EMCORE Corporation
Q4 2013 Earnings Call Transcript

Published: 5 Dec 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the EMCORE Corporation fourth quarter and year end 2013 earnings results. [Operator Instructions] As a reminder, this conference may be recorded. I'll now hand the conference over to Victor Allgeier. Sir, please go ahead.

[Victor Allgeier:]

Thank you, and good afternoon, everyone. Before we begin, we would like to remind you that the information provided herein may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. These forward-looking statements are largely based on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Such forward-looking statements include, in particular, projections about our future results, statements about our plans, strategies, business prospects, changes in trends in our business and the markets in which we operate. Management cautions that these forward-looking statements relate to future events or future financial performance and are subject to business, economic and other risks and uncertainties, both known and unknown, that may cause actual results, levels of activity, performance or achievements of our business or our industry to be materially different from those expressed or implied by any forward-looking statements. Neither management nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in our filings with the U.S. Securities and Exchange Commission that are available on the SEC's website located at www.sec.gov, including the sections entitled Risk Factors in our annual report on Form 10-K and our quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statements, to conform such statements to actual results or to changes in our expectations, except as required by applicable law or regulation. With us today from EMCORE are Dr. Hong Hou, President and Chief Executive Officer; and Mark Weinswig, Chief Financial Officer. Mark will review the financial results and Hong will discuss business highlights before we open the call up to questions. I'll now turn the call over to Mark.

[Mark B. Weinswig:]

Thank you, Vic, and good afternoon, everyone. Today, I'm going to focus my discussion on our fourth fiscal quarter operating results and our balance sheet and briefly discuss our financial highlights for the full fiscal year. Please note that we have included additional information in our press release regarding the non-GAAP figures. Consolidated revenue for our fourth fiscal quarter totaled $43.1 million, which is an increase of $9.6 million or 29% over the previous quarter. The increase was primarily due to higher Photovoltaic revenue as we had a significant increase in our international business, including a large order that had been pushed from Q3. Our Q4 revenue guidance was $42 million to $45 million. On a segment basis, our Photovoltaics business accounted for $20.5 million or 47% of the company's total revenue. This represents an $8.6 million or 72% increase from the prior quarter. As we have said previously, while we remain confident in the long-term prospects of the Photovoltaics business, our revenues in any given quarter may be a bit lumpy. In Q4, we experienced this lumpiness when the delivery of an international shipment of a few million dollars was not delivered in Q3. The Fiber Optics segment accounted for $22.6 million or 53% of the company's total revenue. This represents an increase of roughly $1 million or 5% from the prior quarter. Hong will discuss the outlook for the Fiber Optics business later in the call. On a segment basis, Photovoltaic gross margin decreased 15 percentage points to 13.5%. The primary reason for the decrease was a significant increase in our lower-margin international revenue. We continue to believe that this business's target gross margin is at roughly 30%. Fiber Optics' gross margin was 11.6%, 8.6 percentage points higher than the prior quarter. While we have seen a significant improvement in our Tunable XFP product yields and margins, this manufacturing line is still underutilized and margins are below our average Fiber Optic gross margins. We expect our gross margins in the Fiber Optics segment to improve in future quarters as we complete the ramp-up of our new product line at our contract manufacturer and our Fiber Optics revenues increase. Consolidated gross margin was 12.5%, roughly flat with the prior quarter. Total operating expenses for R&D, SG&A were $12.5 million, excluding any flood-related charges and recoveries, gain on sale of assets, legal settlements and impairment charges. The increase in our operating expenses from the prior quarter was primarily due to increases in certain R&D expenses related to our Solar business. We believe that our operating expenses should be at around the $11.5 million to $12 million range per quarter going forward, with our Q1 operating expenses being a little higher due to certain corporate-related cost. During the fourth quarter, we recognized a $4.8 million gain from the sale of our stake in our joint venture. The cash from this investment sale has been collected. The net book value of our investment was $0 at the time of the sale. On a GAAP basis, the consolidated net loss for the fourth quarter was $2.3 million. Our GAAP net loss per basic share and diluted share was $0.08. Our non-GAAP net loss, after excluding certain adjustments, all of which are set forth in the non-GAAP tables included in today's release, was a loss of $5.6 million versus $5.9 million in the prior quarter. Please note that we have included additional information regarding amortization, stock comp and other items in today's release. Now onto order backlog, which we define as purchase orders or supply agreements accepted by the company with expected product delivery and/or services to be performed within the next 12 months. At September 30, the company had a Space Solar order backlog of approximately $57 million versus $58 million at the end of the prior quarter. Moving on to the balance sheet. At the end of September, the company's cash and cash equivalents was roughly $16.9 million. The increase was primarily due to the fundraising activities we completed in the September quarter and the sale of our joint venture interest. We ended the quarter with $41.8 million in receivables, our highest level in the past few years. The increase was primarily due to sales with slower-paying international customers. In the past 2 months, we have reduced the outstanding AR levels by more than $7 million. Going forward, we expect our sales to international customers to decrease and therefore, our DSO levels to be more in line with our historical average of roughly 60 to 65 days. Looking back over the past year, we have made significant strides in improving the business structure and our operations. A few of our accomplishments include

[Hong Q. Hou:]

Thanks, Mark. Good afternoon, everyone. As Mark discussed, we achieved a consolidated revenue of $43.1 million in the September quarter. This represents a 29% sequential increase. Revenues increased for both Fiber Optics and Photovoltaic segments, Photovoltaic increasing by $8 million and Fiber Optics by $1 million. Our Photovoltaic business remains strong, although it did experience a reduction in gross margin due to unfavorable margin from the CPV solar cell sales to terrestrial solar market. We experienced marked recovery of our Broadband Fiber Optics business and operating performance in both -- improvement in the telecom product division. We continue to improve our cost structure and believe that we can reach breakeven at a quarterly revenue level at about $7 million -- $47 million to $48 million. Now let me give you an update on our businesses and how we are responding to the current market conditions. First, I will start with the Space Photovoltaic business segment. The revenue for our Photovoltaic segment in the September quarter was $29.5 million, a near-record level. And the gross margin was 13.5%, significantly lower than the target level of approximately 30%. As we discussed in the last quarter's conference call, we made a deferred shipment to an international customer after receiving permission to ship early in the September quarter. In addition, revenue from CPV solar cell sales in the quarter was at a record level of over $6 million. CPV sales lower in margin, typically with a single-digit gross margin, although they do help absorbed the fixed cost of a solar cell fab. Gross margin, going forward, is expected to improve significantly. For our fiscal year 2013, the total revenue for the Photovoltaic segment of $71.1 million, gross margin was 25.8% and the divisional operating income, $8.6 million. This is for the whole fiscal year 2013. This represents significant improvement from fiscal year 2012, the divisional revenue in 2012 of $64.7 million, gross margin of 24.2% and operating income of $2.5 million. In the past quarter, the Space Photovoltaic division was awarded more than 15 separate orders from several major aerospace primes [ph] in the U.S. and in Asia. This contract serves both the U.S. government and commercial satellite missions, with a total value of -- in excess of $20 million. As a result, the order backlog for this division as of September 30 for delivery over the next 12 months showed a total of $57 million, which is very close to the record level of $58 million in the last quarter. EMCORE is in the process of finalizing negotiations on long-term agreements for 100% of the solar product requirements from 2 major aerospace companies. With this, our outlook for the fiscal year 2014 for this segment looks very solid. By leveraging the business and production infrastructure, we're pursuing business opportunities for a product at a higher integration level, such as the solar panels, adjacent [ph] markets, such as high-end mobile power for defense applications. I expect to see business contributions from these areas towards the latter part of next year. Now let me discuss our market position and business outlook in our Fiber Optics business segment. In the broadband cable TV business, shipments increased over the June quarter. We are keeping track on the CapEx spending of MSOs very closely. Reported by the 2 major service providers that the overall CapEx spending for the September quarter was flat sequentially. But they expect their spending related to the product lines, namely scalable infrastructures and upgrade to increase for the remainder of the year. In addition to the normal business flow, we are supporting our customers with a number of large international opportunities. When they materialize, this will significantly contribute to our business. The industry in cable TV continue to be dynamic in formulating and finalizing their equipment design strategy to better utilize a new standard of DOCSIS 3.1 and the CCAP. The primary objective is to modernize the MAC and the physical layers and spectral plan to increase our transmission bandwidth with the existing cable plant infrastructure, improve power efficiencies and channel densities. New ideas for transmitters and receivers such as XFPs and return path QAM transmitters are emerging. We are engaging with all the equipment manufacturers very closely in designing and qualifying transmitter and receiver products which comply with these new standards. We are finishing some final touches on the disruptive laser technology. It offers a high power modulation and transmission for the linearity -- with a linearity performance similar to the externally modulated transmitters. The cost and the power consumption will be greatly reduced. It has been the highly sought-after solution for years and our customers are quite excited. One additional area that has generated significant market traction is the optical component sales for DAS or Distributed Antenna System applications. Our customers and system integrators are retrofitting, for instance, football fields with new broadband infrastructure to allow spectators to get live and interactive experiences on their mobile devices. Optical components needed to be very linear in their electro-optical performance and our technology fits extremely well. We started seeing a noticeable contribution of the business from this application. Another important development is that a product enabled by our linearized optoelectronic components for Fiber Optic Gyros is finally about to become a commercial reality. It has been largely a development project over the last several years. Due to the superior performance and the reduced cost compared to the incumbents, we are getting production contracts from multiple prime contractors. This can increase our revenues quite meaningfully when the volume shipment begins in April 2014 -- starting from April 2014. The revenue from the Cable TV Broadband business is expected to show a continued improvement in the December quarter. We are optimistic about the future of this business based on the engagement levels and the qualification activities on our new products, as well as the CapEx outlook given by the MSOs. When we finish the manufacturing consolidation this quarter for all cable TV production lines, we believe the business can turn to profitability with a further improved revenue level to about $17 million a quarter. Moving on to our business in Telecom segment. During the September quarter the revenue from the telecom product lines were down slightly compared to the June quarter. Shipment of ITLAs is near the record level. However, the revenue stayed about the same due to some price erosion. We entered into a VMI or Vendor-Managed Inventory agreement with a major customer on Tunable XFP product during the quarter. As a result, the revenue from Tunable XFPs did not contribute as much as we anticipated. Deployment of 100-gig optical transport product with long-haul networks has been a real success story. It was reported that shipments of 100-gig DWDM ports reached 15,000 in the first half of 2013. And that are projected to climb to 40,000 for the whole year. While these numbers remain modest compared to the shipments of 10-gig and even 40-gig DWDM ports, the contribution of 100-gig ports to overall network bandwidth is already significant. Coherent standard is proliferating to the metro and to even data center space. Market for the metro is expected to be 3x as large as the telco. So the demand is projected to increase significantly over the next years. Optical components for the 100-gig are becoming more competitive on the other hand. The price erosion has been accelerated due to the new entrants in the space. EMCORE's products still have a lead in performance. The pricing becomes more important to some customers who had less stringent requirement for their network's performance. During the annual bidding, price erosion is about 10%. On the micro-ITLA front, we continue to support more than 10 design programs in customer qualification and production ramp-up activities for 100-gig coherent transponders and line cards. The first volume is expected to start in this month. EMCORE is well positioned to the ramp up. We expect a significant increase in demand for our micro-ITLAs once the customers commence volume manufacturing for their new line cards early 2014. And for the Tunable XFPs, we had some challenges early in the new product introduction. Yield was low in the cycle time and the manufacturing was long. We have been working on the yield improvement and the cycle time reduction over the last several months in optimizing and improving the design and assembly and testing processes. I'm happy to report today that we have finally resolved all the significant issues in testing and assembly. Current yields in all areas are above 90%. These improved yields has been shown to be sustainable. With the yield and capacity improvement in Tunable XFPs, we are about -- we're able to ramp. However, we see a pause in demand increase with a major customer reporting slowdown in current Tunable XFP demand. We believe, however, that Tunable XFPs will be serving the telecom industry at the workforce [ph] for 10-gigabit transmission for many years to come. Therefore, we started a new program to drastically reduce the cost of the Tunable TOSA, which is a key component in Tunable XFP. This low-cost laser engine can reduce a Tunable XFP cost significantly. It also enables low-power Tunable XFP plus transceivers. With that, we are working aggressively to further reduce the cost structure, improve our product competitiveness. This will help drive the customer penetration. We're confident about the competitive advantage of EMCORE's Tunable XFP in both negative and 0 chirp with a full-band Tunable ability, better OSNR and a higher output power. These are the key attribute requirements for replacing 300-pin transponders. We have started this year. We successfully demonstrated 100-gigabit DP-QPSK integrated coherent transmitter at the ECOC in London back in September. And now narrow [ph] along with Tunable laser integrated with the best-in-class indium phosphide IQ modulator, this represents a first demonstration of 100-gig ICT or integrated coherent transmitter in the industry. This integrated capability will enable the industry to transition to a smaller form factors and eventually to say CFP2 or CFP4 solutions. The success of the demonstration underscores our advanced technical capability and commitment to delivering innovative and enabling solutions to our high-speed communications customers. In addition, we are actively pursuing applications for metro and data centers utilizing our core technology in these areas. We made solid progress for year 2013 in the Fiber Optics segment. Having devoted much resources, intention to recover from the flood disasters in fiscal year 2012, we experienced an unprecedented slowdown in the cable TV industry in the early 2013. But we are now seeing solid recovery. We have improved our production yield to a respectable level for Tunable XFPs after challenges in the new product introduction. We introduced a micro-ITLA to production and improved the processes throughout the ramp-up process and expected this product to ramp shortly. Although we've faced some challenges in execution, EMCORE's product performance and technology leadership is very evident in the industry. We will work diligently on capitalizing our strengths for the next fiscal year. The revenue from our Fiber Optics segment in 2013 was approximately $97 million. It shows a slight sequential increase compared to 2012. Gross margin improved from 4.5% over 10%. We do expect a significant improvement for our 2014 fiscal year results due to the dramatically improved yield and product cost as our new products are moving into production at a higher yield in the margins. In light of the challenges in our Fiber Optics business, we have completed realignment in engineering, operations and general management functions over the last several months. Most recently, we welcomed Dr. L.C. Chiu as our new General Manager for our Fiber Optics business. Dr. Chiu is a veteran in the Fiber Optics industry, bringing over 20 years of experience in engineering design, manufacturing, quality and business processes and a wealth of knowledge and expertise in the fiber optics industry. With his deep technical and operations background, we believe he can drive further improvements in our business for new product introduction, cost reduction and operational efficiency. We are optimistic about the future contribution from him. I'd also like to use this opportunity to provide an update on changes to our board structure. Back in October 2013, Becker Drapkin Management acquired approximately 8% of the company's common stock. We filed a 13D stating their intention to be closely involved in the company's strategy and corporate governance going forward. Over the last couple of months, the company has been discussing with Becker Drapkin closely and constructively. I'm happy to report today that we have entered into an agreement. As a result, Steve Becker of Becker Drapkin Management; Dr. Gerry Fine, Professor and Center Director of Boston University; and Steve Domenik, General Partner of Sevin Rosen Funds, have joined EMCORE's Board of Directors effective next Monday, December 9, 2013. They bring significant experience in all different aspects of business and strategy. They are great additions to our Board of Directors. We look forward to working with them closely as we continue to focus on increasing value for our shareholders. Turning to guidance, for the first quarter of fiscal year 2014 ending December, our revenue expectation is in the range of $43 million to $45 million, with the improvement from both the Fiber Optics and Space Photovoltaic segments. We expect to see a significant positive impact to our bottom line due to the increased revenue, more favorable product mix and the yield improvement results. In summary, we feel that we have managed through some significant challenges to the company over the year. Our technology and product are well positioned to address the faster growing areas in the marketplace. We will be focusing on the improving the operations performance, including driving revenue growth, cost reduction and a new product introduction. We've defined a clear operating plan for our fiscal year 2014. We review periodically and drive accountability throughout our organization. We are expecting a significant improvement in the financial performance for the new fiscal year. With that, I will turn the call over to Q&A.

[Operator:]

[Operator Instructions] Our first question comes from line of Krishna Shankar from Roth Capital.

[Krishna Shankar:]

As you look at the December quarter with the revenue guidance, will you see growth in the Cable, Telecom and the Tunable XFP product segments for the December quarter?

[Hong Q. Hou:]

Yes. So Krishna, thank you for the question. Yes, we expect the revenue growth in both segments, for Fiber Optics and Photovoltaic. But for the product lines, we expect that the ITLA revenue about flat, but we start seeing the first volume contribution from micro-ITLA. And Tunable XFP revenue is going to be about flat compared to the September quarter. As I discussed earlier in -- the revenue contribution for -- for tunable XFP is from a major customer. They probably consume the largest volume of the Tunable XFPs. They reported a little bit slow in demand. And also, we entered into a VMI program even though we continue to manufacture and ship Tunable XFPs to the hub, material hub. But the revenue recognition only realized when they start pulling from the shelf. So we expect basically flat Tunable XFP and ITLA revenue in the December quarter sequentially, and we expect the first meaningful revenue from micro-ITLA as one of the major customers start ramping and using micro-ITLA for the transponder and line card manufacturing pretty aggressively.

[Krishna Shankar:]

Okay. And did you touch on the outlook for gross margins in the Fiber Optic and the Telecom business for the December quarter?

[Mark B. Weinswig:]

It's Mark. Regarding kind of the gross margins, one thing that we mentioned is that in this quarter, we were unfavorably impacted by the significant amount of international revenues -- lower margin international revenues in our Photovoltaics area. In fact, our gross margins in the Photovoltaics area actually reached one of the lowest points it had been at in the entire year. We do expect our gross margins to bounce back to their normal levels and our target margins in this area is roughly 30%. So we do expect a meaningful increase in our Photovoltaics gross margins. And on the gross margins on the Fiber Optics side, as Hong mentioned, with the recovery in the business and then also with our improved yields, we do believe that the gross margin to the Fiber Optics should be able to increase. Obviously, one challenge, as we've mentioned, is pricing pressure that we'll start seeing in January, but it's a little bit early right now to understand the full impact of that.

[Operator:]

And our next question comes from the line of Dave Kang from B. Riley.

[Dave Kang:]

Mark, can I get couple of numbers first? Can I get depreciation, amortization and CapEx for the quarter?

[Mark B. Weinswig:]

Of course. So in amortization, our amortization was about $1.3 million for the year and $300,000 for the most recent quarter.

[Dave Kang:]

And CapEx?

[Mark B. Weinswig:]

And on the CapEx side, our CapEx was about $1 million, which is in line with our typical quarterly figure on average. EMCORE's structure is that we have about $5 million of CapEx per year. So the $1 million we have this quarter was pretty much in line. And our depreciation for the quarter was about $2.1 million, and we expect that number to be relatively flat.

[Dave Kang:]

Got it. Got it. And then I think regarding your -- the balance sheet, cash -- cash item, did you receive the -- what, the $7 million to $8 million from Suncore that was expected? If not, then when?

[Mark B. Weinswig:]

Yes. It's a great question. As I mentioned in my part of the script, we did realize, and by realize, I mean we collected, the $4.8 million of proceeds associated with our sale of the joint venture interest in the September quarter. But what we also mentioned is that our receivables were at the highest level they've been at in the last couple of years at $41.8 million this quarter, primarily due to these international shipments to really to one customer, and we have seen a collection of about $7 million. So we are expecting our DSOs to kind of come back down to roughly the 60- to 65-day range, in which is our historical average. So for the last few quarters, we have seen kind of a slight uptick there, almost each quarter. But now that we've -- now that we're seeing a reduction in our international revenues associated with that part of the terrestrial cell business, we do believe our DSOs will go back down to normal levels.

[Dave Kang:]

And then Hong, you talked about some cost reduction programs especially for Tunable XFP. So will that lower your breakeven point of $47 million to $48 million or any more color there?

[Hong Q. Hou:]

Yes, right. When it cuts and when it's cut in, it will pretty significantly. Our guys, even the wanting to call this [ph] , disruptive in the engines for the transceivers. But it takes a little bit of time to get a qualification and acceptance by the customers. So we do not expect an immediate impact over the next 2 quarters.

[Dave Kang:]

So in -- for the next couple of quarters, still $47 million to $48 million? But then after 2 quarters or 2, 3 quarters, then what's the new breakeven point? Are we talking maybe like mid-40s then?

[Hong Q. Hou:]

Yes. So our goal is to get into the $45 million quarterly run rate to be breakeven.

[Dave Kang:]

So maybe about June quarter, June or September quarter?

[Hong Q. Hou:]

Yes.

[Dave Kang:]

Okay, got it. And then Mark, what -- you didn't give us Cable TV number, the revenue, what was that? And then what should we expect for the December quarter?

[Mark B. Weinswig:]

Yes. For the September quarter, our revenues in the Broadband division were about $13.5 million, and the remaining part of the Fiber Optics segment was relating to the Telco area.

[Dave Kang:]

Sure. And then what's your -- what's baked into the December quarter?

[Mark B. Weinswig:]

Yes. As Hong mentioned earlier in this call, and he can give a little more clarity on his statements, he does expect the -- we do expect the Cable TV business or the Broadband business to continue to see growth throughout this calendar -- throughout this next fiscal year. With our guidance, our guidance is flat to up slightly for the next quarter. So we should expect to see some small improvements in the fiber area in the December quarter.

[Dave Kang:]

So this seems to be kind of a little different than one of your competitors talked about a few weeks ago. They were a lot more bullish than you guys. I mean, are you -- is this market share issue then or why are you guys not seeing that type of growth that your competitor is?

[Hong Q. Hou:]

No, Dave. If you remember, our Broadband division, including the cable TV and also the microwave photonics and specialty product and video transport, so the Cable TV is growing. The CapEx is increasing and we see the trend and the booking activity has been much improved compared to before. But overall division, because of sequestration and a delay in some government program in a couple of microwave photonics area. So that area is decreasing. So increase of the Cable TV kind of like overcompensating the decrease of the microwave photonics in the short term. So we're seeing the same trend of the Cable TV. I don't think we are competing too much. On the headend transmitter side, we pretty much have a line share for it. But we are stepping up in recovering the component shares, market shares that we lost during the flood a couple of years ago. So we're seeing the same dynamics.

[Dave Kang:]

Okay. And then they also talked about -- potentially driven by DOCSIS 3.1, they're expecting possible upgrade cycle next year. Care to add your thoughts on that?

[Hong Q. Hou:]

Absolutely. We talked about these market dynamics in the previous conference calls. Because of the industry consolidation, we used to have 5 leading equipment manufacturers in the U.S. But now, we have 3, and one of them was acquired by a U.K. -- British company. So that consolidation delayed some of the deployment and together with a formulation of the new standard. So once they have finalized that, which platform they're going to be going forward, I do expect that 2014 Cable TV spending on upgrade and scalable infrastructure to be very healthy, to be much more accelerated than 2013 level.

[Dave Kang:]

So next year, without you guys providing too much details, but is it safe to assume that your Cable TV business will be back to that $15 million to $20 million quarterly run rate?

[Hong Q. Hou:]

I think, really, by the June quarter, we're seeing that because several new products is being introduced and qualified, which complies with DOCSIS 3.1. And as I've mentioned also, the CCAP is adding a new twist in the new product design and network design. So we're supporting a lot of activities in that area from -- traditionally strong area, we are in headend transmitters to return paths to low-noise receivers and known product. So when -- how these products get -- start ramping, I think we -- it's safe to say that Cable TV will be resumed to the historic high level, but I also am hoping to exceed the historic level.

[Dave Kang:]

Okay. And then going to ITLA, you said 10%. Was that for the year or for the quarter?

[Hong Q. Hou:]

So the bidding process...

[Dave Kang:]

10% decline in pricing?

[Hong Q. Hou:]

Yes. The -- as you know, the Telco customers, they all have this bidding process from November to December. So we -- the price erosion will start from January, but with one particular customer it starts immediately and...

[Dave Kang:]

I see. That's a Chinese customer right?

[Hong Q. Hou:]

Yes. They have the good volume demand.

[Dave Kang:]

Okay. I guess that's why your competitor is also kind of seeing the similar dynamics for the December quarter as well then.

[Hong Q. Hou:]

Yes, we are serving the same masters.

[Dave Kang:]

Got it. And then just lastly, on -- speaking of China, with China issuing 4G license today, what should we expect out of China going forward? I guess, they certainly didn't make a whole lot of impact this year as we hoped then. How do you foresee things unfolding with China and their 4G activities and also 100-gig deployment?

[Hong Q. Hou:]

Yes. So that's a very good question. Because last year, there are a lot of signals that they will be ramping up very quickly. They will be upgrading their network for 4G LTE. But come to reality, the volume increase has been moderate. But recently, it's just a level of activity. We almost have daily conference calls, the capacity, the ramp-up QAN. So I'm optimistic that will be -- the ramp-up is finally -- a significant ramp-up is finally coming.

[Dave Kang:]

Let me ask more bluntly or more specifically. I heard that there were a couple of small 100-gig tenders this year. But the big enchilada, that really has yet to happen. When do we see the big tender? Since 4G license have been issued, can it happen like this month or maybe within the next couple of months or is it a couple of quarters out or -- give us a time frame for that.

[Hong Q. Hou:]

So yes, I mean, those are the things -- they give us such a high level overview every time when we have the face-to-face meeting. They pep us up on investing in inventory and capacity. As for the timing, Dave, I really don't know. We are watching closely to see the development and we try to get ourselves ready once the ramp-up is happening.

[Operator:]

And I see no further questions in the queue at this time.

[Hong Q. Hou:]

All right. Well, thank you very much for dialing in today and the company plans to present at the 16th Annual Needham Growth Conference on January 16, 2014, in New York City. We look forward to talking to you soon. Thank you, all.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.