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Some Positives And Negatives From NeoPhotonics

Mar. 02, 2021 1:41 PM ETLumentum Holdings Inc. (LITE)4 Comments
MarketGyrations profile picture


  • NPTN took some big hits in Q4 with the absence of Huawei, but it also scored gains as it embarked on life without the latter.
  • The positives from NPTN were offset by negatives, which included revising down the growth outlook due to softening demand and the prospect of more weakness ahead.
  • NPTN has recently benefited from acquisitions sweeping through the optical industry, but it's anyone's guess whether that will prove to be justified.
  • There are arguments to be made for or against NPTN, clouding the road ahead for NPTN.

The latest quarterly report from NeoPhotonics (NPTN) stood out for one particular reason. It was the first in a long time without any contribution from Huawei, NPTN's biggest customer until very recently. Losing your biggest customer is never easy for any company, so it was not surprising that NPTN took some big hits in Q4. However, there were some positives to be found besides all the negatives. Why will be covered next.

Q4 FY2020 quarterly report

As mentioned before, Q4 did not have any contributions from Huawei due to sanctions imposed by the U.S. government. In the first three quarters of FY2020, Huawei accounted for 52%, 52% and 44% of revenue. So it stood to reason that NPTN would experience a major drop off in Q4, which is ultimately what happened.

Q4 revenue fell by 34% YoY to $68.2M. Operating income, net income and EPS, whether it's GAAP or non-GAAP, were all in the red. For instance, non-GAAP EPS went from $0.10 the year before to a loss of $0.14 per share in Q4. Margins dropped by several hundred basis points. The table below shows the numbers for Q4.

However, the numbers start to look better when comparisons exclude Huawei. For instance, Q4 revenue increased by 18% QOQ if revenue from Huawei is left out. Q4 growth was led by strong demand for 400G+ products, which grew by 153% YoY to account for 46% of total revenue. Overall, high-speed products for 100G and above grew by 18% YoY and accounted for 92% of revenue in Q4. All positive signs that NPTN is making headway in replacing some of what it has lost with Huawei, even if there's ways to go. It also reaffirms the soundness of NPTN's strategy of growing the company by focusing on solutions for the highest speed over distance.

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MarketGyrations profile picture
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Comments (4)

rt94103 profile picture
Took a position after the recent rout. Thanks for the analysis.

NPTN should be able to again get the US license to sell to Huawei as others again can.
MarketGyrations profile picture
You're welcome.
Thanks for this article...very well presented. I bought 1k shares after the big post earnings drop and will see how it goes. I agree that there are both positives and negatives at this point in time with NPTN and therefore it is a speculative play at best for now. As noted, the need for the 400G+ products has increased and should continue to increase going forward and this is a definite plus if the existing adjacent chip shortage lets up. IMHO, purely speculative play at this time, but something to keep your eye on.
MarketGyrations profile picture
I agree that NPTN is a stock that should be on people's watch list. Even though I am not bullish at the moment, I could see longs getting rewarded. The company still provides exposure to a market that should grow and gain importance over time. And there's a chance NPTN may get acquired for that reason. It's worth taking a chance on NPTN as long as people understand the potential risks that come with it.
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