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7 March 2016

NeoPhotonics reports record revenue of $89.1m for Q4, driven by 100G sales in China

For fourth-quarter 2015, NeoPhotonics Corp of San Jose, CA, USA (a vertically integrated designer and manufacturer of hybrid photonic integrated optoelectronic modules and subsystems for high-speed communications networks) has reported record revenue of $89.1m, up 6.7% on $83.6m last quarter and up 12.8% on $79m a year ago (and above the $82-86m guidance range). Full-year revenue has risen by 10.9% from $306.2m in 2014 to a record $339.4m in 2015, despite headwinds from product-pruning activities during first-half 2015.

Fiscal Q4/2014 Q1/2015 Q2/2015 Q3/2015 Q4/2015
Revenue $79m $81.4m $85.4m $83.6m $89.1m

The two 10%-or-greater customers comprised 69% of total revenue collectively: US-based Ciena (14% of total revenue, down from 26% last quarter) and China's Huawei Technologies (55% of total revenue, up from 41%, reflecting the strength of 100G deployments in China). Of total revenue, China hence rose from 49% to 67% (reflecting the burgeoning demand) as the Americas fell back from 30% to 17% (reflecting quarterly skewing - NeoPhotonics sees no meaningful change over the longer term). Japan fell from 4% to 3%, while the rest of the world fell from 17% to 13%.

Driven by China, sales of High Speed Products (for 100G-and-beyond) hence rose 10% sequentially to $51.7m (58% of total revenue, up from 56% last quarter, and the highest 100G percentage in the industry it is claimed).

Revenue for Network Products and Solutions (lower-speed transceivers, <100Gb/s) was up 2% sequentially to $37.4m. "We view these products as mature and therefore may decline over the medium term," notes chief financial officer Ray Wallin. "This decline is anticipated to have an uplift effect on gross margins."

"For the quarter, we reported record revenue, non-GAAP gross profit and net income," says CEO Tim Jenks. "And for the year we reported both record revenue and record non-GAAP earnings, making it the best year in the company's history." 

On a non-GAAP basis, gross margin was 32.4%, up from 30.3% a year ago and 29.8% last quarter, driven by the greater mix of higher-margin High Speed Products as well as manufacturing cost reductions. Full-year gross margin rose from 25% in 2014 to 31.5% in 2015, driven by the strong 100G product growth.

Operating expenses (OpEx) were $22.6m (25.4% of revenue), up on $20.7m (24.8% of revenue) last quarter and $19.2m (24.3% of revenue) a year ago. Full-year operating expenses were $84.7m (24.9% of revenue), roughly level with $84.6m (27.6% of revenue) in 2014 despite acquiring Emcore's tunable laser product line at the beginning of 2015.

Non-GAAP results exclude $2.8m of end-of-life inventory write-down charges related to the firm's drive to optimize the tunable laser product line in alignment with its 100G-and-beyond product strategy. NeoPhotonics is terminating support of certain versions of tunable lasers that are not aligned with this strategy.

Net income was $6.9m ($0.16 per diluted share), up on $4.6m ($0.11 per diluted share) last quarter and $6.3m ($0.19 per diluted share) a year ago (the firm's sixth consecutive non-GAAP profitable quarter). Full-year net income was a record $21.1m ($0.53 per diluted share) in 2015, a strong improvement on the net loss of $9.2m ($0.29 per diluted share) in 2014.

Likewise, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $11.8m (13% of revenue, close to the target model of 15%), up on $10.2m last quarter and $11.6m a year ago. Full-year adjusted EBITDA was a record $43.2m (13% of revenue) in 2015, up from $12m in 2014.

Cash flow generated from operations was $5m in Q4 (contributing to $26m in full-year 2015). Capital expenditure was $5.8m (up from $5.4m last quarter), taking full-year CapEx to $16.8m.

During Q4, cash and cash equivalents, short-term investments and restricted cash and investments fell from $103.6m to $102m.

Despite the first quarter historically being seasonally low (due to completing annual price negotiations and due to the timing of Chinese New Year and lower Access shipments in the winter), for Q1/2016 NeoPhotonics expects revenue to rise by 3-10% to $92-98m due to strong momentum from 100G demand (in Q4/2015, NeoPhotonics acquired the precision optical power monitor business of EigenLight Corp, but this will contribute only about 1% of revenue). Gross margin should be 30-33%, and diluted earnings per share $0.10-0.18.  

NeoPhotonics' target model remains the same in 2016: 35% gross margin, OpEx of 25% of revenue, 10% operating margin, and 15% EBITDA margin.

"The market for 100G-and-beyond optical networks [for both telecom and data-center applications] is growing very robustly and NeoPhotonics' leading product positions, coupled with our new product introductions for coherent transport and data-center applications, places us in an advantageous position for the coming year," reckons Jenks. "We are currently expecting full-year revenue growth for 2016 to be in the range of 15% overall. To support this growth, we are adding capacity at chip, component and module levels, expanding assembly & test capacities, and we are working with our supply-chain partners on their expansion plans," he adds. 

"We believe NeoPhotonics has the highest share of micro tunable lasers and integrated coherent receivers for the expanding range of coherent transmission applications, from 100G to 400G data rates," says Jenks. "This market will drive continuing growth in revenue," he believes. "To support our accelerating demand conditions across each of our high-speed products, we are increasing our capital expenditures for the coming full year to a range of 7-9% of revenue," adds Wallin.

"Our client-side business is seeing strong sequential growth as well," says Jenks. "Extending this product range, our new 100G QSFP28 modules are expected to ramp to volume shipments over the following two quarters for high-density, telecom-client and data-center applications. Further, we are developing 400G client-side modules in CFP8 configurations that will be based on our leading 28Gbaud lasers at 50Gbps using a PAM4 architecture. Taking this development one step further, we are also introducing an ultra-high-speed 56Gbaud EML laser and driver IC set which enables single-wavelength PAM4 100G applications as well as eventually four-wavelength 400G intra-datacenter transmission," he adds. "Also, for mega-datacenter applications we have introduced a series of new high-power laser diode array products designed to power short-reach silicon photonics-based 100G intra-datacenter interconnections which use parallel single-mode architectures (PSM4)."  

NeoPhotonics also announced that it will be entering the coherent module market. The first product is a new CFP2-ACO module, to be sold initially in a Class 3 configuration (shipping in 2016), and being exhibited to lead customers at the Optical Fiber Communications conference in Anaheim, CA, USA (22-24 March). "Our coherent module products will feature NeoPhotonics high-performance components inside, enabling these modules to meet the highest specifications in the industry," says Jenks.

In addition, NeoPhotonics is supplying multiple other CFP2-ACO module manufacturers with its high-performance components. "We are very well positioned to benefit as a leader in both pluggable modules and components as coherent applications grow," believes Jenks.

Also at OFC, NeoPhotonics we will feature a new 43Gbaud integrated coherent receiver (ICR), which will extend the reach of 200G coherent transmission to more than 1000km and is suitable for use either in pluggable modules or on high-density line-cards.

"These introductions represent a significant increase in product breadth and capability for NeoPhotonics as we move into this heightened demand cycle," notes Jenks. "As a result, we believe we are well positioned for the expansion in 100G-and-beyond networks."

See related items:

NeoPhotonics reports higher-than-expected Q3 revenue, despite product pruning

NeoPhotonics' revenue grows 5% in Q2 to record $85.4m, driven by 100G products

NeoPhotonics' revenue grows 3% in Q1 to a record $81.4m, boosted by more-than-expected $12m from Emcore products

NeoPhotonics reports record Q4 revenue of $79m, despite pruning low-margin products, driven by growth in 100G

Emcore completes sale of tunable laser and transceiver product lines for $17.5m

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