NPTN - Earnings call transcript Q1 2018

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Operator

Welcome to the NeoPhotonics 2018 First Quarter Conference Call. This call is being webcast live on the NeoPhotonics event calendar webpage at www.neophotonics.com. This call is the property of NeoPhotonics and any recording, reproduction or transmission of this call without the express written consent of NeoPhotonics is prohibited. The webcast will be available on the event calendar page of the NeoPhotonics website. I would now like to turn the call over to Erica Mannion at Sapphire Investor Relations.

Erica Mannion

afternoon. Good joining of NeoPhotonics for XXXX, quarter XXXX. for the results the to of quarter first and us you operating discuss for second Thank our outlook Beth Tim and With Jenks, today Financial Officer. are CEO, me and Eby, Chief Chairman review begin products. quarter new with the will of Tim of conditions view market first a with and a the the second quarter Beth will for results for financial the first fiscal outlook XXXX. then provide quarter before providing of drivers the before back it to for market turn questions. and on business the then will Beth opening additional Tim for call color The include company's unless revenue, income and financial information, release this press amounts and management's than all discussions measures otherwise during statements noted. including statement call sheet other Non-GAAP and balance of certain percentages and and of a to These or superior performance are financial for Non-GAAP with measures with not not financial substitute GAAP. measures are in prepared prepared accordance in GAAP accordance a SEC, to the X-K, These of NeoPhotonics the with company's financial be section website. Investor of release the Relations results in being and press reconciliation measures related Form found at and are today provided the and GAAP can filed Non-GAAP sole the contained the and copyright with Material is all rights webcast NeoPhotonics, of reserved. in property industry availability, uncertainties future demand, forward-looking and are Certain may include considered facts, call, customer and risks events, product statements projections. subsequent and and profitability, capital business regarding and and statements inventory that development, which not statements results, needs be levels involve sales in conference this historical of economic technology and levels cause could actual differ factors Various to materially. results

quarterly SEC X, of our and length and at forth our are in Some in press release have factors XXXX dated May these risk set been annual filings. described

over call to turn will Jenks. I Now, CEO, the Tim

Timothy Jenks

from rates quarter, for in us revenue the quarter. joining delivered with $XX.X XXXG revenues, XX% beyond fourth today. Thank comprising data and High up of our NeoPhotonics of Speed you the XX% million, In first Products of for

Year. Even our and products we which North Metro impact within in in the business in strength and our New is to we America, continued price the from softest negotiations annual supporting last we over will multiple on our typically and quarter see As trend, expect due Chinese discussed continue our first DCI this call, seasonally to supporting this, quarters. key

served largest and subject considerable been the media of both in attention which China, to the market has related Our trade. is geographic sanctions

order April S. on the described of to S. XX, Commerce items in subject press a ZTE ZTE. order Department was receiving our Chinese XXXX Order companies of issued telecom certain First, exporting prohibiting Export S. NeoPhotonics U. from technologies This this bans The on Administration from U. April U. XXth effectively to Regulations. Denial maker impact release.

reports view Second, maker, about its recent Technologies, Huawei back subject equipment has compliance S. public have the telecom export also of media an been brought a U. Chinese regulations. inquiry to with that

to our these attention we is Huawei pay customer, largest As activities.

of consider Our any comments each than on and restrictions following there current outlook the ZTE. including these Chinese other issues, fact no that our are customer

levels as trials. for tender Moving last inventory XG were first to for tenders we normalized in of our customer quarter, our or which we domestic customers a discussed initial on demand the of China with new environment more a continuation provincial call, in awards saw trends support wireless mainly the normalized waiting

adjustments data to for in China to of Business remained was North Chinese demand capex our as the normal to market center QX in Commerce subsequent We well U. to as for shifts in to seen while make of any from long-term indications robust. continue use customers have do around Department see forecasts their for America not tempering was the telecom recently line due share the mid- the strong, full have beginning Order. expectations actions, While customers. outside timing cloud awards we and forecast the that strength, clear indicators cause to uncertainty seasonality. year specific Denial new where applications recent somewhat with the us of End S. among both

Our signaled increased beginning coming pulls leading the us forecasted in customers serving product these and the deployments year have quarter. from increased end-use markets their for

while are for EML demand lasers to lasers photonics-based directly as new shorter Additionally, transition enable in next XXGbaud remains overall seeing arise QX, applications. share market modulated one we wavelength, solutions reach that silicon for while and generation opportunities strong, PAMX applications laser in for shifting traditional XXXG

side coherent receiver. strength with and wins noted Exposition XXXG components, design I and strength at continue As OFC laser, of offerings which held of our linewidth quarter, all and highlighted ultra-narrow XXXG our we and line leading including our many products. next XXXG Diego, in generation product wavelength by on were tunable XXXG per coherent our XXXG rely last see in across to new including driver-modulator companies XXXG recent San the coherent micro Systems deliver that many three

they example, of a linewidth have the there required. order the achieving narrowest these degradation unless schemes because encoded, our for lasers signal noise phase and more For modulation pure that in are linewidth used. risk ultra-narrow is are minimal When speeds very higher are critical are bits element lasers

Module switch At elements and optimally OFC through XXXX. receiver highest the shipping to highest DCO as featured to and we well enable expect coherent our and as customers this modulator components. data laser, them now next are supplying work products, our performance products full or Coherent as a ramp our are now rates new solution generation together as volumes performance for Our three and matter. advanced and products we These we discrete to Multicast whom

in for half featuring COSA, power which we laser we the conducted and wavelength. of into per Further, Our and very Optical operating and Coherent nextgen or In this, while Subassembly, XXGBaud XXXG our new cavity again both coherent our leading driver-modulator linewidth within XXXG consumption. low OSFP half the compact module. performance size. separate industry our laser, XXXG Nano demonstrated live of with which this demonstration, coherent our in coherent components an Alongside cuts ultra-narrow featuring operating COSA demonstrations reduce size required external increase tunable integration again “Nano” high receiver integrates coherent we a and size while the linewidth optics and incorporated the the

applications, data Linear and Turning to Optical XXGBaud client includes capable and for XXXG center all which hyperscale PAMX in PAMX transmitters XXXG data and center PAMX at amplifiers DD-QSFP. and applications, and wavelength Component single family XXXG transceivers, demonstrated in we provides which trans-impedance EML at four OFC components family for also drivers as This plus introduced side photodetectors receivers. OFC, optical lasers our include product XXXG content wavelength the was necessary such optical transmission, of and

detail illustrate to solutions. the Similarly, offer card line and Beth on further the and next PAMX there center non-hermetic architectures. are of changes use our to OFC in all power, generation based is silicon now DRX turn XXXG shorter which solutions as in is innovations silicon key supporting moves financial occurring We are NeoPhotonics performance. our needs. compact coherent will these DRX, for that high photonics-based also optical higher and addressing telecom content and modules demonstrations over and highlighted with laser pluggable we sources I supporting for uses optical speed call our for important, reach baud provide of to and high XXXG now and photonics the in This both such laser each data rates FRX. both as markets, transceivers of

Elizabeth Eby

afternoon. good you, Tim, and Thank

and year-over-year. revenue our related down slightly our lower that quarter and down. mix implementation approximately see annual Technologies, did was impact affiliate inventory The total XX% lower expectations, a XX% was the revenue. was represented Huawei X% volume than Technologies, first range from QX, HiSilicon different up largest down customer, of volume on within Company’s of X% including ZTE write represented accounted of was the margin price of We the our products and year-over-year, XX% quarter, expectations. of in of and China The In end the first the their resulting million, slightly excluding reductions. higher than was X% Quarter-over-quarter revenue. gross and down a the was slightly $XX.X Americas for lower expected, XX%. full at

represented Huawei in total XX% of Our revenue customers next QX. four after

noted had ZTE products have will written X% of its our that be and planned. and up from in is on U. impact we for XXth not of as Order Commerce the realized million at the impacts Denial press reflected results in expected Each these Further, certain inventory ZTE in of which that held now April down. Department related $X.X revenue were annualized our to approximately we our in outlook. S. ZTE, suppliers, As release of to valued

The negotiations. down amortization • Non-GAAP of and gross • to down. write QX from ZTE of million, output the of o full costs fab, from than ZTE and lower testing this support for down impact price Additionally, first There QX, than margin expected the recorded As we impact our due Our quarter in expected the customer o million about XX.X%, our new Japan mainly $X.X additional write of annual drivers X.X change: was o to o requirements. in below the higher saw points and $X.X we discussed forecast four in were of the

$X.X in $XX.X quarter QX, annual revenue, bad operating fourth driven fully $XX.X XX.X first XX% $XX.X cent in operating XX% to the share and margin. off. QX on a negative absence million, cents, the the per first gross a first Moving of translates related net to QX of partial or was million, loss reductions and a ZTE compared share QX on million compared the the price write Non-GAAP of loss one-time the quarter shares, million for to was Based to the XX the of Non-GAAP of quarter loss total XX expenses, for QX. impact million compared loss quarter the the debt down. Non-GAAP this a in from in the Non-GAAP on was of loss in diluted recovery count of charges lower $XX.X million negative by operating down write to expense

EBITDA statement of close a quarter was I GAAP results. million out my For discussion review the of $X.X a fourth quarter, income the to will adjusted the a first compared our first of quarter. $X.X million, in of loss with loss

compensation for primarily amortization of $XX.X the margin in mentioned. million to XX%, First of million opposed million was $X.X the down one-time Operating loss the the expenses Net reduction $X.X period. was loss acquisition-related preceding quarter of expense the previously of was million $XX.X quarter, stock-based quarter, included in XX% restructuring was quarter, $XX.X $XX.X of quarter. first $X.X from charges. to expense, due loss in prior from a intangibles, for million million in Operating net which million the and as $XX.X gross approximately prior down million

in $XX finished in in from million equipment. inventory million, up were restricted resulting qualified cash. $X.X and days sheet, from Capital investments remain in Turning goal We we we $X used of approximately mix the quarter quarter, to of XXX for as was fab the million paid of the in in on-hand. Net the first on expenditures prior $X million Cash the quarter. changes, quarter to cash, was $XX million up million fourth $X XX balance inventory days quarter the first inventory. newly with the operations committed

As a free million result, quarter. was in $XX negative the flow cash first

quarter risks Before second fiscal our of performance public the the and affect I differ our with the discuss that our remind our statements. everyone to our I statement actual from press discusses revenue causing Harbor results materially uncertainties filings could and Safe forward-looking to included XXXX, want future in that earnings SEC for outlook and release of

a anticipate we quarter, reductions the volume. annual revenue are normal cost on year. The incorporated second throughout are quarter, the reductions to continuously the while through first higher return price growth For worked

during are shift, largely may share output we lighter demand a in in legacy the have that product Additionally factory, the fixed as market from for seeing EML together Denial XXGbaud products Order, our with while our we Tim QX, ZTE mentioned, result Japan XXXX.

Company’s range factors, million $XX the XX%; gross XX% in share cents, • in range in XX.X of XXXX for the shares. range margin XX%; cents. margin of Non-GAAP GAAP are: loss to net Non-GAAP per cents These are of of quarter and; expectations numbers cents to to June XX • • per XX approximately of diluted net the Given million; loss to XX XX • in in $XX the the diluted range fully to the gross diluted GAAP range XX% these reflective Revenue share • the of

we are previously and cash cash, return a have to noted, I flow focused profitability. As on

breakeven year, point We XXXX, the the half and OpEx reducing reduced focus the the of exceeds commitments have margin to improving now We and second for gross on Tim. in back CapEx I’ll as revenue return to still our to to and turn lower breakeven continue to the expect in profitability call inventory point. mid-eighties.

Timothy Jenks

our introductions, are Beth. we in our us Thank drive new containment operational higher for success line including execution drivers to leverage drive to and new by complemented demand growth profitability. help our business growth top product on The focused remain cost in path compelling, and for you, to XXXX our business. We as products

in awards China. confident timing feel in and the position mindful we tender of we our While remain in the new questions regarding uncertainties market, other competitive

Growth advance over medium- in we XG across near-term, - Looking remain will about - prospects of to mid- Metro networking performance by: has beyond enthusiastic the center we of its telecom, our our believe markets speed the long-term the been that pursue build-outs First, continue industry in cloud continuing expansion data China long-term components and deployments and focused NeoPhotonics we optical driven delivering the be space. and see and modules. on within and globe; wireless. leading will Second, high

to take for port big it the data higher including diminish. are of will the and I And ask capacity and needs networks in over center concludes to the fully not PAMX architectures, to adoptions centers are and up build will happening operator - continued may contributing certain deployments. data new the like which Finally, growth expect their as of for comments adjust, industry industry these applications ultimately Third, applications to years. questions. momentum coherent growth formal increase line - Both open While for months we toward to technologies modulation some China drive high embracing data to multiple that speed with coherent, rapidly. This our now and include bandwidth the would demand contentionless

Operator

take question James. will Leopold our with We Simon Raymond first Instructions] from [Operator

Simon Leopold

I’m how in situation a little bit confused you regarding China. described the

it for ZTE. customers have get. ZTE. it take buy be FiberHome would I potential or stockpiling would I potentially business in is or that either the the other part getting about they cut that whether would to obviously, That would from want good understand So away and look I at Huawei, situation, to thought China, products, more off you preparing before

shed confused – you maybe timing issue. I’m maybe it’s Could what some or a topic? said on So about I’m light you that

Timothy Jenks

the which ZTE. preclinical the in on situation and this think multiple order Huawei, offer to denial to The very of on has not that aspects And clear I with did Simon. it. reports technologies Sure, China any point isn’t news is dates most really EAR of media the ZTE, U.S. insights. the important respect recent But fact out, is first of there that any media new all, XXXX. And actually to because reports new back to shipment

hasn’t which discussions what to and So case to time more been that, it customers, trade taking respect the are yet with to ultimately, see U.S. they it’s with between And we, obviously the happen. in – discussions going out China, may on our what’s is may what as impact about figure that an probably what’s determined.

Simon Leopold

to should that in the sure ZTE them vendors, happen that Is reasonable, of other mean that an blocked founded unreasonable from products with logic my thesis share want Chinese that shouldn’t shifts improve as OEMs suppliers, in can’t I among your and guess, should other business China? thought, the purchasing if term? longer at in what terms OEMs, get least I is just from your But is make

Timothy Jenks

that could outcome possible one is certainly That’s happen.

Simon Leopold

envisioning? to feel What make not are, me are risk maybe seems sort appreciating? – scenario missing I obvious. I sure a are I’m to a very of that guess, I’m Or others? What like because want – you I

Timothy Jenks

and with reports an Well, Huawei, is I think media a downside. the on respect upside to there

last aware may be the as of things, discussions have another that indications you our place these China. are duration stays ZTE, we subject of between that And you have to the have happen. in dependent have to and in carriers, don’t to what U.S. to current ban the clear China from could its group is is And a that’s to of known. And the And equipment slow there similarly both. one each that deployment existed. on fundamentally slowing This while be we down consider they and result providers or simply simply now really it if from potentially in consider time. that they not have case yet And could over would network that telecom so of ZTE resolution customers is schedules down, the then that plans could their deployment there change, schedules, in then

Simon Leopold

means I question, Or that we’ve gross think levels the and if want that’s might. want gets to aspects correct. an Okay. if get mid-XXs ask a assuming make In us wanted been of you’ve sure are to recovery, of bridge we there volume? return breakeven past, Is that modeling And there? recovery I a you should then margin it And sort just what provided I to with the the near to of gross about? simply other margin. I understanding know I

Elizabeth Eby

gross the model So revenues to can we get in profit-dependent still that gross mid-XXs breakeven we XXs spending that as breakeven then to hitting volume events maybe general, spoken we the believe absolutely that margin that margins, that levels and high those few current levels quarters. spending have to some we’re times, I have higher few the elimination of a still with little a cost some last get But the combination have these working with and there. a mid-to we then of reductions on, known of in the been of return course. in onetime And –

Simon Leopold

my Great, thank for taking you questions.

Timothy Jenks

Thanks, Simon.

Elizabeth Eby

Simon. Thanks,

Operator

Needham. question our take we’ll Alex Henderson from from next And

Alex Henderson

Great.

I about So Simon the first. little bit talk asked to question a wanted

is gear, time that think would by shift network to improbable funding would I Huawei of to coherent think generally to spend that a capacity borrowing they that minimum, is providers' own in a highly that that deployments continue to need to effective are on. in impacted seems reasonable can it Huawei their involve So reasonable to capacity, ban there from a Is put not And ZTE be That, needs? lot at ZTE be – compatible builds any gear. which and environment deploy they’re the need would since place, would a build to assume frame. that to gear that given networks those service that going I me get is the the a therefore, in the band, in a they networks a for it with that

Timothy Jenks

– the We think trying for and in then reasonable. I I see they’re do possibilities plan. we to of the since said clear that, I XG just the the expect of the the that each for weeks Alex, are denial – No, that reports certainly media prepared still the in Huawei, plans need subsequent denial to current build-outs, including ultimately the case But customers. those have any – yet we long-term there the not order their the remarks, wireless. passed people, alternatives It’s clear to as continue. have remarks, They order, with three will their prepared at bandwidth the the in said look indicators from as but time yet aren’t related customers, in

I possible view each from us a clear possible. talked or one I the of we get the for about or it’s scenarios customers. things way But the think you commit So that to don’t until other think are

Alex Henderson

Fair enough.

your is on has big inventories the Obviously, side. the been XX the pressure to had the gross days. I you of margin decision work for on down margins question to gross Second part

sense impact that second that you what Will You schedule. second able do give or be to Can bit the on are gross the quarter, dollar be that the issue achieve guide? during you when think think you a impact will margins that you percentage us behind to market? falls it of a from particular quarter in therefore, the And is and little out?

Elizabeth Eby

get more QX underloaded. be some some What gross our be around loaded a in to them of we’re seeing to margin, and little factories will continue now, Alex, is of complicated will story where

underloaded. caused in said demand light, bit prepared may be like remarks, little EML I As which continue looking had to Japan it’s a be to substantially the be

QX. So do little seems time bit. be push Every to expect days. that I to XX it to we supposed at it, in get out a to It look was

going before it’s down QX, like days. we be XX to it’s to Now looking get

Alex Henderson

of you’d reaching third Does out if profitability on expected – pressure you’re had have that outlook it? quarter you XQ second an of that? having doesn’t? in that EMLs margin piece if that what’s to to prior your cause some or does route does the expected for then? expect – still an the Is And rebound think something that negatively And you period in or are the that I fully think when then be impact time? of environment for the had is, of would when working of difficulty, that impaired of the I when more that be inventory, you short time extended period

Elizabeth Eby

part compared go me hit our was of about I two as not to a the the question, of ago. the everything. just we by nearly end on where let So does it’s months a last year, But big point margin it had or the gross breaks few it as expected just the to first which at is, what

story. Now it’s more a little nuanced

Alex Henderson

I'm to? a quarter not I'm sure you're the referring sorry, mean which out-quarter? to in or in two the or say third period you point

Elizabeth Eby

In QX.

Alex Henderson

assume? Q, point and or than that less A two in substantially I in something QX X

Elizabeth Eby

the market the when prepared Tough to on Tim what comes say. to the depend back, but talk the EML. with can fairly dynamics the – is I we to current more revenue for are talk going volume of and bit it’s demand about Japan it’s – what’s well and EMLs factory, a to soft, quarter on and going little can upside.

Timothy Jenks

Yes.

a if, things be in forward path share to on certainly, as because And decide Neo. could ultimately, will loading. could it customers of result, be is China shift, difference – addressed, to couple certainly meaningful the it a as consider loading does in make So – beneficial there it are their

EML. we Simon, XX have previously in actively for forward, been the demand going both, asked respect gigabaud with prepping to as you So and

a event, GB there, that, And the be matters. legacy are there, EML expect that the range we the will uptick not XXXX remarks of overall But XXXX. on for reason to our lighter of which EMLs really ultimately, XX be make suggesting a a rate just is prepared we lasers but for products effect for so loading

Alex Henderson

the Can question, you an last update floor. Multi-Cast? us just cede give I’ll on and One

Erica Mannion

Sure. Multi-Cast of our we’ve expect versions are so Switches, a These trend to And steady over several selling demand now the got on marketplace. and we see Switch base that different qualified upward being additional products and are several an in would of with customers end-users, expanded customers the them continues to deployments Multi-Cast grow. quarters. to next

Alex Henderson

Yeah, I'll see that. Thank you.

Timothy Jenks

you, Thank Alex.

Operator

will from take Richard we Craig-Hallum. next question from And Shannon our

Richard Shannon

want Eby. well. you for questions Tim Hi sales with really simple on demand qualitative question start can give great, quantitative us and U.S. or second if my you the guide be discuss taking thought any to here there I rest here. to quarter world? for quarter-on-quarter would on process the a I’ll growth your if And well Thanks the of wonder China in please? relative on that the Maybe from as as

Timothy Jenks

from to quarter quarter? third Are you saying second

Richard Shannon

second. and quarter First

Timothy Jenks

Okay.

Richard Shannon

In your guidance.

Timothy Jenks

Yes.

for So Americas region, pretty demand particularly we in North quarter, America. we’ve our do second our strong seen see that

higher. customers said a the we prepared in volumes indicators bit they some do that I be As expect from have to remarks,

good. reasonably think, For that, I that’s

more some said Americas Beth her and traction quarter. XX% in quarter that the remarks in the the second so were would think first expect of I in we revenue,

and plans indicators shifts that if Now are the of on denial others. Huawei I don’t expects we scenarios. customers. with and think, one of in that would there will be upside us beneficial to clear Certainly, China, then again, expect downside from stays order have directly yet their the But to place, share I and respect existing net-net to that could continue

Richard Shannon

I of helpful. coming probably Ciena? from first. That’s in the question quarter Okay. the sales first should But percentage this ask what’s

Elizabeth Eby

XX%.

Richard Shannon

Perfect. sounds and sounds topic last it about I both China, coming like like the Huawei broken? in lot – given Huawei quarter any customers talked on here, few from those have count numbers port Or of right. you news Have a are you that All XX%. they on know in it Tim, of since you general. not in giving now? uncertainty. weeks numbers the your ZTE what right about trust just you updated the do last and China what

Timothy Jenks

discussions, any lots actually, customer Well, we’ve what conclusions state clear but had moment pretty aren’t to share at it’s shifts. are. of difficult the There

do there We customers. and it be have go. potential directions are changes, that there will talked We expect to can all that the

the ignores leading with pick if to shift, i.e., is that in able then less to share four the expect to would certainly, companies So pick one systems potentially and others China, would up one down plan, some relative the Alex telcos in up you assume logically not had or nuances mentioned, important myriad details. ZTE, that proportion, the the whether of and but is the of equipment interoperable; slowed whether as all actually their

last information differences, to same conference no So at port we clear no and call conclusive that contrary. in our really the with the forecast had the we have moment, count therefore,

Richard Shannon

question again company the demand discussion help little EML go understand and it you the me. to the think, Can here helpful. lasers gigabaud, and another issues call Okay. a the the through and situation? that XX That’s I Last there. for reporting was late bit got due missed what’s in I I me about

Timothy Jenks

transceivers think, Well, There increase Yes. photonics-based briefly are lasers the see essentially Those reported, our well. is largely some output silicon in business. laser changes having been Japan, just that the do in we challenges. and of in last we types we used in remedied, changes but being are I as between that the have some call

demanding talking the For most we specifically modulated applications. are lasers. and the EML EML really us, used electroabsorptively lasers. being about in They’re they’re high-performance lasers,

it’s to power PAMX really linearity has And wavelength these focus and our moved to range applications. take XXX-gig dynamic So the an of you’re advantage EML. using per of for trying – the

that, do expect will able per by We’re XXXX. laser, of there XX single GB. XXX XXXX, that’s for we growth so But on good in the to a is wavelength. that GB And low XX-gigabaud bit legacy be a

what explaining. So were we that’s

Richard Shannon

it, Got okay.

will questions I other you my take offline. think,

me. from Thanks all that’s So guys.

Operator

Markets. take from will next Northland we question Capital Tim And our from Savageaux

Elizabeth Eby

Tim. Hi,

Timothy Jenks

start, We you beginning. at weren’t the again. can Go hearing Tim, ahead. you

Tim Savageaux

me now? you Can hear

Timothy Jenks

Yes, we hear you can now.

Tim Savageaux

basis and the you’re estimating, some Don’t Americas' direct that guidance terms to in of should in not The there. have QX, – I – mean, way strength. of or that know know, QX to grow a the what X% what don’t is be I on extent, enabling of specific frame something, through year question as it second light and about happened digits of a time areas precisely But able assume to may to you’re and the talk you at can you’re mean be exposure, spoken mid-single to already could about for X%, of which that, I Great. in the indirect I’m to of certain that sure you’ve that run-rate the we wonder extent exposure? if I look to in is helpful. up for you I’ll to would growing to kind that’s you to disclosure That X% elsewhere? ZTE that? and – both do And quarter kind previous your kind impact – low point sustaining

Timothy Jenks

Sure.

strong be low and from most Huawei outlook. describe expect talked we data the well come one in related ZTE North has from year situation That as into has account that, the there. that does that, really about are We’ve release been America we demand expect of that into center not really the China. digits accordingly. ZTE planning would that And that revenue happen as in likely year. part we taken single perhaps metro had So growing press applications. North through revenue, be annual is, strong been to and will interconnect the will America be through our denial and did expected do in our order, total we X%

incorporated for And in that we’ve extent, so second to some quarter. outlook our the

beyond is strong we in said, visibility generally earlier Our limited, that but pretty first North do which, as from I America, XX% was see quarter. demand the

Elizabeth Eby

while we growing they to toward on but have were always any share Huawei, And yet shifts add helpfully this on not incorporated planning Tim, year.

Tim Savageaux

growth what have you my there also forecasts of you meaningful you where about question, any metro nearly into of slowness. it. of kind kind of a in question, that some and And might was is, outcome don’t and the described which But XX% comments on sort quarter-to-quarter. that heads the scenario mean, overall moment, potential kind into number it I up customers. that’s second acceleration a a of some that of kind described Americas' post – there? heads which looks I excluding And my know like I where kind year-over-year. and amongst you there? scenario are At – some is, second number North the described your be of overall potential Got if maybe guess if time, growth I in navel-gazing ZTE for And same some DCI China that even in guess

looking at So to relative I guess, on that how OFC you out net-net, where before? at you’re do things, come say, or

Timothy Jenks

So in in parts: and feel let me that that it, the we changed of do case how how OFC. two – about divide in then was

bit, and from stronger bit OFC. has North of I of say America the possibility shift, a China, largely same, China being slowed. a since Net-net, think, programs that, tempered that sum there there’s Our it’s tempering, a about share gotten reason a stronger tempered view I is has bit talked but probably customers OFC. the bit the also has possibility and gotten total The perhaps. of

it’s down. in fact, might, that taken to it’s It gone difficult gone So say the have up. two together,

so down. And China to a America bit North up, flat

I think, that’s sentiment. our

Tim Savageaux

next me, customers your X color Got and you XX% it. you in provided on And final the question but were for some mentioned Ciena, aggregate.

back you some out the on be what seeing growth color type group? happening specifically call And the there might outside I Given if kind maybe I’ll any four more among that you’re might of they picked know rest was sure provide potential much next even share not wonder China, of of – up of Alcatel-Lucent less that in XX% were a the customer I and – stands, China, to have day. in they the seemed but world. the I’m where some

down on X and that talking sort what spend list? And your OEM top minute growth maybe So you a you could about see there? potential applications of customers other

Timothy Jenks

all XX to really of do sell XX equipment we the Well, network to top companies.

think that serve, been modest. that growth has rate I years last the quite so the the of over overall they in market And growth the of rate collectively several

Certainly, one respect we Huawei is those out, our both companies. minus. you for share that the global gaining are with a And be able well plus we their do extent so a And both and to rightly customers, and there over point Ciena, which done another, share. largest feel that have to is reasonably fortunate two business to are partners of to

beyond other Huawei. in have also market, We China certainly, exposures the

chain also both sales to direct partners. ZTE, supply sales to ZTE We have

to also FiberHome. We sell

We Alcatel Shanghai also Bell. to sell

over out be than to helps. up so customers, that, predicting hope shake And Chinese other that I the the pick we share, will early do. it’s for that But days benefit difficult is think could that how extent net time again, a to other NeoPhotonics. and that ZTE,

Tim Savageaux

It thanks. helps

Operator

Instructions] [Operator from our take next from question we’ll Rosenblatt. Jun And Zhang

Jun Zhang

first is about question the situation. fab the Japan, So the

solution is competition are competitive EML when EML market, a competitors? you you ramp I gain your the with help increase key think production? have also, could what of to low- compared the current in cost And price you kind So still And back markets in what a for you the when other in And start to have NeoPhotonics laser? ramp production advantage the from QX? target – do lasers share with hyperscale

Timothy Jenks

to Sure. Jun, of with are that one several particular, type lasers in sell. of respect lasers different we EML

of go group lasers lasers, are course, largest tunable Our that of circuits. coherent into

lasers, We a number also of sell which EML have applications.

support to shorter-reach types transceivers. different applications which arrays, photonics-based of DFB and We also silicon DFB include sell

this applications. DRX, DRX, the is So FRX

portfolio. of types product different with addressing are laser applications we laser So our

products – higher the demanding EML because used are performance, are For in generally more applications. they

very have, range said dynamic linear very the power. I got and performance. I attributes good earlier, They’ve they think

So essentially speed the in be they to tend higher- applications. used

products range move and allows being XX so PAMX combine rate And have data to products a gigabaud, with of wavelength. on solutions single have able at XX-gigabaud which gigabits a toward we you XXX to

be XXX single XXX it a at et GB, wavelength can GB, be for can in that cetera. Xx XXX So

new in. forthcoming designed of are these the are some being lasers so applications, And where

Jun Zhang

about question it. is And China second Got demand. Okay.

expect that in the second you QX? China do also, in So China of business to situation, without trade still uncertainty the be up do this year? sequentially expect half perhaps continue you about or growing And

Timothy Jenks

question, big Jun. the that’s Well,

for of as conference our range XXXX based count estimates port on XX% deployment on high-speed the we call, the rate about in the – last from each deployments our above customers, think of plus volume talked was the I in of volume we growth XXXX.

be described if So you delayed, believe may things if it may that customers by which closer then, flat that would could price, flat. assumption to business be start the forecasts, their the that And tempering some you offset as you down. slightly I up. you But get be to with

So that’s the GB possibility coherent. XXX in China plus for

growth, North Now Certainly, there port that growth. certainly applications seeing other and DCI, we’re their and are in growth. are growing count metro America high-speed the case in deployment absolutely port

scenario with the in schedule to their also there’s with a stay port growth so it but deployment, scenario, North to makes And on that changes China seen. positive America could where be and remains together be

that hope your addresses I So question.

Jun Zhang

do Acacia’s competing is think size Acacia think launched Yes, the a thanks. size that, I margin? could to line with with any you margin And last your question base client which little compatible size line the is at OFC, is And from the line offering margin? on size client margin? margin you’re Thanks. talk also, line they’ve that line about you interest size bit

Timothy Jenks

couple to parts that. So

them a it’s qualified a – are And have of we modules. number showcase relatively because China. We customers We early a DCO that of to lot we’re I Digital are some called at And used think although Optics modules year. it’s of in surprise not light these Coherent did OFC, the so- referring days. have last DCO, Volumes today. we introduced

a does are And of and And decision the so they reaches. soft they meaningful what impact correction. operable in interoperability, longer overall generally of the have interoperable be. ZTE the consumption DCO denial some in hard the less to I reaches, With respect will It’s think, function order, on error shorter modules are operable.

Jun Zhang

Okay. Got a it, lot. thanks

Operator

[Operator Henderson Needham. Instructions] And take from will we Alex

Alex Henderson

of Great, numbers, of is demand declining? the hearing strong could spend American/European say long sense indications of us you lot long background relative providers, between you If we’re long But thanks. give happening in a yet fund Are environments. environments, look deployments. mix CapEx growing not very some the search still How Or in that seeing some haul? these and I haul growth in haul they’re those? there’s taking balance was flattening looks metro would is think we from that? growth between what long-haul hoping deployments they And lot. a if at to North are metro to or the you of of you

Timothy Jenks

for and we – what estimates. west. Because, if start numbers hyperscale Overall CapEx. the Then principal the AT&T, Verizon generally Well, is the now move as strong time. with CapEx CapEx Google I’ll speaking, the to eclipse we above seen been recently pretty strong. We’ve let’s has carriers, in data centers, Verizon, We’ve Facebook coming seen see. certainly, first the really, had

that, that on generally market a customer-to-customer information. light is versus the is probably you aggregate the a would can’t is long can’t speaking, – reports distinguish There much have I spend across Alex, the so there shed it. I be from similarly answer on good on give And and the environment. published a because that we what best information metro. haul ability It’s on strong CapEx to would

Alex Henderson

thanks. Alright,

Operator

over questions. back I’d no call like further there the turn And to Jenks. Tim are to

Timothy Jenks

thank to you progress everyone, much. Have the good I for you, interest near NeoPhotonics. to our want you and updating evening. in forward on in We time a your Thank very look future.

Operator

conference. participation. Thank your today’s concludes That for you

You may now disconnect.

Neophotonics (NPTN) 8 May 182018 Q1 Earnings call transcript