3 September 2020
NeoPhotonics assessing impact of US tightening of Huawei restrictions beyond Q3
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 provided a business update following the updated actions of 17 August by the US Department of Commerce’s Bureau of Industry and Security (BIS).
Recent actions by the BIS have increased restrictions on China-based Huawei Technologies and its affiliates on the Entity List related to items produced domestically and abroad that use US technology or software and have imposed new license requirements for items subject to Department of Commerce export control. NeoPhotonics currently targets achieving its third-quarter 2020 outlook provided on 4 August (with shipments to Huawei contributing about $40m of revenue) but, beyond Q3, it is still assessing the full impact of the current BIS restrictions. Given the uncertainty, NeoPhotonics will manage the business without relying on revenue contributions from Huawei.
“Despite the near-term revenue impact resulting from the recent BIS restrictions, demand for our products broadly remains strong, driven by expanding high-speed capacities, hyper-scale data-center interconnects, network edge provisioning for increased cloud service usage and remote working,” says chairman & CEO Tim Jenks. “Our highest-speed-over-distance products for 400G-and-above applications continue to gain traction with leading network equipment manufacturers and are expected to represent more than 20% of total revenue in 2020, after only two years in the market. Of note, revenue from customers beyond Huawei is expected to grow 40-50% over the next year, independent of potential customer share shifts. Coupled with the upcoming 400ZR and 400ZR+ high-speed module opportunity, which is expected to begin volume production in second-half 2021, the end market for these products, as defined by high-speed ports, is forecasted to increase at an 80% five-year compounded annual growth rate (CAGR) through 2024,” he adds.
“Beyond topline growth, we must also ensure our operations remain aligned with the demand outlook and pursue appropriate expense adjustments and structural actions to mitigate the impact of revenue declines,” cautions Jenks. “We are fortunate to have entered this period with both a strong financial position and a management team with a demonstrated track record of taking the necessary actions to navigate uncertain times. Through the continued growth of our existing product lines and the ability to pull operational levers as needed, we feel confident in our ability to return to profitability by the end of 2021 with a greater level of diversity across our customer base,” he concludes.