NPTN - Earnings call transcript Q2 2019

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Operator

Welcome to the NeoPhotonics 2019 Second 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 is available on the Event Calendar page of the NeoPhotonics' website. I would now like to turn the call over to Ms. Investor Sapphire at Mannion Relations. Erica ma'am. Please go ahead,

Erica Mannion

me the to Good of business business results Beth operating outlook and provide quarter the XXXX. Beth us and Financial Jenks, of the begin in afternoon. you second for quarter progress before financial call for questions. and for with then to Beth With of will quarter of turn opening Tim Thank a the Eby, of quarter providing discuss third for remarks back are for products. CEO; our drivers discussion third results and for Tim outlook Chairman will NeoPhotonics' second before XXXX joining today the Officer. the will closing Tim the Chief quarter it second and review for then XXXX. a

NeoPhotonics' be to and in during at financial related measures GAAP The call or balance with and results including company's not prepared all These this income prepared of found Relations financial with measures being in financial unless are non-GAAP filed include a measures not financial are discussions amounts website. other X-K management on release Form the SEC and provided non-GAAP measures GAAP and certain non-GAAP can otherwise and noted. for information, percentages the the in of GAAP. accordance are press and company's press reconciliation statement substitute and accordance performance superior These to and release section with today than revenue, statements of sheet Investor

technology this of needs to cause projections and facts Certain NeoPhotonics, development, is Various and statements are availability, the webcast and materially. subsequent reserved. property considered demand, inventory conference results, with economic in or statements may differ forward-looking could involve be actual call rights regarding future and results industry all levels, customer historical capital that risks which in copyright and not statements contained the include events. and Material sole product uncertainties business factors

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

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

Timothy Jenks

with of of thereby, the Technologies. last recorded subject end on Thank you, headwinds second were of year. prior from spite Administration the revenue U.S. U.S. customer, of products to our Huawei, and high Export afternoon. million, up revenue. Department X% the in Commerce its above of good revised NeoPhotonics entities High-speed related effect quarter The the quarter list to flat put largest of This was U.S. essentially actions purchasing as Regulations $XX.X quarter EAR. May or Huawei historically same to our items XX, them government outlook, Erica, XX% of from banning compared and

from financial a $XX.X we've outlook immediate of our midpoint As million revised result, midpoint cessation revenue an million, the Huawei. our shipments initial of of a to $XX.X revised to reflecting

conditions. license Huawei EAR June, In quarter, guidance certain sell allowed products to Having our the rigorous Entities process, detailed, implemented the committed in that products to United late with affiliates. Consequently, are Huawei and and to to are sold be those evaluate regulations. legal a specific against must Regulations. its to reviews continue our Each would restarted complying the determined addition reviewed shipping consulted ongoing. and Since Export of of to certain to standards of we with in individually under we in that is NeoPhotonics each experts, List, and States technical and forth U.S. processes counsel firms administration products was Huawei. be set to certain with be the Huawei our these product may rigorously not we a subject to non-EAR late

for applied license certain have products. ship a EAR to We

As a the XXXX XX% from of of XXXX. our of business Huawei them second declined of shipments quarter to revenue to of XX% our of much result quarter, with in revenue cessation for in the

demand customers in existing business share. going significant XX%, in were the certain in up the China, its than customers in deployments XX% a share and next the We The significant In ongoing tender do which the that slightly and of won a telecom forward. revenue not network, the quarter, quarter. of China second expected from Huawei the last see systems. our remained China but note of XXX-gig of increased we for there XG other shifts range. we expect second Huawei, quarter, demand award parts from Mobile In quarter, of announced XXX-gig X late within continues, normally Further, our for

has customers, markets. in with business Metro especially been strong DCI Our Western and

In fact, each shipments from coming product Western growth, customers our X and by sequential up percent systems. XXX-gig in were top growth with double-digit revenue XXX-gig for

from world XX% with was customers from Americas, up As comprised and drop at world, of a China commensurate XX%. from business of of down, from of to was rest XX%; Huawei, revenue. revenue, XX% Western of result, rest the from XX% a up our and XX%

system having channel. or work baud operates the per industry system to Indeed, product wavelength system bandwidth, bits higher can wider and some to use focused transmit symbol with carried increase single X called To a channels. can attention increase on symbols, They Recent trade-offs single to of a rate approaches, more requiring frequency with. the in announcements have approaches baud X the approaches. reaches and order to systems levers in fiber the data rates designers more at most wavelength, then order combination these use X have There rates a modulation the basic by are the Moving symbol. higher to optical technology. increasing or they single rate modulation shorter higher information, which

in For addition ultra-narrow to receivers achieving rates, lasers. coherent to provides critical linewidth optics rate the each of modulators performance. high-performance required NeoPhotonics high our tunable data and these is baud high system

XX, volume modulator and class suite, aimed our is with We applications, at product which continue and at announced our XXX-gig design-ins class XX for have and growth good XXX-gig applications. we aimed receiver gigabaud XX XXX-gig and to see progress

and As discussed order modulation light of lasers the XX of be very products to tunable for XXX-gig lasers the systems. data the Connecting this laser through of we choice Quam, performance XXX previously, important. higher we this, have system that while this our and to our the specific right becomes noise deploy will to Because anticipate have continue higher-performance such phase low our rates, year increasingly next. ramp pure with as gig

silicon both. in platform. XXX vertically which coming best-in-class expect and with of will phosphide Beyond gig, will deployments and approaches requires photonics performance, Each delivers these both indium integrated coexist of XXXX, with our XXX we NeoPhotonics component we platform be gig engaged PIC active our

On business, continued DCO module. OFC Also modules. ZR optical demonstrated make photonics-based March, provides with coherent subassembly, tunable At in the all we we show together already pluggable OFC, at CFP we nano the with for pluggable of of our shipping laser COSA the module. progress wins design the our which to ClearLight XX-gigabaud our CFPX our good a XXX silicon required or trade optics and DCO demonstrated of side shipments

presence aligned and with continued centers, the the trends infrastructure optimistic data the prospects. product These serve are of beginning Huawei strong with deployments XG transcend in band, we with NeoPhotonics' and the advanced wireless our high-speed capabilities for and demand drivers current Overall, we components. well new hyperscale coupled are high-speed technologies, markets about

me call With to let CFO, our turn that, Eby. the over Beth

Elizabeth Eby

you, and good Thank Tim, afternoon.

R&D levels. place, May, in the we executed quarter opportunities. compared midpoint in This, some good a Huawei reset ban We supply to changes a our brought loss revised us and went lower combined to of adjusted $X.XX In second revenue chain, FX, expenses loss. Our $X.XX reduced after both in our projects substantively. resulted our news of operations EPS challenges to QX non-GAAP with and on and adjust

in slightly million, market the revenue higher to western DCI mentioned, Tim of restart the strength non-EAR quarter. As the was of expected Huawei products on we the at and than end $XX.X

were this, X Our last expected good points range. the margins was and cost the at charges of point, of sales X.X on less were from was comprised margin largest of approximately quarter other high XX.X%, Other non-GAAP impact. our end as cost all gross charges, up of and reductions. which of QX underutilization than X.X XX% the approximately Within cuts of of given about of points tariff points execution charges volume X.X X product points

the on Moving a reductions to of second $X spending. in X% non-GAAP In was loss combination million. operating X% low in compared gain the to of sequentially Total spending $X.X $XX.X quarter approximately loss loss or operating operating expenses. expense the million Chinese the approximately and FX gross was QX, yuan a margin to for appreciation of the This QX, lower dollar push-ups. of at million U.S. for drove an driven quarter relative $X by down higher Non-GAAP million. project and expectations, second was end a

As the $X in result, EPS non-GAAP of loss compared of non-GAAP first compared loss was QX. in a $X.X to a net of million to million a quarter a This second loss quarter. loss to translates in the $X.XX $X.XX

the For adjusted second quarter, million. EBITDA $X.X was

statement GAAP close review of of I results. second quarter my income a the with our will out discussion

Second quarter flat quarter to and gross last compared QX was in year. second XX% XX%, margin from the of down

expense our the lower on loss of the The our already write-downs and quarter of to prior mentioned, related million to second quarter $XX and of inventory of Net quarter a million assets. to million $X.X Operating $X.X second million end-of-life million intangibles $X.X loss sale million. for $X.X of spending restructuring the to for a and in Russia acquisition-related compensation Operating the down $X.X preceding margin period. client the loss I stock-based million, in million was amortization $XX.X included the charges and charges. $XX.X of approximately from was million, which, addition in $X of was compared charges $X.X includes expense module Huawei-specific million quarter of of related costs the gain

$X the $X balance approximately in the first flow needed of million million, made sheet. the in quarter, cash, mostly $XX $X.X expected We on or period on down we inventory as cash, Turning the from repayment $XX Free the restricted and spending. million of the quarter changes write-down Huawei-specific our days, million prior was better million was Net down cash from to XX inventory. the than finished investments debt. with

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

of changes to affiliates. in continue their and Huawei BIAS Commerce monitor to the Department related and We rules

any included pending for shipment not forecast. under have our We benefit in licenses

products These included. we determined a our that have in represented to subject products U.S. are XXXX. not Huawei However, to majority are of EAR shipments

our signals the are customers for global Demand from positive year.

revenue result, a to that expected the As chain X X ameliorated. last solid. have have for be The QX to months seen supply is for we constraints

and fully range share earnings per the diluted $X.XX to Given approximately profit; that, $XX expectations of loss the range of the XXXX earnings the margin company's non-GAAP margin XX% diluted gross the are: in in reflective range numbers share GAAP XX%; XX.X gross revenue diluted in loss of of are the $X.XX million for the XX% profit. million; of of range $X.XX to a These $XX XX%; to non-GAAP GAAP per million shares. in in to a quarter to range September $X.XX

expect know similar at would forward range Looking the we moment, the quarter, to what QX. in largely we fourth on to revenue based a

cash while evolving of managing business we status our remain to U.S.-China have the the well profitability. monitor focused Huawei band trade, summary, and and we on and reset for to In the business continue executed

call turn back the remarks. to for now I'll Tim closing

Timothy Jenks

Thank Beth. you,

Western are we for XXX-gig and growing continued XXX-gig deployments customers looking from We data a at and and growth, DCI rates. benefit at expect

of Dmitry we Dr. announced engineering subsequently cloud exited seasoned noted, Directors from representing are our and Yanbing industry, XXXX. We RUSNANO, our a Beth joined we operations, the pleased a company. the Director of from X, Directors. resigned As as Board Akhanov, Li, that contributions our services July Board of on as appreciate his executive we Russia Moreover,

over year, has have last communicated the focus we products. we ramp our on newer As been profitability our high-speed as

position introductions above gigabaud leadership adjacent for well XX We digital market have our extend market, optoelectronics to product opportunities some and the moving with also remained focused XXX high-speed high-speed our on execution as as technologies. in to seeing developing gigabaud in

ask concludes the and This up formal comments, to our questions. the for like open Cody? I'd now to operator line

Operator

& Instructions]. take first from [Operator Alex our with We'll question Henderson Company. Needham

Alexander Henderson

give you, of situation. off I'm couple a puzzles guys. us key here. I to you on very a great a of job managing the hats was impressed, hoping pieces did the of could through very granularity little a difficult My more

And of are been have by portion your for don't particular, extent government exemptions? X the Huawei to a key full covered the are of not we In that Specifically, pieces has requirements? on. what revenues the or to requested portion what what those really granularity

Timothy Jenks

in see. part. Taking that let's So

said, that we products of fact, products we've our are do As lot not the the majority the course in in sold have EAR, a of of XXXX.

Just acquired businesses have lifetime. over our we well. those development in We've China, recall, acquisitive centers we've as been in Japan, countries and

And not have subject and a products so technologies we are number of to EAR. that

the our of majority shipments. So Huawei it is

fairly to pertains EAR, to that and products license specific it's minority overall. and subject The a surprisingly, it's are not modest

in Beth shipments said, product our continuing. So and shipments potentially haven't to as both majority she QX are Huawei any comments as non-EAR gave forecasts, included they QX. our and outlook the EAR for and we for for And QX of reflects

Alexander Henderson

clear, would be So they for context? be other demand to hasn't that systems products in Huawei slackened into [indiscernible] then all because products Huawei produce the at just enabled from from drawdown that go and demand were since that the to might missing

Timothy Jenks

my XXX-gig and I demand amount a systems. XXX-gig Well, we're said in seeing prepared fair as for remarks, of

essentially these more say, technology. let's where a more So gig is in, legacy. XXX bit are or rather is preponderance demand state-of-the-art this of And than the

Alexander Henderson

good I quarters? bringing taking see. the would some you shot be I question if Can And trajectory sense down very you're of a that just the couple for next at look on would of for pretty as as Beth, obviously, you OpEx much helpful. those could. us like Since, can, give X what

Elizabeth Eby

$XX million everything as to us a QX. We if and ranges at absolutely million would to haircut, our I expected, took goes as in $XX for expect remain QX

Operator

now Raymond from next our We'll James. with Simon move on Leopold question to

Simon Leopold

these Certainly relieved results. by

time difficult it's for so stressful. So been a guys, certainly imagine you

And process. in that of provide this Or the be interim anticipate were guidance? material get help to just takes you if not response understanding your of So a thing would your enough of it little to back, to terms it an would of it true? kind long is bit sense licensing What's you how a update? get you would

Elizabeth Eby

we by start, me let anything... did saying Well, put Alex, not

Timothy Jenks

Simon.

Elizabeth Eby

anything Simon, sorry. But in we put the guidance. did not

-- expect it So I be to a huge upper. wouldn't it

Timothy Jenks

Yes.

happen. that non-EAR ship, products So as and we to have we we products second and the hit, you talked One after have ban the have have X said, can that have is previously -- about is things that fact to demand. you is you to

for from And so the process as for that is done here is they are the pretty BIAS applying clear license. guidelines a process

at our As received We're from And point, we we been said remarks, have other granted, aware done companies in BIAS. of that. clarifying questions prepared not this licenses. having back we have

that takes, in because have that demand we for know actually if from how it license. minority of long it fact products longer take revenue expectation is the less products given a these generate the the So for don't will fact they're the a and not therefore, uppers because of we're have guidance. we we The our to

the don't long will don't don't ongoing be know going And We how it know we could what so demand. be moment, really level Therefore, to an know there's upper. take. if we it at

So we haven't forecast. in anything the included

Simon Leopold

if so? Were Okay. Can did Huawei, color? big you mention XX% believe, offer in other And where customers? any sales you XX% us How additional I they, quarter. there the of was

Timothy Jenks

one had We other XX% customer.

Simon Leopold

material? How

Timothy Jenks

as XX%. -- certainly, above Well,

Simon Leopold

want I think to assume you tell I more don't specific. us today.

Timothy Jenks

said, revenue. our the did we'll XX% four on next And so put XX-Q, as in of Well, our in XX% customers. file we we

Operator

from question Cowen. Silverstein take Paul We'll our next with

Paul Silverstein

done it stock and but they double-, in triple-ordered you double up some that -- if would share supplies of in Is key therefore, the what's Huawei and robust day risk has there's your the expands secure what be case with prohibited. administration the is customers in of is And numbers order of connection degree know is of had definition, also anything tight if quality as I degree assume, the indicate. what definition to Huawei appreciated. insight, -- not, also triple, what there other there not with perspective. not different order over-ordering quite the to demand I true been would Slightly risk needed, as that don't us it's risk by of corresponding some having in

Elizabeth Eby

have can on, Well, start, to them I I absolutely but for as some I'll it's ameliorated, can, behavior think And chain not away. normal then inventory. pile the have is Tim think said, I get they if constraints supply gone they

are have building the that clear products they not that on it's or we inventory have. So

at quarter's say, what ship do Now a ship to the always check, versus but and they did did it's that after backward-looking. said, and a know, quarter as out them, we over back look what you we the

Timothy Jenks

that I but exists. risks. It's exist. hard say would or Paul, risk what you with are And certainly, expressed though to those I'll the say just to do you, all risks extent volume, agree the what

Paul Silverstein

observations I being have historically, actually you inventory or is quality terms of different better from track actually being your consumed, is much Tim, the your Is built ability how think much today to how Beth worse? insight and in made up. of

Elizabeth Eby

it's a worse, at moment. little actually, because ship what think know able the we I don't to who's

Timothy Jenks

ban, the under interactions have with fewer Also, Huawei. we

might actually have have than information and prior So had quarters years. in we less we

Paul Silverstein

buy at be would missing buying obtain another to but components big all out be can worst the component. that or from so or obvious, the buffer. the X they assume have have will all they another, folks case. when that that they're stating mean And required, of inventory limited, the a the can I trying yourself, to argument, like would us risk by they components can what ship of assume I extreme they they the one I not they Tim, worst-case customers what to extent are virtue scenario

Timothy Jenks

possibilities. more We've of more have tenders. the their at But have do, certain whether rates, is the they again, within seen for second the actually seen We lower the data do it's realm components. on legacy sources see that systems of the XG. and we Again, third focus fact, in onset

in realm possibilities. think So time tell. of I will the that's But

said -- that they've do XX% have of but they their think be still $XXX I they'll that may business year, billion business. means down the on

Operator

Richard our take Craig-Hallum. question next with now We'll with Shannon

Richard Shannon

of into -- third A your give in set very described as of what growth questions. you the customers. customer from you've growth you Can Western a baked at quarter China of guidance? strong you some of for Tim, couple sense noted outside that your your guidance us

Timothy Jenks

the we've customers all up what Well, said have with collectively, in is that they all Western backlogs largest five digits. were double strong And us.

And so percent Huawei, from I in continued the forward-looking terms of smaller our expected customers. of we've expected a our not quite percentage revenue it we Western quantify surprisingly. guidance, total from strength in is And have largest can't don't think revenue, to I view or accuracy rest forward-looking the what forecast it is forecasting that. of vis-à-vis world growth enough of of our do and continued But China. and West from good our

Richard Shannon

near Okay. the in XXX, some I of relationships XXX; XXX between whether questions, right about higher also, and high-speed you and what's I or now? that you anywhere category remarks know That's helpful, have of then But your answers or half speed, gigabyte slower speed, to sense perspective. the guess, and in talked the XXX, trends X. XXX; -- is Tim, XXX

Timothy Jenks

No, not it's is not. it's more What than but it. actually, did of it's half XX%, we say

Richard Shannon

it. Got

and last of And Okay, question out jump I'll that's me helpful. here... for line

Timothy Jenks

say for of the demand preponderance is in did XXX I'm XXX that, remember on example, gig. that China also case Huawei, sorry. the and gig, Richard, of we

XXX not gig. it's on So

Huawei gig. China So in certainly there and decrease from for demand XXX the a is

into XX%, it -- breather that's situation than China XXX-gig of more the kind growth Huawei. my still of a but that we because on with the affects saying So factored took is

Richard Shannon

Tim. out line I'll helpful, here. That's My jump Okay. last of question,

potential those to there United possibility and of not correlated subject you? Some downside so, of you EAR, of your are if a a that kind risk that's is any are risk see becoming the subject question, are if to that because are And for products specifically to they they EAR they from not made that internationally even outside sourced States?

Timothy Jenks

Yes.

examination that remarks, U.S., that the our prepared are subject we're the U.S., change. regulations, There it's the As following the outside we the the are developed said in certainly certainly manufactured regulations. regulations. and certainly non-EAR. within are products boundaries regulations between, studying are Products EAR. are the U.S. that products of outside We're detail In to our the of

I that rules. clear extent will quite are rules regulations and what think the the to they're as are, the the consistent, we to follow rigorously

Operator

We'll take Securities. Zhang Jun with our next from Rosenblatt question

Jun Zhang

have Or two product? One, mentioned So non-China DCI that more from Is That's from the there's XG-related is strength it market. more I a you coming market? questions. from one.

that $XXX second, another on the do include put The as U.S. billion the product, see optical And margin? it the how tariff QX? from does XX% you impact

Timothy Jenks

strength DCI is se. actually Metro, in XG So demand but I the XG, rather for think We than the preponderance of today, modest that prepared said do and and our per remarks, relatively my I NeoPhotonics. see it's

Elizabeth Eby

products. Tariffs, to tariffs mentioned, $XXX We most in U.S. the us ones States. little at Those United coming but to we tariffs, subject literal that additional of manufacturers ship in the to subject at U.S. all. Americas Americas, China the -- were million impact to all. more. When contract we the going does ship us cite from tariffs the as are to U.S. the outside We very not from directly The impact that's I our China were the the very

Jun Zhang

in your more think And I slowing clients -- Got about on anything -- U.S. you in do sustainable this few down quarters? is next DCI demand now? see in -- your X we first the major of the the Okay. right you one changing And Is that of it. half like the little about see bit talked Do follow-up in a and Metro.

Timothy Jenks

Western So up digits. were sequentially largest all five our noted, double as in customers I

down, would Western So is it the Top not customer among a X. to be the extent going that

Operator

Markets. question next our Capital take Savageaux Tim Northland We'll with from

Timothy Savageaux

or is it the in that sequentially the on XX% line I looks we'll non-Huawei commentary, with you the about want did dead quarter, strength of quarter? which wonder, was you've to come you that broad-based? see driven would beat by follow do as Or up strengths. in pretty stronger talked X I than like characterize that in X Western almost bigger up how that the but customers? your non on Or And And DCI, in have guess, growth? horse, double-digit at your It might -- is I pretty look that you -- extraordinary. a and expected

Timothy Jenks

it couple customers kind -- We probably the goes noted, of most we a XX customers do in So of across group. just larger have have actually, top fairly part. the for the customer West that, frankly, concentrated

So the usually think are time. done big different by big customers, this I don't that's changes and

strongest So yes. it is with the strongest,

Elizabeth Eby

end But, our the Tim, little to at only, the again number, -- on that's XX% Huawei your started as frankly, were above high end we of had we and a bit quarter. the to range, remember, we of ship

a frothy. little So XX% feels

Timothy Savageaux

Do the Just down down maybe Huawei leads percent. you of my also mentioned next sounds math. at -- you something kind expect into doing the like a on in And as expect this flattish looking basis or Huawei quarter? an is Tim, question, you you're that. It which absolute and like

Timothy Jenks

basis. would the and I fact percentage the know expecting that increase Huawei, basis, growth dollar basis. a from growth or expect but a because not much actually quarter decrease, will third think on I expecting decrease I whether not from that they'll percentage necessarily sure a we're I'm on Huawei decrease reasonable on they'll we're of

Timothy Savageaux

Right.

double-digit the expect rest very of pretty the that across the of business? growth kind continuation at least, of you a So solid

Timothy Jenks

Yes.

that the of remarks, XXX-gig timing the and -- Western -- we But prepared and we're to growth forward, lot does be I given have in also and resources in the to and of focus products, and a XXX-, that those customers And and DCI looking as situation. demand are going demand Huawei my said way. growth reflect so our and that in it's of sources fortunate for volume that

Operator

Kang And B. next now on to from we'll Riley move FBR. with our Dave question

Dave Kang

XX-gigabaud percentage now? My question is customers us right the of of you on tell number revenue Can EML. and

Timothy Jenks

in it a range of on customers. we that the XX% runs the said we've speaking, and of number components don't basis, of revenue, detail Generally

Elizabeth Eby

He said gigabaud. XX

Timothy Jenks

today. design is in are EML gig -- the not XX our shipments actually gigabaud XX phase. Okay. heavy in quite small We're

Dave Kang

I see.

sets Just to correct? for be data clear, intra that's applications, or gig XXX for

Timothy Jenks

Well, XXX-gig XG data mid-haul, our the applications XG XXXX -- center are than right applications that's PAM kind -- of are rather gig X. both front-haul, will And backhaul, mid-haul lambda to single growth expectations that now. and single intra probably the

Dave Kang

your who's competitor there? And

Timothy Jenks

makes Well, else who EMLs. everybody

Operator

question with We'll on MKM to Genovese move our Michael now next from Partners.

Michael Genovese

The you guys I run would be last time million. guidance, that suggested gave $XX you about think, rate XQ

vendors So previously and by question million difference also time, versus products? today, raising the outlook or with these explained view now Huawei top your the X guidance, my Western your that is, is are of you the by of explained XXX% well? non-EAR $XX as Or XX that for

Timothy Jenks

products. from ongoing time But do it non-EAR Well, we when number, say we for said subsequently further and the there products, is for demand demand. has further million cited that is XX, we non-EAR that the also that we no did said case Huawei have that said products. we We if there at if there demand is been non-EAR is $XX the these no

Elizabeth Eby

majority is well. it strength as customers some Huawei but back, other there from of the coming So is

Michael Genovese

what think that, than products seeing of do Great. in their And talked these you products. products you still us of that to happen? we're redesigns benefit that higher Tim, these for that you level And now? it you've based time all like non-EAR redesigns? I think seem that's could same on demand redesign for conversation, customers can Or front seen the Do that that think impact take and you would

Timothy Jenks

with more in with customers, appears in And network. There's fact domestic a Yes. having for them It's an the legacy insightful that there's question, but continuing it's perhaps one therefore, where fulfilling be systems for they're a does that more suggest to that demand our Essentially, their the customers, to of the perhaps for Huawei visibility is limited. the continuing need systems. capacity infrastructure. legacy the invest need certain

for And in some products capabilities. are unique of and differentiated products, our our of their some

or have or they And Japanese do competitors so competitors others, both. Chinese

will that happen what's -- I the time. what over think will in redesign, happen

we'll Just chain their will as time. over enough our customer over certainly, how my to ball out. modify frankly, they isn't play mix time, supply quite And that all clear may crystal modify see

Michael Genovese

enough. Fair Okay.

just me ask XXXG. on Let

about slower? You've things made worse? on moving you you where positive comments XXXG versus some better, XXXG. What's view? were months Do feel three ago faster, your Are

Timothy Jenks

Yes. better. say I'd

that was ago. it pretty X increasing. are We're -- early into the XXXG, days, For and shipping or volumes was quarter a it products space,

good So pretty about we're feeling it.

Operator

We'll with from question Alex Henderson take Company. & now next our Needham

Alexander Henderson

about anticipate does you how hoping was you about to start ZR as bit little the the out we you. play it to a move and could helps positioning? your hurts you, to down line relative I plus talk that How whether market DCI ZR, feel the

Timothy Jenks

That let's are X billion $X the Well, see. parts is Alex. that. of There question,

one component going XXX out. the XXX capable and take It ZR the a is First for now, approach that capability the line XXX different slightly architecture. suite XXX for component suite into enabling ZR or selling pluggables a to in we've will we well. But roll as it time and box gig, full is architectures developed gig and essentially, are cards pizza

that that XXXX in platform, the ramping us, now on where and is we our XXXX. lasers as, COSAs ZR. have ZR XXX primarily into XXX for So We see go silicon tunable photonics really,

size the important is said, And using a I ZR will And share they upper as develops. topics market set for today, of big determinant the for think recent company market pizza market expands an of gig, XXX technology, coexist. who's affect of And as We're systems of and It actually also our that that feeling positions This the and also industry, XXX have the And line also deals control cards is our market. in for what it's and offer. well. then By token, terms how into include same is map quite boxes that is we for that so moving. us. and our I are to then in suited that our the XXX gig, an the competitors will well expand XXX products the gig. road for direction market

Alexander Henderson

in extent benefit totally? have I'm does quarter drops gain you in Beth. The you, for the thinking? Chinese the here, the And September in Or out currency big million you the exchange One are versus have said, there's that quarter, I Great. that $X impact a to that assuming on currency your think shift you assuming guidance. currency rate the some

Elizabeth Eby

our is currency the in Chinese So operation our RMB. functional

we million gain RMB, forecast finish include put the next during So forecast a be a the this there will dollars weaker not because extent currency. all yet gain. quarter. To our a is we also reevaluation we then with a there we But in do that that the to currency don't of in weaker quarter those yuan prior

Alexander Henderson

the so last into the that quarter And end using the then of the book as should room, I not currency as the rate? before rather, you're at your June currency assume of but the you came exchange

Elizabeth Eby

Right. Correct.

Operator

Leopold We'll question Raymond next take our with from move we'll James. on Simon and

Simon Leopold

get Just thoughts broader wanted to about integration. vertical

Specifically, ago. comments efforts an Ciena Huawei and both of made have integrate, years made vertically the to a Ciena in has about past acquisition couple

your opportunities with overlap where continuing be with may doing Just would even vertical understand what your trying it see where by products you customers. and integration to they

Timothy Jenks

been I against of of in extent, of have see working you because more Huawei as Ciena make being some to mitigate a to So the announced to in result. of for technologies will. future their the copied to can't well to be possibility of I that in Huawei certain they now. as if to control that others part that have deal certainly did. that fabric, Cisco risk operate essentially as is by done think than the is their Cisco an And additional example, order, Totally propriety extent, recently what this Huawei, risk continuing case And mitigate. or was trying has part to Ciena the of happening some work different in with of right denial acquisition

of increase, technology. So events different stand growth have have continued customers, I volumes continued we of think, rationale. have provided edge through which The data as of the these opportunities rates grow, trends NeoPhotonics to the both leading and course different to have for

have, is offer of what stay on to solutions basis. part the would and a us, daily edge we from that have the do is imperative to what leading differentiated and they some on to otherwise For

Operator

Capital on move Northland Savageaux to Tim with Markets. We'll

Timothy Savageaux

among top to because imagine your is among XX your a question. be I'm the we I glad got could those And X, be Appreciate follow-up that companies customers. of going my and both certainly Cisco to top

the kind space pluggable, role positive could do the taken strategic that where DSP. bigger business from I was question there's pretty of a of impact, relative having the the laser negative, to with especially level, see limited I But guess, potential high as technology if any coherent Cisco, you you they wonder and our coherent or discuss amount a to decided suppliers of that really, at move transaction? at So DSP look is a DSP

rate terms another strategic side, of potential it's DSP in the negative, addition in impact, mentioned relative equation have. of of we've interested technology, in there any views run be one whole on with what business. the your to your levers or this nature designers But You I'll seen the of transaction positive kind to laser the

Timothy Jenks

performance. But remarks, operate data to -- is lasers, time, clarity and they're data to modulation, the and the over the are For order attention to A to operating rate the leveraging elements. the the rates, of given very rate precursor talked signals, and data of core -- as leverage discussion signals, their I DSPs the what that narrow ECL, input low leverages in a about which is their have these you our higher operate baud very, rates, kind these They system very have that rate, prepared noise. to very able to we to very our being line at To input extent, to lot order order have laser DSP. with higher the have phase have lasers at the are aspects in have call or kind low high-speed Lasers, the of time Cavity signal width. rate increase offered the of External technology, baud noise. in phase And which In to to offer the the is lowest able higher to is to ITLA used. modulation And QAM and it's modulation, critical higher and the these order a that Nano-ITLA, our micro that with these rates, data the phase be by in also margin considerable noise operate critical industry. opposed

of is case the matters the line absolutely why noise NeoPhotonics to are the say that choice characteristic lasers the the within that matters, properties So the that of for product sells and at phase technology it we is have we industry do the of rates. best the characteristics high these laser which in characteristics, do laser data be the

Operator

We'll next Cowen. take Silverstein Paul question our with from

Paul Silverstein

don't the out Tim, that, with breaking specifically Have done can tunable you you line this But earlier, laser I Or do my importantly? for revenue, your was that? laser. apologies. more answered narrow recall you

Timothy Jenks

What narrow half part revenue represent said approximately of different three types largest and the we've we of have lasers and is we with the the the company of tunable lasers. that of lasers, our lasers have are that said line actually

that's So think level that provide, granularity the I of we'll Paul.

Paul Silverstein

a but rate? shot least I of at guess XX% at be total run interpretation, this, I'll take for a little but would it room over

Timothy Jenks

Yes, it would.

Operator

turn over Thank closing you. I'd question-and-answer today's That to session. does conclude management additional any or remarks. for the like to conference back

Timothy Jenks

good to We in NeoPhotonics and interest Well, forward the do time thank you your in updating on Have today. our a day. look progress very much for future. you

Operator

does today's participation. conclude That call. you. your for Thank Thank you

disconnect. now may You

Neophotonics (NPTN) 5 Aug 192019 Q2 Earnings call transcript