NPTN - Earnings call transcript Q4 2020

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Operator

Good day. Welcome to the NeoPhotonics Fourth 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 a property of NeoPhotonics and any recording, reproduction or transmission of this call without the expressed written consent of NeoPhotonics is prohibited. I will now 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 fourth operating XXXX. for quarter and quarter NeoPhotonics' first afternoon. of joining of for XXXX

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

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

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

Timothy Jenks

Erica, you, strong afternoon. revenue with and Thank good of completed a $XXX million. NeoPhotonics XXXX

we supplier to and in over leader highest for distance be speed ultra-pure applications, is highest light baud NeoPhotonics modulators. bandwidth receivers lasers optoelectronic the of We and highest a the speed solutions. continue high the primary rate tunable provide

XXXZR For have lasers, as systems, the highest for second speed XXXZR+ last modulators module coherent and per per chassis-based been steadily introducing for new several applications. speed as applications three high and years, XXX-gigabits we receivers in new well XXX-gigabits products, at second the and

demand, high is with our and second industry, per driven As XXX- These a beyond, and strong, are distance. fastest driving related cloud speed growth been for they accelerating result, the over and and highest areas by especially the speed highest and adoption at gigabits share of in demand products links the profitability. deployments, for gains datacenter growth speed deployments have market among NeoPhotonics’ very requiring market and

evidence strength. of are of results the BIS metrics Huawei full-year this and Each quarter exclude of Commerce following Department given the fourth Our tightened restrictions.

basis, in products the these and comprised sequentially products our products of again attributable XX% a grew XX% to to sequentially above and XX% applications. million. Our XX% full-year was $XX largely revenue grew revenue This These for XXX-gig quarter. year-over-year. grew On

We their of and deliverXXX% QX XX% accelerated XXXX in realized products year-over-year year-over-year to these growth and have grew In XXX-gig growth applications. our product growth above continual by QX.

over Our for by directly providers. to distance this, at by who telecom solutions our high speed strategy XXX-gig operating on are grow highest at and XXX-gig or focusing the components. per rate equipment several being XXX-gig our and is systems speed indirectly the and above highest Within the data newest they use business and of are offered wavelength, customers communication now

XXX-gig expect the versus result, double a faster more first As first continue quarter. in previous the our and to revenues growth and we than the quarter, of to year's

above increasing XX% XXX-gig to at our continuing of doubling customers, or increase. shipped total. XX% revenue, previously, our quarter, fourth stated highest these year, our had and the XX% As of with number have approximately speeds, and the customer diversification XX% each four more comprising In being we we we seeing from to ranging ports share of market are

Acacia For the Ciena were full-year, which XX%. XX% XX% at and Communications XX%, at Huawei, includes our Huawei customers at

customers Products chassis-based modules continue center ramping, we qualifications revenue, XX%, three of XX% XXXZR purposes totaling with make progress wins at Nokia excluding and for XXX-gig at at gaining XX%. comparison had our at operating for XXXZR+ hyper-scale and Communications design to more Ciena in and operators. For data Huawei, and we XX% and coherent systems with Acacia or are XXX-gig

to we dozens modules have are production lines for installed units that for volumes. these shipped readied being now and We our ramp have of qualification first

our the some we remains for ups American are robust response customers. and and months all in shifts customers of products market high had for drivers DCI XXXX. While typical above anticipate We some term systems XXXZR+ bandwidth between in downs speed continued for which for with we XXXX deployments seen speed as have pandemic. that softness strength market we XXXX the globally. and products will and following North pulled products, maybe deployment essentially in rates Longer applications that highest continue XXX-gig recent believe the have chassis-based business, network our share are and by substantial components the were rapid serving in Cloud in and exacerbated growth demand in speed equipment for highest our our to With in into modules whom growth XXXZR manufacturers, build-outs, among

will our in network in speed upward seasonality sequential standpoint, believe growth. high long-term investment marked quarters. growth inflection We we in with have an network QX, a From XXXX normal following

While drove needs this increase the trend. lasting to pandemic bandwidth deployments, is a

use need pandemic home. that speed their to companies systems. flagship will from on our As leading the we the will in the at for the dependence models the and products high subsides, increase high benefit workforce bandwidth expect interconnects network, move the throughout with Virtually for network the working hybrid edge continuing NeoPhotonics future, of all This the in network, speed business. of producers continuing around world to need thereby the equipment increasingly

advanced our for and In manufacturing our the products, adoption. these last three highest actions our above depreciation I our our Dr. utilization, trends to Chief like over business the of scaled and that benefiting now you trade production, their Wupen? and and call expanding while to more all for manufacturing to see above turn term. would the the have XXX-gig detail margins. years driving spite Wupen speed for with costs U.S.-China Over provide our developed reducing steadily their of we roadmap the longer impact methods XXX-gig we our Product products Officer, are of increasing tensions, Yuen,

Wupen Yuen

much XXXG strong above and afternoon. the Tim, and XXXX, chassis-based acceleration good drove growth for our is of components you, of which The beginning. systems, Thank in a

XXX-gig As of this to market wave the we including well next higher positioned to higher ride and are growth. continues move speeds and increasingly XXX-gig, to

by our our sampling lasers XX-gigabaud and are now newest modulators superb receivers. and We ultra-wide noise have ultra-low announced tunable DCI XXXG suite transmission, for long-haul and enabled bandwidth component and XXXG

the data the equipment cloud of We manufacturers. to early of These in of XX-gigabaud component hyper-scale data have of expect our our reach our market. addressable new believe growing these interconnect effectively be customer suite. We network XXXZR these beyond availability the technology. opportunities module while and in the adopters us, modules. stream hyper-scale center given revenue serving base Layered XXXZR+ customers, general on this leading fast will been customers a leader These and center We a of we chassis-based double importance XXXZR+ market, XXXX, for metro launching be applications. will is products products coherent volume XXXZR QX adding top segment, especially providers, believe of will particularly

rates new including in as better edge sustainability, environmental to driving sites. data capability interfaces XXXZR low network use interconnects power package to consumption Our for XXXZR+ be power very adoption and routers and enables and expanding small networks areas major equipment. distributed They as and and in coherent This module savings and realize equipment, XG state-of-the-art system-level are plugged into cell total game new lower well rates operators thereby traditional such and for products cases, enabling as DWDM factors, changers. them switches, bypassing directly in form

in We qualification have QSFP-DD are modules and OSFP sampled the and XXXZR our test customers multiple and process. to hyper-scale

We are the who are very the capable challenging optical one XXXZR specification. meeting of of few

qualifications to we of photonics This form performance that our XXXX, industry-leading XXXZR. We XXXZR+ and in addition substantially the in market will cloud-based that standard segment have factor QSFP-DD optical is expect laser by form networks continue as in of important that factor deployments the half second for demonstrated We the leveraging widely silicon year. important of of in be the of XG. the with components. first completion starting in is QSFP-DD half An tunable now metro believe adopted performance XXXZR+ XXXZR+ a expands

This that in performance therefore, including form capability. Built performance our third Haul. these that spacings offering at for ability high XX%. systems, new shipping speed CFPX-DCO have reducing operate and, based solutions transmission and channel begin in unique that products per will XXXX. exceeds shapes, spectral its consumption approximately a and specific Each XXXG longer higher leads components, over This distances wide de-multiplexing channel for high metro the spectrum including a C++ that DWDM XXXG unique CFPX-DCO line band, wider Combining while line on capacity Regional applications, XXXG high-performance to XXXZR+ revenue optical modules fiber per major systems, has second operate XX-terabits product and XX-gigahertz in or C++ expect available Long spectrum We best the multiplexing spacings and filter the provide for XXXZR XXXZR+ open applications capacity. our our monitoring high-performance channel These wider second Metro are and demonstrated systems. a with factor. our power fiber XX-gigabaud a version, performance require CFPX-DCO to industry of now and at will in and ramp supports XX-terabits stream modules line-card XX-gigabaud equals including growth

our deployed in be the XXXZR+ and Systems designed deployment AWGs, applications, products, conjunction XXXZR these specifically qualification applications will Open athermalmultiplexing for and with completed XXXZR networks. For Line or of have in

key long-term rapidly XD growing of trends. a several cloud of We machine result Artificial working, LIDAR are stages macro We the wireless at demand applications, as remote and the new early services, Intelligence global learning, rollouts. plus bandwidth XG see of requirements sensing and

a time growing our With industry. As it’s result, call an heart that, the to as speed will the advanced technologies CFO, over the believe for Beth needs our distance I turn at meet over of these exciting Eby. we

Elizabeth Eby

Thank you, good to afternoon. through tough execute continued Wupen, a NeoPhotonics well and XXXX.

while in and Department of over the investments in higher expenses improve continuing revenue shipments products, with we gross for growth. XXXG and speeds. We when took the for margins and our in invest around are to to delivered seeing of We overall for the the structural year, action in substantial growth the increases rules the profits to Commerce results year and costs tightened Huawei, distance reduce speed and

We changes. those are of schedule ahead on

this $XX we Commerce restructuring cash. GAAP for X operating million the million, to the of X up of in $XX And investments growth. increase year-over-year resulted up revenue with increase additional free a a of million, from all $XX strong increased with delivered that we of million million, of million Summarizing year, XXXX, full-year profit of XX%, costs. and operating of the Lower restrictions. XXXX, a million from levels total last $XX.X with loss All this $XXX A cash in up XXXX point Non-GAAP net up margins a will million. while and expenses was $XX record gross gross maintained even year point over year X%, of lastly, By cash year-over-year. Department non-GAAP even and XX%, XXXX, drive doubling $X accelerated of margins a a from profits NeoPhotonics. flow to in profit million, GAAP from the metrics, $XX $X.X almost loss of leverage,

million, higher loss customers per Moving performance. the operating of well expected lower QX revenue to resulted growth per than expected $X.XX strong revenue of in execution from non-GAAP share $XX.X EPS loss. QX losses, above Good share, $X.XX western a and and

revenue in growth market did our QX. quarter, our have last customers. for XX% The from any we indicated demand in growth strong and from not we in the As sequential the other products Huawei resulted

way We more the ramp are back we diversified before a in well on customer the even half of to our XXXX. XXXZR model, business modules

charges, gross but small upper non-GAAP as given XX.X%, QX than the of execution in $X.X Our of spending than fourth the QX higher increase down more million A down half expected product expense was points, margin range. still guidance the non-GAAP million, from in margins Total faster excess reductions. and capacity lower was operating volumes. $XX.X X.X our offset expected, for better quarter on by was

is of $X the Commerce we result to per we exchange non-GAAP In as of $X.X quarter drop the of relative tax restructuring. our appreciation announced call, The million, the profit yuan about operating foreign reminder, reduce drove impacts approximately and the from Chinese the had part quarter a to to loss a two offsetting as exchange U.S. a compared level, dollar adjustment. largely fourth XX% Department QX, As for was by foreign $X.X earnings a our Non-GAAP profit action. million or in we XX%, Below QX. QX, million. of in loss that in spending a last expected operating of

a the the by loss taken our of quarter items $X.X net point on a litigation loss closeout foreign XX.X%, be from with a the down expenses we our volumes. largely as reimbursed net charges approximately million of the to million FX of lower net of of U.S. of driven fourth changes of of impact tax was $XX.X China QX XXXX of loss settlements the a China for $X.X of net was of non-GAAP covered and compared forward. our $X.X Operating As restructuring, quarter accelerated outlined on of offset on quarter and of a and, for by true-up $X.XX adjustments $XX.X million on acquisition-related a my sheet Operating the Optoelectronics, million, and non-GAAP of million method going the $X.X events, yuan. GAAP functional end implementation with loss gross and sale in million is balance $X.X the operating the or in reminder, as was This revaluation will result, quarter expenses Fourth rate. of The share, intangibles. the was assets, for true-up advisory stock-based This expense tax entities, reverses the $X operations per gain the results. QX. million Non-GAAP the of by $X.X operational million. The full-year is tax million loss down exchange of of compensation for exchange quarter. million, losses. foreign about $X.X which our expense, our margin depreciation by discussion million adjustment of statement midpoint where was the of that mostly the use amortization $X.X last was non-GAAP QX were to quarter the I fourth APAT included the one-time a income $X.XX, fourth million, review of settlement the $X.X will legal expectations services, the announced of and U.S. gain we from faster currency of

flat of million last history. highest is was inventory finished cash. as the materials Commerce was in our remain in in drive continue investments the cash position and by we restricted through Days to were We Net work a days, balance approximately from and the cash, with XX flow inventory versus to good was we cash quarter. inventory of $XX that the additional $XXX of over This in quarter Cash Turning restrictions million, million, operations position free and orders sheet, growth when raw the $X under were to million resulting $Xmillion. NeoPhotonics. was progress the just announced. just of CapEx Department in $X

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

deployments demand due XX%. to mid year believe some start Tim we network of This the the indications the in components we in us of deployment overall excluding to that is To the revenue have see travel we changes full-year softness and modules begun North customer Current mentioned, remains systems. Notably, due, pandemic. to XXXX has timing of America Huawei, XX% for months. market. As have We moved the in reiterate, bandwidth of seen to companies are demand from unchanged. estimate equipment serving above this related part, XXXG the growth, at new and to limiting later several and to to restrictions leads believe long-term recent in

addition, of of we our restrictions in In a Huawei, a to efforts forward recent quarters. BIS develop Huawei comply the for result products as to most which shipments level modest expect with

With QX. in to operating to changes, profit we still these return expect

a Year XX% of quarter the QX margin to of earnings margin approximately the are XXXX, the diluted XXXX $X.XX non-GAAP $X.XX a market usual, lowest XX%; cost GAAP range and in range earnings and for driving volume basic loss. for $X.XX the non-GAAP to company’s increases are revenue quarter share revenue on and in XX%; as gross are to a added our million to to point reductions numbers $XX and Chinese our summary, loss per due profitability. the above from loss; shares. XXXZR+ $XX diluted focused per a million; to margin gross XXXZR annual product range year. for XX% $X.XX implementation the of of seasonally share customers the March of XXXG loss in return we modules The that expectations We These is million the In range improve with range As hyper-scale on shutdowns of growth lines, through of moving GAAP for of in in New XX.X pricing and into our implementation and and the to the reflective in a reductions.

invest Our positioning for strong even and the and questions. open concludes in allows while restructuring would of us that for up line to higher the levels position for and us growth like cash This growth operator I XXXX. now to formal the ask profit comments to our

Operator

Thank we to MKM you. And will [Operator Najam go from Instructions] first Fahad Partners.

open. Your line is

Fahad Najam

taking Thank question. you for my

customers? then First, clarification correctly XX% hear a four were I who you XX% and you the that – four customers the did is in quarter a on, question. and fourth had Clarification

Timothy Jenks

Sure. well XX%, remarks, fourth to customers customers quarter XX% revenue we In and and prepared – XX% the as the from of for did four we in the did those did four Fahad. What is ranged added okay. the four disclose up the to XX% we above have customers percent usual, year, and

I helped. that So hope

Fahad Najam

Okay.

total potential And of you. type getting further question. year. look Do your diversification forward-looking One are of think see then is TAMX inside the as Thank a higher you my center, think there's with dividend users, the on TAM to and you expansion speeds XX% you XXX-gig ZR what data us modulated about more at on that using question in that terms XX-gigabaud. as enhanced revenue diversification, There talk you can here. opportunity where broader for at a strategy? to Now tell – technology your you, ramping, [TAMX] Tim, of for the value ZR [indiscernible] parts you two

Timothy Jenks

Yes. There in is that. a lot

reach is all then schedules first center. may expectation half, to the The first but we on in be I comment by think schedules. customer XXXZR Yuen I'll the level would ramp qualifications, it's is of me of of end annual on would the Let for be in about have I customers the But and conceivable XX% that revenue, that, second that – different and based revenue. Wupen after think half, of for that's it intra-data it have production use ask, some in low it for could primarily technologies XXXZR comment The range. that purposes, different

be question do a want and And have to so XXXX. meaningful about How actually on remains Wupen, volume deployment it the seen. to people in comment many you TAMX technology? started

Wupen Yuen

be Yes. XXXG coherent Definitely, opportunity TAMX both for think side, sort the TAM center an likely that intra-data technologies, so used. could and I and our And expand be will would meantime, also well. go we In business of optical just and TAMX devices keep – optical the diversify also, in have can the as our actually forward. devices, going into lasers, mind, other coherent

we both in diversify coherent data and the see both us the for our XXXG. will And So do center, role play those opportunity business view we the as TAMX will further. to a

Fahad Najam

answer. – the performance. speed you your can I potentially the favor inside that not appreciate have center XXX-gig that you I attend Wupen, you ask inherently solution? XX you. of of many – XX-plus-gigabaud [indiscernible] the kind optic opportunity. TAMX those use if intra-data not that technology. that using there TAM existing that explain type modulator think leveraging Thank you modulators TAMX guys or of Could technology high performance regarding are in even XX-gigabaud suppliers kind mistaken, of had follow-up If can technology a Do I'm

Wupen Yuen

Yes.

high think answer definitely is strength baud even use I could to NeoPhotonics. or of yes. you we is implement, rate. rate and is XX a think the XXXG, that challenging getting do the higher such And very baud a

So higher. opportunity applied to XX-gigabaud we'll to that our be definitely technologies or see where

Fahad Najam

Appreciate Thank off. I’ll very the answer. you much. back

Operator

go And Riley. next we from King will B. Dave to

open. Your line is

Elizabeth Eby

Hi, Dave.

David Kang

Thank you. Hi. Yes.

you for half usage first fourth do half? and year? the be What in the gave you think first I What then. quarter that points will us question first about first the think you ask I’ll Beth, So this quarter. cash data

Elizabeth Eby

to than you – for XXXZR. the the we expect to And we've of average flow because as we Yes. also say to any expect – generally X% given revenue to don't that for year. X% cash ramp said that XXXX still the runs of We we that end other on know, of high range be don't in our CapEx forecast of

We the at about is are has inventory our the as flat. saw numbers, you in moment been

order rules we're around working of was some So the burn Commerce as that Department off Huawei. the still inventory of the to tightened on

David Kang

And you maybe can last maybe or Tim, in this. it. then, adjustment year? pick Price Got December late

Timothy Jenks

Price But reductions each year, XX% actually little low XX% historically is they've better to range. range. the average, been year that end this in of than a so

David Kang

kind Got it. a have you Do guys of any chip supply chain issues?

Timothy Jenks

I'll impact. tell it. seeing you what, about we're reading We're some

Some hope we of suppliers further impact supply but top actually are on complaining our question. about terms it. But haven't any and of to up supply in chain. we the chain, had Thus I far are that the monitoring addresses it looking

David Kang

Yes. How High-speed And How about – first to the – maybe optic? how that my about optic XXX-gig non-high-speed question quarter? change gave quarter think plus in will us going how should XX%. some outlook last color we regarding was that high-speed is first grow as assumptions. that will is to versus year-over-year. then you your How number will change

Timothy Jenks

Yes.

So was actually the I full-year. above XXX-gig of think classified a – and for which high-speed, was as year XX% the we've it

David Kang

interested I'm plus XXX-gig XX%. Sorry, – in

Timothy Jenks

clarify, so, just thought wanted okay. I but to I

David Kang

It’s okay.

Timothy Jenks

actually they've been and that the year say of over also remarks, and above XXX% total quarter, fourth quarter that a is the my fourth products, and – group revenue. is a throughout applications And XX% year. prior above contribution revenue. product up the products was of we In the XXX-gig same was said What accelerating products high-speed by as XX% I for the – quarter was XXX-gig in of from prepared XXX-gig the

of So and half business. approaching it has now it's rapidly growing been our

David Kang

quarter, more and XXX-gig below going assume the sounds first So experiencing like it half can be is softness? that's I than to in assuming

Timothy Jenks

I remarks it prior prepared in year. first actually the again, that double we the quarter my over Well, to, expect for said in do first

David Kang

Okay.

Timothy Jenks

that business, –I'd up when to don't actually but say, creeping not that I we're of now. know on not I'm or Whether say our gets going happens. to half

David Kang

question. last this my And will be actually,

some talk some you Is Just about softness, to assuming be about optics I'm clear, push-outs, that below talking when right? you're XXX-gig.

Elizabeth Eby

the had we're of a system thing it's up – be about. deployment been think in talking COVID issue travel. will included some co-travelers same and a timing just is been because market this it in and and I timing seeing market other overall our as has also related it to deployment XXX-gig

David Kang

Got right. it. All Thank you.

Operator

will go to And from Cowen we Silverstein Paul Company. next and

open. line Your is

Paul Silverstein

bit demand, clear to just and response soften are the make you ability demand I of customers think believe are in pretty want the now components to [indiscernible] From I sure but COVID-XX some related the about perspective, just the your get you of weakness referencing you issues that you gave weakness? it [indiscernible], logistical the Perhaps to to you sure terms understand. equipment Yes. a do access you demand of

Timothy Jenks

as a to back-half hearing that is from expect we're demand what So result interest former. customer of suggest that be more of they kind more customers the their loaded. And there is of a chorus

kind to hearing generally it current So at ability to But the bigger how overall the point. COVID about indicated previously, has in do now chips, certainly impact been the may rate more impact. something that But that in we're new how the and we XXXX this are with impacted hasn't have then concern I affected us quarter, has thus is extent it today. as impacts customer's of of affecting far our products, deployments an it system bandwidth deployments

Elizabeth Eby

demand overall profile our business not the increasing profile changed. Paul, and bandwidth know, well is that for you drives underlying As it has the

Paul Silverstein

in All of [indiscernible]? your [Indiscernible] issues logistical right. customers getting terms

Timothy Jenks

Very, between but latent the heard deployment cause to rate. very companies kind what some impact guidance us been of to have to also has basis, result do the our but a and there's we've references as recently, an for equipment restrictions Huawei supply, conversations among is their with hard a on of It's root and network No. them chip way. effects share of been what the go in is there that

share overall between shifts impact though demand see as it the that's customers And not short-term orders may so can today. rate changed, we so have

Paul Silverstein

that’s is share shifts, what you make Huawei respond you I this the going [indiscernible], obvious. be share the shifts When to mean thinking? to are from

Timothy Jenks

supplying a the net-net, with we've to shift if winning major In one customers the and overall, share quarters to commented moves right Huawei among up of network the is – quantify, shift may also it the Western between shifts is favorable but to to or share to each we're case the from a as where. because us share equipment who's now in situation a companies, little extent that Western prior end of the customers, another is is Yes. products harder being and share that to of in question

Paul Silverstein

you this recognize won’t have any have get I do removed, won’t similar you that's as in recognized again, removed not indirect going or you question. get impact. whether to [indiscernible] I but insights spectrum to or direct I And deployed Obviously, transitory some operational. Tim, you Understood. on recognize [indiscernible],

other given hand, you are the have the service anything about that cash obviously, are bills concerned you in providers can flow us? two so share [indiscernible], On that with and

Timothy Jenks

some have here. you perspective maybe Wupen,

Wupen Yuen

Hey, Paul.

profile a not of the what is today With spend the right. second year. on from demand far of of result carrier this half have we being of of changes option of loaded. So are stellar half hearing money, still has second the SPC band lot any so But heard still we and kind is demand year more the a

Paul Silverstein

of XXX-gigabit XXX-gigabit, I’d of revenue as much, plus how like percentage what [indiscernible]? total XXX [indiscernible], percentage and the

Timothy Jenks

QX. of have revenue just and and we XXX-gig that in was above, Now XX%

Paul Silverstein

us All right. tell [indiscernible]. can’t But you

Timothy Jenks

fact lot products XXX rate what’s cases are of what's but that it as possible and to out very really we because can't, above, it's in XXX. see actually baud clear and that We rate, XXX-gig in granular the are products Yes. used than because of the rather but which we're on as don't a not bit break

Paul Silverstein

Understood. revenue have? year? you One last question. many many this How your customers do How commitments can of quick expect

Timothy Jenks

for commitments many How what?

Paul Silverstein

[Indiscernible]

Timothy Jenks

to wins. I think design we're when actually going talk forecast we can that about

So there are actually XXXX. only a few scheduled has for who

So it's number, a lot. it's a modest single-digit not so

Paul Silverstein

I right. All it. appreciate guys. Thanks

Timothy Jenks

Paul. Thanks, Okay.

Operator

Samik And we'll Chatterjee JPMorgan. from next go to

line Your open. is

Samik Chatterjee

me letting question. for ask Thanks Hi. the

XX%, quickly, $XXX about Just revenue. margin XX% gross of first gross about think quarter I [indiscernible] million north on margin

you you've maybe what is as get done need wanted As gross on second once specific of a any over wanted just [indiscernible]? change, for gross And to about how pick impact also cost to well? think revenue Thanks. should just think about we in understand launched you to product of mix we the indication we part, terms margins given still guidance how some about going improvements need level. look the that to forward, margin and to from what the the revenue So just return

Elizabeth Eby

initial I So do We ramp. the for to terms in get Those not healthy all We question be any going them with have still through the XXXZR discussion. do yet. are am estimate to start expect the once we margins first. second

some right, to initial always we've a of got improvement to – do. So off product, in you've yield the got got and phases you’ve go

and a On the target remains XX%. million $XXX over in our hit margin, We QX XX% in overall gross revenue.

So our that remains target.

financials, We in improvements have see margin. you can we our have as done substantial done historical – on gross

XX% at So we revenue, QX we're margin. million gross at we down were gross XX% million – $XX time, in in And revenue at were at $XX at for margin. last we’re we're and

over time. But that we've gross margin target our XX%, So our of hit until substantially remains we target. improved

Samik Chatterjee

taking Okay. you. Thanks questions. Thank the for

Operator

D.A. And Diffely from to next Tom Davidson. we'll go

open. is line Your

Timothy Jenks

Hi, Tom.

Thomas Diffely

Yes. Good afternoon.

but the up you cutting over just last the do. on of in question. quarters? cost, Do changes you following coming got been also curious a up, ramp expect Just meaningful expect any You’ve [indiscernible] so to next couple OpEx

Elizabeth Eby

good a question. What

$XX.X this we're in about QX, non-GAAP As we our million, said, and $XX.X million. is midpoint is we all at for QX of did about guide a restructuring,

initially need we couple for because back. we to the a XXXZR, range hold if we're for doing we're pop-up million as that a had extra remain, going for final could just And we're revenue dollars as of So OpEx bit the back, quarter a major forecast. and to not ramps XX% little certainly get driver would expect I restructuring we will, we until hitting target that that but is in growth. savings than a $X we the we to the that and XX% overall for – What of earlier said, profit see restructuring

Thomas Diffely

quarter? XX% makes then the question just sense. you happen customer year? of Are hit to the The than on one a is, qualification second do you of need part your this two And in revenue expecting Okay. quickies the That more XXXZR. first to

Timothy Jenks

quarter, as now qualifications the completed it's it's second in last in first that anticipated we maybe case the the end that looking initially we year of quarter the XXXX, it’s by So like depends your initial possible question and actually it's us share it's second But answer customer entirely award first and The is, for to on we the who that, customer a it. question indicated. do to know. don't the

would that think outcome. try to it and I So predict be inappropriate

Thomas Diffely

makes That Okay. Thank you. sense.

Timothy Jenks

Thanks, Tom.

Operator

to from Raymond go Simon James. And Leopold next we’ll

open. Your line is

Timothy Jenks

Hi, Simon.

Mauricio Roldan

on for taking for question. the today. Mauricio Simon you Thank

Elizabeth Eby

Hey, Mauricio.

Mauricio Roldan

Hey, you in revenue guys the Beth. provide is XXX-gig above contributions Huawei and XXXX? annual for Did Apologies.

Timothy Jenks

in quarter, For fourth above XX%. provided ex-Huawei, the it no, XXX-gig and was just which we

the Let's say, year, think for XX%. it's I ex-Huawei,

Mauricio Roldan

that, explain North X a it. what update that And I Got to before now Total sales. that [indiscernible] revenues from North of softness? explain to in I the in the think bit the demand. operators. [indiscernible] ZR, heard And guys component you year-over-year. XXXX, you mentioned a XX% What then America Thank on growth XX% was operators grow Tier please America [indiscernible] on I you. Can think you your

If that, you could talk about please.

Elizabeth Eby

So think, this of a I you've lot Mauricio, [indiscernible]. seen

from seen as and from but market pause we thing a in looks lot companies, seeing a deployment network of the players kind – of us, like same in for this the It the of I see from, equipment all North think You've it other it's… we're well. equipment American just

Timothy Jenks

to there's think tend limited serving guys I and to it's DCI. it’s not also one. where be – all deployments, those But

Mauricio Roldan

Inphi helpful. is take competitors, Acacia wondering to that quarter VR And That's you. you I in I second the mostly please Or I time Thank think talk case. in Can landscape? as market, about XXXZR follow-up. closest will a previously then, you said the some the pool quarter the competitive maybe that continues first think if competitive now you qualifications identified include that have your before. to somehow expanded orders? and just And

Timothy Jenks

Yes.

Mauricio. think accurate, I you're

currently two as do cited, out there see I very meet think can the we well. competitive who one the specs and you that them these few of we're

Acacia think addition NeoPhotonics, in to So I Communications and Inphi have XXXZR.

a similarly I as and the XXXZR+ companies – forward. are think because power lot power initially are going there There there here are acquired of and it's out acquired be Inphi, of that, to course, by the in is also mind keep and Acacia be appropriate meeting considerations contract rolling are and specifications. consumption, Marvell. But are in low there also about to is XXXZR products, planning by considerations a opportunities Cisco

operator is independent conversation. so And NeoPhotonics I think in the this

Mauricio Roldan

Yes. think your the terms for about ZR. that. that hyperscale of given capital after your cetera? How customers requirements That some have should XXXX operators quickly makes I of qualified of wake on sense. assume [indiscernible] that get required hyperscale large we working the one Very the et the in of of to

Elizabeth Eby

commit what on demanding fairly ask a amount their and rate. them inventory are of levels of They certain these you for certain customers. replenishment Absolutely, to carry site

can So these to general $XXX cash. capital And making with priority regular increase. And going we which is cash? one working expect ramp we that would do webscale sure all our why on And response million got in is are customers. to people what ask you basis, absolutely that a we've me number is, my

Operator

Alex to Henderson go we'll from next And Needham.

Your open. line is

Timothy Jenks

Alex. Hey,

Alexander Henderson

what that per in cost if or of setting products you or those there. XXX-gig of And up? are could competition XXX-gig debt different lower out power the other extent Thank XXX-gig talk is the envelope XXX-gig you. between advantages How I was that relative [indiscernible] are ZR terms elements about versus or ZR to disadvantages flexibility. the some wondering and

Wupen Yuen

flexibility a see savings goes you long-haul customers. XXXG – We the is Wupen really going to the strengths be and how webscale speed switches, able cost to a do the just good And XXXZR see for into distance and provides question, potential to the know. really routers Alex. This or speaking. It in as being long-haul. we high-performance That’s do as up DCI to is XXXG inbox, short universal bypass applications. view Alex. plug a a this. lot of Hey, platform we

see being flexible then enabling we powerful. that's a platform, But see we So new a universal and applications. XXXG being cost platform, XXXZR reducing

Timothy Jenks

the new application… think I

Alexander Henderson

[Indiscernible]

Timothy Jenks

got Well, to cases but use new for initially, cases beyond certainly, the use then you've are, emerge the the DCI. there's an opportunity XXXZR

metro place but a distance longer longer you're to reach, And so time. XG able takes over back-haul, XXXZR+ regional, with area, then potentially that that and then goes and accessing interconnects, start

Alexander Henderson

Yes.

and dynamic. Is opposed at it's possible to the And issue, if basis as the where it and what bit factor bit so way on are about a simply of pattern really and the it I it location? only to advantage competitive it's the sparkled see cost right deployed. what an architectural That cost that the architectural was new that transceiver, doesn't it this a strike is per a I transceivers think it changes in asking though, look power just and per product, changes as

Wupen Yuen

first clients’ is the save to really the issue you entire DWDM because and cost the right. Actually the per skipped You connections, bit think about you right? one associated really layer, site all box plug,

plug that router plug first directly before. that DWDM happened. capable was long to is into to really can this, Prior the DWDM go capable not go possible You this plugable time But the distances a now a router. it

which So in change. you can architectural results think as and then about this approach cost-driven an really a

Alexander Henderson

that the don't per But lower, bit on bit at the would advantage, right? a cost change in light architectural just architectural, into cost to an the wouldn't look is the have basis. Right. the That that plug transceiver it’s it's change trigger cost probably It I box. in DWDM per a actually not challenge, existing If disadvantage.

Wupen Yuen

pluggable But fact you enabled Right. small that have factor. change a the by is that very form

Operator

Kumar And next we Piper from Harsh will go Sandler. to

line open. is Your

Harsh Kumar

thanks Hey, me in. fitting question. Yes. Quick for

exit year, calendar say? think First second run of enter all, as will what for be you or you do half your exit the let’s either rate products year, plus you XXX-gig

Timothy Jenks

couple of question answer your The Harsh, this Tim. a has parts. is to

the XXX-gig that with The year, you can first we've a one experienced is rate of predict exit rapid growth that percentage. of high this

do in as prepared in Those and remarks, noteworthy must the high-speed that said are good of report However, passive our they're that are them functions architecture part as products Wupen that XXXZR – must deploy. the it's in also the that group. We not our products will our our for products. have products network we also particularly

have lower that XXX-gig. some we example, said current there. be do And in the level pending Beth we growth for tenders in to would some tend prepared speed, in China at increased so of addition, if shipments for And remarks, are as then there expect

XXX-gig. growth there offset basically are to growth are rapid not possible So areas XXX-gig that of the

to our in but half to we're of forecasting. get think business, hard point. I more like not So predict than it'd at too be going high this We to would see

Harsh Kumar

Okay.

can or it you that that, customers. any causing your that? ask peaked, if if below I can my I you're visibility that – or follow-up, For softening some inventory visibility build? it a that you is you about Is actual level level do was from, in that you just you like wondering helpful? of [indiscernible] some what the would them one demand if Is hyperscalers at really talk of of is, to think have seeing it you sort that whoever words, coming have – in would be you other

Timothy Jenks

In – addition to there's already share we think the the things we've said, overall shift. also

share two customers, happen plays matters. or think as shifts And all between I out – said And they're network play earlier, out we rates our that'll but how with deployment see next over and so as we the companies. we quarter equipment the that

Harsh Kumar

you. Thank

Timothy Jenks

you. Thank

Operator

time, this at Tim for closing it turn back remarks. Jenks I'll to And

Timothy Jenks

and Well, in in in play XXXX call our and for The into interest years. your the today for NeoPhotonics. thank core strengths trends joining of you industry subsequent our

look proud So Have in team forward to they've achieved. updating our very evening. future. of a good do the We you what for I'm

Operator

you And your conclude today. call our Thank that does for for participation.

You may now disconnect.

Neophotonics (NPTN) 26 Feb 212020 Q4 Earnings call transcript