Key Points
Datacenter sales more than tripled from a year ago, and next-quarter guidance points to another big jump.
Plans to add US manufacturing capacity in 2027 are taking longer because of electrical power and construction issues.
Net income turned positive on a GAAP basis, but operations still lost a small amount.
Applied Optoelectronics (NASDAQ:AAOI) grew third-quarter revenue 127% to $269.9 million, led by datacenter sales. Shares fell about 8% in after-hours trading. Profit is not keeping pace with sales. Gross margin is stuck near 28%, operations still lost money, and the GAAP profit came from other income.
Key Numbers
- Revenue: $269.9 million, up from $118.6 million a year earlier
- Datacenter revenue: $155.6 million, up from $43.9 million a year earlier
- GAAP gross margin: 28.2%, versus 28% a year earlier
- GAAP operating loss: $1.4 million, versus $18.2 million a year earlier
What It Means
GAAP net income rests on $10.1 million of other income, because operations lost money. The largest piece, a line called "other income (expense), net," gets no explanation in the release.
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Gross margin barely moved even as revenue more than doubled. Ramping new transceiver lines usually costs yield, which holds margin down until volumes settle. Guidance for next quarter is 29.5% to 31% on a non-GAAP basis, only a modest step up.
Guidance calls for fourth-quarter revenue about 49% above this quarter at the midpoint. The company also says its 2027 US capacity expansion will take longer, because it is waiting on electrical power and facing other construction issues, though it kept its end-of-2027 target.
What to Watch Next
Watch whether GAAP operating income turns positive in the fourth quarter as revenue rises toward the guided range. Also track whether the US expansion gets its electrical power in time for the end-of-2027 capacity target.
David Kretzmann has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.