBITDA $51.3M. Strength was broad across NSE and OSP, with NSE at $209.1M and OSP at $81.4M.
• Against S&P Global consensus, VIAVI posted a beat on revenue ($290.5M vs $285.2M*) and EPS ($0.13 vs $0.115*), following a Q3 beat as well ($284.8M vs $281.8M*, $0.15 vs $0.118*). EBITDA comparisons are not directly like-for-like due to definitions (company reports adjusted EBITDA).
• Q1 FY2026 guidance: revenue $290–$298M and non-GAAP EPS $0.13–$0.14; management expects sequential growth, driven by data center ecosystem and aerospace & defense, with OSP seasonally stronger in 3D sensing.
• Key narrative catalyst: accelerating demand across the data center ecosystem (400G/800G and leadership in 1.6T test), and resilient aerospace & defense PNT momentum; tariffs were largely mitigated and embedded in pricing, reducing earlier concerns.

What Went Well and What Went Wrong

What Went Well

• Data center ecosystem momentum across fiber lab/production (800G, 400G; second-gen 1.6T test launched), with broad demand from semis, module makers, equipment vendors, and hyperscalers; “demand is just crazy…we feel very good about our performance”.
• OSP executed strongly: Q4 revenue $81.4M (+16.6% y/y), gross margin 54.7% and operating margin 39.4% (above guidance), driven by anti-counterfeiting and favorable mix.
• Tariffs largely mitigated and embedded into pricing; management quantified ~$1.5M overall impact and indicated supply chain realignment to minimize future exposure.

What Went Wrong

• Sequential margin compression: non-GAAP operating margin fell from 16.7% in Q3 to 14.4% in Q4, with NSE operating margin impacted by year-end variable comp and higher R&D.
• Wireless infrastructure test remains sluggish with recovery pushed out; management expects medium-term weakness despite healthier demand for field instruments.
• GAAP gross margin dipped y/y (56.3% vs 57.8%) due to mix and amortization; company flagged ongoing visibility limits and product mix volatility across portfolio.

Transcript

Speaker 3

Good afternoon. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viavi Solutions fiscal fourth quarter and full year 2025 earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. At this time, I would like to welcome and turn the conference over to Vibhuti Nayar, Head of Investor Relations. Please go ahead.

Speaker 2

Thank you, Bella. Good afternoon, everyone, and welcome to Viavi Solutions' fourth quarter and fiscal 2025 earnings call. My name is Vibhuti Nayar, Head of Investor Relations for Viavi Solutions, and 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, 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 supplementary earnings slides, which include historical financial tables, are available on Viavi's website at www.investor.viavisolutions.com. Finally, we are recording today's call and will make the recording available on our website by 4:30 P.M. Pacific Time this evening. Now, I would like to turn the call over to Ilan.

Speaker 1

Thank you, Vibhuti. Good afternoon, everyone. Now, I would like to review the results of the fourth quarter of fiscal year 2025. Net revenue for the quarter was $290.5 million, which is at the high end of our guidance range of $278 to $290 million. Revenue was up 2% sequentially, and on a year-over-year basis, was up 15.3%. Operating margin for the fourth fiscal quarter was 14.4%, at the high end of our guidance range of 12.5% to 14.5%. Operating margin decreased 230 basis points from the prior quarter, and on a year-over-year basis, was up 350 basis points. EPS at $0.13 was also at the high end of our guidance range of $0.10 to $0.13 and was down $0.02 sequentially. On a year-over-year basis, EPS was up $0.05. Moving on to our Q4 results by business segment.

Given Viavi's revenue growth and recent acquisition, the Service Enablement revenue as a percent of total revenue is lower and led us to combine Network Enablement, NE, and Service Enablement, SE, into one reportable segment, Network and Service Enablement, or NSE. The ongoing reportable two segments will be NSE and OSP. NSE revenue for the fourth fiscal quarter came in at $209.1 million, which is above the midpoint of our guidance range of $203 to $213 million. On a year-over-year basis, NSE revenue was up 14.8% as a result of strong demand for fiber lab and production products, mainly driven from the data center ecosystem, as well as growth in aerospace and defense products, including the acquisition of Inertia Labs. NSE gross margin for the quarter was 62.2%, which is 10 basis points higher on a year-over-year basis.

NSE's operating margin for the quarter was 4.7%, an increase of 290 basis points on a year-over-year basis. NSE operating margin was slightly lower than the midpoint of our guidance range of 4% to 6%, mainly as a result of fiscal year-end employee variable costs, as well as higher R&D expenses. OSP revenue for the fourth fiscal quarter came in at $81.4 million, which is above the high end of our guidance range of $75 to $77 million, and was up 16.6% 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 54.7%, up 170 basis points from the same period last year, and was primarily driven by higher volume and favorable product mix.

OSP's margin was 39.4%, which is above our guidance range of 36% to 38%, and is an increase of 460 basis points on a year-over-year basis as a result of a higher fall through. Moving on to the full year results of fiscal year 2025. For the full fiscal year, revenue was $1.084 billion, which is up 8.4% on a year-over-year basis. The revenue growth was mainly driven by strong demand for lab and production and field products, primarily from the data centers ecosystem. This was partially offset by a declining spend for wireless cable and cable products by NEMS and service providers. We also saw growth in our aerospace and defense products, including the acquisition of Inertia Labs. For OSP, we saw growth in our anti-counterfeiting and other products as the industry's inventory levels normalized.

Operating margin for the full year was 14.2%, up 270 basis points from fiscal year 2024, and was driven by higher revenue and favorable product mix, resulting in a higher fall through. Full year EPS was $0.47, up $0.14 from the prior year. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q4 were $429 million compared to $400.2 million in the third quarter of fiscal year 2025. Cash flow from operating activities for the quarter was $23.8 million versus $26.2 million in the same period last year. During the quarter, we did not purchase any shares of our stock. For the full year, we purchased 2 million shares for about $16.4 million. We have almost $200 million remaining under our current authorized share repurchase program.

In fiscal year 2025, we prioritized our capital allocation towards M&A with the acquisition of Inertia Labs and the pending acquisition of Spirent Communications High-Speed Ethernet network security and channel emulation business lines. The fully diluted share count for the quarter was 227 million shares, up from 224.2 million shares in the prior year, and versus 227.4 million shares in our guidance for the fourth fiscal quarter. CapEx for the quarter was $5.5 million versus $3.8 million in the same period last year. CapEx for the full fiscal year was $27.8 million versus $19.5 million in the prior year. Moving on to our first quarter guidance. Historically, Q1 is a softer quarter relative to Q4. However, we expect the first fiscal quarter revenue to be slightly up sequentially.

For NSE, we expect first fiscal quarter revenue to be slightly up relative to the prior quarter, which reflects a seasonally strong quarter, driven mainly by the data center ecosystem, as well as aerospace and defense, and offset by continued weakness in wireless. For OSP, we also expect quarter-over-quarter revenue to be slightly higher, driven by seasonally stronger 3D sensing products. For the first fiscal quarter of 2026, we expect revenue in the range of $290 million and $298 million. Operating margin is expected to be 15%, plus or minus 40 basis points, and EPS to be between $0.13 and $0.14. We expect NSE revenue to be approximately $211 million, plus or minus $3 million, with an operating margin of 5.8%, plus or minus 40 basis points.

OSP revenue is expected to be approximately $83 million, plus or minus $1 million, with an operating margin of 38.3%, plus or minus 20 basis points. Our tax expenses for the first quarter are expected to be around $8.5 million, plus or minus $500,000, as a result of jurisdictional mix. We expect other income and expenses to reflect a net expense of approximately $5 million, and the share count is expected to be around 228.6 million shares. Our guidance does not include financial performance from our announced acquisition of certain Spirent Communications business lines, and we currently estimate the transaction to close by the end of September. During the fourth quarter, we successfully priced and allocated a $600 million term loan B, which will be used to fund the transaction at close, as well as general corporate purposes. The term loan B will close concurrently with the transaction.

Over the long term, we target a four times gross leverage and below three times net leverage. With that, I will turn the call over to Oleg.

Speaker 0

Thank you, Ilan. Fiscal 2025 ended on a strong note with Viavi revenue and EPS coming at the high end of our guidance. NSE revenue in fiscal Q4 grew approximately 15% year over year, primarily driven by strong demand from the data center ecosystem and aerospace and defense customers. More specifically, fiber lab and production saw another strong quarter driven by continued strong and growing demand from the data center ecosystem. We further extended our leadership in this segment with the launch of the second generation 1.6 terabit test solution. We expect the strong demand from the data center ecosystem to continue well into calendar 2026. Our aerospace and defense business saw another strong quarter of growth, driven by high demand for our positioning, navigation, and timing products. We expect this trend to continue throughout fiscal 2026.

Field instruments business continued on its gradual recovery trajectory, driven by leading service providers' fiber deployment and growing demand from the data center ecosystem. Furthermore, we expect the gradual recovery to accelerate during this fiscal year, driven by anticipated stronger fiber CapEx spend by leading North American service providers. Wireless business continues to remain a mixed bag. While we have been seeing healthy demand for wireless field instruments, the recovery in the infrastructure test continues to get pushed out due to the business weakness at leading wireless NEMs. We expect the infrastructure test demand to remain sluggish in the medium term. Lastly, service enablement results were in line with our expectations. Looking ahead, we expect NSE revenue to be slightly up quarter on quarter, driven by continued strong demand from the data center ecosystem and aerospace and defense customers. This is stronger than the traditional seasonality in the first quarter.

Our diversification and growth in the data center ecosystem and aerospace and defense businesses is offsetting and mitigating the traditional revenue seasonality driven by service provider demand dynamics. Now, turning on to OSP. OSP saw strong year-on-year growth driven by recovery in anti-counterfeiting and other products. We expect fiscal Q1 to be slightly up quarter on quarter, mostly driven by seasonally stronger demand for 3D sensing products. During the fourth quarter, some of our revenue was subject to newly imposed tariffs. However, we were able to largely mitigate our initial concerns over the tariffs and are comfortable in our ability to continue to manage the ongoing impact of tariffs. After two years of decline, fiscal 2025 was a growth year for Viavi. Our diversification strategy into the data center ecosystem and aerospace and defense, combined with the stabilization and beginning of recovery in our traditional businesses, drove the growth.

We expect this strategy to continue driving our growth in fiscal 2026. In conclusion, I would like to thank the Viavi team for their strong execution and successfully navigating the volatile macroeconomic environment during this past quarter. Additionally, I would also like to thank our customers and shareholders for their continued support. With that, I will now turn it back over to the operator for questions and answers.

Speaker 3

At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We do request for today's session that you please limit to one question and one follow-up. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Ruben Roy with Stifel. Your line is now open. Please go ahead.

Thank you. Hi, guys. Oleg, first question on the guidance, and nice to see the results in the guidance, by the way. First question on the guidance. The just reported quarter, there were some tariff impacts, and I just wanted to start with the revenue side of the tariff impacts with some of the POs that got sent back, et cetera. How did that progress? Is some of that accounted for in the guidance for September, relative to the strength that you're seeing in data center and aerospace and defense? Maybe you could just parse that out for us. Thank you.

Speaker 0

First of all, the impact is only mostly on the North American sales, but we also have some impact from Chinese tariffs when we send some material to some of our factories in China. Overall, the whole tariff impact is around $1.5 million, which we have more than mitigated. At this point in time, the tariffs are fully built in into our pricing and, you know, also the supply chain realignment to minimize the tariffs. I think at this point, provided nothing has changed in the last 24 hours, if we take Europe, Thailand, and, you know, China tariffs are somewhat fixed at this point in time, we feel we are fairly comfortable we've got it all mitigated.

Great. Thank you for that. I guess a little bit of a longer-term question just on the data center strength and 1.6 terabit test. It sounded like from your prepared remarks that this is something that you've got some visibility into continuing well into next year. Maybe you could just talk about the competitive dynamics that you're seeing at this point and sort of customer conversations relative to 1.6 terabit? It seems like that's something that's still on the come as we think about next year and even the year after. Just wondering if you could talk about that.

Thank you. I mean, 1.6T is what you kind of lead with, right? That's our kind of leading-edge products where you engage in advanced development and things like that. The bulk of revenue today is, you know, 800 gig and 400 gig, right? That's what's shipping today in production and a lot. I think 1.6T gets you in the door and kind of locks up all the follow-on activity as the business scales. I think demand is just crazy from what we're seeing. That's why we talk about data center ecosystem because it's the leading semiconductor vendors. It's the leading optical module developers. It's all the equipment manufacturers and developers, right? Last but not the least, all the production capacity in the world, in China, Thailand, Vietnam, that is building these optical modules, optical switches, optical products. It's pretty much playing up and down the entire value chain.

You generally get an anchor and you win with the leading edge, with the, you know, kind of bleeding-edge performance. We have just released our, in the June quarter, our second generation 1.6 terabit test solution. Much of our competition just barely released their first generation. We feel we're very good about our performance in that space. We continue to invest aggressively and broaden our reach. The data center ecosystem is not just kind of the lab equipment, production, test equipment. It's also becoming what I would call the smart buyer. They've gone from thinking, you know, network management as kind of an afterthought, and now they realize fiber is very critical to their performance and needs to be managed aggressively and actively.

We are now seeing data centers are actually becoming leading customers for a lot of our, what I call, field instruments or fiber monitoring equipment that we traditionally sold into the carriers and service providers. That percentage has been rising quarter over quarter. That's actually a very positive thing because it's, I mean, they view network performance as core to their business model. You know, they're not the types that are being penny-wise and pound-foolish. They believe in investing significantly into monitoring and optimizing network performance. We feel pretty good about this. That's why, you know, I'm starting, I'm going to use a lot more the data center ecosystem because that pretty much captures a whole new segment that is growing very rapidly for us. I wouldn't be surprised that in a couple of years, it will be a bigger market than the traditional service provider business.

Great detail. Thank you, Oleg.

Speaker 3

Your next question comes from the line of Ryan Koontz with Needham. Please go ahead.

Ryan, thanks for the question and congrats on the quarter. I guess within NSE, could you unpack a little bit about what's going on in the end markets there across broadband, optical, and wireless in the quarter? Then how you're thinking about that going into FY2026?

Speaker 0

I would say it's pretty much fiber, fiber, and more fiber, right? Within NSE, there is the, you know, I said there's a data center ecosystem, so that's your SEMIs, modules, systems, and production. That's all pulling in the volume today, 400 gig, 800 gig, and on the advanced development, 1.6 terabits. Shifting to service providers, I would say cable, I think, is being pushed out by maybe one to two quarters, given all the other dynamics going on with their upgrades. It's very much a fiber. I would say what we are seeing is it's a lot of the, what I call, kind of specialty fiber companies that are focusing on data center interconnect and the hyperscale data center operators themselves that are now also popping up on the horizon.

Of course, there is the major fiber interconnect and fiber service providers like the big North American Europeans that are rolling out their steady-state deployment. If I also then overlay the aggressive pronouncements a number of North American fiber players have been making about accelerating investment, we're actually starting to see this verbiage migrating into the supply chain management and operations. We already have a number of customers engaging on significant order growth in the coming one to two quarters. That's why we're feeling much more positive that across the board from the traditional network carriers rolling out fiber to the home all the way to the specialists who are optimizing their networks for hyperscale data center interconnect and AI data center interconnect all the way to the data centers on that field space is looking pretty promising.

I would say cable is probably going to be maybe some of it in December and then March quarter. I think there are clearly plans that are just kind of being pushed out due to some of the financial dynamics of these operators. I would say wireless is the only kind of a laggard in our portfolio. I was thinking December quarter, seeing nice pickup in the field instruments that expansion is coming. So far, it's been really much about network optimization and getting more from what they've got. We haven't seen that much new deployments. Thus, our infrastructure test, which goes into the major NEMs, has been somewhat anemic. I would have expected it to be picking up in the June quarter. It doesn't seem like it's really moving that fast. I think we probably got another couple of quarters of sluggishness until it starts materializing. Hope that helps.

Great. Yeah, that's really helpful and good to hear. As a follow-up on that, as you mentioned in your prepared remarks and given guidance, one quarter is going to be off from typical seasonality. How should we think about the rest of the year compared to regular seasonality?

As I say, three quarters does not make a trend. Although we saw a much stronger March quarter because usually, if you look at kind of traditionally, historically, the September quarter and the March quarter have been down quarters because if you purely follow the service provider spend, they kind of release their budgets at the end of February, and then it just kind of goes through the year. Usually, some of them end their fiscal year in June, some end it in December, and there's usually stronger June and December quarters, right? Interestingly, when we look at the data center ecosystem, it's almost countercyclical. They have a stronger demand, it seems to be in the March quarter and September. They digest some of the deliveries in the June and December. In a way, this thing has kind of offset it.

Also, with the data center now becoming a buyer for field instruments, that further mitigates that thing. For us, the only kind of cyclical thing left that I see is our optical business where you follow the cyclicality of 3D sensing for the consumer, and there's a cyclicality for anti-counterfeiting with certain parts of the year stronger versus the other. I'd say, are we going to, is our cyclicality over? I don't think so. I think it's just going to be more muted and more balanced. If I look at the aerospace and defense, it's a design win-driven business. Once you win platform and customer goes in production, it's actually fairly predictable linear orders that come in for these major programs.

I do expect, as all these new businesses are growing for us, we probably would see less volatility quarter on quarter than has been in the past when we were heavily exposed to the service providers.

Great. Thank you.

Speaker 3

Your next question comes from the line of Mehta Marshall with Morgan Stanley. Please go ahead.

Great. Thanks. Congrats, Oleg. Just a couple of questions. Can we just get like a rough size of the data center business in Q4? That would be helpful. Just kind of the contribution of Inertia Labs to the Q1 guide would be helpful. Thanks.

Speaker 0

Let's just talk about NSE. If we take purely NSE and leave OSP out, as it stands right now, roughly 50% of our revenue comes from service provider, and that's way down from close to 90% when I joined this company. About 30% is what I would call the data center ecosystem, so it's SEMIs, modules, equipment vendors, and data center operators, right? It also includes some of the enterprise customers. I'll say 20% is the aerospace and defense. If I look back even like a year ago, the 50% was probably closer to 60%, or even over 60%, and the others were probably around 20% and below 20% for aerospace and defense. All segments have grown.

I would say the service provider has had a gradual recovery thus far, and we do think it's going to accelerate in the coming quarters with a number of these big fiber deployments that are being planned. It's really the data center and aerospace that have grown quite significantly. With the acquisition of Inertia Labs, we really have that segment growing very, very rapidly. As of exiting June quarter, I would say 50, 30, 20. I would expect if you look at a year from now, if I had to look, maybe we'll be a bit less than 50%, and the other segments will be a bit bigger because they're just growing faster than the service provider sector.

Speaker 1

Regarding your question, Inertia Labs, you know, if you recall when we announced the transaction, we mentioned around $50 million run rate a year. It's tracking above this number. However, both the fourth quarter and the number that we baked into the first quarter is also kind of including some growth from the base aerospace and defense business. It's not all about Inertia Labs.

Okay. Great. Thank you.

Speaker 3

Your next question comes from the line of Andrew Spinola with UBS. Please go ahead.

Thanks. I wanted to ask a similar question for Q1. If the normal seasonality would have been down, I don't know, 5% or something like that from Q4 to Q1, how would you sort of describe the upside to that? Which was the bigger contributor between data center and aerospace and defense? Can you split out how big the contribution was to that upside?

Speaker 0

No, I think it's kind of getting into the segmentation that we don't disclose. I mean, they were both very strong.

Okay. Fair enough. Just trying to understand. I want to ask a margin question on NSE. It was still in kind of the low, I guess, what, mid-single digits here for Q1. What do you think you can get that margin to in NSE? What sort of revenue do you need to get there? What's your longer-term thinking on the upsides of that margin?

On NSE, as that business kind of recovers, if you look at it just prior to the telecom meltdown in September 2022, we have approached 20% operating margin on the NSE business unit. That is before it had significant data center exposure and aerospace and defense. Data center margins are somewhat higher than the service, kind of the field instruments. However, the aerospace and defense is a bit lower. In a way, they kind of offset each other. Net-net, NSE will probably stay in the low 60% gross margin. I would say, I think that's pretty much, I would say, the profile of the margin.

When we look at that and we obviously made some acquisitions, I think as we continue to grow in data center and military aerospace and recovery, continued recovery in the service provider, I think our first goal is to move comfortably into mid to high teens and then into the 20s longer term.

Great. Thank you.

Sure.

Speaker 3

Your next question comes from the line of Mehdi Hossain. Please go ahead.

Yes, thanks for taking my follow-up questions. Oleg, it's great that you have the fiber and helps you with a bit and sees nurturing into the new fiscal year. I'm a little bit cautious as to what happens to the March quarter when cloud service providers close the calendar year. Should we see the typical seasonality that happens in September or Q1 fiscal year for you happen in the March quarter?

Speaker 0

I fully expect, if I purely take the service provider buy without any kind of bluebirds where they have some big program they want to spend, I think there's always going to be some cyclicality with that because, let's assume a steady state, the service providers will always buy a bit less in September and March. What we are having is if you look at the enterprise and data center, actually March and September are stronger quarters for them. As I said, are you fully going to eliminate any kind of seasonality? I think you're always going to have some of it. It's just going to be less and less pronounced. Maybe instead of a down quarter, you may be slightly down or a flattish quarter on some of these things.

I do think some of our new businesses, the growth there in the near term will be probably offsetting most of the whatever seasonality. Plus, if I look at it, if I were to believe all these aggressive spend pronouncements that are coming from fiber operators and others, I would imagine there's going to be some strength in their spend that may spill over into the March quarter. It may be a bit more muted, but it's too early to talk because I really don't have any visibility into March. I do have some visibility in December, and it looks very healthy in that respect.

Got it. Okay. Double-clicking on OSP, it seems to me that there's still a little bit of a lingering ASP pressure, especially on the 3D sensing. I'm looking at the margin profile for the Q1 fiscal year. Am I right with that thought process? What are the things that you're doing to mitigate that? Given, as a follow-up to it, given the fact that overall OSP smartphone unit shipment has been kind of a low single digit over the past couple of years, could we be hitting the bottom in terms of the 3D sensing opportunities for you? If there is any uptake in OSP unit shipment, could that also help mitigate the ASP pressure? Thank you.

When we think about the ASP pressure on the, let's say, 3D sensing consumer business, we've been taking down costs pretty good. The reality is we've been able to maintain margins in that business. The challenge there is volume. We are very highly penetrated in that market segment, and it's kind of fully saturated. The margins don't suffer because we are able to reduce the cost to keep up with the ASP reduction. I think what probably has been a bigger problem there is the volume hasn't really grown because it's a good news, bad news when you're highly penetrated at the particular customer. On good news, you have the customer. On the bad news, if the customer is not seeing much volume growth year on year, then it's not happening. I think that's not the case.

What you are seeing, the bigger impact on margins is really the mix in the anti-counterfeiting products between the older pigment technologies and the newer. Depending on the time of the year or major customers, you are building either the lower margin mix product or the higher margin mix product. I'd say that's probably a bigger swing factor in the quarter to quarter gross margin on OSP. The second one is I do believe ASP has stabilized. OSP is around $300 million run rate. We are starting to grow a little bit. We are diversifying into new segments. We have a number of very promising applications and market segments that we are entering that in two to three years will start bringing in some meaningful revenue, and we'll see that segment start growing again.

I'd say for OSP, this fiscal year is kind of stabilization and gradual growth, and then growing faster as the new segments start materializing for that business.

Speaker 1

Maybe just to echo what Oleg said, I mean, OSP generally is a high fall through business.

Speaker 0

Yeah.

Speaker 1

It's all volume-based. The ASP is not a factor, not in our projection right now. It's all about.

Speaker 0

That is where we have our biggest fixed cost. If you see where those factories are, that is a lot of iron sitting on the floor.

Oleg, just as a quick follow-up, you're not dialing any impact from a changing form factor, thinner phone or foldable. You're, and it's to me, if you're not factoring that in, maybe there's no change in the 3D sensing or you're just being conservative.

I mean, we're talking about today. Clearly, there's a roadmap. We have new products on a roadmap. I don't want to get into the specifics, but there's a lot of new engineering which will probably result in some of the ASP appreciation as we implement these new form factors and some of these new opportunities because it's basically new products that need to be developed. I don't want to go into specifics on that. Right now, we're talking about mainly what we are shipping in production, not what's on the roadmap.

Okay. Great, thanks for the details.

Sure.

Speaker 1

Thank you.

Speaker 3

That concludes our Q&A session. I will now turn the call back over to Vibhuti Nayar.

Speaker 2

Thank you, Bella. This concludes our earnings call for today. Thank you all for joining. Have a good afternoon.

Speaker 3

Ladies and gentlemen, that concludes today's call. Thank you all for joining. I will now disconnect. Everyone, have a great night.