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NeoPhotonics: Q3 Results 'Disappointing'
Nov 2011
SAN JOSE, Calif., Nov. 14, 2011 — Lower demand from its largest customer and acquisition-related costs were the biggest factors behind a third-quarter loss of $4.1 million, photonic integrated circuit maker NeoPhotonics reported last week. The company also cautioned that the flooding in Thailand, while not a direct threat, could affect its fourth-quarter bottom line.

The 16 percent revenue drop for the quarter, down $8 million sequentially to $44 million, was “disappointing,” company President and CEO Tim Jenks said. He largely attributed the loss to lower demand from its biggest customer, optical network equipment provider Huawei Technologies of Shenzhen, China.

Huawei’s business accounted for approximately 42 percent of its third quarter revenue, Jenks said in an earnings call with investors, down from 51 percent the previous quarter. The other nine customers in the company’s top 10 contributed 46 percent of revenue.

Jenks said Huawei’s soft domestic optical networking equipment business for the third quarter — due to reduced capital expeditures on 10 G and 40 G transport and metro systems in China, as well as slower-than-anticipated consumption of access products for GPON and GEPON fiber to the home (FTTH) networks, accounted for part of the lower demand.

Also overall demand in the last two weeks of September was exceptionally week, Jenks said; the quarter ended Sept. 30.

Also contributing to the loss was $300,0000 associated with its acquisition of privately held Santur Corp. of Fremont, Calif., a maker of photonic integrated circuit (PIC) –based laser array and packaging technologies for communication networks (See: NeoPhotonics Acquiring Laser Array Maker). The deal worth about $47 million closed in October, but NeoPhotonics is still integrating both companies, Jenks said.

Jenks also told investors during the call that the company is increasing its production capacity in China and is leasing an 80,000-sq-ft facility in Dongguan, about 45 minutes from its existing facility in Shenzhen. About $9 million in capital expenditures on the project will be phased in over the next five to seven quarters, he said, and the facility is expected to become operational in 2012.

Looking ahead to the fourth quarter, which ends Dec. 30, Jenks said that while a number of companies in the industry use Fabrinet as a contract manufacturing partner, NeoPhotonics isn’t one of them. NeoPhotonics is a vertically integrated optical modules and systems supplier, he said, and not at all dependent on Thai suppliers for either components or raw materials.

But the flooding in Thailand could affect NeoPhotonics’ revenue, since its products are used in the systems made by a number of companies that do use contract manufacturers in Thailand. Those customers may ask NeoPhotonics to reduce shipments pending alternative sourcing of affected parts, Jenks said.

“We have not experienced such an impact to demand as of today, but we are monitoring the situation, which is very dynamic, and we are working with our customers to stay current,” he said.

Factoring in lower demand from China, economic uncertainty in the US and Europe and the impact of the flooding on future orders, Jenks estimated that fourth quarter revenue will be in the range of $45 million to $50 million, with a loss per share in the range of 45 cents to 55 cents.

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100 G coherent productsAmericasAsia-PacificBusinessCaliforniaChinaCommunicationsearnings callfiber opticsfloodinghigh-speed data transmissionHuawei TechnologiesindustrialJapanNeoPhotonicsoptical componentsoptical modulesphotonic integrated circuitsPICSanturtelecommunicationsThailandTim Jenks

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