Applied Optoelectronics, Inc. Rosenblatt's 6th Annual Technology Summit: The Age of AI (Part II)

Thanks for having me, Mike. It is great to see you again.

Yeah. I think there's two things. I think, first of all, yes, I think you're right. That's an astute observation that technology-wise, the foundation of the company is in the lasers. That's where we started. For many, many years, we made lasers and didn't make transceivers or other modules. It's only been in the last 15 or 20 years, really, that we've been making modules and the lasers. I think that's a very astute observation that technically, the laser capability goes back further than even the transceiver capacity. Customers do definitely appreciate the fact that we have our own laser fab because it represents a differentiated supply chain for them.

It's an additional source of lasers that others don't have access to, that gives us greater supply continuity, and just basically adds to the availability of lasers, which is currently one of the things that's constraining growth across the industry. However, the other thing that customers, I think, really appreciate is the automation that we've built and developed for the production of the transceivers themselves. We have the lasers on one side. On the other hand, we also have this highly automated production process for the transceivers, which, to some extent, I think it's fair to say customers don't necessarily care a great deal about exactly how your production process works.

However, with all the geopolitical tensions that we've seen, it now becomes very important to them that their supply chain for the transceivers has as high an integrity as possible, meaning they want production ideally to be situated in geographical locales that they view as more stable, less likely to be interrupted by any of the stuff that we've seen over the last five or 10 years, right? Natural disasters, pandemics, government restrictions, all of these kinds of things come into play. I think it's fair to say that most of our customers view the U.S. as being probably the most secure place in terms of supply chain in which to situate production.

By virtue of the fact that our production process is highly automated, we have a greater likelihood of being able to economically situate production here in the U.S., and that's another thing that's really important to our customers, and probably growing in importance to our customers relative to where we were a year or two ago. Both of those factors, lasers, automated transceiver production that can be located in the U.S. Those are the two big selling points.

No, they're willing to pay a premium for U.S. production.

I think there's one person in this country who knows what's going to happen, and he's not talking. He's not to me. I think that's a fair statement. Nobody really knows what's going to happen. I do think there's enough concern about having the supply chain for such a significant component in our AI infrastructure being largely sourced either from China directly or from companies that are Chinese companies. I think there is a lot of concern about that. What the government ultimately does about that situation, I can't claim to have any significant insight into. However, I would posit to you that because nobody knows, including our customers, right? To a large extent, it's the uncertainty that's driving their decision-making at this point, right? To your point, they don't know whether there could be a ban coming, and there's a real possibility that that could happen.

Again, I don't know when, I don't know what likelihood it is, but it's non-zero possibility that that could happen. Against that backdrop, if that were to happen, that would absolutely kill our ability to build new data centers in the U.S. if they were immediately banned from importing from the Chinese, right? I think against that backdrop, customers are increasingly looking at where their products are produced, and by whom, and how. When you start to look at it in that light, AOI's U.S.-based production capacity, currently existing and planned growth, becomes very attractive to them, and more attractive now than it was perhaps just a couple of weeks ago, even if a ban isn't actually imminent.