AAOI - Earnings call transcript Q3 2017 | Applied Optoelectronics, Inc.

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Operator

Good afternoon. I will be your conference operator. At this time, I would like to welcome everyone to Applied Optoelectronics’ Third Quarter 2017 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded. I’ll now turn the call over to Maria Riley, Investor Relations for AOI. Ms. begin. may you Riley,

Maria Riley

AOI to Maria its welcome is Optoelectronics’ quarter you is call. that company’s financial closed results website live. I’m its This release I’m quarter for third XXXX Relations. call being the quarter pleased on and Relations the A can the of conference XXXX will year. at today, page market AOI recording on archived the to link XXXX. to and After be a found Riley, you. press of also Investor announcing provided available Applied for X results The website webcast And recorded release financial be the Investor issued outlook ao-inc.com. Thank AOI’s third and fourth the

Lin, an today’s Chairman follow will and AOI’s Chief fourth will Financial Stefan our Joining call Founder, outlook for session and Stefan Officer. Thompson prepared quarter. Strategy overview details provide give Chief the A financial Dr. is Thompson Murry, question-and-answer AOI’s Dr. on will remarks. of Officer AOI’s and CEO; the and results, us QX and

forward-looking to call, Before materially These will assumptions would we remind today’s to to make differ anticipated AOI’s expectations, which as statements. current such begin, and company’s safe risks On results statement. from forward-looking the like review statements. and involve actual forward-looking harbor as statements you uncertainties I management well in cause could those

set no forward-looking company’s actual risks in statements update the believes required similar for SEC. specifically are statements the all today to Factors conform with identify to a of well unless as obligation non-GAAP statements reports Also, such expressions. may, measures discussed on company’s of in anticipates, to call of impact other section with assume otherwise. Risk about is after present with our are isolation that other any discussions accordance considered that or included reconciliation earnings law, website. this why information be and on as non-GAAP More measures company’s are in reason forward-looking as changes intended these business results earnings between results the GAAP. the financial can to You forth or press our as financial expectations. by plans, terminology or may of date the to noted GAAP financial revenue, we the for our by should, and as will, file by estimates numbers we basis, expects, our available exception substitute prepared measures A in are Non-GAAP on non-GAAP in the a release Except not

James AOI many on Before Raymond Cybersecurity have I’d Summit like will in moving Investors to announce the that Security Conference see opportunity to Needham on on to November the Select We Networking December financial November results, there. mid-December. the Networking XX, XX, a X and the management to & you Alpha Craig-Hallum hope the attend Conference of Cowen Conference Technology &

to Founder, Dr. and call Lin, Thompson I to turn Applied would CEO. Optoelectronics like Now, Chairman the over

Dr. Thompson Lin

us the joining third In performance today our to summarizing quarter. for quarter Thank you in discuss you, Maria. Thank our results.

pleased growth softer-than-expected very an Our XX% to representing customer. a of record $XX.X revenue increased QX over XX% grew due all-time revenue year-over-year of this QX to of our In datacenter was we total shortfall, $XX.X report datacenter to million. that This XX% demand year. last our in revenue CATV, million. over from a I’m Revenue below year. $XX.X our million, resulted slowdown increased this Despite to expectations large in revenue

in margin $XX of QX over of to an XX.X%. $X.XX $X.XX Beyond delivered the increase net of revenue, XXX% we and margin of led income share, year. per maintained a XX.X% strong or reported operating million, gross diluted of This last an

our quarter with position disappointed confident third in we are our revenue, remain advanced we in optics. leadership While

forty customers, many full including customer approximately XXXG the encouraged core of new base. with to efforts and products, various of continue are and upgrade CATV, we XXXG with MSOs generating are expect design demand we our CWDM specially underway wins DOCSIS qualification our whom XXXG three with our outside XXXG improved cable XXXG as We we in In customer traction are products transceivers. by quarter, architecture We hyperscale X.X. have spec MSA their also the secured nine

base the customer with customer We hard and are response. to are working diversify our encouraged

to also and With over to between performance products turn and expanding competition. continue details outlook gap further and that, call of our our for the QX. integration the I on will Stefan Stefan? innovative make the new We AOI the QX extend review developing vertical progress to to

Dr. Stefan Murry

Thank the quarter third $XX.X year-over-year. you, for million, revenue up Thompson. was Total XX%

revenue of compared was datacenter $XX.X up XX% year. QX $XX.X Our with in million, year-over-year last million

quarter we pre-announcement with overall large lower visibility the that As of call, saw demand model customer. customers. was inventory management the discussed by we revenue impacted on our vendor-owned in from And our employ this one our

that As this allows hub us This customers VOI customer is when maximize pulled. can revenue make it arrangement AOI and products the from difficult, for inventory manages, that available inventory pull to recorded a but the needed. is prediction previously revenue by discussed, at AOI allows program sales to time are ensuring the

the purchase surges in because unexpected demand the inventory had been to our past, for little For time. with lead example, in to no available customer has, meet hub AOI we able to

normalize and the We have continue customer, other with transition based some Outside flow on related buildup year. was this the first top of to order on believe this half inventory to transition we our based demand customers. we next continue experience that will those there we from customer within specific believe is conversations and to this datacenter and with ongoing the ongoing conversations, inventory of believe We customer, discussions the disruption good AOI. conditions with during in XXXG to not to XXG

datacenter the products, QX, XXG products XX% revenue while XXXG from XXXG which increased by during Revenue between XX% which quarter a sequentially. generated revenue from crossover of and products, datacenter generated datacenter we saw PSM revenue. of XX% to As previously products compared XXXG anticipated, our decreased CWDM our represented

MSA Our XXXG fastest-growing volume several XXXG shipping was transceiver of to customers are product additional quarter. qualification MSA the CWDM CWDM quantities we transceivers with And our underway. datacenter spec in spec full datacenter line efforts full

and that the industry-leading maintaining model performance We of customer changing our to to to margin. include our believe cost As while MSA spec adapt lower-cost, address a ability multiple a product reminder, one strengths to light of with version provide manufacturing customers is our XXXG CWDM flexibly a offerings as to full requirements, as their adjust business requirements. gross options well lower-performance transceiver CWDM

a most we is As dynamic, serve that evolving the some you companies of know, base composed customer of world. rapidly the in

to products. ability X the their wins with advantage. customers. long-term us as and customers We X change, We as These adapt existing varying with design As along we XXXG new sustainable well needs remain in in of quarter, active secured wins a products. our think XXXG them gives XXXG X for qualification our scale including for include

from As have when product a win and only product. tested reminder, qualified receive we to fully the record a we and customer for the orders has the begun design our customer

outside efforts have ahead, whom customer hyperscale XXXG underway many base. of we and our customers, qualification Looking are with XXXG core approximately XX of various

becomes for Electro- in look high-speed both Transceivers are DML XXXG, that producing having critical leadership than absorption or and we these and higher-data or to have DML and built believe in-house at developed we EMLs, Lasers, expensive to transceivers XXXG that use directly As typically that rates. silicon we rates, modulation, strong, DMLs, capabilities modulated as Modulated including produce will devices increasingly at external on and class and XXXG for data EML ahead allow less XXG us we modulators. expertise And devices success. lasers, believe EML to attain

in XXXG look well developed for laser AOI laser As XXG a August, to announced reach as innovative development we other that EML devices transceiver we we for announcing and solutions, applications. suited milestones. XXXG forward next-generation has new is And

products increase next-generation our with was to improved in million ongoing all-time to QX an cable we primarily television node record projects continue by transition MSOs And reach demand X.X. in of million evolve architectures. demand to market. and as last driven from to to XX% Turning year-over-year CATV DOCSIS increased This year. related and $XX.X cable head-end compared $XX.X upgrade Revenue anticipate

CATV role in significant Tech pioneer in fiber-optic collaboration showcased a products believe a innovative of a at Expo. product developed SCTE new product design latest Cable transition. recently access the we our market, We digital for As this play the forward with and will this Remote-PHY FPGA-based Intel Remote-PHY

evolves. customer well to positioned are leading response network we believe market as this with so are the encouraged we and far seeing share We capture architecture are

last of Our delivered million revenue $X.X $X.X QX products with million telecom compared year. of in

XX%, the products total expect the CATV current XX% year customers business our For is our XX% we the the XX% other. had have X% XX% or and representing and and with remaining continue FTTH, quarter, of revenue, we datacenter products, XX% respectively. Based contributed of hyperscale from telecom from full to more revenue of forecast that revenue X In greater orders datacenter or we customers, datacenter from will the our on from customers for XXXX. in third XX% X that quarter,

statement. XX% increase the also basis our high view XX.X%, of sustainable income reported XX% in QX was and X,XXX strong manufacturing range In gross of to in a which last mix margin we the with maintained the the that an down The QX our the we greater products margin XX% increase of of in points reflects gross quarter, Moving at year. end as a costs. compared improvements and XXXG of represents

our in-house were $XX.X QX strong operating to develop of million of on of to and costs. QX with generation quarter. well last cost sequential next margin compared engineers plan we and know-how to optical increase The that million, million expenses our to from revenue was in in as leadership due XX% or certain Total mostly components up testament we operating as in higher bring of in expense income is as market. reduce quarter our brought products the year. Our in deep XX% R&D position more or revenue Operating to design gross manufacturing $XX.X was a prior $XX.X $X.X of the CATV income further datacenter million the

up from $X.XX XX.X%, reported QX in was income $XX year. last of Our quarter the a net of diluted in income in QX was QX weighted per diluted share with of of or net average million with We QX to quarter of the $X.XX compared QX $X.XX per million per compared XX.X% $X third per million, from share year. the share reported shares. year. GAAP last million $X.XX XX.X increased for $XX.X after income reported share approximately tax or operating net in fully income up margin GAAP Net of The count was $XX.X of diluted year. net income million diluted diluted last last for QX share in

Turning sheet. investments to now end equivalents, the $XX balance million and cash, million $XX.X cash the QX with with restricted short-term in at We the compared quarter. previous of cash total ended

of $XX.X XX, QX. As in we million $XX.X September an have million from increase of inventory,

$XX Our bringing and in this million. $XX.X QX, cash our building brings capital $XX.X quarter from million. totaled spend improvements. $XX our million. made million in operations last in cash projection investments a capital roughly expect from with to machinery compared quarter, total in million and to investments $XX.X construction $X.X year-to-date capital year We We $X.X million million $XX.X generated on now investments production total and our million equipment This of operations the generated including to year-to-date of in

to our outlook. now Moving QX

and revenue million. We be QX million between $XX $XX expect to

million for expect range share shares. to back between and the weighted in count XX% the fully EPS XX.X $X.XX of range using Operator? margin per and $X.XX of to With is per $XX.X the Net to We the that, to expected gross session. million in will share approximately income $XX.X over be turn to be operator diluted Q&A QX million share I average a of XX%. it

Operator

first [Operator question Raymond from Simon Instructions] And comes James. our Leopold with

Simon Leopold

the is But the be that the want give quarter, shot. just in well assumption? customer sure the of customers folks clarify. quarter, make was focused the a and other as I’ll contributor, Got a things a customer largest try bunch. is third that I top we couple that in correct I’m a second quarter assuming XX% XX% to One, to as

Dr. Stefan Murry

Yes.

Simon Leopold

hear Great. helpful. that. to Pleased That’s very

assuming But formulas sequentially. the is this. botch -- was and correctly, apology I’ve The I’m if XXX so entered business I I gig down think other thing

a imagined pause XXX is have So given you’d that primary the explanation every XX gig, to of sell of piece XXX-gig would I gear.

be so, understand XXX gig in down and quarter. us help did maybe if: So your math third I one, the two, correctly; why would if

Dr. Stefan Murry

an business decline overall saw one we customer. -- our overall Well, remarks, we as from in in I prepared an think we mentioned decline saw

XX both XXX So and that included gig. gig

were for overall the customers XXX the didn’t we On that gig, actually had, the other so decline the balance that other customer. from hand, out quite up one

Simon Leopold

then decline in for in is the But of sequentially. the of additional the maybe about in to position, of And last some seasonal this, you’ve be business? arguments there’s customer assumption one in what’s spending, the suggests little then offered, terms some losing datacom light about which, mix you should me datacom expect me, generally I the the a customer the fourth that expect forecast up the in that quarter within cable particularly your bare

Dr. Stefan Murry

supplier transceiver -- customers applications. we nondisclosure ongoing for customer talk needs. their all about Obviously, we those major that their agreements as can’t it very have, particular positioning. as remain to and We specifically a at our think I’ll -- engaged are major customer. with customers all leave remain that needs regarding have can’t we And far our long-reach really with of intra-datacenter customers. I all our obviously, any So We I of with kind so we of customers, do discussions

that, the the orders built have major based fourth we’ve an them And -- we all that forecast customers think appropriate We all quarter. the have. for for customers -- that in we all on from we’ve

Simon Leopold

say is that mix fourth So to as Is you in safe quarter? a it reasonable third somewhat the assumption? similar quarter a the that expect

Dr. Stefan Murry

say, exact in nonexistence vastly QX. or mix. In assume in or sizable reasonable there no QX put mean, was let’s is, other customer I something to that can’t comment different. lower it’s to not words, It’s that reasonable. it of it’s there’s I that was -- in significantly customer mean, this the on the way, I no lower QX point is that

Operator

from comes Company. Paul Cowen question next with Our and Silverstein

Paul Silverstein

I’ve going got to of patience. number ask a also I am for your questions.

details ability Stefan, some I First with of give the up is and speed. XXXG on you numbers CWDMX but not does gave know call, off, PSMX? I apologize. my XXG of you type, keep some to voice your -- respect the and the with to the splits of Can

Dr. Stefan Murry

Yes.

I may... I think,

Paul Silverstein

-- you that XXXG number. you up XXXG but heard and number? think say I you declined was that the that give I Can a sequentially, didn’t was for CWDMX said up PSMX trouble XX% I

Dr. Stefan Murry

in products several expected a We revenue did datacenter which for and datacenter compared And consistent quarter. XXG XXXG were revenue, number said to did in of XX% the is we’ve to were specific with yes, that we during say XXXG increased CWDM XX% of So, by products revenue QX. those products quarter. overall of our over terms that quarters datacenter we not X XX% give PSM what for the our cross

Paul Silverstein

to reason you And I Stefan, going it give the in not of not PSMX, reason their terms for us client, love but any would to number, any quantifying if give why? you’re why

Dr. Stefan Murry

reasons. particular Those

Paul Silverstein

give And you it. to want don’t

Dr. Stefan Murry

Thanks. No, Paul. I don’t,

Paul Silverstein

right. All

visibility. you ask about me Let

I be from, confidence are if you quality what to timing, if largest your with qualitatively Can -- the the insight? the in miscues, hard along quality Why But is there of much is to of have you the deployment where us do? quality you in learned positioning anything et what the your confidence the your customer. do plans? perhaps, way, How you of it’s going, you of revisit anything, learned. been the customers terms VMI with of predict your miscues is have that presume their has in recent the always with What, got some of to cetera. you’ve the have relative insight your exact So insight, and -- what terms

Dr. Stefan Murry

obviously what been that quarter, it’s last is this other a X our quarters up compared we’re the look had are to while which year, this, early think bit, in words, our you’ll QX that leading disappointed at in good you I point out to a really year-over-year. find going customer, straight mean, customers, we’ve -- the And our numbers, if XXXX, what to up fair I’m say, besides you hood have for through once under do QX had row. look quarters chance let’s a you’re sure go, XXX% datacenter of, in largest Well, of I in little to X kind to

we’re diversified helps looking have that visibility. what And before. a base customer us than is at terms So we more giving of what in

Now obviously, revenue different that we can we several still our sizable that to extent helps our the among revenue. more portion that customers, have customers a customer But that represent -- somewhat. a diversify visibility of

customer and that So living to we’re of tied by terms as no dying particular a visibility. longer in

little looking kind our at have to a customers. of detail, all more of terms major of with continue in it discussions In we

get customers our As believe quarter, datacenter and I do all the believe from that mix like remain needs long-reach continue the it’s problem and don’t to said to a predict, we difficult major they exact for given their along individually. player customers We’ve said a continue each orders products we to The transceiver that. And needs. customer any that on continue fashion earlier, these in very in those going future. customers. between things for that with are linear always is that hyperscale We we

a in technology one sometimes, with in to transition another. we get quarter the like we And from situation caught this did

Paul Silverstein

with you those to and relationships respect to those are entities. Amazon, companies of And your the speaking on organizations Facebook directly the as about in purchasing you’ve I that’s or and for counterparts I Whether party third third made each Stefan, with that and the colleagues of [indiscernible] Microsoft, those a speaking making opposed assume within to are and of behalf directly you’re conversations the each. are question your not statements basis assume your parties, web to with each

Dr. Stefan Murry

Yes.

customers. hyperscale direct conversations with we So, our have datacenter large

Paul Silverstein

But of the offline. And that I’ll some XXXG, and PSMX final And PSMX. your right. obviously, my now question competitive view take has CWDMX, in in come Intel finally your positioning in and in is this blind, on rest others, down. was All

giving giving number. you and of one you’re as Amazon But question not is just customers, Facebook, and view relative us talking you’re not the any there’s I growth where going I is confident to the Microsoft in -- Intel know your one mean, to go with forward. you I’m meaningful competitive of the to terms position You’re customer your outlook you going see of each still maybe that names, respect your are others, sensitivity quarter. there? outlook insight those us what what can is without give the and with can revisit the but

Dr. Stefan Murry

gig What never we’ve talked to things. in this positioning. about really competitive what could supplier. low-cost these to pleased already we’ve continue supplier is be of long-reach think a quarters be sole say several that our with we know any of that for we that for We said needs. of matters continue think competitive to is all business I Well, be based believe the this. is supplier believe said going customers a we low-cost a company we’ve we And expected business. I’ve with -- be major discussions We’ve a to needs And transceiver that to for that those or I our the and XXX their the going that couple times all indicated we to on along supplier. our engineered this are be those being that continue that hyperscale had. I We’ve needs

our for us gross flexibility changes, our highlighted example, we that from the customer prepared well. remarks, allows see manufacturing that margin, that processes adapt can our to built and you as into in to we think I

well we for to yes, that business believe positioned hyperscale have. continue I here So we’re the

Operator

& comes Henderson Alex Company. Needham Our next question from with

Alex Henderson

back for periods? build What’s it And your to little I you components? plan a particular in working in to any mostly a do have customized down? was margins customer quarter. could Is components of? way a you the hoping the impact that that sell that it those How bit forward inventory does composed XX would make in on customers? your on inventory somewhat gig difficult other Are built in about talk

Dr. Stefan Murry

half that, in the we gig. various in will And is next mix. this XX the different out a year. believe are we’ve that and there. conversations that, So time. XX It with we customers, There’s had we of be And predominantly extends components other consumed that time is into gig indicated over inventory the that frame that -- customer first

Alex Henderson

to So think you have or that it move order at you’ll in do margins? you move think normal it to it you discount can

Dr. Stefan Murry

inventory similar the don’t We we’ve that anticipate already. discount products offered having below to specifically pricing for

Alex Henderson

demand And looking a bit XXX ready being the about when if them How that have a whether therefore, you was slowdown in customer the you’re function in little weakness? a a I there at that prior talk weakness whether been characterize in system Okay. qualifying them overall could you deploy at this of and, quarter, or having would you might then, of or it’s qualified not to gig their function that a displacement think not could, the that stutter was customer decision? caused caused whether what’s

Dr. Stefan Murry

we have all issues on I’m can’t. Alex, I really comment mean, cannot I our sorry. of and customers that. nondisclosure agreements customer-specific I like with

Alex Henderson

seen have any result All of any quarter? the as right. of your down workarounds? XXX products need your factor patent customers Have gig, any the the a Did that in of customers result Arista re-qualify as the a slow during to of you

Dr. Stefan Murry

say that ordinarily didn’t I heard we issue I happen. not that of couldn’t would come apprised haven’t be I it mean, that’s something but out, necessarily.

Dr. Thompson Lin

from need that’s clarify. this the order then is When is the for customer to They Alex, order, we set. got price hub Thompson. VOI,

not So pull price -- into the we change. customer inventory will are not when will revenue, the the

Okay?

Alex Henderson

right. All

pulls as long customer inventory that hub. eventually same that as through that So

Dr. Thompson Lin

Yes.

Alex Henderson

rate expect overall to trajectory? the decline -- I sense what quarters? of Any be pricing Are of see. in pricing couple next sense us over expecting give industry you of any of you’re you can

Dr. Stefan Murry

that. guidance. to And kind be really don’t little rather our would certain competitors that any viewpoint give on customers quite our and keep of Yes. the I’d I’m closer pricing forward very interested vest. We our in

Operator

comes question from Richard our next Shannon Craig-Hallum. And Instructions] with [Operator

Richard Shannon

for when one inventory. the few of follow get fourth regarding brought on up I’m you of normal And expect do levels a you the through me. topics come down quarter? has to Alex do How to inventory to going back kind overall up levels? guess, fast the I

Dr. Stefan Murry

we’ll think next first to the be year. half levels in We back of normal

Richard Shannon

your would given quarter Okay. assume, utilization like brought fairly noticeable that down internal margins? And that bit. what third during your factories in a change on you any seemed I a rapid your impact had little is Has gross

Dr. Stefan Murry

Yes.

the brought you we our bit. did a part have margins We guided down down little of X due And see gross There’s is capacity QX impact and price it a of slightly our due bit. it QX margin, little to as in that impacts. I utilization and could from mean, to part gross reduction. capacity is

Richard Shannon

there? that your lower mix improved describe? Anything reasons underneath roughly gross utilization, structure? better midpoint that as can I sort describe seems probably in So, midpoint slower, for quarter the gross this I points higher look is in can quarter at history, margin your margin is quarter datacenters roughly guidance at your your fourth year. revenue quarter for is, as here, what here, fourth back mix comparable is, with if little somewhat that meaningfully And basis the it terms Is XXX look to outlook? you bit for the you of than of that, well. normal of you’re perceive here. I of the at a last level much modeling in of What Any And I cost think,

Dr. Stefan Murry

our able as back think and we’ve is consistently, our in as adapt our being that least at analyst summer, reducing great flexibility I that manufacturing really costs, automation, mean, day far summer ever processes our pretty since, the adding enhancing said to strides of No. of XXXX made last we’ve process. I

talking downside, up quarters, to been us outlook, allows the that adaptable adapt. Now But how the a revenue we’ve that manufacturing too, works flexible we -- very it way or the and have fast infrastructure also of about can mainly and adapt and as it same we down. in increase grows our improve previous we in context as on

And And obviously, so do done margins. we’ve that, gross that. while we can maintaining

and While are they’re historically down bit a peak industry. our for competitive healthy the little from certainly very

Richard Shannon

context good. third here XX%. growth in in and spec term question Does you -- the The include One pretty last light version? in the quarter, certainly, near Well, the CWDMX talked quick they that the issues look of the from that both about full me.

Dr. Stefan Murry

we both customers. light That in was the and our are out, spec that several volume the spec the several full we although pointed includes full does. we It shipping had in quarter transceiver, hyperscale fastest-growing as product the version, overall to XXXG which MSA customers,

Richard Shannon

Right. that last part meaningful quarter Stefan. part a full I’ll up probably spec online follow CWDMX third contribution? Was on there, of

Dr. Stefan Murry

Yes.

Operator

our follow-up Silverstein And a next question is and Company. from Paul with Cowen

Paul Silverstein

Stefan, not? I up question. previous from But jump inventory, the if And you is a assuming came big apologize up sell in that why this adversely inventory, that -- we going to margin? impact gross

Dr. Stefan Murry

products much said is And already Thompson I’ve the gross these Well, decided. on pretty margin discussed already.

what we’ve in the that into and to QX. margin going understand guidance we that the So given gross be built is we’ve

Operator

is last & Needham a Alex Our follow-up with Company. question Henderson from

Alex Henderson

clauses clauses customers? your of sold. modus have that Is a that Or automatically a of x amount any something part by in in hub, operandi? pulled stuff that is that’s if you any the of have put lot it’s you of not When is it your time of that that something with is companies not

Dr. Stefan Murry

that. cannot Broadly which obviously. we what like nondisclosure arrangements agreements I but I pretty Again, clear on have type with on customers comment that some any do say of arrangements, specifics customer are could customers, have speaking, or

Alex Henderson

tax negative the And the tax line your quarter? question. why line the went explain Second for December on thinking what’s in you Can quarter?

Dr. Stefan Murry

Yes.

items. rate, broadly benefit what So tax us a there. a XX% there’s And some excluding expect discreet items speaking, I quarter in that about tax is gave would those the discreet

Alex Henderson

Yes.

quarter. So that guidance not XX% the December additional for -- -- I that when your in discreets. -- tax might at have XX% quarter, line assuming when assume Is are you You you a correct? I’m you’re looking

Dr. Stefan Murry

Yes.

We expect what estimates and we some quarter taken -- discreets on the considered... we’ve the in we’ve expect to be

Alex Henderson

negative unforecastable that mean, of quarter. again number about guidance like? those look are December I us a might some externally, can we you If what the give totally in talked

Dr. Stefan Murry

in take I offline. don’t me. front that of have to have I’d number

Alex Henderson

-- I give adjustments externally, that be could to be totally you sequentially? assume to is way, mean, -- It’s I some some it’s like another it has Or asked unforecastable going there. would us so what of your OpEx there sense

Dr. Stefan Murry

things. taxes, Broadly somewhat hard It be because like would QX. guidance similar stock I’m too expect other to your expect wouldn’t OpEx varies with was, speaking, And and us either. change for sorry, the a it QX. -- very things even predict from price will question varies But to is on I about don’t second give it We broadly, it much for OpEx. I

Alex Henderson

Yes.

So reasonable think should figure come when actually line, December to trying -- on it reconcile high that and continue you’re to that. your that plug coming that I’m revenues in guidance spend is something the I I’m would I’m at somewhat what grow different bottom guess, in high spending numbers and in your going and quarter? are the your Is the spending what Or number growth quite to that is persist? either the that out with out I is to OpEx to than trying margin,

Dr. Stefan Murry

and be there [indiscernible] to and tax our OpEx I continue -- I isn’t to I things, to spend. look of spend would where is if to there mean, going are a for I be a mean, other suggest there’s things that. think model don’t your going the in to might need working on compliance a would like continuing little -- that that place related to you we continue harder R&D out, suggest increases Well, bit because take I

the place out tax So good if you’re a look. with result that’s to maybe coming strange, a is

Alex Henderson

Right.

is OpEx, some I think you the say. current at assume So I probably and what I’m growth hearing continued level should least, at

Dr. Stefan Murry

correct. speaking, Broadly I Yes. think that’s

Alex Henderson

All right.

of environment Are relative just to your radically the past here. distances PSM And Okay. that any towards architectural PSM you architecture or pushing the into back architecture alter challenges customers changing to to in the going X-kilometer move your position the way would then in CWDMX? meaningful meters seeing bias any is a your XXX where competitive

Dr. Stefan Murry

into go again, employing. there’s or speaking, architectures structural I changes that am would but any large can’t our that, fundamental of specifics, of and sort I not attribute... to customers are aware like that major fundamental nothing Broadly the I

Dr. Thompson Lin

going DM transceivers price But actually and more to [indiscernible] since tricky. more the be start for is

customer not PSMX. CWDM, into more actually, So are moving

Alex Henderson

at the the level than spectrum, CWDMX pushing obviously, space And you of towards CWDMX is up then taking the into your the heard that out a there’s into there’s similarly, much more end Are LR attractive I’ve space? cases where use bias the because, upper X-kilometer seeing further point. LR a price

Dr. Thompson Lin

to is price the even kilometer. some CWDM to more Because use are XX up talking customers so Yes. about to attractive,

Operator

Simon Our comes Raymond Leopold last question with James. from

Simon Leopold

on talked design you up follow -- I wanted about to wins. the

design I of, XXX think were X which gig. X wins,

just mind, first what And I’m the why sort so the gig? that, beyond the XXX gig, they my of you begs X? Are question. XX in question curious XXX other highlight gig, breakdown are cable-oriented, of the didn’t

the be for likes wanted opportunity and Second can datacenter sales one with Arista, is if could just to business not to Cisco, of understand specifically, and traction help those landing but bit line I get time opportunities. little we on see sort you of would more us the of a process this if Juniper, color necessarily OEMs,

Dr. Stefan Murry

Yes. Thanks, Simon.

any wins mentioned not qualification, we have do customers, under That’s a design as a this not we but yet. in technology other on with gig. design have quarter we win XXX logged do have So that we that obviously with

that XX The gig products cable are mentioned XXX X other of products that not for you some telecom, transceiver and other a gig products or other products, some for TVs variety were the other were things. --

about, that we be customer have products that various we’ve activity our efforts qualification obviously, different base. we as different the products with XX And work and to customer As or back talked in. XX from we -- results qualification those that’s of ongoing expand try to diligent with And customers. under with that datacenter under the very base diversify to far result that that have we’ll qualification now as done reporting -- some that the come do on

Simon Leopold

Okay. And one last one.

trend steady mix of fourth gig. XXX expectations shift towards we’ve this the the terms In of for your quarter, nice seen

do So the this you quarter, from gig. quarter XX% of How about datacenter trend XXX XXXX? in to the expect that segment talk fourth and you coming in

Dr. Stefan Murry

-- to to mean, that continue I is we give clear should I think gig clear it everybody XXX Well, it’s guidance. that’s going future. grow. to specific the definitely be mean, can’t I

in really at long-term clearly, to predominate. particular level can’t of going this trend As each XXX is But as point. the happen we what’s far granularity quarter, give gig for that to

Simon Leopold

XXXX. that and should fourth we in the directionally, assume So, in quarter higher it trends fair? Is that

Dr. Stefan Murry

Like gig I think long-term XX I the into you future. give is than can’t But quarter specifics said, gig clearly for more trend I quarter. on sort of the XXX by

Dr. Thompson Lin

time, datacenter long-reach year share increase will we in same And in market next overall our at believe transceiver market. the

Operator

the time, we Lin to to over questions. At remarks. call closing I’d turn Thompson for have this Dr. further And like no

Dr. Thompson Lin

Thank you us today. joining for

thank customers, for we and continued support. always, As our your employees investors,

Operator

for attending The now conference Thank today’s concluded. is presentation. you

disconnect. may now You

Applied Optoelectronics (AAOI) 11 Nov 172017 Q3 Earnings call transcript