Regarding data center technology, is the mix still weighted towards older generation technology like 800G, or are newer technologies like 1.6T gaining traction, and how will 1.6T and 3.2T layer in?

Oleg clarified that 800G remains a high-volume driver, while 1.6T, released 1.5 years ago, is actively ramping in labs and early production, spreading from optical equipment vendors to semiconductors and co-packaged optics. He noted that the market scope is expanding tremendously with new technologies like high-power Ethernet and integrated photonic circuits. “Yes, it's all. I mean the 800 is still very much a high volume driver. But a lot of the new development is using our 1.6. By the way, we released 1.6, 1.5 years ago.”

Considering the current momentum and the midpoint of the June quarter guide implying annualized earnings of $1.20, how should we think about the company's earning power over the next 1-2 years, and is $500 million in quarterly revenue a realistic target?

Oleg and Ilan explained that NSE's operating profit is nearing 20% with a 40-45% fall-through on incremental dollars, and OSP maintains high margins, driving significant operating leverage. They also highlighted the benefit of a ~12% effective tax rate due to NOLs. Oleg stated that $500 million in quarterly revenue is "entirely realistic" over the next upcycle, not necessarily in the immediate next fiscal year. “I think it's entirely realistic. I mean, look, I think this quarter, we are at midpoint is well around 232. I mean, so it's moving in that direction.”

Do you agree that testing is becoming a bottleneck in the shift to silicon photonics and co-packaged optics, and how will Viavi address this to capitalize on the opportunity?

Oleg strongly affirmed that packaging has become a strategic asset and testing is a critical bottleneck. He emphasized that Viavi's technologies and capabilities are being integrated directly into the entire value chain, from individual optical components to wafer-level packaging and heterogeneous integration, and into major test platforms, representing a significant new business area. “I'll say, Amen, Brother, you're absolutely right. So I mean, the whole test packaging used to be kind of a back-end afterthought. It is now the system. It's now a strategic asset.”

VIAV

Viavi Solutions (VIAV) Q3 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q3 FY26)· Information Technology· Apr 29, 2026

Source: earnings call transcript

Executive summary

Viavi Solutions Q3 FY26 — Strong Data Center and Aerospace & Defense Demand Drives Beat

Viavi Solutions delivered a strong Q3 FY26, exceeding revenue, margin, and EPS guidance, primarily fueled by robust demand from the data center ecosystem and aerospace and defense sectors. The company is leveraging its test and measurement expertise for next-generation AI infrastructure, with significant operating leverage driving profitability. While cash flow was impacted by earn-out payments and working capital, management remains focused on debt management and capital allocation.

Highlights

Net revenue of $406.8 million, exceeding the high end of guidance ($386M-$400M).
Operating margin of 21%, above the high end of guidance (19.2%-20.2%).
EPS of $0.27, surpassing the high end of guidance ($0.22-$0.24).
NSE revenue grew 54.4% year-over-year, driven by data center ecosystem and aerospace & defense.
OSP revenue increased 11.4% year-over-year, fueled by strong demand for 3D sensing and anticounterfeiting products.

Concerns

Cash flow from operating activities was a use of $26.3 million, impacted by earn-out payments, working capital timing, and employee variable costs.
Wireless business demand remains weak but stable, with no expected recovery in the near term.
Fully diluted share count increased to 249.5 million shares, up from 226.9 million shares in the prior year.

Guidance & targets

Category	Target	Timeline	Confidence
Viavi Revenue	$427 million and $437 million high materiality	Q4 · FY26	High
NSE Revenue	$340 million and $348 million medium materiality	Q4 · FY26	High
OSP Revenue	$87 million and $89 million medium materiality	Q4 · FY26	High
Viavi Operating Margin	22.7%, plus or minus 50 basis points high materiality	Q4 · FY26	High
NSE Operating Margin	18.7%, plus or minus 50 basis points medium materiality	Q4 · FY26	High
OSP Operating Margin	38.4% plus or minus 40 basis points medium materiality	Q4 · FY26	High
EPS	$0.29 and $0.31 high materiality	Q4 · FY26	High
Tax Expenses	about $10 million, plus or minus $500,000 low materiality	Q4 · FY26	Medium
Other Income and Expense	net expense of approximately $12 million low materiality	Q4 · FY26	Medium
Share Count	around 256 million shares low materiality	Q4 · FY26	High
Spirent Annual Run Rate	around $200 million medium materiality	Calendar Annual	Medium
Spirent Q4 FY26 Revenue	just shy of the $50 million, maybe $48 million low materiality	Q4 · FY26	Medium
Data Center Ecosystem Revenue Momentum	continue through the calendar 2026 high materiality	CY26	High
Aerospace and Defense Business Trend	continue through the calendar year medium materiality	CY26	High
Restructuring Implementation	most of it by the end of our fiscal year, so the June quarter. And there's some remainder that probably will go through the end of the calendar year. medium materiality	Q4 · FY26	High
NSE Operating Leverage Visibility	more visible in the second half of the fiscal year of next fiscal year, meaning it's the first half of the calendar year of '27. medium materiality	H2 FY27 / H1 CY27	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Network and Service Enablement (NSE) Revenue was above the high end of guidance ($304M-$316M). Growth primarily driven by the acquisition of Spirent product lines, strong demand from the data center ecosystem, and aerospace and defense products. Operating margin was above the high end of guidance (15%-16%) due to higher fall-through. Gross margin increased 220 basis points year-over-year due to higher volume and favorable product mix. Gross margin: 65.3%	$321.5 million	54.4%	10.2%	17.2%
Optical Security and Performance (OSP) Revenue was above the guidance range ($82M-$84M). Growth primarily driven by strong demand for 3D sensing and anticounterfeiting products. Operating margin was in line with guidance (34.8%-35.8%). Gross margin was down 130 basis points year-over-year mainly due to unfavorable product mix. Gross margin: 50.3%	$85.3 million	11.4%	10.2%	35.3%

Deals & partnerships

Inertial Labs Earn-out payment for prior acquisition, indicating strong performance. pretty big earnout

The company successfully paid out a significant earn-out to Inertial Labs, indicating that the acquired business has exceeded all its initial forecasts.

Risks & headwinds

Weak wireless business demand Near term

Down about 45% depending on the quarter

Mitigation:Focus on next-generation technologies like 6G, NTN, AI RAN, and ground-to-satellite communication.

Cash flow use from operating activities Q3 FY26

Use of $26.3 million

Mitigation:Impacted by earn-out payments, timing of working capital, and employee variable costs; company prioritizing debt management.

Share dilution from convertible notes Q3 FY26

1.8 million shares issued for conversion premium; fully diluted share count of 249.5 million

Mitigation:Acknowledged as a factor in calculations, but not explicitly stated as a risk by management.

What to watch in Q4 FY26

Data Center Ecosystem Revenue Momentum

CY26 and beyond

Current Strong and growing demand, exit velocity in high 40s % of NSE revenue

Target Continued strong growth, potentially reaching 50% of NSE revenue

Why it matters

The data center ecosystem is a primary growth driver for Viavi, crucial for overall revenue and margin expansion.

Given strong and growing customer demand, we expect the data center ecosystem revenue momentum to continue through the calendar 2026.

Find out whether VIAV delivers this. Inve re-checks your case every morning.

Q&A highlights

Could you provide more detail on the specific drivers within the data center momentum, distinguishing between lab, production, and field segments, and discuss customer visibility?

Oleg detailed that lab-side demand comes from optical transport and PCIe express test products for AI chip development. Production-side momentum is driven by co-packaged optics and integrated packaged optic solutions, requiring spectral performance measurement. Field instrumentation is seeing strong demand for fiber monitoring solutions as data centers come online, now accounting for 40-50% of field instrument revenue.

“I mean, it's now approaching cost to, let's say, 40%, 45% -- pretty soon probably maybe 50% of the field instruments is actually driven by the data center.”

asked by Ruben Roy · answered by Oleg Khaykin

3 min read 7 chapters

Detailed narrative

Data Center Ecosystem Momentum

Viavi is experiencing strong demand across all data center segments, including scale up, scale out, and scale across. This is driven by industry investment in higher communication speeds and chip-to-chip interconnect technologies. The company's optical transport, silicon photonics, communication protocol, and high-speed Ethernet test equipment are critical for AI chip development, co-packaged optics production, and fiber monitoring in new data centers.

Field instrument demand from data centers is now approaching 40-50% of the total.

Aerospace and Defense Growth

The Aerospace and Defense business continues to show strong quarter-on-quarter growth, primarily driven by demand for positioning, navigation, and timing products. This momentum is expected to continue through the calendar year. The Inertial Labs acquisition has significantly exceeded forecasts, with strong demand for its sensors and inertial navigation systems in autonomous vehicles (air, land, sea, undersea), including drones.

The company is expanding its engagement with U.S. Tier 1 players after implementing ITAR and secure access systems.

Spirent Integration and Synergies

The recently acquired Spirent high-speed Ethernet product lines performed in line with expectations, providing access to a large installed base of enterprise customers. Viavi is leveraging Spirent's established reputation and application-hardened software, while upgrading its hardware performance. The first truly integrated product between Viavi and Spirent is expected to be 3.2 terabits, building on their combined 800-gig position and expanding cross-selling opportunities for a broader product mix.

Operating Leverage and Profitability

Viavi is demonstrating significant operating leverage, with the NSE business nearing 20% operating profit and OSP maintaining high margins. For every incremental dollar in NSE, approximately 40-45% falls through to the bottom line. The company benefits from a low effective tax rate of about 12% due to the utilization of NOLs, particularly for profits generated in North America where IP and R&D are located, further enhancing overall profitability.

Wireless Business and Future Opportunities

The service provider business, including wireless and service enablement, follows seasonal patterns, being weaker in March and September quarters. While current wireless business demand is weak but stable, it is not expected to recover in the near term. However, Viavi is focusing on next-generation wireless technologies such as 6G, NTN (Non-Terrestrial Networks), AI RAN (AI-driven Radio Access Networks), and ground-to-satellite communication, anticipating future market rebound.

Supply Chain Management and Component Access

Viavi proactively manages its supply chain by anticipating potential component shortages and strategically building inventory. The company's position at the forefront of test and measurement allows it to secure early access to alpha or beta silicon, ensuring product development aligns with market releases.

While component shortages exist (e.g., memory), Viavi's volume requirements and willingness to pay higher ASPs ensure availability, prioritizing product functionality and timely delivery over cost for bleeding-edge products.

Test and Measurement as a Bottleneck in Advanced Packaging

The increasing complexity of advanced packaging, including co-packaged optics, near-package optics, and heterogeneous integration, has elevated test and measurement to a strategic asset and a critical bottleneck. Viavi's technologies are being integrated into the entire value chain, from individual optical components to wafer-level packaging and major test platforms.

This represents a significant new business area, as the need for rigorous testing at multiple insertion points is crucial for yield and reliability in these complex, integrated systems.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.