Ladies and gentlemen, thank you for standing by, and welcome to the Viavi Solutions' Second Quarter 2021 Fiscal Year Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session.

[Operator Instructions] I would now like to hand the call over to your speaker today, Mr. Bill Ong, Head of Investor Relations. Please go ahead..

Thank you, Grace. Welcome to Viavi Solutions' second quarter fiscal year 2021 earnings call. My name is Bill Ong, Head of Investor Relations. Joining me on today's call are Oleg Khaykin, President and CEO; and Pam Avent, Interim 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 can cause actual results to differ materially from 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 guidance 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 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, plus our supplemental earnings slides which includes historical financial tables are available on Viavi's website.

Finally, we are recording today's call and we'll make the recording available by 4.30 PM Pacific Time this evening on our website. I would now like to turn the call over to Pam..

Thank you, Bill. Fiscal second quarter revenue came in at $299.9 million, at the high end of our guidance range of $280 million to $300 million. The Q2 results represent a 4.4% year-on-year decline and a 5.3% quarter-on-quarter growth. This sequential growth was driven by continued recovery in NSE and strong OSP performance.

Viavi's record operating margin at 22.3% expanded 70 basis points year-on-year and exceeded the guidance range of 19% to 20%. EPS at $0.23 tied the record EPS from a year ago and exceeded the guidance range of $0.18 to $0.20. Now, moving to our reported results by business segment, starting with NSE.

NSE revenue at $206.7 million declined 11.7% year-on-year and grew 12.6% sequentially. Within NSE, NE revenue at $180.9 million declined 10.9% from a year ago, primarily due to pandemic-related declines in Field Instruments. SE revenue decreased 17.3% due in part from last year's stronger than usual demand in data center products.

NSE gross margin at 63.3% declined 310 basis points year-on-year. Within NSE, NE gross margin at 62.6% declined 380 basis points from last year, primarily due to lower volumes. SE gross margin at 68.2% increased 150 basis points year-on-year due to favorable product mix.

NSE's operating margin at 10.7% decreased 530 basis points year-on-year, primarily as a result of lower revenue, partially offset by lower operating expenses. Now turning to OSP. OSP had a strong quarter with revenue at $93.2 million, up 17.2% year-on-year, driven by strong demand in Anti-Counterfeiting and 3D sensing.

Gross margin was at a record 62.7%, up 790 basis points year-on-year driven by higher volume, favorable product mix, and high factory utilization. OSP also delivered a record operating margin of 47.9%, up 970 basis points from last year's levels as a result of higher gross margin and OpEx management.

Now, turning to the balance sheet, the ending balance of our total cash and short-term investments was $648.8 million, an increase of $53.3 million sequentially. Our operating cash flow -- quarter was a record $68.7 million. In Q2, we repurchased approximately $17.1 million of Viavi stock at an average cost of $13.26 per share, including commissions.

Overall, we have repurchased approximately $68.3 million out of the $200 million authorized into the share buyback plan announced in September 2019. At the end of Q2, cumulatively under this plan, the average overall cost was $12.28 per share. We will continue to be opportunistic in our share repurchase.

Now, on to guidance, we expect the third quarter revenue to be approximately $290 million plus or minus $10 million. Operating margin is expected to be between 17.5% to 18.5%, and EPS to be in the range of $0.16 to $0.18.

We expect NSE revenue to be approximately $197 million plus or minus $8 million with operating margin at 6.5% plus or minus 50 basis points. The OSP revenue is expected to be approximately $93 million, plus or minus $2 million with operating margin at 43% plus or minus 100 basis points. Our tax expense rate is expected to be approximately 18% to 20%.

We expect other income and expenses to reflect a net expense of approximately $3.5 million. The estimated fully diluted share count used in our calculation is 240 million shares. This includes an increase of approximately 8 million shares from Q2 as an adjustment to reflect the estimated dilution impact from our 2023 and 2024 convertible notes.

With that, I will turn the call over to Oleg..

Thank you, Pam. I'm pleased with Viavi’s performance in the second fiscal quarter. Our OSP business segment recorded its second highest revenue quarter and record profitability, and NSE business segment showed its revenue and profitability continued to recover.

The NE segment revenue recovery was led by increased demand for Field Instruments as service providers resumed their network maintenance activities and geared up for new deployment projects. Uptick in lab and production and wireless continued to enjoy strong customer demand driven by 400 GigE in fiber and 5G in wireless.

We are also seeing growing customer interest in 800 GigE in O-RAN. We see 800 GigE and O-RAN technology as drivers behind the next growth wave for lab and production and wireless respectively. The SE business segment had a robust Q2.

Looking ahead, we expect Q3 to be weaker, driven by a confluence of two trends; the reduced spending by service providers on existing networks as they gear up for 5G, and the delays in new projects by the enterprise customers until more staff is able to return to work. That said, we expect SE revenue to start rebounding in fiscal Q4.

Overall, we expect NSE demand to continue to improve in calendar 2021 with above-seasonal demand outlook in the current fiscal Q3. Additionally, we expect 5G Field Instrument demand to start picking up in the second half of calendar 2021 as 5G service providers start ramping up their network build-outs. Now, turning to OSP.

The OSP business segment finished the first half of fiscal year 2021 with record revenue and profitability, driven by strong demand for Anti-Counterfeiting and 3D Sensing products. Anti-Counterfeiting demand is being driven by a combination of global central bank's fiscal stimulus, inventory replenishment, and new banknote redesigns.

We expect the secular strength to be sustainable in the foreseeable future. 3d Sensing demand for mobile devices came in stronger than expected, driven by increased adoption and penetration.

With facial recognition applications in the marketplace for more than three years now, we now have a large and growing demand from a lead customer with more customers and devices planning to launch later in calendar 2021.

As a result, we now expect 3D Sensing revenue for fiscal year 2021 to increase to 20% year-on-year, up from the initial guidance of 10% to 20% year-on-year. Looking back at calendar 2020, I'm pleased with our performance and execution.

Despite the unprecedented pandemic-driven setback to our business in early 2020, we managed to recover our revenue and profits throughout the year finishing it by turning our record quarterly EPS. Our fiscal Q3 is off to a good start, and we look forward to driving continued recovery and growth in calendar 2021. A quick update on the CFO search.

We have interviewed many impressive candidates and have narrowed it down to a final few. We expect to announce our new CFO sometime in March.

In conclusion, I'd like to express my appreciation to the Viavi team for its strong execution during these challenging times and wish all our employees, supply chain partners, customers and our shareholders to stay safe and healthy. I will now turn the call over to Bill..

Thank you, Oleg. This quarter, we will be participating at the Morgan Stanley TMT Investor Conference on March 1st. Grace, let's begin the question-and-answer session. We ask everyone to limit discussion to one question and one follow-up..

[Operator Instructions] Your first question comes from the line of Samik Chatterjee from JPMorgan. Your line is open..

HI, thanks for taking my question and congrats on the strong guide here. Oleg, I just wanted to start off on the OSP segment and I think what I heard you say is you expect the Anti-Counterfeiting strength to continue for a duration of time.

Maybe if you can kind of talk about how long do you think this momentum on Anti-Counterfeiting will sustain? And am I reading it right that you're, kind of, saying this 90 -- low $90 million kind of quarterly run rate of revenue should be the new level for OSP segment? And I have a follow-up. Thank you..

Thank you, Samik. So, I think, listen, I mean, clearly, U.S. is not the only country doing a significant stimulus spend, it's pretty much the norm around the world. And as a result, we constantly see additional orders coming in above and beyond or sooner than we expect it.

So, there's clearly the stimulus that is driving some of the upside in the demand. And that's usually coming on top of -- we should have -- we should have expected to be already a stronger demand because of many redesigns and additional adoption of our security features was driving additional growth. So, that's coming up on top of it.

In addition to that, in the first kind of six months of shutdown, a lot of printer lines have been shut down and they've exhausted all of their inventory, and they're badly in need of replacing existing currency much less providing stimulus cash. So, that's obviously driving an extra layer of demand.

And on top of all of it, there's also a very low inventories across the entire supply chain. So, people trying to replenish their inventory as they need there. So, I expect we're going to see an increased dual level of demand of -- for Anti-Counterfeiting products.

I mean, I think -- it's -- really we don't -- unfortunately, we don't get much visibility, but given all the elements, I think in the foreseeable future, in the next 12 months, I expect us to be running stronger than we traditionally have been. And traditionally, we’ve set our base business running around $50 million a quarter plus other business.

I think now it's safe to assume that's $55 million, maybe a little more in any given quarter. I mean there's going to be -- some things will come in more in one quarter, may be less in the other quarter, but overall I expect us to be running pretty tight on the Anti-Counterfeiting products in the foreseeable future.

And then 3D Sensing is really going to be a function of customer shipments and -- I mean, even though we expected pretty good adoption and penetration, our lead customer I think had a much stronger demand than it was initially anticipated and we are seeing obviously some of that volume coming through driving much stronger results than we anticipated..

Got it.

If I can just follow-up on the recovery in the NE business, you talked about the two drivers in the prepared remarks, 5G wireless and fiber, curious kind of which one do you see as having more visibility into particularly, I think when you mentioned 5G wireless, there's this broader concern that most of the service -- Telco service providers have overspent on spectrum auctions.

So, does that have a ramification in terms of pushing some of the spend out in wireless infrastructure? Just wanted to get your thoughts on that..

Sure. So, I mean, when we say by recovery in any -- that's the old bread and butter of the business, the cable access, fiber, field fiber instruments, that's what's really been driving the recovery. The wireless and lab and production test was very strong in Q1, it continued to be strong in Q2.

So, that business continued to be strong and we -- as far as you can see, it's not going to decrease, it's going to continue to be very healthy and strong. So, the only thing -- the area that you're bringing up is the field wireless instruments, right, and that's really going to be linked to the deployment.

So, I do agree they've all spent a lot of money on buying spectrum, but at certain point, they have to start monetizing.

So, from our perspective, just to strengthen our traditional broadband Field Instrumentation like fiber, DSL, cable, and strength in our lab and production equipment for fiber and wireless lab, we see those trends continue to be pretty robust. And to the extent of the second half, we start seeing more deployments happening.

We expect also field wireless instruments to contribute. Whether they're going to really start in the second half, I tend to believe that they will start whether it's going to be as aggressive as some people think is another matter. But they need to start monetizing the spectrum and generating revenue, because it's no longer a duopoly in the U.S.

where you could, kind of, take your time and do it. I think there is in some ways, we're seeing emerging a race to claim the 5G crown between T-Mobile, Verizon, and AT&T. So, I do believe that we will see a more aggressive deployment rather than less aggressive deployment when it starts..

Got it. Thank you for the insight. Thank you..

Sure..

Thank you. And your next question comes from the line of Alex Henderson from Needham. Your line is open.

It's actually a great time to ask it because it was kind of a follow-on on what we were just talking about.

You've historically been seen by The Street as tied to CapEx, but in fact, it seems pretty clear to me that the predominant driver is actually more OpEx relevant to your test and measurement business, in particular the Field Instrument business.

As you look at the pressures that was mentioned, i.e., the license -- spectrum license fees going out, that's more of a CapEx or even independent of CapEx phenomenon. I would think that that would not have much impact at all on the OpEx-driven side of your business.

You seem to have pulled forward the timeline for 5G a little bit -- I think you were talking about at the end of calendar 2021 being the point where it starts to pull forward that demand, have you changed your thinking in terms of the time and pulling it forward some and what gives you that visibility?.

Thanks Alex. Good question. So, no, I still say second half of a calendar 2021. So, I mean, whether you're going to take December quarter, September quarter, I mean, I'm -- my insight is not that great, but I do believe they're going to start deploying.

And remember, you're right, our Field Instrumentation demand for traditional fiber, cable, and DSL is driven by OpEx. But remember, for us, the sales of instruments are driven -- there's two drivers, when the networks are being built, they need equipment to test and turn them on and then when the equipment is being maintained.

So, maintenance is driven by OpEx, the build out demand is driven by CapEx. So, when they start building these towers and certifying and releasing them into operation, that should have the first wave of equipment and it will be followed by subsequent waves as the densification and maintenance starts taking hold..

If I could follow-up, there is -- an argument that was made that being much further earlier in the test and measurement cycle, being able to get into the pre-deploy lab, helping to write the manuals that you've built in a competitive advantage that Noritsu [ph] couldn't -- can't meet.

And to that extent, you've got an inside track on the Field Test and measurement because you've helped design the manual.

Is that playing out? Is that something that's you've got any visibility on that share benefit from?.

Well, I think -- listen, I think the incumbents always have an advantage, because they're already there. So, they are also obviously influencing installation. Now, being a complete newcomer in the absence of being in the lab and in the early deployments, we wouldn't get a time of day.

However, being seen as the 5G expert, coming in with the all the names and everybody else, has given us an equal seat at the table. And we do believe we're going to have an advantage, having been intimately involved in specifying installation protocols, certification, criteria, and things like that.

And through that, we also have fine-tuned our product definition. And at this point, we have released pretty much the full suite of products. So, in a way, our assumption on timing worked very well. Had the 5G started deploying a year ago, we would have very thin instrument portfolio.

Today, I'd say we have pretty much rounded off all the corners and I think we have products that are better than the incumbents' products in that space. So, we do believe that that should result in US picking up some share and carving out a chunk of the market for ourselves..

Great. Thank you very much for your answers..

Sure. Thanks Alex..

Thank you. Next up is John Marchetti from Stifel. Your line is open..

Thanks very much. Oleg, I just wanted to talk a little bit on the OSP business looking forward. You went through on the Anti-Counterfeiting side, how you expect that to kind of play out over the next 12 months or so.

And looking at the 3d Sensing, filter, and diffuser business, I'm just curious to get your updated timing, as you think maybe Android starts to get a little bit more involved here as we go through the calendar year? And if there's any concerns around some of the notch changes that are rumored to happen with some of the new phones and things like that? Just to get your sense maybe of that 3d Sensing business would be helpful within that OSP business as well?.

Okay, yes, no, it's a good question. So, of course, I say notch, no notch, really, no matter -- we really don't care whether there's a notch or no notch. I mean, we know which modules were in and it's all within our guidance. So, it's just a different way of designing things. And I'm not going to further opine on that.

There's a lot of what I've seen in the news, not entirely accurate understanding of what different things mean. The way I was going to make it easier, there's a world facing and rear facing, rear facing is a high resolution kind of facial recognition security world facing is more camera related.

And I do expect that the market is a technology innovator in that space will see more world facing cameras on more phones, as well as having ubiquitous facial recognition, as well. So that business will continue to grow with their market share and the continuous adoption of 3D Sensing technologies.

What I think could be an exciting upside to the whole forecast is the Android, because we are seeing a much more animation around a 3D Sensing for the world facing camera from various Android OEMs. And depending on which modules in which models go into production, we're going to see a combination of diffusers and filters playing into that space.

And I mean, we do we do believe that the having a world facing camera on higher end phones is now must have to kind of tie the camera performance. And we do -- I do think the Android, after several false starts, is about to start adopting 3D Sensing..

Got it.

And then if I can just also go back to your comment on O-RAN looking out, you know, as maybe a next leg of investment within that wireless lab, you know, I guess where are we in that cycle from a test perspective? Is it still early days? Are you seeing widespread in interest? Is it maybe more geographically concentrated in one area and other any color you can just sort of share on that O-RAN side would be appreciated as well? Thanks..

Sure. Sure. I mean, it's a very early stages. So, operators, I mean, you can talk all you want, right now they need 5G working. So they're tailoring for the initial deployment to the respective names. Just put whatever you want, I don't care if its proprietary solution, I'm just getting something that works in parallel in their labs.

They're all looking deeper at the O-RAN as a kind of the next thing for themselves. And on top of it, or even leading names are aggressively ensuring that they are O-RAN compliant down the road. And what also O-RAN brings, it brings a lot of new players into the market. So it's no longer just a stock three, four names.

Now you have about a dozen smaller companies, who are all looking to play at various horizontal or vertical layers of the network. And they're all buying labs. And so at this point, I would say O-RAN is heavily a lab and experimentation and kind of what if kind of thing focused activity.

And in terms of the actual deployment, it just gives me something to the works, and I don't care how you make it work. So that's, I hope that gives you a bit more color how we see O-RAN happening..

It does. Thanks so much, Oleg..

All right..

Thank you. And your next question comes from the line of Mehdi Hosseini from Susquehanna. Your line is open..

Thank you. Two follow-ups. Oleg, can you please help me understand how much the strength in your 3D Sensing is driven by the new models, especially the US OEM that introduced and appears to be successful? And how much of your success is driven by increased content? So, a smartphone units versus increased content for you? And I have a follow-up..

So, I think clearly the market leader is driving home stole of our 3D Sensing business. And I mean, there's really been no change to the -- what we've seen, there's a couple things that, first of all, I think, you guys can make your own assessment on their market share, we believe that they've picked up some market share.

So as a result, we are now talking about higher volume of phones, then within those phones, I think almost universally, now everything has rear facing camera for facial recognition. And it's pretty proliferating into other products like tablets and PCs. And then, of course, the world facing camera on the higher end models really got a lot of interest.

So I think it probably came in stronger than we would have expected. So I think if we take all of these things, three things together, I would say the bigger driver in terms of the increased volume is just surely more volume. And the second biggest one is the introduction of world facing cameras.

And between the two of that, of those, it's more than enough to offset any ASP erosion..

Okay.

But would you agree that you have higher content and not -- to me seems like you may have two different filters or products versus one in the past?.

Yes. So, in the phone that has both world facing and rear facing camera, our content is greater. It's a little different. So I just, I mean, people, let me just give you a little clarification. When people think about lasers, the world facing laser is actually higher power than the rear facing laser. And in some cases may be more expensive.

For us, that's not how we look at it, we look at it by the sensor area. And the world of facing camera sensor is much smaller. It's the lower resolution than the rear facing, which is a facial recognition sensor. So in terms of the ASP, the ASP is for the world facing cameras are much smaller.

And the APSs are for the rear facing cameras are bigger because the area is bigger. But the mere fact that before we had zero, world facing filters, and now we have some and it's growing, that's obviously driving upside..

I see..

I would say, good rule of thumb is two to one in terms of content. So you think about the total area, it's one and a half..

Sure. Now, the NSE part of your business seems to be more clear today than three, six months ago, at some point is going to turn and you have new products that hopefully will scale.

So I want to stay focus on OSP, is interesting that recently one of the key suppliers in 3D Sensing, they made a bold acquisition of getting into lasers, which was very surprising to me, to me, LiDAR suddenly has become a huge growth driver in that context, would you actually shift your focus if six months ago you were looking into M&As for NSE application, now you're looking more in strengthening your portfolio with the eyes on LiDAR as an end market application? Am I thinking about this the right way?.

We'll look at acquisitions for both OSP and NSE. We're not really -- we have a clear roadmap 0and strategy for each. I think the -- you're talking about momentum, I think my view on it is, it's more of a diversification play for them, add industrial and kind of the industrial laser processing and things like that.

So, I mean, they have their own strategy for that. And I don't know, I know, even from the days of JDS, they were always looking at Fiber Lasers for industrial applications. So I think -- I think it's a good deal for them longer term will make them a more diversified, more resilient company, not depending on any one particular model of the phone.

So, I think that -- that was a good opportunity for them. And I think, it works out quite well. For us, while we're looking is we're looking combination of both, I think going deeper still makes more sense for us.

It gives us much bigger leverage in any kind of acquisition, going wider is probably a bit too premature for us, as we need to continue to drive scale in our existing markets..

Just a quick follow-up, given the changes in the market, would you -- would you say the priority in -- in optical Sensing now seems to be higher than NSE in the context of M&A opportunities?.

I would say higher or lower, I mean, they both are priorities. We have our kind of target list and each business and it's really a matter of which one becomes more actionable sooner or later. And in both cases, we get tremendous operating leverage.

So it's, I mean, we are -- we're equally we don't need to choose either, or we can do and here, it's really comes down to more worthy actionability. Now, the only difference is in optical space, there's a very handful of companies and most of them are fairly small in that respect, they don't really move the needle.

So -- and in case of NSE, there are some bigger players, as well. So, I mean, we do look at the area around LiDAR. I mean, that's a very interesting part for us..

Okay. Thank you..

Sure. Thanks..

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

Hi. Thanks for taking my questions. I think, I'll follow-up on the any business specifically in 5G field test Oleg you’ve talked about some confidence in seeing second half of your calendar year being robust.

How would you just describe the kind of inputs to that? What geographically and then how long you kind of see this cycle for 5G field test lasting?.

Well, I think, really the 5G field test, I think it's going to be a super-cycle kind of seven, eight-year run. Initially, you're going to have an initial deployment, followed by densification. And then more and more geometry -- geographies are going to roll out. It's similar to what we saw with the 3G and things like that.

So how aggressively things starts, I think it's already happening in countries like Japan, and we are seeing some pretty good traction. And even though we are in the home turf of our one of our major competitors, we are doing pretty well in that market, which gives me confidence that our products are quite good.

In terms of the US, I think, US will be the next thing. I mean, clearly there's China, and that's already been going on for quite a while. In terms of the next big deployment markets will be US. And in US, we have an interesting situation of three players now buying for the 5G crown.

That's why I think we will probably see things happening sooner rather than later, because there's now a competition.

It's no longer a duopoly with two major players kind of moving at a kind of wink-wink, nod-nod type pace, where they take their time right now, there's with three players it's very difficult to sustain a collusion or anything like that. So I think things are going to happen much quicker in US, maybe starting sometime next year -- later this year.

I think that the next one would be Europe and I think Europe is really about a year behind U.S. in so some deployments. And we probably should start seeing some things happening in Europe sometime next year..

Okay. Great for that color. Oleg, my follow on question is in your fiber business units, you’ve talked, I think for at least a couple quarters about a fairly robust cycle at 400-gig.

If you can give us a sense of when that turns into -- it turns into a robust cycle in terms of fiber? And then how do you see the 400-gig generation versus the last two generations as at least as positive or even better? How do you view them?.

Well, I think the -- if anything I see, like, we went from one-gig to 10-gig, 10-gig to 100-gig. What I would have seen with each one is duration, the amount of time between the start of deployment of one and start a deployment of another technology note, that time has been getting shorter and shorter.

I mean, we only want to a 100-gig in earnest couple years ago, and now we're already seeing 400-gig and we’re already now are customers want to see an 800-gig. So it's -- I think the fiber is really, from my perspective, I think the time will reach no deployment is shortening. And we may see multiple technologies co-exist.

I mean, we may see data centers moving to higher bit rates sooner and metro areas kind of transitioning from 10-gig to 100-gig slower, but we'll be seeing all these nodes co-existing in parallel rather than with one ramping up, the other one ramping down. And it just completely new customer segments. It's no longer the traditional telecom transport.

I mean, we see the backplane of all the data center boxes is becoming optical and that's really driving a lot of the fiber demand..

Okay, great. That's a great perspective also. All right. Thanks. Thanks for that..

Sure..

Next up, we have Tim Savageaux from Northland Capital. Your line is open..

Hi. Good afternoon, and congrats on the results. A couple of questions here. First, over on the OSP side or 3D Sensing in particular, you'd mentioned and we've heard a little bit of this before today about an increasing level of activity around world facing in the android universe. And you'd also mentioned that that is a potential source of upside.

And I think your android contribution to 3D Sensing today, it has been pretty, pretty low, if not minimal.

And so my question is basically an upside to what baseline when you say that, which is to share with a robust android rollout in the second half of calendar 2021, your fiscal 2022 drive the same sort of double-digit growth you're seeing in 3D Sensing next year, even with say your top customer sort of flattish?.

Yes. So I would make a little correction. Actually, our contribution to android universe in 3D Sensing has been huge. It's just universe has been fiddly. And it's kind of started and it just fizzled away. So in that respect to the android market just didn't happen. But we've been engaged with all the major players.

And I think, this time around, I think later this year, we are going to see android as mainly world facing cameras. And for us, it's a double opportunity. It's not only filters, it's also diffusers, so depending which models go into production, and which modules get designed in we will get either one or two of our products designed in.

And given that Android is so big and if enough players, if they introduced into more than one high-end models, we can see that volume to be quite meaningful..

Got it. And I was mentioning your revenue contribution, not your technology contribution..

Our contribution is big and it comes from a very small base. But yes, I mean, this is -- I think, this is I think android is going to happen this year. And I mean, otherwise, they will really lose out big on customer acceptance. So I think, I mean, we don't -- we haven't put any of it in our forecast. I mean, we still treating it as a -- an upside.

So we clearly as it, if it will probably start seeing over the next three to four months as customers start placing orders, how many models and how many modules will go into production..

Got it.

And just a quick one on OSP, just want to make sure I heard the number right, the kind of baseline currency run rate, you're looking at $65 million a quarter?.

No, we said in terms of the -- we always say our kind of base business it run on $50 million. And we’d say -- I'd say $55 million to maybe $60 million. So I'd say, higher 50s type range..

Got it. Thanks. And last one for me.

To the extent that you saw strength in some of your traditional fiber cable field tests here in the December quarters, I mean, to what extent, is it possible to characterize that versus pent up demand releasing? Or would that be the same as a more traditional budget flash? And as you look for the -- to the declines in March, do you see that as being principally seasonal in nature or any other drivers there?.

Actually, it's all driven, what I call it the best kind of demand, a lot of customers are seeing significant increase on a bandwidth for consumer bandwidth, and increased demand for quality of the network.

I mean, for example, I'm doing my call from the office, because I cannot rely on my local cable provider for not shut me off during the day, during my call. So I think what we're seeing is actually response by cable companies and telecom companies to kind of consumers demanding more bandwidth and higher quality of service.

And that's to me is the best kind of demand you can have, because it manifests itself into a longer-term investment with a more sustainable demand over multiple quarters. So it took them several quarters to figure out what needs to be done. I mean, I think many of them are still redesigning their networks, and they're starting to roll it out.

And I think the next wave will be, I won't say a wave, but kind of an incremental spent in the US this whole rural broadband, we're seeing already a lot of customers starting to plan and compete for the government money for these projects. And that would be also an additional spend down the road for us..

Great. Thanks very much..

Sure..

Thank you. And your next question comes from Meta Marshall from Morgan Stanley. Your line is open..

Great. Thanks.

Maybe expanding on the 3D Sensing opportunity, it's been a while to kind of talk about how you were thinking about timing of the auto opportunity, and just with your supply chain partner seeming to think that in terms of maybe 2022 just wanted to get your latest thoughts? And then maybe as a second question, Europe was relatively strong, despite maybe stricter accessibility issues in Europe than in North America in Q4, just anything to read into that pick up that we saw in Q4 out of Europe.

Thanks..

So, I'll say out of 3D. I think listen, we always said, the actual like LiDAR and the kind of autonomous driving or assisted driving, that will take longer, it's really not a function of lasers or filters. It's really the area around the whole cost miniature -- minimization and miniaturization that's needs to take place.

And I mean, today, we are pretty much working with every LiDAR company out there. And I think 90% of them will be out of business or will get acquired in the next few years. And we still view our automotive as a 23, 24 opportunity at the earliest for that.

However, there are segments for 3D Sensing already in auto that are being active today, mainly the high-end, which is the gesture recognition in-cabin monitoring and things like that. And we have a pretty good share in that market.

It's not a big market, it's very much limited to high-end market, but it's getting giving us engagement with the customers and positions are some of the kind of go to company for 3D Sensing in automotive. So that's how I see automotive to us. It's really more I'd say longer term play for us.

And steel, I'd say consumer devices and industrial 3D vision is our call will be near term drivers of the growth and business for us. In terms of Europe, actually, the whole EMEA region has been very robust for us even during the worst downturn during the pandemic and it continues to be very strong and it continues to growth.

So, we've seen very strong demand and growth in Europe. And a lot of fiber initiatives going on in Europe with the mandates from governments to roll out fiber to practically every household in Europe. And Europe, as you know, is very different from US.

We have cable pretty much connection, almost every house in North America in Europe has predominantly been DSL, and the DSL has run out of steam in terms of delivering broadband. So we're seeing wholesale, I'll say call it fabrication in Europe with fiber being pushed out over the network with a lot of national push behind it..

Great, thanks..

Sure..

Thank you. Our last question comes from the line of Fahad Najam from MKM Partners. Your line is open. Once again, on your next question. And your final question comes from the lineup Fahad Najam from MKM Partners. Your line is open..

Thank you. Thanks for taking my question. Most of my questions have been answered.

But Oleg, if I could ask you to help us understand a little bit about more of your opportunity in 5G, maybe if you can peel this onion a little bit more, at least from what I understand there's two aspects of the opportunity one is on the RF side and the other is on the fiber optics, the PONs, given all these different spectrums that are going to be coming online carriers are especially looking at WDM office or densifying PON so to speak to the front haul carry the radio traffic.

Can you speak to us where you are in terms of the opportunity you're seeing? Is it more of the optical side? Or do you think the optical side follows the RF side, maybe a little bit of the dynamics there if you can help us understand the opportunity and how you see this dynamic play out in the optical and the RF?.

Sure. It's a very -- you bring up very good point. And in fact, we're seeing fiber and RF converging. Because you cannot talk about RF without talking about fiber and wireless network and vice versa, because everything in the wireless infrastructure is interconnected today with fiber.

So, you need to test your timing, transmission and all these things you have to test fiber as well as the RF, right. So what we feel is we have a unique opportunity here is all our instruments come with two in one, we have an RF instrument and fiber in a single box.

So you only need to bring one instrument to do all of everything that you need to do in the market -- in the field installation or qualification. But in terms of what we're seeing is in terms of 5G, so clearly, the Phase 1 for us was really winning big with NANDs in the lab and engineering development.

And it's going to continue as the new 5G standards are rolled out and new instant instantiation. The next big wave for us will be really the field deployment, so which plays to our traditional strength and field instrumentation. We see that the growth. And the next one after that is what I would call O-RAN.

And it's combination of traditional players like NANDs and service providers, but also a lot of the new entrants into the markets who are coming in offering service or particular parts of the network. And they're buying our products to help them to be compliant and testing.

And the -- in the same, I would say the other big element I think emerging in there for 5G is the private 5G networks.

Because I think in many cases, 5G and the enterprise network is going to become synonymous, as more and more companies view 5G as their effectively their enterprise network and that's a completely new market for us that where we haven't really played -- we haven't played in enterprise networks.

And hasn't large enterprises start deploying 5G for their private purposes. It plays very well to our toolkit across the entire RV. So it's the test equipment, simulation equipment, monitoring equipment, as well as the assurance software that goes into the enterprise network.

So, I look at 5G and it's not any one technology, there's a lot of opportunities. It's really a where we focus on is where do you want to put more money first, second, third, and how these things are going to rollout, but the number of opportunities in 5G is huge for us..

Thank you.

And then, if I should ask you a question on the optical side, maybe if you can share with us some data points as to where you're seeing the ship of 800-GIG in higher speeds? Is that beginning to become an increasing portion of your rev mix? And how should we be thinking about the implications for your module from that?.

Correct. So, the 800-GIG today is very much a bleeding edge of development. And it's very much an engineering lab demand. So it's the leading optical equipment NANDs. And they are suppliers for various optical modules, that's who is playing -- and the semiconductor company. That's who is really doing 800 GIGs.

So, to us 800-GIG today is really the kind of advanced development. And I think we will probably start seeing next year 800 gig being rolled out into the field with some early adopters..

Thank you very much. And lastly, if I could, one of the large chip makers Broadcom talked about milling the Co-packaged optics chips in 2022.

So does the ship Co-packaged objects create an incremental revenue opportunity for you with the customers?.

Sure. I mean, that's actually, you know, as semiconductor companies kind of trying to do more vertical integration with the Co-packaging optics and things like that. I mean, they start buying the same equipment that the module manufacturers and they used to do or the NAND that were.

So it's actually semiconductor business for us is, I mean, a very active space in selling high-end optical testing systems..

Thank you very much. Appreciate your answers..

Sure. Thanks..

Thank you. There are no further question at this time. I will turn the call over back to Bill for any closing remarks..

Thank you, great. This concludes our earnings call for today. Thank you everyone..

Ladies and gentlemen, this concludes today's conference call. Thanks all for joining, you may now all disconnect..