Q2 2024 Earnings Summary
- Strong Datacenter Momentum: Q&A responses highlighted a robust ramp in 400G and 800G products, with indications of new hyperscale customer wins and one customer growing nearly 4x since Q1, underscoring strong demand in the datacenter segment.
- Improving Product Mix and Margin Recovery: Management emphasized that transitioning to higher‐margin products—such as single mode 400G optics and enhanced CATV DOCSIS 4.0 products—will help drive gross margins toward a long‑term target of around 40%, with most cost pressures expected to resolve by Q4.
- Promising Long-Term Revenue Pipeline: The sustained progress on the Microsoft AOC program with a maintained aggregate potential of $300 million and additional forecasted orders from hyperscale customers point to a strong future revenue trajectory.
- Gross margin pressure: Q&A responses indicate that the company's non-GAAP gross margin came in below expectations due to product mix issues and additional production costs, suggesting challenges in reaching its long-term 40% target.
- Weak CATV performance: The CATV segment experienced significant revenue declines and cost overruns, with uncertainty around the timely ramp of DOCSIS 4.0 products, which could continue to weigh on overall margins.
- Slower ramp-up of high-margin orders: Executives noted that orders for 400G and 800G products, including those critical programs like the Microsoft AOC, are ramping more slowly than expected, potentially delaying future revenue growth.
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Margin Outlook
Q: Will margins reach 40% with product mix changes?
A: Management noted that while current margins are impacted by product mix, long‐term gross margins should approach around 40% driven by high‐margin DOCSIS 4.0 cable products, strong 800-gig performance, and shifting 400-gig from multimode to single mode. -
Revenue Mix
Q: How is the revenue mix shifting from Q3 to Q4?
A: They explained that in Q3, additional revenue largely comes from cable and data center, but in Q4, datacenter will drive growth more aggressively relative to cable. -
Microsoft AOC Program
Q: Is the $300M Microsoft AOC goal still on track?
A: Management remains committed to the $300 million aggregate target, even though the initial ramp has been slower than expected, making it unlikely to hit $25M in Q4 alone. -
CATV Ramp-Up
Q: When will CATV revenue hit the targeted run rate?
A: They expect significant improvement in the CATV segment in Q3, aiming to reach around $25 million quarterly run rate by year-end despite current margin pressures. -
800-Gig Order Timing
Q: When will 800-gig orders materialize?
A: Management anticipates that orders for 800-gig products from 1–2 hyperscale customers will mostly occur in Q4, with only a few small orders possible in late Q3. -
Product Mix Details
Q: What is the product mix for high-speed optics?
A: The call highlighted that Q4 will be driven primarily by 400-gig products with some additional contribution from 800-gig, while emphasis on 100-gig was minimal. -
Cable Margin Resolution
Q: Can cable margin pressures be resolved in Q4?
A: Management expects that the extra costs impacting cable margins in Q3 will largely be resolved by Q4, aiding in the gradual improvement of overall gross margins. -
Customer Classification
Q: How is a “new” customer defined?
A: A customer that hasn’t transacted for over 2 years is considered new, even if they have done business previously. -
Hyperscale Win Details
Q: What are the details of the new hyperscale win?
A: Although details remain confidential, the new win involves a standard 400-gig transceiver product aligned with their typical datacenter offerings. -
Customer Growth
Q: How has a key hyperscale customer performed recently?
A: One longstanding hyperscale customer has increased its purchases nearly 4x since Q1, although it isn’t classified as a new customer.