Q2 2025 Applied Optoelectronics Inc Earnings Call
Good afternoon, I will be your conference operator.
At this time, I would like to welcome everyone to Applied Optoelectronics. Second quarter 2025 earnings conference call.
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I will now turn the call over to Lindsay saves investor relations for applied optoelectronics.
Miss saves, you may begin.
Thank you, I'm Lindsay, fever. Investor relations for Applied opto Electronics. I'm pleased to welcome you to aoi's second quarter, 2025, Financial results conference call.
After the market closed today, aoi issued a press release announcing its second quarter 2025 Financial results. We provided its outlook for the third quarter of 2025
The release is also available on the company's website at doink.com.
This call is being recorded and webcast live.
A link to the recording can be found on the investor relations section of the aoi website and will be archived for 1 year.
Joining us on today's call is Dr. Thompson Lynn, aoi's founder, chairman and CEO and Dr. Stephane Murray ai'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 third quarter of 2025
A question and answer session will follow our prepared remarks.
Before we begin, I would like to remind you to review aoi, Safe, Harbor statement.
On today's call management will make, or are looking statements.
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Such 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 beliefs and expectations related to the extension of the reach of its products, new markets, and customer responses to its innovations.
as well as statements regarding the company's outlook, for the third quarter of 2025,
Except as required by law, AOI 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 company's expectations.
More information about other risks that may impact the company's business are set forth in the risk factor section of aoi reports 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 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, is included in the company's earnings press release that is available on AOI's website.
Before moving to the financial results, I'd like to note that the date of aoi's third quarter, 2025 earnings call is currently scheduled for November 6th 2025.
Now, I would like to turn the call over to Dr. Thompson, Lynn aoy. Founder, chairman, and CEO Thompson.
Thank you, Lizzie. And thank you for joining our call today.
Is coming below. Our expectations primary due to the very operating space. The inhibitor stress of our business fundamentals, what the parents with strong year-over-year termite growth and cost money expansion.
the rise in our operating space is a very good job of strategy investment in R&D and sgna expense driven by increased business activity, including new customer qualification efforts,
for 800 G and 1.16.
Transitus.
As you can see, from our Resort, as well as some of our recent announcements.
This expenditures.
already translated into higher level of customer engagement certifications and ultimately
Revenue opportunities.
During the quarter, we saw steady growth in our data center business.
We complete all 4 variant, human of high speed single mode 400g, data center transceiver to a recently doing engage major, hyperscale customers and we are seeing increased sequential demands for other hyperscaler for this products as well.
We continue to make progress on customer qualification on our 800d product.
And we continue to have competence.
In the second half range in 800 sales in our CV business.
We could do with this strong demand in this market, and we announced that we completed testing and certification was shot for plan to deploy. Our 1.8 gigahertz amplifies and call your name. We more management software.
3 million.
which was in line with our guidance range of 100 million to 110 million, we recorded margin of 30.4%
Which was in 9.
Width of all kinds ranges from 29.5% to 31%.
Of 16 cents was paid off range of loss of 9 Cent to a loss of resistance.
Due to larger Z anticipated, operating expense. As I mentioned earlier,
Polo revenue for all data center product of 44.8 million, increase 30%, year-over-year, and 40% sequentially large due to increased demand for all 100 g x and 400 products.
growing 4 hours product, increase 25% year-over-year, for a revenue for our 400 product increase, 43% year-over-year,
For the revenue in our CV settlement of 56 million increased more than 8 times year of years.
in night, with all expectations, our CA TV revenues decrease,
13% sequentially over sir, strong q1.
And as we do tours production to all Motorola style, amplifier, products,
With that, I will turn a call over to 7 to review the details of our Q2 performance and out of focus. We stand.
Thank you, Thompson.
As Thompson mentioned.
While EPS came in below our expectations, primarily, due to elevated operating expenses, the inherent strength of our business, fundamentals was apparent with strong year-over-year. Topline growth and gross margin expansion.
The rise in our operating expenses, is a direct result of strategic investments in R&D and sgna expenses, driven by increased business activity, including new customer qualification efforts, for 800g and 1.6 terabit transceivers.
As you can see from our results as well as some of our recent announcements.
These expenditures are already translating into higher levels of customer engagement.
Satisfaction and ultimately Revenue opportunities.
In Q2, we delivered revenue of 103 million which was in line, with our guidance range of 100 million to 110 million.
We recorded non-gaap gross. Margin of 30.4%, which was in line with our guidance range of 29.5% to 31%.
Our non-gaap loss per share of 16 cents was below. Our guidance range of loss of 9 cents to a loss of 3 cents. This bottom line missed was due to higher than expected operating expenses in the quarter, mainly stemming from additional R&D and sgna expenses in support of new customer opportunities.
R&D expenses were up $2.6 million compared to Q1, due to an increase in project expenses like prototypes and samples, which tend to be directly correlated with near-term revenue generation.
As we've discussed in Prior quarters, as customer demand for new products, emerge or timelines, get pulled in.
R&D expenses necessarily increase to support the product customization and qualification efforts, necessary to realize revenue from these new opportunities.
In addition to R&D sg&a costs. Also increase by 2.5 million, compared to q1.
Which is mostly due to increased shipping costs, as we imported certain products ahead of tariff increases and supported shipping of samples, and prototypes to customers, along with expenses from the ofc trade show in April.
Notably tariffs were not a material factor to our income statement in Q2.
Overall Opex was also unfavorably impacted by the rapid strengthening of the Taiwan dollar in the quarter.
Slightly under 10% of the increase in Opex was due to this currency fluctuation.
Notably, we have recently seen some weakening of the NTD, so we believe the impact on Q3 will be muted.
Our performance continues to be driven by strength in both our data center and catv businesses. Underscoring, the Strategic value of our Diversified revenue streams.
Our focused efforts on the key initiatives. We set in motion over the past couple of years, our translating into tangible business momentum and the long term strength of our business.
Deepening customer engagement.
Strengthening supply chain, diversity and scaling our production capacity.
During the quarter, we saw steady growth in our data center business.
We completed our first volume shipment of high-speed single mode. 400g data center transceivers to a recently re-engaged major. Hyperscale customer.
Marking the first significant shipments to this customer in several years.
this Milestone supports our expectations for increased transceiver sales in the second half of the Year driven by growing demand and ongoing us-based capacity expansion,
We also saw a notable increase in 400g demand from other customers as well.
Also as a reminder the vast majority of our 400 G business is for single mode transceivers, which carry higher ASP and gross margin than is typical of short. Reach transceivers based on multimode Optics.
We continue to make progress on customer qualifications on our 800 G products.
Burning the quarter, 1 of our major hyperscale customers completed, an extensive audit of our Factory in Taiwan and approved this Factory for 800g production.
This was a positive step forward and we're approaching what we believe are the final stages for securing 800g product qualification.
And we believe the factory qualification demonstrates their intent to move forward with our products.
We continue to believe that we will produce meaningful shipments of 800, G products, sometime in the second half of 2025, likely in late Q3 or Q4.
The schedule is constrained by our ability to build and qualify production capacity.
We believe that the demand for 800 G is strong and we expect that when our production is ready, we will see a fairly quick ramp in revenue for 800 G.
While immaterial to our overall Revenue, we did record some revenue for the second quarter in a row for our 800 G products related to deliveries for customer qualification activity.
In our CD business. We continue to see strong demand in Q2.
On our past several earnings calls, we have discussed the continued shipments of our 1.8 GHz amplifiers for one of our major MSO customers.
Our recent press release gives additional details on our 1.8 gigahertz amplifier. Deployments with Charter, who has been a valued long-standing customer of ours.
Early in the quarter. We completed testing and certification with Charter for our 1.8 gigahertz amplifiers and Quantum link remote management software.
We also recently announced plans for the deployment of these products in Charter's Network.
Our products are designed to help them continue to deliver the capacity and speeds that their customers need and expect.
We shipped a significant quantity of 1.8 gigahertz amplifiers to Charter in the quarter and demand continues to be robust.
In addition to Charter, we have 6 other MSO customers who have already begun to order and deploy, our 1.8 gigahertz products, or are in various stages of qualification of these products.
We are very excited to see the broad-based appeal of our amplifiers and Quantum link software across our potential customer base.
Feedback from customers has been that our amplifiers are game-changing in terms of performance ease of setup and control and monitoring capabilities.
And we feel very good about our prospects with these 6 customers in addition to our very strong position with Target.
During the second quarter.
Tariffs had less than a 1 million dollar impact on our income statement.
Well, tariff, developments continue to evolve 1 Thing, Remains certain products, manufactured in the US are not subject to tariffs.
This makes having a cost-effective domestic production of strategic advantage.
As it relates to tariffs.
Also, as I mentioned on our q1 earnings call, while we do utilize some imported components in our transceivers, many key components, like our laser chips are already manufactured in the US.
Importantly in our 800 G and 1.6 terabyte transceiver designs less than 10% of the value of the components used is currently sourced from China.
And we have a pathway as we scale production to further, reduce this China content, ultimately to near zero.
We also are in discussion with several key suppliers about on showing their production to the US to support a robust domestic supply chain.
As part of our strategic efforts during the second quarter, we made good progress on adding production capacity for 800 G and higher transceivers at our existing facility in Texas.
Adding production capacity for 800g and higher transceivers in both our us and Taiwan factories.
We remain on track to achieve the targets that we laid out.
As a reminder, we expect that this will culminate later this year with what we believe will be the largest domestic production capacity, expected to be approximately 40,000 transceivers per month or roughly 40% of our overall capacity for these Advanced 800G optical transceivers.
It's important to note that we will be able to accommodate this expansion in our current Texas facility footprint. This initial U.S.-based production is currently on track to begin production later this summer.
Equipment has begun to arrive for this expansion and bring up is ongoing.
Further by mid 2026, we continue to expect to be able to produce over 200,000 pieces per month with the majority produced in Texas.
Just to reiterate. We currently have 3 manufacturing sites 1 here in Sugarland Texas where our headquarters is.
1 in mingbo China.
And 1 in Taipei, Taiwan.
As you may have heard me say at ofc, we expect to increase total production of 800 G and 1.6 terabit products by 8 and a half times by the end of the year, and we are dedicated to achieving this goal.
During the quarter, we are pleased to have received a 10-year $2 million incentive from the city of Sugarland, Texas office of economic development for the onshoring of our manufacturing as we look to expand our manufacturing footprint in the area.
Having achieved this economic incentive package. This opens the door for us to finalize these negotiations and begin Construction.
We also made continued progress in outfitting our Taiwan facility for increased production as I mentioned earlier.
1 of our potentially largest customers recently qualified this facility for production of 800 G.
After having previously qualified it for 400 G production.
With the factory qualified for both 400g, and 800 G. We currently expect that this customer could become a greater than 10% customer in Q3
As I mentioned on our last earnings call, we signed an agreement to lease an additional building in Taiwan late last year, which we began outfitting in q1, and which we continued to outfit further in Q2, in order to increase production of our 100g 400g, and 800g data center, transceivers and CV products there.
Turning to our second quarter results.
Our total revenue was 103 million which more than doubled year-over-year and increased 3%. Sequentially off a strong q1.
And was in line with our guidance range of 100 million to 110 million.
during the second quarter 54% of Revenue was from catv products, 44% was from data center products with the remaining 2% from ftt, Telecom and other
In our data center business. Q2 Revenue came in at 44.8 million which was up 30% year-over-year and 40% sequentially.
Sales of our 100g products. Increased 25% year-over-year, while sales for our 400 G products, increased 43% year-over-year,
In the second quarter, 70% of data center. Revenue was from 1 100 G products.
20% was from 200g and 400g were products.
And 9% was from 10g and 40G transfer points.
Looking ahead to Q3, we expect a sequential increase in our data center Revenue driven by continued growth and our 100g and 400g products.
With the possibility of layering, we saw an additional increase of $800,000 in revenue late in the quarter.
In our CV business.
CA TV revenue and the second quarter was 56 million.
Which was up more than 8 times year-over-year.
And in line with our expectations was down, 13% sequentially from a record q1.
This significant year-over-year increase is due to the continued ramp in orders for our 1.8 gigahertz amplifier products.
As we explained on our last earnings call, we expected, a modest pullback sequentially in CV Revenue as we retool Productions to our Motorola style amplifier products.
As I mentioned earlier, we are pleased to have completed testing and received certification for both our Motorola and Gainmaker style amplifiers from Charter Communications, and announced their plans to deploy our 1.8 GHz amplifiers and Quantum Link remote management software.
As a reminder, digicomm International continues to play an important role in supporting the end-to-end experience for ongoing installations as we utilize their Logistics services to continue to support our products.
Respect record or new record Revenue in our CV business.
Now, turning to our Telecom segment.
Revenue from our Telecom products of 1.9 million was down 34% year-over-year and 18% sequentially. As we have said, before, we expect Telecom sales, to fluctuate from quarter to quarter,
For the second quarter, our top 10 customers represented, 98% of Revenue up from 94% in Q2 of last year.
we had 2 greater than 10% customers 1 in the catv market, which contributed 54% of total revenue and 1 in the data center Market, which contributed 34% of total
in Q2 we generated non-gaap gross margin of 30.4% which was in line with our guidance range of 29.5% to 31%.
And was up from 22.5% in Q2 2024 and compared to 30.7% in q1 2025.
The year-over-year increase in our gross margin was driven primarily by our favorable product mix including growth in our catb Revenue, as well as growth of our newer generation data center products.
Looking ahead, we continue to expect that our gross margin will improve as we see the impact of manufacturing efficiencies, in our CV production and improving product mix.
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.
Total non-gaap operating expenses in the second quarter, were 42.1 million or 41% of Revenue, which compared to 26 million or 60% of Revenue in Q2 of the prior year.
While operating expenses, increase this quarter, as I discussed at length earlier, the rise is a direct result of strategic investments in R&D and G&A expenses, driven by increased business activity.
Looking ahead. We expect non-gaap operating expenses to be in the range of 41 million to 44 million per quarter.
Non-gaap operating loss in the second quarter was 10.8 million compared to an operating loss of 16.2 million in Q2 of the prior year.
Gap. Net loss for Q2 was 9.1 million or a loss of 16 cents per basic share, compared with The Gap, net loss of 26.1 million or a loss of 66 cents per basic share in Q2 of 2024.
On a non-gaap basis. Net loss for Q2 was 8.8 million or 16 cents per share, which compared to our guidance range of a loss of 4.8 million to a loss of 1.7 million or non-gaap income per share in the range of a loss of 9 cents to a loss of 3 cents.
This compares to a non-gaap, net loss of 10.9 million or 28 cents per basic share in Q2 of the prior year.
The basic shares outstanding used for computing. The earnings per share in Q2 for 56.8 million.
For the full year. We continue to expect achieving positive non-gaap. Net income is possible.
Turning now to the balance sheet, we ended the second quarter with $87.2 million in total cash, cash equivalents, short-term investments, and restricted cash.
this Compares with 66.8 million at the end of the first quarter of 2025,
We ended the quarter with total debt. Excluding convertible debt of 54.3 million compared to 46.1 million at the end of last quarter.
Post quarter. We announced a new revolving loan facility with bok Financial of 35 million which we intend to use to meet some of our working capital needs going forward.
As of June 30th, inventory stood at $138.9 million, compared to $102.3 million at the end of Q1.
The increase in inventory is almost entirely due to purchases of raw materials to be used in the production of our products over the next several months.
During the quarter, we completed our ATM program which raised 98 million net of commissions and fees.
As we have discussed previously, we intend to use these proceeds to continue to make investments in the business, including new equipment, and machinery for production and research and development. Use including the earlier mentioned, production expansion in Texas.
We made a total of 38.8 million in capital investments in the second quarter which was mainly used for manufacturing capacity, expansion for our 400g and 800g Tressa products.
As we prepare for increased 400G, 800G, and 1.6 terabit data center production.
In 2025.
For the year, we continue to expect between 120 million and 150 million in total capex.
While these costs could be impacted from the tariffs, given the evolving nature, it is difficult to predict what type of impact or by how much.
Notably we Source equipment from all over the world, including both from domestic and international locations.
We will continue to do our best to minimize any impacts.
It remains evident that us-based production is a priority for our customers and we are fully committed to building out this capacity.
Moving now to our Q3 Outlook.
We expect Q3 Revenue to be between 115 million and 127 million accounting for a modest. Sequential increase in CV Revenue as well as a sequential increase in data center Revenue.
We expect non-gaap gross margin to be in the range of 29.5% to 31%.
Non-gaap. Net income is expected to be in the range of a loss of 5.9 million to a loss of 2 million dollars and non-gaap earnings per share between the loss of 10 cents per share and a loss of 3 cents per share. Using a weighted average basic share count of approximately 62.3 million shares.
With that, I will turn it back over to the operator for the Q&A session, operator.
We will now begin the question.
to ask a question, you may press star then 1 on your telephone keypad,
If you are using a speaker-phone, please pick up your handset before pressing the keys.
To withdraw your question. Please. Press star. Then 2
At this time, we will pause momentarily to assemble the roster.
And our first question will come from Ryan Kuhn of. Please go ahead.
Great. Uh, thanks for having me on and uh congrats on a nice quarter. Um the uh can we start with cable TV? You know, how are you feeling about customer inventories your cap? I know for a while there Your Capacity. Constrained, are you still going to expand that uh in your conversion over to the Motorola housing? And lastly do you still have plans to enter the uh the node Market in any rough timing on when when that might happen?
Thank you.
Yeah, great questions Ryan. Thanks, uh, thanks for asking. Um, so relative to, let's see, the first question is relative to our capacity. Um, we're not exactly switching to the Motorola that's a little bit of a, um, the statement there, we're, we're producing both Motorola and Game maker in the quarter though. We'd already produced a significant quantity of game maker, so we needed to produce enough inventory of Motorola, uh, to have both products available as our customer's, uh, you know, needs if all. So, we've pretty much, you know, completed the inventory. Build out on those 2. And now we're going to be sort of managing, uh, both of those platforms going forward. So we will continue to have production of both the Motorola and Game Maker, uh, moving forward. Um, as we mentioned in our prepared remarks, a minute ago, we do expect to see some modest sequential increase, um, in the cable TV business. So, you know, we continue to ship, uh, you know, those amplifier products, uh, both platforms, uh, as well as the quantum link software, and some of the accessories that go with it, as we mentioned, in our prepared remarks, um,
With respect to the node. Yeah, we do expect to have the node product, uh, launching in Q4 um and uh, you know, they'll take some time as with the amplifiers to, to go through the qualification process. But I do expect that to be, uh, generating Revenue.
If not, in Q4 certainly by q1.
Great. I think I answered all your questions. If I did, that's great. Uh, then quickly flip in a data center on the 800 plus.
Transceivers, how many uh engagements do you have there with with tear 1's on the 8? 0 0.
uh, I was saying right now, we had many uh,
uh, 3 the P 1 the yeah, because
And do I know the good news? Uh,
I think we start body made a picture either in this quarter or next quarter.
But more important is 1.6. T. I think we expect to start by manufacturer, maybe.
A long June right next year. That's I think that's a really good news for us because, you know, we've been working with several customer.
With engagement.
Uh, not only for sampling, but we are talking about some kind of the.
Uh, volume manufacturer. All right in I would say Q2 for show Q3. So that's why we really need to increase the capacity.
In Taiwan especially United States. Yep, and Ryan, just to emphasize what we said before, um, just to be clear, the the production capacity that we're building for 800 gig will also work for 1.6. It's it's it's, it's a combination of both. So, you know, all the production uh, expansion activity that we're undergoing now can be used for either of those platforms. Yeah, the only difference is that equipment, so 1 more 6 piece, 21 deep Lambda.
But 400 energy, energy can be shared too because they are all 100 people Lambda. So this this is right now, the automation equipment.
Uh, for assembly. Let me share of a 30 minute is 400g. 800 or 160.
Uh, the only test difference is testing between 100g to 280 per reference, that's it.
Gotcha, helpful. Thanks so much, Thompson. Thanks, guys. I appreciate it.
Thank you.
The next question comes from Simon. Leopold of Raymond James. Please go ahead.
Great, thank you for, for taking the question. Um, the first thing I want to ask you about was uh, the level of vertical integration you've achieved within the, the data center business. And and where this is going is I I think at 1 point, you were uh, sourcing buying uh, EML lasers from from others and had uh, been ramping your own production or plans to ramp, just want to get a better understanding of 1. Uh, are you doing emls or silicon photonics and 2 are you insourced or outsourced and what's the the trajectory of insourcing?
Sure. So um, the answer to that first question, you know, are we doing emls or silicon photonics is we're doing both platforms? Um, we do have our own production capacity for emls, um but we also do buy emails externally. We've talked about this in the past as well, but just to reiterate most of our customers require us to have multiple sources, even if 1 of those sources is internal, we're we're usually required to to have a second source as well, which you can imagine, you know, is prudent for risk management purposes. So so not. Everything is in sourced. But, um, you know, we're in sourcing, uh, what we can based on our customer commitments. Um, and again, you know, the Silicon photonics the, uh, the lasers that are used, there are CW lasers. We also produce those, uh, in-house as well. Um, and
And uh, let me see. I think I answered your question there. Did you have another 1, Simon? I forgot the second. So let me a few more points 1. I think we are increasing all the the high power for single phonics.
To maybe the 2.5 million later per month by sometime next year. So right now we're in house capacity is what are the EML, which you have 200 EML uh, sometime soon in next year.
Uh, for sure, the high power laser uh for Sigma X and dixell.
The other new project is the 200g photo detector. Okay. So this is to be all manufactured. 1% in.
Houston, uh, that's all to be manufactured by our partner in Taiwan.
the other is we had 1, new project is uh developed uh special Singapore tonics,
with our our the because,
For sure, we don't do season for tourist, but we involve the design. The testing the assembly. Yeah.
and yeah, they they they where I was trying to go with the question was to try to get a better sense of
Uh, 1 of The Elements to help the gross margin, move towards that long-term of 40. So what I was trying to tease out in this question was the degree that you're Outsourcing today versus a change? Um, towards more vertical integration in the future, as a lever for for gross margin Improvement. So maybe the questions off base and and maybe I'm going down the wrong path, more bluntly, what will help? The gross margin improve.
Yeah, I think the, the, the key is, okay, do I know we're doing 2 inch waiver, but we go to 3 waivers, because we reduced by, I don't know. 50, 60%. Uh, then we go to void, waiver.
By end of next year. This is a major much bigger cost 7 than what you're talking about as in right now. Yes, we only maybe using 30 to 40% our lasers.
but, uh, we were using our our
it's uh,
Are you with depending on customer by customer. So some classes are free for all the AI, some customer prefer 50/50, okay? So that's why it's different. But more important is the cost sound of a laser change from 2 inch to 3 inch to 4 inch.
That's really, really helpful. And then I want to follow up on the, on the cable TV side. Um, you you've talked to us about production capacity on Data Center and I'm just wondering whether or not, we, we need a better understanding of your production capacity if there are constraints on cable TV and the other aspect is just understanding whether I assume you've got visibility into Channel inventory because I I think when customers deploy your your amplifiers, you would know when they're turned up. Uh, I believe that's the case. So I'm just trying to get a sense of how much of your revenue is is perhaps not deployed yet and and somewhere in the channel, just to assess the risk of of selling from a channel build up. Thank you.
Alright, so let me touch on 1 Thing real quick. Its kind of the tail end of your last question uh, regarding gross margin expansion and it relates to the cable TV business as well. Um, there is still significant um, cost
Savings that we expect to achieve over the next few quarters in the cable TV business. Um, that that business is not yet, you know, hitting its gross margin targets, but we have a pathway to get there. The other thing that will help on the cable TV side relative to gross margin is a greater uh impact on software. Um as as part of our uh, Revenue mix software will come in with a significantly higher, you know, gross margin, uh, uh, level. So a couple other things to add on the gross margin line, even though that's sort of the follow on to your previous question. Regarding the manufacturing capacity for cable TV, we're pretty much. I I've said this before. I mean, we're pretty much at the level that we expect to be at our goal with cable TV. Production is really to kind of match. Uh, what we see, all of our customers aggregate demand being and we're more or less there. Um, you know, we had a little bit of a pullback last quarter, uh, you know, as we retool we're expecting to sequential increase this quarter and that's about the same level that we were at, you know, uh uh, the prior quarter. So we're kind of at that level right now.
Um, regarding Channel inventory. Um,
You know, yes, we do have a pretty clear line of sight into what the customer is using. Um, you know, we're very comfortable with the level of inventory that we have um, and and as we discussed in our prepared remarks, it's not just for 1 customer that we have, we have multiple customers now that are buying these products. Um, and you know, we have a number of other customers in the pipeline as we talked about, we have 6 different customers that are either buying or um, you know, in various stages of qualification.
Of the products right now. So, you know, we're pretty comfortable with the inventory that we have in the channel. It is it is substantial but it's in line with our customers demand and Aggregate and Simon. Let me a few more points. So right now next thing we are very comfortable with besides try to wish you had more than 10 customer next years
and right now based on the feedback from this customer as, in the real demand for this customer next year is
Always a minimum to 350 million and because the shipping is uh, by ship. So usually 10 models.
6 7 weeks. That's why we need inventory.
In the U.S., customer demand is like...
3 to 5 days. Okay? So we can say we got to order, then we manufacture in in Taiwan and then ship here, it was easy to take 2, 3 months. It doesn't work for this cable TV industry. Okay,
So that that's the purpose to meet the customer demand, but doing the demand is pretty big. All right, just next year. That's number. We see right now.
300 to 3500 million. A New Year. All right for, for this customer in
I would say, uh, US Canada.
All right.
Great, really. Appreciate you. Taking all the questions.
The next question comes from Michael Genevie of rosenblat. Please go ahead.
Uh, thanks very much. Um, so uh, on the prepared remarks, there was a lot of talk about qualification activity for 40800 G. It sounds like with this customer who
That I think you spoke. You spoke a lot about on the call. Absolutely 100%. Yes. All 3 of those are the Thompson mentioned earlier in in qualification at various stages.
And and those are all. Are those all existing customers or anybody brand new to the company?
Those are all existing customers.
You have I mean, a number of I I want to be sure that we're, you know, not in the characterizing. This.
We also have a number of Engagement with smaller, tier 2 operators as well. So it's not just like those are the only customers that we have. But all 3 of those customers are existing customers depending where you go online. But I know, because based on the investment, they allow the next few. It could become Tier 1 2, you know.
Okay, great. And then, um, on the guide for the cable TV,
sort of the near and all-time high in uh, in 3 Q, is, is does that is that more than 1 customer or is that, you know, still to the, um, the primary customer only
More than 1 customer.
Yeah, great.
And and I just, you know, I I think my, my question might have been answered on the last question, but I just want to verify that. I heard it correctly, was that that 300 to 350 million that, that Thompson was talking about? That's a, that's a cable TV Revenue. Target for for 2026. Is that, is that correct?
Well, this is on each other. This Charter Plus more than 10 other customer.
Right? And and any sense of how much of that is, is, you know, I I imagine the large majority of that amplifiers, uh, but is there, is there any significant amount of nodes in their
there should be some node business as well, but we haven't broken that out for you.
Yeah.
And then, I thought Simon's questions about the gross. Margins were were super helpful. Um, but I guess now I'm just wondering about the timing maybe of, you know, not all the way to 40% but maybe like mid 30s. Uh is there any kind of timing expectation? You'd want to set there or is it like a 1 quarter at a time? Wait and see.
No. I mean, I think, you know, our our guide right now, as you can see, is kind of consistent at around 30%, it's going to take us a couple quarters to see a bigger impact from from, uh, 800g business, and the impact of some of the cost reduction efforts and increase software Revenue that we talked about on the cable TV side. So a few quarters to get, you know, kind of the next uptick in, in gross margin, I would, yeah, I would say, maybe Q2 or Q3 especially Q edgy, the body is picking up a very strongly.
You know, next quarter, every quarter.
Uh, then 1.60, I said we start buying in. I would say, June July next year and cable TV, customer will improve to. So I would say
Yeah, 223 next year.
40%. Okay.
So we hope to be that we could, we could be there by any of this year next year, or early 2027. That's our Target.
Okay, perfect. I'll I'll pass it on. Thanks again.
Thank you.
Once again.
1.
And our next question will come from Dave. Kang of B Riley FBR? Please go ahead.
Uh, yes, uh, thank you, good afternoon. Uh, first question is, uh, regarding um receivables. So they ran up what? Like 50 million over 50 million. Last quarter first quarter and now it's another approximately, 40 million. Just can you go over the Dynamics? Why you know receivables are going up. I know it's I'm assuming that's related to cable TV customer.
I mean, a lot of it is um, receivables are going up because business is going up, right? Um, we more than doubled our Revenue over last year so and actually the receivables are going to go up as well. Um, we talked about the Dynamics of all but because we wanted to get, uh, some of the cable TV products in particular into the country and ready to be. I mean, staged,
Ready for customer acceptance. We have offered, you know, some extended payment terms to certain, you know, certain customers in that channel chain to be able to accommodate that additional amount of Revenue, so that it's here when the customers need it. So, um,
I mean, that's the story. Increased Revenue slightly larger payment terms.
Equals increased receivables.
Got it. And then, uh,
Question on, on gross margin. Can you, um, talk about the difference between transceiver versus a cable TV right now? You're at 30%? Maybe, uh, you know what, what the difference is and then your long-term 40%. What the you know, margins will be for cable TV and and transceivers.
Yeah, so I mean cable TV right now is kind of in the
30% at this point so that the average out to be around 30%. Um, I think we can get. I mean, our we've been pretty consistent that our our expectation for gross margin and cable, is to get above 40%. Um, and so and we think we can achieve that. So you know that's that's where that is heading. Um, with respect to the transceivers. Um again you know, mid to Upper 30% is I think where it can be such that we can blend out to you know around 40% especially the 1.6t the most margin should be more than 40%.
The 800 G should be close to 40%. That's why we we say the cost margin should be 35 to 40% by end of next year.
Got it and my last question is uh, regarding that, that major customer, you know, qualifying your facility. So, what's left? Um, you know for I guess when companies say are 400 gig 800 gig products are qualified. What what else is left I guess? And how long does it typically, you know, take between you know, facility qualification versus you know product qualification
Right. So 400 G is already qualified. We talked about the first volume shipments occurring in this quarter. That that that means, I mean last quarter, the quarter of the reporting on Q2, so that's already happened. Um, 800 gig where there's really not much that has to happen. But as we discussed in our prepared remarks,
We have to have production capacity available for 800 G meaningful, production capacity available for 800 G. Before, you know, there's any need for them to give us uh, the green light to to go ahead and produce. Um, we're pretty close to that right now. You know, we outlined our targets, uh, at ofc and we're sticking to that. Um, we're tracking pretty well to those targets. So really all the really what has to happen is we've got to have enough production capacity, to be able to accept meaningful orders for them to finish the qualification.
so basically and, uh,
uh,
so I think this quarter this customer, they maybe become 10% customer,
And by Q4 I always say, 400g. May become our biggest, uh, Revenue creator for data center, bigger than 100 G. Thank you for
So we can see how how how how fast the 400g is coming out.
but for sure the 800g will become the biggest contribution to, uh, you know, say,
22 next year for Q3 so you can see overall how fast the 11 and 1 is not going down, okay? Don't take me long. I'm saying 1 is you will stay the similar, but for the, pick it up, so strong in Q3 Q4 and Q4, 400 become the biggest even bigger than what I did. But
At the same time by Q2, Q3 next year, Andy, we even bigger than 400, okay? That's my point.
Got it. Thank you.
At this time, we have no further questions and I will turn the call over to Dr. Thompson Lynn for closing remarks
Okay, thank you for joining us today. We want to extend a thank you to all investors, customers, and employees for your continued support.
as we discussed today, we believe the fundamental driver of long-term demand of
our business remain robust and we are unique position to drive. Very friendly opportunity. We look forward to seeing many of you at upcoming investor comments. Thank you.
the conference has now concluded, thank you for attending today's presentation and you may now disconnect