Welcome to MACOM's Fourth Fiscal Quarter 2022 Conference Call. This call is being recorded today, Thursday, November 3, 2022. [Operator Instructions] I will now turn the call to Mr. Steve Ferranti, MACOM's Vice President of Initiatives and Investor Relations. Mr. Ferranti, please go ahead.

Thank you, Olivia. Good morning, and welcome to our call to discuss MACOM's financial results for the fourth fiscal quarter of 2022. I would like to remind everyone that our discussion today will contain forward-looking statements which are subject to certain risks and uncertainties as defined in the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. For a more detailed discussion of the risks and uncertainties that could result in those differences, we refer you to MACOM's filings with the SEC. Management's statements during this call will also include discussion of certain adjusted non-GAAP financial information. A reconciliation of GAAP to adjusted non-GAAP results are provided in the company's press release and related Form 8-K, which was filed with the SEC today. With that, I'll turn over the call to Steve Daly, President and CEO of MACOM.

Thank you, and good morning. I will begin today's call with a general company update. After that, Jack Kober, our Chief Financial Officer, will provide a more in-depth review of our fourth quarter and full year results for fiscal 2022. When Jack is finished, I will provide revenue and earnings guidance for the first fiscal quarter of 2023, and then we will be happy to take some questions. We finished our fiscal year with a solid financial performance. Revenue for Q4 was $178.1 million and adjusted EPS was $0.77 per diluted share. For the full fiscal year ending September 30, 2022, revenue was $675 million and adjusted EPS was $2.82 per diluted share. This represents 11% year-over-year revenue growth and over 30% year-over-year growth in adjusted earnings per share. These results demonstrate the strength and leverage in our business model. Over the past 4 quarters, we have incrementally improved our gross margins and operating profits, resulting in improved cash flow. We finished the fiscal year with $587 million in cash and short-term investments on our balance sheet. FY '22 was also a strong year for new product development. with our R&D teams launching nearly 150 new products, an increase of approximately 15% year-over-year. We believe many of these products will enable market share gains and support our near- and long-term growth targets. There is a high level of excitement at MACOM because we have many new projects underway, a growing team of world-class IC designers and unique manufacturing and packaging capabilities. We will continue to expand and build upon these competitive advantages in fiscal year 2023. In Q4, our book-to-bill ratio was 1.0:1 and our turns business was approximately 10% of total revenue. For the full fiscal year, our book-to-bill was 1.1:1. Our backlog remains at near record levels entering…

Thank you, Steve, and good morning, everyone. Before getting into the details of our quarterly results, I would like to summarize a few items associated with our fiscal year 2022 financials. First, our order backlog grew by more than 20% during fiscal 2022, and our full year 2022 revenue grew by more than 11% over the prior fiscal year. Second, we continue to expand our margins with our adjusted gross margin for the full fiscal year 2022 at 62%, up 240 basis points from 59.6% in fiscal 2021. This is the first full fiscal year that our gross margin has exceeded 60% since MACOM went public in 2012. In addition, our adjusted operating margins for fiscal year 2022 were in excess of 31%. Third, our fiscal year 2022 adjusted net income was $201 million compared to $152 million in fiscal year 2021. And fiscal year 2022 adjusted EPS was $2.82 compared to $2.15 in 2021, a more than 30% improvement. And finally, from an operational perspective, MACOM's team of outstanding employees continue to remain focused on improving the performance of the business and executing our strategy as we move into fiscal 2023. Now on to the quarterly results. Revenue for the fiscal quarter was $178.1 million, up 3.4% sequentially based on modest growth from our data center and I&D markets. Our Q4 completed another year of double-digit growth for MACOM with fiscal year 2022 revenue at $675 million, up from $607 million in fiscal 2021. On a geographic basis, revenue from U.S. domestic customers represented approximately 50% of our fiscal Q4 results and 47% for fiscal year 2022, up from 46% in both fiscal Q4 2021 and fiscal year 2021. Adjusted gross profit for fiscal Q4 was $111.5 million or 62.6% of revenue, up 40 basis points sequentially. Over the…

Thank you, Jack. MACOM expects revenue in fiscal Q1 ending December 30, 2022, to be in the range of $177 million to $182 million. Adjusted gross margin is expected to be in the range of 61.5% to 63.5%. And adjusted earnings per share is expected to be between $0.78 and $0.82 based on 71.4 million fully diluted shares. In fiscal Q1, we estimate flat or modest growth across the 3 end markets. As I've noted, we maintain a long-term perspective on executing our strategy. We are confident that we can continue to improve our financials and take market share in the months and years ahead. Our product portfolio is stronger than it was a year ago, and for this reason, we are confident that we can meet or exceed our targets. Over the long term, we believe trends, including the drive towards more bandwidth, faster data speeds, higher frequencies and higher power levels will support MACOM's growth. These trends will require higher performance levels from semiconductor suppliers, which means better analog designs, specialized compound semiconductor materials in manufacturing processing and innovative packaging solutions and strong system-level know-how. MACOM is unique in our potential to bring all of these requirements together to provide our customers with the highest power, highest frequency and highest data rate analog semiconductor and subsystem solutions in the market. I would now like to ask the operator to take any questions.

[Operator Instructions] Our first question coming from the line of Harsh Kumar with Piper Sandler.

Yes, first of all, guys, solid execution. We're seeing semiconductor companies just fall apart in this earning season. So we appreciate a very steady-eddy [printing] guide. So with that, Steve, you did say that you're seeing some softness in orders. I wanted to understand, a, first of all, where are you seeing the softness in orders? And then b, we are cognizant now very, very aware that there's recessionary activity or stock economic activity, how do you perceive your long-term goal of, call it, the low teens growth? Is that still even a valid mark for us to think about?

Thank you, Harsh, for the questions. So the softness that we talked about on the script in terms of bookings are fairly broad-based. I wouldn't necessarily call out any one particular segment as being sort of weaker than the other. I'll highlight that our defense business is still holding in quite strong as well as some of the new design wins in the automotive market are also supporting the overall bookings. And I just have to highlight that this was, as Jack said, the eighth consecutive quarter where we had a book-to-bill of greater than 1 which really allows us to set up ourselves for a strong fiscal '23, which really leads to the second part of your question, which is our overall long-term growth and goals. And so as you know, we don't give annual guidance. We generally give 1 quarter at a time. As I mentioned in my script, we feel like we're in a stronger position at the start of this year than we were last year, primarily due to the work we're doing to expand our SAM in the addressable markets, primarily driven by new product lines that we've been launching, many of which we've talked about during the course of the year. At the beginning of fiscal '21, we set a target of greater than 10% year-over-year growth, we delivered 14%. At the beginning of fiscal '22, we also set the threshold at 10%, and we delivered 11%, so we were happy about that. And as we think about fiscal '23, we're really taking the same philosophy forward that we want to have at least 10% growth. However, you have to understand that given the macroeconomic conditions, the geopolitical risks, certainly, some of the softness we're seeing in Asia, specifically China, all of those items do provide, I would say, more uncertainty in terms of our targets in terms of fiscal '23. But if you take a big step back and look at our long-term goals, which I think is more important, we still do believe we can achieve $1 billion of revenue in our fiscal '25. And the math is quite simple. If you just take our guide for Q1 and annualize that and apply an average growth rate of low single -- sorry, low double-digit growth rates, you get to $1 billion quite quickly. So we think we're doing all the right things. It starts by increasing the number of new products. And I can tell you from 2019 to 2022, we have doubled the amount of products we're launching on an annual basis. And this will be the ultimate driver of our growth.

Steve, very helpful. I had a follow-up and then I'll get off the podium. Are you seeing any ASP pressures at all in any of your markets? And then you've got a kind of strong -- very strong new product activity. Can you maybe highlight for us where you feel which areas of the 3 end markets with the new products you feel very optimistic about for growth?

So the semiconductor industry, as you know, is very competitive, and we're constantly seeing price pressures. And so that is something that I think the team is quite capable of handling. We try to optimize the value of our solutions to customers. We are not a price leader in terms of chasing business at lower prices. We try to differentiate ourselves. And as you've seen over the last really 2 to 3 years, as we've introduced more and more products, our gross margins are going up. And yes, that some of that is due to operational improvements in supply chain management and yield enhancement programs and whatnot. But it also speaks to the fact that the portfolio is getting stronger and more differentiated, which allows us to command stronger pricing. And so we expect those trends to continue, as Jack highlighted in his script. In terms of the new products or the [NPI] products that you referred to and what markets or segments are we most excited about? It's hard for me to sort of call out any one particular area, market or technology because we have so many different things going on. But I will say that we are really turning a corner with our [.14 GaN] on silicon carbide process, which we'll be introducing right after New Year's. And so that is a major event for our company, and we're very pleased about the performance of the process. We know the market's there. And over the next 2 to 3 years, it will be a lot of fun to go out into the market and take market share. So I think the whole team is really excited about that.

Our next question. Next question coming from the line of Vivek Arya with Bank of America.

Steve, I just wanted to go back to the comment you made about the potential and the opportunity to grow perhaps double digits this year. I was hoping you could give us some color by segment? Which segments do you think would help you grow faster or below that rate? Or you think all 3 segments can grow in line with that growth and opportunity?

So I think it's very difficult for us to sort of communicate with fidelity where we think the year will end in terms of ultimately which markets will drive our growth. If we can achieve high single-digit and low double-digit growth across the mix of markets, I think we'll be able to achieve our goal. So I don't want to necessarily call out any one particular item or end market. Certainly, everybody knows that 5G is fairly soft right now. We know that defense is strong and getting stronger. Our telecom business is doing quite well primarily driven by product introductions. As we mentioned during the course of the year, we expanded our SOI product line. We're getting involved more and more in cable infrastructure and broadband access with a variety of control products, amplifiers and filters. I mentioned also on the optical side, really interesting projects that we're working on, including EML lasers, which is very additive to our laser portfolio. And again, when we think about lasers, we think about establishing a portfolio of functions that addresses not only Data Center and Telecom, but also sensors. And so we have a lot of interesting projects underway in and around lasing. And so we're excited about that for this coming year. So a lot of interesting projects. I wouldn't necessarily highlight any one that will drive our growth. So I guess I'll leave it at that.

All right. The reason I asked that question is there was a big disparity in the relative growth rates of the 3 different segments in fiscal '22. And the one I wanted to really get your perspective on is Industrial and Defense. The 5% growth. Obviously, last year, you grew 44%, so compares are tougher. But how do we put this 5% growth in the context of 15%, 20% growth in Industrial and Defense sales that we saw across a number of your other analog and industrial peers. Like where I'm struggling is how to model growth in Industrial and Defense what to correlate this to?

Sure. And I think it's important to put things in context that our Industrial and Defense business was range-bound for many years in the sort of $40 million to $50 million a quarter range. And that was due to lack of investment, lack of focus and really the strategy of the business. And so when we went through our update of our strategy back in 2019, we made a decision then to make Industrial and Defense a priority. And now fast forwarding to Q4, Q4 was actually the record level of I&D revenue for the company at $78.5 million. So that was a record quarter. And we -- and going into this Q1, we're also expecting either flat or modest growth on that. And so we're actually quite pleased about I&D, and we think we have sort of broken out and we're doing all the right things to continue to see reasonable growth. But in terms of long term, we think we're going to achieve the $1 billion by continuing to have solid performance with our Telecom business as well as our I&D business. So I think I would leave it at that.

And our next question coming from the line of Thomas O'Malley with Barclays. Thomas O’Malley: I just wanted to go back to a prior comment you made, I think, to an earlier question about the well-known weakness in China. Is there any way you could contextualize the weakness that you're seeing, the company-specific weakness from 2 quarters ago until now? And then also, we recently saw the unverified list come out and there was a large amount of Chinese optical companies that were actually on that list. Could you just give any color on, one, if you've taken a look at that list and two, what you think the impact might be if some of those customers were unable to ship in the future?

Sure. Well, a few things about China. First of all, as everybody knows, China is a very important market for the semiconductor industry. I think in 2021, China imported $400 billion of semiconductor products. Today, MACOM's overall business, we ship about 25% of our business into China. If you go back and look at the last 3-year trend, that's actually been trending down. In 2020, we were just below $200 million, and now that's trending towards about $175 million. So it's an important market for us. It's a diverse market for us. This past year, what MACOM did is we actually did a bit of restructuring and rebuilding and expansion of our team inside of China. And as we think about our growth going forward, we recognize that there's some very interesting markets in China, including electric vehicles and new energy markets that will require a wide range of semiconductor. So part of our go-forward strategy is to certainly try to address some of those large markets that we're not currently addressing today. The second thing I'll add in terms of just overall export control. So we take that very seriously whenever there's updates to denied parties or entity lists. Of course, we are very active, and we would react immediately and address all of those changes. And so there has been instances in the past where companies have gone on the entity list. And as a result, we do have to take an impact and we see that our revenues dip down. Of course, Huawei back in 2019, we were trending to about $20 million a year and now that's 0. So I guess, Tom, what I would say is as the as the regulations are updated, we follow the regulations. It's hard for us to sit here today and make comments about how any particular change would impact our business other than we adjust and follow the regulations. Thomas O’Malley: Got it. Really helpful. And then just a follow-up on the I&D business. Historically, I think you guys have given the breakout of 60% Defense, 40% Industrial. With the moving pieces, you would expect that Defense would be a bit stronger as we go forward. Is the breakdown still 60-40? Or have you seen those -- the relative sizing of those 2 pieces change over the last couple of quarters?

I think that ratio is about correct. I think it's a ratio [Technical Difficulty] reasonable ratio to use. I think over the long term with some of the big programs we're getting involved in with Defense, I would expect Defense might actually grow beyond that 60-40 ratio.

The next question coming from the line of Tore Svanberg with Stifel.

And congratulations on the 62% gross margin for the full year. That's a good milestone. First question, maybe I didn't quite catch this, Steve, but when you were doing your prepared remarks, I think you said a SAM of $5 billion to $6 billion. I know in the past, you've talked about $5 billion. So I was just wondering why you said 5 to 6? And is that additional $1 billion? Is it coming -- it's obviously coming from your 3 segments, but obviously, auto is now also becoming a segment. So I was just wondering if you're going to start sort of separating that out as it's on SAM.

So you are correct that we are working hard to expand our SAM. SAM numbers can be -- can range depending on what you include in the SAM and what you don't. So we generally try to be a little conservative on our ranging of SAMs. What I will say is the growth is coming from new product lines and new technologies. And as you know, over the last few years, we've launched a whole number of new product lines. And so that SAM expansion is coming from GaN and silicon carbide. It's coming from some of the optical products, including the OTDR products we talked about on the last call, the EML lasers that we're looking to introduce next year as well -- the list goes on. So the SAM expansion and that $6 billion is a real target number. Part of our strategic plan is to make sure that every year, we're adding new functionality to our portfolio. And so you should expect that number to continue to grow.

Very good. And as my follow-up, for your Data Center business, I think MACOM has been a bit contrite, right? I mean, this year, you didn't see any growth there, while a lot of others did. And it does sound at the margin that you have a lot of new products coming in next year, especially the DFP (sic) [DFB] lasers, the FP lasers and so on and so forth. So I'm just wondering, based on what you see today, even if that market were to be weak next year, could you still grow the Data Center segment based on your new products?

So we think, yes, and we think that growth could actually achieve double digit. And just to remind everybody, we had forecasted at the beginning of fiscal '22 that there would be about a $15 million drop in legacy business within the Data Center market. So if you were to add that back into our $138 million of revenue, you would have about 10% growth. But when we think about this coming year, we think about ramping a lot of our 400G products. We -- we actually -- if we look at some of the dynamics right now, we definitely see some of the NRZ platforms that we're involved in today being replaced with 400G platform. So short reach, long reach is an area where we're very strong. As you know, we launched our active copper cable products last year. Those will ramp in '23. And that will provide us some incremental growth. And generally, as the world starts to move more and more to PAM4 at the higher data rates, this is where our product line really shines when you look at our drivers, our TIAs and now even our lasers.

And our next question coming from the line of Matt Ramsay with Cowen.

Steve, I wanted to ask -- I think we started the call with a question on just kind of some of the order patterns that you're seeing, and you guys have been above -- book-to-bill above 1 for a while now. but you did mention maybe it would go below 1 in the coming quarter. So I just wanted to maybe have a bit of a clarification on the length of the backlog currently in, I don't know, in revenue relative to the run rate? And are you seeing actual pushouts or delays in orders within the backlog? Or is it just sort of new orders book-to-bill is less than 1?

Okay. So we have a very high-quality backlog, and we're constantly making sure that orders that we're placing are being placed within a reasonable amount of lead time. We don't typically put things on our backlog that extend beyond a year for some of our larger programs. I will say that recently, we have seen a little bit of everything. We've seen some cancellations on the margins. We've seen pushouts, -- we've seen pull-ins. But generally, it becomes very customer specific in terms of what they're doing. We've seen, for example, major customers that were in high-volume production cancel programs in certain of our market segments. And so yes, we are seeing a little bit of that. At this stage, we think it's manageable. And we -- even when we roll all of those numbers during the quarter, we still came out with a greater than 1 book or a 1 book-to-bill. So we're happy about that. So we're definitely seeing pressure on the bookings side, and maybe Jack can add to the comments in terms of trends and also channel inventory and whatnot.

Thanks, Steve. Yes, Matt, we have a fairly rigorous process here when we look at our order inflow and our backlog over the course of each period. It's time that we spend with our sales and operations team to make sure we've got our fingers on the pulse of what's happening from an overall order and backlog standpoint. And we have been very fortunate over the past couple of years in terms of the book-to-bill across all 3 of the different end markets that we serve. So it's been fairly well diversified in terms of the strength that we've been receiving from an orders point of view across those 3 different end markets. And then on top of that, in terms of when we look at our backlog, it's generally going out no more than 1 year. So in terms of it being time bound, I'd say substantially all of our existing backlog is under 1 year at this stage.

All the detail there. That's really helpful. Jack, I just wanted to -- I guess, Steve, as well, I just wanted to back up and kind of -- I mean the last no semiconductor downturn is the same, I guess, but they all have similarities. And I guess, Steve, right, before you came in and took over as CEO, we were kind of going through the last one in 2019, and there was the headwind that you mentioned from Huawei as well that impacted the business back then. And I'm just trying to kind of compare and contrast things look like -- I mean you guys have added, what, 13 points or so of gross margin since then. You're now -- you just finished the year at 31% op margin and the op margin in '19 was basically 0. And you just flipped sort of net cash positive. So I just wonder if you can maybe compare and contrast the position that the company is in now versus the downturn that the company might have felt in the past. And then any thoughts new or different on capital allocation now that the balance sheet is in a very, very different place than it was in the past? Really appreciate any big picture thoughts there.

Yes. So interesting question. So you're right, no 2 downturns are the same, I guess. So I guess what we can talk about is why we feel like we're going to do better than most going forward. I think that's an important part of your question. And it really comes down to the diversity of our business. A split almost evenly between domestic and international, no greater than 10% customers are very few. We have 2% of revenue on any one particular product. And in the last 3 years, we've introduced over 400 new products and a whole wide range of product lines. And so these are the best defenses we can have as we think about dealing with recessions and potentially revenues that might go down in the future. And so the last thing I'll add is that we run a very lean and mean organization. We -- as Jack pointed out in his script, we keep a very careful eye on discretionary spending and waste. And our operations, our sales, our finance, our planning and logistics teams, shipping teams, all do a phenomenal job working together to save the company money. And so that allows us to invest in the things we want to invest in. We think the best place for our cash right now is investing in the business. We will be allocating, as Jack highlighted, more on a year-over-year basis of more capital spend and a lot of that will be going into our fab here in Lowell as well as Ann Arbor. So we think we have a solid position. Now if our customers start producing less products or canceling programs, of course, will have an impact and we'll have to adjust our strategy and accommodate that. So I think -- if I think about at the end of the day, where we stand today versus where we stood 3 years ago, as Jack highlighted in his script, even if we go into a downturn, MACOM will remain profitable and cash flow positive. And that is a major difference from where we were 3, almost 4 years ago.

And our next question coming from the line of Quinn Bolton with Needham.

Congratulations on the nice results and outlook. I guess, Steve, you've been through a number of cycles. And I guess I'm just kind of wondering, you've had 8 quarters of better than 1 book-to-bill. You mentioned some adjustments in backlog and order softness, but I'm just kind of wondering, 8 quarters of positive book-to-bill would sort of suggest that you guys can continue to put up kind of flat to sequential growth through next year. So my question is, how long would this period of order weakness have to last before you think you might start to see quarterly revenue start to trend down? I mean, can you absorb a quarter or 2 of order weakness? Could you absorb more than a couple of quarters? How should we be thinking about what the impact on quarterly revenue might be if this period of weaker orders continues?

Yes, probably 1 or 2 quarters is the short answer. I mean when you're trending with book-to-bills below 1 for too long, it impacts your top line. So I would say probably 1 to 2 quarters now as we -- as Jack also talked about, we have a very, very strong backlog, and we're in a good position. So -- but it's probably in the range of 1 to 2 quarters.

Great. And then obviously, a big focus on new products, and you mentioned about 150 new products in 2022. Do you have a target for '23? Will it be about that same level? Do you expect to grow it potentially in fiscal '23?

So we do have targets. We have internal targets and the expectation should be for more new products next year. We're not ready to sort of put that number out there. I can tell you that our entire organization revolves around new product introductions. For example, when you walk through this facility here in Lowell, Massachusetts, there's monitors in all the different conference rooms in cafeteria, and it basically has product launch schedules and releases and actual performance to quarterly goals. And so the entire organization is focused on moving products out the door. And it's not just R&D that needs to support that. It's logistics, it's people building prototypes. It's technicians in the labs that need to test the products. So suffice to say that we have an expectation that there will be more, but we also keep an eye on quality. We're not just launching products for the sake of increasing the number of products in our portfolio. These have to be better products than our competitors, and that's the standard we hold ourselves to. And one interesting fact is about 20% of our revenue today comes from products that were launched less than 3 years ago. So that speaks to the work that the team is doing to launch compelling products that are taking market share.

Our next question coming from the line up Harlan Sur with JPMorgan.

Innovation and new products, obviously, has been a big driver for the team. Your standard product offerings are complemented, I believe, by some pretty key custom programs. How does the custom pipeline look heading into fiscal '23? Can you just give us some examples of a few of the key programs and maybe if you can just give us a rough sense of the mix of customer as a percent of your total revenues?

Yes. And so we encourage all of our engineering organizations to enter into custom chip developments. And so we're doing that at the diode level, we're doing it at the mimic level. We're doing it with our analog mixed signal devices across all the different areas. And so we highly value that those engagements because now customers are willing to fund you to develop a solution that's specific to their programs. We don't particularly break out the amount of development dollars we're getting or we haven't really sized that type of our business. So we don't really want to break that out here today. But it is an important piece. And I can tell you that generally speaking, all of our different engineering organizations have probably anywhere between 1 and 5 custom developments going on. Some of those are customer funded. Most of them are, but some of them are done for the right reasons because they're strategic accounts. So absolutely, probably in a short response probably busier than ever in terms of custom development work.

Great. And then in Data Center, we keep hearing more and more about active copper cable or active electrical cable, 400-gig, early 800 gig within RAC between RAC connectivity, especially as the switching architecture, right, moves to 26 and at some point, 52 terabits per second. Feels like the direct attach kind of just runs out of steam, right? And so you talked about this contributing to growth here in fiscal '23. I know you guys are targeting it with your linear equalizers. Can you remind me, are you guys also supplying the CDR chip as well? And how many cable vendors have you guys qualified with? And roughly how big is this market opportunity?

So I think there's a lot of hype around active copper cable. And so we don't want to put fuel on that fire. But we look at the opportunity with our ACC or linear equalizers as just a product in our portfolio. And so there's customers that for short reach do not want to use optics. They want to use -- basically keep the signal in an electrical form and run that higher data rates over copper. And so we have some really elegant linear equalizers that get the job done that work up to in some cases, 10 meters. And so these chips do not have CDRs, they're not retimed. These chips can support PAM4 100G per lane, and we're now developing 200G per lane as well. So we have a very unique position in the market. We can't necessarily disclose how many cable manufacturers we're dealing with. But we do believe given the strength we have with equalization and signal integrity that we are fast becoming the go-to supplier for these type of solutions. Now our solutions are not dumbed down DSPs or solutions that some of our competitors are having. These are low current, low latency, low-cost chips that get the job done for short reach.

And our next question coming from the line of C.J. Muse with Evercore.

I guess another question on your revenue outlook for fiscal '23. You've clearly talked about aspirational goals of high single digits, low double digits. But at the same time, you highlighted that you're not immune to kind of the macro weakness that we're seeing. So is there a way to kind of parse your portfolio that is cyclical versus secular? And if I kind of threw out a semi revenue world of down 5% to 10% in calendar '23, what would you guys kind of do in that type of environment?

So that's a very difficult question for us to answer. I'm not sure we could give you something that would be meaningful here. So all I can sort of highlight is that we're launching more and more products. We -- as a priority for the business, we believe taking market share is a great way to buck the trend, so to speak, and that's what we're working on. So MACOM is not a bellwether of the semiconductor industry. We're quite small. So if the semiconductor industry goes one way up or down, we won't necessarily go in the same direction just due to the nature of our portfolio, our customer base and the things that we're working on as a priority. So it's very difficult to answer that question with something meaningful, we'd probably get it wrong.

That's helpful. Appreciate it. I guess maybe as my follow-up regarding the CHIPS Act, and it sounds like there will be greater clarity in the February kind of timeframe. Curious in terms of kind of your focus, CapEx or R&D related and how you would see that over time, helping your business?

So we're very active with efforts to win CHIP Act's funding, and we've had multiple engagements with various government agencies over the last 4 to 5 months. In a nutshell, you can break down our ask, if you will, to really 4 different categories. One is overall modernization and capacity expansion of our wafer fabs as a priority. The second would be funding for advanced process development and working on next-generation processes, whether it's higher power or higher frequency or whatnot. The third is an element where we want to develop packaged technologies that are currently being purchased offshore, and we would want to establish an onshore capability for some assembly and test. And then the last element is really workforce enhancement and winning funds to support stronger engagements with universities and bringing in more talent to the company. So those are the sort of the 4 pillars that we're focused on, which we believe aligns with the intent of the CHIPS Act. And as you know, it's a little unclear right now, the timing and the methodology and the scale that will ultimately flow down. So a lot of those things are being worked out. I think it's something that we'll continue to update everybody on in fiscal '23, but we don't expect funding, let's say, in the first half of '23. We suspect it's beyond that timeline.

Our next question coming from the line of Melissa Fairbanks with Raymond James.

I will trim my list accordingly. Maybe just following up on some of the CHIPS Act, I was just wondering how much of the investment is -- how many of your customers are approaching you in terms of near-shoring or on-shoring activities with some of your future CapEx investments? I know by definition, a lot of your defense business already is there. You have a pretty robust supply chain domestically. But just wondering if you're sensing a shift in your customers' requirements for that supply chain?

Yes. As you know, we're in multiple markets. I think some customers care deeply about the topic and others don't. So it's hard for us to sort of break out and quantify that for you -- but to your point, yes, there's some U.S. defense customers that care deeply about supply chain and where things are being built and processed and whatnot. So to the extent that we can support their concerns with CHIP Act funding, we'll do that. But as a general overlay we look at this opportunity to accelerate things that we would want to do anyways. And so that has -- the focus of expanding or investing in our business has to be a long-term strategy because once the CHIP Act money comes and rolls through, you still have to be profitable and grow and have a good business plan around whatever you just invested in. And so that's really what's driving our decision and thinking regarding the asks that we have around the CHIPS Act. And by the way, the other caveat I'll put out there is there's no guarantee that we'll win a single dollar. We believe we are a candidate, a strong candidate, but it's a process, and it certainly carries risk.

And our last question coming from the line of Richard Shannon with Craig-Hallum.

I'll just ask one here. Steve, you talked about having the GaN on silicon 0.14 micron ready here, I think, introducing it early next year. Maybe you could talk about the early customer engagement or if it's even appropriate to talk about a pipeline here. What should we expect, if any, in revenues in fiscal '23? And then how does this compare broadly with the ramp and opportunity with your silicon carbide products as well?

Yes. Thank you. So we have been careful not to promote the technology before it's fully qualified, and we're just getting to the point where we're completing -- successfully completing our HTL or high-temperature life testing and all the data looks good and things are falling well into play. So really, we're just starting to release PDKs and design kits to strategic customers that want to use our process as a foundry as well as our design team really during the course of fiscal '22 was running a whole wide range of designs just to gain the experience on the process. And so all of those things will come together at the beginning of calendar '23. We do expect to have a reasonable launch where we'll have compelling products. We'll be hitting all the major defense frequency bands as well as SATCOM bands with high-power devices. So in terms of revenue expectations for '23, I don't necessarily want to break anything out. I think it will be a slow ramp. So you should expect modest and only incremental gains in revenue, but we need to enter the market, win sockets and then ramp those programs with our customers. And in terms of how do we compare this opportunity to our lower frequency pure carbide? I think they're equally exciting. I mean, we are having tremendous success with our point 1 -- with our low frequency pure carbide products, which are generally targeting very high power and lower frequency -- and now with the 0.14 process, we'll be targeting higher power and higher frequency. So very different technologies, equally exciting.

And I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Steve Daly for any closing remarks.

Thank you. In closing, I'd like to acknowledge the hard work and dedication of all of our employees that make these results possible. Thank you very much. Have a nice day.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect. Good day.