VIAVI's Q1 2026: Contradictions Emerge on Data Center Exposure, Spirent Acquisition Run Rate, and Wireless Outlook

Date of Call: October 29, 2025

Financials Results

• Revenue: $299.1M, above high end of guidance $290M-$298M, up 3% sequentially and up 25.6% YOY
• EPS: $0.15 per diluted share, above high end of guidance $0.13-$0.14, up $0.02 sequentially and up $0.09 YOY
• Operating Margin: 15.7%, above guidance range 14.6%-15.4%, up 130 bps sequentially and up 570 bps YOY

Guidance:

• Revenue for Q2 expected to be $360M–$370M (includes ~10 weeks of Spirent contribution)
• NSE revenue expected $283M–$293M (including Spirent $45M–$55M)
• OSP revenue expected ~ $77M
• Viavi operating margin expected 17.9% ±60 bps; NSE 13.6% ±70 bps (Spirent slightly accretive); OSP 34% ±50 bps
• EPS expected $0.18–$0.20 (Viavi standalone ≈ $0.18; Spirent contribution $0.00–$0.02)
• Tax ~$10M ±$0.5M; other net expense ≈ $12.2M; share count ~228.7M

Business Commentary:

• Revenue and Earnings Growth:
• Viavi Solutions reported net revenue of $299.1 million for Q1 FY2026, exceeding the high end of their guidance range and resulting in a 3% sequential and 25.6% year-on-year increase.

• The growth was driven by strong demand in the NSE business segment, particularly from the data center ecosystem and the acquisition of Inertial Labs.

• NSE Segment Performance:

• NSE revenue was $216 million, above the high end of guidance, with a 35.5% year-on-year increase.

• This growth was mainly due to strong demand for lab and production products driven by the data center ecosystem and the acquisition of Inertial Labs.

• OSP Segment Results:

• OSP revenue was $83.1 million, in line with guidance, with a 5.5% year-on-year increase.

• The increase was primarily due to recovery in anti-counterfeiting and other products, though there was a 300 basis points decline in gross margin due to product mix.

• Acquisition and Strategic Integration:

• Viavi completed the acquisition of Spirent's High-Speed Ethernet, network security, and channel emulation business lines from Keysight, expected to add $200 million in annual revenue run rate.
• This acquisition is anticipated to strengthen Viavi's position in the data center ecosystem, contributing positively to future growth.

Sentiment Analysis:

Overall Tone: Positive

• Management reported revenue of $299.1M above the high end of guidance and Q1 revenue up 25.6% YOY; operating margin 15.7% above guidance and up 570 bps YoY; described Spirent acquisition as accretive (~$200M run rate) that strengthens data‑center positioning and said the momentum should continue.

Q&A:

• Question from Ruben Roy (Stifel, Nicolaus & Company, Incorporated): Great to see the progress and congrats on the closing of the Spirent business. I guess the first question, like would be as you continue down the road of diversifying your revenue. Maybe you can give us an update of what the mix is. If you think about your kind of core telecom service provider revenue in NSE versus some of the new products that you're selling into hyperscale. And then obviously, you've been talking a lot about aerospace and defense doing very well with expectations of continued growth. So maybe if you could just give us the mix as the first question.
  Response: Exit mix was ~50/30/20 (service provider/data center/A&D); with Spirent the mix becomes ~45/40/15, i.e., data center nearly equals service provider and reduces reliance on service‑provider cyclicality.

• Question from Ruben Roy (Stifel, Nicolaus & Company, Incorporated): If I take Spirent out of the guidance, it looks like my math is right, you're still growing around 10% sequentially on that core NSE business, almost 20% year-over-year. And I was wondering if you could maybe break out given that service providers still sort of mix with wireless still having some headwinds, et cetera. If you think about that growth on the core business, can you break it out between sort of what you're seeing in data center versus the aerospace and defense business?
  Response: Data center is the primary driver across lab, production and field instruments (strong demand for 800G/1.6T, chip‑to‑chip, modules); aerospace & defense is growing steadily; wireless remains the weakest segment.

• Question from Ruben Roy (Stifel, Nicolaus & Company, Incorporated): Great to see the operating margin guidance for NSE, obviously, Spirent's starting to contribute there. But can you give us maybe how you're thinking about operating margins as you sort of run rate the business to full quarter, kind of exiting fiscal '26 and into fiscal '27?
  Response: Including Spirent we are at roughly a $160M quarterly run rate today and could reach about ~$165M in early calendar 2026 as integration progresses (implying improving margins over time).

• Question from Mehdi Hosseini (Susquehanna Financial Group, LLLP): Oleg, let's assume wireless doesn't come back. It was kind of a worst-case scenario. Given the Spirent and the baseline assumption that it would be $0.08 accretive and the strength in fiber and perhaps a slightly higher growth rate for smartphone next year. It seems to me that you should be exiting calendar year '26 at close to like $1 annualized EPS. And if wireless were to come back, there will be growth above that target. Any thoughts here would be great.
  Response: Management said if current trends continue it's plausible to approach roughly $1.00 EPS next year, with wireless recovery providing additional upside.

• Question from Mehdi Hosseini (Susquehanna Financial Group, LLLP): Double clicking on the OSP and given the upcoming changes to the form factor for a smartphone application, should I assume that some of the past pricing pressure is going to abate and go away? And at least you should have some operating leverage there without contemplating what the real smartphone unit growth would be?
  Response: ASP erosion in OSP appears to have stabilized; revenue upside will be driven by unit growth (3D sensing adoption, some Android facial‑recognition uptake and automotive LiDAR), enabling operating leverage.

• Question from Ryan Koontz (Needham & Company, LLC): Do you feel like your execution in that customer segment (data center) is where it needs to be today? Do you invest more in go‑to‑market and do those customers have different product requirements that you might need to re‑spin new products for data center? Or is it largely the same products as your traditional OSP's.
  Response: Execution is strong—Viavi has invested ~3 years, product cycles shortened to ~2–3 years for data center (higher turnover, higher margin), and the company is well positioned to serve lab, chip, module and system customers.

• Question from Ryan Koontz (Needham & Company, LLC): Would you say you have a similar set of competitors and similar share in the data center relative to your legacy customer base?
  Response: At Layer‑0/1 Viavi has stronger share; with Spirent added Layer‑2–7 capability, the principal competitors are now Viavi and Keysight (Ixia), with Viavi well positioned across the stack.

• Question from Ryan Koontz (Needham & Company, LLC): Can you kind of characterize aerospace and defense products—are those P&T modules you're selling into drone and defense companies? What's the fulfillment model look like?
  Response: Viavi sells a full spectrum—IMU chips, modules, and full inertial navigation systems depending on customer sophistication, serving drones, autonomous vehicles and defense integrators.

• Question from Michael Genovese (Rosenblatt Securities Inc.): I think you gave a new annual revenue number for the HSE acquisition, but I just didn't hear what it was.
  Response: Ilan clarified Spirent HSE annual run rate is ~ $200M (vs prior ~$188M estimate).

• Question from Michael Genovese (Rosenblatt Securities Inc.): Does the higher revenue make the accretion date sooner than 12 months? Or are we still thinking 12 months before it becomes accretive?
  Response: Seasonality matters, but higher-than-expected Spirent revenue should accelerate accretion versus initial expectations; timing still influenced by Q‑half seasonality.

• Question from Michael Genovese (Rosenblatt Securities Inc.): On large service providers like AT&T, Verizon or the cable companies wireline side, is there any trend there that you can call?
  Response: Management sees a gradual recovery in wireline/fiber spend with RFPs forthcoming; professional‑grade fiber operators (interconnect specialists) are growing faster and driving meaningful demand.

• Question from Andrew Spinola (UBS Investment Bank): Wondering if you could provide a little bit more color on the Spirent business that you acquired. Was the margin profile on that business consistent with the overall business, better or worse? And when modeling post the 12 months when it turns accretive, do you think you can drive the margin in that acquired business in line with maybe your targeted 20% for NSE?
  Response: Spirent's gross margin is mid‑to‑high‑60s (above corporate average) and is already accretive; management expects to expand margins via procurement, scale and integration.

• Question from Andrew Spinola (UBS Investment Bank): Is that Spirent business seeing the same acceleration you're seeing in the rest of your data center business?
  Response: Spirent's AI/HSE offerings are growing rapidly though percent growth may be lower due to larger base; AI‑focused test products are a high‑growth subsegment.

• Question from Andrew Spinola (UBS Investment Bank): How should I think about data center growth: unit growth versus R&D/new SKUs?
  Response: It's a mix—lab/R&D (project‑driven) growth from new generations and projects, and production (unit‑driven) growth from scaling manufacturing lines; both drive revenue.

• Question from Timothy Savageaux (Northland Capital Markets): You mentioned Spirent's exposure—given your guide, is Spirent well above 50% exposed to data center? How should we think about that exposure?
  Response: Spirent is heavily data‑center‑exposed—management estimates roughly 80% of Spirent's business sits in the data center ecosystem and ~20% in enterprise.

Contradiction Point 1

Data Center Revenue Exposure and Diversification

It highlights a discrepancy in the reported data center revenue exposure, which is crucial for understanding the company's revenue diversification strategy.

好的，我现在需要处理用户提供的这个任务。用户希望我作为专业的金融文章作者，总结并精简来自美股上市公司财报电话会议的问答环节的问题。用户强调要保持原意，去掉冗长的装饰词，符合美式英语习惯，并且只输出简化后的问题，结尾要保留问号。首先，我需要仔细阅读用户提供的原始问题。原问题有两个部分：第一部分是关于收入多元化，特别是核心电信服务提供商收入、数据中心产品和航空航天与国防业务之间的比例；第二部分是询问独立核心业务的增长分解。接下来，我要分析如何简化这些问题。第一个问题中的“Can you give us an update on the revenue diversification”可以简化为“Can you provide an update on revenue diversification”，但可能更简洁的是“Can you update us on revenue diversification”。然后，“particularly the mix between”可以简化为“specifically the mix between”，但可能直接用“mix”更简洁。然后列举三个部分：core telecom service provider revenue, data center products, aerospace and defense segments。这里可能需要检查是否有更简短的表达方式，比如“core telecom service provider revenue”是否可以简化为“telecom revenue”？不过用户要求不改变原意，所以必须保留关键术语。可能“core telecom service provider revenue”可以保留，因为“core”是关键，不能省略。第二个问题：“Additionally, can you break down the growth in the standalone core business?”可以简化为“Can you break down the growth in the standalone core business?”，但“Additionally”可以去掉，因为问题本身已经分成了两个部分，可能用分号连接更合适，但用户要求每个问题单独列出。不过原问题有两个问题，可能需要用两个问句。但用户给的例子中似乎合并成了一个句子，所以可能需要保持原结构，但更简洁。现在，检查是否符合美式英语习惯。例如，“Can you provide” vs “Can you give”可能更正式，但用户可能希望更简洁，所以“Can you update us on revenue diversification, specifically the mix between core telecom service provider revenue, data center products, and aerospace and defense segments?” 这里“specifically”是否比“particularly”更合适？可能两者都可以，但“specifically”更直接。然后第二个问题：“Can you break down the growth in the standalone core business?”已经很简洁了，但可以检查是否有冗余。例如，“standalone”是否必要？可能用户需要保留，因为这是关键信息。现在需要确保没有装饰词。原问题中没有太多装饰词，但可能需要去掉“Can you”中的“Can you”吗？不，因为这是问句，必须保留。但用户可能希望更直接，比如“Could you provide...”但用户要求不改变原意，所以必须保留原结构。最终简化后的问题应该是两个独立的问题，用问号结尾，并且符合美式英语习惯。可能合并成一个句子，用分号分隔，但用户可能希望分开。但原问题中有两个部分，所以可能需要分开处理。例如：1. Can you update us on revenue diversification, specifically the mix between core telecom service provider revenue, data center products, and aerospace and defense segments?2. Can you break down the growth in the standalone core business?但用户给的例子中可能合并成一个句子，用分号连接，但用户要求输出且仅输出生成的简化后的问题，可能是一个问题还是两个？原问题有两个问题，所以可能需要分开，但用户给的例子中是否合并？需要看用户提供的例子。用户给出的例子中，原问题有两个部分，用“Additionally”连接，所以简化后可能需要分开。但用户可能希望合并成一个句子，如果可能的话。例如：Can you update us on revenue diversification, specifically the mix between core telecom service provider revenue, data center products, and aerospace and defense segments, and break down the growth in the standalone core business?但用户可能希望保持两个问题。需要判断。根据用户提供的示例输出，可能合并成一个句子，用分号或连接词，但用户可能希望分开。但用户给的例子中，原问题有两个部分，所以简化后可能需要两个问题。但用户可能希望合并成一个，因为原问题用“Additionally”连接。因此，可能需要合并成一个句子，用分号或连接词。例如：Can you update us on revenue diversification, specifically the mix between core telecom service provider revenue, data center products, and aerospace and defense segments, and break down the growth in the standalone core business?但需要检查是否符合要求。用户要求“问题简洁，精准，不带有过多的装饰词”，所以合并可能更简洁。但需要确保每个部分都被保留。因此，最终简化后的问题可能是：Can you update us on revenue diversification, specifically the mix between core telecom service provider revenue, data center products, - Ruben Roy (Stifel, Nicolaus & Company, Incorporated, Research Division)

2026Q1: VIAV's revenue mix is currently 45% service provider, 40% data center ecosystem, and 15% aerospace and defense. - Oleg Khaykin(CEO)

What was the data center business size in Q4 and Inertial Labs' contribution to Q1 guidance? - Meta Marshall (Morgan Stanley)

2025Q4: Data center revenues are around 30% of NSE, with aerospace and defense at 20%. - Oleg Khaykin(CEO)

Contradiction Point 2

Spirent Acquisition Revenue and Exposure to Data Center

It involves differing statements regarding the revenue run rate of the Spirent acquisition and its exposure to the data center ecosystem, which are critical for assessing the acquisition's strategic value.

What is the revenue contribution from the Spirent acquisition, and when will it become accretive to earnings? - Michael Genovese (Rosenblatt Securities Inc., Research Division)

2026Q1: The annual revenue run rate for Spirent's business is about $200 million, higher than the previous estimate of $188 million. - Ilan Daskal(CFO)

What was the approximate size of the data center business in Q4, and what is Inertial Labs' contribution to Q1 guidance? - Meta Marshall (Morgan Stanley)

2025Q4: Spirent's revenues in fiscal year 2025 were $188 million, and we expect that Spirent will reach a run rate of $200 million in Q1 calendar 2026. - Ilan Daskal(CFO)

Contradiction Point 3

Wireless Segment Outlook

It shows differing expectations for the wireless segment, which could impact financial forecasts and investor expectations.

If wireless does not return, what is the EPS target for the year, and if wireless returns, would it further boost earnings? - Mehdi Hosseini (Susquehanna Financial Group, LLLP, Research Division)

2026Q1: Wireless is sluggish due to weakness at NAMs, with medium-term infrastructure test demand expected to remain slow. - Oleg Khaykin(CEO)

What are the key trends in NSE's broadband, optical, and wireless segments, and how do you expect FY '26 to progress? - Ryan Koontz (Needham & Company, LLC, Research Division)

2025Q4: Our wireless business was stable during the quarter, driven by ongoing demand for LTE testing products. - Oleg Khaykin(CEO)