AES Semigas


13 August 2020

AOI’s revenue rebounds by 61% in Q2 post-COVID

For second-quarter 2020, Applied Optoelectronics Inc (AOI) of Sugar Land, TX, USA – a designer and manufacturer of optical components, modules and equipment for fiber access networks in the Internet data-center, cable TV broadband, fiber-to-the-home (FTTH) and telecom markets – has reported revenue of $65.2m, up 50% on $43.4m a year ago and 61% on $40.5m last quarter.

“We had disruptions in operations in our China factory during Q1,” notes chief financial officer & chief strategy officer Dr Stefan Murry. “However, due to the hard work and dedication of our employees and supply chain partners, we are back to normal operations and have increased capacity in both our wafer fab in Sugar Land as well as our factories in China and Taiwan compared to our capacity pre-COVID.”

Revenue was well above the $55-60m guidance, driven by strong demand from new data-center customers, increased customer diversification, and record revenue in the telecom segment led by increased deployments of 5G mobile technology in China.

Cable television (CATV) product revenue was $6.1m (9% of total revenue), down 38% on $9.8m a year ago but up 45% on $4.2m last quarter, as the firm resumed manufacturing at a normal capacity, driven by increased 5G activity and increased order flow in North America for CATV upgrades.

Telecom product revenue was a record $6.2m (10% of total revenue), up 141% on $2.6m last quarter and up 279% on $1.6m a year ago, as it outpaced CATV business.

Data-center revenue was the highest in two years at $52.5m (81% of total revenue), up 58% on $33.3m last quarter and 65% on $31.8m a year ago. Of this, 33% came from 40G transceiver products and 64% from 100G products (up 350%, the second consecutive quarter of year-on-year growth in 100G transceivers). “We continued to see increased data-center demand during Q2 from a diverse set of customers,” notes Murry.

“We are encouraged by the increased contributions from our newer customers, which has led to a meaningful improvement in customer and end-market diversification,” says founder, president & CEO Dr Thompson Lin.

The top 10 customers comprised 86.9% of revenue (down from 90.9% a year ago). Three were 10%-or-greater customers (all in the data-center segment) contributing 35% and 15% and 12% of total revenue, respectively. One of these was a new 10% customer (a US-based hyperscale cloud operator, mainly purchasing 100G transceivers), where AOI has been gaining share. AOI has also seen increasing revenue from a large US-based switch router vendor that approached the 10% revenue level. Rounding out the top five was a data-center customer in China. There were three other customers that each contributed 5-10% of total revenue. Overall, this compares with only two 10%-or-greater customers and one at 5-10% a year ago, versus six customers each over 5% now. “Our efforts in diversifying our customer base continue to show tangible results, and many of these new customers are contributing meaningfully to our results,” notes Murry.

“In addition to the market diversity, our top 10 customers are also geographically diverse. Out of our 5%-or-greater customers in Q2, all but one were US-based multi-nationals, and the remaining one was a China-based switch router vendor primarily serving the data-center market,” he adds. “Looking at our top 10 customers in Q2, seven were US-based multi-national corporations, two were based in China and one in Europe.”

On a non-GAAP basis, gross margin was 23.1%, up from 19.5% last quarter but down from 27.2% a year ago, and at the low end of the 23-25% guidance range due to an unfavorable product mix (mostly in the data-center segment) as well as some continued COVID-19-related expenses (including manufacturing and shipping costs).

Operating expenses were $20.6m (31.6% of revenue), up from $19.5m (44.9% of revenue) a year ago, due mainly to increased shipping costs, sales commissions and insurance costs.

Net loss was $5m ($0.24 per share), cut from $5.2m ($0.26 per share) a year ago and $8.8m ($0.44 per share) last quarter.

Cash used in operations was $15.5m. Capital expenditure (CapEx) was $5.8m, including $5m in production equipment and machinery plus an immaterial amount on construction and building improvements. This is lower than expected, due primarily to a COVID-related pause in construction on the firm’s new China factory.

Regarding the after-market offering announced in February, AOI has so far raised gross proceeds of $22m (including $7.7m in July, after the end of Q2/2020). The firm intends to use the proceeds for continued investment, including new equipment and machinery for production and R&D.

Overall during the quarter, cash, cash equivalents, short-term investments and restricted cash fell from $62.5m to $58.9m.

Inventory rose from $87.1m to $97.3m, driven by additional raw materials purchased for production orders on hand and forecasted orders.

“During the quarter, we have had design wins, including four with telecom customers which are related to 5G network deployments, mainly in China. The other four design wins were with existing customers in our data-center segment,” says Lin. “Looking ahead, we expect this momentum to continue into the third quarter, driven by similar trends in increased demand from both our data-center and telecom end-markets,” he adds.

“We continue to see high demand from our data-center customers, who remain focused on improving network performance in light of the increased traffic related to the shift toward working from home,” says Murry. “We also received our first orders from CATV customers that we believe are related to network upgrades by MSOs also responding to stresses on their networks,” he adds. “For the remainder of the year, we expect to ramp up production to meet order demand.”

For third-quarter 2020, AOI expects revenue to grow 20% sequentially to $76-83m. Gross margin should rise to 25-26.5%. Net loss is expected to be cut to $4.6-0.6m ($0.20-0.03 per share).

“We expect gross margins to recover to pre-COVID levels as we implement cost reductions that were delayed by the pandemic,” says Murry. “More favorable product mix will lead to improving gross margin over the next several quarters,” adds Lin.

“We expect to resume spending on our new facility in China in Q3, and we anticipate this to be reflected in increased spending on construction and building improvements,” says Murry. “Including this resumption in building expenditures and other equipment necessary to increase our production capacity, we expect total 2020 CapEx to be about $42m.”

Tags: Optical transceivers Laser diodes



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