About This Chart
The chart attached above provides a breakdown of Applied Optoelectronics revenue by segment. The company generated about 78% of its revenues from datacenter customers in the last quarter and the segment’s sales have just started to trend upwards again. While Applied Optoelectronics also generates revenue from FTTH and Telecom customers, these business segments do not represent a sizable portion of its overall revenue.
Applied Optoelectronics Revenue by Segment
This section discusses Applied Optoelectronics revenue by segment in more depth. The four end markets they target are all driven by significant bandwidth demand fueled by the growth of network-connected devices, video traffic, cloud computing and online social networking. To address this increased bandwidth demand, CATV and telecommunications service providers are competing directly against each other by providing bundles of voice, video and data services to their subscribers and investing to enhance the capacity, reliability and capability of their networks. The trend of rising bandwidth consumption also impacts the internet data center market, as reflected in the shift to higher speed server connections. As a result of these trends, fiber-optic networking technology is becoming essential in all four of their target markets, as it is often the only economic way to deliver the desired bandwidth.
Datacenter: The internet data center market is their largest and fastest growing market. Their customers in this market are generally large internet-based (“Web 2.0”) data center operators, to whom they supply optical transceivers that plug into switches and servers within the data center and allow these network devices to send and receive data over fiber optic cables. The majority of the data center optical transceivers that they sell utilize their own lasers and subassemblies (they refer to the transceivers subassemblies as “light engines”), and they believe that their in-house technology and manufacturing capability for these lasers and subassemblies gives us an advantage over many of their competitors who often lack either development or manufacturing capabilities for these advanced optical modules.
CATV: The CATV market is their most established market, for which they supply a broad array of products, including lasers, transmitters and transceivers, and turn-key equipment. Sales of headend, node and distribution equipment have contributed significantly to their revenue in recent years as a result of their ability to meet the needs of CATV equipment vendors who have continued to outsource both the design and manufacturing of this equipment. While equipment vendors have relied upon third parties to assemble portions of their products, within the past eight years certain of their customers have accelerated the outsourcing of the design and manufacturing of both headend equipment and node equipment to third parties. The shift is due in part to the sophisticated engineering expertise needed to perform this work. They believe that their extensive high-speed optical, mixed-signal semiconductor and mechanical engineering capabilities position us theyll to benefit from these industry dynamics.
Their vertically integrated manufacturing model provides us several advantages, including rapid product development, fast response times to customer requests and control over product quality and manufacturing costs. They design, manufacture and integrate their own analog and digital lasers using a combination of Metal Organic Chemical Vapor Deposition, or MOCVD, and their proprietary Molecular Beam Epitaxy, or MBE, fabrication process, which they believe is unique in their industry. They manufacture the majority of the laser chips and optical components that are used in their products. The lasers they manufacture are proven to be reliable over time and highly tolerant of changes in temperature and humidity, making them theyll-suited to the CATV and FTTH markets where networking equipment is often installed outdoors.
FTTH & Telecom: These segments are minor contributors when looking at Applied Optoelectronics revenue by segment chart.
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