祥茂光電 (AAOI) 2013 Q4 法說會逐字稿

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Applied Optoelectronics Q4 2013 Earnings Call. During today's presentation, all participants will be in a listen-only mode. Following the presentation the conference will be open for questions.

(Operator Instructions)

At this time I would like to turn the conference over to Maria Riley of The Blueshirt Group. Please go ahead ma'am.

Thank you. I am Maria Riley of Applied Optoelectronics investor relations, and I am pleased to welcome you to AOI's conference call to discuss its fourth-quarter and year 2013 earnings results.

After the market closed today, AOI issued a press release announcing its Q4 and 2013 year end financial results. The release is also available on the company's website at ao-inc.com. This call is being recorded and has webcast slides. A link to that recording can be found on the investor relations page of the AOI website, and will be archived for 90 days.

Joining us on today's call is Dr. Thompson Lin, AOI's Founder, Chairman and CEO; James Dunn, AOI's Chief Financial Officer; and Dr. Stefan Murry, AOI's Chief Strategy Officer and Senior VP of Marketing and Sales. We will begin the call with Thompson and Stefan providing a few brief comments on AOI's strategy and market. Then James will provide details on AOI's fourth quarter and year-end results, and Q1 2014 expectations.

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 to differ materially from those anticipated in such forward-looking statements.

You can identify forward-looking statements by terminologies such as may, expects, plans, or believes, and by similar expressions. Except as required by law, we assume no obligation to update 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 factors section of the company's prospectus and are, of course, on file with the SEC.

Also with the exception of revenue, all financial numbers 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 an 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.

Now I would like to turn the call over to Dr. Thompson Lin, AOI's President, Founder, and CEO. Thompson.

Thank you, Maria. Thank you for joining us today. I'm very delighted to be here to share with you our fourth-quarter and 2013 achievements. We are very pleased with our fourth quarter result that was a strong finish to an exciting year for AOI. In Q4, we achieved record revenue of $23.7 million. This represents 26% year-over-year growth and 40% growth sequentially.

Notably, data center revenue grew 97% year-over-year and 84% over Q3, and Fiber-To-The-Home revenue grew 63% over Q3. This brings our total revenue for the year to $78.4 million, up 24%. 2013 was a very important year for AOI. We successfully leveraged our laser equities, silicon photonics technology, and vertically have a great business model to expand growing market, data center and Fiber-To-The-Home.

We are expanding our addressable markets, diversifying our customer base and significantly increasing our overall revenue opportunity.

In 2013, we invested successfully in R&D to faster long-term growth. We achieved profitability for the year and $4.5 million of adjusted EBITDA. Additionally, we completed our initial public offering raising $31.5 million in net proceeds. We are very proud of our accomplishment in 2013, and we are very satisfied by the growth opportunity in 2014. There are strong market conditions required in Internet service providers and data centre operators to upgrade their optical network and infrastructure.

Consumers increasing demand for greater bandwidth spurring 1 GB per second fiber deployment to the home, and new entrants are entering the market. Notably, last week Google announced its intent to offer 1 GB per second Fiber-To-The-Home service to potentially 34 additional cities.

Looking forward to 2014, we expect data center and Fiber-To-The-Home revenue to continue to grow and to become a bigger portion of our total revenue. In order to capture this market opportunity, we have accelerated our investment in R&D, expanded our laser manufacturing capacity and production for both Fiber-To-The-Home and data center products. As Jim will discuss later in the call, based on order flow from both markets, we are increasing our 2014 capital investment.

With that as an introduction, I would now turn the call over to Stefan to talk further about market dynamics in Q4 and 2014. Stefan.

Thank you, Thompson. Looking at our Q4 results, cable television revenue grew 6% year-over-year. This growth was primarily driven by sales into the developing Asia market, where our ASP tends to be slightly lower and therefore margins slightly higher than the North American market. While CATV revenue was down 5% for the year as previously discussed, we believe this was the result of major industry consolidation among our CATV customers in the first half of 2013.

Looking at the macro trends in the CATV market, we continue to see growth internationally, specifically in the Asia-Pacific region. As disclosed on our last earnings call, we have received orders related to network builds in South and Southeast Asia, and we believe these builds will continue through 2014. While we are beginning to see some recovery in the North American market, we expect single-digit revenue growth for 2014.

We believe that the North America CATV market is on the verge of an upgrade cycle, and MSOs are in various stages of evaluating technology options. We currently believe this will translate to growth in late 2014 or early 2015 as MSOs strive to avoid losing subscribers to new advanced 1 GB per second Fiber-To-The-Home networks being deployed by emerging competitors.

To that end, we believe that the new DOCSIS 3.1 standard will be a strong catalyst for this upgrade cycle. This will be a major undertaking as many disparate parts of the network need to be upgraded to enable to pull down the capability of this new standard. Because new laser transmitter and photodiode receiver technology is critical to enabling DOCSIS 3.1, AOI is very well positioned to bring these new products to market.

As the first step we recently announced a line of high-frequency laser components that are targeted for DOCSIS 3.1 downstream transmission equivalent. We have additional R&D projects underway to further enhance the performance of these devices and also to address other parts of the network. We expect qualification by our customers to begin in Q2, and continue into 2015 with the revenue to begin in late 2014 or early 2015.

Turning now to the data center market, we are really excited by our success, which continues to exceed our internal expectations. This is being driven by hyperscale or web 2.0 data center customers that are undertaking a fundamental upgrade from copper connection to much faster fiber-optic based infrastructure. In Q4, we saw strong growth for our 10G products, which accounted for substantially all of our data center revenue, a trend that we expect to continue through the first half of 2014.

In November, we announced the release of our new 40 gig transceiver product. We expect to see continued growth from both 10 gig and 40 gig shipments throughout 2014, with 10 gig shipments continuing to represent a majority of data center revenue. Based on current indications from our web 2.0 data center customers, we expect revenue from these customers to materially exceed our original internal forecast.

Moving on to the FTTH market, we are very pleased to have started shipping our new WDM-PON transceivers in meaningful volume in Q4. For those new today to AOI's story, we have developed a revolutionary WDM-PON technology that enables cost effective deployment of I GB per second class service to and from the home. Combining our highly reliable lasers, specialized packaging in silicon photonics technology, we have developed OLT transceivers for the central office environment.

Q4 marked the beginning of meaningful WDM-PON shipment, and we expect an increasing volume of shipments of our OLT transceivers throughout 2014. Let me remind you that we already have orders in hand for the first half of 2014, and are confident in our production ramp to meet our customers' 2014 OLT transceiver forecast.

To complement our proprietary WDM-PON OLT transceiver, we are also completing the development of an ONU transceiver for use at the customer's premises. Our proprietary ONU transceiver utilizes the tunable laser that is both cost effective and scalable. This unique and patent pending tunable laser technology is the culmination of more than two years of development, and is the key optical technology needed to push WDM-PON to widescale deployment.

Our ONU transceiver development and deployment plans remain on track and we expect to begin shipments to our foundational customer as early as Q3 of 2014. We have spent years working on these technologies that we believe are revolutionary in many ways. I would like to take this opportunity to publicly acknowledge the incredible efforts of our engineering teams, both in Houston and in Asia, and thank them for their dogged determination in overcoming significant engineering challenges in order to bring these amazing new technologies to market.

With that I will now turn over the call to James to give you more details about our financial results, and a look ahead to Q1 of 2014. James.

Thanks Stefan. Looking specifically at the top line, we finished 2013 with a strong fourth quarter. In Q4, revenue grew 26% year-over-year and 14% sequentially to reach $23.7 million, a third consecutive quarter of record revenue. For the full year, this brings revenue to $78.4 million, up 24% from 2012.

Looking at revenue by customer, in 2013 we derived 77% of our revenue from our top 10 customers, as compared to 78% in 2012. However, with increases in data center and Fiber-To-The-Home revenues, we have a more diversified customer base among our top 10 customers.

Looking at overall revenue by shipping geography, in 2013 we sold 59% of our products into the North American market, 27% into the Asia market, and the balance of 14% between Europe and the rest of the world. This is a change from 2012 where we sold only 44% into North America, and 29% into the Asia market. We expect to earn a larger percentage of our revenue from the North America market as sales in the data center and Fiber-To-The-Home markets increase.

Looking at growth trends within markets, revenue from CATV products in the fourth quarter were $14.0 million, an increase of 6% from $13.2 million reported last year, but a decrease of 4% when compared with Q3. The decrease was primarily caused by a decrease in component sales to our North America and European customers that was nearly offset by an increase in equipment sales to our Asia customers.

In Q4, internet data center revenue was $5.9 million, almost double the revenue earned in Q4 2012 and an increase of 84% sequentially. We are investing in machinery and manpower to increase capacity to match this increasing data center demand.

Turning to our third growth market, Fiber-To-The-Home revenue grew 63% sequentially to $1.6 million. As planned, this increase in revenue reflects the first meaningful shipments of our new WDM-PON OLT transceivers. We continued success within the data center market, and anticipate expanding growth in the Fiber-To-The-Home market throughout 2014 and beyond.

And turning to capacity planning and capital expenditures overall, during Q4 we invested a total of $4.9 million in capital investments, mainly to increase manufacturing capacity for data center and WDM-PON products. This is nearly twice our original Q4 budget. Additionally we added a third shift in Taiwan to increase transceiver production. Because we are vertically integrated, we also added a second shift in Houston to increase overall laser production.

At the IPO, we expected to invest a total of $10 million in equipment for WDM-PON manufacturing by the end of 2014. And now we expect to invest that sum by Q3 of 2014. We are adding production lines in Taiwan dedicated to WDM-PON transceivers in the first half of 2014. Overall for the year we now expect to invest more capital than previously anticipated, because of increasing demand in the data center and Fiber-To-The-Home markets.

Therefore we expect to spend a total of $16 million to $18 million across our Taiwan and Houston facilities to expand data center transceiver, WDM-PON transceivers and laser fabrication capacity.

Moving down the income statement, in the fourth quarter, consolidated gross margin was 28.2%, a decrease of 230 basis points from Q3. Two factors primarily caused the short-term decline in gross margins. First we experienced an adverse product mix within the CATV product line because of a reduction in component sales to US customers, and an increase in equipment sales to the Asia market.

Second, cost of goods sold incurred for our new Fiber-To-The-Home WDM products were higher than we had expected. As is typical with new products, initial production runs tend to have lower yields and therefore higher production cost that ultimately improve over time. To foster efficiencies, we have added production at our more cost effective Taiwan facility, expanded volumes and expect improving yields.

We expect growth in the data center and Fiber-To-The-Home markets to positively impact our overall gross margin in 2014, especially as production volume in Taiwan increases.

Looking at operating expenses, we maintained our standard disciplined approach during the fourth quarter, while continuing to invest in top line growth. R&D expense was $2.4 million or 10% of revenue, up $185,000 from the prior quarter. This was primarily attributed to an increased effort by our R&D team, associated with our Fiber-To-The-Home product, together with accelerated development costs associated with our 40G data center products.

Recall that AOI received from certain customers non-recurring engineerings, or NRE reimbursement, and that these net through our R&D expense line. For the year 2013, the decreased R&D cost as a percentage of revenue from 12.0% in 2012 to only 10.8% in 2013. Looking forward, we expect to increase our near-term investment in data center and Fiber-To-The-Home R&D projects that had been planned for later in 2014 and early 2015.

We see this as a shift forward in expenditures, yet overall for 2014 we still expect R&D expense to decrease as a percentage of total revenue. Sales and marketing expense were in line with expectations at $1.2 million or 5% of revenue, up $155,000 when compared with Q3, driven mostly by year end sales commissions.

G&A expense was $2.7 million or 11.4% of total revenue, up $398,000 when compared to Q3. This increase is directly attributable to increased public company expenses triggered by our IPO in Q4. Looking forward, we expect G&A to decline as a percentage of revenue in 2014 from the 12.3% level recorded in 2013, as we strive to maintain our relatively flattened cost structure.

Non-GAAP operating income in Q4 was $0.4 million on an operating margin of 1.7%, and in Q4 we achieved EBITDA of $1.4 million or 5.8% of revenue. Non-GAAP net income for the quarter was $0.3 million or 1.2% of revenue as compared to net income of $0.3 million in Q4 of 2012 and $0.6 million in Q3 of 2013.

We generated non-GAAP earnings of $0.02 per share on a weighted average fully diluted share account of approximately 13.3 million shares. For the fourth quarter, we reported a GAAP net loss of $0.5 million or $0.04 per share on approximately 12.6 million weighted average basic shares.

Turning now to the balance sheet, we ended Q4 with $30.8 million in total cash, cash equivalents and short-term investments. From the completion of our IPO in October, we received $31.5 million in net proceeds. We used a portion of the IPO proceeds to extinguish short-term high interest debt in Asia. We ended the quarter with $28.5 million in total debt, having drawn against more attractive low interest credit lines to bolster working capital and finance our Q4 investment in machinery and equipment.

Accounts Receivable increased by $5.0 million from sales late in Q4. From an aging standpoint, receivable balances remain consistent with prior periods and highly collectible, with over 94% of total receivables within current or 30 day periods, and effectively no bad debt.

Inventories increased $3.2 million as we ramped up production to meet bookings and forecasted demand. The aging of our inventory and inventory reserve balances remain consistent with prior periods. As we mentioned last quarter, our largest CATV customer implemented a vendor-managed inventory or VMI program. Under this program we manufacture and ship inventory to a VMI warehouse, and the revenue is recognized in the customer withdraws product from the VMI warehouse. Under our agreement, goods may remain in VMI warehouse for no more than 90 days.

At that time the customer must take receipt of those goods and revenues is then recognized. During Q4, we placed approximately $2.1 million of inventory into the VMI warehouse, and recognized nearly all of that VMI inventory into revenue in Q4.

Now looking forward to Q1 and 2014. We are entering the quarter with very strong bookings and forecasted demand. And we expect to achieve another record revenue quarter. We expect very robust growth in data center products and continued growth in our Fiber-To-The-Home products. We are accelerating both our operating and capital investments to capitalize on the data center and the Fiber-To-The-Home market growth opportunities at hand.

Balancing these factors, in Q1, we expect revenues to be between $23.5 million to $24.5 million. Note that this would represent a fourth consecutive quarter of record revenue and provide an impressive 64% to 71% year-over-year quarterly growth rate.

Please recall that Q1 is normally a seasonally and sequentially down quarter historically from the lack of outdoor deployments in the CATV market and the impact of Chinese New Year on our Asia operations. However, for Q1 of 2014, we believe that the strong order flow from our data center customers will permit us to fully overcome the normal down cycle historically present.

Bolstered by improving revenue trends, we expect our non-GAAP gross margin to likewise improve and be in the range of 31% to 32%. Note that this margin improvement is primarily the result of both increasing data center revenue, as well as increase in production of our WDM-PON product at our more cost-effective Taiwan facility. Non-GAAP net income is expected to be in the range of $0.5 million to $1 million and non-GAAP EPS on a fully diluted basis between $0.04 per share and $0.07 per share, using approximately 13.5 million shares.

With that I will turn it back over to the operator for a question and answer session. Operator?

(Operator Instructions)

Our first question comes from the line of Troy Jensen with Piper Jaffray. Please go ahead.

Hi, congratulations on the nice quarter and the nice guidance.

Hi, Jensen.

Thank you.

How about -- quickly just on the gross margin, I wonder if you could just kind of go through that again, I would argue the fiber kind of growth should have been expected, but it sounds like there was a little bit more cost there then you had thought, and if I heard you right, you are just saying that components are highly margins than the system sales that went to China?

That is correct. In terms of the CATV revenue, we had a product mix that resulted in slightly lower gross margins, because of equipment sales. So we definitely had a shift there in margins because of that, and then as you have indicated and we indicated in the remarks, we are ramping up production in the Fiber-To-The-Home products. We have a line fully operational in Houston, and we are adding lines in Taiwan and ramping those up. And so we will see cost improvements both from yield improvements, as well as additional ramp available at our Taiwan facility.

Okay. As far as like ramping new capacity, is the thoughts of unutilized facilities, I'm sure is factored in the gross margin guidance here for the March quarter?

It was factored in. I mean, keep in mind that we had guided to 28.5% to 32% last quarter in terms of margin guidance, but, you know, we expect -- we had expected a little bit of less efficiencies as we ramped the newer product and in fact that ended -- we look to March to improve that margin and look to returning volumes in manufacturing.

Okay, then how about -- just a follow-up on the capacity expansion, could you just give us some color on like what percentage increase, how much more volume can you do once you get through with this capacity add, and then when do you think it will be complete when you can start to kind of recognize that growth?

Yes. So, right now on the Fiber-To-The-Home side we are adding three production lines to our current one production line that we have. All of them will have substantially the same, so you can -- you know, basically we are tripling the capacity that we have available in the Fiber-To-The-Home. On the data center side, we are adding some capacity on the 10 Gig, but we are also buying and scaling up new production capacity for the 40 Gig also.

Okay, and then on the 40 Gig stuff, could you talk about when you think you will be shipping for revenue or certification?

I mean we are shipping now for revenue. We expect it to, you know, we still think 10 Gig is going to dominate the landscape there in the data center for a while, but we are starting to ship 40 Gig now.

Okay. One last question -- but when you guys think about 2014 now does this upside rolled through the model, I mean it sounds like what you guys are seeing in the data com is well above your expectations, you know, the Fiber-To-The-Home business is ramping, maybe above expectations, but maybe modest expectations. So when you think about the full year James, do you think that things are better than we previously thought?

Well, we -- and as you know we don't give guidance for more than one quarter forward. But we have tried to give you and now there is a little bit of help in that we have talked about how the CATV market continues to be a little soft and looks like a back half recovery with single-digit growth there. We see very strong revenue expansion in the data center space, and we try to give you some indication there in terms of growth.

And so, you know, we are investing with CapEx for the data center ramp. We see, as we had indicated on the call, increasing our Capex spend. We are doubling our Capex for the data center market that we had anticipated for '14. So that is an indication of the growth opportunity that we see in the data center space and how optimistic we are about growth there.

So in a broader sense, we are very optimistic about our future, and try to give you as much as we can in terms of visibility. So, you know, we're just overall then we are more cautious on the cable market. We want to be conservative and cautious where necessary and then very excited about the data center market.

Okay, great. Once again congrats and good luck this year.

Thank you.

Thank you.

Thank you. Our next question is from the line of Simon Leopold with Raymond James. Please go ahead.

Thanks guys. This is -- here for Simon. Just a follow up on Troy's question, basically you gave us a number for the cable business growing in the mid-single digits, and have to say that was kind of a weaker than expected. So, is there any way that you could quantify the upside from your data com business in 2014, perhaps give us some more information around that?

Well, yes, we don't really -- as James indicated, I mean, we are not really guiding for more than one quarter out, or by market segment. But I think again, you know, we wouldn't be investing heavily and accelerating that investment to the tune of 100% of more than what we expected, doubling our Capex if we didn't see very strong trends in the data center business. I would look to that guidance.

Okay. So again, on the data center business, was the capacity actually related to your existing customer base, or it had to do with your -- in your recent wins in Asia and also if you can update on trials you have in the pipeline that will be helpful?

Sure. So, we do have four customers in the data center market as we talked about last time. The two customers that we disclosed on the last call, the two new customers are in Asia and are generally, we would expect they will be somewhat lower in scale, smaller in scale than the other customers that we previously disclosed.

We are seeing revenue from all of those customers, but you know, the bulk of the increase that we are seeing is coming from our major North American customers.

Okay, and then the FTTH segment grew nicely. We are actively pursuing other customers on the datacenter side as well.2945

All right.

We did not, we do have a new 10% customer for the quarter and will be revealing that customer in our 10-K filing. We do not provide the information on the call and we're holding that information confidential for this call, but we will be disclosing any new more than 10% customers in our 10-K filing.

From the 10-K filing, disclose at least the number of the 10% customers, would that be correct?

It will, it will disclose and we indicated last call, I can indicate this call that's in the datacenter is where the new customer, the new 10% customer is and that's from the growth and revenue that seems obvious. But that's the market is within and will reveal that in the K.

Got it, thank you.

Thank you.

Thank you. Our next question comes from the line of Richard Shannon with Craig-Hallum, please go ahead.

Good afternoon gentlemen, congratulations good start to 2014, great to see. A few questions from me, maybe I will start with datacenter. You mentioned some progress with new customers any sense of when we might see some new ones come here that might be material anyway?

Yes, we're not really forecasting new customer ads, we're actively talking to people. I think it's sometimes it's difficult to project really how long things are going to take but we're in good discussion with several other companies and when it comes certain we can disclose or certainly talk about it.

Okay, fair enough. So, another question on datacenter. You have seen some volatility in quarter and quarter trends in datacenter, obviously a very nice growth path here but it seems like there can be lumpiness on how these large datacenter builds can go overtime, what's you view on how that could, what the cadence could look like going over the next few quarters in datacenter specially with, what looks like just too very high profile customer so far?

Well, we're not getting too specific into customer trends and things like that. We continue to get very strong signals from the customer that we're not done with datacenter build outs, we're not slacking off either in new builds or in upgrade and certainly we have 40 gigabit per second products that are just starting to come on and we will take a greater and greater portion of the overall datacenter so that's sort of an additive thing.

So, I think just globally when you look at where we are within datacenter, I mean, we're certainly not, I don't think we are at the half way point yet, so we still go some more run way. And on a quarter-to-quarter basis of course as you point out thinks can grew up or down a little bit from time to time, but again, I think the macro trend here and even the trend among our particular customers continues to be very positive.

Okay that sounds great. There may be a couple of questions on the fiber side here. You mentioned coming out with new product and laser expectation maybe starting in the third quarter, do you expect to be selling the only laser in that area on the O&U at that point in time or do you think there will be others at the time?

I think the O&U side of the WDM Pond Network, there is some different ways to innovate in that realm. I think the technology that we have is very unique and very, very important particularly when we look at trying to cost reduce the WDM Pond which is really the name of the game. So, I think we've got superior technology. I would not guess that we're probably going to be the only supplier of that. We may be the only supplier of the particular technology that we have but perhaps not overall for the O&U optics.

Okay. One last question for me. Could you mention, you're three new production lines in the fiber side from the one that you currently have going. Are these production lines set up separately for O&U versus OOQ and if so, can you give us a sense of where you are applying those new productions line?

These are all for royalty.

All for royalty, okay. Any suggestion and time frame when you add one or some more capacity for the O&U side?

Well, as you talk about, I wouldn't expect to see meaningful revenue before Q3, we may, we would expect that the production capacity to forward, to look forward a little maybe six to eight weeks or maybe little bit more than that in front of the production capacity ramp.

Okay that's very helpful. I think that's all the questions right now I guess, thanks a lot and congratulations.

Thank you.

(Operator Instructions)

Our next question comes from the line of Krishna Shankar with Roth Capital, please go ahead.

Yes, let me add my congratulations on an excellent quarter and outlook. Longer term can you talk about the gross margin trends for the datacenter and the fiber-to-the-home business once you get through these manufacturing learning curve and economies of scale, what would that kind of gross margins be in steady state for the datacenter business versus the fiber-to-the-home business?

We haven't provided gross margin guidance by a particular market, but what we've said in the past and continue to believe is that, we get overall corporate gross margin lift from both of the datacenter line and the fiber-to-the home specially as we move into higher volumes in the fiber-to-the-home and achieve some of the yields and efficiencies that we have talked about and the shift to Taiwan, for the addition of Taiwan. So overall, we look to continue to improve our corporate margin and we see Q1 to start in that direction.

Okay. So, we should give the mix of business and improving manufacturing efficiencies we should potentially see a steady improvement in gross margin throughout the year?

Yes, we've indicated that we see margin improvement overall in our corporate average and we look for that trend to continue through the year and on into the target model.

Okay, great. And then, in your opening remarks you did mention one large player in the fiber-to-the-home market indicating, Google is indicating expansion from a couple of cities now to over 30 cities. As you look at the industry can you help quantify for us the number of potential subscribers for fiber-to-the-home with WDM Pond sort of deployment and what would translate to in terms of a optical component or module market for the industry over the next few years, I'm just trying to quantify the size of that market and whether that could be materially bigger than your datacenter business in the couple of years?

So, I mean, essentially we see WDM Pond as the future of fiber-to-the-home technology. So, I mean, I think the market there is as practically as global and it's practically unlimited over a multi decade period, so we are just at the very beginning of this. If you look at trying to quantify the market, for the current customer and the current opportunities that we see, that's a little more sensitive in terms of customer related stuff and we can't really get into it and don't disclose but I really wouldn't look to just the one customer or the one geography that we're talking about here, because again this a fundamental technology that's going to be very important for a long time.

Okay, thank you. And then regarding cable with all this consolidation talks in the U.S. cable industry you see the sort of backend loaded in terms of the docs 3.1 spending, can you give us some color on when the potentially sort of higher margin U.S. cable business could come back?

That's the excellent question, Krishna. I think that the consolidations or the effect of the consolidations basically Time Owner and Compcast for example, I think, if you recall last year we had some softness in the cable TV market related to consolidations among vendors that occurred in the first half and I think we're trying to be very cautious on how we model our cable TV revenue during this year because it's one thing they have couple of vendors that consolidate.

But when we're talking about two of the biggest players in the industry consolidating that also leads to some uncertainty in terms of how this is going to play out. Not so much in the long term, I think the docs 3.1 is definitely a technology that's going to be adopted, you've heard both Time Owner and Compcast talk about increasing CapEx. We don't know for sure that, we don't know where that CapEx is necessarily going and there are some indications that it may be going more towards the CPE at this time then the outside plant.

But docs 3.1 and the higher bandwidth capabilities that it provides a definitely very, very important for these guys and particularly since you brought up the Google announcement I think that the pressure that's being placed on all the incumbent carriers, but particularly the cable TV carriers to have some answer to the thread of 1 gigabit per second fiber-to-the-home providers that is really a trend that I think is going to be very important to watch and I think the cable carriers have already started to react to that thread.

So, basically I think that what we do see right now is the docs 3.1 is probably not a major contributor in revenue terms in 2014, it may start to kick in toward the very end of the year, I think it's more of a 2015 or later phenomenon.

Great, thank you.

Thank you. Ladies and gentlemen that concludes our question and answer session, at this time I would like to turn the conference over to Dr. Thompson Lin for closing remarks.

Okay and thank you all for joining us, -- initiative in the datacenter, fiber-to-the market for all our achievements in 2013. With additional datacenter and fiber-to-the-down on top of our strong cable TV bid. We're very confident in our 2014 goals. We like to take this opportunity to thank all of our customers, analysts, employees of their continuing dedication and our shareholder for their continuing support. Thank you.

Thank you, sir. Ladies and gentlemen, this concludes the Applied Optoelectronics Q4 2013 earnings call. Thank you very much for your participation, you may now disconnect.