Applied Optoelectronics Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 8, 2025
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Operator

Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to Applied Optoelectronics First Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Please note this event is being recorded. I will now turn the call over to Lindsey Savarice, Investor Relations for AOI. Ms. Savarice, you may begin.

Lindsay Grant Savarese
Managing Director at The Blueshirt Group

Thank you. I'm Lindsey Savarice, Investor Relations for Applied Optoelectronics. I am pleased to welcome you to AOI's first quarter twenty twenty five financial results conference call. After the market closed today, AOI issued a press release announcing its first quarter twenty twenty five financial results and provided its outlook for the second quarter of twenty twenty five. The release is also available on the company's website at aoinc.com.

Lindsay Grant Savarese
Managing Director at The Blueshirt Group

This call is being recorded and webcast live. A link to the recording can be found on the Investor Relations section of the AOI website and will be archived for one year. Joining us on today's call is Doctor. Thompson Lin, AOI's Founder, Chairman, and CEO, and Doctor. Stephen Murray, AOI's Chief Financial Officer and Chief Strategy Officer.

Lindsay Grant Savarese
Managing Director at The Blueshirt Group

Thompson will give an overview of AOI's Q1 results, and Stefan will provide financial details and the outlook for the second quarter of twenty twenty five. A question and answer session will follow our prepared remarks. Before we begin, I would like to remind you to review AOI's Safe Harbor statement. On today's call, management will make forward looking statements. These forward looking statements involve risks and uncertainties, as well as assumptions and current expectations, which could cause the company's actual results, levels of activity, performance, or achievements of the company or its industry to differ materially from those expressed or implied in such forward looking statements.

Lindsay Grant Savarese
Managing Director at The Blueshirt Group

In some cases, you can identify forward looking statements by terminology such as believes, forecasts, anticipates, estimates, suggests, intends, predicts, expects, plans, may, should, could, would, will, potential, or thinks or by the negative of those terms or other similar expressions that convey uncertainty of future events or outcomes. The company has based these forward looking statements on its current expectations, assumptions, estimates, and projections. While the company believes these expectations, assumptions, estimates, and projections are reasonable, such forward looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the company's control. Forward looking statements also include statements regarding management's beliefs and expectations related to the expansion of the reach of its products into new markets and customer responses to its innovations, as well as statements regarding the company's outlook for the second quarter of twenty twenty five. Except as required by law, AOI assumes no obligation to update these forward looking statements for any reason after the date of this earnings call to conform these statements to actual results or to changes in the company's expectations.

Lindsay Grant Savarese
Managing Director at The Blueshirt Group

More information about other risks that may impact the company's business are set forth in the Risk Factors section of AOI's reports on file with the SEC, including the company's annual report on Form 10 ks and quarterly reports on Form 10 Q. Also, all financial results and other financial measures discussed today are on a non GAAP basis unless specifically noted otherwise. Non GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation between our GAAP and non GAAP measures, as well as a discussion of why we present non GAAP financial measures, are included in the company's earnings press release that is available on AOI's website. Before moving to the financial results, I'd like to note that the date of AOI's second quarter twenty twenty five earnings call is currently scheduled for 08/07/2025.

Lindsay Grant Savarese
Managing Director at The Blueshirt Group

Now I would like to turn the call over to Doctor. Thompson Lin, AOI's Founder, Chairman, and CEO. Thompson?

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

Thank you, Lindsey, and thank you for joining our call today. We are pleased to deliver fourth quarter results that were in line or better than our expectations. We continue to see strong demand in the CATV market and achieve the highest quarterly CATV revenue in AOI's history. During the fourth quarter, we continue to make progress on our data center business with three new design wins with NDC hyperscale data center customer during the quarter. During the fourth quarter, we delivered revenue of $99,900,000 which was in line with our guidance range of $94,000,000 to $104,000,000 We recorded non GAAP gross margin of 30.7%, which was above the top end of our guidance range of 29% to 30.5%.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

Our non GAAP loss of shares of $02 was in line with our guidance range of a loss of $07 to breakeven. Total revenue for our datacenter products of $32,000,000 increased 11% year over year, but was down 28% sequentially due to inventory digestion on one product by one of our customers. During the quarter, we began several new qualification effort, while support existing qualification on 800 gs product with several large hyperscale customers. Total revenue in our CATV segment was $64,000,000 which increased more than six times year over year and increased 24% sequentially, largely driven by continuous shipment of our 1.8 gigahertz amplifiers for one of our major MSO customers. As we have discussed on our prior earning calls, our MSO customers are in the process of upgrading their outside train networks so that they can support higher bandwidth in the return path direction and eventually enable DOSYS four point zero.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

With that, I will turn the call over to Stefan to review the details of our Q1 performance and outlook for Q2. Stefan?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Thank you, Thompson.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

We are pleased to deliver results that were in line or better than our expectations in the first quarter. We started the year with a considerable momentum. Compared to Q1 of last year, our revenue more than doubled, and we expanded our gross margin by over 1,000 basis points. We also generated positive non GAAP EBITDA in the quarter. We continue to see strong demand in the CATV market and achieved the highest quarterly CATV revenue in AOI's history during the first quarter.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Further, we continue to make progress on our data center business with three new design wins with an existing hyperscale data center customer during the quarter. Looking ahead, we continue to believe that these positive long term growth trends in both our CATV and data center markets will benefit our business. While we continue to closely monitor news of tariffs, in Q1, tariffs had no material impact on our financials. We do not expect significant impact in Q2 based on what we know at this point. We are maintaining a posture of flexibility and vigilance.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

We are continuously assessing our supply chain and manufacturing operations with an eye towards minimizing tariff impacts. At OFC, we unveiled our near term targets for adding production capacity for 800 gs and higher transceivers at our existing plant in Texas. I am pleased to report that we remain on track for these targets, which will culminate later this year with what we believe will be the largest domestic production capacity, expected to be approximately 40,000 transceivers per month or roughly 40% of our overall capacity for these advanced 800 gs optical transceivers. By mid-twenty twenty six, we expect to be able to produce over 200,000 pieces per month, with the majority produced in Texas. Currently, we have already begun to order the equipment necessary to bring up production of our 800 gs at our current facility outside of Houston, and initial production capacity is on track to be shipping product later this summer.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

We believe that our largely in house developed production automation capabilities uniquely position us to be able to rapidly scale manufacturing in The U. S, and we remain committed to offering our customers the option to purchase these products onshore. In addition, while we do utilize some imported components in our transceivers, many key components like our laser chips are already manufactured in

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

The US.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Importantly, in our 800 gs and 1.6 terabit transceiver designs, less than 10% of the value of the components used is currently sourced from China. And we have a pathway as we scale production to further reducing this China content ultimately to near zero. We are also in discussion with several key suppliers about onshoring their production to The U. S. To support a robust domestic supply chain.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Our customers have indicated their need for a reliable domestic manufacturer of next generation optics, and we continue to receive very positive feedback from them regarding our plans. As Thompson mentioned earlier, our Q1 highlights include delivering revenue of $99,900,000 which was in line with our guidance range of $94,000,000 to $104,000,000 and non GAAP gross margin of 30.7%, which was above our guidance range of 29% to 30.5%. And lastly, our non GAAP loss per share of $02 was within our guidance range of a loss of $07 to breakeven. During the first quarter, we continued to deliver on our initiatives that we had previously laid out. We continue to believe that the long term demand drivers for our data center business are strong as our customers continue to build out their next generation AI focused data center architectures.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

We believe that we are uniquely positioned to benefit from these tailwinds and our efforts are centered on fulfilling our customers' needs with high quality and speed. In our data center business, on the back of the announcement we made with Amazon in mid March, we're working diligently to deliver the products which they are going to need to be qualified in their data center. We continue to expand the depth and breadth of our interactions with Amazon as we mutually look to expand revenue opportunities for AOI to reach the $400,000,000 or more annually that it will take to fully earn the warrants that we agreed to in March. We saw impressive turnout at the OFC trade show, where we continued to engage in meaningful dialogue with our customers, particularly with some of our larger hyperscale customers, and demonstrated our next generation technology, including CPO. Further, we received positive feedback from our 800 gs and 1.6 terabit product demos.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

We are active in building out our capacity to address 400 gs and 800 gs product demand, which I will touch on further in a moment. And we are seeing a growing demand for both of these products. In Q1, demand for certain 100 gs products unexpectedly surged in the quarter, which we believe may be related to tariff concerns. Our production capacity on these 100 gs products was limited by supply constraints as we worked to meet this increased demand. We are working with our supplier on these parts and expect partial recovery in Q2 and a full recovery by Q3, which will be positive for both our revenue and gross margin.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

We continue to make progress on customer qualifications on our 800 gs products and are being asked by several customers to expedite production earlier than previously requested, especially as we expect to bring U. S. Production online in Q3 of this year. This demand pull confidence in a second half twenty twenty five ramp for 800 gs. While immaterial to our overall revenue, we did record some revenue for our 800 gs products in the first quarter related to deliveries for customer qualification activity.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Turning to our CATV business. As Thompson mentioned, after receiving a substantial order for our quantum bandwidth networking products from a top North American cable operator last quarter, our product shipments have begun to ramp. We are currently being deployed in multiple geographic markets by a major North American MSO and new markets are being added regularly as technicians are trained and products are staged for deployment. Our Motorola housing style amplifier products are slated for full qualification and field trial this month and forecasts for delivery of these products begin in June. This nearly doubles our available market from what we are currently seeing on only gainmaker style amplifiers.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

In Q2, we are balancing production to ensure we have sufficient stock of both types of amplifiers in The U. S. By late June. Lastly, during the quarter, we expanded our production capacity to further diversify our manufacturing capabilities and to add additional resilience to our business model. As a reminder, we currently have three manufacturing sites, one here in Sugar Land, Texas where our headquarters is, one in Ningbo, China and one in Taipei, Taiwan.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

As we mentioned on our last earnings call, we have been retrofitting our facility in Sugar Land, Texas to accommodate new automated production equipment, which we plan to receive beginning in June. This equipment will be used for the production of both 800 gs and 1.6 terabit transceiver products, which we expect will be produced and delivered from Sugar Land beginning later this summer. During the fourth quarter, as I mentioned on our last call, we signed an agreement to lease an additional building in Taiwan, which we began outfitting in Q1 in order to increase production of our 100 gs, 400 gs and 800 gs data center transceivers and CATV products there. As you may have heard me say at OFC, we expect to increase production in both our US and Taiwan locations by 8.5 times by the end of the year, and we are dedicated to achieving this goal. We have already begun ordering equipment to enable this ramp.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Turning to our first quarter results. Our total revenue was $99,900,000 which more than doubled year over year and was essentially flat sequentially off a strong Q4 and was in line with our guidance range of $94,000,000 to $104,000,000 During the first quarter, '60 '5 percent of revenue was from CATV products, 32% was from data center products, with the remaining 3% from FTTH, telecom and other. In our data center business, Q1 revenue came in at $32,000,000 which was up 11% year over year and was down 28% sequentially. The sequential decrease was due to seasonality as well as inventory digestion from one of our largest hyperscale customers.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Also, as

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

I mentioned above, demand for some of our legacy 100 gs products surged in the quarter, but supply constraints on one of the components used prevented us from fully delivering on this demand, and we are working to rectify the supply constraint as we move into Q2 and beyond. Looking ahead to Q2, we expect a sequential increase in our data center revenue. In the first quarter, '70 '8 percent of data center revenue was from 100 gs products, 10% was from 200 gs and 400 gs transceiver products, and 10% was from 40 gs transceiver products. In our CATV business, CATV revenue in the first quarter was $64,500,000 which was up more than six times year over year and increased 24% sequentially. This significant increase is due to the continued ramp in orders for our 1.8 gigahertz amplifier products.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

In Q1, we were essentially at our manufacturing capacity for CATV production, given current production equipment and staffing. But we believe that our current capacity approximates demand from our customer base. Looking ahead to Q2, we expect a modest pullback in CATV revenue as we retool production to our Motorola style amplifier products. Now turning to our telecom segment. Revenue from our telecom products of $2,900,000 was up 29% year over year and down 17% sequentially.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Looking ahead, we continue to expect telecom sales to fluctuate from quarter to quarter. For the first quarter, our top 10 customers represented 97% of revenue, up from 92% in Q1 of last year. We had two greater than 10% customers, one in the CATV market, which contributed 64% of total revenue and one in the data center market, which contributed 27% of total revenue. In Q1, we generated non GAAP gross margin of 30.7%, which was above our guidance range of 29% to 30.5% and was up from 28.9% in Q4 of twenty twenty four and eighteen point nine percent in Q1 of twenty twenty four. The increase in our gross margin was driven primarily by our favorable product mix, including growth in our CATV revenue.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Looking ahead, we continue to expect that our gross margin will improve further as we see the impact of manufacturing efficiencies in our CATV production and improving product mix. We remain committed to our long term goal of returning our non GAAP gross margin to around 40% and continue to believe that this goal is achievable. Total non GAAP operating expenses in the first quarter were $35,500,000 or 36% of revenue, which compared to $24,800,000 or 61% of revenue in Q1 of the prior year, primarily due to increases in R and D and G and A being driven by increased business activity. Looking ahead, we expect non GAAP operating expenses to be in the range of $36,000,000 to $40,000,000 per quarter. Non GAAP operating loss in the first quarter was 4,800,000 compared to an operating loss of $17,100,000 in Q1 of the prior year.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

GAAP net loss for Q1 was $9,200,000 or a loss of $0.18 per basic share compared with the GAAP net loss of $23,200,000 or a loss of $0.60 per basic share in Q1 of twenty twenty four. On a non GAAP basis, net loss for Q1 was $900,000 or $02 per share, which compared to our guidance range of a loss of $3,600,000 to breakeven or a loss per share in the range of $07 to breakeven per basic share. This compares to a non GAAP net loss of $12,000,000 or $0.31 per basic share in Q1 of the prior year. The basic shares outstanding used for computing the earnings per share in Q1 were $50,000,000 For the full year, we expect to generate positive non GAAP net income. Turning now to the balance sheet.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

We ended the first quarter with $66,800,000 in total cash, cash equivalents, short term investments and restricted cash. This compares with $79,100,000 at the end of the fourth quarter of twenty twenty four. We ended the quarter with total debt, excluding convertible debt of $46,100,000 compared to $46,000,000 at the end of last quarter. As of March 31, we had $102,300,000 in inventory, which compared to $88,100,000 at the end of Q4. The increase in inventory is primarily for raw materials needed for production of both CATV and data center products.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

As we disclosed in February, we initiated a new at the market offering. To date, we have raised $98,000,000 net of commissions and fees under this new program. We intend to use these proceeds to continue to make investments in the business, including new equipment and machinery for production and research and development use, including the earlier mentioned production expansion in Texas. We made a total of $30,500,000 in capital investments in the first quarter, which was mainly used for manufacturing capacity expansion for our 400 gs and 800 gs transceiver products. On our last earnings call, we discussed our plans to make sizable CapEx investments over the next several quarters as we prepare for increased 400 gs, 800 gs and 1.6 terabit data center product production in 2025.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

For the year, we continue to expect between $120,000,000 and $150,000,000 in total CapEx. While these costs could be impacted from the tariffs, given the evolving nature, it is difficult to predict what type of impact or by how much. We will continue to do our best to minimize any impacts. In any event, it's clear to us that U. S.-based production is top of mind for our customers, and we remain committed to building out this capacity with production expected to start later this summer.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Moving now to our Q2 outlook. We expect Q2 revenue to be between $100,000,000 and $110,000,000 accounting for a modest sequential decrease in CATV revenue and sequential increase in data center revenue. We expect non GAAP gross margin to be in the range of 29.5% to 31%. Non GAAP net income is expected to be in the range of a loss of $4,800,000 to a loss of $1,700,000 and non GAAP earnings per share between a loss of $09 per share and a loss of $03 per share using a weighted average basic share count of approximately 55,700,000.0 shares. With that, I will turn it back over to the operator for the Q and A session.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Operator?

Operator

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And our first question comes from Simon Leopold of Raymond James.

Operator

Please go ahead.

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

Thanks for taking the question. I first wanted to ask about your understanding of the channel inventory for your cable TV products. In other words, do you have some telemetry features that allow you to know when products are deployed versus sitting in a warehouse? I'm just trying to understand what's the risk or the knowledge of the status of the gear you've shipped. And then I've got a follow-up.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Yeah, we don't, I mean, we do have telemetry features that in principle could allow us to have access to that. But we have a more direct way of knowing when we get reports from the MSO involved and from our channel partner that account for that inventory. So we have pretty good knowledge of where that inventory is. It's a higher level than we would normally expect. Clearly given the evolving tariff situation, it's beneficial for us to have as much inventory as we can stateside in anticipation of the revenue ramp that we're seeing.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

So it's an intentional inventory buildup there. But we definitely have insight into what level that is and what the future holds for that.

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

And so let me just make sure this is clear. You're saying that there is a bit of an inventory build because of the tariff situation, but you're comfortable with your knowledge of that inventory level?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Yes, exactly. We know what the inventory level is. We know how much is coming out, how much is going in, where the demand is going. We even know where within the MSOs network, you know, those products are being deployed.

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

Okay, great. And then on the 800 gig, is

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

go ahead.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

So the we already we said we have received the the volume order from MSO, and a lot of them have been consumed. So all of the remaining inventory, we have now should be completely consumed by, I would say, sometime in q three. So maybe, like, August. So it's not a lot of inventory.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

Okay? Inventory view is based on the customer demand, the one of the biggest MSO in US.

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

Okay. And then on the progress with 800 gig, it sounds like you're still in kind of the qualification modest revenue in the first half of the year with a ramp in the second half. Could you help us think about how to quantify or model what that second half 800 gig contribution should be?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Well, as we noted earlier, by the end of the year, we expect to have capacity about 100,000 pieces a month of either 800 gig or 1.6 terabits. The majority of that, the vast majority of that is for us is likely to be 800 gig. So, you'll see a ramp from near zero now to something like that level by the end of the year.

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

But I guess rough math, you know, at 75 gig, that would be well over a hundred million in a quarter, a hundred million dollars in a quarter. Am I am I doing something wrong in that thinking?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Yes, so that'll be about production capacity. That'll lag obviously, the deliveries will lag maybe a quarter or something like that on that because we have some cycle time for actual deliveries. But you'll see a ramp again in the second half year up to that level.

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

Great. Thank you very much. And then maybe one last one, if I may. Are you manufacturing anything in China that gets shipped to The U. S.

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

Today? Any color on that? Thanks.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

So

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

we're not manufacturing any products that have a country of origin China for tariff purposes. We do certain manufacturing operations there, but the ultimate country of origin is not China.

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

Thank you.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

You're welcome.

Operator

And our next question comes from Michael Genovese of Rosen blatt Securities. Please go ahead.

Mike Genovese
Senior Research Analyst at Rosenblatt Securities

Great. Thanks very much. I guess my question on cable TV will be, can you flesh out retooling to Motorola style amplifiers, so we can understand that a little bit better?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

I'm sorry, I didn't quite understand your question. You said can we flush out the tooling? I'm not sure I understand what you're asking.

Mike Genovese
Senior Research Analyst at Rosenblatt Securities

Yeah, mean, I just I guess, I mean, I think you're saying that cable TV will be down sequentially because you're retooling to another style of product. And I just what that meant.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Yeah. Sure.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

So it just it just

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

means that so we've produced a significant amount of product for the GainMaker platform. As Thompson mentioned, that'll be consumed pretty quickly. But we have sufficient inventory of that right now for the near future. So during this quarter, during Q2, we're shifting our production to primarily the Motorola style, which as I noted in our prepared remarks earlier, we're expecting the final field trial and qualification really imminently in the next few weeks. So then we'll ship that product out.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

So that way we'll have significant inventory of both products stateside by the June.

Mike Genovese
Senior Research Analyst at Rosenblatt Securities

Right. And then, for those that would kind of push back and say, by the time you have volume of 800 gs in the second half of the year, others in the industry will be moving on to focusing on 1.6 and sort of why or why not, that you're intersecting the market in a good place where it's going to grow for some time rather than coming in too late. Can we get your view and the data that you're looking at on the kind of long term 800 gs market from the time you enter for several years forward, what you think the market's going

Mike Genovese
Senior Research Analyst at Rosenblatt Securities

to look like?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Yes. I mean, the market is enormous for 800 gig and it's going to continue to grow based on what we're hearing from our customers. One point six terabits is a product that is starting to come out now and will ramp as well. But that doesn't take away from the growth prospects that we're seeing and hearing from our customers for 800 gig.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

Well, let me emphasize. Remember, we just signed the deal with Amazon. And as we say, it's about maybe our beliefs much more than $4,000,000,000 in the next ten years. The main focus 800 GE for sure, we are submit 400 GE business too from the q three in volume a picture and then go to 1.6. For 1.6, right now, the only big volume we believe is only for NVIDIA.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

Maybe later on from Google. That's it. But now for the customer we have. The customer we have right now, they are not really buying 1.6 t transceiver.

Mike Genovese
Senior Research Analyst at Rosenblatt Securities

And then and then finally for me. Thanks for that. Finally for me is just are there any other ways of approaching the CapEx needs of the company outside of the ATM or is that really going to be the key mechanism to raise the funds?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Well, we announced

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

just a moment ago that we

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

substantially completed the ATM 98,000,000 net of fees. So that's basically the 100,000,000 gross. We haven't announced plans for any other future fundraising.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

Don't know that's the way I go at the working with customer and potential customer for potential strategy investment. We are looking for some other solution for if we need any funded. But as we said, we believe we still believe we will be profitable this year. And you receive, we have delivered positive EBITDA. So operation cash flow should be positive.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

So I would say you need to risk money that's for the the CapEx because we need to increase the capacity very fast, especially for energy 1.6 for the stone demand from the customer, especially like Amazon. We and we still believe we become their major supplier, I would say, maybe I would say one year, four hundred gs and higher. And that's why the last thing going down, but quality is still the key issues. So that's why, you know, I think with AI demand, we need to go through step by step. But right now, I think so far so good, we are very committed.

Mike Genovese
Senior Research Analyst at Rosenblatt Securities

Okay, perfect. Thank you. I will pass it on.

Operator

The next question comes from Tim Savagno of Northland Capital Markets. Please go ahead.

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

Hey, good afternoon. Looking at what you discussed at OFC in terms of capacity additions, looks like you've got some additions planned. You talked about 400 gig earlier in the year, but 800 gig in Taiwan here in May and June. Would you expect to be able to deliver material 800 gig revenue in Q3? And I guess by material, I mean, say tens of millions.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Well, I mean, I won't comment on the exact magnitude, but it's certainly material revenue from 800 gig in Q3, yes.

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

Great. Obviously, relative to what you announced in the warrant agreement, I mean, that's that capacity that you're ramping to would seem to be a % occupied by Amazon. And of course, you'd you look to be going beyond that. But I wonder if, you know, if I could ask you about your opportunities with, other major cloud provider customers and specifically whether the design wins you mentioned in the quarter, should we assume that that's with Amazon or or with other

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

potential customers?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Those those design wins, none of

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

them were with Amazon in this quarter. They were with other hyperscale customers. And I mean, to kind of get at

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

your

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

question more directly, what I think you're asking is, do we think we have significant opportunities with other hyperscale customers? The answer is absolutely yes. I mean, we've had very productive discussions with other data center customers, hyperscale customers besides Amazon. We think that the uncertainty around tariffs gives The US based production that we're adding an advantage. I mean, I think all of the hyperscalers that we've talked to have been very excited about the prospect of being able to purchase at least a portion of their supply from a domestic supplier.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Just for continuity sake, security of supply chain. We already make the lasers here. They like the idea that we can assemble transceivers here as well.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

And now

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

not the only emphasize is the TAA. That is a requirement is a view of doing business with US government. You cannot manufacture in Thailand, Malaysia, China. So we believe why right now is one of very few transceivers prior meeting PA requirement. We may feature either in Taiwan or in Houston.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

And that's another key, especially for a high end transceiver products for a space for AI.

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

Got it. And going back to the design wins, think you'd mentioned there were three with one existing hyperscale customer. Can you say whether those are 800 gig design wins?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

None of them are 800 gig.

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

Okay.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

We have several And my

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

other qualification with the saber, the hyperscale data center. Let me say that. Right now, when we said design win, we need to go through, like, three phase. So right now, for some products, some customers are doing in the final phase. That's that means you need to deliver, like, you know, something that in few thousand or 10,000.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

You need to put in data center for final qualification for one month and make sure, you know, quality is okay. This you just recall, then you start looking to the volume delivery. But for the lab qualification, we have test already. So we had for few several customers, several product, we are in the final qualification phase, or you can say it's the final phase. Okay?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

So which is why we talked about having some revenue, you know, not big material revenue, but some revenue for 800 g in the quarter.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

Yeah. Yes. No. But they're not so bad. Okay?

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

Still, like, maybe 5,000 piece or 10,000 piece. Okay? So it's not like 100 or 200 piece. Okay?

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

Got it. And and, Stephanie, you kind of alluded to it, but my last question was going to be, you know, I guess around what sort of share you think that agreement at Amazon gives you relative to their, their total consumption?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Well, think as Thompson mentioned a few moments ago, our belief, our expectation is that we can grow to be the largest supplier of 800 gs and faster, higher data rate optics for Amazon. Now that's not guaranteed by any means, but I don't see any reason why we couldn't be there. And that would imply a market share. Typically they're gonna have two or three suppliers. So that would be maybe 30, maybe even up

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

to 40%.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

Let's say right now with tariffs, but as I said, TAA. TAA is very important. As I said, it's special high end AI transceiver. That's why I said we are much more competent.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

Okay. And I said, well, I can say, personally, I believe more than 90%, ninety five % will become the major supplier for Amazon, including other hyperscale data center. We see now, would say, by someone next next year, q two, q '3, I would say more than 40% market share.

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

Great. Thanks very much.

Operator

The next question comes from Dave Kang of B. Riley FBR. Please go ahead.

Dave Kang
Senior Analyst at B Riley Financial

Thank you. Good afternoon. First question is regarding the inventory digestion situation. Just wondering if that was 400 gig and do you expect that to recover in the second quarter or how long will that go on?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Yes, was 400 gig and yes, we expect it to largely resolve in the second quarter.

Dave Kang
Senior Analyst at B Riley Financial

Got it. And then just on the margin situation, what's the margin differential between cable TV and data center transceivers? And is there any difference between 400 gig and maybe 800 gig when you start to ship next quarter?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

I'm sorry, your first question was about the margin difference between

Dave Kang
Senior Analyst at B Riley Financial

Yeah, cable TV and transceivers.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

Yeah, so I mean, the margin on cable is somewhat higher. It varies a little bit based on product mix within the data center market. I mean, cable market relatively speaking has a lot less product diversity in there. There's just a few products versus data center, which has a lot more. So the mix affects the data center overall margin a little bit more, but it's anywhere from, I would say, I don't know, 300, four hundred basis points to maybe 600 basis points higher for cable right now.

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

And we expect the cable will expand as we continue to ring efficiencies out of our manufacturing process. Data center will expand, the margin there will expand based on somewhat on economies of scale, but more likely on the transition to 800 gig and eventually 1.6 terabit.

Dave Kang
Senior Analyst at B Riley Financial

Got it. And then just regarding your 800 gig qualification status, can you just remind us how many you got going? And sounds like they've been going on for a while, right? I mean, at least last summer, so maybe, I don't know, eight, nine months. Is that kind of a typical process?

Dave Kang
Senior Analyst at B Riley Financial

And in your prepared remarks, you talked about you guys some new qualifications. So should we expect similar eight to nine months or any thoughts on that?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

I think the number of calls, I don't have the exact number in hand, but it's more than five less than 10, I would say somewhere in that range. I'd have to get the exact number for you. As Thompson mentioned, that's a multi stage process. Our process, we're pretty strict about when we qualify a design win or when report a design win. And it requires full qualification, an order from the customer and a forecast that continued orders will be ongoing, right?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

And so, we're somewhere in that process between finishing up the qualification, as Thompson mentioned, multi stage qualification and actually logging the design win. So, we'll have more to report back once we have those design wins in place. But let's just say, you know, we're feeling very, very good about the the progress that we're making with the customers on 800 gig. It's going quite well.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

Usually, yes, we face. The face one is called third party. Alright? We test then. And then the then the customer, we have some kind of much bigger volume of in house into our purity for vacation.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

I will test some of them already. As I said, the really the the the less one is you do you need to 5,000 or even 10,000, 20 thousand transceiver, you would do with the final phase of qualification in a data center for at least one month. And make sure almost no failure. Okay? Because as I said right now, with AI, the requirement for quality is really, really high, much higher than that two, goal for the transceiver.

Dave Kang
Senior Analyst at B Riley Financial

And my last question is, you talked about Texas versus Taiwan transceivers coming out of Texas versus those from Taiwan. What do you think the margin differential will be?

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

I mean, I think there's a

Stefan Murry
Stefan Murry
CFO & Chief Strategy Officer at Applied Optoelectronics

good chance the margins in Texas will be higher actually.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

At least the profit will be higher, okay? Because customers will pay, I would say, 10% higher or even 15%. Say that was. I think I don't It'd be much cheaper much cheaper than. Let me say it.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

So based on the column, you know, it could be it could be a lowest cost, even manufacturing in Houston. You don't forget it. The key is automation. Alright? And we are almost fully automate for energy.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

So you did the demo and qualify in Dimpo and in Taiwan in this quarter. US was sometime in Q3.

Dave Kang
Senior Analyst at B Riley Financial

Got it. Thank you.

Operator

At this time, we have no further questions. And I will turn the call over to Doctor. Thompson Lin for any closing remarks.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

Okay. Thank you for joining us today. As always, we want to extend a thank you to our investors, customers and employees for your continuous support. As we discussed today, we believe the fundamental driver of long term demand for our business remain robust and we are unique position to drive value from this opportunity. We look forward to seeing many of you at upcoming investor comments.

Thompson Lin
Thompson Lin
Founder, President, Chief Executive Officer, and Chairman at Applied Optoelectronics

Thank you.

Operator

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

Executives
    • Thompson Lin
      Thompson Lin
      Founder, President, Chief Executive Officer, and Chairman
    • Stefan Murry
      Stefan Murry
      CFO & Chief Strategy Officer
Analysts
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Key Takeaways

  • AOI delivered Q1 revenue of $99.9 million, in line with its $94 million–$104 million guidance, with a non-GAAP gross margin of 30.7% above the top end and a non-GAAP loss per share of $0.02.
  • The CATV segment achieved a record quarterly revenue of $64.5 million, up more than 6× year-over-year and 24% sequentially, driven by strong shipments of 1.8 GHz amplifiers and a planned shift to Motorola-style amplifiers next quarter.
  • Data center revenue was $32 million (+11% YoY, −28% QoQ due to inventory digestion), with three new design wins at a hyperscale customer and continued progress on 800 G transceiver qualifications, pointing to a ramp in H2 2025.
  • AOI is scaling its domestic production in Sugar Land, Texas, targeting ~40,000 800 G+ transceivers per month by year-end and >200,000 per month by mid-2026, leveraging in-house automation to mitigate tariff risks and meet customer demand.
  • For Q2 AOI expects revenue of $100 million–$110 million, a non-GAAP gross margin of 29.5%–31%, and a non-GAAP net loss of $4.8 million to $1.7 million, while maintaining significant CapEx plans ($120 million–$150 million) for growth.
AI Generated. May Contain Errors.
Earnings Conference Call
Applied Optoelectronics Q1 2025
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