Q4 2020 Applied Optoelectronics Inc Earnings Call
Good day and welcome to the the.
The bright optoelectronics fourth quarter, 'twenty, and 'twenty and full year earnings call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded.
I'd now like to turn the conference over to Lindsey <unk>. Please go ahead.
Thank you and Lindsay Savarese Investor Relations for applied Optoelectronics and I'm pleased to welcome you to Aoi's fourth quarter and full year of 2020 financial results Conference call.
For the market closed today <unk> issued a press release announcing its fourth quarter and full year, 'twenty and 'twenty financial results and provided its outlook for the first quarter of 2021 and.
<unk> is also available on the company's website at Ao, Inc. Dot Com, Inc.
And is being recorded and webcast live.
The link to the recording can be found on the Investor Relations section of the ally website and will be archived for one year.
Joining us on today's call is Dr. Thompson, Lin Aoi's, founder Chairman and CEO and Dr. Stefan Murry, Aoi's, Chief Financial Officer, and Chief Strategy Officer.
Thompson will give an overview of Aoi's Q4 result, and.
And Stefan will provide financial details and the outlook for the first quarter of 'twenty and 'twenty one of.
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 uncertainty and see all the assumptions and current expectations, which could cause the company's actual results to differ materially from those anticipated and such forward looking statements and.
Some cases, you can identify forward looking statements by terminology such as believes anticipates estimates intends predicts expects plans may should could would will worth banks and.
And by other similar expressions that convey uncertainty of future events or outcomes.
Forward looking statements also include statements regarding managements beliefs and expectations related to the expansion of the reach of our products into new markets and customer responses to our innovation as well and statements regarding the company's outlook for the first quarter of 'twenty and 'twenty one.
Except as required by law.
And we assume no obligation to update forward looking statements for any reason after the date of this earnings call to conform the statements to actual results or the changes and the company's expectation more information about other risks that may impact the company's business are set for and the risks.
Factors and section of the company's reports on file with the SEC, including the company's annual report on form 10-K for the year ended December 31 2019.
Also with the exception of revenue all financials discussed today are on the non-GAAP basis, unless specifically noted otherwise.
Non-GAAP financial measures are not intended to be considered and isolation, whereas the substitute for results prepared in accordance with GAAP.
A reconciliation between our GAAP and non-GAAP measures as well as the discussion of why we present non-GAAP financial measures are included in our earnings press release that is available on our website.
Before moving to the financial results I'd like to announce the AOR management.
And we participate at the Raymond James Institutional Investor Conference on March 1st the presentation. At this conference will be webcast live and links to the webcast will be available on the Investor Relations section of the website.
And the opportunity to interact with many of you virtually additionally, I'd like to note that the day of our first quarter 'twenty and 'twenty. One earnings call is currently scheduled for May six 2021, and now I would like to turn the call over to the Doctor Thompson Lin and applied Optoelectronics founder Chairman and CEO Thompson.
Thank you everyone for joining us today.
The 2020 and brought all of that you can kind of <unk>.
And the profit that we have met the.
Yes.
Despite the slow start and end of two of us was challenging and <unk>.
Bobby and market dynamics, we are encourage by the double digit revenue growth we generated in 2020.
It's driven by growth and issue a policy of major it'd be the segments with Q 30, total design wins, let's use.
How was the recur study one in 2019 given.
Given the difficulty per day.
And let's.
I'm very pleased with the business I wouldn't be jud.
The continued to expand the reach of all products to a diverse customer base.
But at the client concentration of revenue from our top pick and covenants.
And it's wrong. We are pleased to report of new weight of Gen, 10% customer during the fourth quarter and all of the year TV segments.
Put into the fourth quarter with the labor rabies and nine what's the expectation gross margin expectation and I'll get you pick and a high and of all kind of switch.
Total royalty and for the fourth quarter of $52 million.
Airport and five per cent compared to the fourth quarter and.
And the prior year and as we expected what's now so the 1.1% sequentially.
As we mentioned a lot of Q.
Q3 call, we began to see some story and in order for them and some of the us into the customers.
And the later part of the for the quarter.
Which extended into the fourth quarter. This slow down what's the decade two of inventory number of issued for.
And the search and be met the whats driven by the shift to <unk>.
Looking for a home or do you let the.
And we couldn't hear what to expect jewelry snow conditions, and Q1 and the day.
And that's it and the segment.
Followed by our increased activity and the Sigma and Q2 and beyond.
Non-GAAP gross margin of 27 five for Syn.
It was below our guidance range of 25 per cent to 29, 5%.
Dude, who many of you put on mix and the threat.
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Hi, expectation cops that anticipated.
And should we all see of TV production during the quarter non-GAAP net loss was 20 cents per share.
Similar to Q3, we continued to see broadband demand for our <unk>.
One of the Jeep product total Libya.
But one of the day production increased 41% from.
From Q4 of 2019.
And the CFPB Sigma the.
Although all of them.
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Continue to be strong and.
Oh perfect.
And not the many call continue to upgrade their networks.
Although the avenue for COPD product more than doubled year over year.
And the increase 37% sequentially.
215 point of $9 million.
Which is the highest quarterly revenue of 46 of them.
And almost for us.
For all of our telecom products also reported by millions of dollars was up 15, 9% from Q4 of 2019.
But was down 61% sequentially.
As we mentioned and walk you through your own and cold.
Several of our omni channel telecom customer Nordic balls debt.
And if budget deployment has been posed.
By several large naval operators.
Why are the the visits does the prior chin.
Following the disruption caused by uncertainty surrounding Huawei you would've been.
We believe that.
This disruption will be short lived.
And the space.
To see and recovery in our telecom stick them in the Q1.
Looking for what we are.
Excited about the growth opportunity ahead.
And by the continuing need for high up and with and inquiries of capacity.
Within the C. A T D and death, and the monkeys and the increased demand for five of your product and al Qaeda come markets.
We look for war.
The meeting again and posted hopefully soon with debt I would of course to the coal over to Steffen to.
We view of the detailed.
El Cubo put of almost and outlook for Q1 of its David.
Thank you Thompson.
As Thompson mentioned, we delivered revenue in line with our expectations gross margins below our expectation and.
And non-GAAP EPS at the high end of our guidance range.
While we saw strong demand and the CATV market as we anticipated our fourth quarter results were impacted by softness and the datacenter and telecom markets.
Looking back on the year.
Despite challenging and evolving market dynamics throughout 2020, we are encouraged by the double digit revenue growth we generated.
Which was driven by growth in each of our three major business segments.
And we are pleased with the progress, we made and diversifying our revenue streams and customer base.
We secured 30 total design wins in 2020.
Similar to the record of 31 in 2019.
Of the 30 design wins 18 were and our datacenter market for.
Five we're in our CATV market.
For where in our telecom market and.
And three were in other markets.
In total for the fourth quarter, we secured three new design wins, among two customers all and our CATV segment.
Given the difficulties around the pandemic last year I am very pleased with these design win results.
We have continued to expand the reach of our products to a diverse customer base, which is evidenced by the declining concentration of revenue from our top 10 customers from 2019 to 2020.
And on that front, we are pleased to report that one of our CATV customers exceeded 10% of our revenue for the first time.
Turning to our quarterly performance.
Revenue for the fourth quarter of $52 8 million was in line with our guidance range of $50 million to $55 million.
Revenue increased eight 5% year over year and decreased 31, 1% sequentially.
As we mentioned on our Q3 call we began to see some slowing and orders from some of our datacenter customers and the latter part of the third quarter and into the fourth quarter related to inventory normalization. Following the surge and demand that was driven by the shift to working from home early last year.
We expect the headwinds we are seeing and our datacenter market to persist through Q1, and then begin improving in Q2 and beyond.
We continue to see increased customer interest and our 400 G product portfolio and expect to see revenue contribution from these products and the second half of the year.
And the fourth quarter, 62% of our revenue was from our datacenter products.
30% was from CATV products.
With the remaining 8% from F T th telecom and other.
Our datacenter revenue came in at $32.8 million compared with $39 $3 million in Q4 of the prior year.
And the fourth quarter.
22% of our datacenter revenue was from our 40 G transceiver products and 71% was from our 100 G products.
Turning to our CATV products segment. The overall demand environment remains strong as the Msos, particularly in North America continue to upgrade their networks.
We generated revenue of $15 $9 million up 37% sequentially and up one day.
The <unk> million dollars in Q4 of the prior year.
Our CATV performance and the quarter is the highest that we've seen since the third quarter of 2017.
We ended the quarter with a strong backlog of CATV products, which we expect to continue to drive growth and the segment going forward.
Revenue from our telecom products increased to $3 5 million up 59% from $2 $2 million and Q4 of the prior year, but was down 61% sequentially for reasons, we discussed on our Q3 call.
During the fourth quarter of five G demand in China was impacted by a pause that several of our China telecom customers were seen as several large network operators revisited their supply chain and following the disruption caused by uncertainty surrounding Huawei is U S band.
We continue to believe that sequential growth will resume and our telecom segment in Q1.
We are pleased with our progress and our customer diversification efforts.
Overall for the fourth quarter, our top 10 customers represented 85, 1% of revenue down from 87, 5% and Q4 of the prior year.
The concentration of revenue among our top 10 customers decreased from 88, 1% in 2019 to 81, 8% and 2020.
We had 310% or greater customers and the fourth quarter, one of which was in the data center market and two of which were in and the CATV market.
Including a new 10% or greater customer.
These customers contributed 36%.
14% and 11% of total revenue respectively.
For the full year, we had 210% or greater customers and the data Center segment, the contributed 38% and 12% of total revenue respectively.
And Q4, we generated non-GAAP gross margin of 27 five per cent compared to 27, 6% and Q4 of the prior year.
Gross margin was below our guidance range of 28, 5% to 29, 5% due mostly to unfavorable product mix and a slightly higher production cost and anticipated as we've ramped our CATV production during the quarter.
Total non-GAAP operating expenses and the fourth quarter of $20 6 million or 39% of revenue compared with $19 4 million or 39, 9% of revenue and Q4 of the prior year.
Operating expenses as a percent of overall revenue decreased from the prior year and reflect our efficient expense management.
Non-GAAP operating loss and the fourth quarter was $6 1 million compared.
Compared to an operating loss of $6 million and Q4 of the prior year.
GAAP net loss for Q4 was $13 4 million or loss of 57 per basic share compared with the GAAP net loss of $35 4 million or $1 76 per basic share in Q4 of 2019.
On a non-GAAP basis net loss for Q4 was $4 8 million or.
Or a loss of <unk> 20 per basic share, which was at the high end of our guidance range of of loss of $4 5 million to $5 8 million or a loss of 19 to 25 cents per basic share and compares to a net loss of $3 6 million or loss of 18 cents per basic share in Q4 of the prior year.
The basic shares outstanding used for computing the net loss in Q4 were $23 6 million.
Turning now to the balance sheet.
We ended the fourth quarter with $50 1 million and total cash cash equivalents short term investments and restricted cash this.
And this compares with $58 $1 million at the end of the third quarter and reflects $14 $1 million and cash used for operations.
As of December 31, we had $110 $4 million and inventory compared to $111 4 million and Q3 the.
This inventory level is higher than normal due to continuing uncertainty around COVID-19, and concerns leading up to the lunar new year and China.
We made a total of $2 5 million and capital investments and the quarter, including $1 $6 million and production equipment and machinery and zero point of $1 million on construction and building improvements.
The construction on our new China facility is largely complete with all having construction done.
Total 2020, Capex was approximately $12 5 million, which is considerably below our prior expectations and reflects the slowdown and our business during Q4.
We are still and the process of evaluating our Capex plans for 2021, and we expect to share our numbers when they are available.
I would also like to provide a quick update on the at the market offering we announced in February of last year.
The date, we have raised $55 million and gross proceeds under this program and.
Including $17 million raised in Q4.
As we have stated previously we intend to use these proceeds to continue to make investments and the business, including new equipment and machinery for production and research and development use.
Before moving to our outlook I would like to provide and update on our operations in Texas. Following the historic Winter storm that occurred last week.
I can report that our facilities did not suffer any meaningful damage as a result of the storm.
Due to process control issues related to the extremely cold temperatures and the inability to obtain regular deliveries of chemicals, including liquid nitrogen we were unable to run operations as normal last week.
In addition, and many of our employees suffered damage to their homes and we are therefore unavailable for work during all of our parts of last week we.
We expect to incur some additional costs as we work to increase production over the next few weeks to ensure that we meet our customer commitments to the extent possible.
Currently we expect these costs to total between zero point $5 million and $1 million and these expectations are included in our guidance.
Moving now to our Q1 outlook, we expect Q1 revenue to be between $47 million and $51 million and non-GAAP gross margin to be and the range of 23, 5% to 25%.
Non-GAAP net loss is expected to be and the range of $7 3 million.
To $9 million and non-GAAP loss per basic share between 20, <unk> and 28.
Using a weighted average basic share count of approximately 26 million shares.
With that I will turn it back over to the operator for the Q&A session operator.
Thank you we will now begin the question and answer session to ask the question you May Press Star then one on your Touchtone phone for you.
Using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble the roster.
Our first question is from Simon Leopold from Raymond James. Please go ahead.
Hello, Simon and Sharon line music.
Sorry about that yes, it was muted.
And I think I would know by now.
So thanks for taking the question hopefully the folks and Texas are.
Following out and recovering from last week saw that on the news sorry to hear about that.
And I wanted to ask first about what specifically.
The new cable customer.
I'm intrigued by this I wanted to get a better understanding.
When you talk about a new customer and so to say.
The U S. Operator that is new to <unk>.
Or is this.
Our new customer from outside the U S and what's the nature of the deployment of DAA or some other application.
Sure Simon first of all thank you for your comments regarding all of the stand here in Texas, it's falling out nicely.
We had a little bit of a rough week last week, but it's back to back to normal now. So I appreciate your kind words on that.
With respect to the cable TV customer it is a it's not a brand new customer they've been with us for roughly a year. It is the U S based company, they're a manufacturer or.
Reseller of cable TV equipment.
And they are supplying primarily U S well almost entirely U S and.
Well, let's just say North American Msos with gear for upgrade projects. The specific products that we're selling to them right now are useful and both DAA and traditional applications.
And I think the probably the deployments that are going on there or a combination of both of those types of technologies.
And I guess I'd like to get a understanding of how youre thinking about the broader trend and your cable TV market and.
And that I recall speaking about this.
A couple of quarters ago at which point you thought that maybe and the construction season spring to summer of <unk> 21, you'd be getting back to kind of mid teens revenue.
One of re check where youre thinking today about the cadence of your cable business through 'twenty one.
I think we probably can be significantly higher than that level.
Later on and the year were sitting right now and the strongest backlog of cable TV products I think we've ever had and and as I noted in our prepared remarks. This was the best of the fourth quarter was the best quarter and cable that we've had and several years. So.
And where we're standing right now I think I see pretty strong performance and the cable segment through.
Certainly through Q3, and probably through the end of the year.
And then maybe just one last one for me if I might is.
And on your data center business, particularly the hyper scalar is I appreciate the quarterly visibility.
Can be a little bit difficult, but.
What sort of linearity or expectation that you have for the full year and part of my question goes back to the capital spending forecast look like high teens to maybe 20% spending growth by the group at the Hall.
Wanted to understand if that's a good indicator for the kind of growth rate, we should think of for your business in that vertical.
I think it's difficult to draw a direct line between capital expenditures on the part of the Hyperscale operators and our revenue I mean, if you've looked at our our revenue and that segment over the years.
Probably some high level of correlation.
Sort of of macro correlation, but its very difficult certainly to draw any conclusion on a quarter by quarter or even even annual basis really from those capex numbers.
For us in particular, I think a lot depends on.
And the trajectory of 400 gig as we mentioned, we do see 400 gig.
Contributing revenue in the second half of the year and depending on exactly how soon and how fast that comes on and and the.
And the trajectory of 100 gig is that as that occurs.
And that will kind of dictate our results and the year. So.
And I can't give you firm guidance for the year on that but I don't think its reasonable to draw the correlation directly from the overall capex and the market.
I appreciate that thanks for taking the questions.
Thank you Simon.
The next question is from policy of Silverstein from Cowen. Please go ahead.
And of Trust from the response to the last question that your visibility in terms of what has been communicated to.
While youre very excited from the customers, but it's relatively limited at this point or is that not the case, let me ask the question more openly the more of and way.
What has been the communication from those customers who are doing the same.
Well, okay. So I guess theres two.
The issues that we've been communicating.
Significantly with our customers regarding one is the sort of near term trajectory of the inventory drawdown.
To the extent that those customers have that situation I would emphasize it's not all of our data center customers that had too much inventory, it's limited to a couple of them, but with those customers. We've certainly had ongoing discussions about their inventory and relative to that I would say our expectations continue to be in line with what we said on our last earnings call and in our prepared remarks today.
Which is that we see that inventory correction.
Persisting through Q1, and then resolving itself in Q2. So that's one area of discussion and I think that's largely unchanged from our previous expectations.
The second area, where we've had some significant discussion with these customers.
And where all of our data center customers really is around their 400 gig.
Or I should say, maybe 200 gig and 400 gig plans.
And and I think those discussions, particularly with the customers who are implementing 400 gig continue to continue to progress well as we noted in our prepared remarks.
The.
We continue to see.
More active cadence of discussions and questions now are moving and in many cases are moving less.
From into sort of technical detailed technical specifications and topics like that into questions about capacity ramp up times.
Timeframe for availability and things like that that would be in my mind.
More indicative of.
Of of a hardening of their plans to deploy and the second half of the year and so so those discussions I think of and quite positive as well.
Alright.
Well I assume it goes without saying, what you really to think about what pricing of locally.
Yes.
I can't give you any firm guidance on that I mean, it's certainly a topic of discussion as well with the customers.
Yes, I don't have and I don't have an indication of where that will play out at this point too early to say.
Understood I appreciate it a personal and guys.
And Paul.
Again, if you have the question. Please press Star then one.
The next question is from semi Chatterji from Jpmorgan. Please go ahead.
Hey, guys.
Taking my question.
Well on the 400 gig wins of new.
You mentioned and the question is producing customer interest and I'm. Just wondering what are your expectations and pumps of bottoming of the.
Volume is because I'm, just thinking of alignment and the second half as most of the industries Telegraphing at this point should we expect to see more of application.
Gains on 400 gig I think that's part of the number of you've announced the one win at this point and so the simple to think about what the.
He is the design win should look like if you had expected losses from the <unk>.
Second half of it.
Clearly the piece in terms of Rodman and timing right now.
And I wouldn't say, it's late to hear on those wins at this point.
We are having discussions with customers about our capacity ramp up plans and the second half of the year and so I don't think they are feeling.
Pressure the right now of that if they don't announce.
Announced the win or something like that that we're not going to be ready to go. They know our plan. So I would say that we in order to meet the plans that debt customers are indicating to US now I would expect that we would have to have design wins by certainly by the end of Q2.
We're very early in Q3.
But.
Now it's not a it's not alarming that we don't have more wins at this point in my mind.
Okay, and then just a quick follow up I think you mentioned on the call slowdown that you've seen data from China Telecom.
Starting to see that move up sequentially and one Q. Just wondering is that more are you hearing and that's more driven by the supply chain and having walked through the restrictions on the Huawei orders it but my team is being well quick to other customers and youre, having to customize the product for the customers.
And the decline and the nickel.
Yes, that's a really good question I wanted to I wanted to use that opportunity to try to make sure that were crystal clear on what we're trying to say regarding.
Huawei.
It is not it is not our intention to try to say that Huawei ban necessarily caused any disruption to our customers ability to deploy their networks.
What we are saying is that there was significant uncertainty because of the speed and the and the.
Unexpected nature of the Huawei ban that our customers had to take a pause and their deployment plans to reassess whether those plans, we're still able to be achieved either with huawei or with an alternative source.
And so it wasn't so much that we that the customers had to necessarily scramble to find alternative sources. It was simply that they had to take the time out if you will to figure out and make sure that whatever the whatever plans they had didn't need to be changed in light of the Huawei ban.
No.
Yes.
That being said, what we have seen as you indicated and as we indicated in our prepared remarks is that some of our customers have begun to.
And recover in the sense that we're seeing increased order flow related to <unk> in China.
And the.
The customers that haven't yet begun to place orders are talking to us about placing orders. So we're feeling fairly comfortable now that.
And that we will see some recovery in Q1, and then probably.
More activity in Q2, Q3, and probably towards the end of the year now what we're hearing from our our sources and China is that.
We still expect a pretty sizable increase and the number of towers and therefore, the amount of optics, that's used and those <unk> networks in 2021 compared to 2020.
We expect the number of towers deployed to be anywhere from 60% to 80% higher than what we saw in 2020 and.
And that would that would indicate a similar increase and the number of optics that are deployed so we're pretty bullish on China.
And in the year, albeit getting off to somewhat of a slow start, but certainly better than what we saw in Q4.
Okay.
Thank you thanks for Linzess.
No problem.
The next question is from Ryan Koontz from Rosenblatt Securities. Please go ahead.
Thanks for the question quick question on your strength and the cable TV segment there.
The cable capex not really doing a whole lot that you guys are doing well do you attribute that more to.
Share gains.
And the optical node designs or do you attributed more to a mix change of spending by the msos on on more node splitting.
And any thoughts there.
Oh, Yeah, I think it's I think it's both.
We have.
The.
And we've been spending a lot of time and effort.
Developing a new line of of cable TV products, including some amplifier products and and other.
Node sub assemblies and things like that.
Related to these rollouts. So we've we've expected for some time that these rollouts would start to occur and we've engineered our products. Accordingly, So I do believe that we're picking up market share.
And from from what we had let's say in the previous.
And the previous deployments that had that it happened several years ago.
But I also believe that the msos the observation that I have and NOI has been and the cable TV business now for.
Nearly 20 years, 18, 19 years and and the observation that I have is the cable capex.
Generally doesn't change that much but the but the.
Areas, where the cable msos spend their capex can change dramatically. So I think right now we're seeing a shift from spending.
And sort of central office and maybe.
Certain CPE type applications to two investing and the network. So I think it's it's a combination of both and the related right. We develop products because we felt that the msos based on their feedback we're going to shift their spending and start building on the outside plant again.
And indeed, that's what we've seen happen and so it's a combination of share gains and.
And shift and spend.
And do you think some of what Youre differentiation is around.
Expanding the addressable spectrum and the plant and looking for more upstream capacity I mean, I imagine there is some.
And of design changes and debt requirements you have to meet.
Yeah, no absolutely I mean, the the deployments that we're aware of and the the equipment that are customers of purchasing for those deployments are squarely aimed at increasing the amount of bandwidth and as you indicated specifically the amount of bandwidth and the returns have direction Thats, an absolute requirement and most of these deployments.
Super helpful. Stephen and thanks, so much congrats on the quarter alright. Thank you.
Again, if you of a question. Please press Star then one.
The next question is from Tim <unk> from Northland. Please go ahead.
Hey, good pardon me and good afternoon.
First question for me is on the.
And kind of overall topic of diversifying customer base and you mentioned <unk>.
10% customer and cable TV.
You've also apparently got some new 8% customers I think thanks to some very helpful and transparent disclosure and your filing.
On the datacenter side and I Wonder if we might get some similar commentary and I thought that was great color you gave on the cable TV customer.
And I assume one of your data center operators and.
The other cloud Titan, whose name we haven't discussed yet but.
And what on the the network equipment supplier I'd be interested if you had any color on the application there and whether thats.
Kind of the client interface for router type of application or a switch kind of heading into the data center kind of any color you might be able to add on this new pretty significant customers.
Yes, it's the switch.
The switch vendor who's who's selling largely into the data center so.
Some hyperscale.
A lot of tier two and some enterprise.
Okay on the <unk> side, and then in terms of the direct data center, operator, any any color there or should we assume that's.
And one of the bigger guys that.
And that have not been discussed in the past.
It's a fairly large.
Fairly large data center.
Operator U S based.
Got it.
And and congrats on that.
Diversification.
With regard to.
And the potential recovery, and then and the Datacom business and I think you mentioned.
A couple of separate issues around 100 gig inventory and I think it's notable that Youre 40 gig business has gotten so small but.
And then the other potential uptake and inventory situation, there and the potential uptake of 200 or 400 gig.
Is there a potential relationship there number one I guess between.
Inventory digestion, and 100 and preparation for a ramp of two and 400.
And as you look at your Q1 guide in particular.
That's sort of flattish to slightly down it seems like telecom should be up and it seems like cable could be as well.
Are you expecting that the data center business to decline slightly and bottom out and Q1, and then recover as the result of perhaps both of those factors.
100 gig recovery and initial 200 or 400.
Yes, I think your characterization in terms of of.
The data center spend sort of bottoming out in Q1 is probably accurate.
I would caution Q1, when it comes to cable TV in Q1.
And just keep in mind that our cable TV production is largely done and our China factories. So we do have the lunar new year holiday.
And so our capability in terms of broad number of days to produce product in the cable TV segment is limited and Q1 compared to other segments now we have pretty strong demand and I mentioned earlier about the backlog so.
And also this year in China.
Relative to other years, we had a lot more of our employees stay.
Either stay and the factory or at least nearby as opposed to returning to their homes and a lot.
And that's due to Covid and the Chinese governments discouragement of traveling long distances for.
For fear of spreading the disease. So so I think that we're on track to have a somewhat.
Better result.
Relative to Chinese new year than we have in years past, but nevertheless, we do have at least the week, where we can't produce product.
In China and that product is largely and Thats, where the most of these cable TV products are manufactured so so when you talk about cable TV and likely to be up the demand is certainly there but again.
Our ability to deliver there is somewhat constrained and Q1.
But we do expect like I said, both in our prepared remarks, and really and our last earnings.
Call as well.
And that the 400 gig contribution will begin to ramp and the second half of the year and I think.
That will that will certainly if we're successful in getting those wins and we start to see that ramp and that will that will certainly.
Contribute to revenue.
Don't believe that that has anything to do right now with the slowdown in 100 gig.
I believe that the slowdown of 100 gig is related more to I mean, we saw a very large.
Volume of purchases of 100 gig in the middle part of last year, because of Covid and well I mean, it was because of the shift of combination of the shift to working from home driving demand and fears that our customers had whether those fears were well placed or not that there would be supply chain disruption significant supply chain disruption.
<unk>.
And because of Covid I think the the working from home trends certainly played out there was a lot of demand that debt.
Was was caused by that working from home, but I don't believe that our customers saw the magnitude of the supply chain disruptions that they were fearful of.
And therefore by the end of the year the.
The inventory levels of data accumulated.
We're not no longer necessary.
To support.
What the what they thought to be of a tough patch in terms of their supply chain. So.
I think that's really why we saw slowdown in Q4, and Q1 and data center.
I think it will get a little better and Q2, and then and then 400 gig hopefully will drive.
A lot of our performance and the second half of the year and that in that segment.
Great. Thanks very much.
Pleasure.
This concludes our question and answer session I would like to turn the conference back over to Dr. Thompson Lin for any closing remarks.
Good afternoon.
Yes.
Singapore join US today as always thank you to our investors customers and employees for your continued support and we look forward to virtually see many of you and I'll come and the investment companies.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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