Despite Silicon Photonics (SiPh) shipments reaching a record high, LandMark Optoelectronics Corporation (LMOC) incurred a net loss of NT$47 million in the first quarter of 2024, marking five consecutive quarters of losses.
This was primarily due to the provision for idle capacity losses. Although second-quarter revenue is expected to remain flat compared to the first quarter, the transition to 1.6T specifications by customers in the latter half of the year will lead to a transition period for both old and new products in the second quarter.
LMOC's first-quarter revenue for 2024 was NT$324 million, a decrease of 1% year-on-year. However, the gross margin plummeted to 6%, down from 17.4% in the same period of 2023 and 26.5% in the fourth quarter. Operating losses expanded to NT$66.65 million, resulting in a net loss of NT$40 million after tax.
Revenue composition in the first quarter was as follows: telecommunications 35-40%, data centers 48-52%, consumer/industrial/LiDAR/other 10-15%. In terms of product mix, DFB LDs above 10G accounted for approximately 12-15%, SiPh products 45-48%, and PD/APD combined for about 12-18%.
LMOC pointed out that demand from US data center customers, driven by AI needs, led to a historic high in SiPh shipments in the first quarter. However, the transition from 800G to 1.6T is expected to happen, thus slowing down momentum, with a potential transition period from May to June. Momentum is projected to resume after the shipment of 1.6T new products in the third quarter.
Since existing SiPh product customers are primarily large US internet companies focusing on AI cloud applications, but will also be applied in general data centers starting in the second quarter, and data center product lifecycles typically extend to two years without rapid iterations seen in AI applications, it is expected that subsequent 800G product shipments will remain high. Although the application of 800G products for AI applications may slow down in the coming months, other applications will compensate, maintaining high shipment levels.
In the Chinese telecom market, demand was almost stagnant in the second half of 2023, but customers are relatively optimistic about 2024. Shipments have gradually increased since the beginning of the year. Overall, LMOC estimates that second-quarter revenue will be consistent with the first quarter.
Regarding the recent idle capacity losses, LMOC further explained that provisions have been made since the third quarter of 2023, primarily based on conservative accounting principles. Hence, a depreciation loss of approximately NT$42 million was recorded in the first quarter.
If revenue does not significantly improve, provisions will continue. Based on current operating conditions, LMOC estimates that approximately NT$30-42 million in idle capacity losses will be recorded per quarter, assuming a revenue level of NT$300 million.
However, since related manufacturing costs have already been provisioned for, depreciation losses will cease once revenue continues to recover and recognized gross profit from product sales will increase.
