Q3 2024 Applied Optoelectronics Inc Earnings Call
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I'd now like to turn the conference over to Cassidy Patterson Investor Relations for AOE. Mrs. Patterson you may begin.
Thank you and Kathy Patterson Investor Relations for applied Optoelectronics.
To welcome you to Aoi's third quarter 2024 financial results Conference call.
After the market close today <unk> issued a press release announcing its third quarter 2024 financial results and provided its outlook for the fourth quarter of 2024.
The release is also available on the Companys website at Ao, Inc. Dot com.
This call is being recorded and webcast live a link to the recording can be found on the Investor Relations section of the website and will be archived for one year.
Joining us on today's call is Dr. Thompson, Lin Aoi's, founder Chairman and CEO and Dr. Stefan Murry, Aoi's, Chief Financial Officer, and Chief Strategy Officer.
Thompson will give an overview of Aoi's Q2 results and Stefan will provide financial details and the outlook for the fourth quarter of 2020 for a question and answer session will follow our prepared remarks.
Speaker Change: 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.
Speaker Change: Could cause the company's actual results levels of activity performance or achievement of the company or its industry to differ materially from those expressed or implied in such forward looking statements.
Speaker Change: In some cases, you can identify forward looking statements by terminology such as believes forecast anticipates estimates suggest intends predicts expects plans may should could.
Speaker Change: Good.
Speaker Change: <unk> will potentially or things or the negative of those terms or similar expressions that convey uncertainty of future events or outcomes.
Speaker Change: 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.
Speaker Change: <unk> looking statements are only predictions and involve known and unknown risks and uncertainties many of which are beyond the company's control.
Speaker Change: We're looking statements also include statements regarding managements beliefs and expectations related to the expansion of the reach of its products into new markets and customer responses to its innovations as well as statements regarding the company's outlook for the fourth quarter of 2024.
Speaker Change: Except as required by law <unk> assumes no obligation to update these forward looking statements for any reason after the date of this earnings call to conform these statements to actual results or to changes in the companys expectations.
Speaker Change: More information about other risks that may impact the companys businesses are set forth in the risk factors section of Aoi's report on file with the SEC, including the company's annual report on Form 10-K, and quarterly reports on Form 10-Q.
Also all financial results and other financial measures discussed today are on a non-GAAP basis, unless specifically noted otherwise non-GAAP financial measures are not intended to be considered in isolation or as it substitute for results prepared in accordance with GAAP a.
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 company's earnings press release that is available on our website.
Speaker Change: Before moving to the financial results I'd like to note that management is attending the Needham virtual security networking and Communications conference on November 19th.
The Roth 13th annual Technology event on November 20th in New York.
Speaker Change: The Raymond James TMT and consumer conference on December 10th in New York.
Speaker Change: And north <unk> virtual growth conference on December 12.
Speaker Change: We'd like to note that the date of Aoi's fourth quarter and full year 2024 earnings call is currently scheduled for February 26 2025.
Speaker Change: Now I'd like to turn the call over to Dr. Thompson, Lin Aoi's founder Chairman and CEO Thompson.
Dr. Thompson: Thank you.
Speaker Change: Joining our call today.
Speaker Change: So it will move.
Speaker Change: Right.
Speaker Change: Duffy capacity to meet all customer.
Speaker Change: We recorded strong double digit growth in our data center business driven by new wins.
Speaker Change: Our <unk> products.
Speaker Change: While CATV business more than tripled from the second quarter as our customers.
Speaker Change: Transition to new architectures.
Speaker Change: During the third quarter, we delivered revenue of $65 2 million.
Speaker Change: Which was at the high end of our guidance range of $50 million.
Speaker Change: $256 million.
Speaker Change: We recorded non-GAAP gross margin of 25%.
Speaker Change: In line with our guidance range of 24% 26%.
All non-GAAP loss per shares of <unk>.
<unk> was a larger than expected.
Speaker Change: Our current range of a loss of sporting soon.
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Speaker Change: It's a great R&D spending due.
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Speaker Change: The anticipated new customer queries.
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Speaker Change: So multiple injuries.
Speaker Change: Tara Transceivers.
Speaker Change: Total revenue for data center, Protos or <unk>, 44, 9 million was down 16% year over years, but 90% sequentially.
Speaker Change: Globally for all loans decreased 24% year over years.
Speaker Change: Will all fall on deeper dose increased 140%.
Speaker Change: Period.
Speaker Change: We are pleased to report that we have begun to receive initial orders before energy product.
Speaker Change: Another large hyper scale customers and we are very excited about this new customer interaction we've already become human.
Speaker Change: All of these.
Speaker Change: Small initial orders.
Speaker Change: Additional orders from this customer in this quarter and into 2025 full force.
Speaker Change: Energy and it has as you per dose.
Speaker Change: Total revenue CATV segment was 24 9 million.
Speaker Change: Which was not.
One 4% year over year and loss to us simply because it sequentially largely fueled by shipment output the gigahertz and provides for a major missile customers as well.
Speaker Change: We have discussed.
Speaker Change: Our Pryor.
Speaker Change: Earnings calls.
Speaker Change: Missile customers in the process of transition.
Speaker Change: Doses.
Speaker Change: Two doses for June.
Speaker Change: Sure.
Speaker Change: <unk> sales in Q3.
Speaker Change: With our expectations.
And we continue to expect additional growth in missile upgrades increase.
Speaker Change: Intensity next year.
Was this.
Speaker Change: I'll turn the call over to Stefan to review the details of our Q3 performance and our Q4 David.
Dr. Thompson: Thank you Thompson.
Stefan: As Thompson mentioned, our revenue and non-GAAP gross margin for the third quarter were in line with our expectations.
Stefan: Our non-GAAP loss per share was unfavorable compared to our expectations.
Stefan: Due to higher than expected operating expenses as we accelerated R&D spending due to greater than anticipated new customer requests, especially in our data center business, where we saw notable interest in our one six terabyte transceivers after our strong showing at the European Conference on Communications in Frankfurt in September.
Stefan: During the third quarter, we continued to execute on many of the initiatives that we laid out earlier this year.
Stefan: We discussed on our Q2 call how we have begun to receive orders for the 400 gig products from another large hyperscale customer.
Stefan: This quarter, we continued to receive new orders from this customer and we remain very excited about this opportunity.
Stefan: We have already begun shipments on these relatively small initial orders and we expect additional orders from this customer in the fourth quarter and into 2025 for both 400 G 800 G products.
We also discussed on our Q2 call how we have begun to receive forecasted orders for the <unk> based 400 G active optical cables for which Microsoft provided development funding last year.
Stefan: We have continued to see additional orders and shipments for ALC products and new forecasts indicate stronger growth in 2025.
Lastly, in our CATV business in line with our expectations, we saw vast improvement in our CATV results in Q3.
Stefan: Our NSO customers need to place these orders in order to stock their distribution pipelines ahead of their more aggressive upgrade plans in 2025.
Stefan: Turning to our third quarter results. Our total revenue was $65 2 million, which was up 4% year over year and up 51% sequentially and was at the high end of our guidance range of $60 million to $66 million.
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Stefan: During the third quarter, 63% of revenue was from our data center products.
32% from CATV products with the remaining 5% from <unk> telecom and other.
Stefan: And our data center business Q3 revenue came in at $40 9 million.
Stefan: Which decreased 16% year over year and increased 19% sequentially.
Stefan: The decline in revenue from Q3, 2023 is largely due to price reductions with certain customers that took effect earlier this year, along with nonrecurring engineering revenue from Microsoft last year, which did not recur this year.
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Stefan: The sequential increase is due to new customer wins in the past several quarters, along with the continued growth of 400 <unk> with existing customers.
Stefan: In the third quarter, 67% of datacenter revenue was from 100 G products, 27% from 204 hundred G transceiver products and 4% was from 40 G transceiver products.
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: This included a development program to make next generation lasers for its data centers and for the development of its 400, <unk> and next generation active optical cables.
Stefan: While not guaranteed we continue to believe that the revenue opportunity for our 400, <unk> and 800 gig products could be greater and longer duration than the revenue contribution we saw from this customer during the peak of the <unk> product cycle.
Which suggests that revenue from these products may exceed $300 million over the several years that these buildups.
Stefan: In Q3, we are pleased to report that we saw a slight increase in business as we received additional orders and began shipments for EOC products.
Stefan: Looking ahead, we continue to believe that this business will ramp further in Q4 and into 2025.
Stefan: As our data center customers work on building out their next generation AI focused data center architectures, we remain very active and our 800 gig qualification efforts with several hyperscale customers.
Stefan: We continue to believe that we will begin to receive orders for 800 gig products in Q4 of this year with a ramp expected thereafter.
Stefan: And our CATV business revenue in the third quarter was $20 9 million, which was up 104% year over year and up 260% sequentially.
Stefan: As I mentioned before the significant increase is due to the ramp in orders for our one eight gigahertz amplifier products.
Stefan: We continue to believe our CATV revenue will ramp further in Q4 and into 2025.
Stefan: I'd like to take a moment to provide some additional color on the upcoming DOCSIS four Plano transition.
Stefan: As msos look to expand upstream bandwidth by increasing the frequency content available for upstream transmission, they need to change and replace their current amplifiers and nodes.
Stefan: By using DOCSIS, four <unk>, which extends frequencies up to one eight gigahertz msos are able to replace their current hardware without cutting into their downstream bandwidth.
Stefan: As I mentioned before while some msos have stated that they do not plan to deploy DOCSIS four <unk> upgrades until 2025 or later.
Stefan: We have begun delivering initial orders so that they are capable of deployments when they are ready to make the transition.
Stefan: With this in mind, however, the timing of deployment by our MSR customers of our amplifiers does not depend on the timing of DOCSIS four <unk>.
Stefan: In fact, we believe at least one major NSO is committed to first strategy whereby amplifiers capable of DOCSIS. Four <unk> are deployed ahead of the nodes and <unk> that will be needed to fully enabled DOCSIS four <unk> in the future.
By deploying new apps and NSO can enable higher bandwidth splits in the upstream direction, which provides much needed additional bandwidth.
Stefan: In addition, msos could take advantage of the <unk> revolutionary quantum link technology to gain insight into their network operation and we believe improve their customers' experience, while reducing maintenance spend.
Stefan: All while waiting for DOCSIS, four <unk> nodes in RPT hardware to be available.
Stefan: Now turning to our telecom segment.
Stefan: Revenue from our telecom products of $2 8 million was down 9% year over year and up 18% sequentially.
Stefan: Looking ahead, we continue to expect telecom sales to fluctuate from quarter to quarter.
Stefan: For the third quarter, our top 10 customers represented 96% of revenue in line with Q3 of last year.
Stefan: We had three greater than 10% customers two in the data center market, which contributed 41% and 16% of total revenue, respectively, and one in the CATV market, which contributed 40, 34% of total revenue.
Stefan: In addition to these three customers we have had meaningful conversations with an additional hyperscale customer who has begun to re engage with us in preparation for future data center upgrades.
Stefan: We believe we are in a position to ramp production to meet their needs and have already received some small initial orders with additional orders expected in Q4 and into 2025.
In Q3, we generated non-GAAP gross margin of 25%, which was within our guidance range of 24% to 26% and was up from 22, 5% in Q2 of 2024 and down from 32, 5% in Q3 of 2023.
Stefan: Looking ahead, we expect gross margins to improve as we see the impact of manufacturing efficiencies in our CATV production and improving product mix.
Stefan: We remain committed to our long term goal of returning our non-GAAP gross margin to around 40% and continue to believe that this goal is achievable.
Stefan: Total non-GAAP operating expenses in the third quarter were $27 9 million or 42, 9% of revenue, which compared to $21 4 million or 34, 2% of revenue in Q3 of the prior year, primarily due to accelerated R&D spending due to greater than anticipated new customer <unk>.
Stefan: Quest, especially in our data center business, where we saw notable interest in our one six terabits transceivers.
Stefan: Also increasing year over year were R&D expenses related to our one eight gigahertz CATV amplifier products and additional expenses related to expedited shipping cost for the production ramp up of these products and nonrecurring tradeshow expenses that were incurred in the third quarter, which we do not expect to incur in the fourth quarter.
Stefan: Looking ahead, we expect non-GAAP operating expenses to tick up slightly next quarter and range from 28 million to $30 million due to higher R&D spend largely generated by additional new customer opportunities we are pursuing.
Stefan: non-GAAP operating loss in the third quarter was $11 7 million compared to an operating loss of $1 million in Q3 of the prior year.
Stefan: GAAP net loss for Q3 was $17 8 million or loss of <unk> 42 per basic share.
Stefan: Compared with GAAP net loss of $9 million or a loss of 27 per basic share in Q3 of 2023.
Stefan: On a non-GAAP basis net loss for Q3 was $8 8 million or 21 per share, which was unfavorable to our guidance range of a loss of $5 9 million to $8 6 million or loss per share in the range of 14 to <unk> 20 per basic share.
Stefan: This compares to a non-GAAP net loss of $1 7 million or a loss of <unk> <unk> per basic share in Q3 of the prior year.
Stefan: The fully diluted shares outstanding used for computing the.
Stefan: Earnings per share in Q3 were $42 3 million.
Stefan: Turning now to the balance sheet.
We ended the third quarter with 41 $4 million in total cash cash equivalents short term investments and restricted cash. This compares with $16 1 million at the end of the second quarter.
Stefan: We ended the quarter with total debt, excluding convertible debt of $39 4 million compared to $27 5 million at the end of last quarter.
Stefan: As of September 30, we had $64 $4 million in inventory, which compared to $54 3 million at the end of Q2.
Stefan: The increase in inventory is primarily for raw materials to be used for anticipated Q4 production.
Stefan: We made a total of 11 4 million in capital investments in the third quarter, which was mainly used for production and R&D equipment as well as building improvements to accommodate new production capacity.
Stefan: Looking ahead, we expect to make sizable capex investments over the next several quarters as we prepare for increased 400 G 800, G and one six terabyte data center product production in 2025.
Stefan: We expect to finance these investments through a combination of cash on hand cash generated from operations and some equity sales, including possible strategic investments that we are discussing.
Stefan: We believe that we are poised for a sustained period of growth in both our datacenter and CA TV businesses and that these capital commitments will be transformational to our company as we execute on these opportunities.
Stefan: As we disclosed in August we increased the size of our existing at the market offering with a total of $68 million.
Stefan: Authorized.
Stefan: To date, we have raised $59 $9 million net of commissions and fees under this new program.
Stefan: Including $38 6 million raised in Q3.
Stefan: Moving now to our Q4 outlook.
Stefan: We expect Q4 revenue to be between $94 million and $104 million and non-GAAP gross margin to be in the range of 27, 5% to 29, 5%.
Stefan: We expect operating expenses to remain elevated in the near term in the range of $28 million to $30 million, resulting in non-GAAP net income expected to be in the range of a loss of $1 9 million to income of $1 7 million and non-GAAP earnings per share between a loss of <unk> <unk> per share and earnings of <unk> <unk> per share.
Stefan: Using a weighted average basic share count of approximately 46 million shares.
Stefan: Looking ahead, we remain optimistic about the long term demand drivers for both our datacenter and CATV businesses.
Stefan: We believe that we're well positioned to benefit from the tailwind driven by the adoption of generative AI, which we continue to believe will require our datacenter customers to deploy more infrastructure, including more optical interconnects.
Stefan: Due to our U S based production ability and our automated manufacturing capabilities and experience.
Believe we are uniquely positioned to help our customers meet the significant demands.
Stefan: Also we believe that we are very well positioned with the right team product portfolio and strategy in place as our CATV customers transition to next generation architectures and implement new technologies to improve their network performance.
With that I will turn it back over to the operator for the Q&A session operator.
Sure.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: Youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Speaker Change: At this time, we'll pause momentarily to assemble our roster.
Speaker Change: Yeah.
Speaker Change: And our first question comes from Michael Genovese from Rosenblatt. Please go ahead.
Michael Genovese: Great Thanks, and congratulations on.
Michael Genovese: The revenues and the outlook.
Speaker Change: I guess my first question is is this one 400 G right I mean, it seems like maybe you have seen this coming for a little while that there's higher 400 G demand now from multiple customers. Just what do you think is driving that and do you think that thats sustainable or will it start to roll off at a higher highs.
Michael Genovese: <unk>.
Michael Genovese: No.
Michael Genovese: It's being driven by demand from our datacenter customers for.
Michael Genovese: Interconnections, primarily for their AI networks.
Michael Genovese: And I would not anticipate that that demand is going to decrease in the near term or even medium term.
400 gig is that they are using for their next generation architectures for these applications and we expect the demand to continue and perhaps even grow from here as I mentioned, we have at least one new customer that's only beginning to.
Purchase 400 gig from us and I think there's significant room to ramp with that customer as well as potentially an overall growth in the market is more AI gets deployed.
Speaker Change: Okay great.
Speaker Change: I guess from.
Speaker Change: 800 <unk>.
Speaker Change: Can you comment.
Speaker Change: What kind of.
Speaker Change: Transceivers you expect to be selling within this discussion of <unk> and silicon Photonics, where you participate in.
Speaker Change: <unk> are one or two more than the other.
Our primary focus is.
Speaker Change: Has it been historical for us mainly on the edge emitting technologies, so that would be the electro absorption modulated lasers and also on the Silicon Photonics based solutions. Both of those are the ones that we're pursuing most aggressively.
Speaker Change: We do have some interest in digital based solutions and we do have our own capability for manufacturing VIX also.
Speaker Change: There'll probably be some sales, but we're expecting the bulk of the demand that we're going to satisfy to be on the.
Speaker Change: Longer distance transmitters.
Speaker Change: Great.
And then based on all your comments I mean, it seems like.
Speaker Change: I guess, maybe if we include oracle's number five but if we're really talking about the four kind of household name is on Hyperscale.
Speaker Change: It sounded like three our customers now on the other one youre talking to or is that not fair.
Speaker Change: Sure.
Speaker Change: Again without talking about different names I think.
Speaker Change: We do think we have three out of the top five.
Speaker Change: Data center customers yet.
Speaker Change: Okay.
Speaker Change: And then finally for me just kind of help us understand I mean, the cable good and I guess that will get bigger and then.
Speaker Change: 881, 6% is that does that drive higher margins like what's what's the outlook for margins over time.
Speaker Change: You give there would be helpful and then I'll pass it on thank you.
Speaker Change: Sure. So cable TV margins right now are higher than the data center margins, we do expect cable TV margins to improve as we noted in our prepared remarks earlier.
The economies of scale efficiencies and things that we need to wring out of the manufacturing process, there and we expect that to happen over the next couple of quarters. So there is some room for improvement on the cable TV margins.
With respect to data center.
Speaker Change: Yes, the transition to 800, <unk> and one six terabits should be accretive to gross margin as well. So that's again as we said on our prepared remarks.
Speaker Change: We think a 40% margin is a good long term target for us to have and growth in both energy and one six terabits of cable is really what it's going to take to get there.
Speaker Change: Thanks, so much.
Speaker Change: Right.
Speaker Change: The next question comes from Tim <unk> from Northland Capital markets. Please go ahead.
Speaker Change: Hey, good afternoon, sorry about that.
Speaker Change: Just wanted to talk about the guidance here.
Speaker Change: We're obviously looking for a pretty sharp uptick here in the Q4 I think on the last call you said.
Speaker Change: We expect cable to be a primary driver in Q3, which it looks like there was.
Speaker Change: Maybe shifting back over to data center in Q4 as the primary growth driver. So the question is.
Speaker Change: Does that remain the case.
Speaker Change: That is.
Maybe try and comment on some details on what's driving that it sounds like.
Speaker Change: Susan Microsoft should be ramping up also your new 400 gig transceiver customer.
Speaker Change: You mentioned you also expect some 800 gig revenue if you look at that.
Speaker Change: I don't know if its $30 million or so sequential increase in data center.
Speaker Change: Give a sense of what are the different factors and our customers driving that.
Speaker Change: Yes, so overall our expectations regarding Q4 are pretty much what we communicated last time, we do see continued growth in cable, but we also see.
Speaker Change: Loan growth in the data center, largely driven by 400 G. At this point as has been the case for a while for us.
Speaker Change: We do actually see some continuing strength in one energy as well.
Speaker Change: Interestingly enough and then.
Speaker Change: The 800, <unk> will be a factor for us a little bit in Q4, but it won't be.
More likely would be materially Q4, but it should start to ramp in Q1. So that's kind of how things break out and then of course, the cable again as I said earlier the margins on cable should start to improve.
Speaker Change: In Q4, and Q1 as well.
Okay, Great just wanted to make sure I understand your customer commentary.
Speaker Change: Snuck, a new hyperscale are in there and the comment so you've had.
Speaker Change: Another 10% customer outside of Microsoft. These last couple of quarters that I think you've described as a hyperscale or in the past.
Speaker Change: I gather given your commentary about fairly early days.
Speaker Change: The new 400 gig customer that.
You haven't seen those sorts of volumes.
Speaker Change: Yes.
Speaker Change: No.
Would you expect to in Q4, and Mike might that customer rise to the 10% level and risk.
Speaker Change: Outside of those three are we missed or anybody else in terms of.
Advancing diligence from a from a hyperscale perspective.
Speaker Change: So.
Speaker Change: The 10% customer that we have this quarter on the data centers the same 10% customer that we had.
Speaker Change: Last quarter that helps.
Speaker Change: And that would imply that this new hyperscale customer, which is really a re engaging customer from.
It's not a brand new customer to us. It's one that was formerly a pretty sizable customer for us.
Speaker Change: We're sort of re engaging with them.
Speaker Change: I think.
Speaker Change: The likely grow in Q4.
Speaker Change: It's unclear that theyre going to grow.
Speaker Change: Not expecting it to be a 10% customer in Q4, especially given the revenue growth that we're seeing that the bar to get to 10% certainly becomes higher but we definitely think that they can ramp to be a 10% customer.
Speaker Change: And the next few quarters.
Okay, Great and maybe last one for me.
Speaker Change: Kind of estimated well let me go to another one you mentioned elevated capex and capacity expansion.
Speaker Change: From a revenue capacity perspective, where are you in the U S right now and where will these capacity investments take you over the next few quarters.
Speaker Change: We haven't disclosed a specific revenue number coming out of the U S. As you can imagine are.
Speaker Change: Our manufacturing operations are pretty integrated across multiple different locations in other words, we're doing different operations in different places.
Speaker Change: But we do expect to continue to invest primarily in the U S and Taiwan.
Manufacturing capacity over the next few quarters as we noted in our prepared remarks, and that'll that'll allow us to continue to execute on the revenue growth trajectory that we outlined.
Great. Thanks, Congrats on the.
Speaker Change: The results and the outlook for specialty.
Speaker Change: I appreciate it thank you.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: Our next question comes from Geoff Cook from Raymond James. Please go ahead.
Speaker Change: Yes, Thanks, guys, Jeff in for Simon.
Speaker Change: Sounds like maybe maybe I misheard, but it sounded like maybe in the Microsoft supply revenue. This quarter was maybe slightly weaker than what we were thinking it was up Sally was up but maybe it was only like the.
Speaker Change: Less than 5 million cell is that fair and do you think that.
Speaker Change: If that is the case are you still confident in reaching trying to reach.
Speaker Change: I don't know that link low $20 million run rate next quarter for that business.
Speaker Change: Okay.
Speaker Change: So yes, it was below $5 million in this quarter.
Speaker Change: With respect to next quarter.
Speaker Change: It's hard to say, it's ramping it's ramping a little slower than we expected that is a fair statement.
Speaker Change: But we do we are still committed to reaching that $25 million per quarter level, it's just unclear, which quarter thats going to occur and at this point.
Speaker Change: So it's more about timing, while we are seeing is a lot of increase in demand as I mentioned earlier for the 400 gig transceiver solutions.
Speaker Change: And again surprisingly some some strength in the 100 G as well.
Speaker Change: Yes, obviously.
Speaker Change: Can I ask you about that too, especially the 400 gig.
I guess, there's the thinking is that everybody wants to 800 gig for the for the backend.
Speaker Change: So 400 gig I'm surprised it's not more front end.
And then strength in 100 gig it sounds like maybe maybe there is a catch up and I guess the legacy.
Speaker Change: Maybe the legacy data center investment.
Speaker Change: Are you guys seeing that at all.
Yes, I think on both accounts, yes, I mean.
Speaker Change: It's easy for people to focus on one technology I think and say okay. This is where the growth is going to be but the reality is.
Speaker Change: Many of our Hyperscale customers are growing their infrastructure.
Speaker Change: In multiple different ways right. It's not just one thing that theyre doing theyre, drawing their existing infrastructure and theyre growing their new AI focused infrastructure at the same time so.
Speaker Change: We're excited about all of those opportunities out.
Speaker Change: The reason why I highlighted the 100 gig is really that.
Speaker Change: Want to draw People's attention to the fact that Theres still some significant business opportunities in growth.
Speaker Change: Even outside the AI, while we continue to focus our efforts in most of the industry on the AG growth.
Speaker Change: Got it got it yeah, and then maybe just to help on that a little bit of help on the gross margin.
Speaker Change: First next quarter like.
Speaker Change: Is the you said that Kathy visa running above average at this point.
Speaker Change: Is that whereas we go today.
Speaker Change: Should that be up again, or where do you think the magnitude of the improvement where is the biggest part.
Speaker Change: Yes. Thanks.
Speaker Change: Jeff I'm, sorry, you broke up a little bit there I understood Youre asking about gross margins that we're driving what's driving the gross margin growth in Q4.
Speaker Change: I'll go ahead, and then hope that was the question that you asked.
Scott: Yes, Scott.
Scott: CATV as I mentioned earlier.
Scott: We just started ramping this one eight gig product line.
See going from almost zero to 221, almost $21 million in the quarter for those products I mean, that's a sizable ramp and as you can imagine when we.
In the initial phases of that ramp not everything is the efficiency in the manufacturing is not where we want it to be initially.
Scott: And so as we go forward in Q4 and in later quarters. We do expect there to be continued expansion in the gross margin in CATV. In addition on the datacenter side.
Scott: Again.
Scott: Being more contribution from.
Scott: From from 400, G and especially some initial contribution from 800 G, which we expect to ramp next year.
Scott: Improved gross margins in that segment as well.
Speaker Change: Got it great. Thank you.
Speaker Change: Alright, thank you.
At this time, we have no further questions and I will turn the call over to Dr. Thompson Lin for closing remarks.
Speaker Change: Okay.
Dr. Thompson: Joining us today as always we want to extend a thank you to our investors customers and employees.
Dr. Thompson: Your continuous support.
Dr. Thompson: As we've discussed today, we believe the long term demand driver, we Miss Joel for both our data center in CATV business and we believe we are well positioned to capitalize on our list of <unk>. Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.