祥茂光電 (AAOI) 2019 Q1 法說會逐字稿

Good day and welcome to the Applied Optoelectronics First Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

大家好，歡迎參加應用光電 2019 年第一季財報電話會議。（操作員指示）請注意，此事件正在被記錄。

I would now like to turn the conference over to Maria Riley, Investor Relations for AOI. Please go ahead.

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

Thank you. I'm Maria Riley, Applied Optoelectronics Investor Relations, and I'm pleased to welcome you to AOI's First Quarter 2019 Financial Results Conference Call.

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 2019 年第一季財務業績電話會議。

After the market closed today, AOI issued a press release announcing its first quarter 2019 financial results and provided its outlook for the second quarter of 2019. 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 1 year.

今日收盤後，AOI發布新聞稿，公佈了2019年第一季的財務業績，並對2019年第二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。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.

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。

Thompson will given an overview of AOI's Q1 and Stefan will provide financial details and the outlook for the second quarter of 2019. A question-and-answer session will follow our prepared remarks.

湯普森將概述 AOI 第一季的業績，史蒂芬將提供財務細節和 2019 年第二季的展望。我們準備好的發言之後將進行問答環節。

Before we begin, I'd 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. In some cases, you can identify forward-looking statements by terminologies such as believes, anticipates, estimates, intends, predicts, expects, plans, may, should, could, will, or thinks, and by other similar expressions that convey uncertainty of future events or outcomes.

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。在某些情況下，您可以透過相信、預期、估計、打算、預測、期望、計劃、可能、應該、可以、將會或認為等術語，以及其他傳達未來事件或結果不確定性的類似表達來識別前瞻性陳述。

Forward-looking statements also include statements regarding management's beliefs and expectations related to the expansion of the reach of our products into new markets and customer responses to our innovations as well as statements regarding the company's outlook for the second quarter of 2019. 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 expectation.

前瞻性陳述還包括有關管理層對我們產品在新市場擴展的信念和期望以及客戶對我們創新的反應的陳述，以及有關公司對 2019 年第二季度前景的陳述。除法律要求外，我們不承擔在本次收益電話會議召開日期之後以任何理由更新前瞻性陳述的義務，以使這些陳述符合實際結果或公司預期的變化。

More information about other risks that may impact the company's business are set forth in the Risk Factors section of the company's reports on file with the SEC, including the company's annual report on Form 10-K for the year ended December 31, 2018.

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，包括公司截至 2018 年 12 月 31 日的 10-K 表年度報告。

Also, with the exception of revenue, all financial measures discussed today are on a non-GAAP basis, unless specifically noted otherwise. Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation between our GAAP and non-GAAP measures as well as a discussion of why we present non-GAAP financial measures are included in our earnings press release that is available on our website.

此外，除收入外，今天討論的所有財務指標均基於非 GAAP，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 Stifel Cross Sector Insight Conference in Boston on June 11. We hope to have the opportunity to see many of you there. Additionally, I'd like to note the date of our Second Quarter 2019 Earnings Call is currently scheduled for Wednesday, August 7, 2019.

在了解財務結果之前，我想宣布 AOI 管理層將於 6 月 11 日參加在波士頓舉行的 Stifel 跨行業洞察會議。我們希望有機會在那裡見到你們。此外，我想指出的是，我們 2019 年第二季財報電話會議的日期目前定於 2019 年 8 月 7 日星期三。

Now I'd 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, and thank you everyone for joining us today. In reviewing our first quarter results, AOI delivered revenue of $52.7 million, non-GAAP gross margin of 25.5%, and a non-GAAP net loss of 27 cents per share.

謝謝你，瑪麗亞，也謝謝大家今天的到來。回顧我們的第一季業績，AOI 的營收為 5,270 萬美元，非 GAAP 毛利率為 25.5%，非 GAAP 淨虧損為每股 27 美分。

In looking at the dynamics in the quarter, the demand environment remained consistent with our expectations. Certain of our datacenter customers in the US continued to work through excess inventory and some of our customers in China remained conservative in their approach to capex deployment. While these dynamics will influence our performance in the short-term, we continue to believe the fundamental need for higher bandwidth within datacenters remains intact. We have ongoing constructive relationships with our customers to help them address this need and will continue to forge ahead on our efforts to drive future growth.

從本季的動態來看，需求環境與我們的預期一致。我們在美國的一些資料中心客戶繼續處理過剩庫存，而我們在中國的一些客戶在資本支出部署方面仍然保持保守態度。雖然這些動態將在短期內影響我們的業績，但我們仍然相信資料中心對更高頻寬的基本需求仍然存在。我們與客戶保持著持續的建設性關係，以幫助他們滿足這項需求，並將繼續努力推動未來的成長。

As we have discussed previously, diversifying our customer base is a top priority. We are having ongoing discussions with new customers about our innovative fiber-optic access products, and in the quarter we secured six design wins, including three with new customers. All of these customers are outside of our core hyperscale customer base and we are pleased with the progress we continue to make on this front. We also continue to make strides in diversifying and expanding the reach of our innovative products into new markets, such as 5G for mobile telecommunications. While we are still early in the 5G cycle, we believe it will be an important driver of the high-speed optical component market.

正如我們之前所討論的，多樣化我們的客戶群是我們的首要任務。我們正在與新客戶就我們的創新光纖接入產品進行持續討論，本季度我們獲得了六項設計勝利，其中三項是與新客戶達成的。所有這些客戶都不在我們的核心超大規模客戶群中，我們對這方面持續取得的進展感到滿意。我們也將繼續大力推動創新產品的多樣化，並將其擴展到新的市場，例如行動電信的 5G。雖然我們仍處於 5G 週期的早期階段，但我們相信它將成為高速光學元件市場的重要驅動力。

In CATV, we remain encouraged by the customer activity and increased interest we are seeing for our Remote Phy product. As a reminder, AOI pioneered this innovative technology and we continue to believe it will play a significant role as cable MSOs evolve and transition to next-generation node and head-end architectures.

在有線電視領域，客戶活動和對遠端實體產品日益增長的興趣讓我們倍受鼓舞。提醒一下，AOI 率先推出了這項創新技術，我們仍然相信，隨著有線 MSO 發展並過渡到下一代節點和頭端架構，它將發揮重要作用。

We continue to have strong technical engagement with our customers, and are in active qualifications with our next generation 400G products. We had a great showing at OFC where we demonstrated our suite of next-generation technology and the customer response was very positive. We believe our platform, proprietary manufacturing processes and vertical integration are keys to our success in the market and we remain confident in our ability to monetize our innovations as the market improves and moves to next generation technologies.

我們繼續與客戶保持密切的技術合作，並積極開展下一代 400G 產品的認證工作。我們在 OFC 上有出色的表現，展示了我們的下一代技術套件，客戶的反應非常積極。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取得成功的關鍵，隨著市場不斷改善並轉向下一代技術，我們仍然有信心將我們的創新貨幣化。

With that, I will turn the call over to Stefan to review the details of our Q1 performance and outlook for Q2. Stefan?

說完這些，我將把電話交給史蒂芬，讓他回顧我們第一季的業績細節以及第二季的展望。史蒂芬？

Thank you, Thompson. Overall, the demand environment in the quarter was consistent with our expectations. Total revenue for the first quarter was $52.7 million, which was at the midpoint of our guidance range of $50 million to $55 million. Our datacenter revenue came in at $38.5 million compared with $50.6 million in Q1 of last year. In the quarter, 49% of our datacenter revenue was from our 40G transceiver products, and 48% was from our 100G products.

謝謝你，湯普森。整體而言，本季的需求環境與我們的預期一致。第一季總營收為 5,270 萬美元，處於我們預期範圍 5,000 萬美元至 5,500 萬美元的中間值。我們的資料中心收入為 3,850 萬美元，而去年第一季為 5,060 萬美元。本季度，我們資料中心營收的 49% 來自 40G 收發器產品，48% 來自 100G 產品。

As we discussed in February, we are seeing softness in the datacenter market as customers work through excess inventory due in part to the transition to 100G as well as customers in China taking a more conservative approach with their CapEx deployment due to concerns of slowing economic growth. These dynamics played out in Q1 as expected and we anticipate this softness to continue into Q2 at a more elevated level. However, I will reiterate that we believe that we continue to have good relationships with all of our hyperscale datacenter customers and that their need for high-speed optical connectivity remains fundamental to their business. We are focusing our efforts on continuing to foster relationships with both new and existing customers and expanding our technology leadership, which we believe will best position AOI for growth when market conditions improve.

正如我們在二月所討論的那樣，我們看到資料中心市場疲軟，因為客戶正在處理過剩庫存，部分原因是向 100G 的過渡，以及中國客戶由於擔心經濟成長放緩而對資本支出部署採取更為保守的態度。這些動態在第一季正如預期的那樣發揮作用，我們預計這種疲軟態勢將在第二季度持續，並且程度會更高。不過，我要重申，我們相信我們將繼續與所有超大規模資料中心客戶保持良好的關係，並且他們對高速光纖連接的需求仍然是他們業務的基礎。我們正致力於繼續培養與新舊客戶的關係並擴大我們的技術領導地位，我們相信這將使 AOI 在市場條件改善時獲得最佳成長。

In Q1, we continued to have success in diversifying our customer base. And in the quarter, we secured a total of 6 new design wins, of which 3 were with new customers and include an OEM supplier to the hyperscale and enterprise markets, a telecom equipment manufacturer for 5G and a provider of chemical sensors. Additionally, in building upon our strong foundation as a leader in advanced optical technology, we announced the availability of a 100 gigabit per second per lambda PIN photodiode that can be leveraged for 100G and 400G optical transceivers.

在第一季度，我們持續成功地實現客戶群多元化。本季度，我們共獲得 6 項新設計訂單，其中 3 項來自新客戶，包括超大規模和企業市場的 OEM 供應商、5G 電信設備製造商和化學感測器供應商。此外，為了鞏固我們在先進光學技術領域的領先地位，我們宣布推出每波長 100 千兆位元每秒的 PIN 光電二極管，可用於 100G 和 400G 光收發器。

With the development of this new technology, AOI now has in-house manufacturing for the 2 most critical active optical components required to produce 100G and 400G transceivers. This will enable us to maintain low cost and reduce our time to market for these products. We remain focused on building industry-leading products and had a great showing at OFC with our suite of next-generation technology, including our 200G and 400G modules as well as our Remote-PHY product and 5G products.

隨著這項新技術的發展，AOI 現在已經能夠在內部製造生產 100G 和 400G 收發器所需的兩個最關鍵的主動光學元件。這將使我們能夠保持低成本並縮短這些產品的上市時間。我們始終專注於打造業界領先的產品，並在 OFC 上出色地展示了我們的下一代技術套件，包括我們的 200G 和 400G 模組以及我們的 Remote-PHY 產品和 5G 產品。

At OFC, we launched a 400G optical module that adheres to the requirements of onboard optics. We were first to market with this technology and we are very encouraged by the significant customer interest that we're seeing with this product. And just last month, we announced the availability of our new 400 gigabit per second 8-channel, VCSEL-based, short-reach transceiver that utilizes PAM4 encoding to deliver 50 gigabits per second of data throughput on 8 separate multimode optical channels. Our large datacenter customers will need 400G solutions that cover distances as short as a few meters to as long as several kilometers.

在OFC上，我們推出了符合板載光學要求的400G光模組。我們率先將這項技術推向市場，並且看到客戶對該產品表現出濃厚的興趣，我們感到非常鼓舞。就在上個月，我們宣布推出新的 400 千兆位元每秒 8 通道、基於 VCSEL 的短距離收發器，該收發器利用 PAM4 編碼在 8 個獨立的多模光通道上提供 50 千兆位元每秒的資料吞吐量。我們的大型資料中心客戶將需要 400G 解決方案，涵蓋短至幾公尺、長至幾公里的距離。

Our growing line of 400G products is designed to meet these customer needs while offering the cost advantages of our manufacturing expertise and vertical integration.

我們不斷成長的 400G 產品線旨在滿足這些客戶需求，同時提供我們的製造專業知識和垂直整合的成本優勢。

Turning to our CATV market. Revenues from CATV products increased 13% year-over-year to $12 million compared with $10.6 million in Q1 of last year. Demand for our CATV products was in line with expectations. We continued to ship orders for our Remote-PHY product and remain in active qualification trials with 3 additional customers for this technology.

轉向我們的有線電視市場。有線電視產品營收年增 13% 至 1,200 萬美元，而去年第一季為 1,060 萬美元。我們對有線電視產品的需求符合預期。我們繼續發送 Remote-PHY 產品的訂單，並與另外 3 位客戶就此項技術進行積極的資格試驗。

Our telecom products delivered revenue of $1.7 million compared with $3.6 million in Q1 of last year. In telecom, we see 5G network deployments poised to become a large driving factor for the optical industry as a whole, the motivation behind the 5G network upgrade cycle is to offer much higher bandwidth and lower latency to support a higher density of mobile users and enable connectivity to billions of new devices, services and applications.

我們的電信產品收入為 170 萬美元，而去年第一季為 360 萬美元。在電信領域，我們看到 5G 網路部署有望成為整個光學產業的重要驅動因素，5G 網路升級週期背後的動機是提供更高的頻寬和更低的延遲，以支援更高密度的行動用戶，並實現數十億新設備、服務和應用程式的連接。

In order to enable this ubiquitous coverage, mobile operators will need to install a large number of small antennas and a much larger number of optical devices to handle the front-haul connections between the antenna and a centrally located base station. Additionally, a mid-haul link may be required from a centralized cloud radio access network back into an aggregation point where it connects to the Internet. The types of products required for the front-haul and mid-haul applications are 25 gigabits per second, 50 gigabits per second and 100 gigabits per second optical transceivers. The same data rates used in our datacenter business. Additionally, just like our CATV products, many of these devices will be required to withstand harsh outdoor environments. We have significant experience and resources available to us to develop the types of optical modules required for this application and we have a highly automated production process for producing such modules, which we believe will be important when volumes begin to ramp.

為了實現這種無所不在的覆蓋，行動營運商需要安裝大量小型天線和大量光學設備來處理天線和中心基地台之間的前傳連接。此外，可能需要從集中式雲端無線接取網路回到連接到網際網路的聚合點的中程連結。前傳和中傳應用所需的產品類型包括每秒25千兆位元、每秒50千兆位元和每秒100千兆位元的光收發器。與我們的資料中心業務使用的資料速率相同。此外，就像我們的有線電視產品一樣，許多此類設備都需要承受惡劣的戶外環境。我們擁有豐富的經驗和資源來開發此應用所需的光學模組類型，我們擁有生產此類模組的高度自動化生產流程，我們相信這在產量開始增加時將非常重要。

We are currently in qualification with a number of vendors for both front- and mid-haul applications. That said, please keep in mind that given this is an emerging market, the timing of qualification and deployment schedules can be difficult to predict.

目前，我們正在與多家供應商合作，對前傳和中傳應用進行認證。話雖如此，請記住，鑑於這是一個新興市場，資格認證和部署時間表的時間可能難以預測。

For the quarter, 73% of our revenue was from datacenter products, 23% from CATV products, with the remaining 4% from FTTH telecom and other.

本季度，我們的營收 73% 來自資料中心產品，23% 來自有線電視產品，其餘 4% 來自 FTTH 電信和其他。

In the first quarter, we had four 10% or greater customers, three in the datacenter business that contributed 32%, 19% and 18% of total revenue respectively and one in the CATV business that contributed 12% of total revenue.

第一季度，我們有四個 10% 或更高的客戶，其中三個來自資料中心業務，分別貢獻了總收入的 32%、19% 和 18%，一個來自有線電視業務，貢獻了總收入的 12%。

Moving beyond revenue, we generated a gross margin of 25.5%, which modestly improved from 24.7% last quarter. It was slightly below our guidance due to somewhat higher-than-expected production cost on a certain of our transceiver products.

除了收入之外，我們的毛利率為 25.5%，較上一季的 24.7% 略有提高。由於某些收發器產品的生產成本略高於預期，因此數字略低於我們的預期。

Total operating expenses in the quarter were $20.3 million or 38.4% of revenue compared with $18.7 million or 31.8% of revenue in the prior quarter. We continue to be targeted with our investments with an emphasis on developing and enhancing our next generation of optical products while also tightly managing expenses.

本季總營運費用為 2,030 萬美元，佔營收的 38.4%，而上一季為 1,870 萬美元，佔營收的 31.8%。我們將繼續有針對性地進行投資，重點開發和增強我們的下一代光學產品，同時嚴格管理費用。

Operating loss in Q1 was $6.8 million compared with an operating loss of $4.2 million in Q4 of 2018.

第一季的營業虧損為 680 萬美元，而 2018 年第四季的營業虧損為 420 萬美元。

Non-GAAP net loss after-tax for the first quarter was $5.4 million or a loss of $0.27 per basic share compared with a net income of $5.6 million or $0.28 per diluted share in Q1 of 2018. GAAP net loss for Q1 was $10.5 million or a loss of $0.53 per basic share compared with GAAP net income of $2.1 million, or $0.11 per diluted share in Q1 of last year. The basic shares outstanding used for computing the net loss in Q1 were $19.9 million.

第一季非公認會計準則稅後淨虧損為 540 萬美元，即每股基本虧損 0.27 美元，而 2018 年第一季淨收入為 560 萬美元，即每股攤薄虧損 0.28 美元。第一季 GAAP 淨虧損為 1,050 萬美元，即每股基本虧損 0.53 美元，去年第一季 GAAP 淨收入為 210 萬美元，即每股攤薄虧損 0.11 美元。用於計算第一季淨虧損的基本流通股為 1,990 萬美元。

Turning now to the balance sheet. We ended Q1 with $77.5 million in total cash, cash equivalents, short-term investments and restricted cash compared with $58 million at the end of the previous quarter. This includes net proceeds of approximately $76.4 million from the convertible notes due in 2024, which priced at 5% coupon in February. We incurred approximately $4.1 million in fees and expenses associated with the offering, which we anticipate amortizing ratably over the 5-year life of the notes in accordance with GAAP.

現在來看資產負債表。我們第一季末的現金、現金等價物、短期投資和受限現金總額為 7,750 萬美元，而上一季末為 5,800 萬美元。其中包括 2024 年到期的可轉換票據的淨收益約 7,640 萬美元，2 月份的票面利率為 5%。我們產生了與此次發行相關的約 410 萬美元的費用和開支，我們預計這些費用將按照 GAAP 在票據的 5 年期限內按比例攤銷。

Our cash balance was offset by a paydown of $38.2 million to extinguish our capital expenditure loan and real estate term loan with BB&T. As of March 31, we had $84.5 million in inventory, a decrease of $8.8 million from Q4. This inventory reduction is consistent with our long-term plan as we continue to rationalize inventory levels.

我們的現金餘額被 3,820 萬美元的償還金額所抵消，用於償還我們與 BB&T 的資本支出貸款和房地產定期貸款。截至 3 月 31 日，我們的庫存為 8,450 萬美元，比第四季減少了 880 萬美元。隨著我們繼續合理化庫存水平，此次庫存減少與我們的長期計劃一致。

We made a total of $12.8 million in capital investments in the quarter, including $7.2 million in production equipment and machinery and $5.3 million on construction and building improvements. Looking ahead, we now expect capital expenditures in 2019 to be approximately $52 million, which factors in a continuation of the construction of our new factory in China.

本季我們共進行了 1,280 萬美元的資本投資，其中包括 720 萬美元的生產設備和機械投資以及 530 萬美元的建築和建築改進投資。展望未來，我們目前預計 2019 年的資本支出約為 5,200 萬美元，其中包括繼續在中國建造新工廠。

We continue to monitor end market conditions and may adjust our spending plans as necessary.

我們將繼續監測終端市場狀況，並根據需要調整我們的支出計劃。

Moving now to our Q2 outlook. We expect Q2 revenue to be between $40 million and $45 million and non-GAAP gross margin to be in the range of 25% to 27%. Non-GAAP net loss is expected to be in the range of $6.9 million to $8.6 million and non-GAAP loss per share between $0.35 per share and $0.43 per share using a weighted average basic share count of approximately $19.9 million.

現在轉到我們的第二季展望。我們預計第二季營收將在 4,000 萬美元至 4,500 萬美元之間，非 GAAP 毛利率將在 25% 至 27% 之間。非公認會計準則淨虧損預計在 690 萬美元至 860 萬美元之間，非公認會計準則每股虧損預計在 0.35 美元至 0.43 美元之間（採用約 1,990 萬美元的加權平均基本股數）。

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

說完這些，我會把話題交還給接線員，進行問答環節。操作員？

(Operator Instructions) And our first question today comes from Simon Leopold with Raymond James.

（操作員指示）我們今天的第一個問題來自 Raymond James 的 Simon Leopold。

I want to ask one sort of nearer-term and a longer-term question. First, on the nearer term, could you give us an update on what you're seeing competitively particularly in silicon photonics technologies? And I guess the context to this is, coming out of the optical show in March, we not only heard from Intel, who's been dabbling in this area for a long time, but Cisco had made an acquisition and Juniper has talked about launching some products. So maybe some update overall competitive environment but place some context around silicon photonics? And then I've got a follow-up.

我想問一個近期問題和一個長期問題。首先，就近期而言，您能否向我們介紹您所看到的競爭情勢，特別是在矽光子技術領域？我想，事情的起因是，在三月的光學展會上，我們不僅聽說了長期涉足該領域的英特爾的消息，而且思科也進行了收購，瞻博網路也談到了推出一些產品。那麼也許一些更新的整體競爭環境但圍繞矽光子學提供一些背景？然後我有一個後續行動。

Okay. Simon, I would say in this quarter we haven't seen any sort of meaningful shift with respect to the competitive environment, especially as it pertains to silicon photonics. You noted a couple of companies who've made investments in silicon photonics. All of those companies have had some activity in the past either as the company that they're currently with or as previous firms, and they're not. In other words, they're not new entrants to the industry. And I haven't really seen any meaningful shift in terms of the way that those types of companies are approaching the market or the way that our technologies differentiate themselves. I think as we've noted in the past conference calls and conferences that we believe our technology competes very favorably with silicon photonics, in terms of cost, in terms of flexibility and in terms of our ability to make modifications and things to the products throughout their lifecycle, which can also help us to maintain an effective cost throughout the lifecycle of the product. So -- but as far as it goes, I haven't seen too much shift really in the competitive environment there. And your follow-on question?

好的。西蒙，我想說，在本季度，我們還沒有看到競爭環境發生任何有意義的轉變，特別是在矽光子學方面。您提到有幾家公司對矽光子學進行了投資。所有這些公司過去都曾有過一些活動，無論是作為他們現在所在的公司還是作為以前的公司，但現在沒有了。換句話說，他們並不是這個產業的新進者。而我並沒有真正看到這些類型的公司在進入市場的方式上，或者我們的技術在差異化方面有任何有意義的轉變。我認為，正如我們在過去的電話會議和會議中所指出的那樣，我們相信我們的技術在成本、靈活性以及在產品整個生命週期內進行修改的能力方面與矽光子技術相比具有非常有利的競爭力，這也可以幫助我們在產品的整個生命週期內保持有效的成本。所以——但就目前情況而言，我並沒有看到那裡的競爭環境發生太大的變化。您還有什麼後續問題嗎？

Yes. I wanted to talk a little bit more about how you see the 5G market developing. I think I appreciate the fact that the harden optics makes this a great opportunity for your technology, but we hear suggestions that this will be a very competitive market with a lot of varied entrants, maybe from emerging markets like China. And so I'm sort of struggling to figure out the dynamic of how big is this opportunity? And how does it compare to other markets you've played in?

是的。我想進一步談談您如何看待 5G 市場的發展。我認為硬化光學元件為您的技術帶來了絕佳的機會，我很欣賞這一點，但我們聽到的建議是，這將是一個競爭非常激烈的市場，有許多不同的進入者，可能來自中國等新興市場。因此，我很難弄清楚這個機會到底有多大？與您涉足過的其他市場相比如何？

So I think it's a little early to parse out the competitive environment. I think you're right, Simon, it's going to be a competitive market. There's no doubt about that. I would note that as you've seen in our datacenter market, we've been able to compete favorably in highly competitive markets. So I think the fact that it's competitive is really a reflection of the fact that the market is sizable and it's one where optics is going to play a very critical role. So we think that it's an exciting market and the competitiveness in that market really just reflects that. As far as how does this relate to margins and things? I think it's a little bit early to say, as we noted in our prepared remarks, we're pretty early in the 5G cycle. We think we have very attractive technologies, not only at the module level, but at the laser photodiode level and optical subassembly level. And we intend to compete with all the players that we are aware of including those that are in China and elsewhere using our technologies. And we think we compete favorably there.

因此我認為現在分析競爭環境還為時過早。我認為你是對的，西蒙，這將是一個競爭激烈的市場。毫無疑問。我想指出的是，正如您在我們的資料中心市場所看到的，我們已經能夠在競爭激烈的市場中保持有利的競爭。所以我認為，競爭激烈實際上反映了市場規模龐大，而且光學將發揮非常關鍵的作用。因此我們認為這是一個令人興奮的市場，該市場的競爭力確實反映了這一點。這與利潤和其他事物有何關係？我認為現在說這個還為時過早，正如我們在準備好的發言中指出的那樣，我們才處於 5G 週期的早期階段。我們認為我們擁有非常有吸引力的技術，不僅在模組級別，而且在雷射光電二極體級別和光學子組件級別。我們打算與所有我們知道的參與者競爭，包括那些在中國和其他地方使用我們技術的人。我們認為我們在那裡具有有利的競爭力。

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

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

Great. I wanted to just talk about the main business, the datacenter demand. What are your customers telling you about the excess inventory situation? Is this a 1-quarter situation? Is this a whole year situation? What do you think the cycle is there? And then with respect to China, is there an opportunity in the datacenter market in China to kind of offset some of the weakness in the U.S.?

偉大的。我只想談談主要業務，即資料中心需求。您的客戶對於庫存過剩的情況有何看法？這是一個季度的情況嗎？這是全年的情況嗎？您認為其中存在什麼樣的循環？那麼就中國而言，中國的資料中心市場是否有機會抵銷美國的一些疲軟？

So as far as what customers are saying, I don't think that there's a common cadence across all customers. As you can imagine, inventory levels are not uniform across all different customers. And so we're hearing different things from different customers. Some customers are saying this is going to be a relatively short-term thing, and others, frankly, just aren't giving us a lot of really good visibility into when the situation improves. As far as the datacenter market in China, as we noted on our prepared remarks, we have had a number of design wins with datacenter operators in China, and we have some active qualifications ongoing for future -- what we hope will be future design wins in there, in that area. There is some potential that those customers could offset some of the weakness that we're seeing in the U.S. That hasn't proven to be the case so far. But I think that it's one of the reasons why, I think there is hope and optimism surrounding the next few quarters, but we ought to get through this period of weakness in the U.S. datacenter market first.

因此，就客戶所說的而言，我認為並非所有客戶都有共同的節奏。您可以想像，不同客戶的庫存水準並不一致。因此，我們從不同的客戶那裡聽到了不同的事情。一些客戶表示這將是一個相對短期的事情，而其他客戶坦率地說，並沒有給我們太多關於情況何時會好轉的真正資訊。就中國的資料中心市場而言，正如我們在準備好的發言中所指出的，我們已經與中國的資料中心營運商取得了多項設計勝利，並且我們正在為未來進行一些積極的資格認證——我們希望未來能夠在該領域取得設計勝利。這些客戶有可能抵消我們在美國看到的一些疲軟趨勢。但迄今為止，事實並非如此。但我認為這是原因之一，我認為未來幾季充滿希望和樂觀，但我們應該先度過美國資料中心市場的這段疲軟時期。

And then on the cable side, the Remote-PHY. You had a pretty nice growth there on the cable TV side. Is that some sign that the -- there's some thawing in the cable market? Is that demand finally coming through?

然後在電纜端，是 Remote-PHY。有線電視方面取得了相當不錯的成長。這是否表示有線電視市場正在解凍？這種需求最終會實現嗎？

I think that there's some signs that the thawing is occurring. I think it's too early to say we're back into a robust growth period yet, but I think that we do expect cable TV to continue to improve. That market is notoriously sort of lumpy and difficult to predict, however. And so I think overall, we think that there's some good tailwinds in cable TV driven by Remote-PHY. But again, on any given quarter, the results can be kind of up and down as we've seen over the past several years really.

我認為有一些跡象表明解凍正在發生。我認為現在說我們已經回到強勁增長期還為時過早，但我認為我們確實預計有線電視將繼續改善。然而，眾所周知，該市場波動較大且難以預測。因此我認為總體而言，我們認為在 Remote-PHY 的推動下，有線電視行業將迎來一些良好的順風。但同樣，在任何一個季度，結果都可能出現起伏，正如我們在過去幾年中所看到的那樣。

(Operator Instructions) And our next question comes from Richard Shannon with Craig-Hallum.

（操作員指示）我們的下一個問題來自 Craig-Hallum 的 Richard Shannon。

Probably just a couple for me. Stefan, I know you're lows to -- typically to talk more than 1 quarter out, but wanted to see if you have any thoughts relative to some other companies who had datacenter exposure and their thoughts about the second half of the year. Are you seeing any sign of visibility or stabilization that might lead you to think your datacenter revenues can improve in the third quarter versus the second?

對我來說可能只有幾個。史蒂芬，我知道您通常會談論超過一個季度的事情，但我想看看您是否對其他一些擁有資料中心業務的公司以及他們對下半年的想法有什麼看法。您是否看到任何可見性或穩定的跡象，讓您認為第三季的資料中心收入會比第二季有所提高？

Well, I think there's a lot of reasons for optimism. We noted that we have some very important new technologies that we talked about, 400G, et cetera. There are some customers that are talking aggressively about deploying that. I won't put a precise time frame on it, which is really part of the problem with visibility. While I do believe that there's a number of very exciting things that are going to happen in the datacenter market. It's very difficult to predict the timing, and especially with respect to inventory because that's one of the more opaque things that our customers are relatively less inclined to talk about with us. They're very interested in talking with us as you can imagine about new technologies and their deployment plans for those new technologies. They're a little bit less interested in talking to us about the specifics of their inventory situation. So that's a little bit hard to get a concrete read on. I think it's -- it would be -- question -- it would be a very questionable thing to say that datacenter companies are not going to eventually continue to invest in their infrastructure. They got out a little bit ahead of themselves, I think, in terms of buying inventory, and that's what we're digesting right now. But it seems to me that's really only a matter of time until growth resumes. It's just hard to put a precise time frame on that.

嗯，我認為有很多理由感到樂觀。我們注意到，我們討論了一些非常重要的新技術，400G等等。有些客戶正在積極談論部署該技術。我不會為此設定一個精確的時間框架，這實際上是可見性問題的一部分。我確實相信資料中心市場將會發生許多令人興奮的事情。預測時間非常困難，尤其是庫存方面，因為這是比較不透明的事情之一，我們的客戶相對不太願意與我們談論。正如您所想像的，他們非常有興趣與我們討論新技術以及他們對這些新技術的部署計劃。他們不太願意與我們談論他們的庫存情況的具體細節。因此，要得到具體的解讀有點困難。我認為這是一個問題——如果說資料中心公司最終不會繼續投資其基礎設施，那將是一個非常值得懷疑的事情。我認為，在購買庫存方面，他們有點操之過急，而這正是我們現在正在消化的。但在我看來，恢復成長只是時間問題。只是很難對此設定一個精確的時間框架。

Okay. Well, it's fair enough based on what we've been hearing otherwise. My second question Stefan is, obviously, you guys are trying to grow into -- to get to back to breakeven here. I'm wondering if you could help us kind of sketch out how you get there in terms of revenues, gross margins, OpEx? And also maybe that revenue contribution you expect to -- obviously, I would assume, datacenter be a big part of that where they expect new products like 200 and 400 gig or 5G or outside of your main cloud customer base that you have today. Can you just help us understand how you expect to get there?

好的。嗯，根據我們所聽到的其他消息，這還算公平。我的第二個問題是，史蒂芬，顯然你們正在努力成長——以達到收支平衡。我想知道您是否可以幫助我們概括一下您在收入、毛利率和營運支出方面是如何實現這一目標的？也許您預期的收入貢獻 - 顯然，我認為資料中心是其中的重要組成部分，他們期待 200 和 400 千兆或 5G 等新產品，或超越您目前的主要雲端客戶群。您能否幫助我們了解您期望如何實現這一目標？

Well, I think what we've seen so far -- I think, we've -- operating expenses have been relatively stable over the last few quarters. If you take out some of the extraordinary items that we have. So if you kind of run that forward, you can get an idea where we need to be in terms of gross margin and revenue to cover those operating expenses. And so we obviously need to see revenues increased to some extent. And we also believe that we can continue to see some gross margin uptick, and that, that will also contribute to profitability. But as far as putting a precise numbers on that, we don't have sort of an updated model that we've put out there yet.

嗯，我認為到目前為止我們看到的——我認為，我們的營運費用在過去幾個季度相對穩定。如果你拿出我們擁有的一些非凡物品。因此，如果你這樣運行，你就能知道我們需要達到什麼樣的毛利率和收入才能涵蓋這些營運費用。因此，我們顯然需要看到收入在一定程度上增加。我們也相信，我們可以繼續看到毛利率上升，這也將有助於獲利能力。但就給出精確的數字而言，我們還沒有推出更新的模型。

And our next question comes from Liz Pate with Cowen and Company.

我們的下一個問題來自 Cowen and Company 的 Liz Pate。

My first question is, you've talked about a number of new design wins this past quarter and the prior quarter. Are those translating into any meaningful revenue at this point for you?

我的第一個問題是，您談到了上個季度和前一季取得的許多新設計成果。目前這些對您來說是否轉化為任何有意義的收入？

Well, I think they're certainly translating into revenue. What your level of meaningful, I guess, you'd have to sort of define that a little bit. But we've seen some of these design wins that are contributing in the millions of dollar range. Obviously, low single-digit millions given the overall revenue picture. But certainly, some of the recent design wins are contributing. For us, a design win occurs when we've not only completed the technical qualification of the product and also the pricing and other negotiations that go on as part of the qualification process, but also when we've actually received orders. So sort of by definition for us, all of our design wins are contributing revenue or will contribute revenue very shortly after the design win. How much of that is sort of meaningful, I guess, again, it sort of depends on your definition, but we -- all of those design wins are contributing revenue essentially.

嗯，我認為它們肯定會轉化為收入。我想，你必須對你的有意義程度做出一些定義。但我們已經看到其中一些設計成果的價值高達數百萬美元。顯然，從整體收入情況來看，這個數字低於數百萬。但可以肯定的是，最近的一些設計勝利也起到了一定作用。對我們來說，設計勝利不僅發生在我們完成了產品的技術鑑定以及鑑定過程中的定價和其他談判，還發生在我們實際收到訂單的時候。因此，對我們來說，根據定義，我們所有的設計勝利都會帶來收入，或者在設計勝利後不久就會帶來收入。我想，這其中有多少是有意義的，這取決於你的定義，但我們——所有這些設計勝利本質上都在貢獻收入。

Right. And in terms of the customer profile, are there Tier 1s in there among the new customers?

正確的。就客戶概況而言，新客戶中是否有一級客戶？

I think there's some recognizable names in there, yes.

是的，我認為其中有一些知名的名字。

Okay. Just my last question is on the pricing trends that you're seeing, incremental price erosion over the past 90 days. Anything to point to out of the ordinary? And kind of what you expected? Just any comments there.

好的。我的最後一個問題是關於您所看到的價格趨勢，即過去 90 天內價格的逐步下降。有什麼可以表明不尋常之處嗎？這和您預期的一樣嗎？只是任何評論。

Sure. No, I think pricing has been pretty consistent with our expeditions. No changes to what we said. Previously, we said, last year, we prices reduction in core 100 gigabit per second product line of about 20%, and we've said that we expect to see about that same number this year, and that's still our current expectation.

當然。不，我認為定價與我們的探險活動相當一致。我們所說的沒有任何改變。先前，我們說過，去年我們將核心 100 千兆每秒產品線的價格降低了約 20%，我們預計今年的價格也會下降，這仍然是我們目前的預期。

And our next question comes from Dave King with B. Riley FBR.

我們的下一個問題來自 B. Riley FBR 的 Dave King。

This is Lee Krowl filling in for Dave. Two, if I may. First, in the past, you guys have kind of talked about verticalization efforts in an effort to kind of aid gross margin. Obviously, with margins where they are today, curious if you had some updated thoughts on the strategies that will kind of help trend gross margins higher as it relates to verticalization?

這是代替戴夫的李·克勞爾 (Lee Krowl)。如果可以的話，我想說兩個。首先，過去，你們曾談論過垂直化努力，以提高毛利率。顯然，考慮到目前的利潤率，您是否對與垂直化相關的有助於提高毛利率的策略有一些最新的想法？

Sure. We noted in our prepared remarks for example that we've developed a new line of photodiodes, as you know, the 2 principal active optical components that define the performance of an optical transceiver or frankly, any optical link really are the laser in the photodiode, and for many years, we've manufactured the lasers. It's only more recently that we've begun to manufacture the photodiodes, the corresponding receiving element within the optical transceiver. And so that's an example of where that vertical integration strategy is continuing to -- I mean, we'll continue to work forward on that strategy. As far as how we see the gross margin trending up, vertical integration certainly plays a part there, but in addition to that, I think seeing capacity utilization return back to normal levels and getting through some of the additional testing that we put in place in previous quarters. All those things will also contribute to the gross margin. So it's not just one thing that we need to do, we've got several knobs that we will turn to continue to see improvement in gross margin.

當然。例如，我們在準備好的發言中指出，我們已經開發了一條新的光電二極管生產線，如您所知，決定光收發器性能的兩個主要有源光學元件，或者坦率地說，任何光鏈路的性能實際上是光電二極管中的激光器，多年來，我們一直在製造激光器。直到最近，我們才開始製造光電二極體，也就是光收發器中的對應接收元件。這就是垂直整合策略持續實施的一個例子——我的意思是，我們將繼續推動該策略。就我們如何看到毛利率上升趨勢而言，垂直整合肯定發揮了一定作用，但除此之外，我認為產能利用率恢復到正常水平，並通過了我們在前幾個季度進行的一些額外測試。所有這些因素也會對毛利率產生影響。因此，我們需要做的不只是一件事，我們還有幾項措施可以繼續提高毛利率。

Got it. And then I guess with the Chinese facility, could you maybe just remind us when you expect it to be complete? Whether that's fully encapsulated in the CapEx number you guys guiding to? And then just as it relates to the Chinese market, will that position you more competitively? Or with better visibility, building increased operations there?

知道了。然後我想，關於中國的設施，您能否提醒我們您預計它什麼時候完工？這是否完全包含在你們指導的資本支出數字中？那麼就中國市場而言，這是否會讓你們更具競爭力？或透過更好的可見性，在那裡擴大業務？

So the building we expect to complete in Q1 of next year, and that is included in the CapEx guide that we gave. It accounts for roughly 50% of the CapEx that we anticipate this year. That CapEx that we've guided for this year will not complete the building. As I mentioned, it won't be done until Q1 of next year. So there will be some additional CapEx next year. But it's relatively small compared to the level that we're spending this year. As far as what that facility does for us, yes, I think it positions us well for the Chinese market. As we mentioned, there are some sizable markets in China, for example, the 5G market, I think, is going to be first active probably in China or at least certainly in one of the largest markets for 5G is going to be in China. And having a Chinese -- an expanded presence in China will no doubt help us in that area. And also, the datacenter operators in China are becoming more larger-scale and more advanced in their infrastructure, similar to what we've seen with some of our domestic U.S.-based and European-based operators. And so having a capability -- an expanded capability in China to be able to produce more of those advanced products in country for them will also be important to that business as well. So we think both the telecom and datacenter business can benefit from that expanded presence in China.

因此，我們預計該建築將於明年第一季完工，這包含在我們提供的資本支出指南中。它約占我們今年預計資本支出的 50%。我們今年指導的資本支出不足以完成這棟建築。正如我所提到的，它要到明年第一季才能完成。因此明年將會有一些額外的資本支出。但與我們今年的支出水準相比，這個數字相對較小。就該工廠為我們帶來什麼而言，是的，我認為它使我們在中國市場佔據了有利地位。正如我們所提到的，中國有一些相當大的市場，例如 5G 市場，我認為，它很可能首先在中國活躍起來，或者至少可以肯定，5G 最大的市場之一將在中國。擴大在中國的業務無疑會為我們在該領域的發展帶來幫助。此外，中國的資料中心營運商規模越來越大，基礎設施越來越先進，與我們在美國和歐洲的一些國內營運商看到的類似。因此，擁有能力——擴大在中國的生產能力，能夠在中國生產更多先進產品，對該業務也至關重要。因此，我們認為電信和資料中心業務都可以從中國業務的擴大中受益。

And this will conclude our question-and-answer session. I would like to turn the conference back over to Thompson Lin for any closing remarks.

我們的問答環節到此結束。我想將會議交還給 Thompson Lin 最後發言。

Okay. And thank you for joining us today. As always, we thank our investors, customers and employees for your continued support, and we look forward to seeing you in our upcoming conference.

好的。感謝您今天加入我們。像往常一樣，我們感謝投資者、客戶和員工的持續支持，並期待在即將舉行的會議上見到您。

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

會議現已結束。感謝您參加今天的演講。您現在可以斷開連線。