15 November 2013

NeoPhotonics' quarterly revenue grows 16.1% year-on-year to record $76.8m

For third-quarter 2013, NeoPhotonics Corp of San Jose, CA, a vertically integrated designer and manufacturer of both indium phosphide (InP) and silica-on-silicon photonic integrated circuit (PIC)-based modules and subsystems for high-speed communications networks, has reported record revenue of $76.8m. This is up 2.4% on $75m last quarter and up 16.1% on $66.2m a year ago (and toward the higher end of the projected range of $72-78m). There were three customers that comprised over 10% of revenue: Alcatel-Lucent (18%), Ciena (13%) and Huawei Technologies (23%).

Fiscal	Q3/2012	Q4/2012	Q1/2013	Q2/2013	Q3/2013
Revenue	$66.2m	$62	$56.1m	$75m	$76.8m

The record revenue is a direct result of continuing adoption of the firm’s PIC technology in the rapidly growing 100G market, says chairman, president & CEO Tim Jenks. “I particularly want to highlight the contribution of NeoPhotonics Semiconductor [formerly the Optical Component Unit of LAPIS Semiconductor, acquired in March], which significantly enhances our 100G product suite.” Revenue from NeoPhotonics Semiconductor was about $14m (toward the high-end of the projected range for the business). Revenue from high-speed products was $28.4m (37% of total company revenue), up 31% on a year ago. “We continued to accelerate our 100Gb/s product suite,” says Jenks. “We continue to achieve sequential growth, both organically and in the acquired NeoPhotonics Semiconductor business.”

Interim chief financial officer Cal Hoagland attributes the growth primarily to: (a) continued strength in 100G products, including those used in coherent networks; (b) increased revenue from NeoPhotonics Semiconductor; and (c) an increase in revenue for Access products.

Revenue from the Access product group (point-to-point networks, certain wireless backhauling applications, and PON passive optical networks) was 23% of total revenue, up $2.7m on last quarter.

Revenue from Speed and Agility products was 69% of total revenue (consistent with last quarter). Of this, revenue from 40G and 100G products was about 37% of total company revenue, up $7m (31%) on a year ago although down slightly by $0.9m on Q2/2013, which had been up 33% on Q1 (resulting in slight excess inventory at key customers, which has now been consumed). Specifically, 100G products (with six different product families, all in production) now constitute 54% of Speed and Agility product group revenue, encompassing all of the firm’s top-tier customers.

“This product group [40G and 100G] has been on an accelerated growth path over the last two years and, with Metro deployments beginning in 2014, we expect this trend to continue,” notes Jenks. “Essentially all of our 100G product families are early in their life cycles, and we expect to leverage these product families for years to come. We are building on our proprietary PIC technology platform to introduce new and enhanced products and gain new customer design wins,” he adds.

“Our PON products have been declining slowly over the last two years,” continues Jenks. “Due to plateaued growth in PON and continued pricing pressure in the market, we do not expect to see a growth trend in PON over the foreseeable future. As a result we have trimmed our spending in this area in order to enhance our 100G focus. PON products are relatively low margin, such that a slow decline in these products as they mature will not be adverse to overall margin or profitability. We anticipate that this segment will decline as a percent of our total revenue overtime.”

For fourth-quarter 2013, NeoPhotonics expects revenue of $70-76m and non-GAAP gross margin of 24-28% (impacted by annual pricing negotiations in November and December).

“The China market in the first three quarter of the year was slower than previously expected, and we anticipate this to continue into the fourth quarter as large tenders announced by two of China’s largest carriers have taken longer to be awarded than originally estimated by our analysts and our customers,” says Jenks. “Recently, we have seen some large tenders being awarded for LTE deployments, and we anticipate that wireline deployments will start to pick up as well within 2014,” he adds.

“We expect an increase in the economic growth in China could be accompanied by stronger demand from China carriers and their network equipment suppliers. In turn this would be beneficial to our top-line and create more leverage in our operating model,” continues Jenks. “We believe that tender awards in China for 100G network deployments will strengthen our product mix and our market position as we participate in those network upgrades,” he adds.

“In the industry going forward, we expect to see modest increases in carrier capital expenditure (CapEx), such as was recently announced by Verizon, and new program awards for 100G transport and metro deployments, which we would expect to result in increasing demand conditions over time,” says Jenks.
Jenks notes that NeoPhotonics has added considerable manufacturing capacity that is just now beginning to be utilized as intended. “With this action, we have the necessary capacity for increasing volumes and at competitive cost,” he concludes.

• The firm’s quarterly report on Form 10-Q was due to be filed with the US Securities and Exchange Commission (SEC) by 12 November and would be deemed to be timely filed if the firm filed a Form 12b-25 and then filed the Form 10-Q by 18 November. However, NeoPhotonics says it is unable to file by that date for the following reasons.

NeoPhotonics’ financial statements for first-quarter 2013 (previously filed with the SEC in its quarterly report on Form 10-Q/A) included a real-estate registration tax of about $0.5m as a component of property, plant and equipment acquired in Japan as part of the purchase of NeoPhotonics Semiconductor. Upon further examination as to the nature and party legally responsible for the payment of the real-estate registration tax, NeoPhotonics has concluded that the tax amount should have been expensed as an acquisition cost. It will hence need to restate its financial statements for Q1 and Q2/2013 to reflect a decrease in cash flows from operating activities of about $0.5m, an increase of cash flows from investing activities of about $0.5m, and an increase in loss before income taxes of $0.5m in Q1 and the six months to end-June.

NeoPhotonics has determined that there is not enough time to complete the necessary close of its accounting records, perform procedures to adjust its financial statements for the item discussed above and reviews by an independent public accounting firm, and amend its quarterly reports on Forms 10-Q/As for Q1 and Q2, as well as file its quarterly report on Form 10-Q for Q3, prior to the required filing date. The firm intends to complete its review of the purchase transaction and the work related to the close of its accounting records as of end-September, and to amend and file its quarterly reports on Form 10-Q/As and 10-Q and file its Form 10-Q for Q3 after the completion of the appropriate work and quarterly reviews by an independent public accounting firm.
NeoPhotonics has further announced that Deloitte & Touche LLP (which has experience in serving as independent registered public accounting firm to leading technology companies) has been appointed as its independent auditor, as of 15 November.

• Bandy Wu (previously controller at Micrel) has joined NeoPhotonics as VP & corporate controller, reporting to Hoagland. “Her professional experience and depth of knowledge in public company controls and reporting procedures will be an important and valuable addition,” comments Hoagland.

See related items:

NeoPhotonics’ revenue grows 34% to a record $75m in Q2

NeoPhotonics’ revenue falls 9.6% to $56.1m in Q1, but 100G grows 41%

NeoPhotonics reports 22% annual revenue growth to record $245.4m

NeoPhotonics completes acquisition of LAPIS’ optical components business unit for $35.2m

NeoPhotonics reports Q3 revenue of a record $66.2m, up 54% year-on-year

Tags: NeoPhotonics PICs

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