Applied Optoelectronics Q3 2023 Earnings Call Transcript

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November 9, 2023

There are 7 speakers on the call.

Operator

Good afternoon. I will be your conference operator. At this time, I would like to welcome everyone to Applied Optoelectronics' Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Please note this event is being recorded. I will now turn the call over to Lindsay Savarys, Investor Relations for AOI. Ms. Savarese, you may begin.

Speaker 1

Thank you. I'm Lindsay Savarese, Investor Relations for Applied Optoelectronics. I am pleased to welcome you to AOI's 3rd Quarter 2023 Financial Results Conference Call. After the market closed today, AOI issued a press release announcing its Q3 2023 financial results and provided its outlook for the Q4 of 2023. The release is also available on the company's website ata0inc.com.

Speaker 1

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 1 year. Joining us on today's call is Doctor. Thompson Lin, AOI's Founder, Chairman and CEO and Doctor. Stephen Murray, AOI's Chief Financial Officer and Chief Strategy Officer.

Speaker 1

Thompson will give an overview of AOI's Q3 results, and Stefan will provide financial details and the outlook for the Q4 of 2023. 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.

Speaker 1

In some cases, you can identify forward looking statements by terminology such as believes, forecast, anticipates, estimates, suggests, intends, predicts, expects, or by the negative of those terms or other similar expressions that convey uncertainties 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 our products Into New Markets and customer responses to our innovations as well as statements regarding the company's outlook for the Q4 of 2023. Except as required by law, we assume no obligation to update forward looking statements for any reason after the date of this earnings call.

Speaker 1

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 Factors section of the company's reports on file with the SEC, including the company's annual report on Form 10 ks for the year ended December 31, 2022, and the company's quarterly report on Form 10 Q for the quarter ended September 30, 2023. 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 our earnings press release that is available on our website.

Speaker 1

I'd like to note the date of our Q4 and full year earnings call currently scheduled for February 22, 2024. Now I would like to turn the call over to Doctor. Thompson Lin, Applied Optoelectronics' Founder, Chairman and CEO. Thompson?

Speaker 2

Thank you, Lindsay, and thank you for joining our call today. Our Q3 revenue and non GAAP EPS were in line with our expectations. While our non GAAP gross margin was better than our expectations. We are pleased by the continued progress we have made on improving our gross margin and by the continued strong growth we saw for our 1 energy and 4 energy products in our data center business during Q3. The combination of revenue growth and improving gross margin allow us to generate $3,000,000 in adjusted EBITDA during the quarter.

Speaker 2

During the Q3, we delivered revenue of $62,500,000 which was within our guidance range of $60,000,000 to $66,000,000 We delivered non GAAP gross margin of 32.5 percent above our guidance range of 29.5% to 31%, mainly driven by our favorable product mix shift and contribution From revenue recognized as part of our non recurring revenue from Microsoft. All non GAAP loss per share was $0.05 which was within our guidance range of a loss of $0.06 to earnings of 0 point 1 dollars Total revenue in our CATV segment was $10,300,000 down 67% year over year and uptime% sequentially in line with our expectations. Total revenue for our data center products of $48,800,000 more than double year over year and increased 70% sequentially, largely due to increased demand for our 100 gs and 400 gs products. As we continue to see the ramp up of our 400 gs products. Revenue for our 100 gs products Nearly triple year over year, while revenue for our 4 energy product increased more than 10 times in the same period.

Speaker 2

With that, I will turn the call over to Stefan to review the details of our Q3 performance and Auto for Q4. Stephen?

Speaker 3

Thank you, Thompson. As Thompson mentioned, our 3rd quarter revenue and non GAAP EPS were in line with our expectations, while our non GAAP gross margin was better than our expectations. We are pleased by the continued progress we have made on improving our gross margin and by the continued strong demand we saw for our 100 gs and 400 gs products in our data center business during Q3. The combination of revenue growth and improving gross margin allowed us to generate $3,000,000 in adjusted EBITDA during the quarter. Before turning to discuss our detailed results and outlook, I want to provide an update on the sale of our manufacturing facilities located in the People's Republic of China and certain assets related to our transceiver business and multichannel optical subassembly products for the Internet data center, fiber to the home and telecom markets.

Speaker 3

On September 12, 2023, we announced the termination of our purchase agreement with Yuhan Optoelectronic Technology. This decision was based on Yihan's failure to meet agreed upon deadlines and we lost confidence in their ability to complete the transaction. We are exploring additional options with new potential buyers. Turning to the quarter. Our total revenue for the Q3 increased 10% year over year to $62,500,000 which was in line with our guidance range of $60,000,000 to $66,000,000 As Thompson mentioned, the increase in revenue was largely due to growth of our 100 gs and 400 gs data center business.

Speaker 3

During the Q3, 78% of our revenue was from our data center products, 16% was from our CATV products, with the remaining 6% from FTTH, Telecom and Other. In line with our expectations, CATV revenue in the Q3 was $10,300,000 which was down 67% year over year and up 10% sequentially. We are encouraged by the sequential growth that we saw in our CATV business in Q3. Looking forward, we continue to section. We anticipate this transition will begin to take place in 2024.

Speaker 3

Looking further ahead, we continue to carefully monitor MSO plans to move to DOCSIS 4.0 Networks. And we continue to believe AOI is a leader in technologies that will enable DOCSIS 4.0 and that our products are well suited for when the push to install amplifiers and other network elements for DOCSIS 4.0 begins. In line with our new strategy of directly selling to the MSOs, we have continued to expand our product portfolio. Just last month, we announced the launch of Quantum Link, The latest solution within our Quantum Bandwidth line of products, designed to provide remote management and monitoring of cable amplifiers that we believe will reshape the cable broadband market. Operator using Quantum Link will now have the ability to remotely manage cable broadband amplifiers, ushering in a new era of efficiency, convenience and enhanced service quality for our customers.

Speaker 3

Last month, we attended the Society of Cable Telecommunications Engineering Expo or SCTE, where we demonstrated our complete line of quantum bandwidth products, including various amplifiers and the Quantum Link control solution I mentioned above. We've received very positive reactions from many of our customers. They are particularly interested in our Quantum Link solution, which several customers have asked to become a standard for the CATV industry. We are pursuing the standardization with CableLabs and anticipate that this technology may be chosen by MSOs as their preferred control architecture for their upcoming deployments. Lastly, and in line with our new strategy, We are pleased to have secured a distribution relationship with Digicom, a stocking distributor.

Speaker 3

Digicom will be an exclusive go to market supplier of our Quantum 12 high gain balance triple and high gain dual system amplifiers and light extenders. This relationship enables customers to received the latest network equipment with the same quality and performance they expect, while providing the industry's best product delivery lead times. Turning to our data center business. Our Q3 data center revenue came in at $48,800,000 which more than doubled year over year and was up 77% sequentially, largely due to increased demand for our 100 gs and 400 gs products as our customers continue to purchase our existing products. In the Q3, 74% of our data center revenue was from our 100 gs products, 13% was from our 200 gs and 400 gs transceiver products and 7% was from our 40 gs transceiver products.

Speaker 3

Notably, revenue for our 100 gs products increased 75% sequentially, while revenue for our 400 gs products increased 74% sequentially and accounted for just under 11% of our total data center revenue in Q3. Looking ahead, we're encouraged by the strong demand we have been seeing and we expect Q4 to be similar to Q3. As a reminder, as we have discussed on our prior couple of earnings calls, we signed 2 agreements with Microsoft earlier this year, Including a development program to make next generation lasers for its data center both for 400 gs and beyond and for the development of their 400 gs and next generation active or cables. While not guaranteed, we continue to believe that the revenue opportunity for our 400 gs and 800 gs products could be greater and a longer duration and the revenue contribution we saw from this customer during the peak of the 40 gs product cycle, which suggests that revenue from these products may exceed $300,000,000 over the several years of these build outs. During the quarter, we received requests from Microsoft to expedite our production ramp for these products, which we are attempting to accommodate.

Speaker 3

Based on these expedite requests, we believe demand for these products remain strong and our production teams are working very hard to add capacity for this production, which we now expect will allow us to begin shipments later this month rather than in late December as originally planned. Notably, the revenue increase we saw from Microsoft this quarter is for mostly existing products. As I just mentioned, we still expect to begin shipping initial quantities of the products related to these new agreements to Microsoft by the end of this month for their testing and believe that production will begin to bring up in December. We also believe that the value proposition that we offer to Microsoft is just as strong with other data center operators and we are working with several of them to evaluate our technology and qualify our products. This includes our 800 gs products.

Speaker 3

During the quarter, we shipped samples of our 800 gs data center products to 2 different customers. By the end of the year, we expect to ship samples of 800 gs products to 2 additional data center customers. This would bring our total to 4 different data center who would be evaluating our 800 gs products by year end. Now turning to our Telecom segment. Revenue from our Telecom products of 3,000,000 was down 55% year over year and down 27% sequentially, largely driven by softness in 5 gs demand, particularly in China.

Speaker 3

Looking ahead, we expect telecom sales to fluctuate around current levels. For the Q3, our top 10 customers represented 96% of revenue, up from 86% in Q3 of last year. We had 2 greater than 10% customers, 1 in the data center market and 1 in the CATV market, which contributed 64% 12% of our total revenue, respectively. In Q3, we generated non GAAP gross margin of 32.5%, which was above our guidance range of 29.5 percent to 31% and was up from 24.8% in Q2 of 2023 and up from 18% in Q3 of 2022. The increase in gross margin was driven mainly by our favorable product mix shift and contribution from revenue recognized as part of our non recurring revenue from Microsoft.

Speaker 3

We remain committed to the long term goal of returning gross margin to around 40% and and believe that this goal is achievable. Total non GAAP operating expenses in the 3rd quarter were $21,400,000 or 34.2 percent of revenue, which compared to 19.4% or 34.3 percent of revenue in Q3 of the prior year, largely driven by increasing legal costs, increased shipping costs commensurate with our increased revenue and increased marketing spend to promote our CATV products. Looking ahead, we expect non GAAP operating expenses to range from $21,000,000 to $23,000,000 per quarter. Non GAAP operating loss in the 3rd quarter was $1,000,000 compared to an operating loss of $9,300,000 in Q3 in the prior year. GAAP net loss for Q3 was $9,000,000 or a loss $0.27 per basic share compared with a GAAP net loss of $15,600,000 or a loss of $0.56 per basic share in Q3 of 2022.

Speaker 3

On a non GAAP basis, net loss for Q3 was $1,700,000 or a loss of $0.05 per basic share, which was in line with our guidance range of a loss of $1,900,000 to a profit of $200,000 or a loss per share in the range of $0.06 to earnings of $0.01 per basic share and compares to a net loss of $7,100,000 or a loss of $0.26 per basic share in Q3 of the prior year. The basic shares outstanding used for computing the net loss in Q3 were 32,800,000. Turning now to the balance sheet. We ended the Q3 with $31,200,000 in total cash, cash equivalents, short term investments and restricted cash. This compares with $28,600,000 at the end of the Q2 of this year.

Speaker 3

We ended the quarter with total debt excluding convertible debt of $46,600,000 down slightly from $46,900,000 at the end of last quarter. As of September 30, we had $67,500,000 in inventory compared to $66,300,000 at the end of Q2. We made a total of $2,100,000 in capital investments in the 3rd quarter, which is mainly used for production and R and D equipment. As we disclosed in March, we initiated a new at the market offering. To date, we have raised $43,100,000 net of commissions and fees under this new program, including $22,000,000 raised in Q3 and $11,200,000 raised after the end of the quarter.

Speaker 3

Moving now to our Q4 outlook. We expect Q4 revenue to be between $63,000,000 $67,000,000 and non GAAP gross margin to be in the range of 34.5% to 36%. Non GAAP net income is expected to be in the range of a loss of $900,000 to income of $1,200,000 and non GAAP income between a loss of $0.02 per basic share and income of $0.04 per basic share using a weighted average basic share count 35,100,000 shares. With that, I will turn it back over to the operator for the Q and A session. Operator?

Operator

We will now begin the question and answer session. At this time, we will pause momentarily to assemble our roster. The first question comes from Jeff Kocher with Raymond James. Please go ahead.

Speaker 4

Yes. Thanks guys. In for Simon. Just really quickly on the Microsoft income that's non recurring. Can you talk about maybe quantify it for the quarter and like what's built in for guidance and how we should Think about that relative to the ramp?

Speaker 4

It would be helpful. Thank you.

Speaker 3

Yes. Well, I can't comment on the exact amount of non recurring engineering costs that would be covered under our non disclosure agreement with Microsoft. So, it was not the primary contributor to the increase in gross margin however, as we noted.

Speaker 4

Okay, great. And then maybe you just give some color on the segments like kind of how you're thinking about some The other segments going into December. Yes, just Well,

Speaker 3

as we noted Sure. Yes. So as we noted, we're pretty excited about the progress that we're making on the data center business. As we And Microsoft is accelerating their demand for the new products that we've been discussing Based on the new contracts that we have, and that's really positive for us. I mean, there's a limit to how fast we can speed up the production, of course.

Speaker 3

So, it's not going to Dramatically change our revenue picture in the Q4, but we're encouraged by the increase in demand that we're seeing. We're also really encouraged by the progress that we've made on 800 gs. As we noted, we've sampled that already to several customers and we expect to sample it to several more customers before year end. So We're really excited about both of those, the progress that we're making on that front. On the cable TV side of things, we did have As you've seen from the other companies that have reported already, the situation in cable right now across the board is muted compared to where it was a year or 2 Go for sure.

Speaker 3

But we're encouraged by the sequential uptick in revenue there. And the progress that we made In terms of our new model of selling directly to the MSOs and the acceptance that the MSOs have had of our new technology like Quantum Link, which we talked about In the prepared remarks earlier has been really phenomenal, and we're really, really excited about the progress that we've made there as well. Those two segments, I think, obviously account for the vast majority of our business. The telecom market will be somewhat muted. As we noted, The 5 gs business in China has been relatively slow and I don't necessarily see a recovery of that in the short term at least.

Speaker 3

But certainly the 2 business segments that are account for the vast majority of our revenue are both heading in the right direction.

Speaker 5

So could you see cable TV

Speaker 4

sequentially into December or do you think that we continue to see sequential growth? And then is it when do you see an inflection there from like you're saying is that for DOCSIS 4.0, is that more of a 24?

Speaker 3

Right. So you're cutting in and out there a little bit, but I think I understood your question to be on cable TV. We expect to see some sequential growth into Q4. And I think you could tell from the We don't expect it's like dramatic growth in cable, but there's probably some opportunity for some growth there. As we discussed, The cable market will recover or we expect the cable market to recover substantially during the DOCSIS 4.0 introduction, which will happen in the middle part of next year.

Speaker 3

In the meantime, we are seeing some customers that are finally starting to burn through their inventory of DOCSIS 3.1 products, the 1.2 gigahertz. So I expect to see some sort of modest improvement there, but the dramatic uptick that we expect to see will be with Boxes 4 point In the middle part of next year.

Speaker 2

Yes. So basically, this is Thompson. We believe CLTV, we can see very, very strong growth In next year from, I would say, the end of Q2 or sometime in Q3 next year. And more important, The gross margin will be much better. That's the key.

Speaker 2

It's not the right move, it's gross margin improvement.

Speaker 4

Terrific. I appreciate the time. Thanks.

Operator

The next question comes from Tim Sawgo with Northland Capital Markets. Please go ahead.

Speaker 6

Hey, good afternoon and congrats on the results and the positive EBITDA in particular. I have a question about the kind of pull in that we're seeing from Microsoft in terms of 400 gig AOC type demands. And I guess one would be to what extent is that a factor in your guidance for Q4? And assume given that you're ramping up production this month and through December, That looks like to set you up for a full quarter of production perhaps in Q1. And I'd love if you can give us a sense of what that looks like for you guys from a revenue standpoint or what might that look like?

Speaker 6

Thanks.

Speaker 3

Sure. So your question about Q4, I think is the answer to that is that We are just beginning the production in Q4. So we don't expect it to meaningfully contribute to revenue in Q4. The reason for The commentary that we've been giving is just to illustrate the fact that the demand is still very strong for Microsoft. And in fact, I believe from other data center operators as well as we talked about.

Speaker 3

However, our ability To increase the production capacity is we're doing the best that we can, but it's going to take us a little bit of time to get there, right? So We're not going to be fully ramped right at the beginning of Q1 either. There'll be some continued ramp during Q1. And in fact, based on the production targets that they've asked us to meet, there'll be some increasing production capacity pretty much throughout next year. Not going to be done in a month or even a quarter.

Speaker 3

So there will be some improvement throughout the year in terms of our capacity there. The encouraging thing for us really is again that Microsoft is really looking for us to make these products in greater quantities faster And that's an exciting thing for us. With respect to exactly how much will be in Q1, we haven't given guidance Q1, yes, a lot will depend on the progress that we make over the next month or 2. But certainly, we believe this is incrementally positive in terms of timing and our overall production rate into Q1 and we're excited about that.

Speaker 6

Great. I want to follow-up on the 800 gig front where you noticed some progress in terms of customer samples. And realizing you're probably in pretty early stages, but are you at a point Or when do you think pending customer evaluation of these products, is this something that could start to ship in calendar 2024? Yes. Okay.

Speaker 6

That was pretty clear. And then I'll try again then, which is Or further, which is any sense of timing on that within calendar 2024? That

Speaker 3

I think is a little too early to say right now, as you pointed out. I mean, We're in early stages on it. I would say the demand picture for 800 gs looks pretty strong, and we're certainly having very constructive discussions with the customers, but how long it will take and the qualification process and that is a little too early to say, but I do expect it to be in 2024. Yes.

Speaker 2

So maybe sometime in Q2 or Q3 next year. Very well vacation, it will take easily 4 to 6 months or longer. But the other thing that we I want to emphasize is we are working very close with several big customer About 1.60 with 200 e per lambda. And they are believe we are the technology leader. And I think the demand will be very strong Maybe it's from Q3, Q4 next year.

Speaker 2

So it's only 800 gs. There's a lot of things going on for The data center to especially high speed transceiver technology because the AI the AI team is really, really strong. So we are jumping right now not only from the 100 gs to 400 gs in volume and We stay highly, we get new volume sometime next year Q2, Q3, but even 1.60, we would we'd be able to see some volume too in Q4 next year.

Speaker 6

Got it. And let's stay on this topic for a second. And Stephanie, you described 4 customers evaluating the products. Can you give us any indications of the type of customers those might be large cloud operators, networking OEMs, what have you?

Speaker 3

Mostly large cloud operators with at least one OEM that supplies some of the large cloud operators. So it's all cloud, it's all hyperscale cloud related, Whether it's directly or through an OEM that was

Speaker 2

a plan in 1 big AI company. You know what I'm talking about. I don't know how you define. It's not cooperative, but it's really that maybe they'll become the number one customer in the world for the data center transceiver.

Speaker 6

Okay, great. And last one for me and maybe kind of related to that. I mean, Can you give us a sense of kind of I don't know whether it's unit volumes or Revenue dollars, but how do you assess the kind of total opportunity for AI related, We call it transceivers or AOCs and how has that assessment of market opportunity evolved for you guys over the past quarter

Speaker 2

or so. The number sounds crazy, okay. What we heard is I think we are talking about maybe at least minimum 6,000,000 to 8,000,000 volume with very good ASP, more than $600 or $700 So you can see opportunity next year. So that $4,000,000,000 product next year. And some people even come up some even higher number rise.

Speaker 2

As we can see, I'll be very happy if that's true. That's why we are putting our resource into LNG and the 1.60 business. 400 gs, I think we are very confident. That's very existing. The volume is coming up for sure, but Really the picture on me is AI energy and 11.60 for AI related business.

Speaker 2

And

Speaker 6

Great. Thanks very much.

Operator

The next question is from Dave Kang with B. Riley FBR. Please go ahead.

Speaker 5

Thank you. Good afternoon. First question is on cable TV. So you said by middle of next year, we should be Speaking pretty strong recovery. So are we talking about like prior peak of like say 30 million or so per quarter.

Speaker 5

Is that what we should be expecting or not quite there yet?

Speaker 2

I mean, without putting

Speaker 3

a specific quarter on it, yes, certainly the expectation is that we can exceed The prior peak levels because at that point, we weren't really in even an upgrade cycle, right? It was just a sort of business as usual case. As we move into an upgrade cycle, which is what we think will happen, that portends the growth in DOCSIS 4.0, I would say the There is significantly larger than the previous peak for sure. Not to mention the fact that because of the business model change, our ASPs are going Higher, because we're not selling through a middleman essentially. And so, not only will it have Higher unit demand, but ASPs will be higher as well.

Speaker 2

Let me say that I would say by Q4 next year, our CATV business should be, I would say, More than $40,000,000 in Q4 next year, which very good gross margin, I would say around 40%.

Speaker 5

Okay. And then just on the data center, 100 gig, a little surprised why that was so strong because others are saying it's really 800 gig that's Enjoying strong demand, whereas 100 gig, which is not really considered to be part of AI, 100 gig is weak. So are you just gaining market share? And how should we think about Going forward, should we be expecting 100 gig to be flat and eventually decay? Can you just talk about the next What to expect over the next couple of years?

Speaker 3

Sure. So I think in 100 gig, we're taking market share. I think there's been some increase in purchasing with maybe a couple of customers, but I think we're gaining market share there. We've talked about some of the dynamic, for example, that Being a U. S.-based manufacturer gives us some advantages there in terms of being able to I would say more interest maybe than in the past relative to some of our competition in China.

Speaker 3

And that's helpful for us in gaining this market Sure. As far as how that plays out in the future, I mean, I think, look, what we saw at 40 gig is that the older technology has a very long tail. I mean, it lasts a long time, and that's what I expect with 100 gig as well. I mean, I think that eventually 100 gig will decline as 400 Begins to grow, but I don't think it's going to be a dramatic. I mean, I kind of feel like we tell the same story every time there's a technology transition, right?

Speaker 3

Wall Street tends to think, well, one technology comes on and the other one goes away immediately. And we always try to caution that no, that's not what happens, It's a gradual shift. The new technology tends to come on relatively quickly, but the old one tends to last a long time because there's already a number of Switches, for example, that are out there that haven't been fully populated yet. They're going to fill out those ports and those switches and that portends a long period of, I would say relatively flattish, maybe down slightly, but relatively flattish demand. So I would caution not to remove 100 gig from the Sure, as quickly as you might be tempted to.

Speaker 5

Got it. And just wanted to clarify, did you say that for regarding 4th quarter Expect similar revenue mix with Q3. Did I hear that right?

Speaker 3

We're just saying that the data A portion of it will be consistent with Q3, right?

Speaker 2

No, but yes, we're going to see some growth, The mix will be different because we can see much more power energy than 100 gs.

Speaker 5

Okay. Okay. Actually, Yes, that's what I was after.

Speaker 2

The combination are not the same. It's the volume we increase quite a lot, but volume will go down.

Speaker 5

Got it. And my last question is regarding that termination, that A fee of $3,000,000 who is responsible for that?

Speaker 3

We believe that Yvonne is responsible for the breakup fee. We're pursuing them for the payment of that.

Speaker 5

Okay, got it. Thank you.

Operator

Next, we have a follow-up question from Jeff Kuch with Raymond James. Please go ahead.

Speaker 4

Yes. Just really quickly, just want to talk about your thoughts on data center going into March. Is it Ridiculous to think that you could be up sequentially again. I know historically that's not strongest seasonally.

Speaker 3

I mean, I think it's not ridiculous to think because again, the 400 gig business that we're talking about, The new programs with Microsoft will be ramping during the quarter. So you're correct historically that ordinarily Q1 is sort of A challenging quarter just seasonally. A large part of that is because historically most of our data center products have been made in China And we do have Chinese New Year, both in China and Taiwan. In this case, we're producing more of these products In Taiwan and even in the U. S.

Speaker 3

And so the impact of Lunar New Year should be less for us. That in combination with the fact that The 400 gig will be ramping in terms of production capacity, paints a pretty good picture in the March quarter for us, I think.

Speaker 4

Great. Thank you so much.

Operator

At this time, we have no further questions. And I will turn the call over to Doctor. Thompson Lin, AOI's Founder, Chairman and CEO, for closing remarks.

Speaker 2

Okay. And 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, we look forward to update you on our next earnings call.

Operator

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

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