NPTN - Earnings call transcript Q2 2020

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Operator

Good day. Welcome to the NeoPhotonics Second Quarter 2020 Conference Call. This call is being webcast live on the company’s website, at www.neophotonics.com, on the events page of the investors section. 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. I would now like to turn the call over to Erica Mannion at Sapphire Investor Relations. ahead. go Please

Erica Mannion

you results Thank outlook us discuss to the Good the for second operating XXXX. for quarter and quarter NeoPhotonics third afternoon. of joining of for XXXX

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

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

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

Tim Jenks

Erica, you, afternoon. and good Thank

continues the to in business challenges operating well COVID a Our perform the full despite of pandemic. through quarter

the and put priority safety health Revenue families. continue in compared the was first the $XXX to our million, XX% growing their highest the on second and supply our of growth We quarter. quarter partners to employees, in XX% year-over-year

prior quarters to continued last prior Our highest our X year sequentially. growth percentage expand history. year. Similarly, was points our and X from for Non-GAAP over levels the to EBITDA points in four percentage the margin operating gross the and up at XX.X%, XX% margins are our

ongoing Gbaud the XXX Our highest share. components and demand $X.XX for for and NeoPhotonics at above per distances non-GAAP XX be and for view years with be wavelength which customers highest kilometers longer. accelerate. distance per applications center above. industry notably and in bandwidth cloud by supplying was an for gigabit speed solutions, driven continues other data demand, for leader and growth and interconnect EPS fiber products upgrades network area and to Sequential XX ahead, centers as our an gigabit was important infrastructure We bandwidth the associated growth optical the modules, to per XXX and deliver at data over

“biggest area pipes” and center backbone regional the networks, these networks, metro products highest interconnects. enable in Our data data for rates and

lasers, at highest as speed high XX% are Within speed such extend this, light components speed Our gigabit and also tunable are the our Gbps, modulators in represent our of reach including more high consistently and applications to or receivers, speed products used core and newest XXX lower These business. ultra-pure now products, distances. gigabit XXX solutions. XXX gigabit to XXX of longer transmission

these revenue forecasted believe to growth areas both industry above and years over are applications be several XX% speed growth gigabit our the products recent and been of approach distance our for profitability. together, among Taken deployments will of and fastest have this our highest driving year. next for the the XXX total revenue in We in that

our customers and leading deployments. NeoPhotonics At world’s revenue and above are gigabit these our leverage sequentially. diversification. network gigabit our products growth, XX% excluding customer second solutions customers for XXX eight of total are their customers, also equipment quarter, next all point, top-line the Beyond Moreover, this of top increasing combined faster In customers grew XXX their systems. now our a the two ramping almost

gigabit on trend We industry of causing We of base, the for and and our delivery design are market commitments orders additional between likely customer these customers. customer have XX% be will shifts leaders shifts. during to of to Trade our expect Due products. is that our breadth we XXX share this above based second tensions half NeoPhotonics to continue. wins existing the anticipate customers a and XXXX, become beneficiary

in customer our share would XXX above roughly For gigabit largest shift to equivalent revenue market a likely another revenue would example, terms. another leader NeoPhotonics in our be to to industry likely away terms. a and gigabit port shift market NeoPhotonics to customer be favorable and one from leader port from share Similarly, largest and one of of away XXX

they to We inventory has at had their Over the plan this trade believe point reported goal. that have have last year tensions. customer, that achieved we strategic due to largest our build Huawei, a

rate module and deployments LASER Gbaud and provincial ramp C++ spectral is will using range the for and above expanded increasing of in from in respective the capacity, systems networks. for allows impact additional efficient capacity carriers leveraging fiber believe the strength our NeoPhotonics applications, customers gigabit distance XX and revenue baud to adjustments. increase customers product component window wavelength XXX backbone As their previously potential group channels, spectral offset higher Using C-Band fiber Huawei’s noted network these next and We China of inventory solutions. we the that Super from are

strong Looking beyond XXXZR quarter in the XXXZR+ year. pluggable modules, launched continues with we fourth progress coherent last our and which XXXX,

Our XXXZR Cloud XXXZR+ modules and for sampling and having are applications qualifications, the initial Ethernet quarter. from moved customer first in in

interoperable of multiple steps completed transceivers compliant further taken from multiple we coherent key error-free the transceivers to vendors. kilometer carried ecosystem. XXXZR over have links Both operating XXXZR transceivers interoperability XXXZR+ availability is enable utilizing link a a coherent traffic, over OIF IP Together This optical C-Band. the and Inphi, across optical a We XXXZR wavelengths toward industry’s of generation step XXXZR and establishing the demonstration and first XXX architecture. DWDM DCI demonstrating with next fiber the coherent using

for We hyperscale expect initial to center be volume customers data applications interconnect. with for XXXZR

also area longer to module It components. important position TAM capability over is adds there distances, opportunity interconnects, highest it use leading interconnects. to is interconnects, the expands to long XXXZR+ XG longer module XXXZR+ backhaul new with However, NeoPhotonics, distance cases ASP distance data regional for and and for including beyond higher haul as an emerge for XXXZR in speed existing interconnects, solutions metro market center our market note overall our that and

rollouts. multiplexing to unique systems, applications, well shapes, and Additionally, caution favor. over to edge, and operate continue opportunity the due spacings deployments each as and across we the be having XXXZR global CFO, the that equipment including and due risks in increasing XXXZR+ high to high systems, in or be over and trends line performance remote the above XXXX, services, needs specific DWDM to to Eby. these increases fundamental as monitors, cloud With capacity working, our we new open business, With turn our bandwidth provide. I’ll industry wins line it require in XXXG products XG that filter ongoing to of which growing speed design call XXXZR optimistic driver momentum to channel XXXZR+ network manufacturers, that, major also for channel systems, NeoPhotonics’ Beth move related continues high-speed Rapidly with of the remain wireless the and including pandemic, whether

Beth Eby

good our our $X.XX, and result afternoon. a of by you, team challenging NeoPhotonics’ remains performance EPS with than execution non-GAAP and quarter. range, outstanding in of suppliers a QX Thank our as higher guidance Tim strong

was As Huawei our Tim XX% of our quarter. mentioned, revenue four was contributed customers of XX% $XXX.X million, outlook. and the high above to similar end last next revenue,

designed FiberHome revenue was materially sale design of as Our manufactured we stated all in not using or as remain of ship, Similarly, products. we our not U.S. complying U.S. manufacturing press the our the We to designed Commerce entities with of was recent release addition May products on equipment, by most rules. based the their Department products U.S. own or our restrictions customer software of on materially we of impacted the by list. review dated our revenue EAR affiliates to impacted XX, the all committed and

impacting Non-GAAP of was coming slightly expected. gross impacts. of from a last of was continued operating to lower project quarter were timing. charges percentage Other this, our other toward and charges expected delays sales range. in These point cost charges. approximately: points of on point point $XX.X of the increased QX warranty for quarter were end are minor slightly XX.X%,up as tariff on half charges, high spending the million, The residual our related non-GAAP Our not a XX.X%, margin product underutilization X.X second margins improved of adjustments, Within a volume. COVID-XX Total expense than a sequentially, push-outs

$XX.X expect to XX ensure under Non-GAAP I XXXZR the quarter we leadership the for we million, out of for or said last and a second the programs. in review As at results. with half for of strong GAAP second Non-GAAP operating on first continued to half the XX.X%, income was quarter record our continued back discussion the NeoPhotonics the the income was $X.X second up year reflecting million, close both Gbaud or our quarter, a and will our success make net profit X.X%. of statement spend increasing execution. my products quarter of our

driven variable acquisition-related margin up increase points profit lack profit and the and $X.X period. million of in expense. $XX.X of quarter-over-quarter million, $X.X compensation Second the license quarter in compared higher credit intangibles of second was million, $X.X million, a for million Operating was $X.X Operating from gross stock-based the the approximately, and expense of with volume. was costs. up the included prior two QX, million amortization was as other for profit an quarter $X.X quarter XX.X%, expense in expected, by to QX one-time Net $X.X compensation million which of

buffer the million we and continued million supply while investments paid continued to $XXX to cash. increasing balance sheet, debt, to inventory Turning restricted $X of was volatility. cash down to cash, and of $XX chain operations short-term as Cash improve our position our from planned, million

continue We invest to well growth. be phase our in of next to positioned

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

As strategic believe building been we believe end-customer and that quarters, have is have action Huawei we few their noted reflect the orders complete will this in inventory. and last better future We now affiliate demand. HiSilicon

QX. Gross revenue line other our lasers. nominally customer’s in we deployments, Huawei outlook, charges. given net that highest the decrease. our will some slower As is of in our This than The fixed result is planned silicon mentioned, Tim continue wavelength to the with of reflects QX transceivers use COVID-XX, that the largely due underutilization to ramp, speed which margin result offsetting expect of increase demand in is strength photonics-based products, a customers

of believe expense We the increase of the to I In earlier, maintain we and is that or will revenue for XX mentioned dollar. adverse million half per the investment to in we back in to and move customer in in an the As continue a investment Gbaud diversification planned of the drive the both XXXZR year, operating relative have XXXX increasing as Yuan and forecast, impact share U.S. beyond. QX, are the growth year. FX $X.XX in $X value our unusual impact, taking including a the Chinese seen

if As U.S. will sheet the this revaluation is our recovers. balance change U.S. valuation a assets on China non-cash of impact our and reminder, the dollar dollar

the profit, GAAP a reflective to had million range for the expanding $X.XX numbers XX% we free million the summary, in range XX%; are: quarter of and approximately $XXX delivering range gross XX%; the flow. are gross In expectations the to profit. million; of GAAP that, company’s in $X.XX in revenue eight non-GAAP a diluted September fully $X.XX and the have non-GAAP diluted $X.XX a margins range of of loss $XX earnings earnings Given share margin range of of XX% XXXX diluted margin to to the shares. $XX.X gross in year-over-year growth, per per in These share quarters to cash positive revenue of now

We to drive profitability. grew last customer year, over with a fund million good $XX Net our quarters have eight profitability. position a base. by focus in the also increased same demonstrating year, our delivered to the expanded non-GAAP of in to from period long-term million putting period from gross cash us an revenue $XX row growth same expanded points four and year-over-year last XX% QX margins

the now, I questions. up line ask We are growth prospects. operator our open concludes This for and excited comments Brad? to will the formal about our

Operator

take Instructions] from you. We will first with Samik Thank Chatterjee question our [Operator JPMorgan.

Joe Cardoso

Cardoso is Chatterjee. Samik Hi for Joe guys. This on actually

my whether actually XQ wanted any headwind making up to just seeing you your guide, are and COVID any your revenue guys know there COVID relative to guys you to XQ question, headwind? I relative For first ended performance, then

Beth Eby

were put when got is mitigate guidance that we QX those, in in was revenue chain supply headwinds. $XX we we million what We were which of – guide about the to of our the expecting we So, able said all over range. how almost place

those in be on believe and mitigate in we We are the QX, in our believe we quarter. that but supply still will experience through chain to QX, seeing we QX able impacts based

Joe Cardoso

from ramping – other expect just they Is mix? by impact comments do on benefit that you business then kind and maybe, in customer you offset your see of relative Thank in that Huawei, level. the the Huawei that targeting achieving inventory as to I were How the finally And margin expect would shift guys suppose with to you. you your potentially subsequent customers. and moderate that then quarters margin? Understood. revenues

Beth Eby

ups see most customer. the volume the under to largest are. see but on I is could numbers think those what we’ll level some – utilization be by exact get of our charges. offset and downs Huawei is discounts, need They that

their So, see to actual how see plays when that we through need we orders?

Operator

Fahad Thank take from and Najam you. We’ll our Cowen with next question Company.

Fahad Najam

those your forgetting largest Thanks a ask and How taking integration. significant be how being from question that supplying thinking internally customers beginning by Beth. Tim, components should Huawei you were And of to putting that you customers about your for a How vertically I previously vertical has some integrating of of already some see question, to customer picture – my and business? of business non-Huawei want do impacted that on done the non-Huawei shift to you develop you them? aside, your see your we are to are Tim trend? big U.S.-based certainly amount some

Tim Jenks

beyond level QX. prepared a we of majority top look QX our and see vast in grow in XX, are if collectively about Well, And But said not into some our eight are did I path. top as essentially, we XX% the vertically other do we those, have over vertical they integrated. the the on growth quarters remarks, Of past commented integration. two

to then all an level we for we’re looking XXXZR+. exception revenue XXXX, extent for capability coherent expect then we telecom will of that at XXX is the time the rate at continue XXX But XXXZR are industry XXX a And by gig. forecast gig, that right above, being Now, some the quite the XXX be growth do to suggests is modules. additional gigabits and component to – and good. then expected and now, focused that and us the growth of with of that rates for gig, for get

are doubt, the there TAM prospects. addressing. same opportunities to integration are, causing expanding really So, the good vertical without are token. to expanding with by an to headwinds There about excited continuing that pretty and these opportunities us And very be what’s be we’re market

Fahad Najam

in of on to, in give then And can comments I you there’s Got this certainly, concern had, you maybe, build-up I appreciate some but inventory can it. that if big idea to much I in XG the mean, and help terms China. always us much the kind mean, can you speak how that’s end components. the Just Do of be the understand type of China. you of a XG your attributed deployments? deployment driving is piece revenue versus deployments know us application your BCI demand your for near-term, of

Tim Jenks

build aspects deployment, Early and Let’s subscriber of is of see, usage. a in deployment in largest is toward for and think network XG, the a backhaul mid-haul. mid-haul would deployment. would the of to it we on the about the the move the it rate based both backhaul, front-haul mostly our position and out be some which front-haul, XG and have front-haul

So would subscribers, more up with they back-haul, would essentially, capacity they as use a mid-haul, impact and that front-haul then build that it for requires deploy us. that and –

So is small actually, components, we for our that part some and but of lasers front-haul that do wavelength very total. the fixed percent sell in revenue a and it’s is, mid-haul,

there So, moment. impact modest at really of a the very on is revenue kind

Fahad Najam

I pass it appreciate the on. I’ll answers.

Operator

Thank we’ll our and And question Henderson Needham you. company. take with next Alex from

Alex Henderson

much. you very Thank

Beth Eby

Alex. Hey,

Alex Henderson

Hello.

for us stuff. little tax I’d direction you expense some something going of mundane? rate the or think going is on a you is So, give the to I thought or do start two, tax mundane with what bit next nice to Could quarter do

Beth Eby

as that we China tax rates NOLs is offset remain Our XX%. XX%. taxes. is U.S. the same have the Japan

a And than of have QX QX and higher out significantly burden expected. higher in stable. how still than QX both sorting were honestly, We those in They’re with accrued. We shift and profits significantly because approach got are taxes still had QX they’re a hit expected. tax Alex,

Alex Henderson

quarter. less was something June considerably X,XXX I in posted than the it’s So, the that assume

Beth Eby

was the because June, that’s June right for one a... No.

Alex Henderson

going mean forward. I no, No,

Beth Eby

should year out it our Well, something yes. over – slightly in lower levels. than average yes, to current the

Alex Henderson

wanted Clearly, around Great. sure from were to I revenues And the benefiting make a just understood comments building your I Huawei. inventory.

be Now, you’re to in to be going but current of sustain got or the the also I level to to you orders of growth saying not to customers Huawei down completely other Huawei do underlying expect would said be order I’m then subtlety you relative offset meet you demand them weakness start around Huawei, your to are able bit? do some out inventory demand, consistent that draw inventory expect little would therefore, China rate, rate, a the growth and sure. with that.

Tim Jenks

Yes.

from the expect to a over as smaller Huawei a they back and in tensions high position, of they have products the trade were highly been So, strategic demand do like have in they down opposed a that inventory built that based are we are putting than been in as Huawei years, XX-s it XX%. favorable is, percent we to and but would normal accumulating last unique somewhat more has the have trade had a the their multiple Huawei if continue revenue range a run over revenue of be a because last the revenue, Historically, and about Huawei market working inventory. rate. purchasing we up in year, do larger there their on to base result, as to expect it’s five years, strategic looking XX% but tensions. was inventory, that as will year, strategic of a change change

to out. we play how that’s So it expect

Huawei as market in be Now, playing may our where subject out. the situation, is of as market commented, balance as toward, quarter customers to next a remains share their out well relative look see, And I we they may and and be year, share they are to competitors the shifts. beyond

inventory expect is But they actually an share, more a ample. basis. if to on than losing ongoing are basis probably do them relative on we their purchase However, then

Operator

Capital next Hallum Thank you. Richard our take We’ll question Shannon Group. now from with Craig

Tim Jenks

Hi, Richard.

Beth Eby

Hi, Richard.

Richard Shannon

it than and than a different sales asking Beth. well. Is of Hi, the midpoint it the third is in or is here. one in think taking Tim I think guidance of – thanks Huawei pretty safe the slightly it think flat, up, ones quarter that revenues Maybe, kind for the prior which your slightly questions rest kind being here, differently? Thanks, here think down, but about a should the about on fair to to at we way essentially close down my as flat about of as to question down

Beth Eby

the to No, that’s about is. right think way I think that’s a – it

inventory, been others. growth and of they’re believe inventory Huawei but hold the Tim going building As we purchases good order high-speed still as to but said, that continue just seeing has to we’re from

Richard Shannon

Thank the to in you I with way you. if you in half characterize you is second or OEMs, it in more customers any to these to or customers? characterize year, cloud guys And respect what XX% geographically can the can think or assume Tim, one I of see said in a are or way, their direct you OEMs, otherwise? possibility any there them would

Tim Jenks

sure. Yes.

equipment So that specifically, that manufacturers I’m I to. referring said network these are

So new that companies XXX of demoing the yes, their and OEMs, but that there are higher gigabit gigabit, XXX speed. a launched even systems have number and

as selling we seeing they The market ramps average those of and than quarter-over-quarter quarters. of And growth. we’re backlog but is, so to that’s also revenue, of we’re rate increasing subsequent seeing those much for a are strong higher ramp, seeing result each

have for very gig, challenged network forward situation. group going a gig companies in case industry. where stream been products. the for us Huawei’s We’ve And customers equipment strong the customers they above solutions ramps, are unique strong top on position, largest, their in very a we’re situation, are XXX certainly, relying by So, the all kind that’s they got in growth of the in XX and overall our component XXX but and of trade of the the those as the

Richard Shannon

jump question. quick OpEx last here. for out line helpful, Beth I’ll the That’s Okay. on of One Tim.

percent few for how or should implying should to your beyond trajectory in level here think we of sales, be model we a think how and out, for about about that, Your you’re out years that? think quarter, I flatten or a higher quarters kind go guidance of discussion or mentioned in this as opex expected the we

Beth Eby

low QX, on QX, This out. gross margin projects That’s the unusual, the model is XX% so we because how of I it a ongoing while said we’re so in is balance to of that but because going year – Yes. OpEx important. we’ve for and now were and that QX QX, are out be revenue. model in we’re XX% a is working

Operator

you. Thank

Our from next Capital with comes Tim Savageaux question Northland Markets.

Tim Jenks

Hi, Tim.

Tim Savageaux

case, Hey, guess, afternoon. you to to with XX of couple and continue a of slow this QX? your good implying see continue that Well, customers rates sort you’re around it’d I down shift discussion guess the let’s customer a that sort that bit and is or you of you magnitude question historical of almost three Huawei be questions, XX% expect to in growth could the which customers. guidance, that trajectory that changing mix in into of the sequentially, mentioned you I see with concentration on kind might come new in sequential QX. the levels, Do of kind

Tim Jenks

exactly It’s right. exactly That’s Yes. right.

continue systems, on We to are a expect and of XX. three backlog. view customers committed these our of based growth that to speed shipments to sell. range higher referring that products we We have we our do of rate for our

line the rate highest which systems. We lasers, and critical have are narrow with

or driver We modulator CDM. have our coherent

of one We our customers CFPX, We have module products. receivers. qualify combine these together bandwidth our high different in to all gig these and XXX

can is said we as content share. prepared that a my strong. And different their of as remarks why content, ramp, And so I our is very, be in this a customer argue customers but each very in for market over customers is terms beneficiary this of they some little

Tim Savageaux

I Okay. And follow just but up on one may have that that, to was afterwards, interesting.

a And customer not addition maybe of speak the I’d margin there changing applications have level. here, customers might different a minus, that of come or some a do and cloud like shifts right, issues more customer to long-haul I module module, kind to at fronts where sounds focused that whether sure. that different I might possibly don’t these mix, think gig one, revenue going see versus more seeing alluded be if I’m mixed like ask on you’re it of has, So, you metro then a on in in, component kind newer of type the transport about in you plus can XXX to mix couple you applications? maybe is know in end-market you to that, carrier versus mix a as was

Tim Jenks

Yes. Yes.

now, XXX primarily the are gigabit, essentially applications – network the in for which and equipment XXX above in fabricated gigabit used manufacturers, components card are line right of So that by are some much than DCI. The designs coherent of that the are alone. do The distances, is preponderance that and products have product capable gigabit CFPX modules for telco. include XXX we essentially longer ZR

China. And of actually these in market the of are is and four regional leading network kind kind market applications so for that deployment

form factor. those cloud-focused – mean and For factor then QSFP-DD expect would And we for us the XXXX, are decidedly, applications. OSFP form in would be to and customers ramping XXXZR, cloud and Ethernet versions, this

Tim Savageaux

as interoperability to about there this ZR side, of and was – ZR was – beyond a don’t in I call the so which significant the Inphi mentioned. extending prospects could area interest; have the mentioned the mentioned Okay. market I morning. some your least over on DCI if applications you think in remarks know going opinion also the follow-up, at and heard the you range. my telecom some you test was And the in metro on final that be is But

characterize opportunities, into cloud those would versus so, sampling could from has has you applications, maybe, that period. you last your telecom you’ve save the visibility with quarter or increased increased as moved time for So, and over qualification, telecom you toward that over

Tim Jenks

XXXZR, Inphi’s you I think in referred think really and half gig XXXX. cloud. their is volume this mostly XXX being think, we with second of to agree I with it I for focused modules would this of the Well, the timing for And XXXX, morning, on call

longer XXXZR, do do there include cases. I interconnects. – prepared to capabilities use remarks, use to additional And this these product this be And where, my but is would also ZR for XXXZR+. the extend Our expect offerings taking cases we for for as said in

long-haul just data metro backhaul, and not and XG So, interconnect, center regional but interconnects.

telco. so would these essentially be the And

So, application share ZR use a have XXXG additional first, but in cloud then gain Does our the help? telco would applications. is Okay. in the the cases

Operator

And question next we’ll from with take & Thank you. Associates. our Raymond Simon Leopold James

Mauricio Roldan

Thank for is Simon This today. question. for taking you my Mauricio

you – capabilities to talk understand coherent XXX maybe, DSP well about could directly could your ZR you if us gig the as you opportunity; of I to will think But you the landscape ZR as continue help you? the also, size as some the with can competitive likely you. extend of customers, be on current a sort for a of those, supply DSP here competing who if

Tim Jenks

first Okay. discussion is the opportunity see, Well, in the ZR. of let’s

I conference this questions, calls last potentially to years. about as we million response three $XXX the think over over in two talked

think closer that $X market. three view increasing for over to the opportunity years the a I billion is

a of size so for share that TAM, if That of the And the we’re competing be you ZR will. opportunity. would

strong that quite Now, application our form we the we there press ZR+ again, with be for our did cloud – use is have say offerings did is do both Inphi. the with they product of from first we the factors all three a for that and in for of the product XXXZR a release serving them we broad. real TAM, competing respect market each we But DSP being and interop been And that ZR to served DSPs, and with would partner.

from products past We NEL have Japan. in the DSPs coherent including other in also using module deployed

vendors. deploying So, from the are different product we on depends DSPs

Mauricio Roldan

Thank you.

Operator

we And Dave question you. Riley B. take from with Kang our will next FBR. Thank

Dave Kang

Thank you. Good afternoon.

quarter? compare give you what were did hello, perhaps with first book-to-bill – all or out maybe orders did and of how they the First the

Tim Jenks

from will look first don’t positive that. generally quarter year, the quarter a reflect we I We of say that, because specific strong means with our to we If book-to-bill, that that we’ve give quarter-to-quarter amount quite but book-to-bill, generally don’t We with doesn’t on shipments report amount meaningful back our No. managed it but consistently didn’t book-to-bill – are over second as out. well. was numbers vendor report the due we the inventory, of had VMI have,

Dave Kang

the trough will at do my regarding do been question Huawei, and where you And it. it long there questions, how is, Got obviously, of lot think but a take? you have think

Tim Jenks

misunderstood again, you. Say I that that

Dave Kang

about mean, quarter, Sales is Huawei where just as in trying bottom gauge think, as second do million the concerned? to what with is, I $XX Huawei for did Huawei, you or guys so you far the what

Tim Jenks

over previously, see, we’ve Huawei right and But that. historically the and now as interesting trade be has equal with historically seen, is like said seen to mid-XX% market Well, Huawei approximately to a the we’ve unique XX%, something let’s revenue tensions their position longer-term, geopolitical tensions. an I share, that been

we’re We be of that. share seeing expecting there some and be have and pragmatic to will that shifts market

And specifically us how so that inventory. strategic over Huawei forecast the term the to here. a revenue do not possible really And plays longer accurately will is reflect, the we up But is no from key expect the that’s that for out really moment. what build at longer point

Operator

Thank next you. take Partners. And MKM our from with we’ll question Genovese Michael

Michael Genovese

Thanks.

Tim Jenks

Mike. Hi,

Michael Genovese

me I’ve delay you about If that’s with Hey, quarter, just Can explain question. said that going third gross margin better? sequentially, be in the tell under you down on to again, margin? and first us the detail could gross causing to this you got utilization more what’s

Beth Eby

Yes.

me you’ve a say regular heard our underutilized for indium a become number as fabs. of So, we quarters, phosphide basis in on

indium two phosphide have fabs. We

some are projects that maybe, lasers. pushed a doing use very of our customers that couple interesting projects. not of of have their because our we because SIFO-based wavelength products, internal own but fixed And have transceivers those So, out,

Michael Genovese

for gross explanation So, that? XX.X%, in to XX%, the we I reason got came the mean, that is the margin, you guiding at that

Beth Eby

biggest the That’s one.

Michael Genovese

you only quarter confident you seasonality the fourth do about your to you with do at be know want normal – got one on any I we mix versus on, can customer cautiously? fourth this Okay. quarter time, – shift quarter going during but comment comments a

Beth Eby

cautious. Tim Gbaud always product see what and we But in, did in expect good multiple have highest speed that to is, on customers we remarks our and say we said I’m the momentum XX% prepared do revenue. XX that

Michael Genovese

the Huawei effects last a any going inventory or is business? that understand what you sizeable seems or trouble of about Okay. about talked or is but I more the understand I can me. something the there have to lot a we the you have do part have haven’t And happening, one clarity of to market that potential of, we some in knock And they a on talk be is the then the has I if for visibility other color to for discussion. supplies it confidence that to future. getting discussion, about risk just lot And in mean, willing that about? here on of share not Huawei, remain been discussion of customer worry

Tim Jenks

it’s to ways. an way it about the I Mike, question, we think multiple insightful have in think because Well,

to China there are Huawei can continue I with But you going that first because it’s they’re In market that essentially instance, with there all parts, fulfilling our in previously, are to fulfil. little they more in portfolio then customers customer say, they’re extent positions. a well. a and the has competitors in will the effects, unable international to And different of strong So, the be international are that marketplace, orders broad deploy. get market, said some situation, they China, as to of in things systems those as the knock-on as customers

market, So, to to from are to for well. in a may there period, share bit the as we to – market if them be share international their share market the would shifts, gaining But be Huawei’s decreases is example. extent a that of delay expect would have a we supplying expect little the of ultimately beneficiary whoever Huawei, things

look at have we effects. to China, in Now, two

of in we is, rest what’s with but the world, equipment one sell first companies. the Huawei’s to The network supply as all in happening chain, China, the of just

to be equipment there share other we extent those the network in providers, would that supply shifts to chains Chinese too. So are

of the have a and has kind have strategic in Huawei because get and been So, inventory, customer the the will, as supply profile. the fact that share there well. the companies is other in risk other extent China China, outsize are or matter to we and to outsize they been largest But shareholder industry, been companies shifts market and the they get they building outside they significant therefore, identification of

we the at look that’s So, whole equation. how

Operator

from Needham Company. Thank [Operator our take question with We next Alex Instructions] and you. will Henderson

Alex Henderson

Thanks.

So, geography. I terms on basics in in you from to the going and the a bit of demand go China, that hoping about back could what’s talk was actual little

sense got for be externally. some changed hard the and Can a good has you pulse what on would pretty as it Just between you’ve and around that and helpful. of anybody color very that that national provincial? port Thanks. give think, read like some – us I backbones many growth how us as to might look

Tim Jenks

say, as has more demand deployments. said, strong the it’s surprisingly spectral I I they China fiber. using They media add China be, essentially, channels mobile in to they’re where remarks, using, each are the to – from what the we actually additional in deploying continued This U.S. use Okay. with each overall is conclude, given will otherwise The and more get, on wider even might then just the do can they is than the C++ width, on spectrum. wavelength a prepared continuing channels, capacity

our as our So going XX laser product, to strong. C++ that also important Gbaud uses that as is that it things well note is components. actually other among And

revenue that, I true said through the essentially we’re XX we that growing well. players have in streams And the you China also so three it while from will, customers, major XX% if sequentially, as Gbaud eight, is is,

backbone overall because before. networks national from of hard It’s or broad of to the – versus last consumption, to the up think aren’t of is the differences, XX% announcements. accompanied by in range ports see visibility but I that backbone year. is not than provincial so fact our the it’s So, different terms provincial in really the

So, it’s to a continuing business. be consistent

Alex Henderson

you China me. that that I think historical by you to XX% averages, plus. would that because down revenue port if guess, And confused clarify correct below shipping mean adjust imply or XX% sound Did unit doesn’t ports? mean that pricing, a you I’m a I comment, port in growth is little I do for can revenues,

Tim Jenks

I’m referring XX%, it wrong. modest see the accurate. to not to is And assessment are And – FiberHome. whether of a or total on the when is I’m ports or our I’m in that XX%, comment between right and numbers within Huawei, ports. total ZTE error of other intending number were not range We increase it sure analysts

Alex Henderson

digits? still down double Isn’t pricing

Tim Jenks

No.

Alex Henderson

Okay.

more of functions the still growth, – revenue declines, it’s seeing has China, port stabilized than of inventory bills? pricing hence then excluding So, out and normal growth you’re

Tim Jenks

Inventory is it? in yes. the yes. Well, the So, isn’t room, elephant

yes. the from Aside factor, biggest

Alex Henderson

it’ll there? Okay, it’s there’s in of to any half that, first accelerate perfect. you do of because any acceleration or – therefore half, decelerating rates, the improved sense due terms derivative in of or do and in COVID And think trajectory in whether delays have order first you deployment the in back

Tim Jenks

third we fourth I of don’t No. level – visibility that, frankly, quarter clear. have would What going it’s the what that that quarter is to say for how are not out. and play yet

lists pricing. to entities second on than have or in in keep stabilizing placed continuing They And on other mind, a list quarter was requirements XXXX, We quarter they’re respective COVID the also There chain to being have the is that not supply effect there their in second And to chain are COVID all of ship FiberHome production. There’s factor list ports, risk. Huawei by supply factors those more XXXX. are companies design entities are be but on related on the with does risk. are list any chip as the placed the entities entities supported was identified, and Huawei these of chain. they’re fully long as quantified. of BIS There’s supply able to they – additional

volume. And continued strength so what terms of is continued seeing we’re demand, in

However, limited ability. don’t to actually happen, our our what on forward that might visibility we know is we speculate what ability and to have

customers. expectation two of their next forecast also other the strategic relatively entities availability, larger One effects. there some and and chip Huawei’s limitations loss that situation backlog unique that and list, for marketplace quarters. with demand is is out would market two it That’ll the is their we to is has from share the in notable increasing international over see expect However, inventory and on the play given

Operator

and turn ladies today’s back And would now call closing you. the like to session. Jenks gentlemen, concludes I for question-and-answer to Thank remarks. Mr. Tim that

Tim Jenks

in suppliers and in updating in to the you of in to with meeting Thank person global interest we the future environment do a We employees safe. quarters shareholders come. current We evening. diligent and to work of for everyone dialing to you especially are our in. drive appreciate again, pandemic. We our look progress, and the conditions much for light of you the ongoing to the Have thank able Stay very NeoPhotonics. forward as the all in your good

Operator

this today’s concludes and gentlemen, Ladies thank call. participation. your you for We

You may now disconnect.

Neophotonics (NPTN) 4 Aug 202020 Q2 Earnings call transcript