10-14-2017, 02:13 AM
From last month's Barrons, Applied Opto's CFO Murry:
That's important, because Murry thinks a lot of investors don't appreciate how much the company excels at manufacturing, not just inventing arcane optical technology.
Investors’ ignorance may be partly a result of the fact that “We’ve kept a low profile till fairly recently,” Murry observes. “Partly because we are here in Houston; it's harder to keep a low profile in the Valley. It’s good for small companies to keep a low profile.”
One thing he wants investors to do is to pay more attention to the economics of manufacturing, less to the exotic details of this or that optical technology:
Especially with respect to the data center, the ability to manufacture large quantities of optical modules at an attractive cost, while maintaining the performance that’s necessary, is extremely important. I think it’s an area not well understood by investors. Optics hasn’t focused on manufacturing. What has been focused on is how to make these very esoteric, high-end products, rather than how do you create massive quantities. The latter is an area where we have done a lot of work, and especially with data-center growth. That’s an area where investors could probe more. Because a lot of questions I get are very focused on the tech itself. The mindset that they’re [investors] coming from is that AOI’s success is by product technology. What’s better about your product? is what you often get. I don’t want this to sound like we don’t have good technology. We have 30-something PhDs, we are making our own crystal in Sugarland, we have great R&D overseas. We are a strong technology company. But the products we make are probably not vastly different from what other companies make. What matters is that we’ve been able to make those products in quantity at an attractive cost. How do you make them efficiently in large quantities, is one of the main concerns. Away from the technology, our business model has been very highly vertically integrated. We continue to extend that. Those factors are at least as important as our technology. Take, for example, something like photodiodes. Within the transceiver, the two main optical components are transmitters, the laser diode, in other words, and then the photodiode, which is the receiver, the reverse of the laser. That photodiode is something we only recently started manufacturing ourselves. We are going to extend, in come quarters, the extent to which we make our own photodiodes. An there are other components we will start manufacturing.
I submit to Murry that actually, many investors worry that Applied won't be able to economically match companies such as Fabrinet in making parts for the current high-speed “sweet spot,” 100 gigabits per second, the so-called 100Gtransceiver market. They worry Applied will be undercut on price.
That critique of manufacturing was one specific worry that I explored in the July article.
Murry concedes the manufacturing perception of Applied has not been what he would like.
“It's something I scratch my head about,” he tells me, adding, “I take it a little personally,” as the CFO. “I guess I’m doing an okay job with some folks,” but not entirely getting the message across.