7 October 2020
NeoPhotonics consolidating InP production and cutting staffing by 4%
NeoPhotonics Corp of San Jose, CA, USA – a vertically integrated designer and manufacturer of silicon photonics and hybrid photonic integrated circuit (PIC)-based lasers, modules and subsystems for high-speed communications – has announced preliminary results for third-quarter 2020, incorporating changes made to better align the firm’s infrastructure and more efficiently manage its cost structure.
As announced at the end of August, the firm has adopted a conservative approach to exclude from its outlook any future contributions from China-based Huawei Technologies, following 17 August’s tightening of restrictions on export license requirements by the US Department of Commerce’s Bureau of Industry and Security (BIS).
“Our actions better align our capacity and production infrastructure with expected demand levels, and accelerate our goal of returning to profitability,” says chairman & CEO Tim Jenks. “We are maintaining our focus on developing products for next-generation coherent systems and modules, wherein our silicon photonics, lasers and advanced hybrid photonic integration technologies provide the highest value, fully supporting our expansion into the data-center market with coherent products. We are increasingly optimistic about our ability to drive growth both in the near-term with our 64Gbaud solutions and in the mid-term with 96Gbaud solutions and as our 400ZR products ramp in mid-2021,” he adds. “With these changes, we continue to pursue growth opportunities and deploy our best-in-class products and solutions for the highest speed over distance applications, and with a more diverse customer set.”
NeoPhotonics has taken steps to tighten production operations, account for Huawei-specific assets and inventory, consolidate indium phosphide (InP) production and implement an approximately 4% reduction in force. The costs to implement these changes are expected to be $12.1m, with $1.1m in severance costs and $11m in inventory and idle asset charges. The firm expects to incur $10.7m of these costs in Q3/2020, $0.7m in Q4/2020, and the remainder as accelerated depreciation charges through 2021.
The actions taken are expected to reduce expenses with immediate impact and achieve a reduction in quarterly operating expense of about $2m when fully implemented by Q2/2021, in addition to reductions in cost of goods sold (COGS). As a result, the firm expects to lower its revenue breakeven level and to return to non-GAAP profitability in Q3/2021 and GAAP profitability in Q4/2021.
Given these changes, NeoPhotonics also provided preliminary estimated financial results for Q3/2020, with non-GAAP results in the upper end of the previous guidance ranges given in early August. Specifically, revenue should be $101-103m (rather than $97-105m), gross margin should be 32-34% (rather than 30-34%) and earnings per share are expected to be $0.10-0.14 (rather than $0.03-0.13).
This non-GAAP outlook for Q3/2020 excludes the impact of expected severance and asset write-down charges of $10.7m, amortization of acquisition related intangibles and other costs of about $0.3m, and the anticipated impact of stock-based compensation of about $3.5m, of which $0.7m is estimated for cost of goods sold.
As of end-September 2020, NeoPhotonics’ cash, cash equivalents and restricted cash totaled about $120m.