00:00I think a reasonable place to start is to understand the role that a laser has in the server design
00:06and in the data center more broadly, how servers talk to one another, because the market reaction is quite clear
00:12to how investors feel about this, but where does the technology fit in?
00:16Yeah, that's a good question. First of all, thank you for having me on. I appreciate it. Yeah, the way
00:21you can think about it is a laser is really, ultimately, it's photonics, and it's really about light, and it's
00:28about using light to transmit data in the data center, and there's a good portion of the data center already
00:34today where all of the communication of the data is happening with light,
00:38and the reason that light gets used, rather than, for instance, an electrical signal, is light is the absolute fastest,
00:46most power efficient way to transmit data, and so a good portion of the data center already runs 100%
00:52on photonics, optical connections, but as we move forward, building new data centers, as we see a massive ramp in
01:00the amount of data flowing through these data centers, more and more of the data center connections will be based
01:05on light, on optical photonics.
01:07So in this arrangement, you'll take the funds for R&D purposes, but inside of it, there is a purchase
01:13opportunity for NVIDIA. NVIDIA's done a lot on silicon photonics. They've told me about it for quite a while now.
01:20What's new in it for them? What is it that they're able to now do that they couldn't do themselves?
01:24Well, they're relying on us to bring the photonics expertise, right? So NVIDIA for us has been a long-term
01:31partner, actually over 20 years as a customer and a partner through their Mellanox acquisition.
01:37So we've had a long history with NVIDIA, and really what we're doing is working together to use photonics to
01:43advance the architecture of data centers, to find new innovation within data centers.
01:48And the key thing that photonics or optics brings is incredibly power-efficient data transmission because, again, there's no more
01:56efficient...
01:56As opposed to transferring of our electrons.
01:58Exactly. So as you increase the data rates, as you increase the amount of data that's being transmitted, you have
02:05to, if you're using electrical today, eventually you'll hit a physics limit, and you'll be kind of forced to switch
02:11to optical.
02:11And so we'll see more and more of the connections within the data center move to optical. And that's really
02:16where we come in. We're, you know, a global expert in photonics and optical communication.
02:22The market is forward-looking. They understood the copper to optical vibe for a few months, if not years, and
02:28your shares have shown that.
02:29But what's interesting is Lomentum CEO was speaking at an event yesterday, Michael, and he was talking about, hey, even
02:35with scaling of their supply, they're still way back.
02:39They're falling further behind where demand is. Is that something similar for you as well?
02:43Well, demand, there's no doubt, demand is incredibly strong, and that is both in the near term and in the
02:48long term.
02:48I mean, the forecasts that we're seeing from our customers, not just NVIDIA, but large hyperscalers, cloud service providers, are
02:56just exceptionally strong.
02:58And so what we are doing about that is we are rapidly expanding our capacity. I mean, we are building
03:03capacity as fast as we can.
03:05What does that look like? What's the supply chain you mean?
03:07I was going to say, just as one example, Ed, you asked about the lasers. Let's take the lasers.
03:12We want to talk about lasers.
03:14So if you look at the lasers, we're doubling our capacity this year, right?
03:19So we're coming out with twice as much indium phosphide. That's the key material underneath the lasers.
03:25But twice as much indium phosphide production. So we are ramping our capacity as fast as possible.
03:30But back to, as we see more and more of the data center convert from electrical to optical, you've got
03:36kind of two big secular growth trends underneath us.
03:40And number one, the data center growth. But number two, this conversion of electrical to optical.
03:45And so that just generates an incredible amount of demand.
03:47So we're trying to stay ahead of that. We're ramping capacity.
03:50This NVIDIA partnership is part of that. That investment that they made into Coherent will help us ramp capacity faster
03:58and make sure that we've got the right capacity.
04:01Ramp capacity where, right? We had the co-founders of Mesh on the show recently, SpaceX alum who did lasers
04:06at SpaceX.
04:07And they came to market with a very simple argument. Output of these systems at scale was done in China.
04:13There isn't a facility in the United States. There isn't the capacity here.
04:17Is that part of your game plan or you dispute that?
04:19Laser, absolutely. Lasers, some of the key technology that we're developing and ramping is here in the U.S., right?
04:27So we have a long history of U.S. manufacturing. We were founded as a U.S. manufacturing company.
04:33We've got over 20 manufacturing sites across 13 different states.
04:36But one of the key technologies that we're ramping on behalf of NVIDIA and other customers is that laser technology.
04:43That's happening in Sherman, Texas, right?
04:46And that's a great facility. We've supported customers out of that facility for years.
04:51But that's part of where we're going to be doubling capacity.
04:55What do you need from a raw material perspective?
04:57What is it that makes U.S. manufacturing ever more capable?
05:00I'm sure you're discussing this with the government all the time.
05:02Yeah. So one of the key inputs is it's the indium phosphide substrates themselves.
05:09And so we have a very diversified supply chain.
05:11We've just like NVIDIA is securing, you know, capacity rights to our capacity.
05:17We're doing the same thing with our suppliers.
05:18So we're making sure that we've got all the key input capacity or input supply secured.
05:24But look, it's we believe that these key optical technologies like lasers, we absolutely want to see that manufactured in
05:33the U.S.
05:34Now, we have other sites as well.
05:35We're a global company.
05:37And so we are ramping at multiple sites.
05:39But that's one of our key facilities is Sherman, Texas.
05:41Texas.
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