Q3 2025 Applied Optoelectronics Inc Earnings Call

Speaker #3: Good afternoon . I will be your conference operator today . At this time , I would like to welcome everyone to a optoelectronics third quarter 2020 earnings conference call .

Speaker #3: All lines have been placed on mute to prevent any background noise . After the speakers remarks , there will be a question and answer session .

Speaker #3: To ask a question , you may press star . Then one on your telephone keypad . To withdraw your question , please press star .

Speaker #3: Then two . Please note this call is being recorded . I will now turn the call over to Lindsay Savarese Investor relations for APPLIED OPTOELECTRONICS, INC. .

Speaker #3: Miss Savarese , you may begin .

Speaker #4: Thank you . I'm Lindsay Savarese Investor Relations for APPLIED OPTOELECTRONICS, INC. . I'm pleased to welcome you to our third quarter 2025 financial results conference call .

Speaker #4: After the market closed today . A.we issued a press release announcing its third quarter 2025 financial results and provided its outlook for the fourth quarter of 2025 .

Speaker #4: The release is also available on the company's website at inc.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 .

Speaker #4: Joining us on today's call is Doctor Thompson Lin , founder , chairman and CEO and Doctor Stefan Murry Chief Financial Officer and Chief Strategy officer .

Speaker #4: Thompson will give an overview of EHS Q3 results , and Stefan will provide financial details and the outlook for the fourth quarter of 2025 .

Speaker #4: A question and answer session will follow our prepared remarks . Before we begin , I would like to remind you to review our safe Harbor statement on today's call .

Speaker #4: 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 .

Speaker #4: 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 .

Speaker #4: In some cases , you can identify forward looking statements by terminology such as believes , forecasts , anticipate , estimates , suggest , intends , predicts , expects , plans , may , should , could , would , will , potential , or thinks , or by the negative of those terms or other similar expressions that convey uncertainty of future events or outcomes .

Speaker #4: 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 .

Speaker #4: 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 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 2025 .

Speaker #4: Except as required by law , Aioi assumes no obligation to update these forward looking statements for any reason after the date of this earnings call to conform .

Speaker #4: 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 Factors section of Aoa's reports on file with the SEC , including the company's annual Report on Form 10-K and quarterly reports on form 10-q .

Speaker #4: 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.

Speaker #4: 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 the company's earnings press release .

Speaker #4: That is available on our website . Before moving to the financial results , I'd like to note that the date of our fourth quarter and full year 2025 earnings call is currently scheduled for February 26th , 2026 .

Speaker #4: Now , I would like to turn the call over to Doctor Thompson Lin , founder , chairman and CEO , Thompson .

Speaker #5: Thank you . Lindsay , and thank you for joining our call today . We successfully delivered revenue , gross margin and loss per share in line with our expectations .

Speaker #5: In fact , we recorded the highest quarterly revenue in our history , driven by strong demand in the CATV market , which also achieved .

Speaker #5: Revenue in the third quarter . The strength we saw in our CATV business more than offset our data center revenue , which came in .

Speaker #5: A touch with expectations largely due to the timing of certain shipments at quarter end in peculiar , where approximately $6.6 million in shipments of 400 transceivers to a large hyperscale customer , which was not able to return into revenue during the quarter due to various shipping and receiving delays , and which we have booked in Q4 .

Speaker #5: Despite this delay , all financial withdrawal clearly highlights the advantage of having diversified revenue streams as a result of total revenue on a combined basis , increased 15% sequentially and 82% year over year .

Speaker #5: Normally , we continue to make progress on customer qualification on our products . As we mentioned last quarter , we believe we are near the final stage of qualification with several customers .

Speaker #5: We expect qualification in the near term based on conversations that we are having with our customers , and we continue to believe that we will produce meaningful shipments of AIG products in the fourth quarter .

Speaker #5: During the third quarter , we delivered revenue of $118.6 million , which was in line with our guidance range of $150 million to $127 million , we recorded non-GAAP gross margin of 31% , which was in line with our guidance range of 29.5% to 31% , and our non-GAAP loss per share of $0.09 was also in line with our guidance range of loss of $0.10 to a loss of $0.03 .

Speaker #5: Total revenue for our data center products of $43.9 million increased 7% year over year , but was down 2% sequentially , driven for our products , increased 32% year over year , while revenue for our products was down 65% year over year , or $7.1 million , primarily due to the timing of certain shipments .

Speaker #5: A quarter , and then I just mentioned . In Q3 , in our cab segment was a record $70.6 million , which more than tripled year over year and was up 26% sequentially from a strong Q2 .

Speaker #5: This increase is due to the continued rain in orders for our 1.8GHz amplified products for both existing as well as new customers . With that , I will turn the call over to Stephen to review the details of our Q3 performance and outlook for Q4 .

Speaker #5: Stephen . Thank you . Thompson .

Speaker #6: As Thompson mentioned , we successfully delivered revenue , gross margin and non-GAAP loss per share in line with our expectations . In fact , we recorded the highest quarterly revenue in our history , driven by strong demand in the CATV market , which also achieved record revenue in the third quarter .

Speaker #6: The strength that we saw in our CATV business more than offset our data center revenue , which came in a touch below our expectations , largely due to the timing of certain shipments at quarter end .

Speaker #6: In particular , we had approximately $6.6 million in shipments of 400 GE transceivers to a large hyperscale customer , which was not able to be turned into revenue during the quarter due to various shipping and receiving delays , and which we have booked in Q4 .

Speaker #6: Despite this delay , our financial results clearly highlight the advantage of having diversified revenue streams as a result , our total revenue on a combined basis increased 15% sequentially and 82% year over year in Q3 , we delivered revenue of $118.6 million , which was in line with our guidance range of $115 million to $127 million .

Speaker #6: We recorded non-GAAP gross margin of 31% , which was in line with our guidance range of 29.5% to 31% . Our non-GAAP loss per share of $0.09 was also in line with our guidance range of a loss of $0.10 to a loss of $0.03 .

Speaker #6: We continued to make progress on customer qualifications on our 800 G products . As we mentioned last quarter , we believe we are near the final stages of qualification with several customers .

Speaker #6: We expect qualification in the near term based on conversations that we are having with our customers , and we continue to believe that we will produce meaningful shipments of 800 G products in the fourth quarter .

Speaker #6: For the third quarter in a row, we did record immaterial revenue for our 800G products related to deliveries for customer qualification activity.

Speaker #6: As we have mentioned before , our schedule on ramping up our production is largely constrained by our ability to build and qualify production capacity on that front , we are pleased to report that we made good progress on getting our production ready during the third quarter , and remain on track to achieve the targets that we laid out at OFC .

Speaker #6: As a reminder , we expect this will culminate later this year with what we believe will be the largest domestic production capacity for 800 G , or 1.6 Terabit transceivers .

Speaker #6: Approximately 35,000 transceivers per month , or roughly 35% of our overall capacity for these advanced optical transceivers . Notably , we will be able to accommodate this expansion in our current Texas facility footprint .

Speaker #6: 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 .

Speaker #6: As I just mentioned , we made solid headway towards these targets for next year . As you may have seen , we announced last week that we signed an agreement to lease an additional building in Sugar Land , Texas .

Speaker #6: We will begin construction on this new facility later this year . And are confident in our ability to scale our production towards the middle to end of next year to achieve our 2026 targets .

Speaker #6: It's also important to note that our has had an in-house laser manufacturing capability for many years , and we have been expanding and improving this capability recently .

Speaker #6: While we have heard talks about laser shortages , having a laser production capability in house gives us an advantage and to date , we have not experienced a shortage of lasers .

Speaker #6: That has affected our ability to deliver products . According to our customers requests , we've spent years developing our automated manufacturing capabilities , which gives us an advantage in the ability to do manufacturing virtually anywhere in the world that we would like to and makes building out another facility in a cost effective way in Texas possible .

Speaker #6: The message from our customers is consistent . Many of them have a strong preference for production in North America , and so that's what we have been and are currently focused on .

Speaker #6: When we talk about adding capacity , the lead time for us to add new equipment and add machinery to our production process is typically less than the lead time it would take to hire and train the types of skilled operators that are needed to do the manual processes that are used by most of our competitors .

Speaker #6: Just to reiterate , we currently have three manufacturing sites , one here in Sugar Land , Texas , where our headquarters is and which will soon involve two facilities , one in Ningbo , China , and two in Taipei , Taiwan , with an additional one under construction .

Speaker #6: As you may have heard me say at OSC , we expect to increase the total production of 800 Gy at 1.6 terabit products by eight and a half times by the end of the year , and we are on track and dedicated to achieving this goal .

Speaker #6: During the third quarter . Direct tariffs had a $1.1 million impact on our income statement as it relates to tariffs . Also , as I mentioned on our prior couple of earnings calls , while we do utilize some imported components in our transceivers , many key components like our laser chips are already manufactured in the US .

Speaker #6: Importantly , in our 801.6 Terabit 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 reducing this , China content .

Speaker #6: Ultimately to near zero , we are also in discussion with several key suppliers about Onshoring , their production to the US to support a robust domestic supply chain .

Speaker #6: Turning to our third quarter results , our total revenue was $118.6 million , which increased 82% year over year and increased 15% sequentially off a strong Q2 and was in line with our guidance range of $115 million to $127 million during the third quarter , 60% of revenue was from CATV products , 37% was from data center products .

Speaker #6: With the remaining 3% from FTTH Telecom and other in our data center business . Q3 revenue came in at $43.9 million , which was up 7% year over year and was down 2% sequentially .

Speaker #6: Sales of our 100 products increased 32% year over year , while sales for our 400 products decreased 65% year over year , or $7.1 million , which was primarily driven by the timing of certain shipments at quarter end that I previously discussed in the third quarter , 83% of data center revenue was from 100 products .

Speaker #6: 9% was from 200 G and 400 G transceiver products , and 7% was from TNG and 4G transceiver products . Looking ahead to Q4 , we expect a substantial sequential increase in our data center revenue driven by growth in 400 revenue as well as layering in some increased 800 g revenue in our CATV business , we saw exceptionally strong demand in Q3 , CATV revenue in the third quarter was a record $70.6 million , which more than tripled year over year .

Speaker #6: And was up 26% sequentially from a strong Q2 . This increase is due to the continued ramp in orders for our 1.8GHz amplifier products , similar to last quarter , we shipped a significant quantity of 1.8GHz amplifiers to charter in the quarter , and demand continues to be robust .

Speaker #6: On our last earnings call , we had discussed how , in addition to charter , we had six other MSO customers who had already begun to order and deploy our 1.8GHz products or are in various stages of qualification of these products .

Speaker #6: We were pleased to see continued momentum with these new customers and are excited to see the broad based appeal of our amplifiers and quantum Link software during the quarter , we announced the addition of four new software modules to our quantum link HFC Remote Management solution , which offers our customers actionable intelligence to optimize network performance .

Speaker #6: Reduce operational costs , and improve the broadband experience . The new suite of software modules are add ons to our existing quantum Link Central , providing telemetry , adding unified visibility , predictive diagnostics and automated controls to our remote amplifier management platform .

Speaker #6: Most software features will be available this quarter . The feedback we are hearing from our customers is very positive in September , we attended the Society of Cable , Telecommunications , Engineering Expo .

Speaker #6: We had great interactions with customers and potential customers during the expo , and as I just mentioned , feedback from our customers continues to be very positive with many noting that our amplifiers are groundbreaking in terms of performance , ease of setup , and control , and monitoring capabilities as cable operators prepare for substantial upgrades to their infrastructure to meet increased spectrum and bandwidth demands , it's clear that the deployment of next generation amplifiers and related equipment has become essential .

Speaker #6: Looking ahead to Q4 , we expect strength in our CATV business to continue . Although we expect revenue in this business to moderate to between $50 million and $55 million next quarter .

Speaker #6: Following this quarter's exceptionally strong results . Now , turning to our telecom segment revenue from our telecom products of $3.7 million was up 34% year over year and 93% sequentially .

Speaker #6: As we have said before , we expect telecom sales to fluctuate from quarter to quarter for the third quarter , our top ten customers represented 97% of revenue , up from 96% in Q3 of last year .

Speaker #6: We had two greater than 10% customers . One of the CATV market , which contributed 66% of total revenue and one in the data center market , which contributed 24% of total revenue in Q3 , we generated non-GAAP gross margin of 31% , which was in line with our guidance range of 29.5% to 31% , and was up from 25% in Q3 2020 .

Speaker #6: Four . And compared to 30.4% in Q2 2025 . The year over year increase in our gross margin was driven primarily by our favorable product mix .

Speaker #6: Looking ahead , we expect continued gradual improvement in gross margins , although we expect that the revenue mix and data center in the next few quarters will be a slight headwind .

Speaker #6: We remain committed to our long term goal of returning our non-GAAP gross margin to around 40% . The progress we have made so far demonstrates that we're on the right track , and we continue to believe that this goal is achievable .

Speaker #6: The revenue figures presented above are net of a contra revenue amount due to the accounting for warrants provided to customers as a reminder , this amounts to approximately 2.5% of revenue derived from certain customers to whom Aioi has provided warrants in exchange for future revenue .

Speaker #6: In Q3 , the amount of this contra revenue was immaterial at about $50,000 total . non-GAAP operating expenses in the third quarter were $47.1 million , or 40% of revenue , which compared to $27.9 million , or 43% of revenue in Q3 of the prior year .

Speaker #6: While operating expenses increased this quarter and were a bit higher than our forecast . This rise was largely driven by increased shipping costs related to increased business activity in our CATV business .

Speaker #6: This quarter . Looking ahead , we expect non-GAAP operating expenses to be in the range of $48 million to $50 million per quarter .

Speaker #6: non-GAAP operating loss in the third quarter was $10.3 million , compared operating loss of $11.7 million in Q3 of the prior year . GAAP net loss for Q3 was $17.9 million , or a loss of $0.28 per basic share , compared with GAAP .

Speaker #6: Net loss of $17.8 million or a loss of $0.42 per basic share in Q3 of 2020 . For on a non-GAAP basis to an for Q3 was $5.4 million , or $0.09 per share , which was in line with our guidance range of a loss of $5.9 million to a loss of $2 million , or non-GAAP income per share in the range of a loss of $0.10 to a loss of $0.03 .

Speaker #6: This compares to a non-GAAP net loss of $8.8 million , or $0.21 per share , in Q3 , of the prior year . The basic shares outstanding used for computing the earnings per share in Q3 were 63.3 million .

Speaker #6: Turning now to the balance sheet . We ended the third quarter with $150.7 million in total cash . Cash equivalents , short term investments and restricted cash .

Speaker #6: This compares with $87.2 million at the end of the second quarter of 2025. We ended the third quarter with total debt, excluding convertible debt, of $62 million, compared to $54.3 million at the end of last quarter.

Speaker #6: As I mentioned on our prior earnings call earlier this year , we announced a revolving loan facility with BOC financial of $35 million , which we intend to use to meet some of our working capital needs going forward .

Speaker #6: As of September 30th, we had $170.2 million in inventory, which compared to $138.9 million at the end of Q2. This increase in inventory is almost entirely due to purchases of raw materials to be used in the production of our products.

Speaker #6: Over the next several months . During the we initiated a new ATM program . We completed this program during the quarter , raising $147 million , net of commissions and fees , which we intend to use mainly for new equipment and machinery for production and research and development .

Speaker #6: Use , including the earlier mentioned production expansion in Texas . We made a total of $49.9 million in capital investments in the third quarter , which was mainly used for manufacturing quarter , capacity expansion for our 408 hundred G transceiver products .

Speaker #6: And our last few earnings calls , we have discussed our plans to make sizable CapEx investments over the next several quarters . As we prepare for increased 400 G , 800 G , and 1.6TB data center production in 2025 .

Speaker #6: To date this year , we have made a total of $124.9 million in capital investments , and we are tracking at or above our CapEx projections we gave earlier this year of 120 million to $150 million in total CapEx .

Speaker #6: We had noted on our prior couple of earnings calls that these costs could be impacted from tariffs , but that given the evolving nature , it is difficult to predict what type of impact or by how much in Q3 , the direct tariff impact on capital equipment was $1.9 million , or roughly 4% .

Speaker #6: But tariff rates and equipment import mix may cause future results to vary materially . We sourced equipment from all over the world , including both from domestic and international locations .

Speaker #6: We have and will continue to do our best to minimize any impacts . It's clear that US based production is a priority for our customers , and we remain fully committed to expanding our capacity to meet that demand .

Speaker #6: Moving now to our Q4 outlook , we expect Q4 revenue to be between 100 and $25 million and $140 million , accounting for a sequential decrease in CATV revenue , as well as a more substantial sequential increase in our data center revenue .

Speaker #6: We expect non-GAAP gross margin to be in the range of 29% to 31% . non-GAAP net income is expected to be in the range of a loss of $9 million , to a loss of $2.8 million , and non-GAAP earnings per share between the loss of $0.13 per share and a loss of $0.04 per share , using a weighted average basic share count of approximately 70.3 million shares .

Speaker #6: With that , I will turn it back over to the operator for the Q&A session . Operator .

Speaker #3: We will now begin the question and answer session . To ask a question , you may press star , then one on your telephone keypad .

Speaker #3: If you are using a speakerphone , please pick up your handset before pressing the keys . To withdraw your question , please press star then two .

Speaker #3: At this time , we will pause momentarily to assemble the roster . In our first question comes from Simon Leopold of Raymond James .

Speaker #3: Please go ahead .

Speaker #7: Thanks for taking the question . I'm going to ask two and start with the cable TV side . So clearly a strong blowout number here this quarter .

Speaker #7: So so the moderation makes sense . And I guess where I'd like to go is to understand how you're thinking about the broader outlook for for CATV in that I recall last quarter , we talked about the potential to do over 300,000,000 in 2026 .

Speaker #7: If we sort of run rate out what you're doing , you're certainly on that trajectory . But I want to I want to assess this , given the lumpy nature of cable TV .

Speaker #6: Yes . Thanks for bringing that up . So , yeah , I mean , we do think 300 million plus in cable TV revenue is still achievable next year .

Speaker #6: As you pointed out . You know , we're kind of approaching a run rate there in this quarter . What I think is significant to point out though , and we pointed this out in on the last earnings call as well , that a lot of that growth is going to come from new products that we've announced .

Speaker #6: And we discussed in our prepared remarks a few minutes ago about the great success that we had at the Society of Cable Telecommunications Engineers show.

Speaker #6: You know , showcasing some of our new products , including the software products that we highlighted . So , yes , I think the 300 million plus mark is achievable next year .

Speaker #6: However , it's not likely to come just from the amplifier products , although again , we expect strong results in the amplifiers . But the additional revenue that we expect to see from those other products should get us up to that $300 million mark .

Speaker #5: Well , Simon , this is Tom . As we say in the script , we expect cable TV revenue in Q4 will reduce to maybe 50 to 55 million .

Speaker #5: So that means the data center growth should be a lot . Okay , since the revenue increased by about 10% compared to Q3 .

Speaker #5: So that means there are revenue will increase by 25 to $40 million in Q4 because thanks for that . Season . Yeah , sorry .

Speaker #5: Go ahead .

Speaker #7: Yeah . No . So so that's where I wanted to follow up was on the data center , particularly around your comment about 408 hundred gig being up .

Speaker #7: Given 800 gig is teeny right now . I'd like to unpack that a little bit because it I don't think you've announced certifications qualifications on 800 gig yet .

Speaker #7: It sounds like that's somewhat imminent , but I don't want to overinterpret so maybe just drill down specifically to how you think about 800 gig in that four Q and then of course , how should we think about the timing of when to start thinking about 1.60 ?

Speaker #7: I understand that's not in for Q but should we be thinking about that for for next year ? Thank you .

Speaker #6: Yes . So 800 gig . We do expect meaningful shipments in the fourth quarter . As we said in our prepared remarks . Now , the growth in Q4 is largely going to come from 400 gig , but we do expect meaningful revenue from 800 gig .

Speaker #6: In this quarter . And as you pointed out , that would require , you know , product qualification to be pretty imminent , which is what we believe with respect to 1.6TB .

Speaker #6: Yeah , we do think that we'll see revenue from 1.6TB later next year , but it's not going to be a factor in Q4 .

Speaker #6: As you pointed out , and probably not in the first half of next year .

Speaker #5: So the I single most especially , as in most of them , will be from 2.54 . So the total and single transceiver in Q4 will be around maybe 4 to $8 million .

Speaker #5: So most of from 400 single malt transceiver . The 1.16 single transceiver . We have right now . I would say around four customers .

Speaker #5: So we are working very hard . So I will deliver the same point by end of this year , early next year . But the volume manufacture will be more like I would say , June , July next year for 1.6 .

Speaker #5: And we have several hours , 4 or 5 different products for 1.6 single transceiver growth is . And we will announce pretty soon in the short term .

Speaker #6: Also , Simon , I just want to reiterate something that we've mentioned repeatedly and talked about a little bit on the call , but just for clarity , the factory that we're building both here as well as the the increased capacity that we've been adding in Taiwan , is capable of manufacturing both 801.6 Terabit on the same production line .

Speaker #6: The only difference really is in the final testing in terms of the type of equipment that we need .

Speaker #7: Great . Thank you .

Speaker #6: You're welcome .

Speaker #3: The next question comes from George Notter of Wolfe Research . Please go ahead .

Speaker #8: Hi , guys . Thanks very much . Hey , I was just curious if you could tell us more about the shipping and receiving delay of the quarter .

Speaker #8: I'm just wondering what that was . And can you confirm that it was a single customer , or was it multiple customers ? Any insights there would be would be great .

Speaker #8: And I've got a follow up too .

Speaker #6: Sure , it was a single customer , a single hyperscale customer , which is a relatively new customer . Additions for us . And as a result of that , you know , some of the shipments at the end of the quarter , you know , I can't go into too many details because of obviously non-disclosure agreements and such , but let's just say that not all the systems that were all the the inventory management systems and all that had been properly configured at that point to be able to receive those goods in time for us to book them as revenue in the third quarter .

Speaker #6: So we resolved that in the first few days of the fourth quarter and have booked that revenue since then . So it wasn't anything that we expect to recur or anything like that .

Speaker #6: It was just kind of unique to this , sort of startup business , if you will , with this particular large hyperscale customer .

Speaker #8: Got it . Okay . I'm sorry . So so the products were delivered to the customer , but it sounds like ownership couldn't transition because it hadn't been through their inventory management system .

Speaker #8: Is that is that the right view ? Yeah .

Speaker #6: Yeah , basically I mean , there's a system integrator that's involved again , without going into too many details , but it essentially comes down to just the timing issue with , the computer systems on all sides that needed to be synced up .

Speaker #8: Okay . Got it . And then . Can you give us an update on the capital spend ? I mean , you said you're tracking ahead of the 120 to 150 for the year .

Speaker #8: What does that look like now when you layer in Q4 and then how about 2026 ? Do you have an initial view on what CapEx would look like next year ?

Speaker #8: Thanks .

Speaker #6: Yeah . So we don't we don't have a lot of the Q4 guidance comes down to sort of timing on when we're going to receive a lot of this equipment .

Speaker #6: So we're still looking at that . It's probably going to be ahead of that 150 million top end that we that we said before , but it's unclear at this point exactly how much of that equipment will really be able to be delivered in this quarter .

Speaker #6: So , you know , we'll get back to you on that . Similarly , for 2026 , we're still working on the CapEx plans for 2026 .

Speaker #6: So I would expect it to be above what we're seeing in 2025. But I don't have a precise number yet on that.

Speaker #6: We're still going through those plans .

Speaker #8: Okay . Thanks very much .

Speaker #3: Once again , if you would like to ask a question , please press star . Then one , and our next question comes from Michael Genovese of Rosenblatt Securities .

Speaker #3: Please go ahead .

Speaker #7: Oh great . Thanks . I guess , for for hundred G would that customer becoming a run rate business . And if I'm not mistaken , I was thinking about 100,000 units per month .

Speaker #7: So . So maybe you could update on that . But but but is that is that the right way to think about it .

Speaker #7: And is it is it getting there in the fourth quarter and then we should think about that customer being at the same level of 400 G per quarter all year in 2026 .

Speaker #7: Am I thinking about that the right way ?

Speaker #6: So it is approaching . I mean , it is on track to becoming sort of a run rate business , as you mentioned .

Speaker #6: That is when I when I hear the term run rate business . But I'm assuming you mean is that sort of capacity limited ?

Speaker #6: Right . That is , you know , we can we'll be selling a relatively consistent amount every quarter based on our capacity . So it's on , you know , it is moving in that direction .

Speaker #6: We will not be fully at capacity in in Q4 , not to mention the fact that we're continuing to add some capacity , especially in Taiwan , like we talked about earlier .

Speaker #6: So so we won't reach its maximum potential in Q4 by any means , but it will be a meaningful contributor to revenue . As Thompson mentioned earlier , if you think about the guidance that we that we gave right , cable TV has implied decline of , let's just say , $15 million , roughly , give or take , while the overall revenue is going to be up roughly $15 million , again , give or take , within the ranges that we specified .

Speaker #6: And so, you know, the rest of that growth is going to come from the data center. And most of that is going to come from 400.

Speaker #6: As we discussed earlier , not a little bit of 800 G . But you know , not not a lot . Most of it's going to come from 400 G .

Speaker #5: So capacity is limited by our capacity . So right now for 400 single mode transceiver in Q4 we can only make him maybe close to 60,000 per month .

Speaker #5: Then by Q2 , I think it is going to 110,000 to 120,000 per month . So it depends on how capacity . That's why we spend our CapEx to expand the Queen in Taiwan .

Speaker #5: And the US . The other is for sure it's very important a laser capacity . As I said , it's very important . As you know , it's a shorter laser .

Speaker #5: We have less capacity . That's why we do it now . Is doing the three inch . We go to four inch next year at the same time , our target is go to maybe .

Speaker #5: Okay . Not to mention the the other laser like , you know , 2550 G just high power CW laser the photonics . We are talking about our target by December next year , at least , more than 2 million per month .

Speaker #5: for As soon as you get older , pretty soon we will send several pages for qualification for Did and to by four . So we believe we should get some order in .

Speaker #5: That's where we spend our CapEx . You know , it's a , you know , EB stepper , all kinds of stuff . And for sure , we are working on six inch wafer , but it will be more like a two year project .

Speaker #5: But I think four inch project is ongoing and it's pretty smooth .

Speaker #7: Okay , great . And then I mean , it sounds like you've got pretty high confidence of an 800 G qualification coming soon .

Speaker #7: If you're putting some in the fourth quarter guidance . So I just you know , I just want to double click on that confidence .

Speaker #7: But then also if we just back up three months ago is this process going , you know the way you expect . You know I know a matter of a couple of weeks on either side .

Speaker #7: There's no big deal . But

Speaker #7: think you'd have it by now or is this kind of , you know , going the way you thought it would go ?

Speaker #5: Maybe I would say three four weeks or even sooner . So okay , let me say we a thousand sample okay . It's just that's just for special sample .

Speaker #5: Okay . To several customers . So finally they get into variant . But not so big variant because the variant maybe I would say 150,000 per month or even 250,000 per month , but we are only talking about maybe 10,000 , 20,000 .

Speaker #5: So , you know , it's not it's very far away from what we are . And that's why I say , you know , by the end of December , which .

Speaker #5: 100,000 per month by end of June next year , we have 200,000 per month . We spend the money . Is based on customer commitment , okay .

Speaker #5: It's not based on our wish list . Let me say that . Okay . And don't forget , especially in the US , you know , the green space , the capacity , the equipment , you know , quite a lot of money .

Speaker #5: So we spending money is based on customer very strong commitment . The reorder the fourth , the fourth volume order we should receive .

Speaker #5: Pretty soon, within a few weeks. Let me say that.

Speaker #6: Am I directly answer your question about , you relative to expectations ? I think we said that we expected the qualifications to be coming in , you know , in the late in Q3 or early Q4 .

Speaker #6: And so we're still in that range that I would consider what we expected and we're basically still on track for that schedule .

Speaker #7: Okay . If I can ask another , what should 100 G be doing in 26 versus 25 ? And just when you compare the ASP of 100 G to 800 G is are we are we at an eight times multiple or is it even higher than that for the ASP of 800 versus 100 ?

Speaker #6: It's not an eight times multiple . It's less than that . With respect to what it's what what 800 G or sorry , what 100 G will do next year ?

Speaker #6: I think it's going to be pretty consistent . I don't see , you know , I don't see a big fall off for sure .

Speaker #6: It could even go up a little bit . You know , there's there's continued to be new deployments of 100 G . So but I think the best scenario that I would model in is sort of a flat 100 g business next year .

Speaker #7: Okay . You know what ? If I could just ask one more . How are you guys feeling about the , you know , with the CapEx plans and the expansion plans ?

Speaker #7: You know , gone to the market a few times this year . Are we is are you in a good place for your spending next year , or do you think you're going to have to do more , more fundraising ?

Speaker #6: I think we're going to continue to to raise the capital that we need to fund the CapEx . I mean , our plans continue to expand what we're hearing from our customers is , you know , more and more bullish in terms of the volume that they need .

Speaker #6: And particularly the volume that they'd like to have out of us based factories , which we don't have yet . I mean , we just announced the lease a week or two ago .

Speaker #6: Of the new facility , which still has yet to be built out . So that's basically a 2026 event . So , you know , we're going to continue to , to to add capacity as we as we see that demand coming from our customers .

Speaker #6: And it's very strong right now .

Speaker #5: But let me say 3.1 , we have some discussions with 1 or 2 major customers , especially US capacity . I think maybe customers will , you know , invest or maybe 2 or $3 million or two , $300 million .

Speaker #5: Okay . Under discussion number two , I see . No , we are working very close with Texas State to some fundraising , some support , including the US government for Chip act .

Speaker #5: So so I think maybe we should get some commodity from the Texas state and the US government . There are . Number three , don't forget , next year we should be profitable .

Speaker #5: Quite a lot . I would say , you know , no surprise , RNA probably should be more than $150 million next year or even higher .

Speaker #5: So some of the expansion can be paid by our profit .

Speaker #7: Perfect . Great . Well , yeah . Sounds exciting for the future . Thanks for answering the questions .

Speaker #6: Yeah .

Speaker #3: The next question comes from Ryan Koontz of Needham and Co . Please go ahead .

Speaker #9: Great . Thanks . On the follow up on the the Transceiver products here . And you guys are doing doing well in silicon photonics .

Speaker #9: I wanted to ask your view on kind of the macro of, you know, CFO versus ML versus pixels and what you're hearing from your customers about their interests as the data rates move up here to 801.6.

Speaker #9: Thank you .

Speaker #6: Well , I would say , first of all , you know , what we're hearing from our customers may just be a function of where they view us in terms of our technological capabilities and what they need .

Speaker #6: So that is to say , I'm not saying that , for example , when I tell you that our customers like CFO , they like our CFO solution for sure that that's not to imply that they're going to switch all their products over to cycle .

Speaker #6: They have other vendors that are working with ML , for example . So but , you know , all that being said , I think broadly speaking , I think CFO is seen as a technology that has more scalability in terms of its ability to go to higher data rates in the future .

Speaker #6: I think we're at the early stages of of implementing silicon photonics in terms of volume manufacturing and all that . So it's going to take some time for them to become comfortable and let that technology ramp up .

Speaker #6: But it certainly has more legs in terms of higher data rate than , than MLC especially .

Speaker #5: You need a less laser for cipher . And , you know , that's a very serious problem , shortage of lasers , especially ML .

Speaker #5: Okay . Not to mention 200 G , ML . So for example , that get app if you use ML , you need or say an e-mail .

Speaker #5: But if you only need two high power CW , so that's a very good reason for it because you can't get enough e-mail .

Speaker #5: So what you can do , you got all the order . Everything by long we can make no way you can make the , you know , 800 or 1.60 transceiver .

Speaker #9: Great stuff . And maybe shifting gears to cable . How are you feeling about about share there at your larger customers . Do you feel like the uptick in demand here for cable ?

Speaker #9: Is this share gain ? Is this , you know , higher deployment rates , any any view on , you know , how you feel about share versus customer spend ?

Speaker #6: I would say it's share gain primarily . We you know , the customers plans continue to evolve . But as I mentioned we've had some very , very successful interaction with our major customers , including , you know , the larger MSOs like we've talked about with charter and others , but also with a number of smaller operators , the the Society of Cable Telecommunications Engineers show that we were at was really very , very positive for us .

Speaker #6: So I think we're I think we're taking slots that could have potentially gone somewhere else and gaining that share .

Speaker #5: So besides charter , we have six other customers and we got two . Good size order from two of them . So total we have seven customers right now for cable TV , 1.8GHz , 91.

Speaker #5: two gigahertz . But next , talk about another ten . So that means by end of next year total , we should have 17 customers in cable TV in North America , Latin Australia , even Asia .

Speaker #5: So not only one customer . Okay , I need to emphasize that .

Speaker #9: Great stuff . And when you talked about the new products coming in cable , are you referring to to nodes or or the software products for the for the amps ?

Speaker #9: You mentioned earlier ?

Speaker #6: Both .

Speaker #5: Both , yes .

Speaker #10: Got it .

Speaker #9: That's all I got . Preciate it . Thank you .

Speaker #5: Software . The cosmos is pretty good . That's very important . And Quantum link and quantum Bridge customers really like it . They solve a lot of problems for customers .

Speaker #5: They solve a lot of issues . They can save a lot . Of operating expenses . And that's why they like it . That's why we need the , I would say , become the the number one supplier in cable TV .

Speaker #5: It's not only hardware because integration of hardware and software and management system .

Speaker #9: Appreciate that . Thank you .

Speaker #5: Okay .

Speaker #10: Thank you . Yeah .

Speaker #3: Once again if you would like to ask a question , please press star . Then one . Our next question will come from Tim Savino of Northland Capital Markets .

Speaker #3: Please go ahead .

Speaker #11: Hey good afternoon . A couple questions , but I want to start with what we've been hearing pretty much all week . Here is about a pretty dramatic kind of step function increase in really across a lot of the different areas .

Speaker #11: In AI optical , including inside the data center for modules . Maybe focused on 1.6 to some degree , but pretty broad based seeming .

Speaker #11: My first question is , you know , are you seeing that in terms of . Your conversations with customers about overall levels of transceiver demand ?

Speaker #11: Just I don't know , in the last , yeah , 4 to 6 weeks .

Speaker #6: Just look at our... I'm sorry I cut you off there. I didn't hear the first part of your question.

Speaker #11: No , I'm all good . Go ahead . Sorry .

Speaker #6: Yeah . Yes . I mean , we're seeing very strong increase in demand . If you look at our guidance again , just kind of go back to the segment guidance that we gave .

Speaker #6: It implies a dramatic ramp in data center revenue in the fourth quarter . And you know , we didn't give annual guidance for next year .

Speaker #6: But we certainly believe , you know , that that's the beginning of a sustained ramp . So I think we're . Exactly in sync with what you described .

Speaker #6: You know , we're seeing that ramp first at 800 gig . But as we talked about later next year , we expect 1.6 to be a strong contributor as well .

Speaker #6: Does that answer your question , Tim ?

Speaker #11: Yeah , I wanted to follow up on your capacity targets exiting the year . I think at a 100,000 units a month . And Thompson had mentioned before , you know , commitments from customers , I guess , and I want to kind of dig into that a little bit more , which is , you know , would you be in a position to to ship that full , you know , given there's we're running out of year a little bit here , but would you be in a position to ship that full capacity in the first quarter and do you have either orders on hand commitments ?

Speaker #11: However you want to describe it to , to kind of cover those type of volumes starting in Q1 next year ?

Speaker #5: I would say more than Q2. Don't forget the Chinese New Year, and the cycle time is one and a half months. So we got our equipment ready.

Speaker #5: You know , we are doing the pilot round right now , both in Taiwan and the US . And so , you know , the customer gives us orders .

Speaker #5: But because of manufacture cycle and said you won't see maybe 90 to 100,000 pieces per month of revenue . Obviously it's more like Q2 .

Speaker #5: And to answer your first question right now , give us crazy number , okay . Just now their total demand , they're talking about like more than 300,000 of 800 plus 1.6 , just a share .

Speaker #5: So for sure we spent the money until we got a commitment . So yeah . Yes , it's true . Right now all data sets , data center customers are really serious .

Speaker #5: So it's not possible. Let me say that it's not possible. It's a real demand, okay? And from all of them.

Speaker #6: I just wanted to touch on one thing that your question asked earlier . I want to make sure we're on the same page .

Speaker #6: So you mentioned a capacity of 100,000 per month . That is our 800 gig or 1.6TB . But again , 800 gig , primarily this year .

Speaker #6: Capacity . In addition to that , we also have capacity for 400 gig . Those are not shared . Right . So the 400 gig capacity is Thompson mentioned should be 120,000 pieces or more early next year .

Speaker #6: So and we do have , you know , customer commitments that we cover that .

Speaker #11: Great . Thanks very much .

Speaker #3: At this time , we have no further questions and I will turn the call back over to Doctor Thompson Lin for closing remarks .

Speaker #5: Okay . Thank you for joining us today . As always , we want to extend a thank you to our investors , customers and employees for your continued support .

Speaker #5: We continue to believe the fundamental driver of long term demand for our business remains robust , and we are unique position to drive value from this opportunities .

Speaker #5: We look forward to . Welcome some of you to our Texas Factory tour next week and see many of you at upcoming Investor Conference .

Speaker #5: Thank you .