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The company’s gross margins saw a notable increase of approximately 400 basis points quarter-over-quarter, reaching 36.4%. Despite the positive margin performance, Applied Optoelectronics provided weaker-than-expected guidance for the first quarter of 2024 (1Q24), attributing the soft outlook to its largest Data Center customer working through existing 100G inventory and beginning to deploy the company’s new VCSEL-based 400G transceivers in early production networks. This deployment is anticipated to ramp up starting in the second quarter of 2024 (2Q24), a delay of one quarter from previous expectations.
The guidance for 1Q24 estimated revenues at around $43.5 million with earnings per share (EPS) at approximately ($0.30), figures that fell short of market expectations. However, Rosenblatt remains optimistic about the company’s mid-to-long-term prospects. The firm anticipates a sharp increase in demand for Microsoft (NASDAQ:MSFT)’s 400G products in 2Q24 and is confident about new 800G customers contributing to revenue starting in the third quarter of 2024 (3Q24).
The report from Rosenblatt highlights Applied Optoelectronics’ positioning in the 400G, 800G, and 1.6T optical sectors, suggesting that the current weakness in the stock presents a compelling buying opportunity. The total Datacom transceiver market is expected to exceed $10 billion this year, and although Applied Optoelectronics is a smaller player, it is seen as improving its standing in the market. The firm’s confidence is bolstered by the company’s product roadmap, which includes advancements beyond 400G active optical cables (AOCs) to technologies like 800G and 1.6T electro-absorption modulated lasers (EML), continuous wave (CW), and silicon photonics-based transceivers. Rosenblatt believes these developments position the company well for sustained growth in the artificial intelligence (AI) optical market.
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