NeoPhotonics Corp. (NYSE: NPTN) says it will introduce cost-cutting measures “to better align its infrastructure and more efficiently manage its cost structure.” The moves, which come against a backdrop of revamping operations and strategies to minimize the impact of U.S. government actions aimed at top customer Huawei (see "NeoPhotonics foresees less dependency on Huawei"), include tightening production operations, accounting for Huawei-specific assets and inventory, consolidating indium phosphide production, and reducing its workforce by approximately 4%. The optical component and module vendor also issued updated guidance for its fiscal third quarter.
Company management did not say when the workforce reductions would begin. Nevertheless, the company expects to benefit from the cost reduction scheme immediately and realize approximately $2 million in quarterly operating expense reductions when it fully executes the plans, a milestone NeoPhotonics expects to reach by the second quarter of 2021. The company also expect reductions in cost of goods sold to contribute to the operation expense decreases. The moves have led company management to lower its revenue breakeven point; they expect the company to return to non-GAAP profitability in third quarter of next year and GAAP profitability in the succeeding quarter.
“Our actions better align our capacity and production infrastructure with expected demand levels, and accelerate our goal of returning to profitability,” commented Tim Jenks, chairman and CEO of NeoPhotonics. “We are maintaining our focus on developing products for next-generation coherent systems and modules, wherein our silicon photonics, lasers, and advanced hybrid photonic integration technologies provide the highest value, fully supporting our expansion into the data center market with coherent products.
“We are increasingly optimistic about our ability to drive growth both in the near-term with our 64-Gbaud solutions and in the mid-term with 96-Gbaud solutions and as our 400ZR products ramp in mid-2021,” Jenks continued. “With these changes, we continue to pursue growth opportunities and deploy our best-in-class products and solutions for the highest speed over distance applications, and with a more diverse customer set.”
NeoPhotonics expects the moves will cost the company about $12.1 million, with $1.1 million in severance costs and $11.0 million in inventory and idle asset charges. About $10.7 million of these costs will hit in the third quarter, with $0.7 million in the fourth quarter and the rest as accelerated depreciation charges through 2021. NeoPhotonics therefore adjusted its third quarter 2020 guidance accordingly. The company now forecasts revenues between $101 million and $103 million (versus the original $97 million to $105 million). GAAP gross margin should range from 21% to 23% (against the earlier 29% to 33%), while the non-GAAP equivalent is expected to fall within 32% to 34% (with the prior guidance 30% to 34%). Earnings per share are now guided to ($0.14) to ($0.10) GAAP (versus a loss of $0.3 to a gain of $0.07) and $0.10 to $0.14 non-GAAP (better than the previous gains of $0.03 to $0.13).
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