AFOP REPORTS 27% YEAR OVER YEAR REVENUE INCREASE IN Q2 2014

Sunnyvale, CA – July 28, 2014 - Alliance Fiber Optic Products, Inc. (Nasdaq GM: AFOP), an innovative supplier of fiber optic components, subsystems and integrated modules for the fiber optic communication market, today reported its financial results for the second quarter ended June 30, 2014.

Revenues for the second quarter of 2014 were $24,199,000, a 27% increase from revenues of $19,039,000 reported in the second quarter of 2013, and a 3% decrease from revenues of $24,882,000 reported in the first quarter of 2014.

Net income for the quarter ended June 30, 2014, was $3,782,000, or $0.20 per share, compared to net income of $4,282,000, or $0.24 per share, for the second quarter of 2013, and net income of $5,015,000, or $0.27 per share, for the first quarter of 2014. Included in net income for the second quarter of 2014 and the first quarter of 2014 are income tax provision adjustments of $2,134,000 and $659,000 respectively, as a result of deferred income tax expenses based on utilization of net operating loss. Excluding these tax provision adjustments, net income in the second quarter of 2014 increased to $5,916,000, or $0.32 per share, compared to net income of $4,282,000, or $0.24 per share, for the second quarter of 2013, and net income of $5,674,000 or $0.31 per share for the first quarter of 2014.

Gross margin for the quarter ended June 30, 2014 increased to 40.1%, compared to 38.2% in the year ago quarter and 39.8% in the first quarter of 2014. Operating margin for the quarter ended June 30, 2014 increased to 27.1%, compared to 23.4% in the year ago quarter and 26.0% in the first quarter of 2014.

Non-GAAP net income for the quarter ended June 30, 2014 increased to $6,446,000, or $0.35 per share, compared to non-GAAP net income of $4,693,000, or $0.27 per share, for the second quarter of 2013, and non-GAAP net income of $6,391,000, or $0.35 per share, for the first quarter of 2014.

Non-GAAP gross margin for the quarter ended June 30, 2014 was 40.5%, compared to 38.9% in the year ago quarter and 40.6% in the first quarter of 2014. Non-GAAP operating margin for the quarter ended June 30, 2014 was 29.3%, compared to 25.5% in the year ago quarter and 28.9% in the first quarter of 2014.

Peter Chang, President and Chief Executive Officer, commented, “Although our second quarter revenues fell short of our previous guidance, due to lower than expected demand from one key customer, sales in the second quarter increased 27% from the year ago quarter. We are encouraged by increased sales to our telecom customers and European customers during the quarter. In addition, our income from operations in the first six months of 2014 doubled from the first six months of 2013.”

“Regarding forward guidance, based on input from our customers and current orders, we expect revenues in the third quarter to be at a similar level to the second quarter. Despite relatively flat revenues in these three quarters, we continue being encouraged by the prospect of emerging business growth in the coming years, because of increasing data bandwidth demands driving the next growth cycle in the fiber optics industry. In the meantime, we expect to deliver record annual sales and profits in this fiscal year.” concluded Mr. Chang.

Conference Call

Management will host a conference call at 1:30 p.m. PT on July 28, 2014 to discuss AFOP’s second quarter 2014 financial results as well as the outlook for the third quarter of 2014. Please call 877-675-3572 at least ten minutes prior to the call in order for the operator to connect you. The confirmation number for the call is 71715763. AFOP will also provide a live webcast of its second quarter 2014 conference call at AFOP’s website: www.afop.com. The webcast replay will be available on AFOP’s website 90 minutes after the live conference call.

About AFOP
Founded in 1995, Alliance Fiber Optic Products, Inc. designs, manufactures and markets a broad range of high performance fiber optic components and integrated modules. AFOP's products are used by leading and emerging communications equipment manufacturers to deliver optical networking systems to the long-haul, enterprise, data center, metropolitan and last mile access segments of the communications network. AFOP offers a broad product line of passive optical components including interconnect systems, splitters, thin film CWDM and DWDM components and modules, and optical attenuators. AFOP is headquartered in Sunnyvale, California, with manufacturing and product development capabilities in the United States, Taiwan and China. AFOP's website is located at http://www.afop.com.

Except for the historical information contained herein, the matters set forth in this press release, including statements as to our expectations regarding future sales and profit levels and the time periods thereof, our business prospects, demand for our products and sources of demand, and our expectations for growth in the fiber optic industry, are forward looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including, but not limited to general economic conditions and trends, trends in demand for bandwidth, the impact of competitive products and pricing, timely introduction of new technologies, timely design acceptance by our customers, the acceptance of new products and technologies by our customers, customer demand for our products, the timing of customer orders, loss of key customers or customer orders, our ability to ramp new products into volume production, the mix of products sold and product pricing, the costs associated with running our operations, industry-wide shifts in supply and demand for optical components and modules, industry overcapacity and demand for bandwidth, our ability to obtain and maintain operational efficiencies, financial stability in foreign markets, and other risks detailed from time to time in our SEC reports, including AFOP's Quarterly Report on Form 10-Q for the quarter ended March 31, 2014. These forward-looking statements speak only as of the date hereof. AFOP disclaims any intention or obligation to update or revise any forward-looking statements.

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Use of Non-GAAP Financial Information
The company provides Non-GAAP gross margin, Non-GAAP net income, Non-GAAP basic and diluted net income per share and EBITDA, as supplemental information. In computing these non-GAAP financial measures, the company excludes certain items included under GAAP, including stock-based compensation expense and income tax provision adjustments. In computing EBITDA, the company also excludes interest income, provision for (benefit from) income taxes and depreciation expense.

Management uses these Non-GAAP financial measures to evaluate the operating performance of the business and aid in the period-to-period comparability. Management also uses the Non-GAAP financial measures for planning and forecasting and measuring results against its forecast. Using several measures to evaluate the business allows the company and investors to assess the company’s relative performance. The Non-GAAP financial measures provided herein may not provide information that is directly comparable to that provided by other companies in the company’s industry, as other companies may calculate such financial results differently. The company’s Non-GAAP financial measures are not measurements of financial performance under GAAP, and should not be considered as alternatives to the financial measures derived in accordance with GAAP. The company does not consider these Non-GAAP financial measures to be a substitute for, or superior to, the information provided by GAAP financial results. A reconciliation of the Non-GAAP financial measures to the most directly comparable GAAP financial measures is provided in the financial schedules portion of this press release.