5 October 2017
NeoPhotonics restructuring as it reports below expected preliminary Q3 results after uncertain demand from China
As part of its continuing actions to improve profitability and cash flow, NeoPhotonics Corp of San Jose, CA, USA (a vertically integrated designer and manufacturer of hybrid photonic integrated optoelectronic modules and subsystems for high-speed communications networks in telecom and data-center applications) has implemented restructuring actions including a workforce reduction, real-estate consolidation, a write-down of inventory for certain programs and assets, and a write-down of idle assets.
These actions are intended to accelerate the return to profitability by lowering the breakeven revenue levels for profitability and free cash flow, while maintaining the focus on core capabilities, including coherent components and solutions for data-center interconnect and telecom systems. The actions are expected to reduce quarterly operating expenses with immediate impact and achieve a reduction of about $2m when fully realized in first-quarter 2018.
The costs to implement these actions are expected to be $4.8m ($4.2m in asset-write off costs plus $0.6m in severance costs), with $4.6m incurred in third-quarter 2017 and the remainder in fourth-quarter 2017.
“Lacking a clear indication of increased demand in China in the third quarter, we initiated several operational changes with the goal of expediting our return to profitability, including implementing certain restructuring initiatives designed to align our business with the current demand environment and lowering manufacturing output to manage inventory levels,” says chairman & CEO Tim Jenks. “We have maintained our research and development focus on products for next generation coherent systems, operating at 400Gb/s to beyond 1Tb/s, wherein our advanced hybrid photonic integration provides the highest value,” he notes.
In addition, for third-quarter 2017 NeoPhotonics has reported preliminary estimated revenue of $69-71m (down from $73.2m in Q2), with gross margin of 14-17% (down from 23.9%) and loss per share of $0.35-0.27 (worsening from $0.15) on a non-GAAP basis (excluding restructuring charges and end-of-life inventory write-downs of $4.6m, acquisition-related costs of $0.2m, amortization of intangibles of $0.3m, and the impact of stock-based compensation of $1.9m, of which $0.3m is estimated for cost of goods sold). This compares with the previous forecast of $70-76m for revenue, 24-27% for gross margin, and $0.17-0.07 for loss per share.
In addition to restructuring charges, gross margin and net loss were negatively impacted by the decision to reduce production levels during Q3/2017 resulting from a lack of visibility into future demand levels in China. While this reduction impacted overall capacity utilization and gross margin respectively in Q3, NeoPhotonics expects that these actions will help to reduce inventory levels in Q4.
Cash, cash equivalents and restricted cash totaled about $74m at the end of Q3, down further from $79m at the end of Q2.