Applied Optoelectronics - Earnings Call - Q4 2024

Executive Summary

• Q4 delivered strong top-line acceleration with revenue up 54% QoQ and 66% YoY to $100.3M, driven by CATV 1.8 GHz amplifier shipments and steady datacenter demand; non-GAAP gross margin improved sequentially to 28.9% and non-GAAP EPS was ($0.02), in line with guidance ranges.
• GAAP results included a one-time ~$112M loss tied to the December convertible notes exchange, resulting in GAAP EPS of ($2.60) for Q4; non-GAAP net loss narrowed to $1.0M as mix improved and CATV ramped.
• Q1 2025 outlook guides revenue to $94–$104M and non-GAAP gross margin to 29.0%–30.5%; management also guided non-GAAP OpEx to $32–$33M and flagged Chinese New Year-related labor constraints as a near-term capacity limiter rather than demand.
• Strategic setup: sizable 2025 capex ($120–$150M) to expand U.S. and Taiwan capacity for 400G/800G/1.6T, a major North American MSO deploying Quantum Bandwidth amplifiers, and balance sheet actions extending converts to 2030—all key catalysts for AI/optics exposure despite near-term CATV plateau/install limitations and customer concentration risk.

What Went Well and What Went Wrong

• What Went Well

  • CATV inflected: CATV revenue rose to $52.2M, >4x YoY and >2x QoQ, driven by 1.8 GHz amplifier shipments; a top North American cable operator placed a substantial Quantum Bandwidth order that began shipping in Q1.
  • Mix and margins improved sequentially: non-GAAP gross margin rose to 28.9% vs 25.0% in Q3 as CATV mix and manufacturing efficiencies improved; management reiterated a long-term target of ~40% non-GAAP gross margin.
  • Datacenter pipeline building: 400G orders are increasing across existing and a new hyperscaler; first significant 800G demand forecasts support a 2H25 ramp; capacity expansions underway in Texas and Taiwan.

• What Went Wrong

  • GAAP loss from financing charge: Q4 GAAP net loss was ($119.7)M due to a ~$112M one-time loss from the convertible note exchange; while strategically beneficial, it pressured reported earnings.
  • Non-GAAP profitability still negative: non-GAAP net loss was ($1.0)M and non-GAAP operating loss ($2.5)M as R&D spend stepped up for 800G/1.6T and Quantum products; non-GAAP OpEx at $31.5M (31.4% of revenue).
  • Customer concentration/installation gating: top 10 customers were 97% of revenue; a single CATV distributor was 52% of revenue; CATV volume is constrained by field installation cadence, implying a plateau near term.

Transcript

Operator (participant)

Good afternoon. I will be your conference operator. At this time, I would like to welcome everyone to Applied Optoelectronics' Fourth Quarter and Full Year 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note that this call is being recorded. I would now like to turn the call over to Lindsay Savarese, Investor Relations for AOI. Ms. Savarese, you may begin.

Lindsay Savarese (Head of Investor Relations)

Thank you. I'm Lindsay Savarese, Investor Relations for Applied Optoelectronics. I am pleased to welcome you to AOI's fourth quarter and full year 2024 financial results conference call. After the market closed today, AOI issued a press release announcing its fourth quarter and full year 2024 financial results and provided its outlook for the first quarter of 2025. The release is also available on the company's website at ao-inc.com. This call is being recorded and webcast live. A link to the recording can be found on the investor relations section of the AOI website and will be archived for one year. Joining us on today's call is Dr. Thompson Lin, AOI's Founder, Chairman, and CEO, and Dr. Stefan Murry, AOI's Chief Financial Officer and Chief Strategy Officer.

Thompson will give an overview of AOI's Q4 results, and Stefan will provide financial details and the outlook for the first 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's Safe Harbor Statement. On today's call, management will make forward-looking statements. These forward-looking statements involve risks and uncertainties, as well as assumptions and current expectations, which could cause the company's actual results, levels of activity, performance, or achievements of the company or its industry to differ materially from those expressed or implied in such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as believes, forecasts, anticipates, estimates, suggests, 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.

The company has based these forward-looking statements on its current expectations, assumptions, estimates, and projections. While the company believes these expectations, assumptions, estimates, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the company's control. Forward-looking statements also include statements regarding management's beliefs and expectations related to the expansion of the reach of its products into new markets and customer responses to its innovations, as well as statements regarding the company's outlook for the first 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's 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, are 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 AOI management is attending the Susquehanna Annual Technology Conference virtually on Friday, February 28th.

Management will host an investor session at OFC on Tuesday, April 1st in San Francisco. This discussion will be webcast live, and a link to the webcast will be available on the investor relations section of the AOI website. We would also like to note that the date of AOI's first quarter 2025 earnings call is currently scheduled for May 8th, 2025. Now, I would like to turn the call over to Dr. Thompson Lin, AOI's Founder, Chairman, and CEO. Thompson.

Thompson Lin (Founder, CEO and Chairman)

Thank you, Lindsay, and thank you for joining our call today. During the fourth quarter, we delivered revenue of $100 million, which was in line with our guidance range of $94 million-$104 million. We recorded non-GAAP gross margin of 28.9%, which was in line with our guidance range of 27.5%-29.5%. Our non-GAAP loss per share of $0.02 was in line with our guidance range of a loss of $0.04 to earnings of $0.04 per share. Total revenue for our data center products of $44.2 million was essentially spread year over year and was up 8% sequentially. Revenue for our 400G products increased 40% year over year and 70% sequentially. The growth was primarily driven by increased adoption of 400G products by our data center customers, along with new customers that we began shipping to during the year.

Total revenue in our CATV segment was $52.2 million, which increased more than 4x year over year and more than double sequentially, largely driven by shipment of our 1.8 GHz amplifiers for one of our major MSO customers. As we have discussed on our prior earnings calls, our MSO customers are in the process of upgrading their outside plant networks so that they can support higher bandwidth in the return path direction and eventually enable DOCSIS 4.0. We are pleased to announce that during the quarter, we received a substantial order for our Quantum Bandwidth networking products from our top North American cable operator. This order is for products that began shipping this month. With that, I will turn the call over to Stefan to review the details of our Q4 performance and outlook for Q1. Stefan.

Stefan Murry (CFO and Chief Strategy Officer)

Thank you, Thompson. We're pleased to end the year on a high note, driven by strength in both our data center and CATV businesses and with solid momentum heading into 2025. As Thompson mentioned, our Q4 results were in line with our expectations. We delivered revenue of $100 million, which was in line with our guidance range of $94 million-$104 million. We recorded non-GAAP gross margin of 28.9%, which was in line with our guidance range of 27.5%-29.5%. And lastly, our non-GAAP loss per share of $0.02 was within our guidance range of a loss of $0.04 to earnings of $0.04 per share. During the fourth quarter, we continued to execute on many of the initiatives that we laid out last year.

In our data center business, on our last few calls, we discussed how we had begun to receive orders for 400G products from another large hyperscale customer. In line with our expectations, we continued to see increasing orders for 400G products, both from long-term hyperscale customers as well as from this new hyperscaler that we've been talking about for the last several quarters. We continued to make good progress on our 800G products, with customers beginning to give us clear demand forecasts, which indicate ramping demand beginning in the second half of 2025, in line with our expectations. In our CATV business, as Thompson mentioned, we received a substantial order for our Quantum Bandwidth networking products from a top North American cable operator. These products began to ship this month, and we expect additional orders throughout the year based on forecasts we have received from this customer.

We are encouraged by the demand that we are seeing for our CATV products, and are very excited to announce that our next-gen Quantum Bandwidth amplifiers have already begun to be deployed by a major North American MSO as part of its publicly announced network upgrade project. Lastly, during the quarter, we took steps to expand our production capabilities. We have been retrofitting our facility in Sugar Land, Texas, to accommodate new automated production equipment, which we expect to begin to receive next month. This equipment will be used for the production of both 400G and 800G transceiver products. We also signed an agreement to lease an additional building in Taiwan, which we are outfitting in order to increase production of our data center and CATV products there.

Turning to our fourth quarter results, our total revenue was $100 million, which was up 66% year over year and up 54% sequentially, and was in line with our guidance range of $94 million-$104 million. During the fourth quarter, 44% of revenue was from data center products, 52% was from CATV products, with the remaining 4% from FTTH, Telecom, and other. In our data center business, Q4 revenue came in at $44.2 million, which was essentially flat year over year and increased 8% sequentially. The sequential increase was due to shipments to existing customers, along with the new hyperscale data center customer that we've talked about for the last several quarters. In the fourth quarter, 61% of data center revenue was from 100G products, 32% was from 200G and 400G transceiver products, and 8% was from 40G transceiver products.

As our data center customers work on building out their next-generation AI-focused data center architectures, we remain active in our 800G application efforts with several hyperscale customers. During the quarter, we received the first significant demand forecasts from one of our hyperscale customers that bolsters our previously held expectation of a second-half 2025 ramp in 800G sales. In our CATV business, with the explosive growth of data consumption and rising user expectations, we are already being recognized by cable operators as a preferred partner to ensure that these upgrades minimize cable subscribers' network interruptions and also optimize performance. As a result, CATV revenue in the fourth quarter was $52.2 million, which was up more than 4x year over year and more than doubled sequentially. This significant increase is due to the ramp in orders for our 1.8 GHz amplifier products.

We continue to believe our CATV revenue will ramp further in Q1 and will remain elevated throughout 2025. Now turning to our Telecom segment, revenue from our Telecom products of $3.5 million was up 26% year over year and up 25% sequentially. Looking ahead, we continue to expect Telecom sales to fluctuate from quarter to quarter. For the fourth quarter, our top 10 customers represented 97% of revenue, up from 95% in Q4 of last year. We had three greater than 10% customers, two in the data center market, which contributed 31% and 11% of total revenue, respectively, and one in the CATV market, which contributed 52% of total revenue. In Q4, we generated non-GAAP gross margin of 28.9%, which was within our guidance range of 27.5%-29.5% and was up from 25% in Q3 of 2024 and down from 36.4% in Q4 of 2023.

The sequential increase in our gross margin was driven primarily by our favorable product mix, including growth in our CATV revenue. Looking ahead, we continue to expect that our gross margins will improve as we see the impact of manufacturing efficiencies in our CATV 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 fourth quarter were $31.5 million, or 31.4% of revenue, which compared to $21.6 million, or 35.7% of revenue in Q4 of the prior year, primarily due to increased R and D spending in 800G, 1.6 Tb, and Quantum Bandwidth products. Looking ahead, we expect non-GAAP operating expenses to increase slightly next quarter and range from $32 million to $33 million.

In 2025, we anticipate modest additional increase varying with quarter-by-quarter fluctuations, mainly in R and D expenditures. Non-GAAP operating loss in the fourth quarter was $2.5 million, compared to an operating income of $0.4 million in Q4 of the prior year. GAAP net loss for Q4 was $119.7 million, or a loss of $2.60 per basic share, compared with a GAAP net loss of $13.9 million, or a loss of $0.38 per basic share in Q4 of 2023. Our GAAP net loss in the fourth quarter of 2024 included a one-time charge of $112 million related to the exchange of our convertible notes in Q4.

On a non-GAAP basis, net loss for Q4 was $1 million, or $0.02 per share, which compared to our guidance range of a loss of $1.9 million to income of $1.7 million, or a loss per share in the range of $0.04 to earnings of $0.04 per basic share. This compares to a non-GAAP net income of $1.6 million, or $0.04 per basic share in Q4 of the prior year. The basic shares outstanding used for computing the earnings per share in Q4 were 46.1 million. Turning now to the balance sheet, we ended the fourth quarter with $79.1 million in total cash, cash equivalents, short-term investments, and restricted cash. This compares with $41.4 million at the end of the third quarter of 2024. We ended the quarter with total debt, excluding convertible debt, of $46 million, compared to $39.4 million at the end of last quarter.

As of December 31, we had $88.1 million in inventory, which compared to $64.4 million at the end of Q3. The increase in inventory is primarily for raw materials purchased for customer orders. During the quarter, we raised $53.9 million net of costs and fees on our previously announced at-the-market program. We made a total of $25.7 million in capital investments in the fourth quarter, which was mainly used for manufacturing capacity expansion for our 400G and 800G transceiver products. This brings our total CapEx for the year to $48.8 million, which was up compared to 2023 of $12.6 million, reflecting higher capital needs as we expand production to accommodate increased demand. Going forward, we expect to make sizable CapEx investments over the next several quarters as we prepare for increased 400G, 800G, and 1.6 Tb data center product production in 2025.

For the year, we expect between $120 million and $150 million in total CapEx. We expect to finance these investments through a combination of cash on hand, cash generated from operations, and some equity sales, including ongoing advanced discussions for possible strategic investments. This will mark the most significant capital expansion plan in our company's more than 27-year history. Included in this plan is adding significant production capacity in Texas, which we expect will make us one of the largest, if not the largest, domestic producer of data center transceivers for AI applications. We continue to believe that we are poised for a sustained period of growth in both our data center and CATV businesses, and that these capital commitments will be transformational to our company as we execute on these opportunities.

Moving now to our Q1 outlook, we expect Q1 revenue to be between $94 million and $104 million, and non-GAAP gross margin to be in the range of 29%-30.5%. Non-GAAP net income is expected to be in the range of a loss of $3.6 million to break even, and non-GAAP earnings per share between a loss of $0.07 per share and break even using a weighted average basic share count of approximately 49.6 million shares. With that, I will turn it back over to the operator for the Q and A session. Operator.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The first question comes from Tim Savageaux with Northland Capital Markets. Please go ahead.

Tim Savageaux (Managing Director and Senior Research Analyst)

Hey, good afternoon, and congrats on the ramp in cable, in particular in the quarter. I wanted to ask about the capacity investments, I guess $135 million or so mid-year and pretty substantial in Q4 as well. I guess to what extent is that? I mean, I imagine it's principally focused on data center, but maybe you could provide some color data center versus cable because it looks like you're going to continue to ramp there.

And within data center, could you give us an estimate of the kind of capacity you're heading towards, whether that's revenue or incremental revenue capacity or unit volumes or however you'd like to discuss it? And as you close the year, what kind of annual revenue capacity are you targeting in the U.S.?

Stefan Murry (CFO and Chief Strategy Officer)

Okay. So there's a lot embedded in there. As far as the application of the capital expenditures, it's going to be almost entirely for data center. There'll be some spending on cable TV as well, but most of that ramp has already been accommodated in terms of production capacity. So as far as what this would bring to us in terms of incremental capacity, it's going to be designed for production of primarily 800G and 1.6 Tb.

We're still working with our customers and other related parties to figure out exactly how much of that capacity is going to be built in the U.S. versus other locations. So I can't answer that question directly, but it's going to be substantially targeted at U.S. investment. And again, mostly for 800G and 1.6 Tb.

Thompson Lin (Founder, CEO and Chairman)

So let me give you the answer. The other is for the laser manufacturer in Houston. So we're getting to the 4-in manufacturer for the EML and the high-power single-mode laser. For 800G, 1.6T is now planned to have maybe more than 120,000 or even 140,000 per month of capacity by end of this year or early next year as a single-mode transceiver for data center.

Tim Savageaux (Managing Director and Senior Research Analyst)

Okay.

That's super helpful and kind of a good segue to the next question, which is, Stefan, you mentioned some demand forecasts coming in from hyperscale customers for 800G. I imagine that's related to your capacity planning, but any chance you can quantify that type of demand, or should we assume it's in line with the monthly production figures that Thompson just mentioned?

Stefan Murry (CFO and Chief Strategy Officer)

Yeah, it's in line with those production figures. I mean, obviously, we're not planning on targeting our entire CapEx at one particular customer, so there's some aggregated demand across a number of different hyperscale customers, but certainly the aggregate demand is consistent with the numbers that Thompson mentioned.

Tim Savageaux (Managing Director and Senior Research Analyst)

Okay. I'll pass it on to come back later.

Stefan Murry (CFO and Chief Strategy Officer)

Okay.

Operator (participant)

Again, if you have a question, please press star then one. Our next question comes from Michael Genovese with Rosenblatt Securities. Please go ahead. I'm great.

Michael Genovese (Senior Research Analyst)

Thanks very much. I guess first question on the Quantum Bandwidth to a North American cable order that you referenced in the quarter. Just explain to us, how is that similar or different from the 1.8 GHz amplifiers that drove the sequential increase in the quarter? Is that a different product and a different customer, or is it related?

Stefan Murry (CFO and Chief Strategy Officer)

No, it's the same. Quantum Bandwidth is a suite of products that includes amplifiers and other things. This was specifically for our 1.8 GHz Quantum Bandwidth amplifier products. So yeah, it's the same product that we were talking about earlier.

Michael Genovese (Senior Research Analyst)

Okay. And then I guess just could you kind of give us any more color on, I mean, obviously, the data center opportunity is a multi-year opportunity, and we've identified some targets sort of for the second half of the year.

But if we think about the quarter itself and the first quarter with three hyperscale customers that we sort of know about, just how is the quarter versus your expectations? Are things going slower in the near term, or are they going according to your expectations? Just a little bit more color on data center would be helpful.

Stefan Murry (CFO and Chief Strategy Officer)

I think it's pretty much in line with our expectations. I mean, we've said pretty consistently for a while that 400G was going up, which it is. It's up almost 4x year over year. Meanwhile, 100G is gradually declining, which is what we've said for a while as well. And that 800G and 1.6 Tb will start ramping. I mean, 800G later this year, 1.6 Tb maybe later this year, more likely 2026. So all this is in line with what we've expected.

Michael Genovese (Senior Research Analyst)

For your 400G result in the quarter, or what 400G could be in 1Q, is that gated by capacity, or is capacity not an issue in 400G?

Stefan Murry (CFO and Chief Strategy Officer)

The capacity is sort of a moving target, right? We're adding capacity as demand shows up to be prudent, right? In other words, we're not getting too far ahead on the capacity expansion plan. So there's a number of different products that go into the 400G mix. Some of those were at capacity, others were a little below. But in general, we're trying to keep capacity in line with demand.

Michael Genovese (Senior Research Analyst)

Okay. And then just last quick one for me. The $120 million-$150 million CapEx target in 2025, I actually suspected that maybe it could have even been higher than that.

I'm kind of wondering, is that a number that would have to be repeated in the next year, or does that get you multiple years of revenue growth to, let's say, $150 million?

Stefan Murry (CFO and Chief Strategy Officer)

Let's put it this way. Our hope is that we're going to continue to make sizable capital investments because that means that our revenue in the future is expected to continue to ramp, which is what I think based on what we're hearing from our data center customers. This is a multi-year upgrade cycle that they're going through with respect to their AI data centers. To that extent, if we're participating in that, then our expectation is that we would continue to see increased demand, not just 2025 and we're done.

I can't give you any kind of guidance on what we're going to be in 2026 in terms of CapEx, but I think it would be a very good sign if we continue to invest substantial amounts.

Thompson Lin (Founder, CEO and Chairman)

Let me say that based on the information we have from four or five customers, I think by end of next year, the demand for the 800G 1.6T single-mode transceiver could be more than 200,000 per month or even 250,000 per month. But I think we want to be conservative because the demand changes from time to time. We will not invest until we got the commitment or maybe the sign contract with customers. But this year, I think we are very confident. The demand is there, and that's why we need to speed up the investment, especially in Houston.

I think really we need to make it the transceiver in Houston because I think that's required by the customers. All right?

Michael Genovese (Senior Research Analyst)

Okay. Thanks so much.

Operator (participant)

The next question comes from Simon Leopold with Raymond James. Please go ahead.

Jeff Koche (Senior Research Associate of Data Infrastructure)

Yes. Thanks. This is Jeff Koche in for Simon. So I just wanted to hit on 400G for a little bit. Maybe you could break out of the $14 million. How much was the Microsoft AOC agreement? And then thinking just about how maybe the front end, the 400G demand there, how you expect that to trend into March, and I'll follow up.

Stefan Murry (CFO and Chief Strategy Officer)

Yeah. I can't really comment on customer-specific products and all that. That would be covered under NDA, but I can say that we've been pretty consistent that the Microsoft program would ramp later this year, and that's consistent with the forecast that we're continuing to see.

But with respect to exactly how much we sold this quarter, we don't break that out. And I'm sorry, your second question was what?

Jeff Koche (Senior Research Associate of Data Infrastructure)

Just, I know that that was targeted more to the back end. I'm just thinking the 400G that's more front-end related. Or is some of the 400G that you're getting into business, should we consider that back end? And how do you expect that dynamic to trend into March? Thank you.

Stefan Murry (CFO and Chief Strategy Officer)

Well, again, we don't give forward guidance by product line either, so I can't really comment on exactly what we're expecting.

Thompson Lin (Founder, CEO and Chairman)

Let me say that when we can see based on demand for 400G single-mode transceiver for maybe 2 km or 10 km, that's what we are adding in our capacity too, all right?

Not only 800G, but that's not the majority of this year because so basically, I would say within a few months, I would say, I don't know, by June or July, I think the single-mode capacity we need to be maybe, I would say, minimum 50,000-70,000 per month. The multi-mode, I think we're talking about maybe 120,000 per month, maybe by similar times, all right? June, July, August. That's based on the demand we see, all right? That's how far I can say. But we have many customers, okay? Maybe, I don't know, five or six, seven customers, all right? All in the U.S., big customers, all right? Anything else?

Jeff Koche (Senior Research Associate of Data Infrastructure)

Yeah. Maybe just clarify based, I'm sorry if I missed this, but embedded within the guidance for March, where do you see CATV versus data center sales?

data center should be up, I'm assuming, and maybe some moderation in CATV. Thank you. That's it.

Stefan Murry (CFO and Chief Strategy Officer)

Yeah. I mean, again, we don't really break it out by product line like that, but I think we've said pretty consistently that we're going to reach a kind of plateau in CATV revenue. I mean, I've been pretty consistent in past calls talking about how at some level, our CATV revenue is limited by the rate at which our customers can deploy the product, right? This is not like data center where a technician can just go into the data center and replace a bunch of product all at once. Each one of these amplifiers needs to have a crew, a bucket, trucks, and a lot of infrastructure is required to do that. So there's just a natural limit to how much of that can be installed in any given quarter.

So we expect to see kind of a plateauing in the CATV business. And as Thompson mentioned, the cable TV, I mean, excuse me, the data center business is where we expect to see most of the growth going forward.

Thompson Lin (Founder, CEO and Chairman)

And by the way, the Q1 guidance is not limited by demand. It's because it's Chinese New Year, as you know. So there's two, three weeks or even one month, including the manpower issues. So otherwise, I think the revenue will be much, much higher. So in Q1, the revenue is limited by our capacity, especially manpower, okay? Not the demand. So that's why we are working very hard to catch up the demand for the customer, especially in data center. For 100G, 400G, then 800G, I think possible we should start getting to volume manufacture in Q2 for sure, Q3.

Jeff Koche (Senior Research Associate of Data Infrastructure)

Great. Thanks.

Stefan Murry (CFO and Chief Strategy Officer)

Okay.

Operator (participant)

The next question comes from Dave Kang with B. Riley Securities. Please go ahead.

Dave Kang (Senior Research Analyst ofTechnology Research)

Thank you. Good afternoon. First question is on cable TV. You got that 52% customer. Is that a DC, or can you talk more about that customer? Because it's not ATX, right?

Stefan Murry (CFO and Chief Strategy Officer)

No, it's the same big customer we've had for the last few quarters in cable. And it is a stocking distributor for cable TV products in the U.S., yeah.

Dave Kang (Senior Research Analyst ofTechnology Research)

So how is that? Can you talk about the difference between demand difference between your product versus, say, like DAAs from Harmonic and Vecima, where they're talking about slowing down, where you guys seem to be kind of immune from that?

Stefan Murry (CFO and Chief Strategy Officer)

Yeah. I mean, I think we've mentioned this on the last few calls, but I'll kind of reiterate that.

So the DAA, the element that is principally causing the DAA deployments to slow down is a Remote PHY module. It goes out in the node, and it translates the digital input and output signals into analog signals that can be carried over the rest of the coax portion of the HFC network, okay? That particular device has had some challenges, okay? And so our products are downstream of that device. Right now, what we're selling are the amplifier products that go downstream of the node, okay? So the upgrade of those amplifiers is independent of the DAA aspect of the network, okay? And carriers can get benefits from deploying the amplifiers independent of whether or not the node has been upgraded. And so that's what they're doing.

As they work their way through whatever the issues are with the Remote PHY deployments, they're going full speed ahead on their amplifier upgrades so that when the Remote PHY devices and the nodes are ready, then they'll be able to immediately or more quickly turn on DOCSIS 4.0 services.

Dave Kang (Senior Research Analyst ofTechnology Research)

Got it. And then regarding your top customer, that DC customer or cable TV customer, I mean, who are their major customers? I mean, do they sell to major MSOs like Charter and Comcast, or any more color on their customer base?

Stefan Murry (CFO and Chief Strategy Officer)

I mean, yes, they do sell to large MSOs, including the ones that you mentioned, and a variety of others. Got it. And my last question. The units that we have been selling are principally destined for large North American MSOs who are doing upgrade projects.

Dave Kang (Senior Research Analyst ofTechnology Research)

Got it.

And then I'm assuming when you talk about second half regarding 800G ramping in second half, I'm assuming third quarter. What's your lead time or expected lead times for 800G? Is that like maybe 10 weeks or eight weeks?

Stefan Murry (CFO and Chief Strategy Officer)

Something like that. I mean, typically, our lead time in the data center business has been something where around eight to 10 weeks. I guess that would be what we would expect for the 800G as well. There's no principal reason why 800G would differ from that.

Dave Kang (Senior Research Analyst ofTechnology Research)

Got it. Okay. Sounds good. Thank you.

Stefan Murry (CFO and Chief Strategy Officer)

Yep.

Operator (participant)

The next question is a follow-up from Tim Savageaux with Northland Capital Markets. Please go ahead.

Tim Savageaux (Managing Director and Senior Research Analyst)

Thanks. And this kind of follows on to Thompson's comments about mid-year capacity. And so it sounds like a lot of this is going to need to happen pretty quickly.

I guess talking about the potential for a strategic investment, it seems like if that's going to happen, that would need to happen pretty soon to be part of the financing of the capacity. I just want to get any color on that, on any expectations you might have.

Stefan Murry (CFO and Chief Strategy Officer)

Well, look, I mean, we've been adding I mean, as you can see, our CapEx numbers have ramped fairly dramatically over the last couple of quarters already. So we're not holding back on investments that we need to make until we get a strategic investment. What I was trying to say in our prepared remarks was simply that those discussions are ongoing and that that could be a part of our financing plan.

Tim Savageaux (Managing Director and Senior Research Analyst)

Okay. Thanks very much.

Thompson Lin (Founder, CEO and Chairman)

And the name is something too. For the 400G, multi-mode, the name was actually it's not the short reach.

It's AOC, but the same capacity can be used for 800G AOC too. So if it comes to that, then the capacity is 240,000 per month of short reach or 120,000 per month AOC by June or July and for both 400G and 800G. And that's based on the demand from the customer. The other is most of this new production line will be almost fully automatic, not like 100G manufacturing lines. Totally different. So we can save minimum 80%-90% manpower. And that's why we are very confident. We can manufacture in Houston. All right. Thank you.

Operator (participant)

And the next question comes from Michael Genovese from Rosenblatt Securities as a follow-up. Please go ahead. Hello, Michael. You're on the podium again.

Michael Genovese (Senior Research Analyst)

Oh, sorry. I was on mute there. Thanks again. Just last follow-up question for me.

I just want to ask directly, have you guys qualified an 800G product with any customer yet, and have you shipped any 800G revenue in the fourth quarter?

Thompson Lin (Founder, CEO and Chairman)

We are almost there with Charter, a lot of the 800G, but it's by a few hundred, a few thousand. That's called the final qualification besides the lab. It's more like data center qualification, something like that.

Michael Genovese (Senior Research Analyst)

Okay. Thanks.

Thompson Lin (Founder, CEO and Chairman)

Single customer.

Michael Genovese (Senior Research Analyst)

To more than one customer, you said?

Thompson Lin (Founder, CEO and Chairman)

Three or four. Four. Three or four. Yes. Okay.

Michael Genovese (Senior Research Analyst)

That's all from me.

Thompson Lin (Founder, CEO and Chairman)

Single mode.

Michael Genovese (Senior Research Analyst)

Thanks again.

Thompson Lin (Founder, CEO and Chairman)

Yeah. Single mode transceiver. Not multimode.

Operator (participant)

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

Thompson Lin (Founder, CEO and Chairman)

Again, 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.

As we discussed today, we believe the long-term demand driver remains strong for both our data center and CATV business, and we believe we are well-positioned to capitalize on this opportunity. We look forward to seeing many of you at OFC. Thank you.

Operator (participant)

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.