Operating Segments and Geographic Information

6 Months Ended

Dec. 30, 2023

Segment Reporting [Abstract]

Operating Segments and Geographic Information

Note 15. Operating Segments and Geographic Information

Prior to fiscal year 2024, we operated in two reportable segments consisting of Optical Communications (“OpComms”) and Commercial Lasers (“Lasers”). During the fiscal first quarter of 2024, our chief operating decision maker (“CODM”) implemented changes in how he organizes the business, allocates resources, and assesses performance. We changed our organizational structure to better align with trends in our markets and our customer and product mix. Our new operating segments are Cloud & Networking and Industrial Tech. The Cloud & Networking segment includes the Telecom & Datacom product lines that were previously part of the OpComms segment. The Industrial Tech segment includes previous Lasers segment and the Industrial & Consumer product lines that were previously part of the OpComms segment. The two operating segments were primarily determined based on how the CODM views and evaluates our operations. The CODM regularly reviews operating results to make decisions about resources to be allocated to the segments and to assess their performance.

In conjunction with this change, our CODM now evaluates each segment’s performance and allocates resources based on segment revenue and segment profit, instead of gross profit, as our CODM believes segment profit is a more comprehensive profitability measure for each operating segment. Segment profit includes operating expenses directly managed by operating segments, including research and development, and direct sales and marketing expenses. Segment profit does not include stock-based compensation, acquisition or integration related costs, amortization and impairment of acquisition-related intangible assets, restructuring and related charges, and certain other charges. Additionally, we do not allocate corporate marketing and strategic marketing expenses and general and administrative expenses, as these expenses are not directly attributable to our operating segments.

Comparative prior period segment information has been recast to conform to the new segment structure and segment profitability measure. The change in our operating segments had no impact on our previously reported consolidated results of operations, financial condition, or cash flows.

We do not track all of our property, plant and equipment by operating segments. The geographic identification of these assets is set forth below.

Cloud & Networking

Our Cloud & Networking products include a wide range of components, modules, and subsystems to support customers including carrier networks for access (local), metro (intracity), long-haul (city-to-city and worldwide) and submarine (undersea) applications. Additionally, our products address enterprise, cloud, and data center applications, including SANs, LANs and WANs, as well as AI/ML. These products enable the transmission and transport of video, audio, and data over high-capacity fiber-optic cables. We maintain leading positions in these fast-growing cloud & networking markets through our extensive product portfolio, including reconfigurable optical add/drop multiplexers (“ROADMs”), coherent dense wavelength division multiplexing (“DWDM”) pluggable transceivers, and tunable small form-factor pluggable transceivers. We also sell laser chips for use in manufacturing of high-speed ethernet transceivers for use primarily inside data centers.

Industrial Tech

Our Industrial Tech products include diode laser products such as VCSELs and edge emitting lasers. In the consumer end-market, our laser light sources are integrated into 3D sensing cameras which are used in applications in mobile devices, gaming, payment kiosks, computers, other consumer electronics devices, and automobiles. Applications include biometric identification, computational photography, virtual and augmented reality, and natural user interfaces. Emerging applications for our lasers include automotive safety systems, LiDAR for advanced driver assistance systems in automobiles and autonomous vehicles, self-navigating robotics and drones in industrial applications, and 3D capture of objects coupled with 3D imaging or printing. In the industrial end market, our diode lasers are used primarily as pump sources for pulsed and kilowatt class fiber lasers.

Industrial Tech products also include laser products used in a variety of OEM applications including diode-pumped solid-state, fiber, diode, direct-diode and gas lasers such as argon-ion and helium-neon lasers. Fiber lasers provide kW-class output powers combined with excellent beam quality and are used in sheet metal processing and metal welding applications. These applications range in output power from milliwatts to kilowatts and include ultraviolet, visible and infrared wavelengths. Our laser products serve our customers in markets and applications such as sheet metal processing, general manufacturing, solar cell processing, biotechnology, graphics and imaging, remote sensing, and precision machining such as drilling in printed circuit boards, wafer singulation, glass cutting and solar cell scribing. We also provide high-powered and ultrafast lasers for the industrial and scientific markets. Manufacturers use high-power, ultrafast lasers to create micro parts for consumer electronics and to process semiconductor, LED, solar cells, and other types of chips. Use of ultrafast lasers for micromachining applications is being driven primarily by the increasing use of renewable energy, consumer electronics and connected devices globally.

Reportable Segments

The two operating segments, Cloud & Networking and Industrial Tech, also represent our two reportable segments. Our CODM allocates resources and evaluates segment performance based on segment revenue and segment profit. The following table summarizes segment profit and a reconciliation to the consolidated income (loss) before income taxes for the periods presented (in millions). Comparative prior period segment information has been recast to conform to the new segment structure.

	Three Months Ended				Six Months Ended
	December 30, 2023		December 31, 2022		December 30, 2023		December 31, 2022
Net revenue:
Cloud & Networking	$	286.7	$	382.9	$	516.4	$	743.0
Industrial Tech	80.1		123.1		168.0		269.8
Net revenue	$	366.8	$	506.0	$	684.4	$	1,012.8
Segment profit:
Cloud & Networking	$	29.1	$	99.9	$	53.0	$	201.6
Industrial Tech	12.7		49.7		28.0		118.5
Total segment profit	41.8		149.6		81.0		320.1
Unallocated corporate items:
Selling, general and administrative (1)	(28.8)		(32.9)		(57.4)		(66.0)
Stock-based compensation	(34.6)		(36.6)		(66.7)		(71.3)
Stock-based compensation - acquisition related	—		—		—		(11.9)
Amortization of acquired intangibles	(37.6)		(36.1)		(66.6)		(68.3)
Amortization of acquired inventory fair value adjustments	(3.4)		(9.6)		(3.4)		(14.2)
Acquisition related costs	(9.0)		—		(13.0)		(16.2)
Integration related costs	(11.6)		(8.0)		(22.9)		(8.6)
Restructuring and related charges	(5.8)		(13.9)		(16.8)		(23.2)
Abnormal excess capacity	(1.8)		—		(1.8)		—
Litigation matters	—		(7.8)		—		(7.8)
Other charges, net (2)	(14.4)		(26.6)		(18.4)		(41.0)
Interest expense	(9.7)		(8.9)		(19.4)		(17.4)
Other income, net (3)	13.4		3.7		34.6		17.5
Consolidated loss before income taxes	$	(101.5)	$	(27.1)	$	(170.8)	$	(8.3)

(1) We do not allocate selling, general and administrative expenses that are not directly attributable to our operating segments.

(2) Other charges, net for the three months ended December 30, 2023 primarily relate to $9.5 million of net excess and obsolete inventory, $4.6 million of non-recurring legal and tax related fees, and $1.0 million of incremental costs of sales related to components previously acquired from various brokers to satisfy customer demand. The excess and obsolete inventory charges relate to charges that are not attributable to our operating segments due to their unusual nature, primarily those charges driven by U.S. trade restrictions whereby we are no longer able to sell certain products to one of our customers.

Other charges, net for the six months ended December 30, 2023 primarily relate to $9.2 million of net excess and obsolete inventory, $5.4 million of non-recurring legal and tax related fees, and $3.9 million of incremental costs of sales related to components previously acquired from various brokers to satisfy customer demand. The excess and obsolete inventory charges relate to charges that are not attributable to our operating segments due to their unusual nature, primarily those charges driven by U.S. trade restrictions whereby we are no longer able to sell certain products to one of our customers.

Other charges, net for the three months ended December 31, 2022 primarily relate to $11.7 million of incremental costs of sales related to components previously acquired from various brokers to satisfy customer demand, $4.5 million of non-recurring charges on legal matters, and $5.4 million of excess and obsolete inventory charges primarily driven by U.S. trade restrictions.

Other charges, net for the six months ended December 31, 2022 primarily relate to $19.0 million of incremental costs of sales related to components previously acquired from various brokers to satisfy customer demand, $4.5 million of non-recurring charges on legal matters, and $5.5 million of excess and obsolete inventory charges primarily driven by U.S. trade restrictions.

(3) Other income, net for the three months ended December 30, 2023 includes interest and investment income of $17.1 million, offset by foreign exchange and other loss, net of $3.7 million. Other income, net for the six months ended December 30, 2023 includes interest and investment income of $38.8 million, offset by foreign exchange and other loss, net of $4.2 million.

Other income, net for the three months ended December 31, 2022 primarily relates to $7.7 million of interest and investment income, offset by $4.1 million of net foreign exchange losses. Other income, net for the six months ended December 31, 2022 primarily relates to $12.5 million of interest and investment income and $4.9 million of net foreign exchange gains.

Concentrations

We operate in three geographic regions: Americas, Asia-Pacific, and EMEA (Europe, Middle East, and Africa). Net revenue is assigned to the geographic region and country where our product is initially shipped. For example, certain customers may request shipment of our product to a contract manufacturer in one country, which may differ from the location of their end customers.

The following table presents net revenue by the three geographic regions we operate in and net revenue from countries that generally represented 10% or more of our total net revenue (in millions, except percentage data):

	Three Months Ended								Six Months Ended
	December 30, 2023				December 31, 2022				December 30, 2023				December 31, 2022
	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Net revenue:
Americas:
United States	$	103.0	28.1	%	$	65.5	12.9	%	$	144.1	21.0	%	$	127.7	12.6	%
Mexico	31.4		8.6		59.5		11.8		55.1		8.1		117.0		11.6
Other Americas	0.8		0.2		3.8		0.8		2.0		0.3		6.1		0.6
Total Americas	$	135.2	36.9	%	$	128.8	25.5	%	$	201.2	29.4	%	$	250.8	24.8	%
Asia-Pacific:
Hong Kong	$	65.7	17.9	%	$	65.9	13.0	%	$	130.6	19.1	%	$	143.5	14.2	%
South Korea	20.8		5.7		52.0		10.3		45.8		6.7		119.7		11.8
Japan	25.9		7.1		50.8		10.0		51.3		7.5		95.6		9.4
Thailand	39.3		10.7		77.9		15.4		103.5		15.1		135.4		13.4
Other Asia-Pacific	49.5		13.4		84.7		16.7		89.0		13.0		173.6		17.1
Total Asia-Pacific	$	201.2	54.8	%	$	331.3	65.4	%	$	420.2	61.4	%	$	667.8	65.9	%
EMEA	$	30.4	8.3	%	$	45.9	9.1	%	$	63.0	9.2	%	$	94.2	9.3	%
Total net revenue	$	366.8	100.0	%	$	506.0	100.0	%	$	684.4	100.0	%	$	1,012.8	100.0	%

During the three months ended December 30, 2023, our net revenue from a single customer that represented 10% or greater of the total net revenue was concentrated with three customers, who individually accounted for 19%, 13% and 11% of our total net revenue, respectively. During the six months ended December 30, 2023, our net revenue from a single customer that represented 10% or greater of the total net revenue was concentrated with three customers, who individually accounted for 14%, 12% and 12% of our total net revenue, respectively.

During the three months ended December 31, 2022, our net revenue from a single customer that represented 10% or greater of the total net revenue was concentrated with two customers, who individually accounted for 19% and 12% of our total net revenue, respectively. During the six months ended December 31, 2022, our net revenue from a single customer that represented 10% or greater of the total net revenue was concentrated with two customers, who individually accounted for 18% and 15% of our total net revenue, respectively.

As of December 30, 2023, our accounts receivable from a single customer that represented 10% or greater of the total accounts receivable was concentrated with one customer, who accounted for 20% of the total accounts receivable. As of July 1, 2023, our accounts receivable from a single customer that represented 10% or greater of the total accounts receivable was concentrated with three customers, who individually accounted for 14%, 12% and 12% of the total accounts receivable, respectively.

Long-lived assets, namely property, plant and equipment, net, were identified based on the physical location of the assets in the corresponding geographic areas as of the periods indicated (in millions):

	December 30, 2023		July 1, 2023
Property, plant and equipment, net
United States	$	136.1	$	134.7
Thailand	134.3		132.0
Japan	84.3		93.0
United Kingdom	76.6		38.2
China	94.0		42.1
Other countries	57.0		49.5
Total property, plant and equipment, net	$	582.3	$	489.5

We purchase a portion of our inventory from contract manufacturers and vendors located primarily in Taiwan, Thailand and Malaysia. During the three and six months ended December 30, 2023, our net inventory purchases from a single contract manufacturer that represented 10% or greater of our total net inventory purchases were concentrated with two contract manufacturers, who collectively accounted for 33% and 43% of the total net inventory purchases, respectively. During the three and six months ended December 31, 2022, our net inventory purchases from a single contract manufacturer, which represented 10% or greater of our total net inventory purchases, were concentrated with one and two contract manufacturers, who collectively accounted for 43% and 52% of total net inventory purchases, respectively.