祥茂光電 (AAOI) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Applied Optoelectronics Q1 2014 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we'll be conducting a question and answer session and instructions will be given at that time. (Operator instructions).

I would now like to turn the conference over to our host, Miss Maria Riley with investor relations. Please go ahead.

Thank you. I am Maria Riley of Applied Optoelectronics Investor Relations, and I am pleased to welcome you to AOI's first quarter 2013 financial results conference call.

After the market closed today, AOI issued a press release announcing its Q1 2014 financial results. The release is also available on the company's website at ao-inc.com. This call is being recorded and webcast live. 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 comments on AOI's strategy and market. Then James will provide details on AOI's first quarter of 2014 and expectations for Q2 2014.

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, expect, plan, or believe, 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 including its 10-K for the year ended December 31, 2013.

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 substitute for results prepared in accordance with GAAP. A reconciliation between GAAP and our non-GAAP measures as well as a discussion on 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, Applied Optoelectronic's President, Founder, and CEO. Thompson.

Thank you, Maria. Thank you for joining us today. The 2014 season is off to a fantastic start and we are excited to share with you our first quarter accomplishment.

We delivered a very strong fourth quarter and achieved our fourth consecutive quarter of revenue. Revenue grew 74% year-over-year and 5% sequentially to reach $24.9 million. Notably, data center revenue grew to one year at 20% year-over-year and 96% from Q4 2014. Fiber-To-The-Home revenue grew [104]% year-over-year and 38% from Q4 2013. And significantly improved our gross margin to 34.9%.

And Stefan and James will with you in more detail, throughout the quarter, we continued to met steady progress toward (inaudible) our growth plans and achieving our operational goals. In order to categorize our growth market opportunities, we are quickly increasing our production capacity in order to keep pace with a strong customer demand for our data center and Fiber-To-The-Home products.

Macro trends are fueling strongly demand for optical (inaudible) in this market. And customer demand for our product continues to grow strongly. Internet service providers and data center operators need to upgrade their optical [mega] infrastructure in order to accommodate, go in in internet traffic. Consumers increasing demand for greater than we've experienced, 1 gigabit per second fiber deployment to the home.

We believe that Google's 1 gigabit per second fiber-to-the-home initiative with 34 cities will pressure the traditional service provider to respond with major upgrades to their network. We are already seeing what others have called the Google effect. In last April, AT&T announced that [Siemens] deployed 1 gigabit per second service to 21 metro areas. We expect that other broadband service providers will have a similar response to trench change in the comparative landscape. And we believe that this competitive (inaudible) provides additional growth opportunities will involve our fiber-to-the-home and cable TV markets.

As a result of this market trends, we are working to further expand our production capacity in order to keep pace with growing customer demand. As we say in our (inaudible), we have accelerated our investment in R&D, expanding our laser manufacturing capacity and production capacity for both fiber-to-the-home and data center products. To support that growth, in March, we completed a very successful (inaudible) raising $45.7 million in [credit] excluding underwriting discount and incentives.

We are already deploying the [kettle] and grow and meet customer demand. We are on track with our kettle expansion and growth trends, which we believe will provide long term revenue growth as our market continues their record expansion.

With that as the introduction, I will turn the call over to Stefan to talk further about market dynamics in Q1. Stefan.

Thank you, Thompson. Looking at our Q1 results, Cable TV broadband revenue was slightly above our internal expectations, growing 18% year-over-year. While we continue to see good growth in the Asia Pacific Region, we still see moderate spending in North America as MSOs are in various stages of planning to upgrade their networks and consolidation continues among the MSOs.

Overall, we believe that we have outperformed the market and continue to increase our share and expand our leadership in the CATV component and equipment markets. As Thompson mentioned, we believe that MSOs are planning major upgrades to their networks in order to compete with new entrants in the market, as well as to meet the new DOCSIS 3.1 standard.

However, based upon public MSO comments and CapEx projection, we believe MSOs will focus on upgrading CPE in 2014 with major upgrades to access networks beginning in 2015. In the meantime, we are developing and expanding our leading product portfolio with DOCSIS 3.1 capability. New laser transmitter and photodiode receiver technology is critical to enabling DOCSIS 3.1, which puts AOI in a very strong position to benefit from the DOCSIS 3.1 upgrade cycle.

In January, we announced a new line of high frequency laser components that are targeted for DOCSIS 3.1 downstream transmission equipment. And we have additional R&D projects underway to further enhance the performance of these devices and also to address upstream transmitters and receivers at both the node and head-end. We are already seeing RFQs from key customers and expect qualification to begin in Q2 and continue into 2015.

Turning now to the data center market, on a sequential basis, revenue nearly doubled for the second consecutive quarter. We are really excited by our success, which continues to exceed our internal expectations. In Q1, we continued to see strong growth within our existing customer base for our 10G products. Additionally, momentum is increasing for our 40G transceivers and active optical cables that we launched in Q4 of last year. Based on current indications from existing and perspective web 2.0 data center customers, we believe we are still in the early days of 10G products, yet we expect momentum for 40G products to accelerate throughout the year.

From a market perspective, hyper scale or web 2.0 data center customers are undertaking a fundamental upgrade from copper connection to a much faster fiber-optic based infrastructure. Infonetics Research forecast that unit shipments of optical transceivers with data rates of 10 gigabit per second or higher will more than double from 2013 to 2017. And we expect this trend to continue to drive our data center market over the next several years. To foster further data center growth, we are launching new sales incentives design to increase our market share within existing customers and attract new customers.

Moving on to the FTTH market, our WDM-PON technology enables cost-effective deployments of 1 gigabit per second class service to and from the home. By combining our highly reliable lasers, specialized packaging, and silicon-photonics technology, we are enabling the gigabit age in the access network and helping broadband providers deliver true gigabit class service to the consumer.

We are very pleased with the strong customer demands for our WDM-PON product, which is currently greater than our capacity. In the first quarter, we continue to ramp our production for our WDM-PON OLT transceivers, which had just began shipping in meaningful quantities in late Q4. Now, we have three production lines up and running in Taiwan that are in the process of ramping towards full volume capacity. We believe we will have these three lines at full capacity in the second quarter. And we have plans to add three additional production lines in Taiwan by the end of the third quarter. We expect it generally take three to four months to bring a WDM-PON OLT production line to full volume capacity after launch.

And lastly, we remain on track with the development of our ONU transceiver that is used at the customers premise. We continue to expect to begin shipments to our foundational customer as early as Q3 of this year.

With that, I will now turn the call over to James to review more details about our financial results and guidance for Q2 of 2014. James?

Thank you, Stefan. Looking specifically at the top line, the first quarter was a very strong start to 2014. We delivered our fourth consecutive quarter of record revenue driven by increasing demand for our data center and Fiber-To-The-Home products.

Please notice that this strong demand wholly offset what would have normally been a sequentially down quarter due to historical seasonality from the Cable TV market. While CATV revenue decreased 31% sequentially as expected, the total first quarter revenue grew 5% sequentially to reach a record of $24.9 million. Looking at revenue by customer, the first quarter, we derived 81% of our revenue from our top 10 customers compared with 79% in the prior quarter. This increase reflects the strong growth and data center revenue and seasonally lower CATV revenue as a percentage of total revenue.

However, from a market perspective, we expect our revenue mix to continue to diversify throughout the year with growth on the CATV data center and Fiber-To-The-Home revenue. Looking at growth trends within these markets, revenue from CATV products in the first quarter was slightly above our expectation at $9.7 million, an increase of 18% from the $8.3 million reported in the same period last year.

The sequential decrease was expected and was due to normal seasonality in the CATV market from the lack of [co-weather] deployments and the impact of Chinese New Year on our Asian operations. For the CATV market overall, we continue to expect CATV revenue to provide single digit growth for 2014.

Revenue from the internet data center was very strong, and again, exceeded our own expectations. Data center revenue was $11.6 million; more than triple revenue earned over the same period last year and nearly doubled the revenue in the prior quarter. We continue to invest in capacity expansion to meet growing customer demand. With the technological shift from copper to fiber, we see a very long revenue run way to this growth trend.

Turning to our third market Fiber-To-The-Home, revenue grew a 104% year-over-year and 38% sequentially to $2.2 million. Overall, Fiber-To-The-Home revenue is on track. However, quarter Fiber-To-The-Home revenue was slightly below our expectations. As we continue to ramp to full production in order to meet the orders we already have in hand and strong customer demand. At the end of Q1, we had one transceiver production line and sugar line at full capacity. Now we are beginning to ramp production on three lines in Taiwan. These lines in Taiwan are now operational, and we expect it will be near full capacity by the end of Q2. Additionally, we planned to add three more production lines in Taiwan and have them near capacity at the end of Q3.

Moving now to income statement, consolidated gross margins improved significantly over the prior quarter. First quarter gross margin was 34.9%, an increase of 670 basis points sequentially. The improvement in gross margin was primarily driven by product mix, as our internet data center products were higher percentage of total sales.

As a reminder, our gross margin is heavily dependent on product mix in any given quarter, both among our three markets, and the mix of products within each of these markets. As such, we expect our gross margin to moderate in near term back toward our historical gross margin percentage as CATV revenue returns to a more normal revenue run rate.

Looking at operating expenses, we accelerated investment in R&D products and projects to further foster top line growth. R&D expense was $3.5 million or 14% of revenue, up $1.1 million from the prior quarter. Consistent with our announced plans, we increased our near term R&D investments and projects designed to provide relatively near term revenue growth.

Notably, we're investing heavily in our 100G data center products, our Fiber-To-The-Home WDM ONU transceivers and DOCSIS 3.1 technology so that we are well prepared for the expected upgrade cycle in 2015.

So while we expect R&D investment to remain at this dollar level throughout the remainder 2014, we expect R&D expense to continue to decrease as percentage of total revenue. We'll continue throttle R&D investment as appropriate to capture more market share and drive top line performance, yet with an eye toward bottom line results.

Those marketing expense was in line with expectations at $1.3 million or 5% of revenue, as $0.1 million when compared to Q4. As Stefan mentioned, given the present unattainable data center market opportunity, we are increasing sales channel incentives in order to help expand share within our current data center customer base as well as helping gain new customers.

As a result, we expect to invest more in sales and marketing incentives and increase our sales and marketing program this year. While we expect overall sales and marketing expense to increase on a dollar basis, they should continue to decline as a percentage of overall revenue. G&A expense was $3.1 million or 12% of total revenue, up $0.4 million when compared to Q4. G&A was slightly higher than expected primarily due to an increase in accounting cost and recognition of employee bonuses associated with 2013.

Non-GAAP operating income in Q1was $0.8 million or an operating margin of 3.1%, and in Q1, we achieved EBITDA of $2.1 million or 8.5% of revenue. Non-GAAP net income after tax for the quarter was $0.8 million or 3.3% of revenue, as compared to $0.3 million in Q4 of 2013, and a loss of $0.7 million in Q1 of 2013. We generated non-GAAP net income of $0.06 per share and GAAP net income of $0.01 per share using a weighted average fully diluted share count of approximately 13.8 million shares.

Turning now to the balance sheet, we ended Q1 with $61.2 million in total cash; cash equivalents and short term investments as compared with $30.8 million at the end of the prior quarter. As Thompson mentioned, we completed a very successful follow on offering in the quarter raising, $45.7 million in net proceeds after underwriting discounts and operating expenses. We used a portion of the operating proceeds to pay down $5.7 million of our debt, and we ended the quarter with only $19.9 million in total debt.

Accounts receivable increased by $1.7 million to $23.8 million; inventory increased by $4.3 million to reach $23.9 million in the quarter. The [aging or] accounts receivable and inventory remain consistent with prior periods and increases in AR and inventory were consistent with revenue trends and forecasted sales.

Consistent with our plan, we made a total of $5.6 million in capital investments in the quarter, primarily to expand production capacity for our data center transceivers and WDM-PON products in Taiwan. As announced last quarter, we continue to expect to spend a total of $16 million to $18 million across the Taiwan and Houston facilities to further expand capacity for these products, as well as our laser fabrication capacity.

Now looking forward to Q2 of 2014, we are entering the quarter with very strong bookings and forecast to demand. And we expect to achieve our fifth consecutive quarter of record revenue. We expect very strong growth in data center revenue products, continued on track growth from our Fiber-To-The-Home products, as we continue to ramp production to meet customer demand.

Therefore in Q2, we expect revenue to be between $28.5 million to $30.0 million, representing an impressive 45% to 53% year-over-year growth rate. With a return to a more normalize product mix among our markets and within the CATV markets specifically, we expect our non-GAAP gross margin to be in the range of 30.5% to 31.5%. Non-GAAP net income is expected to be in the range of $1 million to $2 million; and non-GAAP EPS on a fully diluted basis between $0.06 per share and $0.13 per share, using a weighted average fully diluted share count of approximately 15.8 million shares.

With that, I'll turn the call back over the operator for our question and answer session. Operator?

Ladies and gentlemen, at this time we'll begin our question and answer session. (Operator instructions).

One moment please. And our first question comes from the line of Simon Leopold with Raymond James. Please go ahead.

Great. Thank you very much. Just a couple of questions here. One -- just a pretty simple one. You had very good sales and a lot of upside to gross margin, but the R&D in particular was higher than I was expecting. And I guess that's sapped some of the upside to the earnings. And I guess, it begs the question of whether or not there was maybe some re-CAGR cauterization of some expensive shifting from what might have been COGS historically going into R&D. If there's any kind of change relative to the prior quarters in terms of categories?

No. Simon, this is James. No, there's no re-CAGR cauterization, it was just a straight R&D expense. The increase came from increasing our investment in R&D projects, the cost of goods, was a product mix benefit. I had really nothing to do with change in cauterization at all. And so, we continue as we said to invest in R&D. It's a growth driver for the company, and there's lots of opportunity that we're trying to capitalize on. So a little larger R&D investment, but it's akin to a sales and marketing expense for many companies, and that it drives immediate opportunity in top line growth. So, gross margin was normal.

And then staying on this gross margin theme, it does seem that the improvement in gross margin is not simply the reporting segment mix but maybe mix within the mix. Meaning that, maybe within data center, there's improvement because even among data center products relative to prior quarter there was a higher gross margin mix. If you could help us understand some of the levers mix within a mix?

And I kind of said before, we don't provide margin by market. But what we have said is that we do see data center and Fiber-To-The-Home providing lift to our overall margin, and of course 40G products tend to have a higher margin than 10G. And so the mix there, as we continue to drive more of our mix within data center to 40G, we should get positive movement in margin. But most evident in this case was due to the larger weight of data center in relative comparison to Cable TV and Fiber-To-The-Home.

And to overcome the normal seasonality was exciting. And so we continue to see good strong growth in data center, and we've got really all three cylinders firing now. So we look for a continued positive results.

And when you talked about your forecast for the June quarter, you suggested that data center would show particularly strong growth. And so, I'm wondering about the gross margin, you've guided to for the June quarter not being better if data center is the fastest growing category.

Yes. So, we want to be conservative. We've got Cable TV but coming a larger weight. We've got more shipments into some emerging markets that continue to have a little less margin than other parts in the CATV space. So, we want to be appropriate in our guidance and try to be in line and ahead when we actually report. So it's not that there's anything happening in data center that would cause the margin retreat or anything like that, we just think it's appropriate to look at the product mix among the three markets and try to provide the best way we can of likely margin.

Okay. And two more quick ones. One is, regarding the timing of the FTTH projects, I think you said this in your prepared remarks but I think it's worth repeating because I've read some press reports suggesting these projects may be later than what is expected. You indicated you expect your ramp in the third quarter to begin for the customer prime element. Has there been any change in your view versus what you talked about the last quarter?

No. Not really. It's pretty much the same view point that we had with respect to the FTTH timing.

Okay, great. And then last one is just any 10% customer color we could get.

We didn't have any new 10% customers, but of course, with the larger percentage of data center, we had a more meaningful input from data center customers as compared to prior quarters. But otherwise, not any new 10% customers to talk about. The data center was a larger share as you would expect on a percent of the overall revenue.

So did you have two 10% customers, one in CATV and one in data center?

Yes, we did.

Great, thank you.

And our next question comes from the line of Krishna Shankar of Roth Capital. Please go ahead.

Yes, congratulations on the good results. As you looking at your guidance for Q2, do you anticipate good sequential revenue growth in the each of the three business segments or CATV will grow faster coming off its seasonal low in Q1?

Sequentially, we would expect normal conditions from Cable TV, right. It's seasonally down and it tends to recover in Q2 and Q3. So we expect just normal trends in terms of CATV but we've had some ups and downs historically in data center revenue, but we look forward continued growth there in data center and Biber-To-The-Home. So CATV will be regular in terms of its seasonality but lots of excitement in terms other markets.

And then for the data center market, can you characterize where we are in terms of the sub [great] cycle. I'll be very early in terms of the 10 gig and the 40 gigabit cycle. Can you sort of give a sense for the market growth potential for data centers over the next 12 to 18 months?

Sure. So, I continue to think that we're still relatively early in the 10 gig upgrade cycle. And I think, we referenced in our remarks, the infonetic study, which I think bears that out admirably, they're calling for more than doubling the unit sales between now and 2017. So, I don't think we're not the only ones that says this is early stage. In addition, you mentioned the 10 gig versus 40 gig mix, we continue to see the market being dominated by 10 gig. Although, as we mentioned, the 40 gig starting to come on. It's worth mentioning that we really -- those products just started shipping a couple of quarters ago for us. So, it takes some time for that to ramp out and it has done that, and we expect it to continue to stay a meaningful part, but a small percentage compared to the 10 gig. Hello?

Thank you.

You're welcome, Krishna.

Operator: And our next question comes from the line of Troy Jensen with Piper. Please go ahead.

Hey gentlemen, congratulations on early nice quarter and guidance.

Thank you.

Thanks, Ray.

Okay, so James, how about just to follow up on -- I want o say, most questions 40G gross margins is -- do they have higher than 10 even at low volumes. But you need to get to above 10-Q margins.

No, they do. They have a higher margin because of higher AFD and cost efficiency. So it's really not a volume played all. We have a member, it's part of AOI story. We make our own lasers, we do our own assembly. And so we have immediate margin available to us even at low volumes and we look to exploit that as we roll out 40G products.

And then I maybe follow up on some of the gross margin questions. I think both you and Stefan talked about sales incentives on the day, it's going to shared. So just more color in that and it's that maybe one of the reasons also impacting gross margins a little bit.

So, no. The sales incentive will be a sales and marketing expense to make sure it's both highlighted and discreet in terms of timing. So at the short term incentive that we've identified that we think can contribute to continued growth both in existing customers and potential new customers. So we think it's very appropriate. We have the opportunity to take advantage of it, and we're going to. too. But it really it's not any kind of rebate or anything else that would affect or discount that would affect cost of goods. It's will be highlighted in the sales marketing line.

Okay. Thanks, perfect, James. How about maybe switching gears here. Stefan, you mentioned a little bit about consolidation. Can you touch Comcast, Time Warner, just kind of get exposure there in the kind of confidence in the (inaudible) in the back.

Yes. We have roughly comparable exposure to both Comcast and Time Warner in the fence. But we're not heavily overweighted in either one. What I think we were seeing in the market place right now really is a lot of things are just kind of waiting for that consolidation to take place because obviously, the shape of the future networks are going to be decided in part by how that all plays out.

So, the North America market, I think is really still kind of waiting for two things, DOCSIS 3.1 products and then the results for that consolidation.

So, we do continue to hear -- I mean, the commentary that we're getting from our customers continues to be very strong and very bullish on a DOCSIS 3.1 opportunity. And I think some of the remarks that have been made recently about the need for gigabit speed and the competition has been very positive in terms of our future opportunities there. And indeed, with respect to DOCSIS 3.1 in particular, we're seeing a lot RFQ activity coming in, recording a lot of new products, starting to develop a lot of products for our customers. So, all of it is lining up to be very good for us in DOCSIS 3.1.

Okay, very well gentleman, keep up the good work.

Thanks.

(Operator instructions) And our next question comes from the line of Richard Shannon, with Craig-Hallum. Please go ahead.

Good afternoon gentleman and our co-work. Congratulations since a very strong revenue numbers here as well. I guess a few questions from me on the data center side, in terms of the customer profile, you've had two big customers for the last few quarters. Have added any new ones that are material? Can you discuss kind of diversification effort, sir?

But we talked about adding the few new customers last year. Those customers continued to grow in terms of volume, but we haven't added additional new material customers beyond those four that we talked about. And that's for the reason, the sales incentive that we talked about a little bit. That's really part of the reason there is you spur opportunities that you'd see with some other customers as well.

Okay, fair enough. I need to follow-up a couple of their questions. Have no fear, able to offer a number of characterizes. But how much of your data center revenues are in 40 gig today?

If you look at the informatics study, we don't provide exact numbers in terms of shipments or a percent of revenue. But weren't inconsistent with kind of the market right now. And the Infonatics study that puts, overall 40G products somewhere in the 5% to 10% of port and shipped. And so we're in line with that now. I think it's time trends we'll see more, more 40G specially (monks) certain of our customers. So, which is right now, we're kind in line with the market.

Yes, I think moving forward said, I think we're -- our customers tend to be the early adopters of new technology. So I think, right now, we're kind of in line with where Infonatics was projecting. I suspect that in future quarters, will probably be a little more heavily weighted towards 40gig just because of our -- nature of our customers versus the average if you will of all enterprise data center customers.

Okay, sure. Fair enough. And one last question from me, because maybe two-partner also in data center here. I think last quarter you commented on your visibility in that part. I would love to get an update on that and I thinks specifically, with those great revenue growth in a quarter and quarter 1, I think if there's any lumpiness and should we be worried about any sorts of pauses that may happen as your customers kind of absorbs inventory and build her.

So, I'll take the second question first. I mean, in terms of lumpiness, I think we continue to see just strong indications of growth. Our customers are continuing to upgrade their existing infrastructure and building new infrastructure. And I don't want to oversell it by saying it's endless, but at least at the moment, we're not seeing any indication from that that they have any desire to slow down any time soon.

With respect to visibility, I think our visibility remains pretty good. It's actually probably somewhat improved from what we had last quarter on this time. Just again, continuing to plug-away, building all the product that we can for them and delivering it quickly as we can for this new opportunities that we see.

Okay, wonderful. I think that's all the questions from me. Again, congratulations guys.

Thank you.

(Operator instructions). And our next question comes from line of [Edison Chui] with G2 Investment Partners. Please go ahead.

It's a [Josh Overcress], how are you doing? Here's just a couple of things, one is -- originally, your March guidance on the gross margin was 31% to 32%. You ended up doing close to 35%. Obviously, your margin expectation this quarter is somewhere in the low 30s, do you think that there's potential for some upside if things kind of come for us as expected? And then a follow up.

Recently, we tried to provide as much visibility as we can and to what we see across the lands that we forecast. But obviously, product mix within any given period can vary that margin. But we think we're in a good shape in terms of our margin profile. We think we're on track in terms of our overall target model rather. So we think the guidance we gave is appropriate.

And then as we go into the second half of the year, your comments about building these lines for the fiber-to-the home opportunity, is it as easy as just saying, hey, if you had one line, you're doing roughly 2 million. If you have four lines, you could be doing closer to $8 million to $10 million a quarter or should we not extrapolate grid lines in terms of what your back half gross could be because it does sound pretty exciting in terms of what quarter growth could be in the second half.

I think in the short term, that the lines that we're building on are all nominally similar in terms of their capacity. But it's worth mentioning that at the state that we are at right now, we're ramping up things and new lines may take more or less time to get to in order the full capacity and things like that.

So I wouldn't directly extrapolate but the lines that we're building are basically similar in terms of the ultimate capacity. It's just that the timing that happens and how that ramps in things like that could complicate an extrapolation in the shorter term.

Are you expecting typical strengths in both Cable TV and data center in the second half of the year as well? As well as what you might see on the Fiber-to-the-Home?

Yes, as Cable TV is typically seasonal in the first quarter as we've mentioned. It tends to get better in the second and third quarters. And our outlook on that hasn't changed. In the data center business, so far as we can tell, it doesn't seem to have seasonality associated with it. And as we said, we continue to see strong indications of customer demand in that market.

Thank you, that does conclude our Q&A session at this time. I now like to turn the conference over to Dr. Thompson Lin for closing remarks.

Okay, thank you for all joining us today. We are very pleased with the progress we have made and we are on track with our key goals, friends, in our data center and fiber-to-the-home market, we did this with the tools and market conditions that provide of how to continue the present goals.

Okay, and we thank you for your support.

Ladies and gentlemen, that does conclude our conference for today, you may now disconnect.