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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day and thank you for standing by. Welcome to the Viavi Solutions’ Fourth Quarter and Fiscal Year End 2021 Earnings Call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]
Thank you. I would now like to hand the conference over to Bill Ong, Head of Investor Relations. Please go ahead.
Thank you, Ashley. Welcome to Viavi Solutions’ fourth quarter and fiscal year 2021 earnings call. My name is Bill Ong, Head of Investor Relations. Joining me on today’s call are Oleg Khaykin, President and CEO; and Henk Derksen, CFO.
Please note, this call will include forward-looking statements about the company’s financial performance. These statements are subject to risks and uncertainties that can cause actual results to differ materially from our current expectations and estimations. We encourage you to view our most recent annual report and SEC filings, particularly the risk factors described in those filings. The forward-looking statements, including guidance 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, except revenue, are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss the usefulness and limitations in today’s earnings release.
The release plus our supplemental earnings slide which includes historical financial tables are available on Viavi’s website. Finally, we are recording today’s call and we’ll make the recording available by 4:30 p.m. Pacific Time this evening on our website.
I would now like to turn to call over to Henk.
Thank you, Bill. Fiscal Q4 2021 reflects a strong quarter, with the Viavi record revenue, non-GAAP profitability and operating cash flow for a given June quarter. Fourth quarter revenue came in at $310.9 million, which exceeded our guidance range of $290 million to $310 million. Revenues grew 16.6% from a year ago level and set an all-time Viavi Q4 record.
Consistent with the prior quarter, the year-over-year performance continues to reflect robust recovery from last year’s pandemic impact, as well as continued strength in wireless and fiber, and solid demand for our anti-counterfeiting products.
Viavi’s operating profit margin at 20.8% expanded 120 basis points year-over-year and 60 basis points sequentially, and exceeded the guidance range of 19.5% to 20.5%. EPS at $0.22 per share exceeded the high end of the $0.18 to $0.20 guidance range and increased $0.04 from the year ago period.
In addition to strong operating performance, we benefited from a lower than anticipated tax rate of 17%. The share count of 241.9 million shares includes the dilutive impact of the convertible notes of 10 million shares.
Now moving to our reported Q4 results by business segment, starting with NSE. NSE revenue at $236.5 million, increased 13.5% year-over-year, exceeding our guide range of $219 million to $235 million. Within NSE, NE revenue increased 17.6% from a year ago to an all-time record high of $212.7 million, reflecting strength for our fiber, wireless and cable products. SE revenue at $23.8 million, decreased 13.5% year-over-year and increased 17.2% sequentially, a result of the lag in recovery for our assurance and data center products.
NSE gross profit margin at 63.4% decreased 120 basis points year-over-year. Within NSE, NE gross profit margin at 63.1% decreased 60 basis points from last year primarily due to unfavorable product mix. SE gross profit margin at 65.5%, decreased 500 basis points year-over-year due to lower revenue.
NSE’s operating profit margin at 15.1% exceeded the high end of our guidance range of 13.5% to 14.5%, primarily as a result of operating leverage on higher revenue. Year-over-year operating profit margins decreased 180 basis points, mainly a result of lower gross profit margins. Sequentially operating profit margins improved by 520 basis points as a result of leverage on higher revenue.
Now turning to OSP. Fourth quarter revenue at $74.4 million, up 27.8% year-over-year was at the high end of our guided range of $71 million to $75 million. The strength was driven by robust anti-counterfeiting demand, offset by a modest seasonal decline in our 3D sensing products.
Gross profit margin at 57.5% increased 660 basis points year-over-year, driven by higher volume and favorable product mix. Operating profit margin of 38.8% was within a guided range of 38% to 40%, and increased 940 basis points from last year’s levels, as a result of the aforementioned higher gross profit margin.
Now moving to our fiscal 2021 performance, while the COVID-19 pandemic impacted the start of fiscal 2021, Viavi experienced a sharp recovery beginning in late last calendar year with a strong finish to record revenue at $1.2 billion, up 5.5% from fiscal year 2020. OSP reached a record revenue of $361 million, up 25.8% year-over-year, while NSE at $837.9 million, saw a modest decline of 1.4% in revenue.
Viavi’s full year 2021 gross profit margin at 62.7%, increased 70 basis points from a year ago level, reflecting leverage on volume resulting in improved gross profit margins within our OSP segment.
Operating profit margin at 21.1% expanded 250 basis points, reflecting gross profit margin expansion combined with operating expense control. Operating profit at $253.5 million grew 20.2%, increasing $42.6 million year-over-year. EPS at $0.83 per share grew 13.7% or $0.10 from last year.
Stronger volume in the Asia-Pacific region resulted in a shift in jurisdictional mix of income contributing to an increased tax rate of 19.4% in fiscal 2021, compared to 17.5% in fiscal 2020. The share count used includes the dilution of the convertible notes and as calculated both on a full year basis and on a quarterly basis. Hence, the resulting full year EPS of $0.83 is $0.01 lower than the summation of the individual quarters.
Now, turning to the balance sheet. The ending balance of our total cash and short-term investments was $703.7 million, an increase of $25.6 million sequentially from the prior quarter and up $159.7 million compared to the prior fiscal year.
Operating cash flow for the quarter was $63 million, a fourth quarter record and an increase of $35.8 million, compared to $27.2 million in the year ago period. We invested $25.4 million in capital expenditures during the quarter, compared to $8.3 million in the prior year. The increased CapEx reflects a new production facility in support of increased future demand build in Arizona.
On a full year basis, we generated record operating cash flow of $243.7 million, up 79.7% and reflecting an increase of $108.1 million, compared to fiscal year 2020 at $135.6 million.
On July 1, 2021, the 1% convertible notes due in 2024 with a face value of $460 million matched the 130% pricing trigger, resulting in the notes becoming convertible at the option of holders until September 30, 2021.
As a result, we have reclassified the $414.2 million book value of the notes to short-term debt and reported the difference in the book value and the face value of $45.8 million as temporary equity on the face of the balance sheet. This change has no impact to reported interest expense, EPS or the diluted shares calculation. In addition, we are not aware at this time of any noteholders electing conversion.
In Q4, we repurchased $10.9 million of Viavi stock at an average cost of $16.77 per share including commissions. In total, as of the end of the fourth quarter, we purchased $87.1 million of the $200 million authorized of the share buyback plan announced in September 2019 at an average price of $12.98 per share. We will continue to be opportunistic in our share repurchases and we continue to develop an intent to execute on our capital allocation and debt management strategy.
Now on to our guidance, we expect fiscal first quarter 2022 revenue to be approximately $310 million plus or minus $7 million, operating profit margin is expected to be between 21.5% to 22.5% and earnings per share to be in the range of $0.20 to $0.22.
We expect NSE revenue to be approximately $215 million plus or minus $5 million with operating profit margin at 12.5% plus or minus 50 basis points. OSP revenue is expected to be approximately $95 million plus or minus $2 million with operating profit margin at 43.5%, plus or minus 100 basis points.
Our tax expense rate is expected to be approximately 20%. We expect our income and expenses to reflect a net expense of approximately $3.5 million.
The estimated fully diluted share count used in our calculation is 244 million. This includes an increase of approximately 12 million shares to reflect the estimated dilutive impact from the 2023 and 2024 convertible notes. The share count without the convert dilution is approximately 232 million shares.
With that, I will now turn the call over to call Oleg.
Thank you, Hank. I am pleased with Viavi’s performance in our fiscal second half with both Q3 and Q4 achieving record revenue and profitability. The NE segment achieved new revenue highs benefiting from the continued service providers business recovery and upgrades to the fiber and wireless networks. The demand for 5G wireless equipment reached a record high with strength across all geographic regions. 5G field deployment remains on track for the balance of calendar 2021.
The fiber revenues were driven by fiber to the home deployment 400 gigabytes network and data center upgrades and early 800 gigabytes adoption. NSE bookings came in at record levels resulting in record backlog and providing us with greater near-term demand visibility.
One challenge for our NE segment is the continued shortage of advanced semiconductor devices, dampening our ability to meet and otherwise very strong customer demand. These supply chain constraints have been factored into our fiscal Q1 guidance. Should these supply constraints resolve in near-term, we would expect to see some revenue upside in the NE business segment.
The SE business segment continues to recover with revenue increasing 17.2% sequentially as we build the customer business funnel. We expect SE to continue to improve as enterprise customers reevaluate their IT project needs and 5G assurance opportunities start to materialize later in calendar 2022.
Now turning to OSP. The OSP business segment delivered a record June quarter revenue and profitability led by strong demand for anti-counterfeiting products. Anti-counterfeiting demand continues to be driven by a combination of global fiscal stimulus, inventory replenishment and banknote redesigns.
3D sensing finished strong in fiscal year 2021, up 18% from last year’s levels driven by broader technology adoption and new applications.
Despite strong pandemic-driven headwinds early in the fiscal year, we successfully recovered and managed the very strong finish hitting multiple financial performance records, including record non-GAAP EPS and cash flow from operations, record OSP fiscal year revenue, non-GAAP gross margins and operating profits all up double-digit percentage year-on-year, and the record NE revenue in Q4 driven by strong wireless and fiber demand.
As we look ahead into fiscal year 2022, it is off to a strong start with improved NSE demand visibility driven by 5G wireless and new fiber deployment. We expect strong demand for our anti-counterfeiting products to continue, driven by global monetary policies and banknote redesigns.
In 3D sensing, while we expect a relatively flat demand in fiscal year 2022, we continue to see it as a major growth driver longer term. Overall, we expect our principal growth drivers, 5G, fiber and 3D sensing to continue driving growth and profitability for Viavi in fiscal year 2022.
In conclusion, I’d like to express my appreciation to the Viavi team for its continued strong execution in delivering another record quarter and record fiscal year. I wish all our employees, supply chain partners, customers and our shareholders to remain safe and healthy.
I will now turn the call over to Bill.
Thank you, Oleg. This quarter we’ll be participating at the Jefferies 2021 Semiconductor, IT Hardware & Communications Infrastructure Investor Summit on August 31st. Ashley, let’s begin the question-and-answer session. We ask everyone to limit their question to one question and one follow-up.
Thank you. [Operator Instructions] Your first question comes from the line of Samik Chatterjee with JPMorgan. Your line is open.
Hi. Good afternoon. Thanks for taking my question. Oleg, I think, previously you’ve mentioned that between the two drivers being fiber and 5G deployment, you think fiber is the more kind of near-term upside or you have visibility and then 5G deployment a bit later. Can you just kind of share your updated thoughts on that, still -- is that how you’re still thinking about it? You mentioned increased visibility for any what is contributing to that, some a bit more color there will help and I have a follow-up. Thank you.
Sure. Well, I think, fiber is still very much the biggest driver and it’s across every segment. It’s not only field instruments, but it’s also a data center, it’s a lab. It’s also fiber applications for the wireless networks, because before you can provision 5G or other wireless services, you got to run the fiber to the tower or the antenna.
So fiber continues to be extremely strong and we are seeing significant government infrastructure drive in Europe and now also increasingly North America in getting fiber deeper into the Tier 2, Tier 3 cities and into the rural customer base.
So in that respect, I mean, it’s a very, very strong demand. It’s far outpacing our ability to supply every -- all the needs that there are out there today due to the severe semiconductor shortage. And thus, when I say it’s improved, we have improved visibility, it means you have a growing backlog that you cannot meet in the short-term.
So it rolls over into the future quarters, which on one hand it’s the best of times, because now you have visibility of a big backlog. But it’s also the worst of times, because you cannot get all the product you need when you need it. We continue to manage, but I think it’s fair to say, there’s a meaningful chunk of revenue that we could have realized in this quarter that we’re going to push out into the future quarters.
And we’re only seeing that trend accelerating and continue to get stronger as various European countries embark on running fiber to practically every home and we see more and more programs being rolled out an increasing number of requests coming in. So fiber continues to be very strong.
That said, we also are starting to see a lot more activity around 5G wireless deployment as plans are starting to come to fruition and major operators starting to move to start doing initial deployment. It’s clearly still not as big as we expect it to be within the next six months. It’s the early stage, but we’re seeing the progress being made in that area as well.
Okay. That’s great. And Oleg, if I can follow up, if you can give us an update on where the process is with EXFO relative to the different actions you’ve taken there. What do you think are the next steps? And as a side note, like, you have been building cash, you’re generating quite a substantial amount of cash now on a yearly basis. Outside of EXFO, what else is kind of in the thought process or alternatives that you can explore to use the cash that you’re generating?
Well, I mean, the cash is not burning hole in our pockets. I mean, we remain very disciplined. I mean in the case of EXFO, the valuation put forward by the Chairman and Founder of the company was a no brainer for us and we knew full ahead fundamentally there is no deal unless your main lawman decides to sell.
But we felt it was compelling and necessary for us to put a strong offer on the table to signal the value of the business, because it’s effectively it’s our business as well and the bullishness with which we view that environment.
And we’ll see tomorrow I think is the day when their shareholders get to vote. If they vote to majority of the minority, shareholders vote to decline the offer then maybe there’ll be further discussions. If they vote to accept it, then they get what they deserve, which is selling their shares subpar.
So, I mean, there’s really not much more to it. In the end, it’s really very much up to the Chairman and Founder, what he wants to do with the company. But we felt we owed it to our shareholders to signal that we are not afraid to be aggressive and put an offer on the table. And there are other targets potentially out there, and in due time, we’ll bring them up to the forefront as well.
Okay. Great. Thank you. Thanks for taking my questions.
Sure. Thanks.
Your next question comes from the line of Alex Henderson with Needham. Your line is open.
Hold on. Thanks. I was hoping you could talk a little bit about the magnitude of the impact from the supply chain challenges, to what degree your order rate is above 1.0? And how much of that you might have been able to ship had you had the product and granularity around which particular products were the most impacted?
So, thank you, Alex. Well, I mean, the order rate in the fourth quarter was significantly above 1.0. I mean, and by significant, I mean, by a big margin, right, a big margin, which we always caution people about book-to-bill ratio, because remember a lot of our products are shipped within the same quarter.
So, clearly, when you have a very big book-to-bill index, it just basically tells you have a pretty good start in the first month of the next quarter. And usually, especially in NSE, most of our products, in NE in particular, are shipped within three months to four months. So it’s all kind of ship -- and big chunk of it is book shift.
The shortages that we see, I mean, whereas we’re able to pretty much manage most things pretty well, increasingly the area of the most acute shortage is the advanced ICs in the 14 nanometer to 28 nanometer range. So it’s really you can make your own deductions what it is, it’s the more complex type A6 and processor type products. That is at the core of our devices.
And even though we’re fairly good at getting all the other auxiliary parts and be able to put the kits together that is the area that remains very short. I think we’ve done a really good call in the fall of last year to load up on the parts. Unfortunately and now that inventory is running pretty low and now we are also starting to see some of the shortages.
So we continue to manage, but I mean, it’s not a very small number but it’s also obviously not a very big number. But let’s put it this way, it’s a -- it would be meaningful enough to drive a significant EPS growth had we been able to meet our demand for this quarter.
If you look at it from the cost side of the equation, how much of your costs are being impacted by expediting and higher airfreight, higher container costs and the like that are the side effects of all of us?
Well, I tell you, I think, the freight costs are up significantly. The components costs are up. I mean on the extreme on these parts of that are in extreme shortage. We are seeing brokers charging 30x, I mean, 30x premium on the normal price.
So it’s a complete sellers’ market out there in some of these things, right? So, it’s -- those are individual isolated devices. But unfortunately without that last piece you cannot build and ship a multi-thousand-dollar product.
So that said we did have some pressure to our gross margins. But fortunately for us we are in a very kind of high end products where even higher costs for some devices, expedite fees, logistics fees were able to absorb it and with a higher volume, the better absorption of manufacturing overhead offsets some of the higher costs.
At the same time, we are proactively going out there and increasing prices on our products as well. So we’re not -- we’re passing some of those increases to our end customers and we’re being selective about where we are doing it and where we are not.
But I can see down the road you’re going to see some of the ASP appreciation on across the Board on all the products and we are seeing the same. I think our competitors are facing even more severe shortage and higher costs. So that’s an opportunity to actually to provide some ASP appreciation.
So can you quantify the impact or no?
I’m not -- it’s not material. It’s within a couple of percentage points.
Okay. Thanks.
Sure.
Your next question comes from John Marchetti with Stifel. Your line is open.
Thanks very much. Oleg, maybe just following on with that on the supply chain side for a moment, can you just talk about, maybe over the last quarter or last several months, how that’s trended? Are things relatively stable, do you still feel like it’s getting worse and kind of where your outlook is, I guess, in terms of how you think this plays out over the next quarter or two?
So, I mean, I think, you really -- it’s a really bimodal distribution. I mean, on the basic parts, like the discretes, the passives, boards, plastics. I mean while there is some challenges here and there, it’s fairly manageable and you can handle with expedites.
The area that were the situation I think is getting worse and I think the December quarter is going to be probably more acute than even September quarter is, I said, in that, kind of, high performance 14-nanometer to 28-nanometer advanced ICs. So it’s microcontrollers, FPGAs, A6, you name it, because that’s kind of the sweet spot for high volume production products that are out there today.
Since we don’t use anything in the 7-nanometer or 5-nanometer range, I’m not privy the shortage is there. But I think in the kind of mainstream, 14-nanometer to 28-nanometer is really what we are seeing the biggest shortages. And it’s not only silicon, there’s also obviously challenges with some of the substrates from what we understand from our vendors.
Got it. And then just briefly…
But silicon is by far the biggest…
Okay. Okay. And then if I move just to some of the geographic commentary in the quarter, Asia-Pac had a couple of strong quarters here in a row. I’m just curious if that’s skewed towards either the anti-counterfeiting or anything going on there and how maybe we think about, what’s going on I guess from a geographic basis as we’re looking out over the next several quarters?
Well, it’s a combination, I mean, clearly anti-counterfeiting is one thing, but we don’t comment on specific countries. But also 5G wireless, I mean, our wireless business has been doing very well in Asia, has a lot of vendors and operators around 5G. And we are also seeing some -- we continue to see healthy demand for fiber products.
Thank you.
You next question comes from Tim Savageaux with Northland Capital. Your line is open.
Great. Thanks. Sorry about that. I am going to go back on the supply side a little bit here before asking a higher level question. But to the extent you’re talking about strong bookings, looks like that’s continuing into the current quarter across the network enablement business, and I guess, across all three pieces, if you will, fiber, wireless, and cable. Should we assume that given that you had the potential to grow or at least keep NE flat sequentially absent any supply constraints? And then I’ll follow up.
Yeah. Absence of the supply constraints, you probably would have had an all-time record quarter in September. So I mean the answer is, yes, to your question about growth.
Fantastic. And then zooming a little higher level here, last quarter you mentioned the kind of super cycle dynamic underway across your various communications test businesses. It sounds like that continues to develop favorably, but I just wonder if you might provide us with an update on whether any particular piece of equation has accelerated or changed in a meaningful way since the last couple…
Sure. I mean that’s actually one area that’s very exciting for us. So for the number of years we’ve seen very strong growth in Europe, in Asia, even in South and Latin America. And the kind of sick man of the network enablement was always North America with the major players obviously doing everything but network build out or management.
What we have seen in the last, say, six months is a significant. And I mean really tectonic shift in North America among operators with a lot of the media focus and content going right out of the window and refocusing on the core business in building and operating networks.
And there is a lot of catching up that needs to be done. It’s kind of like one of those, if you have a house that you’ve neglected for years and years, and now all of a sudden you realize that this is really the place you want to live in.
And we are seeing significant level of investment pouring in the upgrading capabilities, upgrading networks, rebuilding networks and that is going to be a -- in my view a multiyear trend.
And with all the latest we hear about the infrastructure build out, I mean really extending broadband infrastructure to rural area and pushing fiber to -- all the way to the home, we actually think North America will be a shining star in the coming year.
So now we have all three major cylinders are firing at full speed, Europe, Asia and now finally North America. Just North America reversing trend is actually going, I think, going to drive our NE segment pretty strongly.
Thanks very much.
Sure.
Your next question comes from the line as Michael Genovese with WestPark Capital. Your line is open.
Okay. Thanks. I wanted to check in on some further segment data on the OSP. So did 3D sensing come in up about 15% year-over-year, I think, is about what you were targeting, is that where it ended up?
That’s about right. Yeah. It’s mainly, that’s in the absence of anything in android, which we already talked to earlier in the year about.
Okay. So as we think about that look ahead, should we also think about that as, like, the absence of android and sort of model it off of flat to slightly up units with the main customer, is that...
Yeah. We said we are kind of looking flattish in here, because I mean I think there may be an upside if some of the Android players in the second half started deploying 3D sensing. But we are not factoring that in and while we will probably see higher unit volume but there is also a roadmap pricing that kicks in. So there’s some ASP reductions coming in place.
So I’d say, net-net, between the higher unit volume from volume growth and greater penetration of various applications, and the ASP reductions. We expect in the absence of android that business should be roughly flat in this fiscal year.
Okay. Great. And then, I guess, for the core OSP, is the sort of low 60s the right way to think about it going forward?
I think we said…
How should we think about it going forward?
Yeah. I think we said for the foreseeable future you take $60 million of the kind of base business. Remember, we used to say $50 million, now $60 million is the new $50 million. So that’s going to continue for quite some time in my view.
Great. All right. Thanks. I appreciate it. Congrats on the strong bookings.
Thank you.
Your next question comes from Meta Marshall with Morgan Stanley. Your line is open.
Great. Thanks. First question, obviously, AT&T kind of announced earlier in the week a slowdown in some of their fiber builds and I know obviously we’re talking about a very strong fiber environment that they’re being sold out of capacity. But just how should we think about -- is there any kind of law we would see before some of these broadband plans take off or you feel like kind of the demand environment that we’re seeing combined with your ability to supply, I believe, you in a sold out position for longer and then I have a follow-up question.
So, AT&T is clearly a very aggressive has been really, it’s like -- it’s a new religion, fiber is the new religion within AT&T and they’re moving very aggressively. And I mean, clearly, they are facing a lot of shortages from various suppliers at least in the new interim.
But they are -- by no means, the only player. You could pretty much take all the discussions they are having in multiply it for every other fiber or network operator in North America and in Europe and they are all looking to do exactly the same thing. So, yeah, I think, it will be, I’ll say, a capacity constrained environment for several quarters until the supply chain catches up.
Got it. And then maybe just following up on Mike’s question on OSP, clearly, you guys have had three drivers over time, increasing kind of monetary volumes, reprints and inventory. And you noted kind of the first two being the biggest driver, do we think by the end of this fiscal year we’re even getting back towards an inventory build position or is this kind of a multiyear kind of the $60 million base line?
Well, I tell you, when you have very limited capacity it is very difficult to replenish inventories quickly. So you spread it over a period of time. So I’d say, we probably have quite a few quarters of running our lines, flat out to just kind of catch up and rebuild all the inventories and we continue to see increasing demand from various printers as various fiscal policies try -- various countries try to stimulate their economies.
And there’s still actually quite a few print shops working intermittently because the COVID situation in many of these countries are a lot worse than U.S. So that actually just creates even more latent demand down the road in my view.
But it’s not -- by no means just like a straight line. I mean it’s a bit spiky. You can see out of nowhere significant orders and something goes down. But net-net if you aggregate an average it out over a period of months, it’s a very strong upward trend.
Great. Thank you.
Sure.
Your next question comes from Dave Kang with B. Riley. Your line is open.
Thank you. Good afternoon. My first question is regarding the supply chain impact. I think you said, 2%. I believe you were talking about revenue impact of 2%. I just wanted to clarify that and what was the margin impact, was it like 50 bps or 100 bps, any color there?
So I did not give you any numbers. I think I don’t know where you heard the 2%. I think when I said 2%, it might have been the impact of higher transportation logistics, expedite costs. It’s maybe 2% impact on gross margin.
But at the same time with higher volumes, we have a greater manufacturer overhead absorption that more or less can offset that. But in the absence of all things normal, I mean, we would, obviously, have seen higher gross margin on our products, and probably, higher revenue growth as well.
Got it. And my follow-up is, so you talked about high end shifts that could get worse in December. How should we think about seasonality since December quarter is seasonally strong?
Well, I think, the seasonality is no longer the issue. I think it’s all about what share of allocation you’re going to get and I’ve been -- as you can imagine, I’ve been dialing for dollars with all the leading vendors to make sure that we get at least our fair share and hopefully a bit more than that and my supply chain team has been scouring the Earth for a very supply.
And the good news for us is, we don’t need that many units to make a meaningful impact on revenue. I mean we don’t sell the low end consumer parts. I mean every one of these devices drives thousands if not tens of thousands of revenue. So in that respect, if you can find several hundred units it makes a big difference on the margin for us in terms of revenue upside.
Got it. Thank you.
Sure.
Your next question comes from the line of Fahad Najam with MKM Partners. Your line is open.
Thank you for taking my question. So I want to kind of needle in on your prepared remarks about expecting growth next year. If you can help us a little bit more on that. Look, if I understand in terms of the secular driver, most prominently the stimulus spending here in North America, the Rural Digital Opportunities Fund and I think the first tranche of the Phase 1 is just beginning to get released to your end customers. We should really seeing art of spending coming online and at least hope we starting in the fourth quarter of this year coming towards you guys as suppliers. Then you’ve got the infrastructure spending bill that just got pass in Senate and then you have the American Rescue Act, all of those funds have yet to come through your way. So it looks like calendar 2022 maybe a very extraordinary strong growth year, obviously, supply chain limiting. But can you help us put a sense on -- is the supply getting worse, maybe are we at the bottom of the supply chain tightness and we expect it to recover from now on. And then how does your shape your outlook for the rest of the year. And I have a couple of follow ups.
So, I would say, first of all, I think, this quarter is bad in terms of supply tightness. I think December quarter will be worse. And as they say hope is eternal, we always hope that at least first half of next year starts getting better and it’s only because we don’t think that’s far away. Our customers don’t even look that far. But I do expect some new capacity coming in line and things starting to rebalance. So I do think sometime first half of next year we should see things improving.
In terms of what’s driving demand, we’re not counting on any of these rural broadband or any of these stimulus things for driving our current sales. I mean our current sales are driven just purely by upgrading your existing networks and really playing catch up in many cases especially in North America to what should have been done in the last five years. So that is just the first tranche.
The second driver is the Europe. I mean U.K. started driving fiber to every home about a year and a half ago, and it’s in the full swing of it. And now we’re seeing other countries like Germany, Italy, France, Netherlands are following this trade and that’s obviously driving the next level of demand.
Then now on top of it you overlay all these government infrastructure stimulus programs, which I think is before you see the money for it, it probably be one year or two years. Just as you’ll be in a full swing on all these other things, that is going to start kicking in and then we’re going to see that kind of will create the second wave or extend the wave of demand that we are seeing today. That’s kind of how we see things playing out.
Okay. Appreciate the answer. I want to follow up on the OSP. If I’m not mistaken I think I heard you said that 3D sensing was 8 -- up 18% year-over-year. Can you remind us if that comp had any Huawei revenue from last year or this is the only ex-Huawei revenue growth?
So that is a net increase and we did have Huawei in the prior year. So, it’s obviously been zeroed out and all things being equal.
Appreciate the answer. Thank you.
Sure.
There are no further questions at this time. I will now turn the call back over to Bill Ong for closing remarks.
Thank you, Ashley. This concludes our earnings call for today. Thank you everyone.
This concludes today’s conference call. You may now disconnect.