Applied Optoelectronics (AAOI) outlined plans to expand monthly transceiver production capacity to 650,000 units by December 2024, up from current levels exceeding 200,000 units, as Chief Financial Officer and Chief Strategy Officer Stefan Murry addressed the Rosenblatt 6th Annual Technology Summit: The Age of AI.
The company’s near-term financial targets include restoring gross margins to the low-to-mid 30% range by year-end 2024, following a recent low of roughly 29% in the trailing twelve months. Murry noted that expedited costs tied to 1.6T supply constraints should begin to ease in early 2025, coinciding with initial orders for 1.6T transceivers extending into the first half of next year. AAOI has already sold out its transceiver capacity through the second half of 2025.
Production capacity expansion is split between U.S. and Taiwan facilities, with automated lines currently capable of producing about 100,000 units per month. The company’s Texas-based laser fabrication plant in Sugar Land operates on a 1.6 million square-foot footprint and uses 4-inch wafers, with equipment compatible for a future move to 6-inch wafers. Substrate supply agreements extend through 2027, with ongoing vendor collaboration for 2028 and beyond.
Revenue projections reflect accelerating demand for higher-speed optics. 800G transceiver revenue is expected to quintuple to the mid-$60 million range in the third quarter of 2024, while 1.6T transceiver revenue is projected to reach $70 million to $80 million in the fourth quarter. A single customer has placed a $200 million order for 1.6T transceivers. By the second half of 2027, AAOI aims for data center transceiver revenue of $471 million per month, equivalent to approximately $5.65 billion on an annualized basis.
Longer-term margin targets include 40% gross margins by the end of 2027, with potential to exceed that level in 2028. Murry highlighted that CPO laser chips could achieve margins above 60%, while CPO modules and ELSFP products may exceed 40%. The company is also engaged in active discussions with five partners regarding CPO and NPO solutions, though current customer demand remains focused on full DSP-based transceivers.
AAOI’s stock has surged 493% over the past year and 344% year-to-date, trading at $153.203 as of the session’s close. The company’s capital expenditure program remains substantial, with first-half 2024 spending already significant and second-half investment expected to match or exceed that level. Return on current investments is estimated at nine to ten months.
Murry emphasized the strategic importance of domestic production amid geopolitical supply chain concerns, stating that reliance on Chinese-sourced components could disrupt U.S. data center expansion. He described the AI-driven shift in optics as the most impactful industry change in three decades, underscoring the necessity of scaling capacity to remain competitive.
