NPTN - Earnings call transcript Q3 2018

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Operator

Welcome to the NeoPhotonics 2018 third 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' the XXXX of for the results fourth to XXXX. quarter third and us you operating discuss for quarter Thank outlook for Eby, Chairman today CEO Tim me Officer. Jenks, With and are Beth Chief Financial and the Tim on quarter, of product the will discussion color initiatives. a third review and begin a new with of market Beth providing the for of XXXX. the provide fourth results the for financial then outlook will third before quarter quarter questions. before turn then Tim back opening the it for remarks will Beth for call to closing The management's financial include and statement company's and unless discussions of and information, income otherwise call press during this revenue, amounts release statements all other sheet certain measures and than noted. percentages non-GAAP balance including or financial in financial not prepared of measures with and performance accordance prepared non-GAAP in are are to substitute superior accordance measures GAAP These for GAAP. with not a measures are results NeoPhotonics the related with These found can to reconciliation release provided website. X-K be in a the being financial GAAP and of company's the filed Relations today section press and Form of non-GAAP and SEC Investor the in Material is property NeoPhotonics, of copyright reserved. the all webcast rights contained and with sole in the demand, Certain involve levels statements may subsequent and statements this forward-looking be and historical inventory and that and technology sales product projections. statements events, and not results, facts, customer considered and conference needs call, which include levels business availability, regarding in profitability, future uncertainties of risks are and industry capital development, economic differ to results actual cause materially. could factors Various

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

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

Tim Jenks

growth of revenue In strong the the million same last at $XX today. of approximately $XX of representing us the year. period third million, range outlook joining in XX% with and delivered for million coming to our over $XX quarter, results you NeoPhotonics Thank midpoint

demand growth we optoelectronic leader broad-based for communications interconnect datacenter the network solutions telecom applications, speed highest a solutions. for are As and speed high digital in seeing in networks our

third stable which as It of timing. Metro to China, deployments. as the quarter, Demand uncertainties about our saw data result well exports during note, was and High important is mix that We and certain including across revenues. used gig quarter, geographies. Similar changes, of the the Shipments DCI, quarter, as in XXX products continuing tensions in domestic prior are the XX% deployments Center to despite XXX in tender strong for in Speed all as or new of gig networks, China remained in Products high-speed to some with not which but in demand customers trade leading and product outside the strong passive ZTE resumption orders Data During often are increase China coupled rates quarter slightly, of from high above were demand going we Interconnect, driven of demand remained saw our when vast across comprised forward. demand Speed. High above environment western our products signals classified lines, speed for of chain an supply partners, our majority as a solid well used the the a by up

situation NeoPhotonics from and supply, of in the and continue other monitor potential players suggest closely. China industry. US the that see securing trade We actions customer both do to key some We

buying. tracking well strategic closely purchases are to mitigate their inventory We customer help shipments as as

in broader across the strength growth macro-economic combined margin in to picture. with basis expansion quarter. points of view volume various With achieved risk demand, increasing continued to the gross product XXX we lines, continue We larger the be

in leading capacity. major being tunable of second gigabits and European At featuring transport develop much OEMs, or reduce the publicity by Communications XXX our Conference gigabaud our products, used of to the whom wavelength speed approximately were XXX trade components coherent required products, month half, per last multiple coherent system ECOC, of customers XXX show, highest receivers, for optical products per currently linewidth of optics lasers, in by developments and the at that size ECOC, Optical Italy. and use suite modulators Turning high of the next performance we including systems available XXX gig systems, while wavelength several which to gig generation Rome, XX levels our are with on transmission. coherent for focus also highlighted ultra-narrow are Such per

with XX cavity our approximately factor. linewidth power our electrical tunable operation size these receiver form with phase noise XX in Coherent coherent speed qualification. in ultra-narrow Subassembly, products gigabaud March, linewidth our again next conference XXX line coherent managing at gigabaud the optics densification external demonstrated product another center product a laser very the trends leading compact or And Optical and coherent and cuts Our featuring COSA, in integrates see in Further our on a half, currently demand OFC high and centers. side, CFP-DCO Similarly, cost-effective last driver-modulator consumption. pluggable both We low Multicast module. incorporated low industry while fiber this the a customer and with generation for Nano module in completed line into individually we compact data solution data offers telecom as and strength Switch gig shipping scalable in major our applications, line both

Photonics applications, and we for laser For for EML our see modules. our transceiver increasing lasers data center client-side reach shorter based Silicon sources and demand

amplifiers. In and modules, EML gig gigabaud suite single EML XX addition we XXX drivers, laser, for introduced along to wavelength, full an uncooled, transceiver XX of lasers, based components gigabaud our non-hermetic with PAMX including XX detectors a trans-impedance have gigabaud

offer we Beth for I over and Silicon per gig XXX financial as silicon based for as now are laser drivers sources will wavelength detail For wave on performance. we modulators, modules, the turn further applications. well non-hermetic to light call receiving provide our orders now Photonics continuous to

Beth Eby

at we our we our remained financial Tim, cash inventory target gross you, were In operating metrics. QX, morning. leverage up good Revenue modestly, met and free Thank increased, and again flow positive. expanded, margins was

Americas of year-over-year, third was and XX% and Rest customers outlook, company’s XX% in last up approximately to the China our was locations. as of revenue revenue contract in-line of for both mentioned, in affiliate the the in XX% with HiSilicon and million, quarter, the Technologies, approximately manufacturing $XX.X XX%, the quarter. China. our our with its and was including from by line prior Shipments the Tim largest XX% Huawei represented shifted Americas accounted driven the year. XX% World demand certain in of strong customer, XX% revenue, up represented As QX Technologies, our

mostly fluctuations among customers. X from total Our next four our to of XX% XX% QX. in customers The due represented inter-period China was after down customers reduction revenue, in the Huawei Next

X revaluation, quarter-over-quarter gross non-GAAP the mix from on a this, XX%, was primarily manufacturing costs fabs. toward and points Our approximately of approximately about expected were in margin absorption X our third improved points charges, QX. in inventory of and cost of other of about Within were sales with, inventory charges, margin higher and products. quarter laser primarily X as up charges margins shift points excess XX%, write-downs X% up X Other points product approximately under

or of count per In more share for to gross than of driven to the charges. a Interest X% million, was quarterly a on gains customer quarter expense milestones. loss $X.X of in the operating margin interest of Based million met million this improvement $X.X million, compared quarter. to the million in the share non-GAAP third quarter. to than loss loss diluted and quarter $X.X as fully third foreign $X.XX third shares, expenses, Other, lower revenue, X.X to net expected, offset translates $X.XX, for loss second Moving by X% million Non-GAAP total a compared negative in exchange negative NRE compared was QX. the in operating quarter we slightly in was loss of the Non-GAAP $XX.X operating non-GAAP QX, XX.X

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

expense, XX%, in to a Operating third litigation up $XX.X which million Third compensation, loss primarily stock in quarter. settlement net a expense prior of million preceding settlement $XX.X was quarter, loss of and due prior for $X.X XX% up acquisition-related was $X.X the charges. of million to margin was litigation Operating $X.X compensation a quarter, restructuring charges, million the Net approximately quarter of of the amortization the restructuring included charge million based in $X.X loss million intangibles. $X.X was from and million million from quarter, compared million the gross of stock-based $XX.X $X for period.

loss XX production due XX strong $XX on-hand, the inventory to This generated expenditures inventory. was Typhoon down million in $X down of the investments quarter about days of balance was finished from days and by of approximately million second capital after to repayment Cash China Mangkhut. were target $X debt. demand the and on and million, two days restricted we lower million cash, million quarter $X in sheet, second the operations of of quarter slightly with Turning of the cash, inventory million of from Net $XX resulted $XX than approximately million. our in $XX

free As cash million. a result, was flow about $XX

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

we For outs quarter, the demand supply additional plus see solid domestic and chain Americas, to to its build partners. in fourth China, the expect ZTE continued in shipments

as the XX% loss $XX non-GAAP the approximately to a QX GAAP of in shares. earnings million XX% per in These flow for revenue expectations profitability. in numbers range range XX.X diluted to that we of reflective share in of the QX. We and diluted the margins million, remain the cash, million will of these margin in to the in on gross Given pricing margin factors, December A are Company’s gross $X.XX negotiations of that, XXXX. non-GAAP remember are: and XX%, to range XX%, range will earnings an points range mean loss, diluted fully share XXXX quarter lower and be that $X.XX revenue ahead of Within $XX Chinese annual cash the to per focused $X.XX in few to Year $X.XX look New GAAP profit.

year, factories tariff added in result but through tariffs will margins of in will on in make point current the remain XXXX, goods for supply the X to rules China. in long approximately we US charges and result will components in as the place. as increasing cost recover in that This percentage sold As our

we and on up, is is gross we revenue free for expect margins flow up the the next inventories I’ll also Tim. QX, to remain turn on generation increasing, be products. target operating quarter. the increase investments as now through slightly to continue R&D call were leverage We year, In summary improve, cash for positive to back

Tim Jenks

Beth. you, Thank

profitability been communicated we the our success. to our focus outlook last As and have on has and demonstrate that results believe we we are over year, having returning

as multicast execution gig, demand for XXX in successes digital multiple about We to gig multiple for would in beyond. formal introductions, which actively have we toward higher adoption product silicon on momentum see markets, core our position. customers well certain our extend and metro-edge XXX architectures we cable favor, products to innovations. even This and also the as through and metro to operator and enthusiastic believe as And to I gig the and ask Lauren? continues beyond LIDAR continue we our years. speed our engaged questions. center telecom, the for focused speeds telecom concludes leadership as photonics XXX With XXX application we and markets coherent optoelectronics for data our suite the applications, returning of such far which in and center to to gig, thus advantageous like interconnects remained open both expect over move high-speed with now Similarly, fully product line Industry growth as we and NeoPhotonics as to and push solutions of on in drive to in position the comments for the with market trends notably are extend above our an well XXXX of our highest strength build in TV adjacent opportunities industry in up contentionless the data places networks such vehicles. coherent to are autonomous switches

Operator

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

Simon Leopold

to offered the want the follow-up on I tariff implications. on comments you

got March. quarter down to being offered suggestion implications I X of the So if just I up December the seasonality overall have making an to interpreting quantify? customers to think, you before you gross I goods then like customers Tim, into pulling margin? And of on or some some in make Chinese understanding may coupled commentary in can alluded may also, sure for be that tariff drive Beth go you're improve the correctly, want tariffs in about on get sold Thank cost margins light I'm some some and your that to but obviously what March, you've of that point. gross efforts you. understand theoretical I'd expectations hit a gross margins with XXXX in are the

Tim Jenks

Thanks, Simon.

there point, and monitoring demand monitoring there strength. limited are we're situation, demand are situation tenders So announcements tariff we as on is supply both the first well the of new and the as

there's of customers is. make of all because any some OEMs that the to. mitigating shipments So I And are the just with shipments all they inventory the their there customers of tariff try think situation, Chinese issue management they’re balance in to understand situations, risk what trying to the from versus to is exposed are sure and

So we it closely sure appropriately. managing we’re looking make similarly to Beth, want to you go? are

Beth Eby

Sure.

pricing implementation actual in are while US, coming US we mostly as by fabs hit to that are nothing expect Those to do a the next and the premature that's the last for margin deal know, to US. affect tariffs just give don't ship us of the being in are that guidance China. XXXX the we've the The we directly to and and It's year. on into the shortly. we in contract gross here that's material make ship that -- the as we the of don't outside start know take And we US a tariffs manufacturers a great those because of time, the seeing Americas, couple that's the tariffs, that one got the I'm in of goods impacted of because product shipments great are we speaking we the outcome margin gross said you will negotiations yet. overall deal, tariffs not have we point until So going of

Simon Leopold

just if wanted XX% to get and Did customers than another that. have you detail question. some And housekeeping other so Okay. on Huawei

Beth Eby

We had One XX%. customers. We another Huawei XX% XX%. named had at as two at one

Simon Leopold

A usual suspect?

Beth Eby

customer respect not and them. confidentiality I'm name going to

Simon Leopold

of or last wondering identity get of I the you question aware kind may the final as Well, of have not of for customers, and in of but Japan, you by new so maybe key your drivers we’ll your India destination whether the be the I know deployments strength at your that business. out opportunities customer, Germany products just but see

Tim Jenks

destinations. don't specific We use end the see Yeah. always

So, confirm we really can't that, Simon.

Simon Leopold

customers but are. your Well, know who you

that if those see would customer with doing So assume I associated you that be well, trends? that would

Tim Jenks

Yeah.

I think that's accurate.

Operator

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

Alex Henderson

you look are Thanks. Can share we If easy diluted would your fully start count we with assume housekeeping? profitable, like? just some what

Beth Eby

profitability. we get once XX Above

Alex Henderson

over going points EML in still second, that absorption of fab. to And two the a All right. piece for

the look XX adjustment? ramp So, products, is and what EML to of products eliminating other think timing of your forward gigabyte the you that related as do we

Beth Eby

is should on the going see how fast in We will we of customers that it biggest one part second can depend QX. the of know ramp. That We start in XXXX. -- the the do be ramp to half to

Alex Henderson

adjustment points fall and to the of Is by in about of then point So kind way a half. the the it? that full out right two maybe first second think half the

Beth Eby

as I think as good that's any. an estimate

Alex Henderson

Right.

your it up that at be of what's on second, you're it I still of the couple product, MCS assume in of How in And think point? -- the we capacity size constrained is breadbox that available terms about then seeing bigger quarters? this product? the of of of kind to do ramp terms than that you're the In next going

Tim Jenks

volume just a we're and So, little can is center adds, lumpiness. it's The point, still At be data single you digit if the really this it will, center percent, lumpy, has the here capacity. combination -- telecom the single data overall digit a by And kind what in not it of of applications. but percent. limited is high because it's

Alex Henderson

That's So longer no Okay. constrained? good? you’re

the should improvement the market feather line? top in rates or shares, I gig given The and substantially how drive be to next other to we components is, XXX over impact cede where to some ramp that ask floor start -- and that higher question you seem up two that wanted does XXX in to winning then of when the start materially three growth quarters, the and the I'll

Tim Jenks

a XXX describe gig, to let's things. going see. Well, couple different of I'm

above, line gig, side side, so gig includes XXX client which is single XXX the gig the at gig. So XXX generally the XXX on and certain referring wavelength broadly to also applies and to XXX devices and gig gig XXX

today, XXX products also which of revenue, we We those are think low just expressly a rated but a of at kind include have actually either higher XX double of are or should being maybe grow is digits gig at XXXX the are XXX time gotten clip. and very things expect shipping that XX% that at half but would gig to I think XXX actually gigabaud we or thing second things things when that these about to gig,

Alex Henderson

thinking this? gig to slowdown in that those be market move? significant in would like lines shift share substantial in we the into shift space gaining pickup in fair the It within So offset mix as -- share a about substantially we be as components should say how would gig products, the high it offset XXX you're the growth sounds XXX any we

Tim Jenks

way XXX-gig. the in slow really we're of really a Well, I'm much on not -- think I not expecting down

XXX-gig be who some launches. I serve think early might we in their customers

but XXX XXX expect gig. to competition that do see you that at is additional at really XXX XXX business over the also then gig, the additive time, and gig gig at I happen will So

deployment just expect above, XXX in we the terms the would in though, and higher of gig rate second So of for of half of deployment ’XX. the rates

Operator

next with And Richard we'll Shannon Craig from Hallum. take our question

Richard Shannon

generation? up a taking what looks Thanks your gig and of kind guys. what as Maybe versus for in higher the indirectly, of the gig share here follow saw Tim speed asked you Hi, in think do specifically the maybe XXX well. last my question more had XXX, couple XXX like the on you questions

Tim Jenks

essentially, a of is share so suite gigabaud do modulator product remarks, Market full laser our XX components, and have and dependent we really prepared in we as said driver.

share to I our gig has as in think, laser low those, the think but on in alternatives that narrow pretty because, doing I that the is XXX line are within really noise higher related. high overall, share a and with do win We don't phase just the other products well market design we're is to there enjoy process.

Richard Shannon

do stress that prior to relative specifically in gained lasers, and Tim think I’ll you speed bit Maybe lasers, on generations? here you’ve little a the share the ask higher

Tim Jenks

the I Richard. think to answer don't we accurately know that

Richard Shannon

Okay. That’s fair.

as know of half second start much and nicer in from volume, the that soon? ramp Let me talked happening the do and next demand the capability that quarter about I a second the of specifically in XX-gig jump can XX between delineate revenues, see you to the you over as Maybe both EMLs, and maybe well your you year.

Beth Eby

was commentary gig. XX, all XX My

So Tim, – you want to

Tim Jenks

Yeah.

see in comments, XX increases I product. would think out gig the we XXXX, of looking all in Beth’s

gig the I think is demand. reasonable today. mainstay have We XX the do

conference our supply and partners that back come EML said lasers we XX as among the call, orders through gibabaud. those shipments, into chain in prior have the are would beginning we and I into do chain sell principally products supply think that ZTE be as

XXXX, get second of the mix we'll both of a having products. So, as be we to half

Richard Shannon

are cash Beth. just quick Maybe one in quarter? question for December the for helpful. is That financial Okay. flow you expecting What

Beth Eby

digit We're prepared little a single back I for finished goods working we’re digit our up. do expecting trying going CapEx, little to We're exactly a get, get of inventory inventory. built moment. to in the as We're capital to we're mentioned remarks, it’s at single the how the light on me speculate trying inventory low CapEx and early and on to some on

negative So, fourth slightly we in could the be quarter.

Operator

from And question take Company. with our Najam we'll next Cowen Fahad and

Fahad Najam

are issues I I largely facing repeat apologize you’d if in the late, I this joined if that at yourself. remind for earlier, call this to apologize the those addressed so behind those us, you But can Japanese you you are asking point? a guys bit fab,

Beth Eby

that absorption What the said remarks, fabs in prepared laser two we've are was in we be -- Fahad, going our about right now. got under we to of points

than happened the So, like certainly behind us, the lighter issues but in yield QX. -- slightly is would we demand still are being

Tim Jenks

we things loading the time of I tell is the last through also, say would increasing would is and did chain fourth suggest continue supply happening, Yeah. the that That that underutilization we quarter expected case take then and shipments the you the but have we we quarter. to to ZTE did with up. to that these more also resumption ramp

I we're quite overall, the so yet. right we're And trend, there not think but on

Fahad Najam

concerned incrementally an are the ask technology Chinese should questions that I not broader today, the customers listened for to ask to if are suggested earlier maybe seem of that indication tariffs kicking to extent were I that the broader to good I but Tim, gap. the to of suppliers orders pulling are in investment But you in situation, get as you take community gaining a indigenous the narrowing some more have you as and if maybe ahead we view more in. to what question. a you be in share the

Over China? the in have the any competitive months, few in last noticeable seen change you dynamic

Tim Jenks

I Fahad we're think, talking point key is timeframe the the about. Well, that

really couple last no, seen haven't at we months, all. of the any change Over

couple quarters even last years the last of Over the trade and of tariff two the didn't the ago. of two entire and or discussion years, last extend exist we couple course over the if quarters,

all. a competitive on in relatively at supply angst all get situation. working changing timeframe, chains they are technology a based some broad to their the do companies tariff difference so China even But wanting question our over about some short Over of are is quarter-to-quarter But, I time, on change that think long competitors, have secure it major or customers more the and a year-to-year, new are level of hard longer the China much in about companies that's and isn't And they small. so make have haul. a sure the large and they that

Fahad Najam

I color. appreciate on ‘XX plan color a and ask from may of I are still in using on the little If starting their revenue modules, ship modules guys where on bit the on question provide the are for in you a partnership the DCO Ciena realizing where track these the to terms you also can with stands you of DSP.

I was its that supplying to Ciena this a end making may think, not maybe Oclaro might of there bit license, itself. suppliers pursue post modules ECOC up confusion DSP citing

So any any update? color there,

Tim Jenks

things. Two Yeah.

DCOs we've half since been shipping of actually last second year. First the all, of

helps. their partnership NeoPhotonics is announcements finished example, specifically actively transmission selling the DSPs. actually that on hope with They It's do the any actually have With shipping gig large companies -- and been customers we numbers and an of winning the in have The started the not partnering and made end has wavelength, been to shipping around with shipping we've last so not Ciena. we announced Ciena track. we'll So, additional and that actually for been modules, engaged active that that about on that. partnership, XXX partner respect actually single continue this engaged actually we're level. modules year. year. are I Ciena module of so We've on all Ciena it's

Operator

Capital And question our Markets. from with next comes Savageaux Northland Tim

Tim Savageaux

Congrats results on especially outlook. and the the

of can I seeing perspective some questions heard and think, And of rest what Let’s can to you that comments reasonably sort tie you about or kind start and if whether And been into with couple what extent And from of I'd also including deeper some of maybe we both suppliers of to a impending develop of up here, of activity. a builds wonder, some activity rollouts? kind delayed for for you're customers. ask activity may from as into have reports and positive follow from And high China kind dive catching ask mentioned, demand there. of to metro XXXX? China XG we more the world, could China tender that this question level seeing too. there recent a you're I the demand in your We've connect some that up demand of other you out I'll throughout

Tim Jenks

Okay.

are situation the the number status Chinese of X, of tenders, number in status key and China, So, one points suppliers two, number XG.

So, the and the and we to closely environment national the in tied. are What with these tender continuing past environment referred think action I builds. backbone We the is with calls supplier build deployments. domestic see provincial

our So been these during releases delayed. was the we continue, from during that still of number were that ZTE have things in put course essentially tender ban ban, And might of process perspective largely but have the and a working then resolved. we ZTE XXXX the up is did the place the situation in of believe then of to catch

so to And the domestic waited situation essentially for market. be ZTE the resolved, market the

catch year, very working XG, is now there that really ramp respect with not their hard that specific supply that activity some tell so with to ZTE but something start With volume some for we'll to very good is on hold early this timing were up see you in And about. months. for on partners visibility we XXXX, have to things several is chain

Tim Savageaux

that that with XXXX. levels saw QX kind if and sale, I of you I consider you back demand at well toward in environment, you're mean, guidance the think for And the access look

been here real the OpEx there, to the disciplined you’ve delta is as side gross on I think from pretty margin.

product be expect guide, math is So you through the how in the say, point offsets XXs? for somewhere of where Beth, be margins, to ’XX, which progress do the margins I product XX guys expect wondered product if lower which intersect a is at sort you with and you throughout what of terms might to what same that and in step mid-range the margins could to

Beth Eby

with So What price the the price -- and QX, the in every the fully initial in margins a we them see of get then couple of to of year impact points in product get reductions. always we drop start do beginning you December you the as out reductions, they QX. to expect happens play

will had bit other get we and we the charges. to -- down then of historical margins you we've go product got So, numbers, points X of sales, cost expect X always type of through a come to, and little if to always have

through not that we couple somewhat we overlapping a fabs bad to points and of that's we've absorption on thing but have keep that, our of been modeling the under So laser have a discussing. then

gross we, to both expect tariffs as mentioned, of long and expect Going as reductions we the as get do into to usual, but little forward year ramp as through continue I those from we place. a remain expect, do bit improve, margins in through cost we impact XXXX, as -- -- and through

Tim Savageaux

Got metro on a final datacenter of that's focused it. the your both just and me you for single of mentioned follow-up deployments. heading and think that into sorry, this multicast high then, and some a switch of business the parts as contributor notable it's and And is kind emerging I digit

intra data gig another call If pieces, couple let's cloud, of center. you and take emerging inter in XXX, XXX say it, both

at level three we those total of to business? it, approach the you addition contribution of you the however if in are aggregate what terms want In to of or MCS, materiality

Tim Jenks

earlier, you above, data -- the the the Yeah. gig thing the then -- up, those start And switch were other at think XXX percent. takes highest and that and and respect level. I high plus XX% to and Well, that, you with said is just I XX digits kind adding single rates, of to multicast with

XX% So, let's call XX%. to it,

Operator

Kang with We'll take FBR. B. question our next Dave from Riley

Dave Kang

Chinese the on is question ports. first So

year. it for this year and XX% is you’re your view So, next expecting what's still -- growth

Tim Jenks

We guidance. any given haven't annual

So quarter quarter. I we'll just to think, guide

Dave Kang

revenue over some other? what go guess, then And speaking comparable Okay. Can sequential similar is should your fourth you you're assumptions, about growth. North quarter I going -- we of for outlook. and quarter-to-quarter, expect growth to expecting the or calling one of America China X we both from growth about Are million dominate

Tim Jenks

the in ZTE and expect layer remarks, our Well, about and the supply we talked do from we we strength to in Americas in expect prepared its Dave, partners. business, the chain with continued is also China what more

point about, the so that hard also And we particularly elements, are those thing I is primarily that that's and people customers, offsetting impact pricing muted, respect effects looking tenders. then Thus doing, a that based respect at talked what little to the in is have bit think, pretty with China might the at situation. are trade any which we're of inventory time, Beth but flows, and in they what anticipate with have to on meaning, and far, ebbs

bit more are to some and to react more opportunistically. respect to So OEMs, raw other China have been material goods I out. to things think we've the ability a trying move there to With finished then extent, playing

get short take So, then they just example they when but catch for as remarks, of normal might be would might up, couple stronger, just at to they’ll level the tries in which least term, to out. said more quarters, little in a a -- then we ZTE a our bit environment, that prepared

Dave Kang

third expect for was for what you current did disclose revenue this quarter? And speaking their what you of do quarter and ZTE,

Tim Jenks

We quarter, to didn't. ZTE had in pretty that with we quarter, some ZTE have really business and it we And small. amount. We last did a was we the didn't small shipments expect said but much third

so the partners that that it's finished X and week the important necessarily, before supplying the resolved, products we then sell time lead we think hit, because note XX that we're the times quarter. types was of didn't during less at was end X weeks and into the when ban you to supply any that have have goods recall if generally of the the I ban than third to quarter, chain

very in a the had be through supply did quarter. didn't much any chain. to goods. to the quarter, go entire have the to would finished third We we shipments in because but of difficult quarter fourth have it have we small was larger the They way expect in it So, amount third

Beth Eby

to that when the grow And a ban year chain that's partners X% about Dave out. just release ZTE to that we and this issued ZTE have hit, and expected to pushed their -- said press supply we

year. So that disclose XX% we’ll they won't be a this customer

Dave Kang

think quarter? quarter, percent they'll mid-single be digit you this like But maybe current

Beth Eby

No.

we was ban think, supply out. now to to them and And chain everything's partners I expected before that X%. pushed had their and the grow

Tim Jenks

number components. chain say of things Dave, partners, a we sell of that the some When the ZTE Yeah. through supply include to we

to So from the referring, to, make components example, that may companies not modules is customer sell buy that it's direct they and NeoPhotonics. also it's just but ZTE for we're certain to they referring ZTE

all the of of sum X%. reach So, those we was, said, could what

So any given customer would be low single digits.

Dave Kang

it And closer to or to usual it XX reduction, to XX? XX% be maybe closer think you the then on the XX% price upcoming is will or

Tim Jenks

expressed been that Those really to lot years. a we what it's ones be. ranges important some yet, have can't so going for that have happened haven't just you we have -- around of the say numbers Well,

a So different go don't have we to metric by.

say So case. could that I'll be that the

Dave Kang

of one question already ramping And CFPX-DCO. competitor my is last your is,

CFP-DCO? the So for And different what for they is applications? used are you think do runway

Tim Jenks

Two in in CFPX-DCO lot has do China, is range product the both, deployment, it have spans transport. CFP-DCO that quite applications. a CFP-DCO things. but The of Yeah. versus different applications of The notably some a

ongoing have long the if line and the you additional empty CFPX-DCO, is for then, use And power applications this cards And to of will, that the as they well. as sale slots so as, DCOs. application DCO will will lower continue continue

particularly that general, advent of market the expands to taken is with in bulk the market, CFPX, be has in the The but account. CFP. China into So,

Dave Kang

is on curiosity, your of out just But CFPX-DCO horizon?

Tim Jenks

The then development XXX now the of There is range gig. case gig. different that today and actually XXX gig is the primarily things today are on horizon and In are CFPX, lot at a XXX XXX looking in rates. the our out a of data to is preponderance of CFP

modules this any announced additional point. haven't We at

Operator

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

Alex Henderson

so that two. back I did something ask question get have I asked, or has there, off may been missed cut If I apologize. I a

some you therefore ZTE key of but the the one high, a there? go the what at to to and components still was transceivers inventory elements can think I function I a ZTE missing, surprised sort into there because it's is pretty into was they're it that Is looks catching level the does we just embargo product or little their other on commentary looked a that same up appears that at is was at two at was Can they've you back was, Going or for going filings bit the how that and ship imposed on much on the talk it that I of, waiting about to surprised before to that finished things go before for how when metric strong somewhat about second, going inventory in them. is got their still? that there, inventory a of September jive your lot be with

Tim Jenks

be wait to Essentially, complex then there ban about thing deploying it, I position big the where order actively when to come were components. supply had of back It's all really a online. in to shipment of in in machine were you to chain on actually customers turn shift shift. is, hundreds with the equipment they systems the and for a ZTE the resolve There and wondered would Well, people then have domestic have market. share ZTE think ban share the happened, that wasn't if components,

a lot has a been chain It's than get turning more working things complex light And aggressively up it's so supply I ZTE switch. their to back ramp underway, on and but think if have is, essential with partners this. that doing of been chain all fully supply they've their and that running engaged very in you products the will, their supply chain oiled they

indicator. things X not said and we specific and necessarily essentially these parts XX And can earlier pretty see so, take products are to weeks. an to they're I our think, question as I commodity an that

therefore, on, expect from we And say, a would we quarter, time we back out. we then wouldn't says XXXX is by XXXX. But they to that bit so bit environment longer amount why help? let's normalized said last And in going. have to takes material any is Beth quarter, fourth Does the the of turn that some, it's get time it that in when and more get we a our outlook ZTE, would sales pushed that and

Alex Henderson

That’s Thank you. useful.

that? it Just or takes you're ’XX, we – on thinking or the on bit talk go you be the the in tax any higher, lower line, line about a go little through below as same Should to a as down can puts ’XX. what about

Beth Eby

because expect would we bit profitable. a I higher, be little will

still We US, and have China. Japan have XX% loss in rates tax carryforwards tax in but in the we XX%

Alex Henderson

And a and that currency into that? we on we the benefit using mean, on as obviously, thoughts nice any had interest should be area, go I for line, in XQ, what other similarly XQ? you

Beth Eby

to our not currency the about debt Yeah. I'm same. do forecast expect remain going to benefit. I

Alex Henderson

stays So currency same? the probably just drop everything the else and out

Beth Eby

Yeah.

Alex Henderson

relative it's longer XX% it start base leave as to years digit and shot X about kind and give question of haven't term about through the X, structure model long you've what of but to talked should profitability anyway. off X think profitable, probably for necessarily going thinking couple, a a think the really thoughts about to you’re working company last been we not next getting or double X kind term term? answer you longer it, a but better, it would growth us One do to not time, long How you You the of or the quarters, issues, Okay. for I'll of because is a this to the here? get company we margins but picture, broader be

Tim Jenks

our we're opportunities at above gig these Well, level XXX see. the looking to in XXX that at The optimistically gig, take are innovations. let's the and some customers systems ramp do for pretty and time their

system. a line we more referring wins, all or applications have a and This level. We a a the products. card there. Pizza to card shelf an that design are at pizza and applies leadership XX We position of first generally line box important Box of we're gigabaud installation advantageous OEM in proprietary shipping a think have system

will these, module And business that modules. and less the second it's that, of we our will and second pizza so and growth half ’XX, deployed XXXX more directly I level, more opportunities This Each line beyond, XXXX, is event. really in it and of but half begin of a of the but really, in are XXXX ZR cards think, component gig actually increases some at are XXX amount we'll these being to a then start today think XXX at than applications. see boxes

DRX And switches to have have CML innovations finally we'll then to XX lasers with FRX well, based to that DRX well FRX photonics and for and continued XX These we that gigabaud growth do deployments transceivers. of for and excuse as expect EML, as We silicon based and applications applications respect are that lasers go range photonics multicast from devices. with our silicon a me, are gigabaud. DRX, as as

XXXX. And positions have think continued beyond XXXX line us side across range into center both innovations I XXXX well so, a and and data we that for of client growth

next for the win innovations some that positions, as ramping design for increasing XX those think months, into getting will and to hope of we're the of XXX I be gig products about talked Beth then and having support situation strong but production we I spending in helps. the very XXXX.

Alex Henderson

reach I was margins. a get whether really whether were you thought you far looking think too digit company double you whether broader of and that’s digit operating growth you can or to for perspective double

Tim Jenks

Yeah.

to quarter-to-quarter. if about we're talking think, I I think outlooks, stick we'll financial

Operator

back any closing call question-and-answer or to Jenks today's for turn I'd like concludes session. remarks. That additional to the Tim

Tim Jenks

progress a to Lauren. day. Have you, good forward the do NeoPhotonics your future. you Thank for We look on in time in and all Thank Bye. to interest our today. updating the you listeners

Operator

does today's We for conference. conclude participation. thank you your that And

You disconnect. now may

Neophotonics (NPTN) 2 Nov 182018 Q3 Earnings call transcript