APPLIED OPTOELECTRONICS, INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• Third quarter revenue was $65.2 million, within the guidance range of $60 million to $66 million, and non-GAAP gross margin was 25%, in line with guidance. However, non-GAAP loss per share was larger than expected due to accelerated R&D spending.
• Data center business had strong double-digit sequential growth driven by new wins for 400G products, with initial orders received from a large hyperscale customer for 400G and 800G products, and AOC products seeing slight increase in business.
• CATV segment saw revenue triple from Q2, driven by shipment of 1.8 GHz amplifiers for MSO customers transitioning from DOCSIS 3.1 to DOCSIS 4.0, with expected additional growth next year.
• Accelerated R&D spending due to greater-than-anticipated new customer requests, especially in data center for 1.6 terabit transceivers, and increased expenses related to CATV amplifier products and trade shows.

Segment Performance:

• Data Center: Total revenue of $40.9 million, accounting for 63% of total revenue. Year-over-year, it was down 16%, but up 90% sequentially. Revenue for 100G products decreased 24% year-over-year, while 400G products increased 140% year-over-year.
• CATV: Total revenue of $20.9 million, up 104% year-over-year and 260% sequentially, driven by shipment of 1.8 GHz amplifiers for major MSO customers, accounting for 32% of total revenue.
• Telecom: Revenue of $2.8 million, down 9% year-over-year but up 18% sequentially, accounting for 5% of total revenue.

Guidance:

• Q4 revenue expected to be between $94 million and $104 million.
• Non-GAAP gross margin expected to be in the range of 27.5% to 29.5%.
• Operating expenses expected to be in the range of $28 million to $30 million, resulting in non-GAAP net income expected to be in the range of a loss of $1.9 million to income of $1.7 million, and non-GAAP earnings per share between a loss of $0.4 per share and earnings of $0.04 per share.

Risks:

• Uncertainties in customer orders and market responses to innovation.
• Risks associated with the transition of MSO customers to new architectures and the timing of deployment.
• Volatility in operating expenses due to accelerated R&D spending and other one-time expenses.

Question and Answer: Q: Congratulations on the revenues and the outlook. Is this on 400G, what's driving it and is it sustainable?

A: Driven by demand from data center customers for interconnections, primarily for AI networks, and not anticipated to decrease in near/medium term.

Q: On 800G, what transceivers will be sold, participate in all three or some?

A: Primary focus on edge emitting technology (electro-absorption modulated lasers and silicon photonics), with some interest in VCSEL-based solutions but bulk demand on longer distance transmitters.

Q: Guidance for Q4, shifting back to data center as primary growth driver?

A: Continued growth in cable, but strong growth in data center driven by 400G, some strength in 100G, and 800G to start ramping in Q1.

Q: Microsoft supply revenue this quarter, weaker than thought? Confident in reaching run rate?

A: Below $5 million this quarter, ramping slower than expected, but still committed to reaching $25 million per quarter level though timing unclear