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NeoPhotonics to return to profitability amidst tightening of restrictions on Huawei

NeoPhotonics Corporation (NYSE: NPTN), a leading developer of silicon photonics and advanced hybrid photonic integrated circuit-based lasers, modules and subsystems for bandwidth-intensive, high speed communications networks, today provided a business update following the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) updated actions on August 17, 2020.

Recent actions by the BIS in the Department of Commerce (Commerce) have increased restrictions on Huawei and its affiliates on the Entity List related to items produced domestically and abroad that use U.S. technology or software and have imposed new license requirements for items subject to Commerce export control. NeoPhotonics has closely evaluated these restrictions and currently targets achieving its third quarter outlook provided on August 4, 2020, with shipments to Huawei contributing approximately $40 million of revenue in the quarter. Beyond the third quarter, the Company is still assessing the full impact of the current BIS restrictions. Given the uncertainty, the Company will manage the business without relying on revenue contributions from Huawei.

“Despite the near-term revenue impact resulting from the recent BIS restrictions, demand for our products broadly remains strong, driven by expanding high speed capacities, hyper-scale data center interconnects, network edge provisioning for increased cloud service usage and remote working,” said Tim Jenks, Chairman and CEO of NeoPhotonics. “We remain excited about the growth prospects ahead of us. In particular, our highest speed over distance products for 400G and above applications continue to gain traction with leading network equipment manufacturers and are expected to represent more than 20% of total revenue in 2020, after only two years in the market. Of note, revenue from customers beyond Huawei is expected to grow 40-50% over the next year independent of potential customer share shifts. Coupled with the upcoming 400ZR and 400ZR+ high speed module opportunity which is expected to begin volume production in 2H 2021, the end market for these products, as defined by high speed ports, is forecasted to increase at an 80% five-year compounded annual growth rate through 2024,” continued Mr. Jenks.

“Beyond topline growth, we must also ensure our operations remain aligned with the demand outlook and pursue appropriate expense adjustments and structural actions to mitigate the impact of revenue declines. We are fortunate to have entered this period with both a strong financial position and a management team with a demonstrated track record of taking the necessary actions to navigate uncertain times. Through the continued growth of our existing product lines and the ability to pull operational levers as needed, we feel confident in our ability to return to profitability by the end of 2021 with a greater level of diversity across our customer base,” concluded Mr. Jenks.
CT Bureau

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