What changed in this filing

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Item 1. Business

2025-02-28 compared with 2024-02-23 · 34 added, 34 removed, 329 unchanged (17% of the section changed)

3 unchanged sentences

We design and manufacture a range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment.

In designing products for our customers, we generally begin with the fundamental building blocks of lasers and laser components.

In designing products for our customers, we typically begin with the fundamental building blocks of lasers and laser components.

From these foundational products, we design and manufacture a wide range of products to meet our customers’ needs and specifications, and such products differ from each other by their end market, intended use and level of integration.

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The four end markets we 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 telecom 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.

Our internet data center market is also experiencing substantial growth as hyperscale data center operators build and upgrade their infrastructure to support artificial intelligence ("AI") applications which are compute and bandwidth intensive.

As a result of these trends, fiber-optic networking technology is becoming essential in all four of our target markets, as it is often the only economical way to deliver the desired bandwidth.

Within the internet data center market, we benefit from the increasing use of higher-capacity optical networking technology as a replacement for older, lower-speed optical interconnects, particularly as speeds reach 800 Gbps and above, as well as the movement to open internet data center architectures and the increasing use of in-house equipment design among leading internet companies.

Within the CATV market, we benefit from a number of ongoing trends including the move to higher bandwidth networks among CATV service providers, especially the desire by CATV multiple system operators ("MSOs") to increase the return-path bandwidth available to offer to their customers.

In the FTTH market, we benefit from continuing passive optical network deployments and system updates among telecom service providers.

In the telecom market, we benefit from deployment of new high-speed fiber-optic networks by telecom network operators, including 5G networks.

The internet data center market is currently our largest and fastest-growing market.

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The majority of the data center optical transceivers that we sell utilize our own lasers and subassemblies (we refer to the transceivers subassemblies as “light engines”), and we believe that our in-house technology and manufacturing capability for these lasers and subassemblies gives us an advantage over many of our competitors who often lack either development or manufacturing capabilities for these advanced optical modules.

The rapid adoption of AI is fueling a new wave of investment by hyperscale data center operators, as AI computing is very compute and bandwidth intensive.

In addition, we believe that the significant automation employed in our production process for data center optical modules gives us advantages over our competitors in the ability to scale production rapidly, which is beneficial because the rapid adoption of artificial intelligence ("AI") is fueling a new wave of investment by hyperscale data center operators, as AI computing is very compute and bandwidth intensive.

The CATV market is our second largest and the most established market, for which we supply a broad array of products, including lasers, transmitters and transceivers, and turn-key equipment.

Sales of headend, node and distribution equipment, including amplifiers, have contributed significantly to our revenue in recent years as a result of our ability to meet the needs of CATV equipment vendors who have continued to outsource both the design and manufacturing of this equipment.

In 2023, we began offering many of our CATV products directly to CATV multiple system operator ("MSO") customers, under the newly-created Quantum Bandwidth™ brand name.

In 2023, we began offering many of our CATV products directly to MSO customers, under the newly-created Quantum Bandwidth™ brand name.

We made this strategic decision in order to better address the needs of our MSO customers as we believe they are embarking on a complex and lengthy series of network upgrades that will likely require significant innovation from their equipment suppliers.

By selling products directly to these customers, we believe that we will be able to address these needs more efficiently and will improve our time to market for these new innovations, which MSOs have indicated will be critical to timely rollout of their planned network upgrades.

As the complexity of CATV networks has increased over the years, equipment vendors, many of whom are our customers, have been under pressure to supply a wider variety of increasingly complex equipment to CATV multiple system operators (“MSOs”).

In order to meet these demands, many equipment vendors have looked to engage with suppliers like us who have the capability to design and manufacture various network equipment or subassemblies, rather than always developing these devices themselves.

This outsourcing trend has been a significant contributor to the revenue we derive from the CATV market.

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In 2024 , we earned 59.5% of our total revenue from the internet data center market and 35.2% of our total revenue from the CATV market.

In 2023 , our key customers in the internet data center market included Microsoft, a U.S.

based large data center operator, and a China based datacenter equipment manufacturer .

In 2023, 2022 and 2021 , Microsoft accounted for 46.6%, 18.4% and 14.1% of our revenue, a U.S.

based large data center operator accounted for 8.8%, 5.9%, and 8.3% of our revenue, and a China based manufacturer accounted for 3.3%, 1.2%, and 1.2% of our revenue, respectively.

In 2023 , our key customers in the CATV market included ATX, Digicomm and a U.S.

based large CATV equipment provider.

In 2023 , 2022 , and 2021 , ATX accounted for 15.6%, 47.3%, and 25.6% of our revenue, Digicomm accounted for 11.3%, 0%, and 0% of our revenue, and a U.S.

based large CATV equipment provider accounted for 1.3%, 1.7%, and 3.3% of our revenue, respectively.

In 2024 , our key customers in the internet data center market included Microsoft and Oracle .

In 2024, 2023 and 2022 , Microsoft accounted for 43.7%, 46.6% and 18.4% of our revenue, and Oracle accounted for 12.4%, 8.8% and 5.9% of our revenue, respectively.

In 2024 , our key customer in the CATV market was Digicomm.

In 2024 , 2023 , and 2022 , Digicomm accounted for 34.1%, 11.3% and 0% of our revenue and ATX Networks accounted for 0%, 15.6% and 47.3% of our revenue, respectively.

Industry Background

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As a result, we believe that our ability to manufacture lasers and other data center products in the US represents a competitive advantage compared with many of our competitors who have most or all of their production outside the US.

We have developed a highly-automated production process for many of our data center products, and we believe that this gives us advantages over many of our competitors in terms of ability to scale production rapidly, as well as being able to locate production in favorable geographic locations while maintaining relatively low production costs.

Hyperscale data center operators have consistently sought and deployed the most advanced technologies to support the compute and bandwidth needs within their facilities, driving the growth of optical networking within data centers.

These operators have adopted more open internet data center architectures and have designed their own networking equipment, both of which use a mix of systems and components from a variety of vendors.

We have benefited from these trends over the past several years, and expected to continue to benefit from them.

We have benefited from these trends over the past several years, and we expect to continue to benefit from them.

Recently the hyperscale data center operators have begun to build and upgrade their data centers to support AI, offering us a new growth opportunity.

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We also see opportunities for 10 Gbps Ethernet Passive Optical Network ("EPON") and higher data rate PON networks in the future.

Also, we have seen trends towards cable television MSOs beginning to deploy PON networks.

We have also developed solutions for 25 Gbps PON networks and 50 Gbps PON networks, which we believe will one day be adopted by customers.

We have seen trends towards cable television MSOs beginning to deploy PON networks.

We see opportunities with these customers particularly given our knowledge and experience in CATV.

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We design and sell products at the level of integration desired by a customer, from components to turn-key equipment, providing our customers a dependable, cost-effective and simplified supply chain.

Our relatively more automated production process for certain optical modules also allows us more freedom in locating our manufacturing operations in customer-favored geographic locations while maintaining relatively low labor costs.

Deliver high quality, reliable products in high volume.

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We serve a majority of the largest CATV equipment manufacturers in the world and our knowledge of both their requirements and the needs of their customers (the CATV network operators) allows us to access these new opportunities.

Vertically integrated, geographically distributed manufacturing model.

Vertically integrated, highly automated and geographically distributed manufacturing model.

Our vertically integrated design and manufacturing process encompasses various steps from laser design and fabrication to complete optical system design and assembly.

Furthermore, we have geographically distributed our manufacturing by strategically locating our operations in the U.S., China and Taiwan to reduce development time and production costs, to better support our customers and to help protect our intellectual property.

In addition, we have developed many automated processes used in our production which we believe give us advantages in terms of scalability and control of labor costs.

We seek to be the leading global provider of optical components, modules and equipment for each of our four target markets:

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We intend to add to our product portfolio in the CATV market following our recent launch of our own branded products to sell directly to MSOs, which we believe offers us further opportunity to enhance our presence as a supplier in the CATV market.

Continue to invest in our capabilities and infrastructure.

We intend to continue to invest in new products, new technology and our production infrastructure and facilities to maintain and strengthen our competitive position.

Continue to invest in our capabilities, especially our automated module production, and infrastructure.

We intend to continue to invest in new products, new technology and our highly-automated production infrastructure and facilities to maintain and strengthen our competitive position.

We engage in an active research and development program to develop new products and enhance existing products.

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Our products include an array of optical communications solutions at varying levels of integration.

We begin from the fundamental building blocks of lasers and laser components.

We commonly begin from the fundamental building blocks of lasers and laser components.

From these foundational products, we design and manufacture a wide range of products from optical modules to complete turn-key equipment.

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Examples of equipment include our CATV transmitter and CATV nodes.

Notwithstanding our expertise in optical transmission equipment, in some cases we utilize our technical expertise in radio frequency ("RF") design to develop products that do not have significant optical technology incorporated, for example our CATV amplifier products which serve to amplify the RF signals in the coaxial-cable portion of an MSO's network do not incorporate optics, but do rely on advanced mixed-signal RF and digital electronic design as well as software and firmware which we develop in house.

Research and Development

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December 31, 2024

, we had a total of 233 employees working in the R&D department, including nine with Ph.D.

, we had a total of 284 employees working in the R&D department, including 12 with Ph.D.

We continue to recruit talented engineers to further enhance our research and development capabilities.

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As of December 31, 2024 , we owned a total of 188 U.S.

issued patents and 150 patents issued in China and Taiwan, plus a number of pending U.S.

issued patents, 137 patents issued in China and Taiwan and 10 patents issued in Europe, plus a number of pending U.S.

and foreign/international patent applications.

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CATV networking technologies.

We have registered the trademarks APPLIED OPTOELECTRONICS, INC., AOI, and we have filed for registration of trademark for Quantum Bandwidth with the U.S.

We have registered the trademarks APPLIED OPTOELECTRONICS, INC., AOI, and Quantum Bandwidth with the U.S.

Patent and Trademark Office on the Principal Register.

9 unchanged sentences

In addition, in our Taiwan location, we manufacture transceivers for the internet data center, telecom, FTTH and other markets.

In our China facility, we take advantage of lower labor costs and manufacture certain more labor intensive components and optical equipment systems, such as optical subassemblies and transceivers for the CATV transmitters (at the headend), internet data center market, and CATV outdoor equipment (at the node).

We also manufacture CATV outdoor equipment including amplifiers.

Each manufacturing facility conducts testing on the components, modules or subsystems it manufactures and each facility is certified to ISO 9001:2015 and ISO 14001:2015.

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We also from time to time offer design or manufacturing services to customers to assist them in more effectively using our products and realizing time-to-market advantages.

In the last five years, we have taken several actions to increase the diversity of our customer base.

In the last six years, we have taken several actions to increase the diversity of our customer base.

These actions include hiring sales staff to improve our ability to serve new customers and the introduction of new products that we believe will appeal to new customers.

Furthermore, we have developed additional original design manufacturer, or ODM, relationships with customers in each of our target markets which should enable us to diversify our revenue base.

In 2023 , the three customers who contributed most to our data center revenue were Microsoft, a U.S.

based large data center operator and a China based manufacturer.

In 2023, our three largest CATV customers were ATX, Digicomm and a U.S.

based large CATV equipment provider.

In 2024 , the three customers who contributed most to our internet data center revenue were Microsoft, Oracle and a U.S.

based manufacturer.

In 2024, our largest CATV customer was Digicomm.

In 2024 , revenue from the internet data center market, CATV market, telecom market, FTTH market and other markets provided 59.5%, 35.2%, 4.4%, 0.0% and 0.9% of our revenue, respectively, compared to 64.9%, 27.5%, 6.4%, 0.0% and 1.2%, respectively, in 2023 .

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We do, however, experience intense competition in each product area from a number of manufacturers and we anticipate that competition will increase.

Our major competitors in one or more of our markets include Finisar Corporation who was acquired by II-VI Incorporated, Foxconn Interconnect Technology Ltd., InnoLight Technology (Suzhou) Ltd., Intel Corporation, Lumentum Holdings, Inc., Mitsubishi, Molex, LLC, Source Photonics, Inc.

Our major competitors in one or more of our markets include Coherent Corporation, Foxconn Interconnect Technology Ltd., InnoLight Technology (Suzhou) Ltd., Intel Corporation, Lumentum Holdings, Inc., Mitsubishi, Molex, LLC, Source Photonics, Inc.

and Sumitomo Electric Industries, Ltd.

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Supervisors complete safety management courses as well.

In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees and which comply with government orders in all the states and countries where we operate.

In an effort to keep our employees safe and to maintain operations during the COVID-19 pandemic, we have implemented a number of new health-related measures including, the requirement to wear company provided face-masks at all times while on company property, implemented temperature taking protocols, increased hygiene, cleaning and sanitizing procedures at all Company sites, implemented social-distancing, implemented restrictions on visitors to our facilities, limiting in-person meetings and other gatherings.

Compensation, Benefits and Wellness

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business