NPTN - Earnings call transcript Q4 2019

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Operator

Good day and welcome to the NeoPhotonics 2019 Fourth Quarter and Year End Conference Call. This call is being webcast live on the company’s website at www.neophotonics.com at the events page of the Investor Relations section. This call is the property of NeoPhotonics and any recording, reproduction or transmission of this call without the expressed written consent of NeoPhotonics is prohibited.

I would now like to turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Erica Mannion

afternoon. Good joining of NeoPhotonics' the XXXX of for the results first to XXXX. quarter fourth 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 our Tim the progress of drivers fourth will discussion in and a business products. review and begin a business with of quarter for will provide financial XXXX before for outlook the quarter then results of quarter Beth the opening and questions. call the providing for the first fourth

statements and during noted. non-GAAP other performance or for management are call amounts The include information not certain measures company's and to unless These superior press percentages of this financial are and measures with not including prepared discussions release a in otherwise and financial revenue, prepared of accordance than all balance in substitute and non-GAAP GAAP GAAP. measures accordance income statement sheet with

X-K the the at provided Relations These release and financial results non-GAAP on the measures are Form filed and to a Company's website. be NeoPhotonics' found press GAAP section and can of being today in Investor reconciliation related SEC with

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

factors could results Various materially. actual differ cause to

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

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

Tim Jenks

afternoon. Thank you, Erica, good and

are we of but an of at capacity is and our half of situation first priority and two the the manufacturing our Year, supply thirds about China, our of were which normal all and New are now our than are extra factories the closed aware of less increasing. In for during Chinese partners. coronavirus employees represents We those our week China running footprint health

but At suppliers are demand at remain very current China meet are Our below steadily our point we believe forecasts. able this recovering capacity. not to risk being of suppliers few

our manufacturing is is Our impacted. and half directly not of again China, footprint more manufacturing than outside of

Moving delivered fourth million at margin well This of quarter of same of results above a DCI our NeoPhotonics revenue markets to from end the and gig gross our Driving last as with from and non-GAAP our is business. combination revenue strong top in a leadership range customer quarter was XX% very from prior XX% growth the China quarter with $XXX the of and continued in and outlook strong solutions. these Metro end as year. demand faster XX%. XXX

year products. products same from last coherent were XX% which was revenue terms period High-speed by up leading the our in of XX% revenue, driven

Our of in leaders DCI our strong well high-speed ongoing telecom the of quarter to deployment as plus performance center data fourth focus coherent in as networks. reflects data on products cloud technologies centers coherent serving transition hyperscale and and technologies industry the

gig Denial utilizing regulations. list under gig Commerce are Huawei, of Order by and deploying Department China Within on network curtailed entities and that the solutions capacity XXX otherwise not under carriers are coherent XXX

to the total XX% Chinese of from quarter XX% XX% Huawei in represented fourth previous Our revenue customers the quarter. up of compared the made up in XX%.

is were to customers due percentage QX, in which in our in four essentially lower Our dollar overall strength. terms next terms flat

Integration have Advanced several new series have leading excited laser investing we NeoPhotonics a with Photonics high-speed products. of a in Hybrid technologies, capability, product recently Silicon leadership our underlying are component and tunable our has categories decade in for to our achieved technologies been innovative strength coherent and high-speed Photonic we introduced and

soon and our factors that recently markets, and form cost switches center to complete CFPX cloud to QSFP-DD, And and be reducing optical kilometers. to connections per routers, the plugged interconnection. data cloud Addressing into up ZR modules center data XXX over XXX bit of OSFP distances introduced directly and offer DCO introduced and gig greatly

Our plus performance, distances. modules ZR extending and also DCO reach CFPX offer Metro OSFP to

new Our we they C++ performance in which configurations. on ramp our announced gigabyte products our in of To products, recently module XXXX. in coherent and technologies, sampling leadership we are position are XX enhance expect built these variants high will further optics,

and and cloud These increase in optical applications. capacity networks the carrying applications telecom fiber data of data in center

laser, modulator ranges standard XX% to spectrum spectral today's provides expanded C network support which than configuration. full C++ and bandwidth Our more band, receiver the have Super

increasing as existing leverage users This traffic therefore and is can fiber their up significantly by important capacity XX%. network investments to

through also which components per module formats, and lowers new electrical and consumption. in higher cost provide more per modulation capacity power speeds bit turn Our

these Taken enable XX per more fiber together, total features terabits or of capacity.

that key are drive solutions economies per We technical three further demonstrating bit cost performance. and

in XXX customer switches currently. Our OSFP traffic ZR carrying operating are modules DCO and

over the CFPX operate longer our spectral band. Our with new can demultiplexers C++ multiplexers CFPX gig entire even and modules gig, XXX DCO distances modules over new XXX C++ DCO operate and Metro our

These multiplexer our coherent these baud XX solutions available be Information support optimized from gigabyte. rate, gigabytes will to are systems products website. new and operation through on high for transmission XXX high capacity,

spacings suite wavelength. of gig and represent customized data next These and products XXX XXX higher components single even and The Altogether and full interconnect provide. filter require which capacities gig generation cloud gig on a solutions. and our to from a channel coherent we and modules, systems MUX coherent center, of shapes DEMUX operate XXX networks will

the been our at each year As or coherent more XX% gig plugable high-speed is coherent we've approximately growing deployment include and ports XXX now will coherent continued modules. of have which noted fundamental previously, the of driver business

XXXX. XXX continue XXX side, acceleration we products new our the the will aligned continue and being well this modules ZR for will several with ramp is and best-in-class and next through gig to platforms. years growth center cloud port high-speed component believe longer component end of ZR these on some in and that our center operators advanced with requires XXX as of and reach data We needs XXX and performance with XXX high-speed the gig the strong XXX, and component year anticipate technologies, and capabilities ramp data next from hyperscale will as begin well of to aligned presence Each at

a believe modules than data in coherent of and centers from each optical years today circuits As modulator, market more of of receiver, backhaul We large for connections. areas the result of meaning XG and successful in emerging us these with innovative hyperscale that cloud subcomponents wireless R&D, are new are in-house built components. optical laser, and integrated we the core devices produce these others,

turn CFO, our Eby. will I the call that, to over With Beth

Beth Eby

our $X.XX, from full Tim, Non-GAAP of million higher strong $X.XX was loss afternoon. foreign in in was gross a quarter the year outlook QX higher for product gross XXXX. the in leadership Non-GAAP last million a EPS non-GAAP basis, finish year. generated than of from you, in $XX in the in with margin margin our QX a compared good and our On Thank impact X on year volumes. and drove coherent full up basis to $X EPS resulted non-GAAP negative million exchange. than higher $X.XX than midpoint our higher midpoint was cash of year the than $XXX.X flow, XXXX free We points $X.XX revenue on XX% $X.XXX a of spite higher outlook. to range

from performance, points on details and of our product quarter more XX.X%, our were to up last QX last on growth gross improved above Moving range. mix. from slightly this, non-GAAP X up approximately the volume was XX.X%, and points QX margin product Within midpoint margins X year

X of our underutilization and U.S. shipping comprised approximately reserves charges fabs charges charges, point sales points X Other on costs X of points into for China. from of about tariff were for X inventory product point of

fourth variable X.X% Total $XX.X million non-GAAP the up for from R&D for launches QX given XXXX. compensation compared in operating year and full profit million, for was quarter to higher or X.X% million operating QX. a $X expense Non-GAAP higher the fourth for profit spending product quarter $X.X on was

approximately drove million. exchange In relative the $X.X the QX, dollar of Yuan appreciation U.S. foreign loss Chinese a of to

the end reminder, QX quarter rate. of gains FX in As driven the The FX is most reevaluation reverses in balance currency loss FX of China China The our Yuan. of QX. operations by of sheet exchange the the to a functional is loss items

net in the As million income of quarter fourth to translates third non-GAAP $X.XX for the $X.X a result, an a quarter. $X.X income was non-GAAP in This to $X.XX million to compared compared QX. of EPS

EPS Excluding the quarters, exchange foreign compared in $X.XX was both an of to QX. in $X.XX of impact QX EPS in

fourth quarter, $XX.X the adjusted For million. EBITDA was

last up income I'll is million, of driven XX.X%, in million GAAP X to close compared points and Operating and gross was discussion from compensation product the year, expense expenses. fourth with up quarter the our Fourth of by QX approximately X up $XX.X review higher related statement my to an fourth and margin introductions increase product quarter our out R&D on quarter in preceding results. an points quarter of variable the improved from new increase volume mix. in a $XX.X

quarter fourth expense of approximately included was of which million, $X.X of $X.X the and for million profit acquisition-related compensation amortization Operating $X.X million stock-based intangibles.

of period. the in to a the was $X.X Net profit compared million quarter $X.X prior profit million for

profit QX the impact a quarters, Excluding million of on foreign in million. compared exchange is $X.X QX the net in net of both loss $X.X to

in Free quarter from restricted cash, was with $XX cash paying balance from the in to $X days to million $XX XX up prior or Turning after and cash continues was efficiency operational flow on debt. This That million inventory revenue improve. last is to quarter finished higher the period. down as sheet, million $X the we $XX investments million down approximately million.

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

operations. we're As impact of our assessing constantly the Tim the coronavirus on mentioned,

reduced the We approximately revenue reflecting million have risks. quarter in to production supply our chain included QX in added and outlook, of $XX impact

this can we and is We our QX. produced be supported that We supply by anticipate and supply have revenue by assessed our the extend chain know on outlook what impacts based beyond inventory suppliers. may our what chain now,

increasing to demand able steadily unfulfilled expect in we Our to and be suppliers production ship are subsequent periods. QX

temporary a flat products. on for mix Gross which unusual shift to margin relatively QX margin is higher to is QX,

QX included in a a of in we R&D credit expense outlook. Additionally, that as our to $X.X license onetime million received fee is

are; to expectations a slightly to range March diluted the XX%; per that revenue for margin profit; share million are $XX million, $X.XX of coronavirus diluted non-GAAP and $XX in which wider Given XX% range the quarter a of the GAAP margin $XX impacts $X in the and in range reflective the million of gross company's XXXX of GAAP of loss non-GAAP $X.XX given in range the uncertainty; the XX%; the gross to earnings of includes million share range approximately of diluted numbers XX% $X.XX per shares. $XX.X in These range earnings to fully profit. to reflects

to department our XX% continue remains is Huawei Huawei expect minimis of that not denial and ship subject direct threshold guidelines. Note current to revenue a we we existing products to changes, order, regulations minimis de to impact commerce de content lowered If without to other outlook. the to would within were significant the be that

NeoPhotonics a million, on percentage was X to debt were year increased and Gross X In a statement We and year non-GAAP on revenue. non-GAAP XXXX, profitable Full for restricted reduced expenses basis million. cash GAAP made summary, on Operating year-on-year on year has revenue we for up a basis. unprofitable a full – cash, points by down $XXX progress. points GAAP of while were substantial full were a as of basis and margins $XX XX% up $XX million. investments exited the by businesses. the We

become we to environment. the that on pleased we'll business and current consistently profitable our a are to progress the execution in continue We with focus have made

Todd? open formal the comments. This to would I for line to operator the questions. concludes up And ask our now like

Operator

[Operator Cowen. our first you. take of from Thank Silverstein We'll question Instructions] Paul

Paul Silverstein

know may. One, broadly speaking? trends what I with the period or you building at beyond them needs, seeing Thanks. of comes triple their got outside demand to every are it. were downside into double the this be future to of China, their do Two of secondly, I terms I've in on overbuilt? up equation, related question I risk quarter, if visibility ordering, Tim, in reduction come appreciate Huawei, if And what back bite could questions above demand which but respect you inventory again, to ask and there up some to inventory that you have a

Tim Jenks

see. let's Well,

of a part steady. consistent. first the demand the the from is West question, fairly Paul, seeing On pretty with to respect We're actually

QX. with our our that outlook was our and QX results think for having both expressed I

For and build build what level others. in product Huawei, products things is shipments. inventory say versus cannot to They may they differ of it's product to difficult and inventory ordering some in some

We something they're of it's So where that. build not there probably and do build than more actually like inventory can able I though level of think you is to do. affixation some to they'd provide

Paul Silverstein

one that to would about degree. wrong that an heard year, the look terms I I ramping higher uplift volume. you higher gross I margin as Beth, products the in? trend have with line I in being gross what question out more And margin being with are would sneak temporary But and think favorably gross I impacting the those Am Can throughout equal have greater say of on your thinking all assume rate margin. that margin, that way? you positive things the

Beth Eby

would we Well, you'll dropping. about points normal drop and X trend us QX, see in aren't notice

trajectory the gross individual margins. absolutely we it as top want the over to of gross our up. the QX normal years take for everybody So get course put just and cost don't year of I margin on tends more reductions,

Paul Silverstein

appreciate Thanks guys. it. along. pass I’ll it I

Tim Jenks

Thanks, Paul.

Operator

next question of Thank take Northland you. Markets. our Capital Tim We'll from Savageaux

Tim Savageaux

Hi, results. good the on afternoon, and congrats

a demand making you of historically like been wonder in gross the QX which into same, QX, looks key Huawei anticipated reserve stronger you exiting And for have kind I China there the customers is the revenue sort kind Are a in is describe driver geographies? well. you you're but say would seasonal head than X basis, driver not your into they want to Thanks. as geographical as a And seeing more are trends there or it is, from just mix only tie comment or of So, on margin if that QX? is contributions QX. of to I to could there? the coronavirus, is relationship other

Tim Jenks

Okay. of prepared coming in say and let's the quarter we of end remarks up China specifically, see, up a did Well, bit. Huawei of was a bit out year, was end quarter, fourth that in fourth our

quarter coming so, fourth strong. demand And China's of that out relatively

a the China. I think risks compared to we lot stronger that variables But there think our for I of the right back now of in that would relatively for half normalized going be to year, and expressed expect West the the are statements. on with

beyond be So that, speculative. that relatively it's may

Beth Eby

of And as be just Tim, the so margin. geographic not much a that it’s higher on products a made split the mix split, to tend outside a product little are China line

Tim Savageaux

course mean, Okay. where or where broadly of as more Well, specific what you're you can near recall. of manufactured, and beheaded if margin, as focus ceiling product a that you And gross go color driving mentioned some margin I is don't XX%, product year-on-year high really, on you those which I'd gross demand pretty factors, execute, on a up application if continue up growth margins? regardless might welcome is know, there gave but But that is efficiency there that. a on high for products I'm was on but as the because compare is margin, product imagine substantially. How any of is operational they're it offsetting kind I to I –

Beth Eby

let about yes. are, – said, points, me product think X what I we margins we actually did. The Yes, gross are up

ceiling Take the to but naturally So have product – margins. a in higher the higher on don't market, Leadership more little margin. R&D, products particularly get I we products that that leadership just think we think they command margin. command focus I – our are as the we continue on a

Tim Savageaux

Okay. what then I finish to go about up, the mean, ahead. – just And

Beth Eby

to that I in are product X said just looked we said last and the Yes, went – compared year. up back at margins We data. points

Tim Savageaux

Yes, margin. factors then in the I on us offsetting the I'll And of pass gross that. maybe and then get puts takes through, it and here, take

some think year, historically, be minimizing the issue through product But, I the to And so time. varied a the degree margin over I you would that's always and gross and look underutilization, what tariff obviously is as factors offsets mean moving maybe maybe of the Tim, sort you've had of but one-off. those

Beth Eby

is So as our progress product leadership and I'm product, improving margin thing to we we we've those. on pleased the biggest believe increase. that those made with release continue And will

structural in at ameliorating type As of – we've number more And is the moment. thing. margin little product on things changes that's is phosphide said a And of fabs times, and to goal of that our tariffs take our which like on going are the underutilized of indium total XX%. what some

Tim Savageaux

and and Thanks results congrats once Okay. the execution. financial again on the

Tim Jenks

Tim. Thanks,

Beth Eby

Thanks, Tim.

Operator

take from question Richard Thank next Hallum. We'll Craig our Shannon you. of

Richard Shannon

thanks guys, well. taking my for hey Well, as questions

Tim Jenks

Richard. Hey,

Richard Shannon

a I you the this guide mix? in or What been that a is the you up mix saying or on Maybe a but that said Hi. just that not quarter? again, here shift just you going if sure something happen here quarter margins. And to now just due just could would gross margins following happen to that mention be first this question say it, margin might've that's it's temporary. a shift largely normal didn't – are it's you missed to with in gross first I'm gross clear, right is the mix

Beth Eby

of driving for That's with because is revenue. normal really what's more margin lower down factory the extra, mix expected, higher minutes products being out ago, we the are our our So as than with was of products than significantly greater couple shift. mentioned the low, I it a of China the proportion shut

to then mix, we proportion. as products a back would of China more expect to move back balanced non-China normal a margin gross to we shift type So products,

a points pricing said, environment about we drop normally X relatively had this QX, we I benign don't year. I in think without, as

dropped not would than – which the from more much, would where look is you midpoint, were go QX the the in to if we but dropped have we a have So that. more have XX% certainly than XX% and little would that dropped we we

Richard Shannon

this And going revenue quarter, on a pretty the Obviously, level, second if normal guiding grow Okay. quarter? can I say say have should just then would environment looks magnitudes margin your gross in seasonally let's affirm quarter. into you're but healthy, or normal. you're a to a the even on not extend could Not second just but having or here, let's the it's you the that suggest down flat handle be hypothetically seasonally

Beth Eby

as… guide don't I

Richard Shannon

of Beth. Well, hypothetical it's off

So…

Beth Eby

But hypothetical. you take would products we'd if product and since we intros to been these do, a our Yes, been product if mix than we cost QX normal products. – it where are a new have add days rather reduced more more had

So I course over do, reductions the will some don't as we year. still of think have take high we as up but cost the can we usually

Tim Jenks

Richard…

Richard Shannon

Okay, that’s fair enough.

Beth Eby

We’re you an you a not not giving telling and direction answer.

Tim Jenks

we're the our yes, about is possible reopened the of right at impact actually now China thinking that think, We on things time. One facilities China. I earliest just the

factory have we as February unable they're them as parts to And country continuing I the and Shenzhen. may XX. on more increase in running We operators they said, of have opened to about two-thirds other at been have work returning where to we're travel. Dongguan We from and production

we right level going we can't what to know But is what throughout quite now is the QX. be do don't

hypothetical, point. to it transition. on So the this situation with in day, magnitude extend did is the beyond that say real we're some this impacts We very, but very at know We're of QX QX. those every Beth of working don't another QX from facing the may but

Richard Shannon

for and quick Tim. that Beth Maybe balance, for Okay, I one a appreciate last financial question Tim.

you pickup Beth, looks quarter. fourth had the On the a OpEx, like in

very a or consistently year, say expenses you went higher, with profitable. OpEx You any or lines year, signal Does a OpEx? sort some Could into you the you're obviously as trend think for of increasing tight we new with had saw this we are it? back good something. cut project last still I product being very see move

Beth Eby

higher said, we're that launching it than it. to would a you That takes was R&D year It's believe products new little being do support. people I tell to drift drift. Our going and tight we're way last too because still it's with going

Richard Shannon

Okay, of are fair C++ here capable the versus ask Tim, doing enough. wanted that help geographically, breadth about how are kind or products. so? last some question, And this kind the not of maybe of in interested us interest my many can understand as of provides spectrum to Can this then, as well quickly advantage you

Tim Jenks

spectrum. The C++ products do broader offer

wavelengths so the situation operations for the normal nanometers. And for systems are DWDM in around is, around, example, X,XXX C-band so-called

have end at little this in so And end. wavelength higher case, a at the more and lower the more wavelength you

without if it. because you money it and bottom in primary the available it's more band have a so the spend matter. that It on be much capacity what to actually Right now extra from get of on top without is extent that and, how line also you the fiber an existing depends but so in right a plus fiber The have primarily and really and fiber the that existing more is change existing West is leverage regionally fiber. does And system. now C extra broader on interest plus lot use China. can to is on plant And, fiber It increase the an may plant, you having later, on China. the

an China. is investment focus there involved, today but So,

Richard Shannon

for from guys. me all Thanks detail. the perfect. that Okay, questions Thank all That's you.

Tim Jenks

Richard. Thanks

Operator

question take of Leopold We'll our next Raymond Simon James. you. Thank from

Mauricio Munoz

more Thank Simon I the coronavirus drill just China. you – for Mauricio your to to question. wanted I the potential my for exposure impact is on today. just This – to drill in of taking exposure your to and wanted

own supply the the as quarter looking side. you. are the how that the approaching for talk the are as about managing current the XX% how restrictions exposure Thank the in the think chain mid-point, and you first you sort guess demand range, I given I size, of on please things at your could impact well

Tim Jenks

far these a the for and in plants important are that employees operating on note demand. in what think normal to some comment managed China and that Yes, two to we thus employee then let chain I'll notice But over we've it's above overall than – overall supply put stay and operating first we’re all manners. Beth call but actions ask we've our making comments I me sure to of of – and plants have our it both different that tremendous We've of distancing care number just and normal, are social and normal healthy. had quite taking in I'll place people what turn all

usual. So, healthy. we're more people's this and thousand business is every business all very keeping as not a with them in health is as being operating people way, This carefully carefully very and But, the of primary also, benefit. than

I way our testament think operating. China that's a the to plants are

we're very, our supply well. and matter Now supply with partners also working as our very partners closely

gone but quite So far with as them that's gone, they that's communication ramp there's up. daily well,

a overall Beth, can it maybe I on and For you. turn demand them little more to

Beth Eby

got meetings We daily critical they chain with are. Sure. we components our we've going where know literally people. supply know the are, what

ship and them they're assurances how what up, to be much we able we, of us, manufacturer get and been to talk they so to of able to coming how can products. our And inventory have going they're

with we into there QX. supply for have out the comfortable will put So, that for capable QX range and we're be certainly the that

manufacturing As most China. is of days reminder, these our a of outside

are as no all so impacted our supply not impacts lot significant chain operate those those with and as and usual So, of on a their supply to at are are chains. continuing partners,

Tim Jenks

point it's nor and of a demand not, business by from is really view demand neither consumer that our demand. that's keep bandwidth perishable all in of driven Let's deployment mind

are actually changes is Business So, result as place. in really those to we Carriers major don't all a in of anticipate continuing normal go. continuing to demand this. drivers are deploy,

think careful so the the cautious to carriers, it us And to be is chain supply business us, to because continuing given above perspective have need think below but in I to we our keep flow. and I risk, through throughout and we

Mauricio Munoz

Thank thank Thank you Beth. and you. Tim you,

Tim Jenks

Take Thanks. care.

Operator

Henderson from Needham We'll and you. our take Thank next with Alex Company. question

Alex Henderson

Great. couple I'd like Thanks. questions I've Tim. a got to of ask

as that XXX a bias is The XXX of tariffs. the first result around gig is one there China gig, the

the mix So shifting higher any on anything lines them to change or China? some along parts now that is tariffs the using are evidence about there might that thinking of back that speeds in

Tim Jenks

we're those have XXX at isn't we dedication to tariffs think the firm implications that – that a network do pretty carrier with the anything the This there's see seeing along that level and XXX and of to both the is gig both Denial Let's and to there the equipment Order. lines gig. change the manufacturer

be more so they're and moving to XX gigabytes. little a to really And specific, not sticking XX to gigabytes really

And provide. gigabytes the and currently the second XX gigabyte operating chain so with XXX what their which XXX can gig they per is are

Alex Henderson

XX of Or that gig event? are shift gigs could more of gig deployments clearly XXX back over I a but year. XXX If to at available the reasonably is segment the the be going a market, – XXX some this generally point XX full event, scale are to the product's the in of half

Tim Jenks

XXX in doesn't not and expect it hasn't yet. but the would of the we market to ramp it would start launched, would exist so it we second expect that but year segment gigs Well, the Because half until then. this

Alex Henderson

great. Okay,

on you commentary revenue but delineation that might anything GMs. a product talk purchases what could changing XQ, the having coronavirus very that along margins? impact have On impact you bit about clear or gross any expediting line, on lines on supply the chain an little that's from also Are

Tim Jenks

which said, So it's production, half we're that, is that's of running as for smaller our China, the running the I two part given capacity. thirds at the fact in

by same token see among on. a expediting going So, that's competitors as that well. we But actually lot not of there's the

expect all. demand we shifting So, at don't is

production strong in China And I some is that of demand and has for so and part think steady. Production is is the impact. our increasing

managing problems chain risks. have supply don't closely. those think We have We supply chain and I we're

the outlook. directly So, comfortable working hence to on and best fact our as provided We're we've that in our prepared suppliers. remarks, feeling pretty with commenting talking

Beth Eby

bit extra our little a underutilization baking forecast. of are We into

Alex Henderson

I see.

you order the to it is what of kick rates need top variance I bring to has under the product back in in that where on is the quarter was remind which Is had utilization a utilization much in falling pieces What XQ? technology? you mix here What it bit to utilization, assume that strong going are to just mean, utilized, that's, that's the And that a the obviously EML into would products most quarter fourth Okay. And I up? Obviously, look products better. ramp various line. really at XQ? in. rates utilization it, us, the that. we rate is, be How to as the quite Can a the caused level

Beth Eby

a few That's as our talked Phosphide QX times, the little utilization do it. of in We what expect would factories. under-utilization Yes, you is before about we've have majority Alex, China. Indium under in our a of as drives bit really

that our of into built All forecast.

Alex Henderson

so just Phosphide to to fully the to get utilization to the volumes you need right, of get revenue fallout? in ramp, to utilize, order level All Indium would what

Beth Eby

a and That's a It's we been, Phosphide from added think, lost back a of said, still times to in share some It's come not it's not that the product total we're we a We it. We've lot back. EML and of this XXXX story hasn't market Indium capacity couple our XXXX mix of or back into I revenue. mix. a the beginning back DML in question. but growing

Alex Henderson

then floor. and comment I'll exit last me, One from the

great Congratulations. job. a did it. worried certainly Thanks. about We were guys You

Tim Jenks

Thank you.

Operator

from question Instructions] next Cowen. of Fahad take our [Operator We'll Najam

Fahad Najam

up, kind see that's be chain ramp and How if own question. the supply on to any starts guys, the case, few my as forward? just you would last non-Chinese have Hey that? linearity weeks their If you are the risk of what this seeing in ask rate of could to going you kind true you thank blow do seeing run demand are for taking your coronavirus you customers I demand

Tim Jenks

I that have spots a say be, do a Fahad, really we no, generally we isolated a see trend. we orders, account demand ramping seen would that where So as see our overall for of province, example don't might if on Hubei We this. see few competitor have customers may don't but we

Fahad Najam

ramp. mentioned be earnings components? it. supply on call Got you gate which XXX short I of XXX will gig gig think will that year [indiscernible] shipping in XXX their the this Are capable fully components gig

Tim Jenks

we're not are and Yes, constrained. we supply

Fahad Najam

last that? thirds Beth run China for that be question, the about related the is back the that at in one your What your normalized of your are work, at I midpoint to Beth rate? question And I in see of you. Awesome. full just if to Thank Alex's Is impact what's true folks revenue. two OpEx OpEx given there XX% OpEx – will coming of may,

Beth Eby

of million most no is change So for We the difference a mentioned OpEx a a – OpEx on in in we There's I our DL. credit impact little $X.X QX OpEx salaried. did. sale that of because on license bit do have that our was

forecast. cost that's Our direct baked our gross into labors sales and it's all margin of

Fahad Najam

you the That's so much Thank for answers. for it. all Appreciate me.

Tim Jenks

Thanks Fahad

Operator

it this to further I'd we turn Jenks Tim no for have questions like to At back in remarks. queue. time, closing

Tim Jenks

work and Thank you appreciate in our We forward interest the you updating future. a suppliers also very to NeoPhotonics. much good diligent in our of we evening. for look our your drive employees to progress of Have and the

Operator

your you Thank for concludes This participation. call. today's

disconnect. may You now

Neophotonics (NPTN) 27 Feb 202019 Q4 Earnings call transcript