John Lynch: So we're here in Dublin at the EPS office in Dublin, and I'm delighted to be joined by Giorgio Ghislotti, who is the VP of Sales for EMEA for the Data Center and Communications Division of Coherent. Giorgio, it's been a few years since you've been with us in Dublin. It's great to have you back. And since you've been here last, there's been a big shift in the industry towards AI. There's been a massive boom in the last few years. Could you talk to us about the impact of the AI boom on Coherent's business today?

Giorgio Ghislotti: Sure. And first of all, thanks for inviting me in beautiful Malahide. It's a pleasure to come here every time. So, thanks for that. Yeah, sure. The AI boom is having a big impact on Coherent business, in particular for all the components that are meant to support the AI applications from scale up, scale out, and interconnecting different data centers. So this is definitely one area that has been growing significantly.

Another part that has been impacted in terms of growth and demand is the overall component and technology infrastructure needed to support those components. For example, in the semiconductor portion, in terms of components and equipment, there has been a quick ramp that the company is going through to support and be ready.

John Lynch: And can you tell us why Coherent products particularly are so well suited to this sector at the moment?

Giorgio Ghislotti: Yeah, I mean, all our optical transceivers and passive components, lasers, are the key building blocks for all the infrastructure that goes into AI. In addition, we have products such as line cards and modules to interconnect different data centers. So that's where our unique capability is allowing us to address this market. In addition, we are vertically integrated. So not only do we provide modules, but also components, and our vertical integration allows us first to be more flexible in terms of our supply to customers, and secondly to more quickly design and implement new products for the market.

John Lynch: And Giorgio, we know that Coherent product-wise have everything from 1 Gigabit right up to 1.6 Terabit. Can you tell us which specific platforms are most used in the AI environment today?

Giorgio Ghislotti: Yeah. So in the AI environment, 400G has been deployed for a long time. All the links now have moved to 800G, so 800G is now the big volume. But 1.6 Terabit is ramping up very rapidly and is now in production to support the increased requirements that are coming with the new GPUs installed in AI data centers.

John Lynch: So we've seen how this explosion has affected the world in general and a lot of very big companies in particular. And Coherent has benefited from this explosion and your customer base has grown. But can you tell us, are there any negative impacts to your business because of the huge uptake in the AI space?

Giorgio Ghislotti: Yeah. I mean, I wouldn't call it a negative impact because when the market is growing and there are opportunities, this is actually a positive one. Of course, you have some challenges to address. There are many that come with any ramp up in demand, but more specifically right now, lasers are currently constrained around the world because they are the sources for all these interconnects.

And that has required us to be fast in designing products and releasing products that support this application, and also having the install capacity in place. For example, we are ramping up our 6-inch indium phosphide manufacturing fabs, and we are leading on that front. So that's one area where it requires us to execute fast and implement fast to catch up with the demand that is ramping up right now.

John Lynch: Great. And we know Coherent and EPS very well through your optical transceiver portfolio. But can you tell us, are there other product platforms within Coherent that are benefiting from the AI boom at the moment?

Giorgio Ghislotti: Yeah, there are products that are in continuity with the current transceiver products that are going to support next-generation AI platforms. Some of the key areas of growth include:

• Co-Packaged Optics (CPO): where the current transceiver products are now 1.6 Terabit, CPO is meant to be 6.4 Terabit, requiring not only the co-packaged optic solution but also some external high-power laser
• High-power lasers: the external sources used with CPO architecture
• Optical circuit switches: allowing interconnects in the AI infrastructure, where Coherent offers technology it believes is more advantageous than competitors

John Lynch: And we see the growth in companies like Nvidia at the moment, which are absolutely unbelievable levels of growth, and we see the amount of money being spent in the AI sector at the moment, and it's a kind of investment that we probably haven't seen before in this sector. And I think a lot of companies who are involved in the sector, whether they're manufacturers like yourselves or distributors like EPS, the question keeps coming up: is this AI market a bubble? Is there an end to this expansion? What do you think about that, Giorgio? Do you think there's a bubble there?

Giorgio Ghislotti: I mean, we don't believe it's a bubble. Maybe over time some of the demand may moderate and then restart. But all the elements are there that it is a sustainable growth, because if you look at the requirements coming from AI, the infrastructure that is needed will actually be needed even faster. So definitely, with the current visibility there is no sign of a bubble. And also the new technologies that are going to be deployed are going to last for longer. And if you look at the investments that are happening, they are also in the basic infrastructure, also at the lower level. So we believe this is going to be sustainable, and of course with challenges in the ramp up.

John Lynch: Yeah. We're hearing a lot at the moment about CPO, or Co-Packaged Optics. For a distributor like ourselves who has been very focused on selling optical modules for a long time, we're looking at CPO and trying to understand how it fits into the sector with modules. How do you see the future of optical modules for the next five years as opposed to CPO?

Giorgio Ghislotti: Right. I mean, CPO is, to some extent, an evolution of standard optical transceivers. Currently, as I said before, standard optical transceivers are now 800G and 1.6T, and they will actually increase in terms of data rate. CPO is meant to be at 6.4 Terabit, and it's going to provide some other advantages versus transceivers — that's why it's been introduced — like improved signal integrity and lower power consumption. It will require, in combination, external high-power lasers.

So this is the evolution that we see. I think CPO is going to be an incremental step to support the requirements that are coming from the end users in terms of reducing power consumption and increasing data rate. But the transceivers themselves will not disappear. They will remain and be maintained for the current applications and the new ones with higher data rates.

John Lynch: So you still see a strong future for optical modules alongside Co-Packaged Optics.

Giorgio Ghislotti: Yeah, yeah. I think they will coexist. I don't think one will cannibalize the other. And also, in the CPO type of solution, there will be more options coming up like what is called NPO solutions. So definitely there is a strong drive of activities to evaluate new technologies and introduce them to the market quickly.

John Lynch: And Giorgio, power density is a term we keep hearing about in relation to AI data centers. We hear about it in terms of utility companies trying to provide enough power to keep these data centers going, and we hear the data centers themselves talking about the need to use less power. How do you see the innovations in CPO? How do you see that they're going to help customers reduce their energy footprint for these high-speed interconnects?

Giorgio Ghislotti: Yeah, yeah. I mean, I covered that partially in the answer before. CPO is basically allowing the module to be placed closer to the ASIC. This will improve signal integrity from a performance standpoint, but by removing the high-power laser, it will also reduce power consumption. So that's one of the big advantages CPO is adding.

Since you're talking about power consumption, one other topic I didn't cover so far, but I think is worth mentioning, is that power consumption is increasing and thermal handling is becoming more critical. As Coherent, we have unique solutions for thermal cooling that are based on some proprietary technologies we can offer, that are going to replace copper-based solutions. So not only are the optical modules we provide enabling this reduction in power consumption, but on the cooling side we are also offering some unique technologies through partnerships that we believe could bring an advantage in improving the cooling of the entire data center. So we're working on both fronts — the optics we provide, and the side technologies that Coherent owns.

John Lynch: Sure. It was in the news recently, Giorgio, that Nvidia has invested $2 billion into Coherent, and some of your competitors as well. Congratulations on the investment. What do they expect to gain from these technology partnerships that they invest in?

Giorgio Ghislotti: Yeah. I think there are many aspects to this long-term partnership. The first is supply resilience — there is a worldwide shortage of components because of this steep ramp, which is causing shortages. So first of all, it's to guarantee supply resilience, and Coherent has been seen as a key supplier.

But another point, and one that's probably even more important, is to guarantee a kind of long-term technology partnership. So for Coherent, it's about being able to develop not only to support Nvidia's current project needs, but also to co-develop new technologies with them — not just related to optical transceivers, but also passive optics, which are becoming more and more critical in these increasingly dense interconnect solutions. So these are the two aspects that have been driving this partnership with Nvidia, which the company is very proud of.

John Lynch: We've seen the arrival of 1.6 Terabit. Where do you see the market going over the next three years in terms of link speeds?

Giorgio Ghislotti: Again, as I said, the transceiver data rate is going to increase — there are higher data rates doubling the data rate. CPO is going to bring this extra step to 6.4T, plus the other benefits I mentioned before. So definitely we see the future being strong for transceiver-related applications, because all the links are going to move more and more toward optical. People are also now thinking about moving away from copper. The need for more optics in the data center is going to increase, not reduce. So we see a bright future for that.

John Lynch: Great. And Giorgio, we've talked about the macro side of the market and we've talked about the giant Tier 1 customers who are at the forefront of these developments. How is Coherent evolving its distribution and partner network to ensure a reliable supply of high-end optics in a market that currently feels sold out maybe for the next 12 months?

Giorgio Ghislotti: Right. Again, I don't think it's an either/or solution. We are trying to work with partners that have been partners of ours for a long time, like EPS has been for 25 years plus. Thanks to the experience we have and our manufacturing flexibility, also managing the internal supply, we try to manage the need for all customers to avoid an unfair allocation of the business.

And for distribution partners like you, we try to work together to put a plan in place. It's not going to be easy because everybody is in a constrained situation, but certainly the experience we have on both sides will help us manage and navigate through this demand. But definitely, our plan is not to penalize the partners — it's actually to grow together, not to limit.

John Lynch: Great. We've talked a lot about the high-end products. Where do you see the future for Coherent's legacy products, the slower speed products?

Giorgio Ghislotti: Again, this isn't a new aspect — it's been there forever, really. There is always a kind of life cycle for a product: you need to introduce a new product, and as a result, the legacy product gets used less. And so you need to manage discontinuing them because demand is lower, and also because of profitability.

So we will keep doing what we've been doing: managing proactively with customers, communicating our long-term roadmap, managing replacement parts, and trying to guarantee a smooth transition. So far, we've been able to manage those transitions relatively well, and all our customers remain with us even through this periodic transition from one data rate to another, from one form factor to another. So this is going to remain the same approach we've used so far. Although the times are challenging, it won't change our strategy of discontinuing products as they become obsolete or are no longer needed by the market.