祥茂光電 (AAOI) 2018 Q3 法說會逐字稿

Hello, and welcome to the Applied Optoelectronics' 3Q '18 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded.

您好，歡迎參加應用光電 2018 年第三季財務業績電話會議。（操作員指示）請注意，此事件正在被記錄。

I'd now like to turn the conference over to Maria Riley, Investor Relations for AOI. Please go ahead, ma'am.

現在我想將會議交給 AOI 投資者關係部門的 Maria Riley。請繼續，女士。

Thank you. I'm Maria Riley, Applied Optoelectronics Investor Relations, and I'm pleased to welcome you to AOI's Third Quarter 2018 Financial Results Conference Call. After the market closed today, AOI issued a press release announcing its third quarter 2018 financial results and provided its outlook for the fourth quarter of 2018. The release is also available on the company's website at ao-inc.com.

謝謝。我是應用光電投資者關係部門的瑪麗亞·萊利 (Maria Riley)，很高興歡迎您參加 AOI 2018 年第三季財務業績電話會議。今日收盤後，AOI發布新聞稿，公佈了2018年第三季的財務業績，並對2018年第四季的業績進行了展望。新聞稿也可在本公司網站 ao-inc.com 上查閱。

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 1 year.

本次通話正在錄音並進行網路直播。此錄音的連結可以在 AOI 網站的投資者關係頁面上找到，並將存檔 1 年。

Joining us on today's call is Dr. Thompson Lin, AOI's Founder, Chairman and CEO; and Dr. Stefan Murry, AOI's Chief Financial Officer and Chief Strategy Officer. Thompson will give an overview of AOI's Q3 results, and Stefan will provide financial details and the outlook for the fourth quarter of 2018. A question-and-answer session will follow our prepared remarks.

參加今天電話會議的有 AOI 創辦人、董事長兼執行長 Thompson Lin 博士和 AOI 財務長兼首席策略長 Stefan Murry 博士。湯普森將概述 AOI 第三季的業績，史蒂芬將提供財務細節和 2018 年第四季的展望。我們準備好的發言之後將進行問答環節。

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, well, should, expects, plans, anticipates, believes or estimates and by other 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 confirm 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.

在我們開始之前，我想提醒您查看 AOI 的安全港聲明。在今天的電話會議上，管理階層將做出前瞻性陳述。這些前瞻性陳述涉及風險和不確定性以及假設和當前預期，這可能導致公司的實際結果與此類前瞻性陳述中預期的結果有重大差異。您可以透過「可能」、「好」、「應該」、「預期」、「計劃」、「預期」、「相信」或「估計」等術語以及其他類似的表達來識別前瞻性陳述。除法律要求外，我們不承擔在本次收益電話會議召開日後以任何理由更新前瞻性陳述的義務，以確認這些陳述與實際結果或公司預期的變化相符。有關可能影響公司業務的其他風險的更多信息，請參閱公司向美國證券交易委員會提交的報告的“風險因素”部分。

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 a substitute for results prepared in accordance with GAAP. A reconciliation between our GAAP and non-GAAP measures as well as our discussion of why we present non-GAAP financial measures are included in our earnings press release that is available on our website.

此外，除收入外，今天討論的所有財務數據均基於非 GAAP 計算，除非另有特別說明。非公認會計準則財務指標不應被單獨考慮或取代根據公認會計準則編制的結果。我們的 GAAP 和非 GAAP 指標之間的對帳以及我們為何採用非 GAAP 財務指標的討論均包含在我們網站上的收益新聞稿中。

Before moving to the financial results, I'd like to announce that AOI management will attend the Needham Network & Security Conference on November 13 and the Raymond James Technology Conference in New York on December 4. We hope to have the opportunity to see many of you there.

在公佈財務業績之前，我想宣布AOI管理層將參加11月13日在尼德姆舉行的網路與安全會議以及12月4日在紐約舉行的雷蒙德詹姆斯技術會議。我們希望有機會在那裡見到你們。

Additionally, I'd like to note the date of our fourth quarter 2018 earnings conference call is currently scheduled for Thursday, February 21, 2019.

此外，我想指出的是，我們 2018 年第四季財報電話會議的日期目前定於 2019 年 2 月 21 日星期四。

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

現在我想把電話轉給應用光電公司的創辦人、董事長兼執行長 Thompson Lin 博士。湯普森？

Thank you, Maria. Thank you, everyone, for joining us today in reviewing our third quarter results. AOI delivered revenue of $56.4 million and gross margin of 34%, which grew our net income to $2.7 million or $0.14 per diluted shares. As we announced this September, our revenue was below our expectations due to an issue we identified with a small percentage of 25G lasers, which led to a temporary delay in 1 of digital receiver shipments to a datacenter customer. As we worked to troubleshoot the issues, we enact a solution quickly and with agreement of data customer, resumed shipments. The delay, however, resulted in softer-than-expected datacenter revenue of $39 million. We continue to have active engagement with this customer and believe we have a solid relationship.

謝謝你，瑪麗亞。感謝大家今天與我們一起回顧我們的第三季業績。AOI 的營收為 5,640 萬美元，毛利率為 34%，這使我們的淨收入增至 270 萬美元或每股攤薄收益 0.14 美元。正如我們今年 9 月宣布的那樣，我們的收入低於預期，因為我們發現一小部分 25G 雷射器存在問題，導致向資料中心客戶發貨的 1 個數位接收器暫時延遲。在我們努力解決問題的過程中，我們迅速制定了解決方案，並在數據客戶的同意下恢復了發貨。然而，這一延遲導致資料中心收入低於預期，僅 3,900 萬美元。我們繼續與該客戶保持積極合作，並相信我們之間的關係十分牢固。

Here at AOI, we are committed to a high standard of product quality and customer support. We believe our customer appreciates the measure we take to truly resolve any issues, and our aim is to go above and beyond. While we are disappointed with our third quarter performance, we've been encouraged by the demands we are experiencing with our other datacenter customers. In CATV, we are also pleased with increased activity and interest we are seeing in this market, especially for our Remote-PHY products.

在 AOI，我們致力於高標準的產品品質和客戶支援。我們相信，我們的客戶會欣賞我們為真正解決問題所採取的措施，而我們的目標是超越這一點。雖然我們對第三季的業績感到失望，但其他資料中心客戶的需求卻令我們感到鼓舞。在有線電視領域，我們也很高興看到這個市場活動和興趣的增加，特別是對我們的 Remote-PHY 產品。

We have continued to focus on expanding the reach of our product to a broad group of customers and diversifying our customer base. We are pleased with the progress we continue to make on this front.

我們一直致力於擴大我們產品的覆蓋範圍，以涵蓋更廣泛的客戶群，並實現我們的客戶群多樣化。我們對這方面不斷取得的進展感到高興。

Building on the last design wins with the datacenter operator in China that we announced last quarter, in Q3, we secured 7 new design wins. This brings our total number of design wins to 46 for the year, which includes design wins for datacenter in other segments.

基於上個季度我們宣布與中國資料中心營運商達成的最新設計勝利，在第三季度，我們又獲得了 7 項新的設計勝利。這使得我們今年的設計獲勝總數達到 46 個，其中包括其他領域的資料中心設計獲勝。

We also continue to make progress innovating across our optical platform, expanding our vertical integration. We believe our platform, propriety manufacturing process and vertical integration are keys to our success in the market, and we remain focused on building on this solid foundations.

我們也將繼續在光學平台創新方面取得進展，擴大我們的垂直整合。我們相信，我們的平台、專有製造流程和垂直整合是我們在市場上成功的關鍵，我們將繼續致力於鞏固這一堅實基礎。

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

說完這些，我將把電話交給史蒂芬，讓他回顧我們第三季的業績細節以及對第四季的展望。史蒂芬？

Thank you, Thompson. Total revenue for the third quarter was $56.4 million compared with $88.9 million in the prior year period. Our data center revenue was $39 million compared with $65.8 million in Q3 of last year. As Thompson mentioned, our revenue in the quarter was impacted by a temporary delay in 100G transceiver shipments to a datacenter customer as we work to troubleshoot an issue we identified with a small percentage of 25G lasers. We hold ourselves to a high standard and acted to resolve the quality issue. We determined less than 1% of the lasers were impacted, implemented a solution and continued shipments using our internally sourced 25G lasers to the customer. We believe the measures we took to resolve this issue reflect our strong commitment to our customers. Shipments have resumed to this customer, and we continue to have ongoing discussions and active engagement. We currently expect demand from this customer in Q4 to meet our earlier expectations. However, our production capacity in Q4 is expected to continue to lag demand, and this is reflected in our Q4 guidance.

謝謝你，湯普森。第三季總營收為 5,640 萬美元，而去年同期為 8,890 萬美元。我們的資料中心收入為 3,900 萬美元，而去年第三季的營收為 6,580 萬美元。正如湯普森所提到的，由於我們正在努力解決一小部分 25G 雷射器中發現的問題，我們本季度的收入受到了向資料中心客戶發貨的 100G 收發器暫時延遲的影響。我們嚴格要求自己並採取行動解決品質問題。我們確定受影響的雷射不到 1%，實施了解決方案並繼續使用我們內部採購的 25G 雷射器向客戶發貨。我們相信，我們為解決這個問題所採取的措施體現了我們對客戶的堅定承諾。我們已經恢復向該客戶發貨，並且我們將繼續進行討論和積極接觸。我們目前預計該客戶第四季的需求將達到我們先前的預期。然而，我們第四季的生產能力預計將繼續落後於需求，這反映在我們的第四季指引中。

The production capacity in Q4 will be negatively impacted primarily by additional product testing sets that we have implemented in order to further reassure our customer base that we have eliminated any potentially troublesome laser devices from our inventory, including work in process. Most of these additional testing steps are temporary measures to screen existing inventory. In addition to the reduced production capacity, these costs will also temporarily increase our cost of goods sold and thus negatively impact our gross margin in Q4.

第四季的生產能力將受到負面影響，主要因為我們實施了額外的產品測試，以進一步向我們的客戶保證，我們已經從庫存中消除了任何可能有問題的雷射設備，包括在製品。大多數額外的測試步驟都是為了篩選現有庫存的臨時措施。除了生產能力下降之外，這些成本還將暫時增加我們的銷售成本，對第四季的毛利率產生負面影響。

We continue to experience good demand with our other top datacenter customers and began shipping volume orders to a large Chinese datacenter operator. In the quarter, 63% of our datacenter revenue was derived from our 40G transceiver products and 34% was from our 100G products. We continue to work diligently to diversify our customer base and remain in active qualification for our 100G and 200G products with customers outside of our core hyperscale customer base.

我們繼續感受到其他頂級資料中心客戶的良好需求，並開始向一家中國大型資料中心營運商發送大量訂單。本季度，我們資料中心營收的 63% 來自 40G 收發器產品，34% 來自 100G 產品。我們將繼續努力實現客戶群多元化，並繼續積極為核心超大規模客戶群以外的客戶進行 100G 和 200G 產品的認證。

In the quarter, we secured 7 design wins, including 4 design wins with 2 large U.S.-based equipment manufacturers. This brings our total number of design wins to 46 for the year, which includes design wins for datacenter and other segments. As a reminder, our transceiver customer base has historically been focused on direct sales to datacenter customers. So these design wins with the equipment OEMs are an important step as we continue our push to diversify our customer base.

本季度，我們獲得了 7 項設計合同，其中包括與兩家美國大型設備製造商簽訂的 4 項設計合約。這使得我們今年的設計獲獎總數達到 46 個，其中包括資料中心和其他領域的設計獲獎。提醒一下，我們的收發器客戶群歷來專注於直接向資料中心客戶銷售。因此，在我們繼續努力實現客戶群多元化的過程中，贏得設備原始設備製造商的這些設計勝利是重要的一步。

In our cable TV business, we continued our momentum in the quarter due to ongoing upgrade projects. We generated revenue of $14.3 million, up slightly sequentially and below the record $18.9 million reported in Q3 of last year. We are very encouraged by the customer activity we see in this market, especially with our Remote-PHY product. We are currently in trials with 5 customers for our Remote-PHY product, and these trials appear to be going well. At the recent SCTE Expo Conference in Atlanta, AOI was the first company to demonstrate Remote-PHY capability to 1.7 gigahertz, which is a significant technical achievement that will allow MSOs to unlock additional revenue-generating spectrum already installed in their plants. This technology was well received by many attendees at the conference.

在我們的有線電視業務中，由於正在進行的升級項目，我們在本季繼續保持了良好的發展勢頭。我們實現了 1,430 萬美元的收入，比上一季略有成長，但低於去年第三季創紀錄的 1,890 萬美元。我們對這個市場上的客戶活動感到非常鼓舞，尤其是我們的 Remote-PHY 產品。我們目前正在與 5 位客戶一起試用我們的 Remote-PHY 產品，這些試用進展順利。在最近於亞特蘭大舉行的 SCTE 博覽會上，AOI 是第一家展示 1.7 千兆赫遠端 PHY 功能的公司，這是一項重大技術成就，將使 MSO 能夠解鎖其工廠中已安裝的額外創收頻譜。此項技術得到了大會眾多與會者的一致好評。

Our telecom products delivered $2.7 million in revenue compared with $3.5 million generated in Q3 of last year. For the quarter, 69% of our revenue was from datacenter products, 25% from CATV products, with the remaining 6% from FTTH telecom and other. In the third quarter, we had 4 10% or greater customers; 3 in the datacenter business that contributed 31%, 22% and 15% of total revenue, respectively; and 1 in the CATV business that contributed 15% of total revenue.

我們的電信產品收入為 270 萬美元，而去年第三季的營收為 350 萬美元。本季度，我們的營收 69% 來自資料中心產品，25% 來自有線電視產品，其餘 6% 來自 FTTH 電信和其他。第三季度，我們有 4 個 10% 或更高的客戶；資料中心業務中有 3 個，分別貢獻了總收入的 31%、22% 和 15%；有線電視業務中有 1 個，貢獻了總收入的 15%。

Moving beyond revenue. We generated a gross margin of 34%, a decrease from the 40.4% reported last quarter. Our gross margin came in below our expectations due primarily to capacity under-utilization while we worked to resolve the inventory issue we experienced this quarter. Additionally, we incurred approximately $1.5 million in inventory write-downs related to the quality issue. Looking ahead, we expect our gross margin to decline in Q4 due to the temporary increases in testing costs I mentioned earlier. We expect these additional costs to largely be eliminated by the end of the year and margins are expected to improve starting in Q1. Longer term, we remain committed to our 40% gross margin target.

超越收入。我們的毛利率為 34%，低於上一季的 40.4%。我們的毛利率低於預期，主要原因是產能利用不足，同時我們正在努力解決本季遇到的庫存問題。此外，我們也因品質問題而損失了約 150 萬美元的庫存。展望未來，由於我之前提到的測試成本暫時增加，我們預計第四季的毛利率將會下降。我們預計這些額外成本將在年底前基本消除，利潤率預計將從第一季開始提高。從長遠來看，我們仍致力於實現 40% 的毛利率目標。

Total operating expenses in the quarter were $22.8 million or 40.4% of revenue compared with $20.8 million or 23.7% of revenue in the prior quarter. The sequential increase was mostly due to higher R&D expense incurred to troubleshoot and resolve the issue we experienced in the quarter. We expect R&D to remain at an elevated level for a few quarters as we continue to invest in new technologies and improve our execution. Our operating loss in Q3 was $3.6 million compared with operating income of $14.7 million in Q2 of 2018.

本季總營運費用為 2,280 萬美元，佔營收的 40.4%，而上一季為 2,080 萬美元，佔營收的 23.7%。環比成長主要是由於本季排除故障和解決我們遇到的問題所產生的研發費用增加。隨著我們繼續投資新技術並提高執行力，我們預計研發費用將在幾個季度內保持在較高水準。我們第三季的營業虧損為 360 萬美元，而 2018 年第二季的營業收入為 1,470 萬美元。

Non-GAAP net income after tax for the third quarter was $2.7 million or $0.14 per diluted share compared with income of $12.9 million or $0.64 per diluted share in Q2 of 2018.

第三季非公認會計準則稅後淨收入為 270 萬美元，即每股攤薄收益 0.14 美元，而 2018 年第二季的非公認會計準則稅後淨收入為 1,290 萬美元，即每股攤薄收益 0.64 美元。

GAAP net loss for Q3 was $3.7 million or a loss of $0.19 per diluted share compared with GAAP net income of $8 million or $0.40 per diluted share last quarter. The Q3 weighted average fully diluted share count was approximately 20.2 million shares. We recognized approximately $0.6 million in tax benefit from employee options that were exercised and restricted stock divested during the quarter.

第三季 GAAP 淨虧損為 370 萬美元，即每股攤薄虧損 0.19 美元，而上一季 GAAP 淨收入為 800 萬美元，即每股攤薄虧損 0.40 美元。第三季加權平均完全稀釋股數約 2,020 萬股。我們從本季行使的員工選擇權和剝離的限制性股票中獲得了約 60 萬美元的稅收收益。

Turning now to the balance sheet. We ended Q3 with $64.1 million in total cash, cash equivalents, short-term investments and restricted cash compared with $77.9 million at the end of the previous quarter. As of September 30, we had $107.9 million in inventory, an increase from $93.3 million in Q2. The increase is largely due to products in production that could not be completed during the quarter due to additional reliability testing time required. Operating cash flow in the quarter totaled $7.5 million compared with $8.1 million in Q3 of last year. We made a total of $21.4 million in capital investments in the quarter, including $14 million in production equipment and machinery and $6.7 million on construction and building improvements. This brings our total capital investments year-to-date to $57.9 million.

現在來看資產負債表。截至第三季末，我們的現金、現金等價物、短期投資和受限現金總額為 6,410 萬美元，而上一季末為 7,790 萬美元。截至 9 月 30 日，我們的庫存為 1.079 億美元，比第二季的 9,330 萬美元有所增加。成長的主要原因是，由於需要額外的可靠性測試時間，本季無法完成生產的產品。本季經營現金流總計 750 萬美元，去年第三季為 810 萬美元。本季我們共進行了 2,140 萬美元的資本投資，其中包括 1,400 萬美元的生產設備和機械投資以及 670 萬美元的建築和建築改進投資。這使得我們今年迄今的總資本投資達到 5,790 萬美元。

Before turning to our outlook, I would like to make a few comments on the tariff situation with China. AOI uses a variety of raw materials and manufactures a diverse set of products. While a small number of these are on the tariffs list, we believe there will be minimal impact overall from tariffs on AOI's business. If the tariff situation changes, we continue to believe that we are well positioned to adapt and plan for such contingencies. As you know, all 3 of our locations are capable of manufacturing transceivers, with Taiwan and China both capable of manufacturing these products in high volume.

在談到我們的展望之前，我想就中國的關稅情況發表一些評論。AOI 使用多種原料並製造多種產品。雖然其中一小部分已列入關稅清單，但我們認為關稅對 AOI 業務的整體影響將微乎其微。如果關稅情況發生變化，我們仍然相信我們有能力適應和應對此類突發事件。如您所知，我們的三家工廠都能夠生產收發器，其中台灣和中國都能夠大量生產這些產品。

Moving now to our Q4 outlook. We expect Q4 revenue to be between $56 million and $63 million.

現在轉向我們的第四季展望。我們預計第四季的營收將在 5,600 萬美元至 6,300 萬美元之間。

Non-GAAP gross margin is expected to be in the range of 30% to 31%. Non-GAAP net income is expected to be in the range of a loss of $1.5 million to income of $0.7 million, and non-GAAP EPS between the loss of $0.07 per share and earnings of $0.04 per share, using a weighted average fully diluted share count of approximately 20.1 million shares. We expect a Q4 income tax benefit of between $1.4 million and $2 million.

非公認會計準則毛利率預計在30%至31%之間。非公認會計準則淨收入預計在每股虧損 150 萬美元至收入 70 萬美元之間，非公認會計準則每股收益預計在每股虧損 0.07 美元至每股收益 0.04 美元之間，採用約 2,010 萬股的加權平均完全稀釋股數。我們預計第四季所得稅收益將在 140 萬美元至 200 萬美元之間。

With that, I'll turn it back over to the operator for the Q&A session. Operator?

說完這些，我將把話題交還給操作員進行問答環節。操作員？

(Operator Instructions) The first question comes from Simon Leopold with Raymond James.

（操作員指示）第一個問題來自 Raymond James 的 Simon Leopold。

So as I understand it, the fourth quarter is affected by the capacity [limitation]. Basically, the bottleneck is around the new quality control and testing that you have to do in order to assure that you've resolved all the problems. Is that the correct way to think about it?

據我了解，第四季度受到了產能（限制）的影響。基本上，瓶頸在於您必須進行的新品質控制和測試，以確保解決所有問題。這是正確的思考方式嗎？

Yes, Simon, that's correct. And just to put a little more color on it, as we mentioned, the additional testing steps -- a lot of the additional testing steps that we're implementing in the quarter are temporary steps, that is we're having to screen existing inventory, work in process, and that's what's temporarily affecting us in Q4. There will be some ongoing additional testing steps, but those are expected to be much less than what we're seeing in the fourth quarter.

是的，西蒙，沒錯。為了更詳細地說明這一點，正如我們所提到的，額外的測試步驟——我們在本季度實施的許多額外測試步驟都是臨時步驟，也就是說，我們必須篩選現有庫存和在製品，而這些在第四季度暫時影響著我們。將會有一些持續的額外測試步驟，但預計這些步驟將比我們在第四季看到的要少得多。

So presumably, this prevents you from achieving the $125 million commitment that you disclosed in the 8-K at the beginning of the year. And I guess what I'd like to try to understand is, how does that dovetail into the contractual agreements? Is there some catch-up that then shows up at some point in 2019? Is the contract voided because of the issues? Could you help us understand the relationship between these 2 events?

因此，據推測，這會阻止您實現年初在 8-K 文件中披露的 1.25 億美元承諾。我想嘗試了解的是，這與合約協議如何相吻合？2019 年的某個時候是否會出現一些追趕現象？合約是否因這些問題而無效？您能幫助我們理解這兩個事件之間的關係嗎？

What I could say is that we think we'll probably deliver around $90 million of that $125 million in this year, and we continue to have a very strong relationship with this customer as well as our other datacenter customers. And we're working through this issue with them.

我可以說的是，我們認為我們今年可能會交付 1.25 億美元中的約 9000 萬美元，我們繼續與該客戶以及其他資料中心客戶保持非常牢固的關係。我們正在與他們一起解決這個問題。

I guess, what I don't understand is, is there -- based on the way the contract's structured, is there sort of a make good whereas in basically the gap between $90 million and $125 million, that $35 million, does that get added to a 2019? Should we think of it that way? Or should we think of it as that business has gone? How should we treat that?

我想，我不明白的是，根據合約的結構方式，是否有某種補償，而基本上在 9000 萬美元和 1.25 億美元之間的差距中，那 3500 萬美元是否會加到 2019 年？我們該這樣想嗎？或者我們應該認為那項業務已經消失了？我們該如何對待它？

And I can't give you too many specifics on it other than, I mean, to point out that the contract was filed along with the 8-K, so you can read most of those provisions in there. There isn't a specific provision in there to my knowledge that would be consistent with a sort of catch-up in the way that you're describing it. However, as I mentioned, this customer continues to work very closely with us and they've agreed to take the commitment that they had given us in the fourth quarter, and we're still working with them on the time periods beyond that.

我無法向您提供太多細節，但我想指出的是，該合約是與 8-K 一起提交的，因此您可以在其中閱讀大部分條款。據我所知，其中沒有任何具體規定與您所描述的那種追趕相一致。然而，正如我所提到的，這位客戶繼續與我們密切合作，他們同意履行在第四季度給予我們的承諾，並且我們仍在與他們就此之後的時間段進行合作。

Great. And you did address this in your prepared remarks, but I want to make crystal clear that I understand. In terms of the gross margin in the fourth quarter, it's really the effect of the extra testing that when you talked about the 40% gross margin is your long-term target, I presume, essentially, the pricing environment, your pricing agreements and commitments are unchanged from your prior assumptions and, therefore, once you get past this extra testing and these certifications that you're doing for quality control, that the ultimate pricing environment and that 40% kind of gross margin is what we should think about beyond the fourth quarter?

偉大的。您確實在準備好的發言中提到了這一點，但我想明確表示我理解。就第四季度的毛利率而言，這實際上是額外測試的效果，當您談到 40% 的毛利率是您的長期目標時，我認為，從本質上講，定價環境、您的定價協議和承諾與您之前的假設相比沒有變化，因此，一旦您通過了這些額外的測試和為質量控制所做的認證，那麼最終的定價環境和 40% 的價格應該考慮在第四季度之後？

Yes. That's correct. I mean, the additional testing steps are what's negatively impacting us in the fourth quarter. The pricing environment was consistent with what we had expected, and we think that we can get back to that 40% gross margin target sometime in the future.

是的。沒錯。我的意思是，額外的測試步驟對我們第四季產生了負面影響。定價環境與我們的預期一致，我們認為未來某個時候我們可以回到40％的毛利率目標。

And just one last one, if I might. In terms of the shortfall in your revenue versus what we all once expected, is it your sense that essentially that demand was unmet? Or do you suspect or have reason to believe that a competitor took that business?

如果可以的話，我再問最後一個問題。就您的收入與我們曾經預期的差距而言，您是否認為本質上需求沒有得到滿足？或者您懷疑或有理由相信競爭對手奪走了該業務？

I think it's reasonable to believe that some of the business went to a competitor in the quarter. I mean, I -- obviously, all of our customers have needs in terms of their datacenter requirements, and if one of their suppliers can't deliver it, then I think it wouldn't be surprising to see that a competitor picked up that share, at least temporarily.

我認為有理由相信本季部分業務轉向了競爭對手。我的意思是，顯然，我們所有的客戶在資料中心方面都有需求，如果他們的某個供應商無法滿足需求，那麼我認為競爭對手至少暫時搶佔該市場份額也就不足為奇了。

And the next question comes from Paul Silverstein with Cowen and Company.

下一個問題來自 Cowen and Company 的 Paul Silverstein。

Stefan, I'm sorry to revisit the issue but I suspect we're all going to be revisiting the issue on this call. In terms of the specific problem, I think where you referenced 25G lasers, can you give us any more insight why was this isolated to that particular customer? I assume there is 1 or more lines that are dedicated to that customer as opposed to other customers. But what is the nature of the issue? And with respect to your other customers, I assume there's concern if you had an issue with 1 customer, even if it was a small number of lasers, why aren't other customers concerned? Why should they believe this is isolated and, therefore, is not a larger issue? And why shouldn't that in turn impact your revenue with those customers now and in the future? What is that you can share with us?

史蒂芬，很抱歉再次討論這個問題，但我想我們都會在這次通話中再次討論這個問題。就具體問題而言，我認為您提到了 25G 雷射器，您能否向我們提供更多見解，說明為什麼這個問題只針對特定的客戶？我認為有一條或多條線路專門針對該客戶，而不是其他客戶。但問題的本質是什麼？對於您的其他客戶，我認為如果您遇到一個客戶的問題，即使只是少量雷射器，那為什麼其他客戶不擔心呢？他們為什麼應該相信這只是孤立的問題，因此不是一個更大的問題？那麼這又怎麼不會反過來影響您現在和將來從這些客戶獲得的收入呢？您能與我們分享什麼？

Yes, I think, Paul, basically, obviously I can't go into too many customer-specific details about this because we're covered by nondisclosure agreements with virtually all of our customers, but in very broad terms, every customer that we have has different sort of requirements, they operate in different environments and they have different expectations in terms of the performance of these devices. And again, that's a very general statement, I recognize that, but I can't be more specific given the nondisclosure agreements that we have in place. But -- so within that context, right, every customer has different requirements, environments and expectations. We haven't seen this problem cropping up with other customers. We've been proactive in going out to all of our major customers and discussing with them what we found, and I think the one thing that I could say is, I'm very proud of the team that we have here in terms of addressing this issue very quickly. I think our customers appreciated not only the speed at which we were able to address the problem but our pro-activeness, if you will, in going out and talking to the other customers and giving them the data, being very transparent about what we found.

是的，保羅，我認為，基本上，顯然我不能透露太多關於客戶的具體細節，因為我們幾乎與所有客戶都簽訂了保密協議，但從廣義上講，我們的每個客戶都有不同的要求，他們在不同的環境中運營，並且對這些設備的性能有不同的期望。我再說一次，這是一個非常籠統的說法，我承認這一點，但考慮到我們已經簽訂的保密協議，我無法更具體說明。但是——在這種背景下，每個客戶都有不同的要求、環境和期望。我們還沒有發現其他客戶有這個問題。我們一直積極主動地與所有主要客戶聯繫，並與他們討論我們的發現，我想我可以說的一件事是，我為我們的團隊能夠迅速解決這個問題感到非常自豪。我認為我們的客戶不僅讚賞我們解決問題的速度，還讚賞我們的積極主動性，如果你願意的話，我們會出去與其他客戶交談並向他們提供數據，並且非常透明地告知我們發現的問題。

So Stefan, the direct follow-up question would be, I trust you don't believe that the issues impacted your business with other customers? Or has it?

那麼史蒂芬，直接的後續問題是，我相信您不認為這些問題影響了您與其他客戶的業務？或者有嗎？

I don't believe it has affected our business with other customers.

我認為這並沒有影響我們與其他客戶的業務。

And the next question comes from Mark Kelleher with D.A. Davidson.

下一個問題來自 D.A. Davidson 的 Mark Kelleher。

Maybe we could talk more generally about the competitive environment. You mentioned that you thought maybe some competitor had taken some of that market share there. What are the pricing trends you're seeing? Are they consistent with what you've been expecting? Are you seeing any new competitors coming to the market?

也許我們可以更廣泛地談論競爭環境。您提到，您認為可能某些競爭對手已經佔領了部分市場份額。您看到的定價趨勢是怎麼樣的？它們與您的預期一致嗎？您是否看到有新的競爭對手進入市場？

No. Pricing trends are consistent with what we had expected. And no, I don't really see any new competitors coming into the market.

不。定價趨勢與我們的預期一致。不，我確實沒有看到任何新的競爭對手進入市場。

All right. The new Chinese datacenter customer, you said that just began ramping in the quarter?

好的。您說新的中國資料中心客戶本季才剛開始增加嗎？

That's correct, yes.

是的，沒錯。

And do you expect that datacenter customer to be similar in opportunity to the U.S. datacenter customers?

您是否認為該資料中心客戶的機會與美國資料中心客戶的機會相似？

Yes. It's a customer that definitely has the potential to be as big as any of the other datacenter customers that we have in the U.S. It's one of the very largest datacenter operators in the world.

是的。這個客戶絕對有潛力成為我們在美國其他資料中心客戶的大客戶。它是世界上最大的資料中心營運商之一。

Okay. And maybe just a few thoughts on the CATV. Talk about what your expectations are there? I know you kind of highlighted that a little bit.

好的。也許只是對有線電視的一些想法。談談你對此有何期望？我知道你稍微強調了這一點。

Yes, I think, we just recently finished the SCTE, Society of Cable Telecommunications Engineers Expo, which is sort of a technology conference for the cable TV business. It was earlier in October. And we had very good commentary, very good receptivity, I guess you could say, to our Remote-PHY product. In particular, we were showcasing a 1.7 gigahertz Remote-PHY product at the show. To my knowledge, we were the only supplier that had such a product, and I think we're seeing very positive trends in the cable business. A number of the MSOs are either undergoing upgrade projects currently or are about to embark on upgrade projects. That's true for North American MSOs as well as MSOs in Europe and Latin America as well. And we're seeing very positive signs in terms of both our existing products our sort of DOCSIS 3.1 product and this emerging new Remote-PHY product.

是的，我想，我們最近剛結束了 SCTE（有線電視工程師協會博覽會），這是有線電視產業的技術會議。那是十月初的事了。我想您可以說，我們的 Remote-PHY 產品獲得了非常好的評價和非常好的接受度。具體來說，我們在展會上展示了一款 1.7 千兆赫的 Remote-PHY 產品。據我所知，我們是唯一擁有這種產品的供應商，我認為我們看到了有線電視業務非常積極的趨勢。許多 MSO 目前正在進行升級專案或即將著手升級專案。這對於北美 MSO 以及歐洲和拉丁美洲的 MSO 來說都是如此。我們從現有產品（例如 DOCSIS 3.1 產品）和新興的 Remote-PHY 產品中看到了非常正面的訊號。

And the next question comes from Alex Henderson with Needham & Company.

下一個問題來自 Needham & Company 的 Alex Henderson。

I was hoping you could talk conceptually about how we should be thinking about the CY19 time frame relative to the resolution of this issue. And what the snapback might look like? Is it reasonable to think that as we get through -- fully through the testing process and start to move into '19, that ultimately you would get back to the type of numbers that had been out on the street beforehand and the expectations that you'd kind of implied for next year where you would be seeing a doubling of demand in 100 gig from '18 to '19? Or alternatively, are we so constrained by the current situation that we haven't been able to add capacity at a rate that would have got us to that 2019 level that means that we'll be operating at a much lower level because we haven't been able to take our resources and ramp them in the third quarter and fourth quarter because of the troubleshooting problems?

我希望您能從概念上談談我們應該如何考慮 CY19 時間框架與解決這個問題的關係。那麼反彈會是什麼樣子呢？是否可以合理地認為，隨著我們全面完成測試過程並開始進入 19 年，最終您會回到之前公佈的數字以及您對明年的預期，即從 18 年到 19 年，100G 的需求將翻一番？或者說，我們是否受到當前情況的限制，無法以達到 2019 年水平的速度增加產能，這意味著我們的營運水平將低得多，因為我們無法利用我們的資源，並在第三季度和第四季度由於故障排除問題而增加產能？

No. As I mentioned earlier, the additional testing that we've implemented is primarily confined to part of the third quarter and the fourth quarter. Beyond that, there won't be a lot of additional testing that we'll be doing, and certainly it's consistent with our ability to continue to ramp our production capacity. If you look at our overall -- we don't give specific guidance more than 1 quarter out as you're aware, but in general, we still think that the volumes can double next year compared to this year. Now admittedly that's on a little bit lower base now because we're -- we missed some of the volume shipments that we expected to have in the third and fourth quarter, but we still expect it to be able to double into next year.

不。正如我之前提到的，我們實施的額外測試主要局限於第三季和第四季的部分時間。除此之外，我們不會進行大量額外的測試，這當然與我們繼續提高生產能力的能力一致。如果你看一下我們的整體情況——正如你所知，我們不會給出超過 1 個季度的具體指導，但總的來說，我們仍然認為明年的銷量可能會比今年翻一番。現在我們承認，現在的基數有點低，因為我們沒有達到預期的第三季和第四季的出貨量，但我們仍然預計明年的出貨量將翻倍。

Is it reasonable to say that you thought or you think you could double relative to your prior expectations before you ran into this issue? In other words, that your capacity would be there to supply the original expectations. If you -- once this totally is resolved, assuming it's resolved by year-end, therefore, we'd be back to prior thought process to double your volume from your original expectations as opposed to from the lower base.

在遇到這個問題之前，您是否認為或認為您可以比之前的預期翻倍，這種說法合理嗎？換句話說，您的能力將能夠滿足最初的期望。如果您 - 一旦這個問題完全解決，假設它在年底前得到解決，那麼我們將回到之前的思維過程，將您的交易量從最初的預期翻一番，而不是從較低的基數翻一番。

So the capacity will be put in place as needed to be able to achieve the demand that we see at the time. We don't have to add capacity now to have it ready by the end of next year, for example. So we're continuing to evaluate the needed capacity and add it as we need to. With respect to doubling it, it's really too hard -- too early to have a crystal ball for the entire year, next year, I think there are certainly scenarios where we could double based on our prior expectations, but we feel comfortable saying we think we can double given where we actually came out in 2018 or where we expect to come out 2018.

因此，我們將根據需要投入產能，以滿足當時的需求。例如，我們不必現在增加產能，就可以在明年年底前做好準備。因此，我們將繼續評估所需的容量並根據需要添加它。至於翻番，這真的太難了——現在就預測全年的業績還為時過早，但我認為，根據我們之前的預期，明年肯定存在翻番的可能性，但考慮到 2018 年的實際情況或我們預計 2018 年的業績，我們可以放心地說，我們認為我們可以翻番。

And do you think that there is any lingering share losses as a result of this with the core customer that you were working with to resolve the issue with? Or is this just a dividend-ly trajectory and your back to where you would have been otherwise once it's fully resolved?

您是否認為，與您合作解決該問題的核心客戶會因此遭受持續的份額損失？或者這只是一條股息軌跡，一旦問題完全解決，您就會回到原來的狀態？

It’s hard to say right now. We're still working through this, and I can't really say for sure at this point. What I can say what's really important for us is continuing to diversify our customer base, right? And we've made great success, and as Thompson highlighted and I mentioned in my remarks as well, we have 7 design wins in the quarter, 3 of those were for 200-gig products. Several of them were with a new class of customers, that is large equipment manufacturers as opposed to datacenter operators. So I feel very good where we are with our efforts in terms of customer diversification, both in terms of new products, new customers and new classes of customers, that is non-datacenter operators, for example. So I think that effort is what's been taking primacy for us. It's our most important effort right now, besides, of course, getting back on track relative to deliveries to the customers that we have now. And I think, long term, that's really the most important thing for all of us to keep in mind for our business.

現在還很難說。我們仍在努力解決這個問題，目前我還不能確定。我可以說，對我們來說真正重要的是繼續實現客戶群的多樣化，對嗎？我們取得了巨大的成功，正如湯普森強調的以及我在演講中提到的那樣，我們在本季度獲得了 7 項設計勝利，其中 3 項是 200 千兆產品。其中一些是新客戶，即大型設備製造商，而不是資料中心營運商。因此，我對我們在客戶多樣化方面的努力感到非常滿意，包括新產品、新客戶和新客戶類別，例如非資料中心營運商。所以我認為這種努力對我們來說是最重要的。這是我們目前最重要的努力，當然，除此之外，還要恢復向現有客戶交付產品的正常運作。我認為，從長遠來看，這確實是我們所有人在經營業務時需要牢記的最重要的事情。

And one last question, I know you don't guide out to '19, but for the tax rate, I think you talked about 16% in the past. Is that still kind of the ballpark that you are thinking for '19?

最後一個問題，我知道您沒有給出 19 年的預測，但就稅率而言，我認為您過去談到的是 16%。這仍然是您對 19 年的設想嗎？

It sounds about right. Actually, we haven't done our planning process in detail for 2019. So it's a bit early to give you a precise guess on the tax rate, but that sounds not unreasonable.

聽起來不錯。實際上，我們還沒有對2019年做出詳細的規劃。因此，現在就對稅率做出精確的猜測還為時過早，但這聽起來也並非不合理。

And the next question comes from James Kisner with the Loop Capital Markets.

下一個問題來自 Loop Capital Markets 的 James Kisner。

I just wanted to talk about the balance sheet a little bit. It looks like you burned some cash here. I'm just wondering -- in Q3, wondering what your expecting for cash burn in Q4. And obviously, inventory built up, a little of that product issue, are you anticipating you might have to write some of that off? Or do you expecting to be able to sell it all? And just kind of relatedly, what are your plans for CapEx? Are they adapted at all here just given the cash flow pressure in near term?

我只是想稍微談談資產負債表。看起來你在這裡燒了一些錢。我只是想知道——在第三季度，您預計第四季度的現金消耗是多少。顯然，庫存增加了，產品問題有點多，您是否預計可能需要註銷其中的一部分？或者您希望能夠將其全部出售？並且與此相關的是，您對資本支出有什麼計劃？考慮到短期現金流壓力，他們是否已經做出調整？

That is a couple questions embedded in there. First of all, in terms of the cash balance, it was lower at the end of the quarter. A lot of that went into inventories. We mentioned we have a lot of inventory that was partway through the manufacturing process and we weren't able to ship all of that out or complete the manufacturing and ship it all out in the quarter. So we expect that will come back down from here. We think Q3 was probably the high-water mark in terms of inventory. So that will start turning back into cash, I think, as we move forward. You asked the question about capital expenditures, and as I kind of mentioned in my previous answer, we are evaluating our capital expenditures and the need to add additional equipment and what have you as we see the demand's shaping up. So we don't have to buy equipment a year in advance in most cases, for example. We can do that much quicker as we see the demand's shaping up. So really, our CapEx is defined by what we see in terms of demand over the next couple of quarters, and we'll continue to adjust that as we need to. And I thought there was another question embedded -- oh, you asked about inventory write-downs. We had about $1.5 million of inventory write-downs or reserves in the quarter. I suspect that should be -- most of that should already be -- I mean that's already flushed out in the balance sheet. Now I wouldn't expect huge inventory adjustments in the fourth quarter but a lot of that depends on the testing that we have ongoing at this point.

這裡面有幾個問題。首先，就現金餘額而言，本季末的現金餘額較低。其中很大一部分都進入了庫存。我們提到，我們有大量庫存處於製造過程的中期，我們無法將所有庫存全部運出或在本季度完成製造並全部運出。因此我們預計該數字將從現在開始回落。我們認為第三季可能是庫存的最高水位。因此，我認為，隨著我們不斷前進，這些資金將開始重新轉化為現金。您問到有關資本支出的問題，正如我在先前的回答中提到的，我們正在評估我們的資本支出和增加額外設備的必要性，以及隨著需求的增長，您有何舉措。因此，在大多數情況下，我們不必提前一年購買設備。隨著需求的不斷增長，我們可以更快地做到這一點。因此，我們的資本支出實際上是由未來幾季的需求決定的，我們會根據需要繼續進行調整。我以為還有另一個問題——哦，你問的是庫存減記。本季我們的庫存減記或儲備約為 150 萬美元。我認為應該是——其中大部分應該已經——我的意思是這已經在資產負債表中清除了。現在我預計第四季度不會出現大規模的庫存調整，但這在很大程度上取決於我們目前正在進行的測試。

Okay. It helps. And just sort of be -- [you view this] a little bit better. I mean, you can always talk about slowing hyperscale, I mean, in general and just given you're not shipping. Recently, maybe you just don't have a good view on that. But just, in general, thoughts on the hyperscale demand environment as we exit the year and begin kind of Q1? Is it -- are you seeing kind of a slowdown that others are also seeing?

好的。這有幫助。而且有點 — [你認為] 會好一點。我的意思是，你總是可以談論減緩超大規模，我的意思是，一般來說，只是因為你沒有發貨。最近，也許你只是對此沒有什麼好的看法。但總的來說，當我們結束今年並開始第一季時，對超大規模需求環境有何看法？您是否也像其他人一樣看到了經濟放緩的現象？

I mean, a lot of people have had slowdowns or talked about slowdowns in particular customers. What matters for us, I think, is that we have a few datacenter customers but we don't have all of them yet. And in particular, we talked about this Chinese datacenter operator and a few other operators that we're working very diligently to get. So I think what matters to us mostly is continuing to diversify and adding new customers. And so whatever happens with our existing customer base, these customers, of course, are very, very -- they are very quick to react, they are very diligent about managing their needs in terms of bandwidth. And so as we -- they change their forecast up and down all the time, and if so, the best thing that we can do to react to that, I think, is to get a more diversified customer base and make sure that we can average out any fluctuations that we might see over a larger number of customers. And particularly, if we can get customers that are in different segments, like, for example, the equipment manufactures that we talked about earlier, they're primarily selling to an enterprise-type datacenter market, so that's a completely different dynamic and, I think, one that will help continue to further allow us to minimize our risk associated with any one large customer.

我的意思是，很多人都經歷過速度變慢的情況，或是談論過特定客戶的速度變慢的情況。我認為，對我們來說重要的是，我們擁有一些資料中心客戶，但尚未擁有所有資料中心客戶。特別是，我們談到了這家中國資料中心營運商以及其他一些我們正在努力爭取的營運商。因此我認為對我們來說最重要的是繼續多樣化並增加新客戶。因此，無論我們現有的客戶群發生什麼情況，這些客戶當然都非常非常——他們反應非常迅速，他們非常勤奮地管理他們在頻寬方面的需求。因此，當他們不斷地上下調整預測時，我認為，我們能做的最好的事情就是獲得更加多樣化的客戶群，並確保我們能夠平均化在大量客戶中可能看到的任何波動。特別是，如果我們可以獲得不同領域的客戶，例如我們之前談到的設備製造商，他們主要向企業型資料中心市場銷售產品，那麼這是一個完全不同的動態，我認為，這將有助於我們繼續進一步降低與任何一個大客戶相關的風險。

And this concludes our question-and-answer session, so I would like to turn the floor back to Thompson Lin for any closing comments.

我們的問答環節到此結束，因此我想將發言權交還給 Thompson Lin，請他發表最後評論。

Okay, and thank you for joining us today. As always, we thank our investors, customers and employees for your continued support.

好的，感謝您今天加入我們。一如既往，我們感謝投資者、客戶和員工的持續支持。

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

會議現已結束。感謝您參加今天的演講。現在您可以斷開線路了。