Viavi Solutions Q4 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2025

Key Takeaways

  • Positive Sentiment: Q4 net revenue of $290.5 M came in at the high end of guidance, up 2% sequentially and 15.3% year-over-year, with operating margin of 14.4% and EPS of $0.13—both at the high end of estimates.
  • Positive Sentiment: The combined Network & Service Enablement segment delivered $209.1 M in Q4 revenue—above midpoint—up 14.8% YoY, with gross margin of 62.2% and operating margin up 290 bps YoY on strong data center and aerospace & defense demand.
  • Positive Sentiment: OSP segment revenue of $81.4 M exceeded the high end of guidance, growing 16.6% YoY, while gross margin rose 170 bps to 54.7% and operating margin expanded by 460 bps to 39.4% driven by anti-counterfeiting volumes and favorable mix.
  • Positive Sentiment: Full fiscal 2025 revenue reached $1.084 B (+8.4% YoY) with full-year operating margin of 14.2% (up 270 bps) and EPS of $0.47 (+$0.14), fueled by data center ecosystem and aerospace & defense growth.
  • Positive Sentiment: FY26 Q1 guidance forecasts slight sequential revenue growth to $290 M–$298 M, operating margin of 15%±40 bps and EPS of $0.13–$0.14, reflecting continued strength in data center and aerospace & defense offset by lingering wireless weakness.
AI Generated. May Contain Errors.
Earnings Conference Call
Viavi Solutions Q4 2025
00:00 / 00:00

There are 9 speakers on the call.

Operator

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 twenty twenty five Earnings Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. At this time, I would like to welcome and turn the conference over to Vibira Nagyar, Head of Investor Relations. Please go ahead.

Speaker 1

Thank you, Bella. Good afternoon, everyone, and welcome to Viavi Solutions Fourth Quarter and Fiscal twenty twenty five Earnings Call. My name is Vigouti Nayar, Head of Investor Relations for Viavi Solutions. And with me on today's call is Oleg Saicin, our President and CEO and Ilan Daskal, our CFO. Please note this call will include forward looking statements about the company's financial performance.

Speaker 1

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.

Speaker 1

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

Speaker 2

well

Speaker 1

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 04:30 p. M. Pacific Time this evening. Now I would like to turn the call over to Ilan.

Speaker 3

Thank you, Vibhuti. Good afternoon, everyone. Now, I would like to review the results of the 2025. Net revenue for the quarter was $290,500,000 which is at the high end of our guidance range of $278,000,000 to $290,000,000 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%.

Speaker 3

Operating margin decreased two thirty basis points from the prior quarter and on a year over year basis was up three fifty 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 zero five dollars 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.

Speaker 3

NSE revenue for the fourth fiscal quarter came in at $209,100,000 which is above the midpoint of our guidance range of $2.00 $3,000,000 to $213,000,000 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 two ninety 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 and D expenses. OSP revenue for the fourth fiscal quarter came in at $81,400,000 which is above the high end of our guidance range of 75,000,000 to $77,000,000 and was up 16.6% on a year over year basis.

Speaker 3

The increase in revenue for the quarter was primarily a result of strength in anti counterfeiting and other products. OSB 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 four sixty 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 twenty twenty five. For the full fiscal year, revenue was 1,084,000,000 which is up 8.4% on a year over year basis.

Speaker 3

The revenue growth was mainly driven by strong demand for Leaven production and field products, primarily from the data centers ecosystem. This was partially offset by a decline in spend for wireless 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 OSB, 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 two seventy basis points from fiscal year twenty twenty four and was driven by higher revenue and favorable product mix resulting in a higher fall through.

Speaker 3

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 $429,000,000 compared to $400,200,000 in the 2025. Cash flow from operating activities for the quarter was $23,800,000 versus $26,200,000 in the same period last year. During the quarter, we did not purchase any shares of our stock.

Speaker 3

For the full year, we purchased 2,000,000 shares for about $16,400,000 We have almost $200,000,000 remaining under our current authorized share repurchase program. In fiscal year twenty twenty five, we prioritized our capital allocation towards M and A with the acquisition of Inertia Labs and the pending acquisition of Spirent's high speed Ethernet, network security and channel emulation business lines. The fully diluted share count for the quarter was $227,000,000 shares, up from 224,200,000.0 shares in the prior year and versus 227,400,000.0 shares in our guidance for the fourth fiscal quarter. CapEx for the quarter was $5,500,000 versus $3,800,000 in the same period last year. CapEx for the full fiscal year was $27,800,000 versus $19,500,000 in the prior year.

Speaker 3

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 data center ecosystem as well as aerospace and defense and offset by continued weakness in wireless. For OSB, we also expect quarter over quarter revenue to be slightly higher, driven by seasonally stronger three d sensing products.

Speaker 3

For the 2026, we expect revenue in the range of $290,000,000 and $298,000,000 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 $211,000,000 plus or minus $3,000,000 with an operating margin of 5.8% plus or minus 40 basis points. OSP revenue is expected to be approximately $83,000,000 plus or minus $1,000,000 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 $8,500,000 plus or minus $500,000 as a result of jurisdictional mix. We expect other income and expenses to reflect a net expense of approximately $5,000,000 and the share count is expected to be around 228,600,000.0 shares. Our guidance does not include financial performance from our announced acquisition of certain Spirence business lines and we currently estimate the transaction to close by the September.

Speaker 3

During the fourth quarter, we successfully priced and allocated a $600,000,000 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. Oleg?

Speaker 2

Thank you, Ilhan. Fiscal twenty twenty five 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 11 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.

Speaker 2

We expect the strong demand from the data center ecosystem to continue well into calendar twenty twenty six. Our aerospace and defense business saw another strong quarter of growth, driven by high demand for our positioning, navigation and timing product. We expect this trend to continue throughout fiscal twenty twenty six. 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.

Speaker 2

Wireless business continues to remain a mixed bag. While we have seen 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 NAMS. We expect the infrastructure test demand to remain sluggish in the medium term. And 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 the aerospace and defense customers.

Speaker 2

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 the and mitigating the traditional revenue seasonality driven by service provider demand dynamics. Now turning on to OSP. OSP saw a 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 three d sensing products.

Speaker 2

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 manage the ongoing impact of tariffs. After two years of decline, fiscal twenty five 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 twenty six.

Speaker 2

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.

Operator

Your first question comes from the line of Ruben Roy with Stifel. Your line is now open. Please go ahead.

Speaker 4

Thank you. Hi, guys. Oleg, first question on the and nice to see the results and the guidance, by the way. But first question on the guidance. So the just reported quarter, there were some tariff impacts and just wanted to start with the revenue side of the tariff impacts with some of the POs that got sent back, etcetera.

Speaker 4

How did that progress? And 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 2

Sure. Well, I mean, 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, I mean, the whole tariff impact is around 1 and a half million dollars, which we have more than mitigated. And, 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. So I think at this point, you know, provided nothing has changed in the last twenty four hours.

Speaker 2

I mean, really, if we take Europe, Thailand, and, you know, China tariffs somewhat fixed at this point in time, we feel we are fairly comfortable we've got it all mitigated.

Speaker 4

Great. Thank you for that. And then, I guess a little bit of a longer term question just on the data center strength and 1.6T 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 sort of customer conversations relative to 1.6T.

Speaker 4

I mean, seems like that's something that's still on the come as we think about next year and even the year after. Know, just wondering if you can, you know, talk about yeah. Thank you.

Speaker 2

Well, I mean, 1.6 is what you kinda lead with. Right? That's our kinda leading edge products, so we engage in advanced development and things like that. The bulk of, revenue today is, you know, 800 gig and 400 gig. Right?

Speaker 2

So, that's what's shipping today, in production and a lot. But I think 1.6 is gets you in the door and kinda locks up all the, follow on activity, as the business scales. And I think demand is just crazy from what we're seeing in it. That's why we talk about data center ecosystem because it's the leading semiconductor vendors. It's the leading optical module developers.

Speaker 2

It's all the equipment manufacturers and developers. Right? And then 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. So, it's pretty much playing up and down the entire, value chain, and you generally get an anchor and you win with the leading edge with with the, you know, kind of bleeding edge performance. So, I mean, we have just released our, in the June, our second generation 1.6 terabits.

Speaker 2

Much of our companion competition just barely released their first generation. So we feel very good about, our performance, in that space. So and we continue to invest aggressively and broaden our, reach. But also, I mean, the data center ecosystem is not just kinda the lab equipment production test equipment. It's also, becoming what I would call the smart buyer.

Speaker 2

They've gone from thinking, you know, network management as kinda an afterthought, and now they realize fiber is very critical to their performance. It needs to be managed aggressively and actively. And we're now seeing data centers are actually becoming leading customers for a lot of our, what I call, field instrumentation or a fiber monitoring group equipment that we traditionally sold into the carriers and service providers. And, that percentage has been rising, quarter over quarter. And, that's actually a very positive thing because it's, I mean, they view network performance as core to their business model.

Speaker 2

And, you know, they're not the types that are being penny wise and pound foolish, and, they believe in investing significantly into monitoring and optimizing network performance. So we feel pretty good about this. That's why, you know, I'm I'm starting we're gonna I'm gonna use a lot more, the data center, ecosystem because that pretty much captures a whole new segment that is growing very rapidly for us. And I wouldn't be surprised that in couple years, it will be a bigger market than the the traditional service provider business.

Speaker 4

Great detail. Thank you, Alec.

Speaker 1

Your next

Operator

question comes from the line of Ryan Kuntz with Needham. Please go ahead.

Speaker 5

Ryan, thanks for the question and congrats on

Speaker 6

the quarter.

Speaker 5

I guess within NSC, could you unpack a little bit about, what's going on in the end markets there across broadband, optical and wireless in the quarter? And then how you're thinking about that going into FY twenty six?

Speaker 2

Well so I would say it's pretty much fiber fiber and more fiber. Alright? And and within NFC, is the you know, I said there's a data center ecosystem so that your semi's module systems and production. So that's all pulling in a 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 a one to two quarters, you know, given all the other dynamics going on with their upgrades.

Speaker 2

But it's very much a fiber, and 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. They're now also, popping up on the horizon. And, of course, there is the, the major fiber, interconnect and fiber, service providers like the the big North American, Europeans that are, rolling out, you know, their steady state deployment. And if I also then overlay, the aggressive pronouncements, the number of North American fiber players been making about accelerating investment, we're actually starting to see, this verbiage migrating into the supply chain management and operations. And we already have number of customers engaging on, you know, significant order growth in the coming, one to quarter.

Speaker 2

So, that's why we're feeling much more positive that that across the board from the traditional, you know, network carriers, you know, 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 gonna be maybe some of it in December and then, March. I think there are clearly plans that are just kinda being pushed out due to some of the financial dynamics of these operators. And I would say wireless is the only kind of a laggard in our portfolio. I was thinking, you know, December seeing nice pickup in the field instruments that, you know, expansion is coming.

Speaker 2

So far, it's been really much about network optimization and, you know, improve getting more from what they've got. We haven't seen that much new deployments and does our infrastructure test, you know, which goes into the major NAMS, has been somewhat anemic, and I would have expected it to be picking up in the June. It doesn't seem like it's, really moving that fast. And I think we probably got another couple quarters of, sluggishness until, it starts, materializing. Hope that helps.

Speaker 5

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

Speaker 2

Well, you know, you know, it's it's you know, as I say, three quarters does not make a trend. Although, you know, we were we saw a much stronger March. Because usually, if you look at kinda traditionally, historically, the September and the March have been down quarters because, you know, they if you purely follow the service provider spend, they, you know, they kinda, release their budgets at the February, and then they just kinda goes through the year. And so usually, some of them end their fiscal year in June, some have ended in December, and there's usually were stronger June and December quarters. Alright?

Speaker 2

Interesting wise, when we look at the data center ecosystem, it's almost counter cyclical. They have a stronger demand. It seems to be in the March and September. They digest some of the deliveries in the June and December. So in a way, this thing has kinda upset it.

Speaker 2

But also, with the, data center now becoming a buyer for field instruments, that's further, mitigates that thing. So for us, the only kind of cyclical thing left that I see is the, our optical business where, you know, you follow the cyclicality of, three d sensing for the consumer, and there's a cyclicality for anti counterfeiting with certain parts of the year stronger versus the other. So I'd say we are we gonna is our cyclicality over? I don't think so. I think it's just gonna be more muted and, more balanced.

Speaker 2

And if I look at the, aerospace and defense, it's a design win driven business. So once you win platform and customer goes in production, it's actually fairly predictable linear, orders that, come in, for these major programs. So I do expect, as all these new businesses are growing for us, we probably would see less volatility, quarter on quarter than, had been in the past when we were heavily exposed to the service providers.

Speaker 5

Great. Thank you.

Operator

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

Speaker 7

Great. Thanks. And congrats, Oleg. Just a couple of questions. Just can we just get like a a rough size of the data center business, you know, in q four would be helpful.

Speaker 7

And then just kind of the contribution of inertial labs to kind of the q one guide would be helpful. Thanks.

Speaker 2

So, let's just talk about NSE. Just we take purely NSE, leave OSP out. As it stands right now, you know, with this thing, roughly 50% of our revenue comes from service provider, and it's way down from close to 90%, you know, when I joined this company. And about 30% is what I would call the the data center ecosystem. So it's semis, modules, you know, equipment vendors, and data center operators.

Speaker 2

Right? And also include some of the enterprise customers. And 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 and the you know, even over 60 and the others were probably around 20 and below 20% for aerospace and defense. So all segments have grown.

Speaker 2

I would say the service provider, I would say, recovery thus far, and we do think it's gonna accelerate in the coming quarters with number of these big fiber deployments that are being planned. But it's really the, I would say, data center and aerospace have grown quite significantly. And with the acquisition of Inertia Labs, we really have that segment growing very, very rapidly. So I would say so it's as of, you know, as you know, exiting June, would say 5030, 20. And I would expect if you look at a year from now, if I had to look, I would say maybe we'll be a bit less than 50, and the other segments would be a bit bigger because they're just growing faster than the service provider sector.

Speaker 3

Regarding the in sorry. Regarding your question, in our our Charlotte, you know, if you recall when we announced the transaction, we mentioned around 50,000,000 run rate a year. It's tracking above this number. However, both, you know, 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 inertial heads.

Speaker 7

Okay, great. Thank you. Your

Operator

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

Speaker 8

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

Speaker 2

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

Speaker 8

Okay. Fair enough. Just trying to understand. Wanted ask a margin question on NSE. You're still in kind of the low, I guess, what mid single digits here for Q1.

Speaker 8

Kind of 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 upside to that March?

Speaker 2

So on NSE as that business kinda recovers, you know if if you look at it just prior to the telecom meltdown in the September '22, we have approached 20% operating margin on the NSE business unit. And that is before it had significant data center exposure and aerospace and defense. So data center margins are somewhat higher than the service kinda the field instrumentation. However, the aerospace defense is a bit lower. So it's a so in a way, they kinda offset each other.

Speaker 2

So net net, NSC will probably stay in the low sixties gross margin. But I would say I think that's pretty much, I would say, the profile of the the margin. So when we look at that and we obviously made some acquisitions, I think as we continue to grow in data center and mill military space and a recovery continued recovery in the service provider. I think our first goal is move comfortably into mid to high teens and then into the twenties longer term.

Speaker 8

Great. Thank you. Sure.

Speaker 1

Your next question comes from

Operator

the line of Mehdi Hazzain. Please go ahead.

Speaker 6

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

Speaker 2

You know, I I I fully expect you know, if I purely take the service provider by without any kind of bluebirds where they have some big program they wanna spend. I think, you know but it I mean, there's always gonna be some cyclicality with that because, you know, let's assume a steady state. The service providers will always buy a bit less in September and March. But what we are having is, like, if you look at the enterprise and data center, actually, March and September are strong quarters for them. So I as I said, I mean, are we are you fully gonna eliminate the, any kind of sick seasonality?

Speaker 2

I think you're always gonna have some of it. It's just gonna be less and less pronounced. I mean, so maybe instead of a down quarter, you may be slightly down or a flattish quarter on some of these things. But I do think our, you know, 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, you know, fiber operators and others, think I would imagine there's gonna be some strength in their spend that may spill over into the March.

Speaker 2

So 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.

Speaker 6

Got it. Okay. And then double clicking on OSB, it seems to me that there's still a little bit of a lingering ASP pressure, especially on the three d sensing. And then I'm looking at the margin profile for the Q1 fiscal year. Am I right with that thought process?

Speaker 6

And what are the things that you're doing to mitigate that? And given as a follow-up to it, given the fact that overall, OS, smartphone unit shipment has been kind of a low single digit over the past couple of years, could could we be hitting the bottom in terms of the three d sensing opportunities for you? And if there is any uptick in OS unit shipment, could that also help mitigate the ASP pressure? Thank you.

Speaker 2

Well, so, I mean, when we when we think about the, ASP pressure on the, let's say, three d sensing consumer business. Right? I mean, we've been, taking down costs, pretty good. I mean, the reality is our margins have we've been able to maintain, margins in that business. I mean, the challenge there is volume.

Speaker 2

You know, we are very highly penetrated in that market segment, and it is it's kind of fully saturated. So the margins don't suffer, because we are able to reduce the cost to keep up with the ASP, reduction. I think what's probably has been bigger problem there is the the volume hasn't really grown because, you know, I'd say it's a good news, bad news when you're highly penetrated at the particular customer. It's one on good news, you 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.

Speaker 2

So I think that's not the case. I think what you are seeing, the bigger impact on margins is really the mix and then the counterfeiting products between the older pigment technologies and the newer. And 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. And, that's the, 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.

Speaker 2

OSP is around around $300,000,000 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 to start growing again. So I think I'd say for OSP, I think this fiscal year is kind of stabilization and gradual growth, and then, you know, growing faster as the new segments start materializing for that business.

Speaker 3

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

Speaker 2

Yeah.

Speaker 3

And it's all volume based. I mean, the ASP is is is not a factor or not in our projection right now. It's all about

Speaker 2

And that's where we have our biggest fixed cost. I mean, if you see where those Yeah. Those factories, that's a lot of iron sitting on the floor. Yeah.

Speaker 6

But but, Goli, just as a quick follow-up, you're not done in any impact from a change in form factor, thinner phone or foldable. You're and it's to me, if you're not factoring that in, there maybe there is no change in the three d sensing or or you're just being conservative?

Speaker 2

Yeah. Well, I mean, we're talking about today. I mean, clearly, there's a road map. We have new products on a road map. I don't wanna 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 that's it's basically new products that need to be developed, and I don't wanna go into, specifics on that.

Speaker 2

So right now, we're talking about mainly what we are shipping in production, not what's on the road map.

Speaker 6

Okay. Great. Please wait details.

Speaker 4

Sure. Thank you.

Operator

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

Speaker 1

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

Operator

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

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