Q1 2024 Applied Optoelectronics Inc Earnings Call
Operator: Good day, and welcome to the Applied Optoelectronics first quarter 2024 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Lindsay Savarese, Investor Relations for AIO. Please go ahead. Thank you.
Good day and welcome to the applied Optoelectronics first quarter 2024 financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
Operator: To ask a question you May press Star then one on your Touchtone phone and to withdraw your question. Please press Star then two.
Lindsay Grant Savarese: Please note. This event is being recorded I would now like to turn the conference over to MS. Lindsey salaries Investor Relations for AI Oh. Please go ahead, thank you and Lindsay summaries Investor Relations for applied Optoelectronics I'm pleased to welcome you to Aoi's first quarter 'twenty 'twenty four financial results conference call.
Lindsay Grant Savarese: Thank you. I'm Lindsay Savarese, Investor Relations for Applied Optoelectronics. I am pleased to welcome you to AOI's first quarter 2024 financial results conference call. After the market closed today, AOI issued a press release announcing its first quarter 2024 financial results and provided its outlook for the second quarter of 2024. The release is also available on the company's website at ao-inc.com. This call is being recorded and webcast live. A link to the recording can be found in the Investor Relations section of the AOI 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 Murray, AOI's Chief Financial Officer and Chief Strategy Officer.
Lindsay Grant Savarese: Thompson will give an overview of AOI's Q1 results, and Stefan will provide financial details and the outlook for the second quarter of 2024. A question and answer session will follow our prepared remarks. Before we begin, I would like to remind you to read AOI's Safe Harbor Statement.
Lindsay Grant Savarese: After the market closed today <unk> issued a press release announcing its first quarter 'twenty 'twenty four financial results.
Lindsay Grant Savarese: Provided its outlook for the second quarter of 'twenty 'twenty four there really.
Lindsay Grant Savarese: It's also available on the company's website at Ao Kashi Dot com.
Lindsay Grant Savarese: This call is being recorded and webcast slides.
Lindsay Grant Savarese: The recording can be found on the Investor Relations section.
Lindsay Grant Savarese: Web site and will be archived for one year.
Lindsay Grant Savarese: Joining us on today's call his Doctor Thompson, Lin Aoi's, founder, Chairman and CEO and Dr. Stefan Murry, Aoi's, Chief Financial Officer, and Chief Strategy Officer.
Lindsay Grant Savarese: 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 four.
Lindsay Grant Savarese: A question answer session will follow our prepared remarks.
Lindsay Grant Savarese: 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.
Lindsay Grant Savarese: 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. In some cases, you can identify forward-looking statements by terminology such as believe, forecast, anticipates, estimate, suggests, intends, predicts, expects, plans, may, should, could, would, will, potential, or think, or by the negative of those terms or other similar expressions that convey uncertainty of future events or outcomes.
Lindsay Grant Savarese: Sports industry to differ materially from those expressed or implied in such forward looking statements.
Lindsay Grant Savarese: Some cases, you can identify forward looking statements by terminology such as believes forecast anticipates estimates suggest intends predicts expects plans may should could would will potential or things.
Lindsay Grant Savarese: Or by the negative of those terms or other similar expressions.
Lindsay Grant Savarese: Convey uncertainty of future events or outcomes.
Lindsay Grant Savarese: 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 our products into new markets and Customer Responses to our Innovation, as well as statements regarding the company's outlook for the second quarter of 2024.
Lindsay Grant Savarese: The company has based these forward looking statements on its current expectations assumptions estimates and projections.
Lindsay Grant Savarese: While the company believes these expectations assumptions estimates and projections are reasonable such.
Lindsay Grant Savarese: Such forward looking statements are only predictions and involve known and unknown risks and uncertainties many of which are beyond the company's control.
Lindsay Grant Savarese: 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 innovations.
Lindsay Grant Savarese: As well as statements regarding the company's outlook for the second quarter of 'twenty 'twenty four.
Lindsay Grant Savarese: Unless required by law, we assume no obligation to update 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. More information about other risks that may impact the company's business is 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 and the company's quarterly reports on Form 10-Q.
Lindsay Grant Savarese: 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 conform these statements to actual results or to changes in the company's expectation.
Lindsay Grant Savarese: More information about other 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 FTC.
Lindsay Grant Savarese: Including the company's annual report on Form 10-K, and the company's quarterly reports on Form 10-Q.
Lindsay Grant Savarese: Also, all financial results and other financial measures discussed today are presented 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 our earnings press release that is available on our website. Before moving to the financial results, I'd like to announce that AOI Management will participate virtually at the Needham Technology Media and Consumer Conference on May 16th.
Lindsay Grant Savarese: Also all financial results and other financial measures discussed today are on a non-GAAP basis, unless specifically noted otherwise.
Lindsay Grant Savarese: non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP.
Lindsay Grant Savarese: 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 our earnings press release that is available on our website.
Lindsay Grant Savarese: Before moving to the financial results I'd like to announce that management will virtually participate at the Needham technology and media and consumer conference on May 16th.
Lindsay Grant Savarese: And I'd like to note that the date of our second quarter 2024 earnings call is currently scheduled for August 8, 2024. Now, I would like to turn the call over to Dr. Thompson Lin, Applied Optoelectronics Founder, Chairman, and CEO. Dr. Lin?
Lindsay Grant Savarese: And I'd like to note that the date of our second quarter 2024 earnings call is currently scheduled for August eight 2024.
Speaker Change: Now I would like to turn the call over to Dr. Thompson Lin.
Thompson Lin: <unk> Optoelectronics founder Chairman and CEO Thompson.
Thompson Lin: Thank you, Lindsay. Thank you for joining us on our call today. Our revenue cannot take those margins, because the fourth quarter came in below our expectation, and Aung San Suu Kyi was in line with our expectations, despite the slow start to the year, based on our current forecast and very constructive customer interaction. We remain very positive about improvement in the second half of the year. During the fourth quarter, we delivered a revenue of $40.7 million, which was just below the guidance range of $41 to $46 million and will deliver around a get-cost margin of 18.9 percent, which was below Alcatel's range of 21 to 23 percent, mainly driven by a difference in quota mix. All of them will get lost for sure.
Thompson Lin: Thank you Lindsay.
Speaker Change: Can you you for joining our call today.
Speaker Change: And I'll get gross margin.
Thompson Lin: The fourth quarter.
Thompson Lin: Kidney below our expectations and no longer EPS walk.
Thompson Lin: Vacations.
Thompson Lin: Despite the slow start to a year.
Speaker Change: First of all I'll call them full case.
Thompson Lin: And very constructive cosmos direction.
Thompson Lin: We remain very positive.
Thompson Lin: Puma.
Speaker Change: That's all.
Thompson Lin: During the fourth quarter, we delivered globally all $47 million.
Thompson Lin: Which was it all kind of switch or $41 million to $46 million.
Thompson Lin: We delivered non-GAAP gross margin.
Speaker Change: I appreciate it.
Thompson Lin: Below that as we age 21% to 23%.
Thompson Lin: <unk> been a different course.
Speaker Change: Oh, no the loss per share was.
Thompson Lin: $31,000 per share, which was within our guidance range of a loss of $0.28 to a loss of $0.33 per share. Total revenue for our data center product, $29 million, was up 42% year-over-year and was down 35% sequentially. Revealing for our one product increased 33% year-over-year, and revealing for our foreign products more than doubled in the same period. Total revenue in our COTV segment was $8.7 million, which was down 69% year-over-year and down, study process questions.
Thompson Lin: 31 cents per share.
Speaker Change: Okay. This is rich.
Thompson Lin: The loss was 22 loss per share.
Thompson Lin: Total royalty.
Thompson Lin: I said the board out of $29 million.
Thompson Lin: Well, it's a 42% year over year.
Thompson Lin: 75% sequentially.
Thompson Lin: For all of Us.
Thompson Lin: So it is 3% year over year Adobe for all for newsprint.
Thompson Lin: More than doubled in the same period.
Thompson Lin: Total revenue for you to use to determine what April instead of meeting.
Thompson Lin: I wish it was down 15, 9% year over year and down 30.
Thompson Lin: So it's a question.
Thompson Lin: Life driven by continuous low sales of doses of 3.1 equipment that the industry is preparing to transition to DOCSIS 4.0. With that, I will turn the call over to Stefan to review the details of our Q1 performance and outlook for Q2. Stefan. Thank you, Thompson.
Speaker Change: Alright, Julian but could you Johnny slow sales of dose industry build one Cleveland.
Stefan: As the industry prepares.
Speaker Change: <unk> issued two doses.
Stefan: With that I'll turn the call over.
Stefan: Stephen to review the details of our Q1, almost all of them for Judy.
Stefan: Thank you Thompson.
Stefan J. Murry: As Thompson mentioned, our first quarter revenue and non-GAAP gross margin came in below our expectations, while our non-GAAP EPS was in line with our expectations. Based on our current forecast and very constructive customer interactions, we remain very positive about improvements in the second half of the year. We believe that the long-term demand drivers remain strong for both our data center and CATV businesses, and we believe we are well-positioned to capitalize on these opportunities. Looking to the back half of the year, there are a few key items to note that give us a basis for our optimistic outlook despite the slow start to the year.
Stefan: As Thompson mentioned, our first quarter revenue and non-GAAP gross margin came in below our expectations, while our non-GAAP EPS was in line with our expectations.
Stefan J. Murry: Based on our current forecasts and very constructive customer interactions, we remain very positive on improvements in the second half of the year.
Stefan J. Murry: We believe that the long term demand drivers remained strong for both our data center at CATV businesses, and we believe we are well positioned to capitalize on these opportunities.
Stefan J. Murry: Looking to the back half of the year. There are a few key items to note that gives us the basis for our optimistic outlook. Despite the slow start to the year.
Stefan J. Murry: The first is that we have begun to receive forecasted orders for the VXL-based 400G active optical cables for which Microsoft provided development funding last year. While the pace of product adoption has been somewhat slower than we anticipated, we believe that the fact that we are now receiving forecasts for these products for delivery in Q3 is a significant step toward seeing meaningful business improvement. The second is that follow-on projects to our 400G AOC program, specifically for our 800G and 1.6 terabit products, have been fast-tracked with our customers as they address an acceleration in demand for infrastructure around AI. We are being asked to compress the time from development to scale production as much as possible in order to meet this accelerated demand.
Stefan J. Murry: The first is that we have begun to receive forecasted orders for the pixel based 400 G active optical cables for which Microsoft provided development funding last year.
Stefan J. Murry: While the pace of product adoption has been somewhat slower than we anticipated. We believe that the fact that we are now receiving forecast for these products for delivery in Q3 is a significant step in seeing meaningful business prudent.
Stefan J. Murry: The second is that follow on projects to our 400 G. Aoc program, specifically for our 800 G and one six terabyte products have been fast tracked with our customers as they address an acceleration in demand for infrastructure around AI.
Stefan J. Murry: We're being asked to compress the time from development to scale production as much as possible in order to meet this accelerated demand.
Stefan J. Murry: The third is that we have continued to experience significant traction and continue to have meaningful discussions with multiple large data center customers, some of which are new customers to AOI or customers that we have not worked with in many years, specifically for our 400G, 800G, and 1.6 terabit products. We expect one or more of these customers will begin to contribute meaningfully to revenue starting in Q3. And lastly, we believe that the transition to DOCSIS 4.0 will begin to take place in Q3 and that our products are aptly designed for the deployment of amplifiers and other network elements required for DOCSIS 4.0. We shipped our first fully production-ready DOCSIS 4.0 amplifier samples to a major customer last week, and the feedback, while early, has been exceedingly positive.
Stefan J. Murry: The third is that we have continued to experience significant traction and continue to have meaningful discussions with multiple large datacenter customers.
Stefan J. Murry: All of which are new customers to ally customers that we have not worked with in many years, specifically for our 400 G 800 G at 1.6 terabyte products.
Stefan J. Murry: We expect one or more of these customers will begin to contribute meaningfully to revenue starting in Q3.
Stefan J. Murry: And lastly, we believe that the transition to DOCSIS 4.0, we'll begin to take place in Q3 and that our products are after the design for the deployment of amplifiers and other network elements required for DOCSIS four <unk> went up.
Stefan J. Murry: We shipped our first fully production ready DOCSIS 4.0 amplifier samples to a major customer last week and the feedback while early has been exceedingly positive.
Stefan J. Murry: With the improvement we expect in the second half, we continue to believe that 2024 can be our first full year of non-gap profitability since 2018. Turning to the quarter, our total revenue for the first quarter was $40.7 million, which was down 23% year-over-year and 33% sequentially, and which was just below our guidance range of $41 million to $46 million. As we discussed on our prior earnings call, the softness in Q1 was largely due to the combined effects of the Lunar New Year holiday in our Asian factories, along with some price reductions which took effect in the quarter.
Stefan J. Murry: With the improvement we expect in the second half we continue to believe that 2024 can be our first full year of non-GAAP profitability since 2018.
Stefan J. Murry: During the first quarter, 71% of our revenue was from our data center products, 22% was from our CATV products, with the remaining 7% from FTTH, Telecom, and others going into our data center. Our Q1 data center revenue came in at $29 million, which increased 42% year-over-year and was down 35% sequentially. In the first quarter, 73% of our data center revenue was from our 100G product. 17% of the revenue was from our 200G and 400G transceiver products, and 3% was from our 40G transceiver.
Stefan J. Murry: Turning to the quarter, our total revenue for the first quarter was $47 million, which was down 23% year over year, and 33% sequentially and which was just below our guidance range of $41 million to $46 million as.
Stefan J. Murry: As we have discussed on our prior earnings call. The softness in Q1 was largely due to the combined effects of the lunar new year holiday and our Asian factories, along with some price reductions, which took effect in the quarter.
Stefan J. Murry: During the first quarter of 71% of our revenue is from our data center products, 22% was from our CATV products with the remaining 7% from F T H telecom and other.
Stefan J. Murry: Turning to our data center business, our Q1 data center revenue came in at $29 million, which increased 42% year over year and was down 35% sequentially.
Stefan J. Murry: In the first quarter, 73% of our datacenter revenue was far 100 G products.
Stefan J. Murry: 17% was from our 204 hundred G transceiver products and 3% was from our 40 G transceiver products.
Stefan J. Murry: As we have discussed on several prior earnings calls, we signed two agreements with Microsoft in 2023 for the development of 400G products and beyond. This included a development program to make next-generation lasers for its data center and for the development of its 400G and next-generation active optical cables.
Stefan J. Murry: As we have discussed on several prior earnings calls we signed two agreements with Microsoft in 2023 for the development of 400 G products and beyond.
Stefan J. Murry: This included a development program to make next generation lasers for its data center and for the development of its 400 G and next generation active optical cables.
Stefan J. Murry: While not guaranteed, we continue to believe that the revenue opportunity for our 400G and 800G products could be greater and for a longer duration than the revenue contribution we saw from this customer during the peak of the 40G product cycle, which suggests that revenue from these products may exceed $300 million over the several years of these build-outs. We began shipment late last year and have begun to receive new forecasted orders, which we expect to contribute to revenue later in Q2, and we believe will continue to ramp strongly in Q3 and Q4.
Stefan J. Murry: Not guaranteed we continue to believe that the revenue opportunity for our 400 G and 800 G products could be greater and a longer duration than the revenue contribution we saw from this customer during the peak of the 40 G products like <unk>.
Stefan J. Murry: Which suggests that revenue from these products may exceed $300 million over the several years of these buildings.
Stefan J. Murry: We began shipments late last year and have begun to receive new forecasted orders, which we expect to contribute to revenue later in Q2, and we believe we will continue to ramp strongly in Q3 and Q4.
Stefan J. Murry: Also, as a reminder, in 2023, we shipped samples of our 800G products to three different data center customers and received initial positive feedback. As we discussed above, we are in detailed discussions with several hyperscale data center operators about ramping production for our 800G and 1.6 terabit products starting in Q3 for 800G and early Q1 of 2025 for the 1.6 terabit product. These dates are several months earlier than we had previously been requested to deliver, and we believe the acceleration in the schedule is being driven by faster deployment of technology needed by AI workflows. Turning to our CATV business.
Stefan J. Murry: Also as a reminder, in 2023, we shipped samples of our 800 G products to three different datacenter customers and had received initial positive feedback as.
Stefan J. Murry: As we discussed above we are in detailed discussions with several Hyperscale data center operators about ramping production for our 800 G and 1.6 terabyte products starting in Q3 for 800 G and early Q1 of 2025 for the 1600 products.
Stefan J. Murry: These dates are several months earlier than we had previously been requested to do it and we believe the acceleration and the schedule is being driven by faster deployment of technology needed by AI workflow.
Stefan J. Murry: CATV revenue in the first quarter was $8.7 million, which was down 69% year over year and down 30% sequentially, largely driven by generally slow sales of DOCSIS 3.1 equipment as the industry prepares to transition to DOCSIS 4.0. Looking forward, we continue to expect that our near-term CATV business will be down compared to the historic highs we saw in 2021 and 2022 as the MSOs transition to next-generation architecture. We anticipate this transition to DOCSIS 4.0 will begin to take place in Q3, and we are optimistic about the second half of the year and 2025.
Stefan J. Murry: Turning to our CATV business CATV revenue in the first quarter was $8 $7 million, which was down 69% year over year and down 30% sequentially largely driven by generally slow sales of DOCSIS 3.1 equipment as the industry prepares to transition to DOCSIS four point no.
Stefan J. Murry: Looking forward, we continue to expect that our near term CATV business will be down compared to the historic highs. We saw in 2021 and 2022 as the Msos transition to next generation architecture.
Stefan J. Murry: We anticipate this transition to DOCSIS four <unk> will begin to take place in Q3, and we are optimistic about the second half of the year in 2025.
Stefan J. Murry: As a reminder, we shipped initial test samples of our 1.8 gigahertz amplifier products to two major MSOs in Q4 of last year, and we received encouraging feedback on their performance and pricing. We are pleased to report that we shipped final qualification units of various amplifiers last week, and we would expect revenue to begin as early as the end of Q2, with a significant ramp-up in the second half as we increase manufacturing capacity for these new products.
Stefan J. Murry: As a reminder, we.
Stefan J. Murry: Shipped initial test samples of our 1.8 gigahertz amplifier products to two major msos in Q4 of last year.
Stefan J. Murry: And we received encouraging feedback on their performance and pricing.
Stefan J. Murry: We're pleased to report that we shipped final qualification units of various amplifiers last week and we would expect revenue to begin as early as the end of Q2 with significant ramp in the second half as we increased manufacturing capacity for these new products.
Stefan J. Murry: As Thomson mentioned, we will continue to carefully monitor MSO plans to upgrade to DOCSIS 4.0 networks, and we continue to believe AOI is a leader in technologies that will enable DOCSIS 4.0 and that we have the right portfolio in place to address our customers' needs.
Stefan J. Murry: As Thompson mentioned, we will continue to carefully monitor MSL plans to upgrade to DOCSIS 4.0 networks and we continue to believe <unk> is a leader in technologies that will enable DOCSIS four <unk>.
Stefan J. Murry: And then we have the right portfolio in place to address our customers' needs.
Stefan J. Murry: Now turning to our telecom segment. Revenue from our telecom products of $2.3 million was down 39% year-over-year and down 19% sequentially, largely driven by ongoing softness and 5G demand, particularly in China. Looking ahead, we continue to expect telecom sales to fluctuate from quarter to quarter.
Stefan J. Murry: Now turning to our telecom segment.
Stefan J. Murry: Revenue from our telecom products of $2 $3 million was down 39% year over year and down 19% sequentially largely driven by ongoing softness in five G demand, particularly in China.
Stefan J. Murry: Looking ahead, we continue to expect telecom sales to fluctuate from quarter to quarter.
Stefan J. Murry: For the first quarter, our top 10 customers represented 92% of revenue, down from 93% in Q1 of last year. We had two greater than 10% customers, one in the data center market and one in the CATV market, which contributed 62% and 21% of our total revenue, respectively. In Q1, we generated a non-gap gross margin of 18.9%, which was below our guidance range of 21% to 23% and was down from 36.4% in Q4 of 2023 and down from 23.2% in Q1 of 2023. The decrease in gross margin was driven mainly by product mix and some price reductions which took effect during the quarter.
Stefan J. Murry: For the first quarter, our top 10 customers represented 92% of revenue down from 93% in Q1 of last year, we had two greater than 10% customers. One of the data center market and one in the CATV market, which contributed 62% and 21% of our total revenue perspective.
Stefan J. Murry: Q1, we generated non-GAAP gross margin of 18, 9%, which was below our guidance range of 21% to 23% and was down from 36, 4% in Q4 of 2023 and down from 23, 2% in Q1 of 2023.
Stefan J. Murry: The decrease in gross margin was driven mainly by product mix and some price reductions which took effect during the quarter.
Stefan J. Murry: Looking ahead, we expect improving gross margins throughout the year as product mix improves in our data center business and CATV revenue begins to ramp. We remain committed to the long-term goal of returning gross margin to around 40% and believe that this goal is achievable. Total non-GAAP operating expenses in the first quarter were $24.8 million, or 61% of revenue, which compared to $19.6 million, or 36.9% of revenue in Q1 of the prior year due to higher R&D spending.
Stefan J. Murry: Looking ahead, we expect improving gross margins throughout the year as product mix improves in our datacenter business and CATV revenue begins to ramp.
Stefan J. Murry: We remain committed to the long term goal of it from gross margin to around 40% and believes that this goal is achievable.
Stefan J. Murry: Total non-GAAP operating expenses in the first quarter were $24 8 million or 61% of revenue, which compared to $19 $6 million or 36, 9% of revenue. If you wanted to prior year due to higher R&D spend.
Stefan J. Murry: Looking ahead, we continue to expect non-GAAP operating expenses to range from $24 million to $26 million per quarter to account for the acceleration of R&D expenses to improve time-to-market for our 800G and 1.6 terabit data center products. Non-GAAP operating loss in the first quarter was $17.1 million compared to an operating loss of $7.2 million in Q1 of the prior year.
Stefan J. Murry: Looking ahead, we continue to expect non-GAAP operating expenses to range from $24 million to $26 million per quarter to account for the acceleration of R&D expenses to improve time to market for our 800 G and 1.6 terabyte of data center products.
Stefan J. Murry: non-GAAP operating loss in the first quarter was $17 $1 million compared to an operating loss of $7 $2 million in Q1 in the prior year.
Stefan J. Murry: Gap net loss for Q1 was $23.2 million, or a loss of $0.60 per basic share, compared with a gap net loss of $16.3 million, or a loss of $0.56 per basic share, in Q1 of 2023. On a non-gap basis, the net loss for Q1 was $12 million, or $0.31 per share, which was within our guidance range of a loss of $10.9 million to a loss of $12.6 million and in line with our guidance range of a loss per share in the range of $0.28 to a loss of $0.33 per basic share.
Stefan J. Murry: GAAP net loss for Q1 was $23 $2 million or loss of <unk> 60 per basic share compared with a GAAP net loss of $16 $3 million or a loss of 56 cents per basic share in Q1 of 2023.
Stefan J. Murry: On a non-GAAP basis net loss for Q1 was $12 million or <unk> 31 cents per share.
Stefan J. Murry: Which was within our guidance range of a loss of $10 $9 million to a loss of $12 $6 million and in line with our guidance range of a loss per share in the range of 28 cents to a loss of 33 cents per basic share.
Stefan J. Murry: This compares to a net loss of $7.1 million, or a loss of $0.25 per basic share, in Q1 of the prior year. The fully diluted shares outstanding used for computing the earnings per share in Q1 were $38.4 million. Turning now to the palace.
Stefan J. Murry: This compares to a net loss of $7 $1 million or a loss of 25 cents per basic share in Q1 of the prior year.
Stefan J. Murry: Fully diluted shares outstanding used for computing the earnings per share in Q1 were $38 4 million.
Stefan J. Murry: Turning now to the balance sheet.
Stefan J. Murry: We ended the first quarter with $17.4 million in total cash, cash equivalents, short-term investments, and restrictions. This compares with $55.1 million at the end of the fourth quarter. This cash balance reflects a few slow-paying receivables totaling about $11 million, which were subsequently received in the first two weeks of Q2. Also note that we used almost $4 million in cash to reduce debt during the quarter. We ended the quarter with total debt, excluding convertible debt, of $34.8 million, compared to $38.7 million at the end of last quarter.
Stefan J. Murry: We ended the first quarter was $17 $4 million in total cash cash equivalents short term investments and restricted cash. This compares with $55 $1 million at the end of the fourth quarter.
Stefan J. Murry: This cash balance reflects a few slow paying a our receipts told them about $11 million, which was subsequently received in the first two weeks of Q2.
Stefan J. Murry: Also note that we used almost $4 million in cash to reduce debt during the quarter.
Stefan J. Murry: We ended the quarter with total debt, excluding convertible debt of $34 $8 million compared to $38 $7 million at the end of last quarter.
Stefan J. Murry: As of March 31, we had $54.3 million in inventory compared to $63.9 million at the end of Q4. We made a total of $7.8 million in capital investments in the first quarter, which was mainly used for production and R&D equipment.
Stefan J. Murry: As of March 31, we had $54 $3 million in inventory compared to $63 $9 million at the end of Q4.
Stefan J. Murry: We made a total of $7 $8 million in capital investments in the first quarter, which was mainly used for production and R&D equipment.
Stefan J. Murry: Moving now to our Q2 Outlook, we expect Q2 revenue to be between $41.5 million and $46.5 million, and Non-Gap Gross Margin to be in the range of 25.5% to 27.5%. Non-GAAP net loss is expected to be in the range of $11.6 million to $13.5 million, and non-GAAP loss per share between $0.29 per basic share and $0.34 per basic share, using a weighted average basic share count of approximately 39.2 million.
Stefan J. Murry: Moving now to our Q2 outlook, we expect Q2 revenue to be between $41 $5 million and $46 5 million and non-GAAP gross margin to be in the range of 25, 5% to 27, 5%.
Stefan J. Murry: non-GAAP net loss is expected to be in the range of $11 $6 million to $13 $5 million and non-GAAP loss per share of between 29 cents per basic share and 34 cents per basic share using a weighted average basic share count of approximately $39 2 million shares.
Stefan J. Murry: Looking ahead, as the widespread adoption of generative AI continues to place increased demands on our customer data system, We believe that these customers will ultimately need to deploy more infrastructure to meet these needs, which will provide a long tailwind of demand for the optical industry. Our U.S.-based production ability, combined with our automated manufacturing capabilities and experience, puts us in a unique competitive position to address these needs. Further, as our CATB customers transition to next-generation architectures and implement new technologies like DOCSIS 4.0, we believe that we have positioned ourselves as a leader in technologies that will enable DOCSIS 4.0, and we are confident that we have the right product portfolio, team, and strategy in place to capitalize on this upcoming transition.
Stefan J. Murry: Looking ahead as the widespread adoption of generated AI continues to place increased demands on our customer data centers. We believe that these customers will ultimately need to deploy more infrastructure to meet these needs, which will provide a long tailwind of demand for the optical industry.
Stefan J. Murry: Our U S based production ability combined with our automated manufacturing capabilities and experience puts us in a unique competitive position to address these needs.
Stefan J. Murry: As our CATV customers transition to next generation architecture, and implement new technologies like DOCSIS 4.0.
Stefan J. Murry: We believe that we have positioned ourselves as a leader in technologies that will enable DOCSIS four.
Stefan J. Murry: And we are confident that we have the right product portfolio team and strategy in place to capitalize on this upcoming transition.
Stefan J. Murry: We have spent several years developing these products, and we expect that they will go to market in the next few months. In sum, we believe that the long-term demand drivers remain strong for both our data center and CATV businesses, and we believe we are well-positioned to benefit from these growing long-term drivers. With that, I will turn it back over to the operator for a Q&A session. Operator. Thank you. We will now begin the question and answer session.
Stefan J. Murry: We have spent several years developing these products and we expect that they will go to market in the next few months.
Stefan J. Murry: In sum, we believe that the long term demand drivers remained strong for both our datacenter and CATV businesses and we believe we are well positioned to benefit from these growing long term trends.
Stefan J. Murry: With that I will turn it back over to the operator for Q&A session operator.
Speaker Change: Thank you we will now begin the question and answer session.
Operator: To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Simon Leopold with Raymond James. Please go ahead. Thanks for taking the question. A couple quick ones, maybe. I think on the prior conference call, you gave some indication that you thought the full year revenue could exceed $300 million, given the slower start to the...
Speaker Change: Anytime your question has been addressed and you would like to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
Operator: And your first question will come from Simon Leopold with Raymond James. Please go ahead.
Simon Matthew Leopold: Hey, Thanks for taking the question a couple of quick ones, maybe I think on the prior conference call you had.
Simon Matthew Leopold: Given us some indication that you thought the full year revenue could exceed 300 million given the slower start to the year. It. It does sound like you still expect a much stronger second half, but how do you feel about that full year 300 million target.
Stefan J. Murry: Here. It does sound like you still expect a much stronger second half, but how do you feel about that full year, 300 million target? Well, what we've said is that we think we can be profitable for the year. So. You know, if you can run the numbers on that, we don't give guidance, you know, annual guidance really. I wouldn't say we're pulling back on anything. It's obviously going to be a little more challenging considering where we started the year, but I think it's still very... Achievable, let's say that.
Stefan J. Murry:
Stefan J. Murry: Well, what we've what we've said is that we think we can be profitable for the year.
Stefan J. Murry: So.
Stefan J. Murry: You can run the numbers on that and we don't give guidance.
Stefan J. Murry: Annual guidance really so I.
Stefan J. Murry: I wouldn't say, we're pulling back on anything that's obviously going to be a little more challenging considering where we started the year, but I think it's still very.
Stefan J. Murry: Achievable, let's say that.
Stefan J. Murry: Okay, and then you did give us some indication of the operating expenses.
Stefan J. Murry: Okay, and then you you did give us some indication of the operating expense expectations for the year at that 24 to 26 million per quarter.
Stefan J. Murry: expectations for the year at that $24 to $26 million per quarter. And I think we were anticipating more of a $22 to $24 million per quarter, and that may simply be just extrapolating too much from the first quarter forecast.
Stefan J. Murry: And I I think we were anticipating more of a 22% to 24 million per quarter and that may may simply be.
Stefan J. Murry: Just extrapolating too much from the first quarter forecast.
Stefan J. Murry: Did something change in terms of your expectation of what you need to spend on sales, marketing, and R&D? As we noted in our prepared remarks, we've increased our R&D spend a little bit because we get, as I've talked about, customers that are pulling in their requests for product development months ahead of schedule, and so we need to do additional R&D. I wouldn't say additional overall, but we're spending it quicker than we otherwise would, so it does represent a slight increase in our R&D. Sales and marketing, not too much of an increase in sales and marketing.
Stefan J. Murry: Did something change in terms of your expectation of what you need to spend on sales and marketing and R&D.
Stefan J. Murry: As we noted in our prepared remarks.
Stefan J. Murry: <unk> increased our R&D spend a little bit too.
Stefan J. Murry: Because we're getting you know as I talked about we're getting customers that are that are pulling in their request for product development months ahead of schedule and so we need to spend additional R&D I Wouldnt say additional overall, but were spending it quicker than we otherwise would so it does represent a slight increase to our R&D sales and marketing not too much increase in sales and marketing.
Stefan J. Murry: And then I remember at our meeting at OSC, you had talked about sort of a product roadmap going from the VXL-based solutions to VXLs and EMLs and ramping up to higher per-channel speeds. Could you give us an overview of the roadmap you expect in terms of
Speaker Change: Thanks, and then I remember at our meeting I know, what's the you had talked about sort of a product roadmap going from the pixel based solutions to pixels and emails and ramping up to a higher per channel speeds could you give us an overview of the roadmap you.
Stefan J. Murry: Expect in terms of launches over the next year.
Stefan J. Murry: Year plus.
Stefan J. Murry: Right, so the Vixor-based products are, you know, already in production. And, you know, we'll likely add higher-speed lane VXLs to that portfolio next year. With respect to the EML-based products, we have some products in production now. The higher-speed data center products with EMLs will go into production in late Q3 or late Q4.
Stefan J. Murry: Right. So the victory those products or are you know already in production.
Stefan J. Murry: And you know, we'll likely add higher speed lane vic's thoughts to that portfolio next year.
Stefan J. Murry: With respect to the email based products.
Stefan J. Murry: We have some some products in production now the the higher speed data center products with emails will go into production.
Stefan J. Murry: In late Q3 early Q4.
Stefan J. Murry: And your, what was your 400 gig in the quarter? I missed it.
Stefan J. Murry: And your what was your 400 gig in the quarter I missed that.
Stefan J. Murry: What was your 400 gig in the quarter? I missed that. Uh, 400 gigs and a quarter. Let me get you that.
Stefan J. Murry: In the.
Stefan J. Murry: Cool.
Stefan J. Murry: Sure.
Stefan J. Murry: Right.
Stefan J. Murry: Okay.
Stefan J. Murry: Well, there it is.
Stefan J. Murry: Hello.
Stefan J. Murry: Sure.
Stefan J. Murry: Okay.
Stefan J. Murry: 17% of the data center revenue, so $29 million, 70% of that.
Stefan J. Murry: of the data center revenue. So $29 million, 72% of that. Okay, and that was just 400 gigabytes, not 400......over doubling. I'd say that again, that's a little over doubling compared to, almost, well it was slightly over doubling from the same period last year. Great. Thank you very much for taking the questions.
Stefan J. Murry: Okay and that was just 400 gig for whoever doubling.
Stefan J. Murry: Say that again, that's a little over doubling compared.
Speaker Change: Got it.
Stefan J. Murry: Almost well it was slightly over doubling from the same period last year.
Speaker Change: Great. Thank you very much for taking the questions I appreciate it.
Operator: The next question will come from Michael Genovese with Rosenblatt Securities; please go ahead. Oh, great. Thanks.
Operator: The next question will come from Michael Genovese with Rosenblatt Securities. Please go ahead.
Operator: I guess to start with, I wanted to ask some questions about Microsoft. Like, have you had any more color on why you think that it's going slower than initially expected? But then secondly, you know, how do you expect orders to trend in the second quarter? Like, do you see orders in the month of June being above the month of May? Is there any visibility into that?
Michael Genovese: Oh, great. Thanks, I guess, let's just start with I wanted to ask.
Speaker Change: Some questions about Microsoft's.
Operator: Like if you had any more color on why you think that that it's going slower than.
Operator: And if we expected him, but then secondly.
Operator: How do you expect orders to trend.
Operator: And in the second quarter I do see orders in the month of June being above the month of May is there any visibility to that and then finally it sounds like Youre. Your comments on the overall size of it. It's a 300 million plus has maybe gotten a little bit more bullish, but maybe that's because you've added 800 G to it. So if you say that would help us understand that.
Stefan J. Murry: And then finally, it sounds like your comments on the overall size of this of 300 million plus have maybe gotten a little bit more bullish, but maybe that's because you've added 800G to it. So, if you could...
Stefan J. Murry: http://thevenusproject.com Sure, thank you. First of all, it was a commentary. I'm sorry, what? I'm sorry, I was just reminding you the first one was why the delay. Yeah, I wouldn't really say it's an overall delay. If my prepared remarks sounded that way, that's not what I was trying to say. There was a slight delay in one particular program, which really just reflects the fact that it's a new product and, you know, sometimes new product launches just take a little longer than expected.
Speaker Change: Well thank you.
Stefan J. Murry: Sure.
Stefan J. Murry: What kind of commentary.
Stefan J. Murry: Yeah.
Stefan J. Murry: I'm sorry, what.
Stefan J. Murry: So I was just I just remind you the first one was why the delay.
Stefan J. Murry: Yeah, I wouldn't really say, it's an overall delay.
Stefan J. Murry: If if my prepared remarks sounded that way that's not what I was trying to say there was a there was a slight delay in one particular program.
Stefan J. Murry: Which really just reflects the fact that it's a new product and you know sometimes new product launches just take a little longer than expected there's nothing.
Stefan J. Murry: There's nothing, you know, nothing in particular that I can point to with respect to that. It is positive that we're getting new updated forecasts now that would indicate shipments beginning later in Q2 and then ramping quickly in Q3 and Q4. So, that's all positive. I wouldn't read much into the delay itself.
Stefan J. Murry: No nothing particular that I can point to with respect to that it is positive that we're getting a new updated forecast down but you know would indicate shipments beginning later in Q2, and then ramping quickly in Q3 Q4. So that's all that's all positive.
Stefan J. Murry: I wouldn't read much into the delay itself overall the revenue in our datacenter business is about where we expected it to be in Q2. So there's not really a you know.
Stefan J. Murry: Overall, the revenue in our data center business is about where we expected it to be in Q2. So, there's not really a, you know, significant change from our earlier thinking. That small delay in business from Microsoft is being more than compensated for by, you know, other data center customers. So, it's not anything.
Stefan J. Murry: Significant change from our earlier thinking.
Stefan J. Murry:
Stefan J. Murry: That small delay in business from Microsoft as being more than compensated by the other.
Stefan J. Murry: Other data center customers, so it's not anything.
Stefan J. Murry: Overall, what I'm trying to point to there, just that one particular product that's got some. Your second question had to do with the $300 million target and whether that represents a change. No, fundamentally, other than that, you know, we mentioned that we're having to pull in 800 gigabits and 1.6 terabits faster now. 1.6 terabits won't be a factor this year, but it will be early next year. But the acceleration in 800 gigabits is certainly helpful to try to meet that. And then I, sorry, I forgot your third question there. What was it?
Stefan J. Murry: Overall, but I'm trying to point to there just that one particular product it's got some of the delay.
Stefan J. Murry: Your second question had to do with the $300 million target and whether that represents a change.
Stefan J. Murry: No fundamentally other than that you know you mentioned that we're having to falling 800 gig and one six terabits faster and at 1.6 Terabits won't be a factor this year, but it will be early next year, but the acceleration in 800 gig is certainly helpful to try to meet that.
Stefan J. Murry: Goal and then Im sorry, I forgot your third question there what was it.
Speaker Change: Well I'll try that here with my my my next and last question.
Stefan J. Murry: It was my next and last question, but it was about the orders. If, for instance, you think that, you know, if there's a reason to think as you're seeing these forecasts that, for instance, June would be up from, you know, up from May, which is up from April, if you're seeing that kind of trend at this customer. But I might as well just ask, I mean, you said 1Q data center revenues were about where you expected them to be. How do you see them trending in 2Q and 3Q? If you could address that, then that'll be it. I want to be clear. Yeah, well, first of all, maybe I misspoke earlier.
Stefan J. Murry: So, but it was about the orders if if for instance, you think that you know if there's if there's a reason to think as youre seeing in these forecasts that that frictionless June would be up from.
Stefan J. Murry: Up from May which is up from April if you're seeing that kind of trend at this customer, but I might as well just ask I mean, you said you said you know once you data center revenues were about where you expected them to be and how do you see them trending in Q2 and three Q. If you could if you could address that and and and and then I.
Speaker Change: I want to be clear.
Stefan J. Murry: Yeah, well first of all maybe maybe I misspoke earlier Q1, and Q2 data center numbers are about what we expected it to be cable TV in Q2 is coming in a little lighter than what we had expected.
Stefan J. Murry: Q1 and Q2 data center numbers are about what we expected them to be. Cable TV in Q2 is coming in a little lighter than we had expected, and that explains, you know, to the extent that, I mean, we didn't give guidance until now for Q2, but to the extent that, you know, there was some change in our thinking, it had to do with cable TV, not data centers. The data center overall is doing almost, you know, actually slightly ahead of plan compared to where we thought it was going to be.
Stefan J. Murry: And that explains to the extent that we didnt give guidance until now in Q2, but to the extent that there was some change in our thinking it had to do with cable TV not datacenter datacenter overall is doing almost you know actually it's slightly ahead of plan compared to we thought where we thought it was going to be I mentioned earlier, Microsoft had a delay in one product, but the rest of them are growing.
Stefan J. Murry: As I mentioned earlier, Microsoft had a delay in one product, but the rest of them are going fine, and that slight delay in that one product was more than compensated for in Q2 by growth in other customers.
Stefan J. Murry: Fine.
Stefan J. Murry: Hey, Julien that one product was more than compensated for in Q2 by by growth in other customers so with respect to.
Thompson Lin: So this is Thompson. Let me say, overall, for their center, I think the... We feel more positive right now compared to a few months ago. The main reason is energy. Right now, I think the L.A. We can see several big customers, especially two hyperscale data customers, are pulling in the schedule for energy. Cable TV, you know, cable TV is quite slow because all the customers are waiting for 1.0 edgy products, so... You know, usually the delay... In-Cable TV is not surprising, as you can see from other companies.
Stefan J. Murry: So these are the problems that they miss their overall data center doesn't do it.
Thompson Lin: We feel more positive right now compared to a few months ago.
Thompson Lin: The main reason is having a D well I know I can and lead.
Thompson Lin: You can see stable would be customer, especially at two <unk>.
Thompson Lin: It's good to get a customer up for in the schedule for energy.
Thompson Lin: Cable T V. You'll know cable T v's quite a slow because.
Thompson Lin: All the class one what do you have a 1.0 N E product so.
Thompson Lin: You know the usual delay.
Thompson Lin: Cable TV not surprise you. So you can see from all the cost for a lot of the other companies.
Stefan J. Murry: Michael, I just want to touch on your last question there. I'll try to answer it directly. Yeah, you know, are we seeing a trend of more orders kind of month by month?
Speaker Change: Michael I just want to touch on your last question there I'll try to answer it directly yeah are we seeing a trend of more orders kind of month by month and and the answer is yes.
Stefan J. Murry: And the answer is yes. As I mentioned earlier, you know, that one program, for example, from Microsoft that's [inaudible] Okay, great. I'll pass this on now. I might come back later or send my questions offline. Thank you. The next question will come from Tim Savageaux with Northland Capital.
Stefan J. Murry: As I mentioned earlier, you know that one program for example, Microsoft that's somewhat delayed we do expect it to pick up towards the end of this quarter, so that would mean.
Timothy Paul Savageaux: June month would be bigger than may and that was certainly bigger than April. So we are seeing that trend at that product, but overall, we expect to see.
Timothy Paul Savageaux: That trend somewhat throughout the quarter, although again I would say for the most part the datacenter business outside some of these new programs and especially the 800 gig products later in the year is relatively consistent business at this time.
Timothy Paul Savageaux: Okay great.
Timothy Paul Savageaux: It may come back later.
Timothy Paul Savageaux: That's for offline. Thank you.
Timothy Paul Savageaux: Okay sounds great. Thanks.
Operator: The next question will come from Tim Savageaux with Northland Capital Markets. Please go ahead.
Timothy Paul Savageaux: The next question will come from Tim Sabbah, Joe with Northland Capital markets. Please go ahead.
Operator: [laughter].
Timothy Paul Savageaux: Tim Your line may be muted.
Operator: Yeah, sorry about that. I'm here. Can you hear me? Yep, we can hear you. Hello, hello. All right.
Timothy Paul Savageaux: Sorry about that.
Timothy Paul Savageaux: I'm here can you hear me.
Timothy Paul Savageaux: Yes, we can hear you below alright, great.
Stefan J. Murry: Yeah, I'd say with the new OPEX forecast, it seems like maybe something reasonably over $300 million is what you would need to get you there, and so that's a pretty significant ramp in the second half, almost 3x over the first, although we've seen that recently in a couple different places, most recently at Coherent. So, I guess as you look at that, Ram, and the 800 gigabit opportunities in particular. I'm hoping you might be able to size those for us in a fashion maybe similar or analogous to how you've been talking about the Microsoft 400 gigabyte opportunity.
Timothy Paul Savageaux: Hello, Yeah, I'd say would be with the new Opex forecast it seems like maybe something reasonably over 300 million and it's what you would need to get you there.
Stefan J. Murry: So that's a pretty significant ramp in the second half.
Stefan J. Murry: Almost 30 extra over the first although.
Stefan J. Murry: We've seen that recently a couple of different places.
Stefan J. Murry: Most recently at coherent.
Ram: So I guess as you as you look at that ramp.
Ram: And then the 800 gig opportunities in particular.
Ram: I'm, hoping you might be able to size those for us.
Stefan J. Murry: In our fashion, maybe similar or analogous to how you've been talking about the.
Stefan J. Murry: Microsoft 400 gig opportunity.
Stefan J. Murry: That's one question, and you've talked about new data center customers or some, all data center customers coming back. Should we assume this discussion around 800 gigabytes and 1.6 T also applies to Microsoft, or is it more focused on the new players? No, I mean, we specifically, maybe, maybe it wasn't totally clear from the prepared remarks, but it's, it's, you know, our existing customers that we have now, plus the new customers for those 800 gigabit and 1.6 terabit.
Speaker Change: One question.
Stefan J. Murry: And.
Stefan J. Murry: You've talked about new data center customers or some.
Stefan J. Murry: All data center customers coming back.
Stefan J. Murry: Should we assume this discussion around 800 gig at 160 <unk> also applies to Microsoft or is it more focused on the new players.
Stefan J. Murry: Yeah.
Stefan J. Murry: No I mean, we specifically maybe maybe it wasn't totally clear from the prepared remarks, but it's it's.
Stefan J. Murry: Our existing customers that we have now plus the new customers for those 800 gig six terabyte products. So Microsoft clearly would be included in the category of existing customers.
Stefan J. Murry: So Microsoft clearly would be included in the category of existing customers. And as far as the size of the market, you know, what we're seeing right now is that 800 gigabit, several times as large as the 400 gigabit opportunity. So, it represents, you know, dramatic expansion. And that's, that's, within the same customer. If you add on, you know, the new customers that we're referring to, the market size there gets commensurate with our Great.
Stefan J. Murry: And as far as the size of the market.
Stefan J. Murry:
Stefan J. Murry: You know what we're seeing right now is that 800 gig.
Stefan J. Murry: This is <unk>.
Stefan J. Murry: Several times as large.
Stefan J. Murry: As the 400 gig opportunity so it represents.
Stefan J. Murry: Yeah.
Stefan J. Murry: The dramatic expansion in that.
Stefan J. Murry: Within the same customer if you're out on the.
Stefan J. Murry: The new customers that we're referring to the market size there gets.
Stefan J. Murry: Yeah.
Stefan J. Murry: Commensurate with larger.
Stefan J. Murry: So as you look at that data center, Ram, into the second half, I mean, would you imagine between your current 400 gigabytes, would you imagine that to be, I don't know, half, 800 gigabytes, or how are you looking at it now, and to what extent... Are you looking at material?
Speaker Change: Great. So as you look at that data center ramp.
Stefan J. Murry: Into the second half I mean would you imagine between your current 400 gig would you imagine that to be.
Speaker Change: I dunno how.
Stefan J. Murry: <unk>.
Stefan J. Murry: The 800 gig or how are you looking at it now and to what extent.
Stefan J. Murry: Are you looking at a material.
Stefan J. Murry: Cable TV Networking Contribution in the second half is part of that ramp. Yeah, I think that's the key point, really, is that cable TV has been, you know, kind of, to the extent that there's been a disappointment in Q2, it's mainly that cable TV is ramping slower than we expected. And that's just, as Thompson mentioned, you know, somewhat par for the course. I mean, we were optimistic that the MSOs would move a little faster into 1.8.
Stefan J. Murry: Cable TV network and contribution in the second half as part of that ramp.
Stefan J. Murry: But, you know, it's taken a little longer to get through the qualification and get all the necessary, you know, training, and so on. But we do expect them to ramp up in the second half of the year, and that will contribute meaningfully to the revenue ramp, but it'll also help us improve the gross margin, which is, you know, significantly higher in the cable TV segment than it is.
Stefan J. Murry: Yeah, I think that's the key point really is the cable T V.
Stefan J. Murry: <unk> has been you know kind of to the extent that there's been a disappointment in Q2, its maintenance that cable TV is ramping slower than we expected and that's just as Thompson mentioned somewhat that's par for the course I mean, we were optimistic that the msos would move a little faster than the one eight but it's taken a little longer to get through the qualification you get all the necessary training.
Stefan J. Murry: What have you done.
Stefan J. Murry: But we do expect them to ramp in the second half of the year that will contribute meaningfully towards the revenue ramp, but it will also help us improve the gross margin, which is significantly higher than the cable TV segment than it is in data center.
Thompson Lin: And I can add something, for the 800G business, we can see, or I think we are discussing with Edison 3-4 customers, for sure, including Microsoft. I've seen this. I would say more than $500-$600 million next year for AOI.
Stefan J. Murry: They're not going to ask one thing. He's therefore, the end of the business. We can see Oh I think we got discussion when we.
Thompson Lin: Oh.
Thompson Lin: So it is less than three full customer.
Thompson Lin: Oh for sure including Microsoft.
Thompson Lin: Indeed.
Thompson Lin: Oh, it's a more than 500 $600 million next year.
Thompson Lin: Hi.
Thompson Lin: Because of energy.
Thompson Lin: Alright.
Thompson Lin: Thomson, is that in the aggregate or what kind of time period? Maybe we can, or can we put in some more? Brackets around that, 500, 600, I think I heard you say.
Thompson Lin: And does that then in the in the aggregate or what kind of time period or.
Thomson: Maybe we can or can.
Speaker Change: Can we put some more.
Thomson: Brackets around that five.
Thompson Lin: 500, 600, or so, but I think I heard you say.
Thompson Lin: No.
Thompson Lin: I think we are doing qualification, I think we should get somebody in order by next Q3. So it will come out next year, Q1 to Q4 next year, I would say, just energy, more than $500 million or even $600 million. All day long.
Thompson Lin: What's been the what we are doing quite okay. She and I wish you pissed off body and older.
Thompson Lin: Q3.
Thompson Lin: So always Lamar go next year.
Thompson Lin: You want to keep on next year.
Thompson Lin: Just energy only.
Thompson Lin: More than five or even $600 million.
Stefan J. Murry: And that was going to be my last question, actually, in terms of the nature of these detailed discussions, kind of relating to qualification or you know, where do we stand on that front, or are we talking about, you know, putting you know, dotting the I's and crossing the T's on contracts, a little more color there.
Thompson Lin: Okay.
Thompson Lin: As long as that was going to be my last question actually in terms of your the nature of these detailed discussions and.
Stefan J. Murry: Kind of does that around qualification.
Stefan J. Murry: You know it was where do we stand on that front.
Stefan J. Murry: Or are we talking about you know.
Stefan J. Murry: Putting the.
Stefan J. Murry: You know dotting, the i's and crossing the t's on contracts a little more color there.
Stefan J. Murry: Yeah.
Stefan J. Murry: Okay.
Stefan J. Murry: Well.
Stefan J. Murry: I'm not sure, you know, to what extent the contracts really come into play there. What we're talking about now is detail planning around employment scenarios, when they're going to need products, how much product they're going to need, pricing, that sort of thing. Okay, thanks. The commentary from the customers is, "How fast can you deliver X amount of product for us, right?" It's about how fast we can be ready to deploy or to manufacture the products that they need to deploy. And the very important key, as I said.
Stefan J. Murry: I'm not sure to what extent the contracts really come into play there.
Stefan J. Murry: What we're talking about now is freedom in detailed planning around deployment scenarios, when theyre going to need products, how much product, they're going to need pricing that sort of thing.
Stefan J. Murry: Okay. Thanks commentary from the customers is how fast can you deliver X amount of product for US right. It's it's it's about how fast because we'd be ready to deploy or to manufacture the products that they need to deploy.
Thompson Lin: And the very important key, as I say, AOR has been investing. A few hundred million dollars in the past, I'd say, more than 10 years for automation, including we have developed a lot of our own equipment for automation. So I think right now we are doing a Phase 2, maybe I would say we will do a Phase 3 line by the end of this year and do a Phase 3, fully imagine Q1, Q2 next year. So we can do 800G manufacture in Houston with, I would say, similar or a bit higher cost than in Taiwan and China. I think that's very attractive to the younger generation.
Stefan J. Murry: And are they involved in key as I say.
Thompson Lin: His opinion base.
Thompson Lin: A few hundred million dollars in the past more than 10, a year volatile nation, including what you do have a lot of only clean up all the nations.
Thompson Lin: So I've been doing a we're doing a phase two maybe air force a wheel.
Thompson Lin: Would do phase two light basically lie to you and they do a phase III.
Thompson Lin: Julio mesh into Q1 Q2 next to US. So we can do a hand, you may affect you in Houston with Oh, it's a female or would it be higher cost debt in Taiwan and China.
Thompson Lin: So as you anticipate tricky to do.
Thompson Lin: Customers, including the big customer we used to have seven years ago, but then they are coming back. Number two, the keys, you know, the laser is a key component, a key thing, you know. The 100GE, 200GE, the VEXO, the EML, and I think we can make all of these in Houston. It's also very... I think the key factor for the customer, I think for sure, is not only the cost; the key is risk measurement.
Thompson Lin: Customer, including that because what we used to wait several years ago, but then they are coming back.
Thompson Lin: Number two.
Thompson Lin: Keith do you know the data is a key component key technologies.
Thompson Lin: One of the G 200 to the VIX, though the email and I say, hey, I can make.
Thompson Lin: So in Houston.
Thompson Lin: Obeidi.
Thompson Lin: I think the key Victor.
Thompson Lin: For the customer.
Thompson Lin: For sure.
Thompson Lin: I'll eat of course.
Thompson Lin: Keith.
Thompson Lin: Yeah.
Speaker Change: Great. Thanks very much.
Operator: Again, if you have a question, please press star, then 1. Our next question will come from Dave Kang with B. Riley FBR. Please go ahead.
Thompson Lin: Again, if you have a question. Please press Star then one our next question will come from Dave Kang with B Riley FBR. Please go ahead.
Operator: Thank you. Good afternoon. Regarding that 800 gigabytes, the first question is, do you have 200 gigabyte per lane vehicles at EML? So, what's the status on that?
Ku Kang: Hi, Thank you good afternoon. So regarding that 800 gig first question is do you have a 200 gig per lane vehicles at E. M. L. So what's the status on that.
Speaker Change: Uh huh.
Thompson Lin: We will have the volume effect will be more like Q1 next year. Right now, you know, you need to go through the whole R&D process, especially. I think customers are very concerned about quality.
Ku Kang: We will have the volume benefits will be more like Q1 next year.
Thompson Lin: No.
Thompson Lin: Golf sued a whole lot in geospatial guys didn't Cosmo Bacon's a bulge of quality, but just 1.6 T alright, and know how to handle and just do you feel the upper limb and I'm talking on a boat and as yet I'm talking about the opportunity for you why next year five years, what's your kind of mean to Ohio.
Thompson Lin: But that's for 1.6T, all right, not for 800G. 800 is still a plan. And I'm talking about the 800G, I'm talking about the opportunity for A1 next year being 500 to 600 meters higher. Yeah, single mode. Okay. It's like two kilometers higher. It's not a short reach, it's not AOC. So, it's a pretty high ASP, high cost margin product. Okay. The 1.6T, I think early next year it will be the multi-mode and single-mode together, but for shorter distances, maybe, find and return, and below.
Thompson Lin: Although it is like two kilometer is another show, which you saw the a O N E.
Thompson Lin: We would either see heico's margin profile, okay. The one below 60.
Thompson Lin: I'd say over the next year, it's more light.
Thompson Lin: Oh, it will be the multimodal and seeing them altogether.
Thompson Lin: For sure the distance maybe.
Thompson Lin: Yeah.
Thompson Lin: Pardon me to adult appeal.
Thompson Lin: But we would have all of the producers.
Thompson Lin: Got it. And then on sticking with 800 gigabytes, I think I used something like maybe two customers, Devil, Ramp, Third Quarter. Just wondering if you've been qualified or not.
Thompson Lin: Got it and then on the.
Thompson Lin: Sticking with 800 gig I think I use the it looked like maybe two customers that will ramp third quarter just wondering.
Thompson Lin: If you've been qualified or Oreo desktop appealed already.
Thompson Lin: The role will be more like Q3 or Q4, you know; we are doing a qualification. So it's a single mole, two kilometers and higher. I don't know, including DIA and 2xFR4. So this, I would say, was... more than two cars. A hyperscale, I would say maybe three customers, including just some of the smaller customers. The volume manufacturer, for sure, they are not pushing Q3, so we are trying our best to visualize the body. Bio-SAQ4 for COQ3. The schedule is a bit tight, but maybe September.
Thompson Lin: The Bloom Ebola late Q3 early Q4.
Speaker Change: No we are doing a quite vacation.
Thompson Lin: So it's.
Thompson Lin: No single malt.
Thompson Lin: Kilometer and higher.
Thompson Lin:
Thompson Lin: Including the P eight into by a thoughtful.
Thompson Lin: So oh, let's say more.
Thompson Lin: More than two customer the.
Thompson Lin: The Hyperscale was saying maybe street customer inquiry in the some of the smaller customers.
Thompson Lin: The volume picture for sure doing pushing Q3, so we had swine outpaced too.
Thompson Lin: To catch up the body.
Thompson Lin: Oh is that Q4 for sure Q3.
Thompson Lin: Schedule P type maybe September.
Thompson Lin: Got it. And then regarding your press release at the beginning of OFC about that 800 gigabyte AOC that you jointly developed with Krita, can you just give more color on exactly what they provide and what you guys provide? And where are we as far as, you know, sampling or even, you know, going to production?
Speaker Change: Got it and then you regarding your press release.
Thompson Lin: At the beginning of OFC about that 800 gig Aoc.
Thompson Lin: Jointly develop with our accretive can you just.
Thompson Lin: Give more color exactly what day provide and what you guys provide.
Thompson Lin: And but where where are we as far as.
Thompson Lin: Sampling or even you know.
Thompson Lin: Going to production.
Thompson Lin: So Credo makes the DSP, and we make active optical cable around it, and we haven't commented on any production schedule. Okay.
Thompson Lin: So Korea, who makes a DSP and you make a active optical cables around it.
Thompson Lin: And we haven't commented on any production schedules from it.
Operator: Okay, thank you. This concludes our question and answer session.
Speaker Change: Okay. Thank you.
Thompson Lin: This concludes our question and answer session. I would like to turn the conference back over to Dr. Thomas Lin, please.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Dr. Thomas win.
Speaker Change: Please go ahead Sir.
Thompson Lin: Okay.
Thompson Lin: Again, thank you for joining us today. As always, we want to extend a thank you to our investors, customers, and employees. We will continue to follow as we... As discussed today, we believe the long-term demand driver remains strong for both our data center and CATB business, and we believe we are well positioned to capitalize on this opportunity.
Speaker Change: A bad signal for join us today as always.
Operator: Thank you. The conference is now concluded. Thank you for attending today's presentation.
Operator: We wanted to extend a thank you to our investors customers and employees.
Operator: We will continue as before.
Operator: We.
Operator: Discussed today, we believe the long term demand driver remained strong for both our data center and C. A T V business.
Operator: And we believe we are well positioned to capitalize.
Operator: These opportunities thank you.
Operator: Yeah.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: Okay.
Operator: [music].
Operator: ??? ??? ??? ??? ??? ???