Q2 2024 Coherent Corp Earnings Call
Participants
Christopher Dorman; EVP of Lasers Business; Coherent Corp.
Giovanni Barbarossa; President of Materials Segment & Chief Strategy Officer; Coherent Corp.
Julie Sheridan Eng; CTO; Coherent Corp.
Magnus Bengtsson; Chief Commercial Officer; Coherent Corp.
Paul Jonas Silverstein; VP of IR; Coherent Corp.
Richard J. Martucci; Interim CFO & Treasurer; Coherent Corp.
Sanjai Parthasarathi; CMO; Coherent Corp.
Sohail A. Khan; EVP of Silicon Carbide LLC; Coherent Corp.
Vincent D. Mattera; Board Chair & CEO; Coherent Corp.
Walter Robert Bashaw; President; Coherent Corp.
Ananda Prosad Baruah; MD; Loop Capital Markets LLC, Research Division
Blake Edward Friedman; Research Analyst; BofA Securities, Research Division
Christopher Adam Jackson Rolland; Senior Analyst; Susquehanna Financial Group, LLLP, Research Division
James Andrew Ricchiuti; Senior Analyst; Needham & Company, LLC, Research Division
Jonathan Dorsheimer; Group Head of New Energy and Sustainability Vertical & Equity Research Analyst; William Blair & Company L.L.C., Research Division
Karl Ackerman; Research Analyst; BNP Paribas Exane, Research Division
Ku Kang; Senior Research Analyst of Optical Components; B. Riley Securities, Inc., Research Division
Mark S. Miller; Senior Equity Analyst; The Benchmark Company, LLC, Research Division
Meta A. Marshall; VP; Morgan Stanley, Research Division
Michael Edward Genovese; Senior Comm and Cloud Infrastructure Analyst; Rosenblatt Securities Inc., Research Division
Richard Cutts Shannon; Senior Research Analyst; Craig-Hallum Capital Group LLC, Research Division
Ruben Roy; MD & Equity Research Analyst; Stifel, Nicolaus & Company, Incorporated, Research Division
Samik Chatterjee; Analyst; JPMorgan Chase & Co, Research Division
Simon Matthew Leopold; Research Analyst; Raymond James & Associates, Inc., Research Division
Timothy Paul Savageaux; MD & Senior Research Analyst; Northland Capital Markets, Research Division
Presentation
Operator
Good day, and thank you for standing by. Welcome to the Coherent Corp. Fiscal Year 2024 Second Quarter Earnings Conference. (Operator Instructions) Please be advised that today's conference being recorded.
I would now like to hand the conference over to the Vice President of Investor Relations for Coherent Corp, Paul Silverstein.
Paul Jonas Silverstein
Thank you, Carmen, and good morning, everyone. Thank you for joining our second quarter fiscal 2024 earnings call. The call will be available for webcast replay on the Investor Relations section of our website. On the call, we have Coherent's Chair and CEO, Dr. Chuck Mattera, and a number of coherent senior leaders who Chuck will introduce shortly. This morning, we will devote the majority of our time to answer your questions from analysts and the investment community.
Yesterday, after market close, we issued a press release, posted a shareholder letter and updated investor presentation to the Investor Relations section of our website and furnished these documents in a Form 8-K. This morning, we filed our 10-Q. The shareholder letter contains the financial statements historically included in our earnings press releases and detailed information regarding our operating performance, key trends and outlook.
Before we begin, a short statement about forward-looking statements. We may make and/or refer to forward-looking statements, including statements about future performance and market outlook. Actual results may differ from those in the forward-looking statements. The shareholder letter and our SEC reports set forth risk factors that could cause actual results to differ materially. We assume no obligation to update forward-looking statements, which speak only as of their respective dates. During this call, we may discuss both GAAP and non-GAAP financial measures. If we do, a reconciliation of GAAP to non-GAAP measures is included in the shareholder letter. If we present historical non-GAAP financial measures, we will limit our discussion to those that are reconciled in the shareholder letter.
Before I turn the call over to Chuck for his opening remarks, please note that on March 26 at the Optical Fiber Conference, or OFC, in San Diego, we plan to host a meeting with the investment industry, which will be webcast, during which we will provide an update regarding our communications market. And in April of this year, we plan to host our third market overview webinar. It will be focused on our instrumentation market. The first 2 market webinars focused on our communications and industrial markets are available on the Investor Relations section of our website.
With that, it is my pleasure to turn the call over to Coherent's Chair and CEO, Dr. Chuck Mattera.
Vincent D. Mattera
Thank you, Paul. It's a great day here in Silicon Valley, close to most of our largest customers. As I've said before, leadership development is among the CEO's most important responsibilities. Given the shareholder letters extensive disclosures, I have asked the following senior leaders who participate in the Q&A fireside on today's call: Rich Martucci, Interim Chief Financial Officer; Bob Bashaw, President; Dr. Giovanni Barbarossa, Chief Strategy Officer and President Materials segment; Sohail Khan, Executive Vice President Silicon Carbide LLC, our newly created subsidiary for our silicon carbide business; Dr. Chris Dorman, Executive Vice President Lasers, who came to us through the Coherent acquisition; Magnus Bengtsson, Chief Commercial Officer who leads our global sales and service organization and who also came to us through the Coherent acquisition; Dr. Sanjai Parthasarathi, Chief Marketing Officer; and Dr. Julie Eng, Chief Technology Officer.
As being among the industry's best, they will provide investors a rich source of information about the depth and breadth of our markets, technologies, operations and overall business.
We emerged from the second quarter with greater confidence and excitement regarding a return to stronger growth and meaningfully enhanced profitability. For the quarter, we delivered solid sequential improvement in revenue and margins. The highlights of our second quarter include: healthy sequential increases in both gross and operating margin, ongoing AI-driven strength in the datacom vertical of our communications market, signs of improving demand in all four verticals within our industrial market, and the telecom vertical of our communications market for the confirmation of the previously announced transactions with Mitsubishi Electric and DENSO Corporation, in which they invested in aggregate of $1 billion in our silicon carbide business and entered into long-term supply agreements supporting demand for silicon carbide substrates and epitaxial wafers; and five an increase in our planned debt repayment in fiscal 2024 and resulting from the Silicon Carbide LLC being able to fund its own operating and capital expenditures.
While we expect that the higher revenue and the mix in our forecast will contribute to a rebound in margin structure, we are not waiting for improved end market demand to carry us. We've already implemented actions across virtually all of our businesses in a drive for enhanced operating efficiency. These actions, along with rigorous cost and expense control across the company, helped drive our sequential improvement in gross and operating margin in the second quarter. We are on a roll, but we're far from done. As we continue to transform the company to improve operating performance, we will optimize our production footprint and enhance operating resiliency while completing the integration of legacy Coherent. We also are exploring other strategic opportunities, not including material acquisitions to unlock shareholder value.
Now for some numbers. While the macroeconomic environment continues to present challenges, we are pleased with our operating results for the quarter. We posted revenue of $1.131 billion, which was above the midpoint of our guidance, and non-GAAP EPS of $0.36, which was above the high end of our guidance. Operating cash flow was $67 million. We invested $91 million in capital equipment and we retired $89 million of debt. In addition to continuing to invest in our core assets, we are taking substantive actions to ensure we improve our resiliency and operating performance, especially to drive improvement in our margin structure, including through global integration and transformation and the realization of our synergy plan from the legacy Coherent acquisition as well as our previously announced restructuring and consolidation plan.
Our guidance for the third quarter of fiscal 2024 is as follows: revenue of approximately $1.12 billion to $1.20 billion, non-GAAP earnings per share of approximately $0.32 to $0.52. And our updated guidance for fiscal 2024 is revenue of $4.55 billion to $4.70 billion, which represents a $50 million increase at the low end of our previous guidance. Non-GAAP earnings per share of $1.30 to $1.70, which is up from $1 to $1.50 previously.
Before we take your questions, I would like to say how appreciative and how proud I am of the senior leaders on this call and all of our other employees who started with dedication for setting the stage for what's now, next and beyond. Coherent is well positioned with differentiated technology, exceptional talent and high-quality efficient manufacturing platforms capable of delivering products to markets that are rapidly growing.
And I believe we are better positioned than others to take full advantage of our existing market positions and to penetrate deeper into these markets, largely because of the intimacy, trust and partnerships we have cultivated with market leaders and our increased scale, creating stability in our core business and creating a flywheel effect of other growth opportunities that many of our competitors simply don't have.
In the upcoming years, we have tremendous upside potential and platform cost optimization attributable to the ongoing legacy Coherent integration, special restructuring and transformation projects that we've announced. We expect success given our proven track record and have a strong plan and road map in place, which will allow us to capitalize on the recovery and growth in our markets and of the broader market opportunities. We are endowed with a team of world-class technologists, industry pioneers and executives with a demonstrated capability for identifying and capitalizing on market megatrends.
With that, I'll turn it over to Paul. Paul?
Paul Jonas Silverstein
Thank you, Chuck. We will now open the call for analyst questions. (Operator Instructions) This call is scheduled for an hour. With that, Carmen?
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from Samik Chatterjee with JPMorgan.
Samik Chatterjee
Congrats to the entire team there on the strong execution. Maybe just because it's one question, if I keep to datacom. In the shareholder letter, you referred to a number of new significant AI-related customers that you have engagements with. If you can give us a bit more insight about the nature of those customers, the magnitude potentially of those engagements can turn into if you were to win those awards relative to the existing orders that you have.
And then just a quick clarification. You did have 100% sequential growth in datacom, 800-gig revenue on capacity ramp, is that roughly where we should expect sort of capacity to linearly expand from here on?
Vincent D. Mattera
Samik, thanks for your question. Sanjai?
Sanjai Parthasarathi
Sure. Thanks for your question, Samik. So with any large-scale deployment of new technology, the few hyperscalers drive it, and now we are seeing that to extend more broadly. We're also engaged with new MEMs as well as up and down the entire ecosystem. So we have a very broad group of customers that's continuing to grow in terms of engagements. Did that answer your question?
Samik Chatterjee
Yes. Anything on the capacity ramp, Sanjai?
Sanjai Parthasarathi
So in the capacity ramp, we did say in the shareholder letter that we grew 100%. That's basically our 800G shipments, 100% quarter-over-quarter. In our ramp-up plans, we hit the quarterly -- we crossed the quarterly run rate of $100 million. And we also said that in fiscal '24, Samik, that over 50% of our datacom transceivers revenues will be from AI-related applications. So we are really excited with the ramp and the growth of the market.
Vincent D. Mattera
And I'm expecting the third quarter will be greater than the second quarter and the fourth greater than the third, Samik. If that gives you any indication.
Operator
Comes from the line of Ruben Roy with Stifel.
Ruben Roy
Congrats to the team. A follow-up for my one question on networking as well. Chuck, just trying to understand the commentary around the supply constraints. It sounds like they improved, lead times are shortening. Would you say your -- the majority of the supply chain constraints are behind now, and it's a question of shipping to demand? Or are there still some components that are out there that are in short supply? Is that kind of a limiting factor to the rest of the year on your AI transceiver shipments?
Vincent D. Mattera
Okay. Thanks a lot, Ruben. Ruben, as you know, anytime you go through such a steep ramp, what's lying in front of you with regard to constraints is what you're trying to get out in front of. So if you look in the rearview mirror, the constraints have surely eased and moderated.
But when you see the size of the ramp that we're going up, we have to manage a number of constraints. The first constraint, then the second and third, we have to anticipate them. We have to get our agreements with suppliers in place. And we're looking beyond FY '24. This is a super, super exciting and super-hot market. So we're in the process of looking out well into FY '25 to be sure that our supply chain can keep up with us. I hope that answers your question, Ruben.
Operator
And it comes from the line of Meta Marshall with Morgan Stanley.
Meta A. Marshall
Great. A couple of questions. Just one, just what are you seeing on inventory of under kind of this 800 gig or AI transceivers, and just when you expect some of the demand for that business to come back? And then just on top of that, a couple of quarters ago, you had noted that you had a couple of hundred million of orders that if you ramp capacity, you expected to be able to fulfill during this fiscal year.
Obviously, you guys are ramping a little bit faster than expected just in terms of that kind of couple of hundred million that you outlined earlier in the year. Just how do you feel like you're going to be able to meet or exceed kind of those excess demand?
Vincent D. Mattera
Thanks, Meta. Thanks for your interest. Sanjai?
Sanjai Parthasarathi
Yes. Thanks for your question, Meta. So our -- so we just said in our shareholder letter that we shipped over 100 million in 800G transceivers last quarter. It was much smaller the previous quarter, it grew almost 100% quarter-over-quarter. And then we also said, Meta, that in fiscal '24, 50% of our datacom transceiver revenues will be from AI-related applications. So we are projecting a very strong growth in our 800G shipments. We are on a ramp-up, as Chuck referred to earlier. Hopefully, that answered your question.
Meta A. Marshall
I guess -- but just in terms of what are you seeing in terms of inventory clearing on the kind of sub-800 gig versus 800 gig -- I mean, I understand the 800-gig commentary, but what are we seeing just in terms of any other demand on the remainder of the business?
Sanjai Parthasarathi
Okay. So we haven't factored in any huge rebound in the non-AI business in datacom. And that's one of the -- but most of the growth is in 800G. Pretty much all of the growth is in 800G. And that's why we said over 50% of our fiscal '24, our revenues will be from AI and related 800G products.
Operator
And it comes from the line of Simon Leopold with Raymond James.
Simon Matthew Leopold
I wanted to as well talk about what's happening in 800-gig data center transceivers. And I'm looking for your thoughts on how you can compete in this market. And I'm struggling candidly because it seems like demand is great, which should be margin-favorable, but some of your competitors probably are willing to take lower margins. And so that might pressure profitability. Could you help us understand how you're thinking about that?
Vincent D. Mattera
Thanks, Simon. Giovanni, would you like to give....
Giovanni Barbarossa
Simon, thanks for the question. Well, as a reminder, we are the most vertically integrated player in the space. So we heard, for example, people talking about shortage of pixels. well, guess what, we have the largest pixels supply in the world by far, so including obviously our competitors. So we have a very good kind of control of the supply line for mostly the components other than ICs. And we have our own manufacturing.
We have pretty much the most complete laser offering in the space, both 100 and 200G as we announced in the past. So we think that will be very, very powerful, not only to remain competitive with performance standpoint and a road map standpoint, which are very strategic to our hyperscale customers and the like, but also from a cost structure standpoint. We think that we will have always the best margin profile versus those that have to pretty much buy everything from the merchant market. So we are very active in many of these technologies that will be an advantage from a profitability standpoint.
Vincent D. Mattera
I would add, Simon -- thank you, Giovanni. I would add, Simon, that we have a full portfolio of products that we're making for today and developing for tomorrow. Those are going to be even more exciting than the ones we're making today. And for us, having full control, as Giovanni just described, our focus is on time to market, time to volume and time to profitability. And that's where it needs to stay. We have a track record. It is a competitive market, that's for sure. We're intending to compete.
Operator
Comes from the line of Jed Dorsheimer with William Blair.
Jonathan Dorsheimer
Most questions seem to be on datacom so I'll be different in just, I guess, two-part question. Maybe just an update on the -- I saw -- I think it's maybe the first time that I've seen you kind of highlight or call out. But on the MicroLED, could you just talk about the products of Coherent there that you're offering? And then on silicon carbide, there's been some cross currents of data points in the market. I'm just wondering if you might be able to update on -- so what you're seeing from the customer base there?
Vincent D. Mattera
Jed, thanks for your two questions. Chris will go first and then Sohail. Chris?
Christopher Dorman
Yes. Thanks, Chuck. Yes. So we spoke about the MicroLED developments that we have in previous quarters and about the multiple orders we received from China, Taiwan and Korea for the tools for a process called Laser-Induced Forward Transfer, which is where you take the currently 10-micron moving towards 5-micron MicroLEDs from the wafer to the display.
So we're seeing increasing customer engagement and are very excited about the impact of MicroLEDs on the television market. And this is a very high level of engagement now and a market that will be growing over the next 3 to 5 years.
Vincent D. Mattera
Thank you, Chris. Sohail?
Sohail A. Khan
Hello. Can you hear me?
Vincent D. Mattera
Yes.
Sohail A. Khan
Thanks for your question. We are quite bullish about the silicon carbide market and the growth prospects over the next 5 to 10 years. And based upon that, we are sticking with our plan, which is driven from the customer engagement as well as long-term supply agreement which we had in place. The announcement with Mitsubishi and DENSO have strengthened our position, and we are seeing more engagements and specially lot of interest from both existing and new customers for 200-millimeter. So we are going to stick to our plan of the investment and expansion, and we will continue to see the growth of our business quarter-over-quarter and year-over-year.
Operator
It comes from the line of Richard Shannon with Craig-Hallum Capital Group.
Richard Cutts Shannon
Maybe I'll ask a financial one here. It seems like after a couple of quarters of OpEx being flat to down, or I guess, a little bit more down on a pro forma basis, it seems like you're implying it growing here at a fairly steady rate here, which seems to be anathetical to the synergy and restructuring plan, I think, you announced 1 or 2 quarters ago. Can you help us understand why that is, why it might seem to be growing at a decent rate after bottoming out here?
Vincent D. Mattera
Thanks a lot Richard. Rich will take it.
Richard J. Martucci
So yes, as you pointed out, our synergy plans and cost reduction has kept our expenses down in the OpEx. The big thing that you see in the ramp-up as we go forward in the guidance really is around R&D, around our AI product as well as other initiatives that we have in place. So that's really the increases coming from the R&D. We've done a really good job in our SG&A expenses.
Vincent D. Mattera
Look, those R&D investments in the second half of the year, Richard, are aimed for FY '25 and beyond on the basis of new information that we've received in the last 1 or 2 quarters from our customers for great clarity.
Richard Cutts Shannon
Chuck, any way you'd want to characterize where those investments might sit, like by your segments or end markets or anything like that?
Vincent D. Mattera
In those markets that are growing, are growing extremely quickly, starting with AI, Richard. Everything starts with that.
Operator
One moment for our next question. It comes from Karl Ackerman with BNP Paribas.
Karl Ackerman
As you indicated earlier on this call, VCSEL supply is critical right now on the ramp of both 800-gig and 1.6T transceivers. How has your internal capacity supported or helped your design wins for 1.6T, which you indicated will be ramping later on this year? And I guess if you could address that, perhaps you could also discuss the ramp of 1.6T over the next couple of quarters.
Vincent D. Mattera
Karl, thanks for your question. Giovanni will take it. And if there's anything to add, that Julie would like to add, to clarify, she will. Please, Giovanni.
Giovanni Barbarossa
Thanks for the question. I mean, as we said earlier, we have our own facility. Actually, we have 2 facilities, 2 [critical] fabs that are capable of producing datacom. But at this point in time, we're relying on only 1 fab and it's ramping like leaded by our internal customers and of course, our external customers too, which are our competitors.
So as we said earlier, we have -- the advantage of being basically integrated to have a very a good understanding of the needs of the supply required by our -- both internal and external customers. So we have a full control of that. And we have had similar ramps in the past, this is a challenging ramp in terms of the data rate. But nevertheless, I think we are doing a great job in keeping up with the demand both internal and external supplies. So at least we're shipping based on demand. We are not behind even if we still need to go as requested by the forecast. So we are following up with the demand as we see it right now. So we don't see that being a challenge at least for our VCSEL supply.
Vincent D. Mattera
Julie, would like to add regarding Karl's question on 1.6T.
Julie Sheridan Eng
Right. Just to add to what Giovanni said is we also were one of the few in the industry actually that can make these very high speed. It's a unique capability.
Operator
And it's from Vivek Arya with Bank of America Securities.
Blake Edward Friedman
This is Blake Friedman on for Vivek. On gross margin, you provided a useful outline on actions to return to 40%. But can you maybe quantify all the puts and takes ranging from improving utilization, operational efficiencies and new products? And this goes back to a previous question, but on mix, just given the momentum in AI transceivers, are these products at or above the corporate average gross margin today?
Vincent D. Mattera
Blake, thanks. Rich?
Richard J. Martucci
Yes. So a two-part question. The first question is the AI. And I think in the last earnings call, we did mention that it is at the average of the -- corporate average in terms of margin. In terms of our ability to drive margin in the future, obviously, the first thing is volume, that's one. The second is utilization within our fabs, which really 2 of our 6 fabs have really improved in terms of the utilization and also the reliance of our synergy plan, the reliance of our restructuring plan is really going to be utmost of importance in terms of increasing our gross margin going forward.
Operator
It comes from the line of Christopher Rolland with Susquehanna.
Christopher Adam Jackson Rolland
Can you hear me?
Vincent D. Mattera
Yes.
Christopher Adam Jackson Rolland
Great. Congrats on the results. I just had one clarification and one question. First, the clarification. The primary gating issue on AI is 800-gig VCSELs. I just want to make sure whether I got that right or not.
And then secondly, I wanted to talk about telco. So we're seeing more and more kind of weak data points coming out for telco, but it kind of feels like maybe you're going to tell us that could be in the rearview mirror for you guys. So is December the clear bottom there? Are you expecting to kind of grow through the year here? And what -- where can we kind of normalize out on a quarterly run rate for telecom looking forward?
Vincent D. Mattera
Okay, Chris. So Giovanni will clarify your question regarding VCSELs and Magnus will take the telecom question. Giovanni?
Giovanni Barbarossa
Yes. So the -- let me clarify, maybe try to be clear. No, it's not, okay? So we don't have a challenge from a supply standpoint from the VCSEL standpoint. Of course, when you ramp a production of transceiver modules, there's a number of other things that need to happen, including tests, automation of assembly lines, new processes.
And of course, there is also external supply chain, particularly around ICs, that will impact our ability to ramp. So everything is coming together. And based on the demand -- the demand is definitely stronger than what we could supply. We are capacity-limited but not necessarily from a device standpoint, but just as an overall ability to ramp to the volumes that we have been caught by surprise by the -- by our customers in terms of the most recent forecast versus previous forecast.
We are realigned with road maps. We know exactly what the customers are looking for, for next-generation products. And so we will adapt our internal supply chain to keep up with the demand. Currently, we don't have experience -- going back to your first question, we don't experience a challenge from a VCSEL production standpoint. And I want also to recall that we have capacity -- superior capacity for both internal and external suppliers. So we don't -- we can manage that as we need to support our own transceiver business, obviously, as a product.
Vincent D. Mattera
Thanks, Giovanni. Magnus, would you take the telecom question?
Magnus Bengtsson
Chris, so in telecom, we saw growth in the December quarter over the October quarter by about 20%. And if we look out for the balance of the fiscal year, we expect double-digit growth second half over first half. And beyond that, in '25, as the market improves we expect additional growth, both from the market coming back but also a lot of the engagement we have with customers on design wins for new products.
Operator
It comes from the line of Mark Miller with The Benchmark Company.
Mark S. Miller
Congrats on your progress. Just was wondering in terms of new applications for VCSELs in terms of automotive and other applications. What are you looking at over the next 12 months or so?
Vincent D. Mattera
Great, Mark. Julie, will you take that one?
Julie Sheridan Eng
Sure. Sure, yes. So VCSELs in addition to the datacom market, it can be used in the sensing market. Obviously, we're in the sensing world and mobile phone application. And then in addition to that, you can use VCSELs for all kind of other sensing, including in a vehicle, potentially in health applications, so many potential future applications of VCSELs in sensing.
Operator
Comes from the line of Tim Savageaux with Northland Capital Markets.
Timothy Paul Savageaux
Sorry if I might have missed this earlier. But you talked about 800-gig transceiver shipments at about 100 million in the quarter kind of doubling sequentially. Do you have an outlook for where you expect that number to go either in fiscal Q3 or by year-end? And I'll follow up from there.
Vincent D. Mattera
Yes. Okay, Tim. Thanks for your question. Tim, what we said that you may have missed is what I said is I expect our shipments in Q3 to be greater than Q2 and in Q4 greater than Q3. We're on a ramp. It's going up and to the right.
Timothy Paul Savageaux
Okay. Well, if I might maybe follow up on that a little bit. I mean, you're talking about fairly modest sequential growth here for Q3 and growth in telecom. So I guess, are you looking for -- and even if you look at your Q2 results, it seems like the lower speed stuff might have come down pretty good. So you're seeing some offsets there. Is sort of that the dynamic for overall datacom revenue? Or what are the puts and takes as -- or is that ramp slowing a bit, I guess, from the...
Vincent D. Mattera
It really is an insightful question. Meta Marshall had the same question and Sanjai tried to address it. Let's let him take another pass at it.
Sanjai Parthasarathi
Okay. So thanks for the question, Tim. So in terms of the market, the market -- the fastest-growing segment of the market is 800G and above, which is really AI. We just redid our forecast on the market, it's growing at a 65% CAGR in the next 5 years, Tim. So it's a very sharply growing market and we expect -- we aim to grow faster than that market. Now the traditional networking market is certainly not growing at that clip, and we are not really factoring a significant rebound in our non-AI, if you will, market growth or our revenue growth. So a lot of our revenue growth is coming from AI-related applications. Hopefully, that's clear.
Vincent D. Mattera
Thank you, Sanjai.
Operator
And it's from Ananda Baruah with Loop Capital.
Ananda Prosad Baruah
Congrats on the strong execution. Yes, actually, just a follow-up there, Sanjai, clarification. Is that the -- I guess, what is 65% growth over the next 5 years specifically?
Sanjai Parthasarathi
Ananda, it is the growth of 800G and above transceivers, datacom transceivers from calendar '23 to calendar '28. It's at a 65% CAGR.
Ananda Prosad Baruah
Super helpful. And I guess my question is, any way to think about yet the transceiver opportunity for genAI outside of the hyperscale complex? And so specifically, I'm thinking at telcos and on-premise, say, like Fortune 1000 sites. And that's it for me.
Vincent D. Mattera
Okay, Ananda. Julie will take the next one.
Julie Sheridan Eng
Ananda, yes. So the -- obviously, the biggest deployments are the biggest web scale. And as time goes on that spreads out, as you point out, to other smaller entities that could either host services or people may choose to have their services on-premise so that diversified the customer base, similar actually to the Ethernet market. And then -- so the genAI -- I forgot the second part of the question.
Paul Jonas Silverstein
With regard to -- will it spill over to telecom.
Julie Sheridan Eng
Thank you. Yes, eventually, it all spills over to telecom because all the data that's getting generated inside has to go somewhere. So we do believe that, that will impact our telecom revenue in a positive way over time, should impact eventually also non-AI datacom revenue. And then finally, something that might not be so direct of a comparison, but these genAI chips also require the most advanced process nodes, and that's beneficial to our industrial segment for our semi-cap inspection lasers.
Vincent D. Mattera
Ananda, I would add that besides datacom and telecom verticals, we have a semi-cap equipment business, and it's also underpinning the growth in AI by providing new tools, including laser-based tools and engineered material tools to OEMs that have to build the equipment to make the devices. I mean, we have it surrounded.
Operator
And it's from the line of Dave Kang with B. Riley.
Ku Kang
A question is on ARM lasers. Chuck, I think you talked about it in the past that as ARM lasers has an 8-figure opportunity and could reach 9 figures if you successfully penetrate the Chinese market. Just wondering if you can give us an update there.
Vincent D. Mattera
Thanks, Dave. Thanks for asking about one of our other super exciting opportunities. Giovanni?
Giovanni Barbarossa
Yes, Dave, thanks for the question. Yes, we're making a lot of progress. Actually just recently, we learned that the major battery maker in China kind of displaced our competitor laser to replace it with our ones on the production line. So we think it's going to be a huge opportunity for our goal since it's one of the largest battery makers in the world.
So we think in addition to the existing customers they keep ramping production, you see the major advantage of the spatter-free and no-porosity kind of well quality provided by our ARM laser profile, we believe that to grow in the market space. And it's not going to be limited just to batteries for EVs. I think we're seeing application beyond that, not only in the automotive market, but for example, in the semi cap equipment market, we have been engaged recently on working on some advanced lithography tools to provide laser welding for some special alloys parts that are needed by those tools.
Vincent D. Mattera
Dave, we're aiming to drive a paradigm shift when it comes to laser welding.
Operator
And it comes from the line of Jim Ricchiuti with Needham & Company.
James Andrew Ricchiuti
I wonder if you could elaborate on the comment, early on in the shareholder letter that you would consider other strategic opportunities to unlock shareholder value, I'm wondering what that means. Are you suggesting that you might pursue some smaller M&A to maybe expand in some areas that you may not necessarily have the presence you want to have?
Vincent D. Mattera
That's a great question. We're from time to time, asked about it. We are prudent stewards of our capital. And let me ask Bob Bashaw, our President, if he'd like to remark.
Walter Robert Bashaw
Yes, sure. Yes, I'm happy to, Chuck. Yes, as you know, we have been open to all kinds of transactions in the history of the company. And we are both great partners, and as Chuck said, shareholder value is always our driver. So we are actively, like we have been for 51 years, considering lots of alternatives to grow shareholder value. As we indicated in the shareholder letter, these are probably going to be smaller transactions, not material, but that is our focus across all range of potential transactions.
James Andrew Ricchiuti
Is it a case of expanding in some areas that you're underserved? Is that the focus?
Walter Robert Bashaw
Well, for sure. There's -- if you look at all the technologies and the opportunities we have, there are a lot of corners that we can look in for areas to grow. There's also tremendous opportunities to partner. So we have -- we are considering all of those options and have active engagements in those areas.
Operator
And it comes from the line of Mike Genovese with Rosenblatt Securities.
Michael Edward Genovese
And I guess I'll go to beating the dead horse here. When I parse your comments on 800G as a percentage of datacom transceivers this year, I end up somewhere in the range of revenue should be 70% to 150% higher than the $300 million you talked about entering the year. And so with that as the preamble, my two-part question is, are we still looking at 20% of the revenues being in the first half of the year and 80% in the second half of the year like you guys said, last quarter? Or is that sort of -- has that changed a little bit?
And then secondly, just as we look at fiscal '25, should we put Sanjai's CAGR, which I think he said was 65%, if I heard that right? Is that roughly the right way to think about where we start for fiscal '25 growth in that business?
Vincent D. Mattera
Okay. Thank you, Mike. Okay, Sanjai?
Sanjai Parthasarathi
Yes. Thanks, Chuck. So Mike, I think our revenue pattern is pretty much in line with what you stated in terms of our growth rate. Obviously, we are going to -- we are aiming to do even better than that in terms of the second half of the fiscal year. .
Vincent D. Mattera
And I remind you, it is 65% is a 5-year CAGR. So maybe just keep that in mind, Mike.
Michael Edward Genovese
Sorry, but I'm just -- I guess, 20-80 though, is that -- we're still targeting 20-80, that hasn't flattened out a little bit because of the good performance in 2Q? It's still 20-80?
Vincent D. Mattera
It's close to that, maybe a little bit higher than 20 and a little lower than 80, but that's roughly right.
Operator
Thank you. And this concludes the Q&A session. I will turn it back to Paul Silverstein for any final comments.
Paul Jonas Silverstein
Thank you, Carmen. I want to thank all the analysts on the call for their thoughtful questions. And I want to thank all of you on the line for having joined us this morning. We look forward to talking with you in the future. Thank you.
Operator
Thank you, ladies and gentlemen, for joining us today. You may now disconnect.
