W.037Applied Optoelectronics’ sales rose 127%. It spent more on plant than it sold, and paid for it with $1.59B of new stock

Datacenter sales led, at a thin margin

Datacenter revenue more than tripled in a year. Sales of transceivers to data centers were $155.6M in the quarter to September 30, 254% more than a year earlier and 58% of revenue, according to the company’s release. Sales for cable television networks, its older business, rose to $110.9M. On the call, management said 800G products brought in $47.5M, about 31% of datacenter revenue, and 400G products $93.4M; 1.6T products begin to contribute in the fourth quarter. It was the company’s sixth straight quarter of record revenue.

Margins did not keep up. The non-GAAP gross margin was 28.7%, below the 29–30.5% the company had guided in August; management attributed it to a higher share of 400G products. The company had an operating loss of $1.4M under GAAP and reported net income of $6.3M because of non-operating income. Its fourth-quarter guidance is a non-GAAP gross margin of 29.5–31% on revenue of $385M to $420M, of which $270M to $300M from datacenter customers. The midpoint, $402.5M, would be 200% more than a year earlier.

Shareholders paid for the factories

Spending on plant ran ahead of sales. Purchases of property, plant and equipment were $702.1M in the nine months to September 30, 6.7 times the $104.1M of a year earlier, and the company also paid $406.9M in prepayments for equipment, according to its 10-Q. Operating cash flow was −$76.7M. In the third quarter alone plant purchases were about $367M, by our subtraction from the six-month figures, or 136% of the quarter’s revenue; the chief financial officer put the quarter’s capital investments, including prepayments, at $501M.

Stock sales covered it. The company raised $1590.6M net from stock offerings in the nine months, the chief financial officer called the last of them, whose completion was announced on October 5, the third at-the-market program of the year. It sold about 5.7M shares at an average $105.36. Weighted average shares outstanding were 85.4M in the third quarter against 63.3M a year earlier. After the quarter it signed a $200M US bank loan, which the chief executive said could grow to $400–500M over a year. Cash, including restricted cash, was $621.5M at September 30.

The shares closed at $50.13 on November 6, up 6.91%, according to The Motley Fool. That is 52% below the average price of the stock sold in the third program, and 79% below the 52-week high of $233.67.

Power is setting the pace in Texas

The release says the 2027 US expansion will take longer. The reason it gives is the time needed to obtain electrical power. On the call, the chief executive said the Phase II expansion is now expected to be delayed by several months. The company cut its end-2026 capacity target to more than 500,000 800G and 1.6T transceivers a month, from 650,000, and raised its end-2027 target to more than 1 million a month, from 930,000. Capacity is approaching 330,000 a month, up from about 200,000 at the end of June. The first Sugar Land, Texas, building starts initial operations in December, management said.

A hyperscaler deal underpins part of the plan. In October the company signed an agreement with an existing hyperscale customer to supply at least 10% of the customer’s 1.6T transceivers through May 2029, subject to conditions including its ability to supply, the chief financial officer said; it expects $1B to $1.5B of revenue from it, at prices that step down over the term, and the customer is not putting in capital. Three customers each took more than 10% of third-quarter revenue: 41%, 28% and 23%, management said, the first a cable TV customer. An Amazon affiliate holds a warrant for up to about 7.9M shares, most of which vest as its purchases approach $4B.