Q1 2020 Earnings Call
Ladies and gentlemen, please standby.
Good day and welcome to couldn't Neal Photonics first quarter 2020 conference call.
This call is being webcast live on the company's website at <unk>.
Neil Photonics Dot com.
Page of the Investor section.
It's the property of Neal Photonics, and any recordings reproduction or transmission of this call without the expressed written consent of Neal Photonics is prohibited.
I'd now like to turn call over to Miss Erica Mannion of Sapphire Investor Relations. Please go ahead ma'am.
Good afternoon. Thank you for joining us to discuss Neophotonics operating results for the first quarter of 2020 and the outlook for second quarter 2020, with me today, or Tim Jenks, Chairman and CEO and death.
<unk> Chief Financial Officer.
He will begin with a review of the company's business progress and the first quarter and the discussion of business drivers and products.
I will then provide financial results for the first quarter before providing the outlook for the second quarter 2020.
That will then turn the call back to Kim for final comments before opening the call for questions.
The company's press release and management's statements. During this call include discussions of certain non-GAAP financial measures and information, including all income statement and balance sheet amounts and percentages other than revenue unless otherwise noted.
Non-GAAP financial measures are not prepared in accordance with gap and are not a substitute for or superior to measures of financial performance prepared in accordance with GAAP.
These financial measures in a reconciliation of GAAP to non-GAAP results are providing them the company's press release and related form 8-K being filed today with the FCC and can be found in the Investor Relations section on the Neophotonics website.
Material contained in the webcast and so property and copyright of Neophotonics football rights reserved certain statements in this conference call, what you're not historical facts, maybe considered forward looking statements that involve risks and uncertainties and include statements regarding future business result, product and technology development customer demand indeed.
Inventory levels, economic and industry projections or subsequent events.
Various factors could cause actual results to differ materially.
These factors have been set forth in our press release dated April 32020, and are described in Atlanta, and our annual and quarterly FCC filings.
Now I will turn the call over to CEO, Tim Jenks.
Thank you Erika and good afternoon.
At work and at home the global Cold with 19 pandemic is at the forefront of our collective thoughts and as a company.
First priority remains a health and wellbeing of our employees.
And those of our supply partners currently our North American facilities are operating under shelter in place orders with some impact while our China and Japan factories are running with full labor capacity producing study output are trying to suppliers have largely recovered, but the remains potential for new supply chain risk to emerge.
As manufacturers around the world comply with local public health guidelines.
We have teams in place to address these issues and we're confident in our ability to support our Q2 outlook.
Your first quarter results Neophotonics delivered very strong revenue of $97 million above the top end of our outlook range with non-GAAP gross margin expanding to 31%.
Despite normal seasonality the extended Chinese new year shut down and supply chain issues due to the covert 19 pandemic.
This was revenue growth of 23% from the same quarter last year and it was driven by a combination of strong end demand and customer demand in China, which represented 60% of revenue as well as strong and Metro and do you see our markets in the West where we continued our continued leadership and 400 gig answer.
Faster solutions address the emerging needs for more network bandwidth capacity by both cloud players and carriers.
Hi speed products were 92% of revenue.
The continued strength in our performance reflects our focus on high speed products, including our unique Ultrapure light tunable lasers, serving the industry leaders and coherent telecom and data center networks and the transition of cloud and Hyperscale data center networks to coherent technologies.
Well away our largest customer contributed 52%.
Total revenue up from 41% as demand in China has returned following the pandemic onset.
Revenue from our next four customers was 33% of revenue, which was up 10% in dollar terms from the same quarter last year. This was down sequentially as is generally anticipated in the first quarter and lower in percentage terms due to trying to strength during the quarter.
Within China, China Mobile released their face 13 national backbone tend to results in which why wait one that you screen network and ZT. He won the west bring network note that these deployments are for the national backbone covering long haul distances.
We expect national backbone installations in China will be followed by additional provincial deployments in support of Fiveg Rollouts.
We are expecting that a portion of these new trying to deployments will use 200 gig Q P.S.K. modulation.
And the supersede band spectral window, which effectively doubles typical data carrying capacity and then optical fiber for neophotonics. The use of supersede band Leverages, Our C plus plus laser product and related 64, gigabaud component and module solutions.
This is important as combining the C plus plus spectrum.
And high baud rate together, our key technology advances for speed over distance.
This combination is first being deployed in China.
For high speed over longer distances, using higher baud rate is more efficient to increase fiber capacity. You can also expands the spectral range, which is a cheap using our C plus plus laser together with our 64 gigabaud components.
There are designed specifically to work over the full supersede band wave length range.
Addition to C.S.P., two and Oh, SFP coherent modules for 400 gig and 400 ZR applications. We now have sampled our new Q.S.F.P.D.D.D.C.O. module such that Neophotonics is now sampled 400 gig coherent modules and all three form factors to leading customers.
The O.S.F.P. and Q.S.F.P.D.D.D.C.O. modules offer complete optical connections oversee our distances up to 120 kilometers inform factors that plugged directly into switches and routers, enabling the I.P. over D.W.M.D.W.D.M. network.
Architecture, which greatly reduces the cost per bit of cloud and data center interconnection.
Each of our D.C.O. modules also offer z. are plus performance extending reach to metro distances.
And R.C.S.P. two modules have the ability to operate over the wider c., plus plus spectrum or over the c. and l. bands increasing usable fiber capacity. These are further examples of how our tunable laser products are differentiated and how they work in tandem with our other high so.
Components and modules. We believe these products will gain strong traction when they ramp in 2021.
Momentum continues to build for five g. deployments, most notably in China as evidenced by the recent China mobile tenders.
Major carriers and trying to have indicated that there are five g. deployments will not be delayed by the coven 19 pandemic.
In the west with many people working from home carriers have reported network utilization increases of 20% to 40% or more in some carriers have proposed increase cap x. to accelerate five g. deployments those timing will vary by region.
Deployment of next generation networks is now underway and Neophotonics products are supporting currently ramping Rollouts at 200 G.
400, G. and 600 G.
Which provide ever higher capacities on single wavelength, plus 800 gig systems that are being introduced.
Each of these new.
Hi speed systems further require customized multiplexer products, having unique channel spacings and filter shapes.
Which we also provide.
In the current environment drivers of our business continued to be favorable given the increasing band with needs due to remote working under the pandemic, we remain optimistic about the medium and long term trends in the industry, but we are also cautious above and next few quarters under the ongoing pandemic and the global uncertainty.
Is it creates with that I will turn the call over to our C.F. <unk> that's easy.
Thank you Tim and good afternoon, Q1, with a strong quarter, resulting in non gap P.P.S. 17 cents higher than our range on outstanding execution by our team and our suppliers in a difficult corner.
Moving to more details and Q1 performing as to mentioned revenue was 97.4 million well above our outlook.
Or non gap Q1, gross margin was 31.2% above the mid point of our range.
Within this product margins were 35.8% them one point from last quarter on annual pricing reduction offset by a favorable product mix.
This was that nearly nine points from the same quarter last year, driven by the increasing leadership of our lasers.
Other costs to fails charges of about four and a half point improve sequentially and we're comprised of.
Two planes of under utilization charges, mostly related to the extended strings, new here shut down.
Just under two points of inventory reserves and just over half a point of terror charges on product sipping from our U.S. fab into China.
This is lower than last quarter as tariffs on most of our products were eliminated in months.
Total nongaap operating expense for the first quarter was 20.3 million down 4.4 million from Q. for 1.5 million Cook a reduction was a one time license fee as a credit to earn d. as expected.
The remaining reductions are related to covert 19 impacts in terms of lower travel fewer marketing events and a temporary push of earned do project spend as some of our teams were not in the lab.
The R. and D. spending reductions can Q1 will be added to future quarters.
Nongaap operating profit for the first quarter was 10.1 million or 10.4% compared to 7.4%. Thank you for.
In Q1 depreciation of the Chinese you one relative to the U.S. dollar drove a foreign exchange gain of approximately 1.3 million.
As a reminder, 'cause functional currency of our China operations is to you on the F.X. game is driven by the revaluation trying to balance sheet items to the end of Puerto exchange rates.
As we have said before we regard any effects gains and losses is largely temporary.
As a result non gap net income for the first quarter was 9.1 million compared to an income of 5.3 million in the fourth quarter and a loss of 9 million in the first quarter of 2019.
This improvement <unk> <unk> in our results because a reflection of the increase value add a car products and continue strong execution.
I will quota my discussion of the first quarter income statements with a review of our gap results.
First quarter gross margin was 30.5% up slightly from two four and up 11 points compared to the first quarter of last year, driven by an increase in volume and improved product mix.
Operating expense was 22.3 million down 4.5 million.
One time license credit and lower spending related to the impacts of covert 19.
Operating profit for the first quarter was 7.4 million, which included 2.5 million <unk> compensation expense and approximately point 2 million of amortization of acquisition related intangibles.
Net profit for the quarter with 6.3 million compared to a profit of 2.1 million in the prior period.
Turning to the balance sheet as you know over the last couple of years, we have put a heavy emphasis on cash cash flow and paying down debt.
This focus has positioned us well with 109 million in cash investments unrestricted cash.
Long term that paid down to 41 million.
<unk> inventories at 61 days and good free cash flow at $22 million.
That said, we are taking steps to ensure that we can withstand a variety of potential scenarios that may emerge through the rest of beer, both positive and negative.
As part of this we are working to build inventory to buffer supply chain volatility.
Before I discuss our earnings and revenue outlook for the second quarter of 2020, I would like to remind every one of our public filings, where B.S.C.C. and are safe Harbor statement included in our press release.
Discusses the risks and uncertainties that could affect future performance, causing actual results to different materials from our forward looking sake.
Well, we believe there's immediate command to increase network bandwidth capacity to handle the increase traffic, we continue to see supply chain risks.
Have included approximately 10 million over impact to two Q2 revenue in our outlook.
Due to concerns about supplier shut down as they comply with their local public health orders.
We expect the supply chain risk to continue into the second half of the here.
Given that the company's expectations for the June Twentytwenty quarter are.
Revenue in the range of 94 million do 102 million.
<unk> merging in the range of 29% to 33%.
And get gross margin in the range of 30% to 34%.
Yeah deluded earnings per share in the range of a two step off to an 8% profit.
And non gap diluted earnings per share and the range of a five cent to 15% profit.
These numbers are reflective approximately 54.2 million fully deluded shares.
Well you remain confident in the long term demand transfer our industry.
We are pleased with the progress that we have made to become a consistently profitable business with exciting products.
And continued strong execution in a volatile environment.
With that I will now turn the call backs pen.
Thank you bet.
We are pleased to deliver another profitable quarter, notably through our seasonally low first quarter.
In spite of headwinds from trade bands and the pen demick.
Needless to say, we're optimistic about our future.
Through the pandemic, China was shut down for only a short period and came back strong now they are accelerating deployments.
This is a favorable supply environment for us.
As our high performance in high speed products spring, even greater value in the systems they enable.
Our new product launches, including our new undifferentiated nano N.C., plus plus tunable lasers, and our strong line up of new 400 gig and 400, Z.E.R.D.C.O. high speed coherent modules plus high speed modulators and receivers.
<unk> well with competitive product offerings as the world's cloud data center in telecom markets drive for more bandwidth capacity and their networks. Moreover, these trends align well with new large customer demands that we see and in our expanding Tam serving data center and five g. markets as we.
Look forward the industry continues to move in our direction was higher and higher performance requirements. As this transition occurs high speed and high performance optical components will increasingly be the differentiator.
And we believe that Neophotonics his position to capture more of this value going forward. This concludes or formal comments and now I would like to ask the operator to open up the line for questions John.
Absolutely. Thank you.
Ladies and gentlemen, if he would like to ask a question today, we've pushed Dar one on your telephone keypad again, maybe a star one we do F. that you keep your questions to one question with one follow up question.
At this time I'd like to take our first question and our first question if from Mr. Richard Shannon from Cray column.
Please go ahead Richard.
Thanks to the Bachelorette, taking my question regrets wasn't very nice start year.
If I may actually a question for Sunday results from the first <unk>. When you get guidance you would get you compute to day 10 million dollar impact from <unk> you beat the the midpoint by roughly 10 millions that mean, you didn't see any risks there or what where there's some issues are still with Kobe to U.P.N., you are able to beat the numbers and by others.
We absolutely did see some of the risks, but largely mitigated.
And an increase in and demands as well.
Just some new business.
The truck and let's take that into the second quarter. What's your sales guide here mid points. It's in a modest growth here. It. It just because you had such a strong first quarter or your building in again somebody's risks, you're pretty supply chain others.
Are there right.
Inventory building the first go to that you're worried about if you can help with some pack a kind of that trend in the second quarter, that's a little bit lower than normal, especially in what looks like a favorable environment for you.
Yeah, the the again, having a 10 million dollar risk and they and the second quarter is related to Cove. It it's a little bit higher risk than I would say that we saw in the first quarter because what we found the first quarter was just we're waiting for companies to start up in China now.
We're dealing with a much broader set of supplied suppliers that are potentially impacted by cope in 19, and some of them had periods of shut down.
And you're trying to come back up I'll I'll, just add to that Richard is that.
In the first quarter. It was risks and that played out over time in the second quarter. You know, we've actually seen some of them actually impact. So it's a it's it's not just risk and and all of it hasn't been dedicated though we're working hard on all of it.
Okay. So Tim would you would you say they supply chain risks, they're very specific when you're watching closely or just more of a generic a cover all statement for no no no is they're they're they're they're actually very specific and you know and that you know the comments that we made about local public health orders you know in in certain countries of the world. The you know they'll they'll impose a a shut.
Down and shut down plants, and then even when those plans sometimes come up as they come up but 20 or 30% capacity. You know you you have a problem than we've seen that play out a number of times over over the last two months and we expected it'll continue to play out so it's very real and very specific.
Okay. That's a that's very helpful. I will jump out of line. Thank you.
Our next question come from Tim Savage, you have north Lamb capital markets.
I can.
Hey, good afternoon.
They there.
Congratulate result, crude should lock you guys down more often.
Spectacular.
I Wonder if well I guess first question with regard well first very quickly, let's do it because there's a question are <unk>, China percentage number after a while we're at 52, but what was China overall again.
I know overall was 50 per cent.
They're just to just and it just to finish that China was 60% America's with 19, the rest of World was 21, but as you know, it's that's just where we ship too.
Opposed you out and and customer demand.
Yep.
<unk>.
Okay, well, you're looking at children in particular, it's it's pretty clear we've got a loner drink beer.
And I Wonder if you could talk to the dirtier drivers <unk> back throw it at work or if you. If you can control whether you've seen that in your back <unk>.
Do you see a lot of this is connected to five g. in terms of front hall or mid home. We've heard from you proposed good comments about B.C.R. in China from a Nokia this morning.
So if you look at this range of driver to your yeah. If we feel free to extend this across your total business, but at least starting with tighter.
In terms of the strength of your C. I Wonder if you could talk about it even though.
<unk> categories.
Oh and shine.
The first part of your question said is is it forward looking or.
You know are we seeing it and the answer is yes, we are seeing it.
And it is reflected in our guidance.
For the second quarter.
We we've.
The prepared remarks, I've I've talked about the phase 13, and the expectations we have on for provincial follow on.
<unk>. These are supporting the overall five g. roll out so.
There you know depending on the carrier they they have created certain timeframe <unk> you know within this calendar year to deployed the tenders that have been awarded so.
We would've.
While the phase 13 for example wasn't.
Expressly a a large.
Tender. It is one that you know we expected play out during 2020, and then to be followed by by provincial.
This is this is all.
Carrier telecom and and not D.C. I.
[noise] right and it's always on that kind of provincial kind of curious directly seeing you know provincial deployments are corrupt significantly larger.
Doesn't refer to read you know backbones got were just ordered when it gets.
Right after food Tonight toward your your your <unk> this sort of strength.
Throughout the year and it would you expect no Prudential awards to impact.
Later, and 2020 or or into 21, and what sort of magnitude would you expect for those relative to what you've seen.
You know here in the first half.
Well the the the pattern has been the provincial awards follow a national backbone. So that is the primary reason for or having such expectations until we actually see it though.
We really can't know either the timing or the magnitude and I'd rather not speculate.
[noise] fair enough well, then probably won't answer the phone Red we'll give it a try.
You know, we could get a wireless and three feeding.
Kind of normal seasonality.
Overwhelmed to some degree and probably would've been up with your coated in products who into one.
I think that was 26 game, which is a pretty big year for this industry.
And I Wonder if you can compare kind of what you're seeing now.
To what you saw then and.
You know from both the demand standpoint, and maybe a pricing standpoint, as well given the consolidated shouldn't be seen did that play a role and you're better than expected he won results.
Yeah the.
Couple of things there you know going back a few years.
We we certainly saw on 2016.
A strong year, but you know recall that that was that was also followed by a very soft 2017, and we did express.
Our last two quarterly calls that.
We had you had.
Some customers in China and in the West who were increasing their procurement and perhaps risk mitigating there go forward plans. So I think.
These reasons of of potential customer inventory as well as the supply chain risks I think we we need to be a little cautious.
About how it might how might prove out now.
With with the pressures of of.
The U.S. trying to trade situation as well as B.I.S. <unk> rules on E. Bay are we have seen a.
You know a pricing environment that was <unk>.
Not quite as aggressive as it has been in in in prior years. So I think that has been more stable in in in the recent <unk>. Most recent quarter is certainly in the first quarter in the fourth quarter. So in in those situations. Yeah. It is it is a a bit favorable.
We'll take our next question from Paul Silverstein of Cohen.
But it's just.
Because there's too many through understood. We're supposed to produce questions Bertie pricing is to work with you in a lot of <unk>. So are you doing.
She booster and I think there <unk>.
Raided then that it was on the borderline slider that will recall correctly with respect to deploy trees that joke <unk>. What can you do with me qualification.
<unk>, it's more stable more belong to the world's previously.
No, but it your your memory is is is precise fall and it was that you know <unk> was that range. It was at the lower end of that range.
<unk>.
<unk> on the board and also I was absolutely just hasn't changed your mind.
Yes in but the other thing that I mentioned, Paul is that we are moving to hire mix and higher performance parts as well so that does that help offset some of that.
It's more benign then dark on average.
Alright.
<unk>.
<unk> I sort of goes without saying that there was one would screw up to six.
The on the number <unk> if you make.
<unk> suitable lasers, it I'll do a critical components that or critical either.
Poor are critical to achieving is why anyways.
Low light weights were plus <unk> do not want to pay off and they don't need that performance as <unk> like that the issue.
Twice as well to be better.
The only question is beyond showing outside.
Most of the World you all through as boring so.
<unk>.
A product market.
<unk>, such as well as global regional.
Oh, yeah with milk et cetera.
Appreciate.
And the first part on the on the product mix fall.
You know the.
In the prepared remarks, I I'm I mention a couple of things. So if we if we think about.
In order lasers coherent components incoherent modules, certainly our lasers are differentiated and we have several new version. So the ability for example to provide a laser product to the supersede band.
That R.C. plus plus laser product is is is different and then I think it's true that the the number of players you know at 64 Gigabaud at the higher symbol rates. You know is is a relatively smaller number so.
That does that does certainly matter in in this domain with respect to the you know products such as modules you know the launching of 400 G.R. modules has happened, but you know they're not into production volumes, yeah. So they're not really impacting at this point the.
Discussions about pricing.
You know because of the fact that we sell a lot of components into line cards, it's it's a little more difficult to differentiate between.
Say D.C.I.N. long haul for western customers. Although you know we have noted that in in in some customers are are doing you know proportionally more of their business from from data center and that no doubt reflects in in [noise].
Tar mix as well I I hope that helps.
Yeah.
<unk> Yeah, it's all we're shipping too, but when you look at T.V. and.
<unk> <unk> <unk> what are your so hidden in the middle post P. net.
Well, let's see.
You know in in you know in in in China, What we certainly saw was that.
You know at the end of 2019, we were concerned about.
You know China inventory Bill.
You know now we're seeing tenders released and and so you know that we'll work through the system reasonably but.
You know China has been strong in our last two quarters and and so we're going to be cautious about how it looks later in the year in China.
The U.S. has has generally been been.
You know just strong or you know and consistently so particularly at the higher speeds.
E.M.B.A. is is.
Is you know relatively stable <unk>.
Japan to some some positive notes in Japan, but I would say China is the strongest followed by North America.
Followed by rest of the world, which really means E.M.B.A. in Japan.
Oh I appreciate that someone would close to disagree with that wouldn't <unk> your business, but I wrote a bit so illegal plug it out this way.
Dirty So you're showed up <unk> what percentage of Glendale.
In particular and I Trust your module business.
You know, it's still very very small so dominated by components.
Revenue, but it says you'd be what else what laser specifically all insurance.
<unk>.
Yeah.
Yeah, you don't recall that that we have.
We have several different types of lasers, and you know and and so the sum of all of our lasers, you know approaches about a half of our total revenue and that that means lasers for data centres that are fixed wavelength as D.S.P.'s that means lasers that are generally used for example.
In five you eight five g.
Mid Hall in front Hall links those are general E.M.L. lasers, and then tunable lasers, which are which are used in coherents systems that are used in conjunction with with with.
You know our our current components. So lasers are important part of our company, but that it does have you know three different broad types of lasers.
And our next question come from Alex Henderson of need Ham.
Hey, Alex.
Oh.
Yeah.
Hopefully, we can just talk a little bit more about supply chain side of things.
To what extent.
That might be causing.
People to be building trying to build a more inventory at the same as you're trying to go more inventory downstream from.
You have any sense of what is the Raiders take your shipping into the Chinese for instance.
Consistent with the rate, they're shipping out to their service providers or <unk>.
Realizes there was concern at the end of the year in particular, that's continuing build.
Word or two things.
<unk>.
Product through his faster shipping it to them given their also rebounding in terms of demand.
Which which dynamic to think is more prevalent.
Well, let's see in the in the first quarter.
I think.
We're probably seeing.
More.
Ah shipments to them than their shipments out.
However, as as we talked about in response to an earlier question. During Q1, we saw these new tenders and so those I, specifically referred to China mobile, but now there are additional things being done by by China, Unicom and trying to telecom and so you know in in in second quarter.
We expect you know.
You know more balanced or even potential more use then accumulation. So I think a cue one you know.
The sum of all China customer inventory, it was probably increasing and in the second quarter, I think it'd probably be flat that down.
I do think Alex.
If any were able to get to our for the full.
Unconstrained revenue that there would have been some inventory build in there but.
We're constrained on supply chain.
Right so.
I I would assume that that reflects back to you by your customers, calling you in pushing you too.
Ship more product and.
Speak very concerned about product availability timing is that an actor.
Mr hearing frequently from your customers above.
Do you get the constraints find it.
Yeah.
Well, they're not asking when they're they're just you know it's much more of that.
You know they they they'd thing or the daily and sometimes hourly you know so.
But you know they understand the situation in in the pandemic there wrestling with the same kind of supply chain issues. We are.
You know we're all in the same storm, though we're in different boats and.
You know so there there.
Everybody's wrestling with it.
If you were to flip that I'm trying to to focusing on western accounts is there any difference in the you know your sensibilities towards those accounts.
No.
Not not really.
[noise] to know him and I I don't think I can I can I can really you know tell you much we haven't we actually haven't heard enough from the whole eco system.
You know with this quarter and kind of the aftermath of you know living through a couple of months of the pandemic I I don't.
I don't know enough yet.
Quite reasonable.
I see the floor effects.
Thanks, Alex.
And our next question come from from me.
Chattering J.P. Morgan.
I used to make my dad.
Hi, guys, but that they'll cut us on a personal I.
Hey, How's it on so my first question I kind of <unk>.
Obviously very strong relative to your historical final thing obviously, that's what are you guys <unk> well on the gross margin line as well I just want it's kind of dive into that high end about balancing kinda go down understanding of what's driving that high end and how how you guys would get to the high end as they put up her best.
Yeah.
So one of the things that impact our gross margin product volume, particularly swings. This on the under utilization. It also impact on our cost product mix different different products in different markets have.
Different.
Levels of of margin.
And that and P. reduction are pretty wild pagan also cost reduction.
Thing that is unusual this quarter and I alluded to it in my my remarks is that as of March the terror ups in China, that's been running that in any given court out for the last few quarters between a half a point point gross margin that <unk>.
R.S.I.N.R.U.S. products going into trying to have been eliminated.
So the the.
The the bulk of the difference frankly between this quarter in next quarter's is that elimination of those tariffs.
And we'll see what product mix ends up ends up doing a metal swing as to the high end or the low end to the range.
And then on the opposite side last quarter, you guys mentioned expecting maybe a slightly increased and <unk> the new product launch. It that you guys are having this year and obviously <unk>.
<unk> and you're prepared remarks, and said that it was a little bit down, but you're expected to lay around with some of their expenses as we go through the year. So kind of two clarification down that one is do you still expect outback it'd be higher this year and then the second one being how do you expect the Kate and stuff.
Is r. and D. investments.
We don't guide more than one Porter <unk> welcome to Neo.
That said.
The we.
We said straight out into one minute, we guided mid point of 22, and a half and we had at 1.5 million dollar unusual printed.
Gives you a pretty good idea of the the stable runrate there'll be some variability around that.
And when we as that said in the prepared remarks Ah Joe.
He did have or spending in the first quarter with a pandemic and we expect that to be added to the subsequent quarters.
Data and then if I could just walk at the same on <unk> you know.
Yep data.
And then if I could just one more fun like and relative to C. plus plus products. Obviously, you guys have been feeling strong interest in in China, our from Chinese customize their I'm, just curious what would drive or what are you guys expecting will drive interests outside of China up and left a little world and I I guess up to that point <unk> what what.
Why are attacking customers.
Finding that or finding the day interest in that product. Thank you.
Well, let's see the.
Yeah.
<unk>, it's an interesting situation to be in the middle of this pandemic with people working from home.
Unavailing themselves of clouds services.
You know people are talking about higher bandwidth utilization or band with demand and that all means that you want to increase the data carrying capacity of the fibers that are already installed.
That is what C. plus plus does.
And.
You know.
In China work has been going on over the last year around these kinds of technologies with the supersede band.
And the use of supersede band with Q.P.S.K. as a modulation, which I talked about my prepared remarks, so they've been at it for a year and and now that they have these new tenders a awarded we expected to deploy.
But other parts of the world.
No it'll it'll take 'em similar amounts of engineering time to.
Assess the the the the value proposition and and decide if it works it's interesting to see that that initial deployment is gonna be starting just as we've all gotten adjusted to this need for more bandwidth capacity through the pandemic.
It also you know depends to some extent on on.
Available fiber capacity, because you know <unk> if if if there are available channels on existing fibers. Then you know that has to fill first before.
You know the next structure or the next technologies applied to increase that capacity.
Further, but but ultimately.
It is a it is a solution set that that solves a particular problem and that problem.
It has gotten more.
Current in in recent months.
Okay or next question.
Will come from Simon Leopold of Raymond James.
If you're taking a question I'm in the first just Hello wanted to get a a quick maybe clarification or added color. Here. You did you did a highlight the why Wei dismiss being very strong did you have any other customers that exceeded 10% of revenue in the quarter.
We had one other customers that exceeded 10%.
Do we know how much they exceeded 10 per cent buying.
As as we discussed a number of times they have asked us to not sites their site there <unk>.
Okay.
And then I just wanted to to follow up with the 400 gig opportunity understanding. It's it's still early but having products available gets US started what do you view of the timing for when that business becomes material for you and how do you think about the.
Total market opportunity and 2021, thank you.
Well, let's see that the.
400 gig opportunity is you know I have to I have to describe two parts of it you know it it it's more than 10% of our business right now, but there there there are two parts of it. The first 400 gig part that is driving the more than 10% is the fact that we have a wide range of 406 hundred a gig capable components.
That go into line cards, and that are being sold and volume today.
For the D.C.O. modules, which is for US we have three different form factors, we have a C.S.P. two D.C.O. module.
Which is a favorite form factor for the telecom carrier space and then for data Center, we have both the newest 50 and a Q.S.F.P.D.D.D.C. or modules. Each of these are 400 gig D.C.O. modules. You know these we expect to rampant 2021 and frankly.
We expect that you know through the course of.
The last few months things have moved.
A couple of months to the right so what might have been.
Ah early 2021, now might move too you know the second quarter or or even mid year in 2021.
I hope that answers your question.
And our next question come from David King be Riley F.B.R.
Yeah, good good afternoon.
Hi, I think <unk> give us an update on the Japan, it and haven't production status.
Sure, they're they're they're both running full throttle.
But no in fact from from local quarantine set this point.
And you're not picky and well you know fair enough part I mean, you 10 million in Penn for this current quarter second quarter, Yeah, Yeah. Our our production is running fine. It. It it's running full throttle. This is this is true not only in Thailand and in Japan, but also in.
In China in our last poorly conference call.
It was just after China returned from an extended China new year period.
And we were light on our labor, but over the next few weeks. The the Labor Force returned from other provinces in China as they were able so that we were running full speed now.
It's that next the 10 million, Dave is pure supply chain.
In multiple locations in the world.
Yeah. The other thing I I just wanted to say it was that in each of our locations. We have you know impacts from code 19, and you know we're running with.
Cussing protocols of social distancing and and low density working et cetera et cetera. So there there are impacts everywhere, but you know we're well into it we've gotten used to it we're getting all the work done and things are moving right along but in terms of production only.
It's it's all running just fine.
We got into a supply chain supply chain. Each year is during the kind of a key component that could cause some kind of eat a complete any balance more bottleneck that could you know hold things up.
Well you know the.
The answer is yeah, there are about 10000 [laughter].
You know if <unk>.
Yeah.
Essentially every component is <unk> every sub component in a component is key and every component is key in a module. So if you add it now or or blue or a widget.
You're going to be you're gonna have problem. So we you know we have.
There are broadly speaking there there are two issues you know we have we try to have multiple suppliers for most things that we we we buy but you know oftentimes there's a large one in a small one.
And you know if if if if the large one is unable to produce at the same rate you know that causes of for for US a problem. If if if someone is is is a sole supplier that also causes a problem and and you know when you know if if a larger one has a problem and we go pull on the smaller one you know the smaller one maybe.
Pulled on multiply multiple companies at the same time so.
You know daily you know this has been part of our daily conversation really since we learned how to spell Kobe and it. It's just that it's the reality with the global supply chain and you know different local public health requirements that you know in.
Some cases, we've had we've had vendors that you know they'll they'll have a public health ordinance they'll they'll shut down and they'll be back up three days later, others. You know it takes a few weeks so it it it it varies widely and.
Huh.
It requires are.
Full attention every day.
And our next question come from Tom differently D.A. Davidson.
Yes, good afternoon first kind of following the last line.
I was.
It's cool that has had an impact on your or let's have you have to limit the.
People make clubs.
Delayed some projects.
Mm.
Well it it has had an impact and.
I'll I'll comment about it in a couple of way, we we have r. and D. locations in several places in the world. We have already in the U.S., Canada, Japan, China and in China, We have our Indian Bullshit engine and we have our Indian <unk>. So certainly the most impact on the earliest impact was with our colleagues and move on all that.
Said, they're all back at the office, there are running strong and they've done a great job.
By the same token R.R. and D. is generally done around the world in a collaborative way so when when one organization is a little bit like the others can pick it up to some extent. So we've continued to be able to get the job done, but we've had to we've had to be pretty innovative inflexible and making sure that that.
We can do that so far it's worked out well.
Okay.
And then as far as the data Center days go stand that you're saying that you think that cool did <unk> plans to do coherent you Buddhism.
No I don't think that that's an accurate statement, but I do think that.
There is there is a need to deal with bandwidth capacity.
And.
There are very very good ways, leveraging coherent technology in increasing bandwidth capacity, which I talked about in the these are things for example, having a wider spectrum.
More channels of light. This is this is the c. plus plus a running with with a higher baud rate I said that that is efficient that's a way of dealing with it actually having higher order modulation, that's a way of dealing with it all of these require very pure lasers, which we supply so the the ways.
I've actually using coherent technology to increase capacity certainly are are strong suits of neophotonics, but I think the the general you know trend of adopting in the data center more coherent technology, that's a big picture topic that takes takes considerable time.
Okay. Now appreciate this to cover thank you.
Our next question come from buying tones of road frozen blot for cared.
Oh right action or.
I'm a strong quarter in a affects the trends in the business.
Given kind of the upcoming disruption its impact strictly to impact the D.C.I. market from C.R. How'd, you expect fulfillment models to work given there's a lot different players it huh.
Full of buyers there I got the D.S.P. suppliers the objects guys assistance, guys, all kind of coming together.
Yeah.
Well, that's that's what you would might call them.
The 200 million dollar question.
You know the the.
The industry.
Is a is a global industry and you know oftentimes competitors are also each other suppliers and there's a good level of collaboration.
At every level of the food chain.
I think there are a couple of things to consider first one is is the fact that you know in in the in the cloud and data Center World. You know there there are doesn't players around the world that that are the preponderance.
Of.
Ultimate demand by the same token the same is true right now with the network equipment companies that we <unk>. We supply you know there are doesn't that that that make up the vast majority of the industry.
So.
You know it's incumbent on on people trying to you know launched new technology products in volume to compete with your technical and production capability for those design opportunity to design when opportunities I think four the 400 z.
Our market that we'll be playing out over the next several orders.
My Crystal ball isn't quite clear enough to say precisely how it will end up however.
And at this time, we are out of time for any additional questions. We're now trying to call back over to Tim for closing remarks.
Thank you John.
Thank you everyone for dialing in today and thank you very much for your interest in Neophotonics. We appreciate the the diligent work of our employees and of our suppliers to drive progress, especially in light of the current environment.
Everyone will stay safe, we'll look forward to updating you in the future and meeting with shareholders again on the other side of the pandemic have that evening.
Ladies and gentleman that does conclude or call.
On behalf of new phone Neo Photonix, we do appreciate your participation.
Have a great weekend and at this time you may disconnect.
[music].