Q1 2022 Applied Optoelectronics Inc Earnings Call
[music].
Good afternoon.
I will be your conference operator.
At this time I would like to welcome everyone to applied Optoelectronics fourth quarter and full year 2021 earnings conference call.
Yeah.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
Please note that this call has been recorded.
I will now turn the call over to gasoline Fuller Investor Relations for U I Misquoted you may begin.
Thank you and Kathy seller Investor relations for applied Optoelectronics.
I'm pleased to welcome you to Aoi's first quarter 2020 financial results Conference call.
After the market closed today <unk> issued a press release announcing its first quarter 2022 financial results.
And provided its outlook for the second quarter of 2022.
<unk> is also available on the company's website at Ao, Inc. Dot com.
This call is being recorded and webcast live.
A link to that recording can be found on the Investor Relations section of the AOE website and 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 Q1 results and Stefan will provide financial details and the outlook for the second quarter of 2022.
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 to differ materially from those anticipated in such forward looking statements.
Some cases, you can identify forward looking statements by terminology such as believes anticipates estimates intends predicts expects plans may should could would will or thinks 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 our customer responses to our innovation.
As well as statements regarding the company's outlook for the second quarter of 2022.
Except as required by law, we assume no obligation to update forward looking statements for any reason after the date of this earnings call.
These statements to actual results or to changes in the companys expectations.
More information about the risks that may impact the company's business are set forth in the risk factors 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 2021.
Also all financials 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 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 the earnings press release that is available on our website.
I'd like to note the date of our second quarter 2022 earnings call is currently scheduled for August four 2022.
Now I'd like to turn the call over to Dr. Thompson Lin applied Optoelectronics, founder Chairman and CEO Thompson.
Thank you <unk> and thank you for joining our call today.
Turning to the fourth quarter.
Gross margin in my expectation.
Expectation.
The EPS above our expectations.
During the quarter, we continue to see strong demand in the CATV market.
Moving condition.
The Cup market.
Total revenues for the fourth quarter increased five 1% year over year to $52 $2 million.
Although liberty CFPB settlement of $25 million.
What's up 74% year over year.
It was slightly higher compared to Q4.
Overall with <unk> mist.
Thanks Joel.
We see increased activity in OLED.
The EU.
Okay.
Are we 2023.
We are working to add additional capacity to middle East.
Damian.
Hello, Good evening for our data center proved out of 'twenty.
One 4 million.
Decreased 17, 4% year over year and 15% sequentially.
Okay.
Our customers continue to reduce <unk> and one is the GE purchase.
Our next generation 400.
Early stage.
We continue to see strong customer traction.
Helpful.
I'm pleased to report yet.
During the quarter.
Why was <unk>.
By a major Hyperscale data center customers.
Vendor foreseeable our 400 G products.
We have a long relationship with this customer.
Historically.
The supplier.
Early 40, G and what other G transceiver.
Pending the completion.
Our ability question with it.
Companies are the prospective vendors, we expect orders to begin in Q3, which delivers led in Q3.
Ill re queue.
During the fourth quarter with Q1, new design win which was born each of the Cisco product.
For Hyperscale data center operators.
Yeah.
Sure Nicole.
To review the details of our Q1 performance.
And out of Q2.
Thank you Thompson.
As Thompson mentioned, we delivered non-GAAP EPS above our expectations and revenue and gross margin in line with our expectations.
During the quarter, we saw continued growth in the CATV market and improving conditions in the telecom market.
During the quarter, we secured one new design win a 400 G transceiver products for Hyperscale data center operator.
As Thompson mentioned, we are pleased to report that <unk> was selected by another major hyperscale datacenter customer as the vendors for several of our 400 gig products.
We have a long relationship with this customer and has historically been a significant supplier of their earlier 40, G and 100 G transceiver needs.
Pending the completion of final interoperability testing with the company's other prospective vendors, we expect orders to begin in Q3 with deliveries late in Q3 or early in Q4.
Total first quarter revenue of $52 $2 million increased five 1% compared to the first quarter of 2021 and decreased 4% sequentially.
Our Q1 revenue was in line with our guidance range of $51 million to $54 million.
In the first quarter, 48% of our revenue was from our CATV products, 41% was from our data center products with the remaining 11% from FTE Th telecom and other.
And our CATV products segment. The overall demand environment continues to grow as Msos, particularly in North America continued purchasing additional capacity to upgrade their networks.
We generated CATV revenue of $25 million up 34% year over year and 0.2% sequentially.
As a reminder.
Our CATV results are typically negatively impacted in Q1 by the loss of production days that occurs during the lunar new year holiday in China, where most of our CATV products are produced.
The slight sequential growth reflects the increased capacity that we've added which more than compensated for the loss in production days.
Looking ahead, we continue to have good visibility with CATV orders as we see our backlog stretching throughout 2022 and into 2023.
We are working to add additional capacity in both our China factory and our Taiwan factory to meet this growing demand.
We believe the conditions in our CATV market are likely to remain highly favorable into 2023.
Our Q1 datacenter revenue came in at $21 4 million down.
Down 17, 4% year over year and down 15% sequentially.
In the first quarter, 73% of our datacenter revenue was from our one <unk> products.
18% was from our 40 G transceiver products and one 4% was from our 204 hundred G transceiver products.
Now turning to our telecom segment revenue from our telecom products of $5 3 million was up 17, 5% year over year and.
And up 61% sequentially.
We were pleased to see telecom rebound this quarter.
China Telecom market recovered.
Looking ahead, we expect telecom revenue to remain lumpy quarter to quarter, however, especially given the challenging environment in China due to COVID-19.
For the first quarter, our top 10 customers represented 88, 6% of revenue down from 95% in Q1 of the prior year.
We had 210% or greater customers in the first quarter, one in the CATV market and one in the data center market.
These customers contributed 39% and 19, 4% of total revenue respectively.
In Q1, we generated non-GAAP gross margin of 17, 5%, which was at the high end of our guidance range of 15, 5% to 17, 5% and was down slightly from 17, 6% in Q4 of 2021 and 24, 6% in Q1 of 2021.
The decline in our gross margin was mostly due to continued challenges with the supply chain.
Total non-GAAP operating expenses in the first quarter were $19 6 million or <unk> 37, 5% of revenue down.
Down from $20 6 million or <unk> 41, 4% of revenue in Q1 of the prior year.
Looking forward, we expect non-GAAP operating expenses to hover around $20 million per quarter for the rest of the year.
non-GAAP operating loss in the first quarter was $10 4 million.
Compared to an operating loss of $8 4 million in Q1 of the prior year.
GAAP net loss for Q1 was $16 1 million.
Or a loss of <unk> 58 per basic share compared with a GAAP net loss of $15 6 million.
Or loss of <unk> 59 per basic share in Q1 of 2021.
On a non-GAAP basis, our net loss for Q1 was $7 9 million or a loss of 29 cents per basic share, which was better than our guidance range of a loss of $8 3 million to.
To $9 5 million or a loss per share in the range of 30 to 35 per basic share and compares to a net loss of $5 5 million or.
<unk> loss of 21 per basic share in Q1 of the prior year.
The basic shares outstanding used for computing the net loss in Q1 were $27 5 million.
Turning now to the balance sheet we.
We ended the first quarter with $40 $1 million in total cash cash equivalents short term investments and restricted cash.
This compares with $41 1 million at the end of the fourth quarter.
We ended the quarter with total debt of $67 2 million up from $62 $9 million last quarter.
As of March 31, we had $92 million of inventory compared to $92 5 million at the end of Q4.
Inventory decreased primarily due to utilization of inventory for customer orders.
We made a total of $1 million in capital investments in the first quarter, including <unk> 7 million in production equipment, and machinery and <unk> $2 million in construction and building improvements.
Before turning to guidance I would first like to discuss the supply chain environment.
While supply constraints continued to lessen throughout Q1, and we did not see significant impact from shortages in the quarter.
However towards the end of the quarter Lockdowns in Shanghai began to affect several of our suppliers for our CATV products.
We expect that these shutdowns will negatively impact our revenue in Q2 by approximately $3 million.
We do expect to recover this delayed revenue once conditions in China normalize.
Moving now to our Q2 outlook.
We expect Q2 revenue to be between $56 million and $59 million.
non-GAAP gross margin to be in the range of 16, 5% to 18%.
non-GAAP net loss is expected to be in the range of $8 4 million to $9 5 billion.
And non-GAAP loss per basic share between 30 and 34.
Using a weighted average basic share count of approximately 27 6 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 a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been answered and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily.
Then with utmost too.
The first question comes from Richard Shannon.
Great column.
Please go ahead.
Great. Thank you and Thompson and Stefan Thanks for.
Joining me on the queue here.
Let's see a couple of questions, maybe starting with the sales guidance for the second quarter. Stephanie you just mentioned some supply chain.
Of about a $3 million impacting it sounds like at least I would guess, it's mostly from cable TV can you verify that thats, where youre seeing most of the impact and then just maybe talk generally speaking about.
The relative growth of each your primary segments in sales for the quarter.
Sure, yes, so the.
Supply chain issues that we called out that we expect to result in about a $3 million.
Revenue hit compared to what we would otherwise have due to the supply chain constraint that was in in China and it was related to our cable TV product as you mentioned.
Yes.
As you.
Your second question had to do with the relative.
Growth was seen in the major segments cable TV data center et cetera that leads to your question totally.
Yes, I mean, I am not sure what exactly the question has been clearly cable TV is growing relatively robustly.
Data center has been has been.
A bit of a decline as we mentioned in our prepared remarks because.
Many of our customers are reducing their spend on 40 gig and 100 gig and 400 gig for US has has just started to ramp we noted in our prepared remarks that we have.
New hyperscale customer that just notified us that we're going to be.
One of the selected vendors for 400 gig so thats good news, but the revenue for that won't start until later in Q3 or early Q4 as we noted so in the meantime.
We're seeing a little bit of decline in the data center business on the Telecom business. You did note that the telecom business grew substantially sequentially.
However, most of that growth is coming in China. So I wanted to be really cautious about trying to project that forward. We've said for the last few quarters that we expect to telecom business in China, especially to be kind of lumpy up and down and that's what we've seen and that's basically what I would continue to expect the situation in China with Covid.
Definitely.
Exacerbate the expectation that theres, not theres not going to be sustained growth until after they can at least get past that period.
Okay that is helpful.
Following up on one of your comments on 400 gig.
You said, yes.
I think youre not using the word design win but notify deal do you expect it to be a supplier.
With a major Hyperscale and maybe just to give you details on this in just the U S or international hyper scaler.
Can you describe which versions.
400 gig there and then what are you.
What do you see as kind of the.
Any way to characterize the dollar opportunity over a period of time from this one.
Sure. So I'd say its a U S customer.
It's historically been.
And in some cases, our largest data center customer we.
We haven't disclosed what exactly types of 400 gig products are there for competitive reasons.
And as far as the dollar opportunity goes I mean, it should be a pretty sizable opportunity. We we can't put an exact figure on it yet because we don't know as I mentioned in my prepared remarks, we're still finalizing the interoperability testing.
And so until Thats done and we know kind of who the other players are and what our relative positioning is it's difficult to project the potential dollar figure for OE, but I would note I mean again this is a customer that we were.
His story is historically been their largest supplier for certain of their applications.
Including 100 gig and this is their next generation product. So it's a sizable opportunity for us.
Okay. I appreciate that perspective, just one last kind of Big picture question for me Stefan.
Obviously I think the big question for a lot of investors is thinking about your path to breakeven obviously is going to require some some sales scale some growth here from these levels.
And then.
<unk> with that we should see some gross margin improved here, maybe you can talk a little bit about how you kind of see a breakeven model now.
Whats the kind of the the possibility of seeing that happen, maybe next year or something like that just kind of give us a sense of.
How you see that happening.
Well as we said in our prepared remarks, I mean, I expected the operating expenses to be kind of stabilized at about $20 million a quarter, where they have been historically for awhile.
No.
Doing the math, obviously getting to breakeven then will require.
Growth in sales as you as you mentioned and some growth in gross margin. We discussed last time on the call that we think we can get back to the mid 20%.
Gross margin range, it's difficult to project when given all the supply issues that we've had and lingering COVID-19 concerns and all of that it's hard to put an exact timeframe on that but we certainly need to be back in the mid 20% range.
In terms of margin and then revenue you can.
Figure out from there, but it did certainly needs to be $70 million or higher.
Under any reasonable circumstance for some gross margin. So that's kind of the puts and takes on.
Okay.
That's great for me I'll jump out of line.
And given that give the Q&A. Thank you.
Okay. Thank you.
Thank you.
A reminder to all participants to ask a question. Please press Star then one.
Again, if you have a question. Please press Star then one.
Ladies and gentlemen.
Ask a question. Please press Star then one.
The next question comes from Richard Shannon with Craig. Please go ahead.
Thanks, Stefan maybe I'll throw in one more question here within your data center segments.
I think you're calling out some some weakness here in 40 gig not sure. If this is kind of a.
Kind of flat to declining business over time here I, probably most people would expect that to a degree but maybe you could talk about your 100 gig business here.
Kind of if you look over the last number of quarters, it looks kind of flattish.
Some market participants.
This is a modestly growing market wanted to get your sense of what youre seeing for that revenue stream.
Yes, I mean, it's been.
You say, it's been relatively flat I mean, we're not expecting.
Large drops.
However, as I noted.
One of our customers very large customer is in the process of planning their transition from 100 gig to 400 gig and we have been selected as I mentioned in our prepared remarks is a 400 gig supplier. So in the meantime, we expect their 100 gig business will will decline somewhat in anticipation of that 400 gig and that's pretty much what we expect to see.
Okay.
Okay perfect.
That's all for me again, thank you.
Okay very good.
Thank you.
At this time.
No further questions.
And I will turn the call over to Dr. Thompson Lin for closing remarks.
Okay.
Okay, Singapore Jordan.
As always we want new scandals Bang to you July investor customer and employees.
Continuous the poll and.
And we'd before.
To see many of you virtually at all coming in.
Commerce.
Sure.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yes.
Yes.
[music].
[music].
[music].
Good afternoon.
Via conference.
At this time I would like to welcome everyone to update.
<unk>.
2021.
Scott.
All lines have been placed on mute to prevent any background noise.
After the speaker's remark.
A question.
<unk>.
Please note that this.
During the call.
Mr Religion.
E y.
You may begin.
Thank you.
<unk>.
For applied Opto electronics.
Please to welcome you.
First quarter 2022 financial results conference call.
After the market closed today.
Issued a press release announcing its first quarter 2022 financial results.
Provided at outlook for the second quarter of 2022.
The release is also available on the company's website.
Dash, Inc. Dot com.
Call is being recorded and webcast lives.
Can be found on the Investor Relations section of the website.
Archives for one year.
Joining us on today's call a Doctor Thompson Lane.
Chairman and CEO and Doctor second Marie.
Chief Financial Officer, and Chief Strategy Officer.
We'll get an overview of Q1 results.
<unk> will provide financial details and the outlook for the second quarter of 2022.
Question and answer session will follow our prepared remarks.
Before we begin I would like to remind you to review a safe Harbor statement.
Today's call management will make forward looking statements.
Bored looking statements involve risks and uncertainties.
As well as assumptions and current expectations.
Cause the company's actual results to differ materially from those anticipated and such forward looking statements.
In some cases, you can identify forward looking statements by terminology such as beliefs.
The pace estimates intense.
<unk> expects plan may should could would well thanks and by other similar expressions that can be uncertainty at future events or outcomes.
Forward looking statements often include statements regarding management's beliefs and expectations related to the expansion of the reach of our products into new markets and our customer responses to our innovation.
As well as statements regarding the company's outlook for the second quarter of 2022.
Except as required by law, we assume no obligation to update forward looking statements for any reason after the date of this earnings call to confirm these statements to actual results or to changes in the company's expectations.
More information about the risks that may impact the company's business are set forth in the risk factor section of the company's report on file with the SEC, including the company's annual report on Form 10-K for the year ended December 31 2021.
Also all financial discussed today or on a non-GAAP basis, unless specifically noted otherwise.
Got financial measures are not intended to be considered in isolation for the substitute for results prepared in accordance with gap.
A reconciliation between our gap and non-GAAP measured as well as the discussion of why we present non-GAAP financial measures are included in the earnings press release that is available on our website.
I'd like to note the date of our second quarter of 2022 earnings call is currently scheduled for August 4th 2022.
Now I'd like to turn the call over to Dr. Thompson, Lynn applied Optoelectronics, Sounder, chairman and CEO .
Thompson.
Thank you for doing all cold.
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Thompson.
Thompson mentioned, we delivered non-GAAP EPS above our expectations.
And gross margin in line with our expectations.
During the quarter, we saw continued growth.
T V milkshake and improving conditions in the telecom working.
During the quarter, we secured one new design.
400, G transceiver product for Hyperscale data center operator.
If Thompson mentioned.
We're pleased to report that a while I was selected by another major Hyperscale data center customer.
Vendors for several of our 400 G products.
We have a long relationship with this customer that have historically been a significant supplier of their earlier 40 G at 100 <unk>.
Pending the completion of final interoperability testing with the companies other prospective vendors.
Orders to begin in Q3.
Deliveries late in Q3 or early in Q4.
Total first quarter revenue of $52.2 million increased 5.1% compared to the first quarter of 2021.
4% sequentially.
R Q1 revenue was in line with our guidance range of $51 million to $54 million.
And the first quarter.
8% of our revenue was from our CATV products, 41% with from our data center products with the remaining 11% from F T Th telecom and others.
And our CATV product segment.
All demand environment continues to grow as Msos, particularly in North America continue purchasing additional capacity to upgrade their networks.
We generated CATV revenue of $25 million up 34% year over year end up 0.2% sequentially.
As a reminder, or see a television results are typically negatively impacted in Q1 by the loss of production days that occurs during the lunar new year holidays in China.
A R C. A T V products are produced.
Despite sequential growth reflects the increased capacity that we have added which more than compensated for the loss in production days.
Looking ahead.
You need to have good visibility with CATV orders as we see our backlog stretching throughout 2022 and into 2023.
We are working to add additional capacity and both are China factory and or Taiwan factories to meet this growing demand.
We believe the conditions.
The market are likely to remain highly favorable into 2023.
R Q1 data center revenue came in at $21.4 million down, 17.4% a year over year.
Around 15% sequentially.
In the first quarter, 73% of our data center revenues from all 100 G products.
18% with some of our 42 tracks of your products and one 4% Western are 200 G. At 400 <unk> products.
Now turning to our telecom segments.
Revenue from our telecom products or $5.3 million does up 17.5% year over year.
And up 61% sequentially.
We were pleased to see telecom rebound this quarter.
China Telecom market recovered.
Looking ahead, we expect telecom revenue to remain lumpy quarter to quarter, however, especially given the challenging environment in China due to COVID-19.
For the first quarter.
Top 10 customers represented 88.6% of revenue.
From 95% in Q1 of the prior year.
We had to 10% or greater customers in the first quarter.
And the CATV market.
The data center market.
These customers contributed 39% in 19.4% of total revenue respectively.
Q1.
non-GAAP gross margin of 17.5%, which was at the high end of our guidance range of 15.5% to 17.5%.
And it was down slightly from 17.6 per cent in Q4, 2021 and $24 six per cent in Q1 of 2021.
The decline in our gross margin was mostly due to continue challenges with the supply chain.
Total non-GAAP operating expenses in the first quarter $19.6 million or 37.5% of revenues down.
Down from $26 million or $41, 4% of revenue in Q1 of the prior year.
Looking forward we <unk>.
non-GAAP operating expenses to hover around $20 million per quarter for the rest of the year.
non-GAAP operating loss in the first quarter was $10.4 million compared to an operating loss of $8 $4 million in Q1 of the prior year.
Gap net loss for Q1 was $16.1 million or a loss of 58 cents per basic share compared with the cabinet loss of $15.6 million or a loss of 59 per basic share can Q1 of 2021.
On a non-GAAP basis, our net loss for Q1, with seven $9 million or a loss of $20 per basic share, which was better than our guidance range of a loss of $8 $3 million to $9.5 million or loss per share in the range of 30 to 35 cents per basic share.
And compares to a net loss of $5.5 million or loss of 21 cents per basic share in Q1 of the prior year.
The basic shares outstanding used for computing, the net loss in Q1 $27.5 million.
Turning now to the balance sheet.
We ended the first quarter with $41 billion in total cash cash equivalents short term investments and restricted cash.
This compares with $41.1 million at the end of the fourth quarter.
We ended the quarter with total debt of $67.2 million up from $62.9 million last quarter.
As of March 31, we have $92 million in inventory compared to $92.5 million at the end of two four.
Inventory decreased primarily due to utilization of inventory for customer orders.
He made a total of $1 million in capital investments in the first quarter, including zero point $7 million in production equipment, and machinery and zero point $2 million in construction and building improvements.
Before turning to guidance I would first like to discuss the supply chain environment.
We saw supply constraints continued to lessen throughout P. One.
We did not see significant impact from shortages in the quarter.
However towards the end of the quarter Lockdowns in Shanghai began to affect several of our suppliers for our CATV products.
We expect that these shutdowns will negatively impact our revenue in Q2 by approximately $3 million.
You expect to recover this delayed revenue, let's conditions in China normalize.
Moving now to our queue to outlook.
Expect you to revenue to be between $56 million and $59 million.
non-GAAP gross margin to be in the range of 16.5% to 18%.
Net loss is expected to be in the range of $8.4 million to $9.5 million.
non-GAAP loss per basic share between 30, and 34 cents using a weighted average basic share count of approximately 27.6 million shares.
With that I will turn it back over to the operator for the Q&A session operator.
Thank you.
Moving out.
And answer session.
To ask a question.
And then one on your telephone keypad.
If you're using a speaker phone please.
Please pick up your handset before pressing the keys.
If at any time your question has been answered.
Victoria questions. Please press star.
At this time, we will plus momentarily to assemble too.
The first question comes from Richard Shannon.
Great column.
Great. Thank you and Thompson and stuff and thanks for giving me on the queue here.
Let's see a couple of questions may be starting with the sales guidance for the second quarter. Stephanie you just mentioned some supply chain of.
I have about a 3 million dollar impacting it sounds like at least I would guess, it's mostly from cable television can you verify that that's where you're seeing most of the impact and then just maybe talk generally speaking about the the the relative growth of each of your your primary segments in sales for the quarter.
Sure it yet so.
The.
Issues that we that we called out that we expect to result in about a 3 million dollar.
Revenue compared to what we would otherwise have due to that supply chain.
That was in in China, and it was related to our cable T V product as you mentioned.
As you.
Your second question I had to do with the relative.
Growth within the major segments cable television data center et cetera that leads to your diet.
Yeah, I mean I'm not sure.
The question is it clear the cable T V is growing relatively robustly.
Data center has been has been.
A bit of a decline as we mentioned in our prepared remarks because many.
Many of our customers are.
Using their spin on 40 gig in 100 gig and the 400 gig for US has has just started to ramp we noted in our prepared remarks that we have.
Ah new Hyperscale customer that just notified us that we're going to be.
One of their selected vendors for 400 gigs. So that's good news, but the revenue for that won't start until later in Q3 or early Q4 as we noted so in the meantime.
We're seeing a little bit of decline in the data center business.
The telecom business.
Did note that the telecom business grew substantially sequentially.
However, most of that growth is coming in China. So I wanted to be really cautious about trying to project that forward. We said for the last few quarters that we expect to telecom.
And China, especially to be kind of a lumpy up and down and that's what we've seen and that's basically what I would continue to expect.
The situation in China with Covid.
Definitely.
Exacerbate the expectation that there's not there's not gonna be sustained growth until after they can at least get past that period.
Mhm.
Okay does that is helpful. Following up on one of your comments on 400 gig.
You said that.
Take your not using the word design wind, but the notified you're you're expected to be a supplier with a major hyperscaler. Maybe just keeps you keeps details on this is this the U S or international Hyperscaler can you describe which versions about 400 gig there.
Then what do you what do you see as kind of the the any way you characterized dollar opportunity over a period of time for this one.
Sure. So it's a it's a U S customer.
It's historically been.
And in some cases, our largest data center customer.
Close what exactly types of 400 gig.
Products are there for competitive reasons.
As far as the dollar opportunity goes I mean, it it should be a pretty sizeable opportunity. We we can't put an exact figure on it yet because we don't know as I mentioned in my prepared remarks, we're still finalising the interoperability testing.
And so until that's done and we know who the other players are that are relative positioning is it's difficult to.
Jack the the potential dollar figure for for a lie but I would note I mean again this is a customer that we were.
Historic historically been their largest supplier for certain of their applications.
Including at 100 gig and this is their next generation products. So it's the size of the opportunity for us.
Okay. I appreciate that perspective, just one last kind of Big picture question for me is Stefan.
Obviously I think the big question provided investors is thinking about your past the breakeven obviously is going to require some some sales scale. Some growth here from these levels and then presumably with that we should see some gross margin improved here, maybe you can talk a little bit about how you kind of see your breakeven model now what's the kind of the the possibility of.
Seeing that happen, maybe next year or something like that just kind of give us a sense of of of how you see that happening.
Well as we send out a prepared remarks, I mean, I expected the operating expenses to be kind of stabilized at about $20 million a quarter, where they have been historically for awhile. So.
Doing the math, obviously getting the breakeven then will require.
Growth in sales as you as you mentioned some growth in gross margin. We discussed last time on the call that we think we can get back to the mid 20 per cent.
Gross margin range.
Built the project when given all the supply issues that we've had in lingering COVID-19 concerns and all that it's hard to put an exact time frame on that but we certainly need to be back in the mid 20 per cent range.
In terms of margin and then.
You can you know.
Figure out from there, but it did certainly needs to be $70 million or higher.
Under any reasonable circumstance for gross margin. So that's kind of puts and takes on.
Okay.
That's great for me I'll jump out of line and and give give a cute way. Thank you.
Okay. Thank you.
Thank you.
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Great.
Stefan maybe I'll throw in one more question here within your data center segments.
You're calling out some some weakness here in 40 gig not sure. If this is kind of a kind of fly to declining business over time here I'd, probably most people would expect that to a degree but maybe you could talk about your 100 gig business here.
If you look over the last number of quarters, it looks kind of flattish.
Some market participants you see this as a modestly growing market Wanna get your sense of what you're seeing for that revenue stream.
Yeah, I mean, it's been.
He said, it's been relatively flat I mean, we're not expecting you know large drops however.
Noted you know one of our customers very large customer.
As in the process of planning their transition from 100, Giga 400 gig and we'd been selected as I mentioned in our prepared remarks as a 400 gigs supplier. So.
You know, we expect their 100 gig business will will decline somewhat.
Patient about 400 gig and that's that's pretty much what we expect to see.
Okay.
Okay perfect. That's all for me again, thank you.
Okay very good.
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Thompson.
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Okay, Singapore Jordan.
It's always.
Same to you.
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