Group 1: Financial Performance - The company achieved a revenue of 10.437 billion RMB in the first half of 2025, representing a year-on-year growth of 282.64% [3] - The net profit attributable to shareholders reached 3.942 billion RMB, with a year-on-year increase of 355.68% [3] - Growth in sales revenue and net profit is primarily driven by the continuous increase in AI-related computing power investments and the optimization of product structure, with a higher proportion of high-speed optical module products [3] Group 2: Market and Product Insights - The core reasons for the high growth in revenue in Q2 include sustained high industry demand, an increasing proportion of high-speed products, and a continuous rise in customer orders [3] - The company anticipates that the industry’s favorable conditions will continue based on current market and customer order demand [3] - The company plans to gradually ramp up the delivery of its 1.6T products starting in the second half of this year, with further increases expected next year [3] Group 3: Supply Chain and Production - The company maintains long-term partnerships with suppliers and has implemented proactive inventory management strategies to meet market demand [4] - The Thai factory's first phase was completed and put into production in the first half of 2025, with the second phase expected to be operational by early 2026 [4] - Current tariff policies have not significantly impacted the company's financials, and the company will continue to monitor changes in tariff policies [4] Group 4: Research and Development - The increase in R&D expenses in Q2 is attributed to the company's commitment to enhancing team capabilities and project development, which aligns with the growth of the business [4] - The company is focusing on new technologies and products, with expectations for an increase in the proportion of silicon photonic solutions in the second half of this year and into next year [4]

Core Viewpoint - The transition of data centers to Co-Packaged Optics (CPO) switches is inevitable, primarily driven by the power savings offered by CPO technology [1][2]. Group 1: CPO Technology and Market Trends - CPO technology is gaining traction as it significantly reduces power consumption, with potential savings of 30-50% compared to traditional optical devices [1][2]. - The industry has made substantial progress in CPO reliability over the past two years, making it a viable option for future high-speed data rates [2]. - The upcoming 400G SerDes generation may see CPO as the only feasible choice due to excessive insertion loss from traditional PCB traces and cables [2]. Group 2: Technical Integration of CPO - CPO solutions typically integrate electronic integrated circuits (EIC) and photonic integrated circuits (PIC) within the same package [3]. - Two main integration methods for optical engines within ASIC packages are the silicon interposer approach and the organic substrate approach [4][5]. - The silicon interposer method allows for high-density connections but complicates thermal management due to the proximity of high-power EICs [6]. - The organic substrate method offers better thermal isolation and modularity, allowing for independent testing of optical engines before assembly [7][8]. Group 3: Bandwidth Density and Performance - Bandwidth density, a critical metric for CPO solutions, measures the amount of data transmitted per millimeter along optical interfaces, typically expressed in Tbps/mm [9]. - Higher bandwidth density is essential to meet the explosive growth in bandwidth demand in data centers and high-performance computing systems [9]. Group 4: Competitive Landscape - Broadcom's Bailly CPO switch integrates eight 6.4 Tbps optical engines, achieving a total external bandwidth of 51.2 Tbps [12]. - NVIDIA's Quantum-X InfiniBand switch aims for higher scalability, targeting over 100 Tbps with advanced optical engine integration [17][18]. - Broadcom's next-generation switches are expected to reach 102.4 Tbps, while NVIDIA's architecture is designed for future demands of 200G SerDes and beyond [16][19]. Group 5: Power Efficiency and Thermal Management - Both Broadcom and NVIDIA report significant reductions in power consumption per bit with their CPO solutions, with Broadcom achieving approximately 5.5W per 800 Gb/s port compared to 15W for traditional modules [35]. - Effective cooling solutions, such as liquid cooling, are necessary to manage the heat generated by high-density ASIC packages [35][36]. Group 6: Future Directions and Challenges - The industry is exploring advanced coupling methods, such as vertical coupling and multi-core fibers, to enhance optical connectivity and bandwidth density [38][40]. - Challenges in deploying CPO include ecosystem disruption, operational complexity, and the need for robust reliability validation [42][43]. - CPO's prospects appear brighter in vertical scaling applications, where integrated solutions from single vendors can simplify procurement and deployment [45].

Financial Data and Key Metrics Changes - For Q1, net sales reached a record $251.1 million, up 22% year over year and above the midpoint of the outlook [21] - Adjusted gross margin was 53.5%, up 30 basis points sequentially and up 370 basis points year over year [21] - Adjusted operating income was $47.6 million, resulting in an adjusted operating margin of 19%, up 680 basis points year over year [22] - Adjusted EBITDA was $55.4 million, up 68% year over year, with an adjusted EBITDA margin of 22.1%, up 600 basis points year over year [22] - Adjusted diluted earnings per share were $0.38, up from $0.06 a year ago [23] Business Line Data and Key Metrics Changes - Infrastructure net sales were $72.8 million, up 5% sequentially and up 30% year over year [8] - Data center net sales were a record $51.6 million, up 3% sequentially and up 143% year over year [8] - High-end consumer net sales were $35.4 million, flat sequentially and up 3% year over year [12] - Industrial net sales were $142.8 million, down 3% sequentially but up 24% year over year [16] - LoRa enabled solutions within the industrial market had net sales of $38.9 million, up 5% sequentially and up 81% year over year [16] Market Data and Key Metrics Changes - The company expects short-term demand gaps in the CopperEdge segment but anticipates sustainable growth in the data center business due to capital expenditure growth by hyperscalers [9] - The IoT cellular portfolio is expected to benefit from growing 5G adoption rates, particularly in North America [18] - Connected services net sales remained stable, showcasing the deployment of AI tools for anomaly detection [19] Company Strategy and Development Direction - The company focuses on portfolio optimization, strategic investment in R&D, and driving margin expansion [7] - Management emphasizes the importance of solidifying a winning culture, accelerating innovation, and leveraging technology leadership to enhance shareholder value [20] - The company is optimistic about the second half of the fiscal year, expecting growth driven by fiber edge products and incremental opportunities from LPO and CopperEdge [90][94] Management's Comments on Operating Environment and Future Outlook - Management acknowledges macroeconomic uncertainties that may impact the timing of portfolio optimization initiatives but remains committed to strategic priorities [68] - The company is confident in its ability to navigate through dynamic tariff policies and maintain stable product flow across the semiconductor supply chain [7] - Management expects net sales for Q2 to be around $256 million, reflecting a 19% year-over-year increase at the midpoint [25] Other Important Information - The company recorded a net debt decrease of $14.8 million to $396.2 million, with a focus on debt reduction [24] - The company successfully amended its revolving credit facility to increase total borrowing capacity by $117.5 million [24] Q&A Session Summary Question: Insights on the cellular module business - Management noted that the cellular module business experienced a seasonal decline but expects revenue to accelerate in future quarters due to competitive dynamics [32][34] Question: Update on AI connectivity and CopperEdge - Management highlighted strong engagement with over 20 customers for CopperEdge, with expectations for revenue ramp-up by Q4 [41][44] Question: Trends in the core data center business - Management expressed optimism for growth in the core data center business, driven by fiber edge products and expected incremental revenue from LPO [55] Question: LoRa market outlook - Management indicated that while LoRa sales may moderate slightly, the business remains strong with a projected quarterly run rate of $30 million to $35 million [60] Question: Expectations for seasonality in the second half - Management noted that seasonality is expected in the high-end consumer segment, while other markets may not show obvious seasonal trends [80] Question: Insights on surge switch product - Management explained that surge switch provides additional protection and is being designed into various applications, enhancing dollar content compared to typical protection products [97][100]

Investment Rating - Maintain "Buy" rating for the industry [5] Core Viewpoints - The upcoming OFC 2025 conference will showcase cutting-edge optical communication technologies, focusing on 1.6T optical modules, 200G optical chips, CPO, MPO, and LPO technologies [21][22] - The collaboration between AI and optical communication technologies is creating a feedback loop that drives comprehensive computing power upgrades, enhancing data rates, reliability, and operational efficiency [24][25] - The report emphasizes the importance of low-power optical modules in meeting the demands of AI computing clusters, with advancements leading to a reduction in power consumption by 20% for new products [21][22] Summary by Sections Investment Strategy - Focus on the optical communication sector, particularly on leading companies such as Zhongji Xuchuang, Xinyi Sheng, and Tianfu Communication [7][13] - Recommendations include monitoring developments in AI infrastructure and optical modules [7][13] Market Review - The communication sector has experienced a decline, with the operator index performing relatively better than other segments [17][18] - Specific declines noted in various sub-sectors, with optical communication down by 3.5% [20] Technology Developments - CPO and MPO technologies are rapidly advancing, transitioning from theoretical solutions to scalable applications [22][23] - LPO products are undergoing continuous micro-innovations to meet the increasing demands of AI applications [22][23] Key Companies to Watch - Recommended companies include Zhongji Xuchuang, Xinyi Sheng, Tianfu Communication, and others in the optical module and AI infrastructure space [7][8]