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INFN Infinera

Participants
Amitabh Passi Head of Investor Relations
David Heard Chief Executive Officer
Nancy Erba Chief Financial Officer
Samik Chatterjee JP Morgan
Fahad Najam MKM Partners
John Marchetti Stifel
Michael Genovese West Park Capital
Alex Henderson Needham & Company
George Notter Jefferies
Simon Leopold Raymond James
Rod Hall Goldman Sachs
Jim Suva Citigroup
Jeff Kvaal Wolfe Research
Dave King B. Riley
Call transcript
Operator

Good day, and welcome to the Infinera Corp First Quarter 221 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Amitabh Passi, Head of Investor Relations. Please go ahead.

Amitabh Passi

Thank you, operator, and good afternoon. Welcome to Infinera's first quarter of fiscal 2021 conference call. A copy of today's earnings and investor slides are available on the Investor Relations section of the website.

Additionally, this call is being recorded and will be available for replay from our website. Today's call will include projections and estimates that constitute forward-looking statements including, but not limited to, statements about our business plans, including our product road map, sales, growth, market opportunities, manufacturing operations, products, technology and strategy, statements regarding the impact of COVID-19 and industry like supply chain challenges on our business plans and results of operations, as well as statements regarding future financial performance, including our financial outlook for the second quarter of our fiscal year 2021. These statements are subject to risks and uncertainties that could cause Infinera's results to differ materially from management's current expectations. Actual results may differ materially as a result of various risk factors, including those set forth in our annual report on Forms 10-K for the year ended December 26, 2020, as filed with the SEC on March 3, 202,1as well as the earnings release and investor slides furnished with our Form 8-K filed today. Please be reminded that all statements are made as of today, and Infinera undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. Today's conference call includes certain non-GAAP financial measures. Pursuant to Regulation G, we've provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the first quarter of fiscal year 2021 earnings release and investor slides, each of which is available on the Investor Relations section of our website. And finally, as a reminder, we will allow for plenty of time for Q&A today that we ask that you limit yourself to one question and one follow up please. I'll now turn the call over to our Chief Executive Officer, David Heard.

David Heard

Thanks, Amitabh. Good afternoon, and thanks for joining us today. I will begin with a brief review of the first quarter results and then turn the call over to Nancy to cover the details of our financial performance and outlook for the second quarter. Q1 marked another quarter of strong performance with solid execution across the board. Revenue came in just ahead of the midpoint of our outlook, with both non-GAAP gross margin and non-GAAP operating margin above the high end of our outlook. Each was over 900 basis points on a year-on-year basis.

During the quarter we generated $19 million of operating cash flow which was up over $100 million from the same quarter a year ago. From a top line perspective, revenue came in as expected as we navigated against a challenging supply chain environment impacted by COVID and industry wide semiconductor shortages and extended lead times. We experienced strong sequential revenue growth with tier 1 service providers at spending recovered in the United States following a weak Q4. Most other customer segments performed generally in line with our expectations. On a product basis revenue grew in the double-digit percentage range on a year-on-year basis from our open optic portfolio, including compact modular and line system platforms. This growth was driven by network expansions, new customer wins and favorable traffic growth dynamics in the metro, including international 5G builds, revenue was up on a year-on-year basis for our 600 gig GX product as we added several new service provider customers and continued to expand our customer base. Overall bookings were robust, double digit year-on-year with broad based strength across customer verticals and regions. We had record bookings for our open optical compact modular platforms and near record bookings for our open optical line systems at service providers and ICPs plan for the rollout of 400 gig in the metro and 800 gig in the core. Within our subsidies segment bookings were up almost 150% year-on-year and service providers continued with their built out of subsea routes to handle the enormous traffic growth.

Our recent bookings momentum, especially in line systems reflects ongoing footprint expansion, which we believe is a positive precursor to anticipated future high margin revenue. The Metro network insertion opportunity continues to drive solid bookings for our Metro products and 400 gigs service demand is increasing. To that effect today we announced the availability of 400 gig CSP 2 interfaces to our Metro portfolio.

On the 800 gig front ICE6 is now commercially shipping to customers. The pace of customer wins accelerated in the quarter and we secured additional purchase orders and design wins.

Our list of customer wins includes tier one global service providers and ICP across both subsea and terrestrial deployments as we remain on track for a more meaningful revenue ramp in the second half of 2021.

We have built a healthy backlog and remain focused on ramping production to meet the strong demands we are seeing. We look forward to sharing additional details on our market traction and longer-term growth expectations for 800 gig at our Investor Day in a few weeks. Overall, I'm encouraged by a very solid start to 2021 with broad based demand strength across geographies, customers, and our open optical platforms.

While demand indicators are very encouraging across the customer base supply constraints remain a challenge not only for us, but many of our peers and companies across a broad spectrum of industries.

We continue to work closely with our supply chain partners to address these industry wide challenges, and are positioning inventory to mitigate the effects of the component shortages and extended lead times.

For the full year of 2021, we continue to expect the optical systems market to grow 2% to 3% year-on-year and project that our revenue growth rate will be slightly exceed market growth as we ramp our 800 gig solutions, and enhance our Metro portfolio with 400 gig optical interfaces on the XTM and GX series, complementing our 600 GE and 800 GE offerings. I am confident in the long-term market opportunities ahead of us. I continue to believe this is a great time to be a differentiated supplier of optical technology. And there is growing recognition in the market of the value that we provide and the scarcity of our vertical integrated capability. We see numerous insertion opportunities ahead of us as the competitive dynamics with Huawei, the rollout of 400G in the metro and the deployment of our high performance 800 gig ICE6 solution.

Our strategic priorities remain focused on leveraging our core competence and vertical integration in leading high performance optical engines, accelerating the shift to open optical and differentiating in next generation pluggable with category defining products like XR optics, is strategic focus should enable us to gain market share, expand our addressable market, and drive margins towards our long-term targets. We look forward to sharing additional details regarding our strategic priorities, portfolio evolution and financial roadmap at our upcoming investor day on May 19. In closing, I want to thank the global Infinera team for their unwavering support, dedication and resilience, recognizing that the effects of the pandemic remain acute in several geographies where we operate. In particular, I wish to recognize the members of the Infinera family in India, who are currently facing a very challenging and difficult period.

In addition, I would like to thank our customers, partners and shareholders for their continued support. I will now turn the call over to Nancy to provide additional details of the quarter and our second quarter outlook.

Nancy Erba

Thanks, David. Good afternoon, everyone. I will begin by covering our Q1 result and then provide our outlook for Q2. My comments reflect our non-GAAP result.

For your reference we have posted slides with financial details including our GAAP to non-GAAP reconciliation to our Investor Relations website to assist with my commentary.

Our metrics [ph] outperformed in the first quarter of 2020. Q1 revenue was $332 million above the midpoint of our outlook of $320 million and $340 million. We share in our last service call that we intercepted approximately $10 million of potential revenue impact from supply chain risk, and COVID. In our assessment, we estimate that the impact we experienced was nearly doubled in Q1, there was 1/10 customer in the quarter, 48% of our revenue came from the United States and spending in the region recovered from a weak Q4, while international revenue was down sequentially, our seasonality and the timing of certain projects. Gross margin was dropped at 37.6% above the high end of our outlook of 34% to 37%. On a year-on-year basis, gross margin expanded by more than 900 basis points, as we benefited from meaningful improvements in our cost structure, which was reflected in higher product margin.

We continue to experience the impact of industry wide supply chain supply constraints for semiconductor shortages and higher components and logistics costs in the quarter. Services gross margin decreased from higher professional services tied to the rollout of new products and design wins. Ultimately, these project wins are a great leading indicator of higher margin revenue down the road. Operating profit in the quarter was $1.3 billion or 1.4% operating margin, which is also a high end of our outlook with operating margin of almost 1000 basis points year-on-year. The year-on-year improvement and better than anticipated profitability in the quarter will primarily be even stronger gross margin and operating expenses of $123.6 million were generally in line with our expectations. The resulting EPS in Q1 was a loss of $0.03 per share representative $0.17 per share improvement year-on-year. Beginning with Q1 '21 we are excluding the impact of foreign exchange gain or loss from a non-GAAP result, as we believe it is not indicative of ongoing operating performance, primarily that unrealized as we are unable to provide an outcome, the amount is not predictable.

Moving on to the balance sheet and capital items, we ended the quarter with $250 million in cash and restricted cash.

Our ending cash position benefited from $90 million of cash flow from operations that resulted in $7 million of positive free cash flow after CapEx [ph]. It should also be noted that we repaid the $77 million principal balance drawn on the ADL at the end of Q4 of '20 and ended the quarter with no amounts drawn to get $650 million credit facility.

We expect to use a modest amount of cash from operations in Q2 as we position our inventory for new product introductions, continue to grow in the second half and mitigation of the impact of component shortages in the extent we can try [ph].

Looking at the second quarter of 2021 we are encouraged by the strong demand profile as evidenced by our double-digit year-on-year growth in Q1 booking and ending backlog.

We are however mindful of the exacerbating supply pressures, and have reflected approximately $20 million to $25 million of risk associated with these industry rights compliance challenges in our revenue outlook, with Q2 revenue forecasted to be in the range of $345 million plus or minus $10 million. Even with this risk, it is important to reiterate that customer demand remains strong, including demand for four 800 gig product. David noted earlier in the call, our theme varies for our line systems in Q1, that customer has laid the groundwork to introduce 400 gig in the metro and 800 gig in the quarter. We anticipate that the [indiscernible] to be recognized as revenue in Q2. And as a reminder, expected will come with lower margins initially. Taking this into account we are anticipating Q2 gross margins to be in the 35% to 37% range of over 200 basis points year-on-year at the midpoint.

We are planning for Q2 operating expenses to be between $125 million and $129 million with a sequential change primarily driven by an increase in R&D as we invest in continued innovation and new program development.

Given the market opportunities in front of us and our significantly improved financial position from just a year ago, we believe now's it's to lean in and accelerate R&D investments in highly differentiated in past areas, including optical engine and open optical platforms. These investments are intended to enhance our market position, and to take advantage of the transition to higher speeds in the metro and for the rollout of flexible and competitive dynamics in the industry.

We expect Q2 operating margins to be negative 1% plus or minus 200 basis points. Below the operating income line, we expect other income to be a net expense of approximately $5 million, driven primarily by interest charges and taxes are estimated at $3 billion.

For the full year consistent with the statements on our last earnings call, we expect our full systems market to grow 2% to 3% over 2020 and for our revenue growth to be slightly above market, as we balanced the strong demand environment with semiconductor shortages.

We expect second half revenue for us to be driven primarily by the conversion of our backlog and continued sales of our main product portfolio.

We will continue to take advantage of footprint expansion opportunities as they come our way to drive additional market share gain and at the same time are committed to driving growth margin expansion of 300 to 400 basis points compared to fiscal 2020. Furthermore, we are still planning for positive non-GAAP operating margin and cash flow from operations for fiscal 2021. I like to close by thanking the Infinera team, our customers and partners for the tremendous effort in the challenging yet exciting time and our shareholders for their continued support. I look forward to seeing you all in our virtual Investor Day on May 19.

Now we'll open the line for questions.

Operator

[Operator Instructions] And our first question today will come from Michael Genovese with West Park capital. Please go ahead.

Michael Genovese

Hi, thanks very much. Thanks for the question.

So you're talking about preparing the Metro for 400G and preparing the long haul 300G.

So besides orders, can you talk some more about different verticals or different order trends you saw in the quarter because they sounded strong? And I'm not sure I got everything down. But is it just a matter of placing the orders? Is there any product that they're taking first in the second quarter, and then other things will ramp in the back half of the year? I'm just wondering what preparing the ordering and not taking anything? Or are they actually building networks right now that make sense?

David Heard

So we had a strong order demand in Q1, we received purchase orders for products. And we shipped some products for revenue and some products that weren't for revenue. Line systems typically get shipped out first to be able to build that footprint to expand both in the sub-sea décor [ph] and in the metro.

So our comments, our demand is very strong, both for our infrastructure products for the metro, as well as the long haul. And our tempered comments are really around something that's more industry wide, which is the access to semiconductors and component given longer lead times and shortages in the industry.

Michael Genovese

So a couple just a couple of quantitative follow ups.

So number of, can you give us a number of customers or a number of trial numbers, any standards out getting a customer numbers for their new chip? And then secondly, I think you said 20 million revenue maybe could have been 20 million higher in the first quarter. Is there a second quarter number supply chain number that we expect to be held back by?

Nancy Erba

Yes.

So on the ICE6 detail, I'm going to ask you to stay tuned for Analyst Day. We plan to have a pretty fulsome discussion on the 19th of May. And then regarding revenue, yes, we thought at least we thought up to 20 million in terms of supply that constrained our ability to ship for revenue in Q1 and with Q2 what I factored into the 345 million midpoints is another $20 million to $25 million for Q2.

So you can think about that as we've got the demand, we've got the backlog built. We need to get the supply in and get it out to customers.

Michael Genovese

Thanks a lot.

Operator

And our next question will come from John Marchetti with Stifel. Please go ahead.

John Marchetti

Thanks very much, Nancy, just following up on your last comment there answering Mike's question.

For these shortages that you're talking about the 20 million in 1Q, the 20 million or 25 million in Q2 those are in backlog, right? It's not that, those are out in the ether someplace, those are in your backlog and in those order numbers that you referenced as being strong in the quarter?

Nancy Erba

Yes, let me correct.

So for Q1, we had built 10 million annually started the quarter, what we actually saw was $15 million to $20 million in terms of impact, some of that carried over and was moved through in Q2, some of it wasn't, some of it is continued to build.

And so if we look at Q2, we see another $20 million to $25 million on top of the $345 million as our midpoint in terms of risk that we've built in for our outlook.

David Heard

And John just to add there, but those are orders in backlog that we don't think will be fulfilled in the quarter because, when somebody takes lead time apart from eight weeks or 12 weeks to 30 to 50, you know, you're not going to be able to fulfill that turnaround size in the first two quarters.

John Marchetti

Understood that was actually getting in backlog, right.

Okay.

David Heard

Yes.

John Marchetti

And then, you mentioned some of the strengths in the sequential recovery anywhere in the tier one service provider market in North America. I was wondering if you could just talk a little bit about what happened in ICT. And in sort of the other service provider category, where those were a little bit weaker.

You said they came in, you're roughly in line with what you were thinking? Just given the strength that we saw in cable, maybe you could just talk through what you saw in some of those markets for us?

David Heard

Yes, I mean, ICT sector, as we've always said, it's very lovely.

And so it really is a bookings to revenue story, right.

So in Q4, one of our top bookings customers was an ICP. In Q1, one of our top bookings customers with an ICP, you know, the billings did not fall within the quarter.

So again, we continue to see strength within the ICP customer segment as lumping. We feel good about the overall spend rate going into the back half of the year again, and as saw a recovery in Asia, in terms of the order patterns as well, it tends to go weaker in terms of billings but heavier in terms of bookings, on a forward basis. That helps you?

John Marchetti

It did. Maybe just lastly, like I said, I'm the cable side, big jump. They're both sequentially in year-on-year was that one specific deployment that came through or was there something more broad based in that?

David Heard

Yes, I think a couple of you know, call it two to three customers, projects that came in strong.

John Marchetti

Thank you appreciate the call.

Operator

Our next question will come from Fahad Najam with MKM Partners. Please go ahead.

Fahad Najam

Thank you, I just want to, I caught the call a bit late [indiscernible] repeat yourself. But can you remind me how much of an impact you saw in the corner from component shortages? I heard some comments about backlog moving over $0.2 million, but [indiscernible].

Nancy Erba

Sure, for Q1, we saw $15 million to $20 million in terms of an impact to revenue from the supply challenge. And what I indicated is that for Q2 we're anticipating that to be between $20 million to $25 million.

Fahad Najam

Given the lead times are now around [ph] 40 weeks, probably more likely that those orders are not likely to be filled in 2Q, so can you kind of give us a sense on are you thinking about how is your visibility [ph] are they sharing their order trends with you, out into the future and how to quantify that?

Nancy Erba

Yes, so our customers I mean, this is not a, this is certainly an industry wide dynamic right now.

So people are being transparent.

Our customers are being transparent in terms of their needs.

We are building and shipping as quickly as we can to fulfill the backlog. And as I said in my comments, we are still expecting to grow slightly ahead of the market for the rest of the year. But there is that risk still on the supply side that we don't have tremendous visibility into the back half from the standpoint of the supply piece of it. But from a demand piece, we feel very good about the strength we're seeing.

Fahad Najam

Got it. And one last question, if I may, on your ICE6, you've obviously got a new purchase order, I suspect is the hyperscale customer if it is, can you share with us what type of design wins you have so far, any quantifiable data? I believe your competitors, you have mentioned that they've got [indiscernible]. And what kind of ramp are you seeing in terms of 800 gig versus the previous generational cycles compared to 100 gig to 400 gig? What kind of ramp are you seeing with 800 gig?

David Heard

It's good question.

I think the good news is for 800 gig, I think the ramp appears to be quite faster than previous generations. We think that based on the geometry of the network, it will be a long cycle as well.

We have experienced design win purchase orders and have just begun commercial shipments of the product across both the ICP and service provider segments across both terrestrial and subsea applications. Those winds and purchase orders have come from it as Nancy said in just a couple of weeks here on May 19, will try to give you more of a map of where we see the lens and where we see 800 gig technology going how long that lifecycle really will be what will be the magnitude or size of that over time and what that does to our business model.

Fahad Najam

Thank you.

Operator

And our next question will come from to Samik Chatterjee with JP Morgan. Please go ahead.

Samik Chatterjee

Great. Hey, guys, thanks for the question.

Just want to start off with the supply constraints.

And so I do ask on this second, any insight we can share on what components are the most constrained? But again, if we go from like the line systems to the compact modular systems to like more of your long-haul systems? Where is the shortage impacting more? What are the constraints you are seeing? And then I have a follow up as well.

David Heard

Yes, what I will tell you is that a pretty broad, I mean, this isn't just semiconductors, but microprocessors, which can be on a fan track, then a product portfolio. A little bit more profound with some of the more legacy products, because the newer products, not only from our procurement standpoint, and what we've planned for, but just from an aging fan standpoint, tend to be the first that are prioritized.

So a little bit more on the legacy again, I think it's a broad swath across the industry, I think we're we've got good partnerships going with our contract manufacturers, as well as with our supply chain partners, it continues to say why more and more vertical integration and control your supply chain is strategically important. And again, we started this activity in December, I will tell you, we saw more profound impact in Q1, and it accelerated a bit in Q2, and we've provided those numbers as best as we can see them. Again, we're working the back half, again, with longer lead times, you tend to have a little bit more partnering on behalf of our customers as well to partner and reach out.

So that's what we're in the process of doing the back half, literally the call.

Samik Chatterjee

Second question I had was you mentioned share gains, and particularly in relationship 2Q where you're guiding gross margins to be slightly softer than 1Q as you deploy systems [ph]. Where and maybe I missed this because I jumped on a bit late. But which customer segment is that primarily that when share gain coming from and also this going back to your comments for the full year where you're expecting to outperform relative to the market, if you can share, where are you seeing the biggest drivers in both the market share wins this year? So both in short term Q2 and the full year commentary just on market share will be helpful?

David Heard

Yes, good question.

So certainly, we're coming across both terrestrial and long-haul networks.

So you're going to see long haul in subsea and core Metro opportunity as, again 400 gig insertion opportunity with our existing platforms, as well as long haul platforms with 800 gig. There's just less players in the marketplace with open line systems, it has given us an ability to insert quicker. That's happening across geographies, again, both in Europe, Asia and in North America.

Samik Chatterjee

Okay. Thank you.

Operator

And our next question will come from Alex Henderson with Needham. Please go ahead.

Alex Henderson

Great, thank you.

So, I was hoping you could talk a little bit about the nature of the orders that you've received. Clearly, 800 gig products are well into the back half of the year, so would you include the 800 gig orders for the back half on the product that's not shipping in that backlog? Or is the backlog predominantly related to the existing products that you have available in the marketplace today?

David Heard

Yes, so - no, the backlog does include 800 gig products, as well as our existing product set.

So as we've said for a couple of quarters now, you know, our - we're ramping production and that's the biggest piece, it's a good issue to have. Demand is extremely strong, so we expect the backlog that we've accumulated here to date, and if we continue to book and win to be deployed and then converted into the revenue and cash flow cycle as we get into the back half of the year.

Alex Henderson

Within that context, your only other 800 gig competitors stated that they were the only company shipping product in their - on their last call. I assume that that is not an accurate statement that you have shipped in limited quantities in the pre-ramp process. Is that a fair statement?

David Heard

Yes. We shipped again for qualification, we're now shipping for that commercial deployment that - again, we would expect to then convert into revenue in the back half. Albeit, they ship more quantities and we're a few quarters ahead. We feel very, very good about the performance of the product that we have, and it's going to be a long cycle.

So we continue to be excited about the rollouts.

Alex Henderson

And one last question along the same lines. Can you talk about what portion of your business in the order book is coming in with respect to open line systems? And to what extent your install base is - what percentage of your install base is currently open line systems? Thank you.

David Heard

Yes, good - all good questions, Alex. We'll try to have a little bit more color, we've got that for the Analyst Day on the 19th. But here to say, when we say record, your record booking for line systems; when I look at the last three quarters of our line system bookings, they've been profoundly up from prior periods.

So it's a meaningful percentage but it's got good pickup on trying to give you a little bit more quantification on what percentage of the total is that.

Alex Henderson

Great. Thank you very much.

David Heard

Thanks, Alex.

Operator

And our next question will come from George Notter with Jefferies. Please go ahead.

George Notter

Hi, guys, thanks a lot. Obviously, the piece of the story here is the margin expansion and where you guys can get to prospectively? Could you give us a sense for what mix of the revenue comes from products that are vertically integrated?

Nancy Erba

Yes. The percent this quarter was up slightly from where we were in Q4, you could see the step up in margin, primarily driven by cost reductions, but an increase in the level of vertical integration also helps there.

As we've said, as that percent growth and our objective is, by the end of 2022 as we're exiting, we will be at our target gross margin model, keeping in the mid-40s. I would say right now that number is certainly below 50. And not where we want it to be long term but it is improving quarter to quarter.

George Notter

Got it.

Okay. And then I think part of the narrative here was that you there were a couple of big - I guess step functions up in gross margin. I'm going back away now, I think from the conversation, but I think you said there was 1000 basis points of improvement as you went from, for example, 200 gig to 600 gig, and here I think we're talking about versions of the groove. And then, another 1000 basis point improvement as you step up to ICE6 just - because those products are more vertically integrated. Is that still the right math and how you think about the organic margins on those products?

Nancy Erba

I think it's still pretty close. And when we talk about our roadmap in the Analysts Day, we're going to lay out a structure not just for '21 and '22, but out beyond and into the '23 and '24 timeframe, and really walk through how that margin expands. And the importance of owning as much as you can of your supply chain and being vertically integrated.

George Notter

Got it.

Okay.

So, I guess I'll just ask it this way. It started the labor [ph], but I assume your viewpoint of the margin structure on ICE6 hasn't changed.

Nancy Erba

Correct.

George Notter

Okay. Awesome. Thanks. I appreciate it.

Sorry, Nancy?

Nancy Erba

Oh, no, that's okay. What we had said about ICE6 as a vertically integrated product, as you should be able to see 2000 basis points improvement at a product level.

David Heard

Above a merchant product, George, but then you have to do the weighted average math.

So we'll show you guys at Analyst Day how the vertical integration impacts our portfolio as a percentage of the VI of total product, we'll also showing on an annualized basis like we provided - we expected 300 to 400 basis points of improvement full year, this year to last year. And Q1 started out with a reasonable lift to that with the 900 basis. That's albeit on the weaker compare from last year given the major subsea deployment.

George Notter

Got it. Thank you, guys, very much.

David Heard

Thanks, George.

Operator

And our next question will come from Simon Leopold with Raymond James. Please go ahead.

Simon Leopold

Great, thank you for taking the questions. I wanted to ask you a little bit about the Huawei backlash opportunity as you see it? And in terms of what I'm looking at that your European business has been good beginning. fourth quarter last year, you had a good quarter at the beginning of this year. But we keep hearing about how this being a very long-term opportunity; so I'm asking this question as kind of two parts. What do you see happening near-term in terms of Huawei backlash opportunity? And then, how do you see this playing out over the long-term? Thank you.

David Heard

Good questions, Simon.

So if you're asking, are we hiding the fact that we're secretly winning the Huawei opportunity? Look, we've won two or three Huawei opportunities; I think a small handful of them are being won but quite a few are being bid, so you wouldn't see those in revenue yet. At best, we would get into kind of Q4 revenue period. But as we said, prior, we really do see this as a longer term 2020 dynamic on the uplift.

We are seeing when you look at the competitive field for long haul and Metro, and subsea, again, an opportunity of insertion. Again, with Huawei not being allowed to play and mainly the circumstances, and they're not being many other competitors, the ability to go pick up that share but in many of the metros, it is re architecture, restructure, there is a lot different than just point to point links on a long-haul network or a subsea network.

So we think 2022, we feel that'll begin to pick up steam in our top line and you'll see that in our analyst day. And then as we get into 2023 and 2024, it's a big part of our investment curve of our vertical integration penetration.

As you get to XR and other pluggable technology, that will improve our margin profile going forward.

Simon Leopold

And do you have your own - sorry, can you review on how to seize this opportunity? We've heard numbers ranging to sort of $1 billion in Europe, if you look sort of global [ph], China could be a $2 billion opportunity. How are you sizing this sort of sort of CAM [ph] of Huawei backlash opportunity?

David Heard

Yes. Look, I think when it's all netted as you see, this is potentially a $1.5 billion opportunity and that's not going to be eaten all by one supplier.

So I kind of think of it as you know - we've told our sales teams go out and get yourself the path to $0.5 billion of Huawei opportunity. Thanks.

Operator

And our next question will come from Rod Hall with Goldman Sachs. Please go ahead.

Unidentified Analyst

Hi, this is Bala Reddy [ph] on for Rod. Thanks for taking my questions. I have a follow-up if I can. Starting with on the 800 gig product, that we're currently shipping. Could you talk about whether you feel a product is more or less complete in terms of functionality and feature set? Do you feel like maybe you need to further improve or maybe modify it?

David Heard

Well, as you'll see at our Analyst Day, rolling out a product and continuing to enhance its performance and feature set will always continue to look for the applications that we are contractually bound to for the first shipments. Yes, the product is complete but like all of our products, you'll see additional performance gains and feature sets. We tend to build lots of feature functionality into our original products which is why you see them a little bit later than some of the competition.

Some can argue as to that strategy but kind of given our size, scale and focus on vertical integration; that's our current planner record.

Unidentified Analyst

Okay. And could you maybe provide any performance comparison between the ICE trend and CNR product or should we wait for the details on the Analyst Day? I just want to check.

David Heard

I think - again, I think everybody's question will be on what's the size of the market opportunity? And then, in terms of the rollout, how are we going to compare both performance-wise and slope-wise in terms of shaping the ramp? So, we'll go through that as best as we can on May 19th.

Operator

And our next question will come from Jim Suva with Citigroup Investment Research. Please go ahead.

Jim Suva

Thank you very much.

As you sit there as CEO, and also CFO and work together, and we've been through first geopolitical wars, then COVID challenges, now chip challenges. I wonder do you look at this business and maybe think is it prudent to keep more inventory, keep more chips on order? Inventory stocking? I'm just wondering, strategically, it just seems like one shock after the other; unfortunately, it's been tougher, all of mankind and everything but I'm just wondering if you're thinking that maybe structurally, it just makes sense to hold them procure more chips and inventory in case something happens down the road?

David Heard

Yes, it's a good observation. Certainly, as we got into December, we began to position ourselves with our contract manufacturers and supply chain partners to begin trying to plan out better over the period. Luckily, year-over-year when you look at our cash consumption last year, this quarter and our approved position, now we're able to do as such. And it does remind you that the more your supply chain you can put in your own hands, the safer you can be. But I don't disagree, we're in the period of that kind of provisioning. Again, what tends to happen in these situations that people just call off orders, unexpectedly, in terms of our suppliers. And that's what we're trying to watch; so yes, having more inventory on hand is a great way to combat that. And I don't doubt that we face past challenges both as a world, as a country, and as a company; and that's what we do. This is just part of our job.

I think locusts are coming up on the East Coast from what I understand, so we're waiting for the next one.

Jim Suva

Thank you so much for the details and look forward to the Investor Day in a few weeks.

David Heard

Yes. Thanks, Jim.

Operator

And our next question will come from Jeff Kvaal with Wolfe Research. Please go ahead.

Jeff Kvaal

Yes, thanks very much. My question is similarly on margins. And I guess, I'm wondering to what extent, if any, is the semi - one of the seven constraints affecting when you expect to get those margin gains? But it might be because the components are harder to get, and therefore, one has to pay a little bit more or it could be because the timing of the shift internal is a little bit later. But could you just kind of help us with how quickly you'd like to get to those goals? And is that changing?

Nancy Erba

Yes, definitely Jeff. But you saw that we did have a good Q1 in terms of margin coming in ahead of our output. And that really was based on focused cost reductions that we have been driving for some time, but it was also offset, as I mentioned in my comments by exactly what you're referencing, right, the increase in certain component costs, the long lead times and as we look out for the year, part of the reason why we're maintaining this 300 to 400 basis point improvement year-over-year; it is because of that level of uncertainty.

You know, we feel good about where we are in terms of margin and Q1 and Q2 with the deployment and the revenue recognition cycle starting; I've given a little bit lower guide on margin for Q2. But we intend to be able to hit the 300 to 400 basis points for the full year.

Jeff Kvaal

Then secondly, you were very helpful with a pluggable session a few weeks ago, thank you for that. I understand you're being reasonably thoughtful about where you are prioritizing your investment dollars in the portables markets. I'm hoping you could share with us a little bit of your thinking about what you're excited about? And what you might be trying to sensibly avoid in terms of the portables opportunity.

David Heard

Yes, we'll go through a bulk of essence that at the analyst day on May 19, because not many people know what our investment strategy has been. We've been investing for over a year plus now in this category, because it's essentially part of what we do.

You know, one, we put out a 400 gig pluggable that we talked about today in the metro that certainly a merchant offering just like we have with 100 gig and 200 gig and the metro product line. Most of these markets, but 400 gig and 800 gig are hard, are nascent right now and are going to be very, very large as you get into what I call the meat of the market in 2022, 2023, 2024, that those are going to be big market for 800 gig and 400 gig.

So certainly we have the 800 gig vertical integration we feel good about. We've already started our next generation a high capacity architecture, for the next gen there on the 400 gig piece, getting more of our own vertical integration in those 47:13 probables is important, intersecting them now, again, what is within our investment horizon, but hitting that meet in the market by 2023, with some of our own content to be able to alleviate both the market and open up some market opportunity with AR. And then having a next generation product that really changes the game on the edge with a point to multipoint solution in XR has been our focus and we'll go in quite a bit deeper in our investor data rolling and through that.

Jeff Kvaal

Great, look forward to it.

David Heard

Thanks.

Operator

And our next question will come from Mehta Marshall with Morgan Stanley. Please go ahead.

Unidentified Analyst

Hi, this is Karen from Morgan Stanley. Thank you for the question.

So, I know most of this will be saved for the annual stay. But I guess is at a higher level. How have conversations been with customers on XR, optics, XR optics and sort of when you think they could be more material to contributions.

David Heard

Yes, so we very, very good engagement on the customer behalf, the edge of the network is really driving to 5g and mobile edge compute and it kind of requires a new architecture to drive agility and kind of cloud elasticity to the edge.

So, the customer reaction to the base technology has been very good. The fact that we're making this a, an open architecture, meaning providing it allowing others to build on it, similar to ZR, I think has been positively endorsed. And in terms of its impact to our business model. If it's okay, let's say that to the May 19th discussion.

Unidentified Analyst

That makes sense. Thank you so much.

Operator

[Operator Instructions] Our next question will come from Dave King with B. Riley. Please go ahead.

Dave King

Thank you. Good afternoon.

Sorry, I got on to call a little bit late. I may have missed that. But I heard you saying orders were pretty strong. Did you disclose what there was or maybe perhaps booked bill?

David Heard

EBITDA; we just said pretty strong.

So I think we can we continue to build backlog as we exited Q4, and then again into Q1.

Nancy Erba

For a double digit…

Dave King

And then Nancy so regarding optics for $127 million for second quarter usually gave a kind of flavor for our quarters, or should we think about second half?

Nancy Erba

Yes, I think for the second half of the range was put out for Q2 is probably what we should use for now.

We are focusing our investment dollars in the key technology areas that we've been highlighting and looking to lean in there a little bit through this year.

So in that $125 million to $129 million range, I think is appropriate for the rest of the year.

Dave King

Got it. And my last question is regarding on your gross margin outlook of 36% for June quarter. Are you baking in sort of like a chip prices increasing?

Nancy Erba

Yes, that would all be included in there in terms of cost increases, but also the impact of the line system deployment that we've been, you know, seeing great demand for, they're starting to start to walk through revenue in Q2, and those tend to have lower margins initially, and then the market improves as they sell.

So, it's a combination of both.

Dave King

51:15 Your peers they believe that this quarter current quarter that we're in will be most challenging as far as chip availability is concerned? Do you agree with their view?

David Heard

No, I think we think and I think, again, given we put larger degree of risk in this quarter, we just see that accelerating out just based on the math of the lead times.

Dave King

Okay, all right. Thank you.

Operator

And our next question will come from Alex Henderson with Needham. Please go ahead.

Nancy Erba

Came back for another one.

Operator

He has dropped out from the queue.

So our next question will come from Christian [ph] with Craig Allen Capital Group. Please go ahead.

Unidentified Analyst

Hey, guys, I just have one quick question on the on the component constraint volume that you can't shift last quarter in this quarter, and potentially what might even come in Q3? I just want to make sure I understand that you believe that is a long product life order that is sitting there that that volume isn't going to be lost and some other competitor who might be able to ship product that you can't ship. Is that fair?

Nancy Erba

I think it is fair.

I think so you know, we don't know what we don't know. Right? There may be some overtime that shifts. But right now, the information that we have from our customers is very strong demand. They are placing bookings, which means we have 52:58 pios in hand. And certainly we're going to watch for any of that. But right now we're really focused on supplying and getting the backlog to our customers.

Unidentified Analyst

Great. No other questions. Thanks.

Operator

And this will conclude our question-and-answer session. I'd like to turn the conference back over to David head for any closing remarks.

David Heard

I appreciate all the questions. Certainly, you know, we're excited about the opportunity in open optical and about the recent performance of the team in these last consecutive quarters. We're also very mindful of the external environment we're in not just from a macroeconomic perspective and a supply chain perspective, but from a World Challenge perspective. And again, our family members in India, our thoughts and prayers are really out with you. these are really unprecedented times. I continue to be humbled by the relentless will to win from the Infinera team and very much appreciate the ongoing support with our supply chain partners, our customers and our continued shareholder support.

So, thank you all. Please be safe and be well.

Operator

The conference has now concluded. Thank you for attending today's presentation.

You may now disconnect your lines at this time. And have a great day.