Conferencia de resultados del Q1 fiscal de 2027 de VIAV: los ingresos aumentan un 56,9% y las proyecciones del Q2 se fortalecen

Viavi Solutions (NASDAQ: VIAV) presentó unos ingresos y una rentabilidad no GAAP del primer trimestre fiscal de 2027 por encima de sus rangos de previsiones. El crecimiento estuvo liderado por la demanda de centros de datos y aeroespacio y defensa, mientras que la dirección proyectó un nuevo aumento secuencial de los ingresos en el segundo trimestre fiscal.

Puntos clave

• Los ingresos del primer trimestre fiscal de 2027 alcanzaron los 469,3 millones de dólares, un 56,9% más interanual y un 5,9% más secuencialmente, superando el rango de previsiones de la empresa de 450 a 460 millones de dólares.
• El margen operativo no GAAP fue del 29,0%, 12,7 puntos porcentuales más interanual. El BPA no GAAP aumentó a 0,47 dólares frente a los 0,15 dólares del año anterior.
• Los ingresos de NSE aumentaron un 74% interanual hasta los 376,1 millones de dólares, respaldados por la demanda de centros de datos, el crecimiento en aeroespacio y defensa, y 52,7 millones de dólares procedentes de las líneas de productos adquiridas de Spirent.
• El flujo de caja operativo aumentó a 104,7 millones de dólares desde los 31 millones de dólares del año anterior. Viavi recompró aproximadamente 3,95 millones de acciones por 150 millones de dólares, y su consejo de administración autorizó un nuevo plan de recompra de 500 millones de dólares.
• La dirección proyectó para el segundo trimestre fiscal unos ingresos de 505 a 515 millones de dólares, un margen operativo no GAAP del 29,3% más o menos 30 puntos básicos y un BPA no GAAP de 0,50 a 0,52 dólares.
• La empresa prevé alcanzar un ritmo de ingresos anualizado de 2.000 millones de dólares durante el segundo trimestre fiscal, adelantándose a sus expectativas anteriores.

Datos financieros principales

El trimestre incluyó un reembolso de aranceles de aproximadamente 11 millones de dólares. Tras la semana adicional de ciertos costes variables, la dirección estimó un beneficio neto en el margen operativo de unos 110 puntos básicos y un beneficio en el BPA de aproximadamente 0,02 dólares.

Rendimiento empresarial y operativo

La demanda de centros de datos impulsa el crecimiento de NSE

Viavi afirmó que los clientes de centros de datos generaron una sólida demanda de instrumentos de laboratorio, producción y campo para aplicaciones de escalado vertical, horizontal y transversal. La empresa atiende a clientes de los sectores de semiconductores de alto rendimiento, módulos ópticos, redes e hiperescala.

La dirección también destacó la expansión hacia el empaquetado y prueba de semiconductores a medida que se adoptan las tecnologías NPO y CPO. Los envíos iniciales comenzaron en el primer trimestre fiscal, y los ingresos del trimestre finalizado en septiembre se describieron en aproximadamente 1 millón de dólares, relacionados predominantemente con aplicaciones CPO.

La empresa cree que el ensamblaje y prueba de semiconductores podría convertirse en un negocio de más de 100 millones de dólares en un par de años. Esta estimación excluye la oportunidad independiente en la conmutación de circuitos ópticos (OCS).

Aeroespacio y defensa mantienen el impulso

El segmento de aeroespacio y defensa registró un fuerte crecimiento secuencial e interanual, liderado por productos de posicionamiento, navegación y sincronización. Los productos de comunicaciones y aviónica también experimentaron una sólida demanda.

El sistema TRX de Viavi fue seleccionado por la Oficina de Gestión de Sistemas de Amenazas del Ejército de EE. UU. para crear entornos electromagnéticos complejos en campos de pruebas dedicados al desarrollo de sistemas antidrón e interceptores. La dirección lo describió como una oportunidad plurianual potencialmente considerable.

La demanda de proveedores de servicios mejora, pero el sector inalámbrico sigue débil

Los ingresos de proveedores de servicios se vieron beneficiados por una demanda estacional más fuerte de lo esperado. Las áreas de crecimiento incluyeron sistemas de monitorización de fibra para el despliegue de redes e instrumentos de cable compatibles con DOCSIS 4.0 y arquitectura de acceso distribuido.

La dirección también observa indicios tempranos de un ciclo de sustitución plurianual para los equipos de proveedores de servicios adquiridos entre 2020 y 2022. Sin embargo, el segmento inalámbrico siguió siendo la parte más débil debido a un gasto moderado. La empresa prevé que el desarrollo de AI RAN, 6G y redes no terrestres impulse la recuperación a más largo plazo.

OSP se beneficia del volumen y la combinación de productos

Los ingresos de OSP crecieron un 12,2% interanual, impulsados por sensores 3D, productos de lucha contra la falsificación y otros productos. El mayor volumen y una combinación de productos favorable respaldaron la expansión del margen bruto, aunque la dirección prevé una debilidad estacional en el segundo trimestre fiscal.

Previsiones de la dirección

La dirección prevé que los ingresos de NSE aumenten secuencialmente gracias a la continua demanda de centros de datos y aeroespacio y defensa, junto con la solidez estacional de los proveedores de servicios. Se prevé que los ingresos de OSP disminuyan secuencialmente debido a una menor demanda estacional de productos de sensores 3D y lucha contra la falsificación.

La empresa prevé que el crecimiento total de los ingresos trimestrales continúe durante el resto del ejercicio fiscal 2027, sujeto a las hipótesis de demanda y explotación. La dirección identificó la inversión en centros de datos, la demanda de aeroespacio y defensa, la actividad de sustitución de proveedores de servicios y la recuperación inalámbrica a más largo plazo como sus cuatro motores principales de crecimiento.

Riesgos y aspectos a vigilar

• Los márgenes y el BPA del primer trimestre fiscal se vieron beneficiados por el reembolso de aranceles, compensado en parte por la semana adicional de gastos variables.
• Se espera que OSP disminuya secuencialmente en el segundo trimestre fiscal debido a los patrones habituales de demanda estacional.
• El gasto en el sector inalámbrico sigue siendo débil, y la dirección no indicó que haya comenzado una recuperación en el despliegue de volúmenes.
• La dirección prevé que los gastos operativos aumenten en cierta medida en el trimestre de marzo debido a gastos legales, contrataciones y al calendario de I+D.
• Las perspectivas presuponen un gasto de capital continuo por parte de los clientes de centros de datos, proveedores de servicios y aeroespacio y defensa, junto con una disponibilidad adecuada de componentes y condiciones macroeconómicas estables.

Puntos destacados del turno de preguntas y respuestas con analistas

• Crecimiento de NSE en el T2 fiscal: La dirección estimó que aproximadamente el 40% del incremento proyectado provendría de los centros de datos, alrededor de un tercio de aeroespacio y defensa, y el resto de los proveedores de servicios.
• Módulos ópticos de 1,6T: Viavi caracterizó el ciclo de 1,6T como en sus fases iniciales. La dirección prevé que la actividad de gran volumen se desarrolle en la segunda mitad del año natural 2027 y señaló que los 1,6T podrían no superar a los 800G hasta finales de 2027 como muy pronto.
• Pruebas de CPO y semiconductores: Los envíos iniciales comenzaron en el T1 fiscal y la dirección prevé que se aceleren en los trimestres posteriores. Las oportunidades van desde el sondeo de obleas hasta las pruebas de motor óptico, sustrato y ensamblaje final.
• Apalancamiento operativo: La dirección afirmó que una tasa de conversión incremental del beneficio operativo de entre el 50% y el 55% es un marco conservador, aunque la tasa puede variar según el momento en que se realicen los gastos y las retribuciones de incentivos.
• Integración de Spirent: La integración organizativa se completó hace varios trimestres. La dirección estimó la integración de las líneas de productos en aproximadamente un 25% y prevé que supere el 75% a finales del próximo año natural.
• Gasto en centros de datos: La dirección afirmó no haber observado una desaceleración en la demanda de los clientes y que el gasto real había sido más fuerte que sus previsiones anteriores.

Transcripción completa de la llamada de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Good afternoon. My name is Jonathan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viavi Solutions Fiscal First Quarter 2027 Earnings Call. Today's conference is being recorded. [Operator Instructions]

At this time, I would like to turn the call over to Vibhuti Nayar, Head of Investor Relations.

Vibhuti Nayar

Please go ahead. Thank you, Jonathan. Good afternoon, everyone. Welcome to Viavi Solutions Fiscal First Quarter 2027 Earnings Call. My name is Vibhuti Nayar, Head of Investor Relations for Viavi Solutions. And with me on today's call are Oleg Khaykin, our President and CEO; and Ilan Daskal, our CFO.

Please note, this call will include forward-looking statements about the company's financial performance, outlook and longer-term growth strategy. These rest on a number of assumptions, such as sustained capital spending, particularly by data center ecosystem, service providers and aerospace and defense customers, our ability to maintain or gain market share and develop and deliver new products on time, adequate component availability and stable macroeconomic conditions. These assumptions are not exhaustive, and additional assumptions, risks and uncertainties are discussed in our filings with the SEC. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current estimations and expectations.

We attribute our most recent annual report on Form 10-K filed with the SEC on August 13, 2026, and our quarterly SEC filings, particularly the risk factors described in those filings for additional information regarding the assumptions, risks and uncertainties underlying these forward-looking statements. These forward-looking statements, including the guidance that we provide during this call and our expectations regarding the end markets, revenue growth and market expansion are valid only as of today. Viavi undertakes no obligation to update these statements.

Please also note that unless we state otherwise, all results discussed on this call except revenue are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their usefulness and limitations in today's earnings release. The release as well as our supplemental earnings slides, which include historical financial tables, are available on Viavi's website at www.investor.viavisolutions.com. Finally, we are recording today's call. and will make the recording available on our website by 4:30 p.m. Pacific Time this evening.

With that, I would like to turn the call over to Ilan. Ilan?

Ilan Daskal

Thank you, everybody. Good afternoon, everyone. Now I would like to review the results of the first quarter of fiscal year 2027. Net revenue for the quarter was $469.3 million, which is above the high end of our guidance range of $450 million to $460 million. Revenue was up 5.9% sequentially and on a year-over-year basis was up 56.9%.

Operating margin for the first fiscal quarter was 29%, above the high end of our guidance range of 26.7% and to 27.5%. Operating margin expanded 5 percentage points from the prior quarter and on a year-over-year basis, was 12.7 percentage points higher. Operating margin included a net benefit of about 110 basis points from tariff refund of approximately $11 million, which was offset by the additional one week of some variable costs.

EPS at $0.47 was well above our guidance range of $0.40 to $0.42 and was up $0.13 sequentially. On a year-over-year basis, EPS was up $0.32. EPS includes a net benefit of about $0.02 from tariff refunds and from the additional one week of variable expenses.

Moving on to our Q1 results by business segment. NSE revenue for the first fiscal quarter came in at $376.1 million, which is above the high end of our guidance range of $360 million to $368 million. Revenue from Spire and product lines was $52.7 million. On a year-over-year basis, NSE revenue was up 74% and as a result of continued strong demand for our lead and production and field products, driven by the data as well as the acquisition of Spire and product lines. We also saw strong demand for our aerospace and defense products.

NSE gross margin for the quarter was 66.2%, and which is 310 basis points higher on a year-over-year basis and was mainly driven by the tariff refunds and product mix. NSE's operating margin for the quarter was 25.5% versus 8.2% during the same quarter last year. NSE operating margin was well above our guidance range of 22.6% to 23.6%, mainly as a result of higher fall-through.

OSP revenue for the first fiscal quarter came in at $93.2 million, which is also above the high end of our guidance range of $90 million to $92 million. On a year-over-year basis, OSP revenue was up 12.2%, driven by strength in 3D Sensing and anti-counterfeiting and other products. OSP gross margin was 57.1%, up 460 basis points on a year-over-year basis, primarily driven by higher volume and favorable product mix. OSP's operating margin was 43.2%, which is in line with our guidance range of 43% to 43.4%. The OSP operating margin increased 600 basis points on a year-over-year basis.

Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q1 were $535.3 million compared to $656.7 million in the fourth fiscal quarter of 2026. Cash flow from operating activities for the quarter was $104.7 million versus $31 million in the same period last year, and was driven by higher net income and timing of working capital. CapEx for the quarter was $12 million versus $8.5 million in the same period last year.

During the first quarter, we purchased about 3,949,000 shares of our stock for about $150 million at an average share price of $37.98. We have about $18 million remaining under the current authorized share repurchase program. And our Board of Directors has authorized a new buyback plan of $500 million. Our capital allocation strategy will continue to focus on organic growth potential M&A targets as well as opportunistic share buybacks.

The fully diluted share count for the quarter was 266.2 million shares up from 227.9 million shares in the prior year and versus 268 million shares in our guidance for the first fiscal quarter.

Moving on to our guidance for the second quarter of fiscal year 2027. We expect the second fiscal quarter revenue for Viavi to be up sequentially driven by continued strength in our key end markets. We expect quarter-over-quarter growth to continue throughout the rest of the fiscal year, driven by tailwinds in our end markets. For NSE, we expect second fiscal quarter revenue to be up as a result of continued strong demand for lab, production, and field products driven by the data center ecosystem as well as aerospace and defense customers. For OSP, we expect quarter-over-quarter revenue to be lower, in line with seasonality of lower demand for 3D sensing and anticounterfeiting and other products.

For the second fiscal quarter of 2027, we expect Viavi revenue in the range of $505 million and $515 million. We expect NSE revenue in the second fiscal quarter of 2027 between $426 million and $434 million. OSP revenue is expected to be in the range of $79 million and $81 million. Operating margin for Viavi is expected to be 29.3% and plus or minus 30 basis points. NSE operating margin is expected to be 28.1%, plus or minus 30 basis points. OSP operating margin is expected to be 35.7%, plus or minus 20 basis points, and EPS is expected to be between $0.50 and $0.52.

Our tax expenses for the second quarter are expected to be around $12 million plus or minus $500,000 as a result of jurisdictional mix. We expect other income and expenses to reflect a net expense of approximately $3.5 million and the share count is expected to be around 264 million shares.

With that, I will turn the call over to Oleg. Oleg?

Oleg Khaykin

Thank you, Ilan. The first quarter coming in above the high end of our guidance. Our fiscal 2027 is off to a good start. The year-on-year performance was driven by strong growth in many of our end markets. NSE revenue in fiscal Q1 grew approximately 74% year-over-year, primarily driven by continued strong demand from the data center and aerospace and defense customers.

More specifically, the data center segment, which includes high-performance semis, optical modules, NAMS and hyperscale's drove strong demand for lab, production and field instruments in support of the scale out and scale across applications. In addition to the traditional lab and production end markets, we also expanded our TAM to include the semiconductor packaging and test.

With the adoption of NPO and CPO technologies, we expect the semiconductor packaging and test segment to become a major new growth area for Viavi. The September quarter marked a major milestone as we commenced the initial shipments into that segment.

Data center demand for our products remains very strong, and we expect continued robust growth in this segment in calendar 2027. Our Aerospace and Defense business also saw another quarter of strong year-on-year and quarter-on-quarter growth, driven by demand for our positioning, navigation and timing products. Our communications and avionics products are also seeing robust demand.

Our TRX system was recently selected by the U.S. Army's Threat Systems Management Office to create complex realistic electromagnetic environments across newly opened army test ranges to support tons, counter drones and interceptor development. This is potentially a sizable growth opportunity for Viavi over the next several years. We expect strong momentum in our A&D business unit to continue into calendar 2027.

The service provider business, which includes field instruments, wireless and service enablement products, was up, driven by stronger-than-expected seasonal demand. The highlights included increased demand for our fiber monitoring systems in support of fiber build-outs and for our cable instruments in support of DOCSIS 4.0 and DAA cable architecture. In addition, we are seeing early signs of a multiyear refresh cycle from service providers as they begin to upgrade and replace the equipment purchased in 2020 through 2022.

Wireless products remains the only low it in the service provider segment due to the anemic spend environment. That said, we remain optimistic about the medium-term prospects for our wireless business as AI RAN and CSG development start to ramp up. Lastly, our OSP business unit also saw strong year-on-year revenue growth driven by 3D sensing and anticounterfeiting and other products.

Looking ahead to Q2, we expect a very strong quarter for NSE. We expect NSE revenue to be up quarter-on-quarter, driven by strong and growing demand from the data center and aerospace and defense customers. We also expect seasonal tailwinds from service providers. Conversely, we expect the OSP business unit to be down quarter-on-quarter, in line with the seasonally lower demand for both anti-counterfeiting and 3D sensing products.

Net-net, we expect the quarter quarter-on-quarter growth to be meaningfully up with strong NSC demand more than offsetting seasonally weaker OSP quarter. To summarize, our fiscal '27 is off to a very good start, and we expect a strong momentum to continue into the second half of the fiscal year. During this quarter, we expect to reach $2 billion revenue run rate, which is ahead of our prior expectations.

As we look ahead at our diverse end markets, customer dynamics and the expanding Viavi end market footprint, we expect the current growth momentum to continue over the next several years. We see four major drivers supporting our growth strategy. The first one is the continued growth of the data center segment driven by continued investment in scale up, scale out and scale across applications. Expanded Viavi TAM, including semiconductor assembly and test and fiber manufacturing, increased fiber penetration and densification in the data center and faster product replacement cycles.

The second driver is continued aerospace and defense growth driven by strong demand for our positioning, navigation and timing products. The third driver is multiyear service provider in the fresh cycle. And the fourth driver longer term, is the recovery of the wireless business driven by 6G and AI ramp.

Okay. In summary, I would like to thank the Viavi team for their continued strong innovation and execution and thank our customers and shareholders for their continued support.

With that, I will now turn it back over to the operator for Q&A.

Operator

[Operator Instructions] Your first question comes from the line of Ruben Roy from Stifel.

Preguntas y respuestas

Ruben Roy

Congrats to you Ilan and Oleg on the outlook to $2 billion run rate. Oleg, you talked about the strength going into the December quarter and some of the drivers there. I'm wondering, as you think about this 14% or so quarter-on-quarter guide for NSE into the fourth quarter. Can you maybe walk us through how much of the step-up is coming from the traditional data center ecosystem versus Spirent seasonality, which I think is strong typically in the December quarter and then A&D?

Oleg Khaykin

So yes, I mean, I think if you -- actually, every one of our product lines is growing into December quarter. I mean, clearly, I would say field instruments and service enablement is benefiting from seasonally stronger service provider spend. But I would say if I look at the projected NSE growth I'd say probably about 1/3 is coming from the data center growth, actually about maybe 40% coming from data center growth, about 1/3 is coming from aerospace and defense and the rest is a service provider. So it's actually in the NSE business, we're seeing nice growth across the board anywhere between 10% to 30%, depending on the product line.

Ruben Roy

Okay. Yes. Okay. Helpful. And then as a follow-up, Ilan talked about expectations for sequential growth to continue through the fiscal year. Typically, March is a seasonally weaker quarter. And I assume some of these data center tailwinds are continuing as you think about calendar '27. Oleg you also talked about entering the optical plane of semiconductor test, and we've been talking about things like Pan. Can you talk high level about the revenue opportunity for that new area of your business, who the early customers are? And if some of those revenues are considered in the guidance for continued sequential growth through fiscal '27?

Oleg Khaykin

Sure, yes. I mean the -- so traditionally, our lab & production, you sell into contract manufacturing, mostly making, I would say, the fiber optic modules, pluggables as we see the NPO and CPO penetrating, we're now actually opening a whole new market segment, which traditionally would be known also as an OSAT outsourced assembly and test. And that's selling our optical test products into the kind of probe stations at the foundry and of course, then the multiple insertions at the final assembly and test.

So that's a completely new market segments for Viavi. We made our first shipments this quarter. And we think this could be a sizable segment in a couple of years I mean, north of $100 million for Viavi just by itself. So it's a nice growth market, I mean, clearly, an attractive, more predictable segment than many of our service provider segments.

The other area is we talked about also densification of fiber and making these massive parallel connectors. And that's -- just like we are now seeing demand for our products in the semiconductor supply chain. We are also seeing a market opening up with the fiber optic and the connector manufacturers. So that's two new market segments that we are entering above and beyond our traditional kind of pluggable testing.

So that's very attractive, and it's clearly driven by market size and the volume. And to the extent we see more densification, more multi-core fibers, more integrated silicon photonics closer to the ASIC that is going to be the principal driver of demand in those markets. In terms of customers, those are all the usual suspects. I think you pretty much all the major AI processor and optical switch as well as the Ethernet switch vendors who are the early adopters of the CPO and NPO technologies.

Operator

Your next question comes from the line of Ryan Koontz from Needham & Company.

Ryan Koontz

Great. Thanks for the question, and great outlook, guys. When I asked about a couple of product cycles within the data center and try to gain an understanding of where we are from your perspective, maybe starting with the 1.6T optical modules. Obviously, as we're at an inflection point here. And from your perspective of selling test gear has a lot of that production capacity been built out now for you? Or is there still a lot ahead for Viavi here in terms of selling into the production capacity side?

Oleg Khaykin

I would actually say it's still very early innings. I mean if you use baseball analogy or probably more like a second third inning. I think the 1.6T peak will be probably sometime in the second half of next year. I mean, in terms of approaching the high volume. I mean today, we are still the highest volume shipments is 800 gig. 1.6T just kind of starting to ramp up. And I can see 800 and 1.6 running concurrently for quite a while. But it will be probably until the end of next calendar year where the 1.6 will surpass 800 at the earliest.

Ryan Koontz

Got it. Helpful. And then maybe on some of these new OCS products that are coming to market for optical switching, I assume your fiber testers have monitoring have some potential here to sell into this new product cycle? How would you assess that opportunity for?

Oleg Khaykin

That one is I think OCS is probably -- from point of view of test content is probably one of the biggest sweet spots in the market. in terms of the dollar content for ports. So clearly, as these volumes grow, it's a very attractive segment for us.

Ryan Koontz

Got it. Great. And then with regards -- maybe just shifting gears over to your Defense and Aerospace side. Any color there in terms of kind of product mix? I assume this is mostly is it still dominated by your P&T into the drone ecosystem? Or are there other products that are contributing more?

Oleg Khaykin

I'd say it's the drone ecosystem both aerial, ground, sea and undersea drones, followed by the alternative GPS to GNSS. So it's all the products for anti-spoofing and iGaming equipment where you need to provide resilient timing and navigation system. So it's including retrofitting in the field system as well as the new products being launched?

Ryan Koontz

Got it. Maybe one last if I can squeeze it in around wireless. You talked about that hopefully bringing some recovery there. Are you thinking that this opportunity that where SpaceX was talking about building a new terrestrial carrier? Is that a real opportunity for you to sell your field gear in that and probably lab?

Oleg Khaykin

Well, I mean, clearly, if anybody is going to be doing it, you have to develop the equipment, so that will stimulate some of our sales. But I think I view it also is a positive because it's by introducing kind of the new player into the market. And clearly, I know as much about as you are in terms of all the initial pronouncements.

I think it's all going to be feeding into the 6G and AIRM deployment with the nonterrestrial network components. So I think the sooner somebody gets moving, it will be more of a change in equilibrium where things are kind of being currently in the limbo mode. I mean there is R&D going on, and we are selling into that. But until things kick into high gear with the planned deployment, that's when you'll actually see volume picking up. So we welcome more innovation.

Operator

Your next question is from the line of Michael Genovese from Rosenblatt.

Michael Genovese

There's a lot of interest out there, Oleg, in NPO CPO. So just any more color you can give us on whether there were revenues there in September or whether they really start in December and if they're more on the NPL or CPO from your perspective? And just any other color you can help give us on that as a growth driver in '27 and beyond. I think people would appreciate it.

Oleg Khaykin

I would say the -- I mean, as I said, our first milestone shipments were in the September quarter. Think of it as a single million dollar shipment. Just early beginning, it's accelerating in the December quarter. It's going to continue -- there's a little echo. It will continue to accelerate into the March quarter and so on and so forth. So it started kind of -- we initially shipped in September, and it's ramping in every quarter since going forward.

And it's predominantly supporting I think there may be some designs or NPO, but I think the overwhelming mix is supporting CPO.

Michael Genovese

Okay. And then on the operating margin, I mean, the operating income rose more than the revenue did in the quarter. So if we even if we back out the full $11 million tariff refund, I'm getting an incremental operating margin about 70%. So does that seem right to you? And since in the past, you've mentioned numbers that are more in the 40s, maybe in the 50s. Was that too low? And are we actually looking at a higher incremental operating margin just based on the evidence here?

Oleg Khaykin

Well, I think probably, all things being equal, there's always leading component versus lagging component. I mean, eventually, you bring up some OpEx costs and some bonuses and things like that. So early on when you get this incremental cost disproportional amount falls to the bottom line. But I think also I wouldn't say it's 70%. I think it's probably more in the high 50s, low 60s for this particular quarter. But I think the conservative good way to think about it is in the low to mid-50s as an incremental fall through to the bottom line.

Ilan Daskal

Yes. And Michael, so some of the operating expenses this quarter is about timing, similar for the December quarter. usually when you go to the March quarter, there is a little bit uptick on the operating expense.

Oleg Khaykin

All the statutory expense and others, et cetera.

Ilan Daskal

So Similarly, when we kind of hiring kind of R&D, et cetera. So it's all about timing, nothing else.

Oleg Khaykin

But I think you'll bring up the point, as we've been saying it for several quarters, we have a significant operating leverage in our business model as revenue goes up because effectively, it's just higher volume, not necessarily more work content or more head count and things like that.

And the other thing is, of course, as you noticed, our tax expense is now in the single digits, which is the second operating leverage driven by our heritage from JDS Uniphase where we inherited massive NOL. So that's finally all falling into place, and we are seeing very strong both operating as well as the appearing leverage at the gross margin as well as operating margin as well as the net profit.

Ilan Daskal

The effective tax rate this quarter was down to 8%. So that's kind of, I think, historically low for us.

Oleg Khaykin

Yes.

Michael Genovese

Great Okay. Perfect. And then I'll just get one more in here. Just -- I mean, this is a fantastic guide. I mean, especially considering how much OSP is down sequentially. I mean it's a really, really strong guide. The stock -- I mean, given where the stock is and the reaction is not as strong as I would expect. I mean, I think it's pretty clear that there's still credit concerns routing people. And now there's the politics and sort of just or general worries about data centers, -- so just you've got a good perspective on a lot of things. Do you have anything to add to help us kind of think through those issues?

Oleg Khaykin

Well, I think I agree with you. I think the somehow we are being treated as an AI play, which is -- we have a significant portion of our business exposed to data center. But remember, data centers I think the data center is not going away. The new technology is going to continue to go into data centers. The refresh cycle of technology in data center is about three to four years. okay? So the same technologies that go into AI data centers will go into even regular cloud data center, okay? And only a portion of the data center business is driven by volume of investment.

I mean then let's not forget, we also have expanded TAM we're getting into semiconductor test and into the fiber optic and connector manufacturing test. It doesn't matter if it's AI data center or the cloud data center replacement, it's still going to be a new market.

And then the whole thing is the shortening of product cycle, densification is all that. So I think only a portion of the data center spend for us is -- I mean, the big portion is driven, obviously, by the CapEx. But we are still very much lagging what was being spent or being committed. We are still way behind that curve in terms of what the actual demand is going to be. And that's only the data center.

Then there's aerospace and defense. I mean if you look at it, you could think about maybe there will be less defense spending. But I'll tell you one thing, there will be a hell a lot more money spent on anything autonomous such as drones and this lower cost weapon systems which require its own internal P&C, and we are very well positioned for that market.

And last but not least, we had a lot of sales in '20 to '22. All of these products are very long in the tooth, and there'll be probably a multiyear -- we're approaching a multiyear replacement a refresh cycle from service providers, and that's kind of like the tide that raises all the boats. So I think if somebody just takes it purely, Viavi is AI play. I think they are grossly undervaluing the diversification of our end markets and where we are playing in.

And eventually, wireless is also going to recover. So today, it's been the last three years, it's been very much of a headwind. Eventually, it will become a tailwind, and that's obviously we'll kick in another stage of the growth. So I feel pretty good about our business. We are not a one-trick pony. We're actually fairly well diversified. And there's multiple technology cycles that are favoring us and not only AI. But yes, it's clearly a big one.

Ilan Daskal

Mike, me in the prepared remarks, we specifically highlighted that we see a continued growth in the next few quarters. And that's updated. It has not changed due to the political kind of expect that you mentioned earlier. I mean, AI is not going anywhere and data centers will continue to...

Oleg Khaykin

Anybody thinks that AI is dead. I mean, it's delusional because there's still the rest of the world, and I mean there's a fundamental competition. So I think it may not grow rapidly, but it's still going to grow, and it's still at a pretty sizable investment already being committed. So I mean, that's just kind of my view on it.

And I would just add one more thing. We have never overhyped it. I mean there's been a lot of companies kind of got ahead of themselves. We always took a more measured and conservative view of how it's going to grow. In fact, we probably were a little too conservative. We thought we'll hit $500 million run rate at the end of next calendar year, then we have updated it to the middle of the calendar year and now it's pulled into the end of this calendar year.

So if anything, we probably should be accused of being overly conservative in that respect. So in a way, it kind of plays out.

Operator

Your next question comes from the line of Andrew Spinola from UBS.

Andrew Spinola

Oleg, along those lines on AI. I'm wondering from a high level, have you seen any changes in the buying by your customers, whether anyone is adjusted spend here or there or cut back in places? Or is it pretty much the same as it's been?

Oleg Khaykin

Well, actually, I would say, in many ways, we have seen our expectations, we were lagging the actual demand. And if anything, we've been getting more surprised by the increase in the spend. So I think we're playing catch-up to a large extent. I mean we as I was saying just before you came on is we thought we hit $500 million at the end of next calendar year, and we had to pull it in almost -- pretty much the entire year. So I don't see any slowdown.

But then again, I would say we probably were thinking much more conservatively in our outlook. So to the extent there will be some pullback, it still represents an upside for us.

Ilan Daskal

And that goes again to our prior remarks so that we see continued growth in the next few quarters. So again, it doesn't change anything for us.

Andrew Spinola

Got it. Ilan, I have a question on the NSE margin, right? As they mentioned earlier, quite strong in Q1 and the guide for Q2. Just wondering, are there any residual Spirent synergies that are flowing through here in H1? Or is this all related to scale in the business?

Ilan Daskal

This is all scaling the business. parent integration was already completed at least two or three quarters ago, it was pretty fast and successful. And everything that you see right now is the leverage that we have from the growth that we are experiencing.

Oleg Khaykin

And I think like this quarter, even last quarter, we are seeing initial products which were kind of good design, I would say, only be integrated. And probably next calendar year, we're going to launch products that are fully integrated between Spirent and the Viavi portfolio. So I think in that respect, the product lines -- I mean, the organizationally, we are fully integrated. The product lines wise, I think we are already, I'd say, 25% there. Probably exiting next year, we should be at over 75%.

Andrew Spinola

Got it. And one last one, Oleg for you. A couple of years ago, when I started covering you guys, I think the market was much tighter margins were a lot lower. You were a smaller business. You've obviously scaled up with Spirent and obviously, AI and data center has given you a lot of scale, much better margins. And I'm wondering, as you approach this business, does anything change for you in terms of your longer-term thinking in terms of where you're investing, what markets you're going after.

And one of the things I'm particularly curious about is you're talking about the semiconductor test and some of your success in some of these other markets. I'm wondering if you're capturing more share on the R&D side if you're seeing that? And if that's part of your strategy potentially going forward?

Oleg Khaykin

Well, so I think, look, when you started covering us, we were still heavily exposed to the service provider field instruments. But actually, gross margin-wise, maybe low 60s is not that much lower, but there -- because the company was a smaller size, the burden of R&D and sales was much higher. As a result, you had a much lower operating margins than NSE.

So the single biggest driver of expansion of operating margins is the top line growth, right? On top of it, bringing Inspire, it clearly comes at a higher margin, so that kind of helps the overall picture. But even if you look at it, Spain had the nice growth but it's low teens. I mean our organic business grew about 50% year-on-year for the September quarter. So just purely pure Viavi with no acquisitions, right? So in that respect, the products we're getting into clearly just volume of sales, a lot of it just falls right to the bottom line.

As we talk about the growth. I mean, clearly, one of the big areas we focused was the R&D task, and that is kind of the leading the market. But the single biggest volume that scale off when we talk about semiconductor test is the production, right? So clearly, we are in every lab for every high-performance semi company when they are testing their PCI Express or their 1.6 terabit Ethernet and so on and so forth. But it's the volumetrically, what drives the revenue and volume is when it goes into the production test.

And by production test, I'm talking about not only the traditional testing in and out of the pluggable, but it's now up to five insertions from the wafer probe to known Gudi testing to the optical engine test to the assembled substrate and the optical engine all the way to the final test.

And that's the piece where we are seeing our growth happening, and we started shipping in the first quarter into that market. And the other one is also came out as the complexity densification is going to going to multicore fiber and you go into a massive parallel fiber optic connectors, we're now seeing our recruitment also being pulled into the fiber optic and connector manufacturing supply chain. So it's going well beyond the traditional kind of optical module test.

And the last but not the least, I think, is the OCS, we've been in this market for many years. Now the volumes, they were fairly low, but now they're starting to scale, and we're seeing a lot of demand for our products also driven by the OCS growth.

Operator

Your last question comes from the line of Tim Savageaux from Northland Capital Markets.

Timothy Savageaux

Congrats on the great results. And I want to go back to the commentary on the CPO NPO opportunity. And I think you mentioned expectations that could be a $100 million plus business. And I want to try to relate that to what your customers are seeing, right, Lumena just talked about a $5 billion order there, I'm sure over multiple years. But can you relate revenue at that level to opportunity for Viavi. Should we be thinking something, I don't know, low to mid-single digits in terms of if this is a $2 billion annual business for your customers is $100 million for you.

On the one hand, on the other, would you say the same thing about OCS in terms of that potential to get to $100 million plus as you did about?

Oleg Khaykin

So when I talk about $100 million plus, it's purely semiconductor that does not include OCS, right? This is more like your Ethernet switching or AI processor and things like that. OCS is a different animal. There, the amount of content per port is quite significant because also the time the testing is quite sizable. So I would say, I mean, generally, people say they're going to do $2 billion. My question becomes over. Is it like an annual run rate? Or is it like over three years or what have you, right? Clearly, I mean, from there, we can .

Timothy Savageaux

Let's just say its annual.

Oleg Khaykin

Well, I mean, to support that much, that probably would be in the tens of millions of dollars maybe approaching between $50 million and $70 million and $100 million.

Timothy Savageaux

Great. And I wasn't I was only trying to say...

Oleg Khaykin

5% of your revenue.

Timothy Savageaux

Beautiful. No, what I was trying to say is to the extent we're talking about the CPO opportunity would OCS be a similar magnitude over time or greater understanding they're not related to each other?

Oleg Khaykin

I think the CPO with switches and ASICs is a higher volume opportunity because I mean they just volumetrically, it's a much bigger volume business, right? Because think about it, when you go through a CS, you're really getting into the core, so you don't need -- now you have a lot of test time for each one of them because you could have like 300x300 switch. But it's sitting at kind of at the center. If you go -- I mean, when you talk about the CPO with ASICs and CPUs, there's many more of them on the edge, and they need multiple insertions.

So there's -- I mean, it's kind of hard to tell because I think there's not enough data points to really see how things will shake out. But there, you have a much bigger volume of ASICs, right? Unit volumes are much higher and you need multiple insertions. So I'd say my bet on that is probably going to be somewhat maybe I'd say OCS is a lower volume but higher volume per shipment. And the CPO with ASIC, it's a much higher volume and lower volume per shipment.

Timothy Savageaux

Great. If I can fit one more in there. You mentioned organic growth at 50%. And I'm going to assume the data center growth was greater than that on a year-over-year basis and also now is more than 50% of NSE revenue are both of those fair statements at this point?

Oleg Khaykin

Yes. So if I look at September quarter last year versus this year, so NSE was $216 million in September '26. Sorry, the -- and today, it's '25. And then today, it's $376 million. So there is a $160 million growth, okay? $52 million of it is aspiring so you back it out, it's about $100 million growth.

And I would say the data center yes, it's clearly more than 50%, right? And I would say aerospace and defense is the second highest. And I would say aerospace and defense and field instruments are, I would say, a little bit north of 50% and data center is, I mean, like almost 2x.

Timothy Savageaux

Great. We're talking growth rates there, I assume. But thanks.

Oleg Khaykin

Yes.

Operator

We have now reached the Q&A session. I will now turn the call back over to Vibhuti Nayar for closing remarks.

Vibhuti Nayar

Thank you, Jonathan. This concludes our earnings call for today. Thank you for joining, everyone. Have a good afternoon.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.