trends and technology for highest speed over distance …
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Trends and Technology for Highest Speed Over DistanceNYSE: NPTN
September 2020
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Forward Looking Statements and Other Important CautionsThis presentation includes statements that qualify as forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements aboutthe following topics: future financial results, the Company’s market position and industry trends.
Forward-looking statements are subject to certain risks and uncertainties that could cause the actual results to differ materially. These forward-looking statements include statements about the followingtopics: future financial results, demand for the Company’s high-speed products, and the Company’s market position. Forward-looking statements are subject to certain risks and uncertainties that couldcause the actual results to differ materially. Those risks and uncertainties include, but are not limited to, such factors as: the Company’s reliance on a small number of customers for a substantial portionof its revenues; market growth in China and other key countries; possible reduction in or volatility of customer orders or delays in shipments of products to customers; timing of customer drawdowns ofvendor-managed inventory; the potential for export or other legal restrictions placed on our overseas customers; possible disruptions in the supply chain or in demand for the Company’s products due toindustry developments including COVID-19; the ability of the Company's vendors and subcontractors to supply or manufacture the Company's products in a timely manner; ability of the Company tomeet customer demand; volatility in utilization of manufacturing operations and manufacturing costs; reductions in the Company’s rate of new design wins, and/or the rate at which design wins go intoproduction, and the rate of customer acceptance of new product introductions; potential pricing pressure that may arise from changing supply or demand conditions in the industry; the impact of anyprevious or future acquisitions or divestitures of assets and related product lines; challenges involving integration of acquired businesses and utilization of acquired technology; the discontinuance or endof life of certain other products; market adoption, revenue growth and margins of acquired products; changes in demand for the Company's products; the impact of competitive products and pricing andalternative technological advances; the accuracy of estimates used to prepare the Company's financial statements and forecasts; the timely and successful development and market acceptance of newproducts and upgrades to existing products; the difficulty of predicting future cash needs; the nature of other investment opportunities available to the Company from time to time; the Company’soperating cash flow; changes in economic and industry projections; a decline in general conditions in the telecommunications equipment industry or the world economy generally; and the effects ofseasonality.
For further discussion of these risks and uncertainties, please refer to the documents the Company files with the SEC from time to time, including the Company's Annual Report on Form 10-K/A for theyear ended December 31, 2019 and the Company’s Quarterly Report of Form 10-Q for the three months ended June 30, 2020. All forward-looking statements are made as of the date of thispresentation, and the Company disclaims any duty to update such statements.
You may obtain these documents for free by visiting EDGAR on the SEC website at www.sec.gov.
Non-GAAP and Adjusted EBITDA Measures vs. GAAP Financial Measures
The Company’s non-GAAP and adjusted EBITDA measures exclude certain GAAP financial measures. A reconciliation of the Non-GAAP and Adjusted EBITDA financial measures to the most directlycomparable GAAP financial measures is provided in the financial schedules portion of its press release issued on August 4, 2020 and available in the Investor Relations section of the NeoPhotonicswebsite. Non-GAAP financial measures differ from GAAP measures with the same captions and may differ from non-GAAP financial measures with the same or similar captions that are used by othercompanies. As such, these non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.
The Company uses these non-GAAP financial measures to analyze its operating performance and future prospects, develop internal budgets and financial goals, and to facilitate period-to-periodcomparisons. NeoPhotonics believes that these non-GAAP financial measures reflect an additional way of viewing aspects of its operations that, when viewed with its GAAP results, provide a morecomplete understanding of factors and trends affecting its business.
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NeoPhotonics: World leader in the highest speed optoelectronicsFinancial and Operational Scale• TTM Revenues as of Q2’20 of ~$398 million• 26% growth over Q2’2019, up from 23% growth in Q1• Beyond Q3 2020, no Huawei forecast with BIS restrictions• ~1,300 employees (USA, China, Japan, Canada)• ~500 Issued Patents
Deep Technology for Highest Speed Cloud Solutions• Highest speed coherent suite shipping volume 64 Gbaud / 600Gbps• Unique ultra-narrow linewidth tunable laser enables highest speed
and farthest distance transmission – and A New Era of Growth• Sampling 400G / 400ZR / 400ZR+ coherent DCO modules enabled
by silicon photonics modulator/receiver integration• Unique C++ LASERTM for expanded spectrum and capacity
For Network Equipment Transport | Metro | Data Center
SystemsLine Card | Daughter Card | Transponder
Telco Carriers/Cloud and Hyperscale
Central Office / WebscaleData Center
Components & Modules
Market Ecosystem
Components and Transceivers
Optical ICs
Lasers, Drivers, Amplifiers, Modulators
SemiFabs
Products Customers
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NPTN reaffirms Q3 outlook of $97-105 milA New Era of Growth, Driven by 400G~800G
A New Era of Growth for NeoPhotonics
• Demand for NPTN high speed products is strong.• We expect 40-50% revenue growth from customers
beyond Huawei over the next year.• Our highest speed products for 400G, 600G and
800G are rapidly gaining traction with leading NEMs. These are expected to be 20-25% of 2020 revenue and exit the year at >40%.
• 400ZR and 400ZR+ high speed modules are expected to ramp in 2021. 400G and above port growth is forecasted at an 80% CAGR 2019-2024.
• Hyper-scale data center interconnects and network edge provisioning for cloud services all drive demand for speed over distance.
• Recent BIS / Department of Commerce increased restrictions on Huawei for U.S. and foreign-produced items using U.S. technology
• We expect to meet our Q3 2020 outlook provided on August 4, 2020. Shipments to Huawei in Q3 are expected to contribute ~$40 mil of revenue in Q3.
• Beyond Q3, assuming BIS restrictions remain in place and provided we are unable to obtain licenses, NPTN will not rely on revenue contribution from Huawei
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FIBER OPTIC COMMUNICATIONS: HIGHEST SPEED OVER DISTANCE LEADER
• A Decade of Delivering the Highest Speed Over Distance In the Industry
• Technology Development Teamwork: Unique Corporate and Multinational Culture
• The Outer Limits of Complex Optical Materials Technology
• Currently Shipping Products that Deliver 32 Terabits per second On One Fiber
• Technology and Manufacturing: Seamless Organic Team
• Deep Reservoir of Knowhow Captured in Trade Secrets for Highest Speed Over Distance
$398M TTM Revenues26% YoY Growth
in Q2’FY20
Acceleration Growth in High Speed Products with
Expanding Margins(100G+ 2012-19)
~1,300 Employees(USA, China, Japan, Canada)
~500Issued Patents
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Deep Culture of Innovation and Technology Refinement Results of Engineering Innovation
Corporate Engineering Culture Driving Innovation
• Stable Technology Leadership for 15 Years
• Key Acquisitions Since 2010; Each a Holder of Strategic Technology
• Close Collaboration among Global teams
• Relentless Consistency of Focus over Years
• Continuous Manufacturing and Process Improvement
• Deep Knowhow from Fab to Final Test
• Many Trade Secrets
• Industry’s Purest Light Tunable Lasers
• Highest Baud Rate Receivers and Modulators
• Most Advanced Hybrid Integration Manufacturing
• Optimized Materials Platforms
• Highest Density Modulation Schemes
• Delivering the Industry's Highest Speed Over Distance and Highest Capacity
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NeoPhotonics’ Sustainable Competitive Advantage: Our Laser
PIC Integration
OUR DESIGN• A formidable competitor in
silicon
• Requires our high power lasers
• Leading hybrid integration
• Superior laser design
• Low phase noise
• Ultra-narrow line width
OUR INTEGRATIONLaser
We leverage ultra-pure light tunable lasers and optical integration to deliver highest speed over distance
New nano- and C++ LASERTM products target high capacity applications
• Uniquely low noise
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COHERENT
IP over DWDM Dramatically Reduces Cost per Bit; Requires Our Laser
Coherent100G+ Networks
Creates detectable, error-free signals; each color
(wavelength) transmitted must be much purer than for lower speeds.
The New
On/Off Keying10G WDM Networks
Signal muddied / impaired at higher speeds
The Old
The Best in Coherent Optics Technology
Low phase noise
High symbol rate
Higher order modulation
Wider Spectrum
NeoPhotonics High Capacity Solutions for Speed Over Distance
New Era of Growth:400G, 600G & 800G As A Growth Market
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Pluggable Coherent Modules vs. Chassis Based-SystemsCloud-Driven Growth and Converging Markets
Cost per Bit Is the Driver of Growth
40 km
Data center/edge
80 km
Data center interconnect
600 km
Regional/metro
>1,000 km
Long haul
TELECOMDATA CENTER
WIRELESS BACKHAUL
• DCI/Edge Reaches– Pluggable Modules
– Power Limited
• Metro Reaches– Chassis Based
– Performance Limited
• Long Haul– Chassis Based
– Performance Limited
Pluggable Preferred – Power Limited Performance DrivenComing Battleground
400G+ Port Growth Forecasting 5-Year Forward CAGR of 80% (2019-24); Dominant Growth Segment
Cloud-drive pluggables will drive network changes
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Speed Over Distance 400ZR / 400ZR+ Pluggables Will Accelerate GrowthAccelerating Growth Increases With 600~800G Transponders
Metro/Regional/Long HaulCentral OfficeCentral Office
OPEN LINE SYSTEM
SWITCH/ROUTER
CHASSIS SYSTEM
6-800GSRSR
SWITCH/ROUTER
CHASSIS SYSTEM
6-800G SR SR
SR = short reach transceiver
Cisco NCS 1000
Infinera Groove G30
Infinera CX/CX2
Nokia PSI-2T
Ciena WaveserverAI
DCI and Edge Growth Is In Pluggable 400ZR Modules (IP over DWDM Directly in Routers)Long Haul Growth Is In High Baud Rate Chassis Based Systems – Metro Growth Split With 400ZR+
Edge/DCI/MetroUrban data
centerSuburb or campus
ROUTER ROUTER
OPEN LINE SYSTEM
400ZR 400ZR
Can extend to 800ZR
NeoPhotonics is sampling all three 400ZR modules
400ZROSFP
400ZR QSFP-DD
400ZR+ CFP2-DCO
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Fastest Growth of Coherent is 400G Modules and 600/800G Components
DCI/Edge (~100km)
400ZR Pluggable
400ZR+ Pluggable
Metro (~500km)
400ZR+ Pluggable
Chassis System
Long Haul (~1000km)
400ZR+ Pluggable
Chassis System
• DCI/Edge Reaches– 80-120km– 400ZR Pluggables– QSFP-DD
• Metro Reaches– 400-600 km– 400ZR+ Modules– 600-800G
Transponders• Long Haul
– ≥ 1000km– High baud rates– Extended reach– Transponders
Pluggable 400ZR Modules Dominate Short Reach DCI/Edge; Chassis Based Systems Own Long Haul
400ZR+
400ZR
Chassis
GROWTH
GROWTH
GROWTH
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High Speed Optical Ports As A Measure of Success
OPTICAL PORT(2020 Market: 620K ports*)
• NeoPhotonics’ tunable lasers have narrowest line width and lowest phase noise (ultra pure color)• High performance receivers decode phase and polarization• Advanced modulators code signals that use large constellation modulation schemes
* Company Estimate
Coherent Optical Ports Are the Metric of Our Business: 2020-2021 Growth Is Cloud-DrivenCOHERENT TRANSCEIVER / OPTICAL PORT
(2021 Market: >700K ports*)
Electronics
Digital signal processor converts analog signals to digital
DSP
Electronics
Digital signal processor converts analog signals to digital
DSP
Control electronics
The Optics
Sold integrated in modules, or as components
RECEIVETRANSMIT
LaserModulator
Signal Out Signal In
Receiver
Port Growth Driven By Data Center /
non-China Telco’s
HIGH SPEED PORTS
Huawei ~35% of portsGrowth is in-line w. market
Ex-Huawei ~25% growth
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400ZR/ZR+ Modules and Components For Chassis
Cost per Bit Declines Drive Higher Growth At Higher Bandwidths
Source: Company estimates. No Huawei in 400ZR estimates
High Speed Coherent Is Technology of Choice
Rapid Growth in 400G+ PORTS
400G+ Coherent Ports Are The Fastest Growing Segment. Current Design Wins → Acceleration!
0
200
400
600
800
1000
1200
2019 2020 2021 2022 2023 2024
400G+ 400ZR
+80%CAGR
CO
HER
ENT
POR
TS S
HIP
PED
Total 400G+ Ports in 2020 forecast is 110KIncreasing to 975K ports in 2024
Total NPTN 400G+ TAM
Source: Company estimates. No Huawei in 400ZR estimates
0
500
1000
1500
2019 2020 2021 2022 2023 2024Components 400ZR Modules
Total 400G+ NPTN TAM in 2020 forecast is $200MIncreasing to $1.3B ports in 2024
+70%CAGR
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Competitive Strength at Top NEMs for >400G. 40% Increase In Design Wins Driven By 64 Gb Suite
NeoPhotonics Market Reach In 400G, 600G and 800G Applications
NLW-TL Modulator Receiver Customer A X X XCustomer B X X X
Customer C X X X
Customer D X X
Customer E X
Customer F X X X
Customer G X X X
Customer H X
Customer I X X X
Customer J X
• NPTN Supplies Ultra Pure Tunable Lasers To All Of The Leading Providers Of 400G+ Chassis-Based Systems
• NPTN Supplies 64 Gbaud and Above Coherent Modulators To 6 of 10 Leading Providers of 400G+ Chassis-Based Systems
• NPTN Supplies 64 Gbaud and Above Coherent Receivers To 7 of 10 Leading Providers of 400G+ Chassis-Based Systems
New Era of Growth: 600G and 800G Chassis-Based Systems are Proven and are DeployingDr. Winston Way, CTO
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600~800G Now Driving Accelerating Growth:Field Trials Portend Accelerating Deployments
400 600Net Data Rate (Gb/s)
5,000
3,000
1,000
Dis
tanc
e (k
m)
800400ZR+CFP2-DCO
60Gbd
600G and 800G products focus on long-haul 400G transmission The higher the baud rate, the longer the transmission distance The higher the capacity per wavelength, the shorter the transmission distance
600G and 800G Multi-Rate Systems Adjust Speed in Gbaud To Increase Transmission Distance
600G ( ≤ 70Gbaud, 16nm DSP)NPTN Suite shipping in 2018
800G ( ≤ 96Gbaud, 7nm DSP)NPTN Suite shipping in 2019
400ZR and ZR+ Will Be A LargeVolume Market.NPTN Modules shipping in 2020
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600~800G Chassis-Based Systems vs. 400G Pluggable Modules
NPTN Growth Benefits from 600~800G Segment and in new 400ZR and 400ZR+ Segment
800G x4
600G x2
600G x2
(600G x2)x4
400G x1Lower cost/BW optical components
for shorter-reach modulesNPTN supplies complete modules
400G x1 400G x1
OSFPDD-QSFPCFP2-DCO
High capacity & long reach require premium high BW optical components
NPTN supplies components
New Era of Growth:Technology for Highest Speed Over Distance is Pushing the Envelope
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Key Optical Components for 600~800G Transmission SystemsNPTN Is A Leading Provider of All High Performance Optics for Highest Speeds
• Narrow-Linewidth Tunable Laser (Nano ITLA)– Ultra Pure Laser Light– Low Linewidth and Phase Noise– Shipping in Volume Since 2015
• High Bandwidth Coherent Driver Modulator (HB-CDM)– 64 Gbaud for up to 600G– 96 Gbaud for up to 800G– Shipping in Volume Since 2019
• High Bandwidth Intradyne Coherent Receiver (HB-ICR)– 64 Gbaud for up to 600G– 96 Gbaud for up to 800G– Shipping in Volume Since 2018
NPTN Today Provides the Leading Suite of 64 Gbaud Components; 96 Gbaud is Next!
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Differentiated Components Technology for the Highest Speed Over DistanceNPTN Is The Market Leading Provider of Highest Performance Optics
• Narrow-Linewidth Tunable Laser (Nano ITLA)– Narrow Linewidth and lowest phase noise Increased Distance & Capacity– Higher optical output power Increased Distance & Capacity– Lower Power consumption Increased Port density – Higher Frequency accuracy and stability Increased Capacity– Wider tunable optical spectrum Increased Capacity
• High Bandwidth Coherent Driver Modulator (HB-CDM)– Higher Bandwidth Increased Capacity– Lower Required driving voltage Lower Power consumption– Lower Insertion loss Higher Optical output power Increased Distance & Capacity– Lower Power consumption Increased Port density
• High Bandwidth Intradyne Coherent Receiver (HB-ICR)– Higher Bandwidth Increased Capacity– Lower Thermal noise Improved Link budget– Higher Responsivity Improved Link budget
NPTN Optical Components Deliver Critical Performance Benefits
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Impact of TL Linewidth and Phase Noise on 600 & 800G Signals
(Optics Letters, vol.45, No.3, p.1220, March 2020)
DBR#1DBR#2
ECL
OIF mask
30KHz linewidth
Low phase noise Low linewidth
NPTN Ultra-Narrow Linewidth ECL Laser (Blue) Has Far Lower Phase Noise Than DBR Lasers
PHAS
E N
OIS
E
Frequency (Hz)0 100 200 300 400 500
distance (km)
0
0.5
1
1.5
2
OSN
R p
enal
ty R
elat
ive
to E
CL
TL (d
B)
DBR#1 96G/DP-32QAM
DBR#2 96G/DP-32QAM
DBR#1 64G/DP-64QAM
DBR#2 64G/DP-64QAM
DBR shows higher OSNR penaltyover ECL even at 400~450km
NPTN ECL Lasers Improve OSNR At All Distance (>1 dB at 400 km vs DBR Lasers)
600G
800G
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Heightened Importance In New 600~800G Links:NPTN Lasers are Ultra Accurate and Stable To Enable Highest Fiber Capacity
• NPTN Ultra Narrow Linewidth Tunable Lasers have frequency stability and accuracy that is 2X as good as the main competition, DBR lasers.
• 600G (≤ 70Gbaud) often uses 75GHz-spaced athermal DWDM array-waveguide multiplexer/de-multiplexer or ROADM to avoid a reduction of total fiber capacity.
• 800G (≤ 96Gbaud) uses 100GHz to 125GHz-spaced DWDM multiplexer/de-multiplexer or ROADM for similar reasons.
• These tight channel spacings leave little margin for laser or optics drift. In these areas, NeoPhotonics high performance components enable the highest capacity.
NPTN Lasers and MUX/DMUX Enable Dense Channels Increasing Fiber Capacity
100 GHz
100Gbps(32Gbd)
100Gbps(32Gbd)
75 GHz
600Gbps(70Gbd)
600Gbps(70Gbd)
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NPTN InP Coherent Modulator and Receiver Outperform Silicon Photonics At 600~800G To Increase Transmission Distance and Fiber Capacity
Material Net Data Rate (Baud Rate)
Modulator3-dB BW
Modulator Vπ Modulator Fiber-to-fiber insertion loss perpolarization
Receiver3-dB BW
InP 600Gb/s (≤ 70Gbd)
40 GHz 1.2~2.0 V 14 dB (w/o SOA)3 dB (w SOA)
40 GHz
800Gb/s (≤ 96Gbd)
55 GHz 1.2~2.0 V 14 dB (w/o SOA)3 dB (w SOA)
60 GHz
SiP 600Gb/s (≤ 70Gbd)
30 GHz ~6 V 16 dB 30-40 GHz
NPTN Indium Phosphide gives 3 dB bandwidth improvement by at least 33% – Increased capacity
NPTN Indium Phosphide lowers modulator drive voltage 3X – lower cost drivers
NPTN Indium Phosphide lowers optical insertion and coupling loss – Increased transmission distance
New Era of Growth:Open Line Systems
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400ZR / ZR+ Pluggable DCO Brings A New High Capacity SolutionBandwidth capacity delivers speed over distance and a new way to “wire” the world
NPTN 400ZR modules are shipping to leading customers today in all three form factors
400ZRCFP2-DCO
400ZR OSFP
400ZRQSFP-DD
400ZR & 400ZR+ Will Be the Mainstay to Deliver Speed Over Distance
Beginning 2021400ZR Architecture
Urban data center
Suburb or campus
ROUTER ROUTER
OPEN LINE SYSTEM
400ZR 400ZR
Can extend to 800ZR
400G/400ZR Module Solutions
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Passive DWDM MUX/DEMUX and 400ZR/ZR+ Enable Rise of IP over DWDM
ROADM
DWDM Transport
Router
ROADM
DWDM Transport
Router
ROADM
DWDM Transport
Router$$$$
TRADITIONAL TELECOM NETWORK
DWDMDEMUX
DWDMMUX
Router
Optical express
DWDMDEMUX
DWDMMUX
Router
Optical express
DWDMDEMUX
DWDMMUX
Router
Optical express $SIMPLIFIED TELECOM NETWORK
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400/600/800G DWDM Systems Need Passive Mux and Demux
Open Line Systems leverage NPTN industry leading PLC integrated Mux and Demux solutions
• NeoPhotonics designs and manufactures special mux and demux filters that are optimized for 400G, 600G and 800G signals.
• NeoPhotonics mux and demux filters match the channel spacing and spectral range to cover the C, L and C++ wavelength bands.
• This maximizes total fiber capacity for each operational node.
Data Rate Baud Rate Channel Spacing Channel Number
400ZR/ZR+ 60~65 Gbaud 75 GHz 64600G 64~70 Gbaud 75 GHz 64800G 90~96 Gbaud 100GHz to 125 GHz 40~481.2T 120~130 Gbaud 150 GHz 32~40
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NPTN High BW Components Covering C, C++, and L-bands
196.1 THz(1528.77 nm)
191.3 THz(1567.13 nm)
C-band (4.8THz)C++ band (6.0 THz)
190.675 THz(1572.3 nm)
196.675 THz(1524.3 nm)
L-band (4.8THz)
186.15 THz(1610.49 nm)
Tunable laser, HB-CDM, HB-ICR, Mux/Demux
• All of NPTN’s three key components can cover C, C++, or L-band.• C++ capacity is 25% to 50% higher than C-band.• C and L bands capacity is 100% higher than C-band.
OPTICAL FREQUENCY (Color, in THz)
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Summary
• 400G+ is the fastest growing segment for Cloud and telecom networks.
• In 2021~2023, cloud and telecom networks both need 400ZR and 400ZR+ pluggable modules and 600~800G chassis-based transport systems.
– NeoPhotonics’ DD-QSFP, OSFP, and CFP2-DCO modules cover 400ZR and 400ZR+– NeoPhotonics’ tunable lasers, HB-CDM, and HB-ICR components cover 600~800G
• NPTN is well positioned for this growth.
Our new era of growth is driven by the highest speed chassis-based systems in addition to the sea change from advent of 400ZR and 400ZR+ modules in 2021.• NPTN also enables critical Open Line Systems for 400G and above with our Networks Products
and Solutions.
• 400G+ solutions are deploying now and will serve the longest reach and “biggest” data pipes.
Key trends and technology paths are clear in delivering highest speed over distance
FINANCIAL VIEWSeptember 2020
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NeoPhotonics: Proven Track Record of Increasing Profitability and Cash(Non-GAAP, $M)
NOTES: Q2’20 non-GAAP Operating Profit excludes stock-based compensation expense of $3.8M, acquisition related intangibles amortizationand other costs of $0.3M, and $1.2M of non-GAAP tax adjustments.
Record operating profit of $10.7M, 4th profitable quarter and 8th quarter in a row of positive Free Cash Flow
20%
30%
40%
40
60
80
100
120
Q1'19 A Q2'19 A Q3'19 A 4Q'19 A Q1'20 A Q2'20 A
Revenue and Gross Margin
Revenue Non-GAAP GM%
(10)
(5)
-
5
10
15
Q1'19 A Q2'19 A Q3'19 A 4Q'19 A Q1'20 A Q2'20 A
Operating Profit
-
5
10
15
20
Q1'19 A Q2'19 A Q3'19 A 4Q'19 A Q1'20 A Q2'20 A
Free Cash Flow
- 20 40 60 80
100 120
Q1'19 A Q2'19 A Q3'19 A 4Q'19 A Q1'20 A Q2'20 A
Cash and Total Debt
Cash, Restricted Cash & Short Term Investments Total Debt
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NPTN reaffirms Q3 outlook of $97-105 milA New Era of Growth, Driven by 400G~800G
A New Era of Growth for NeoPhotonics
• Demand for NPTN high speed products is strong.• Hyper-scale data center interconnects, expanding
high speed capacities and network edge provisioning for cloud services all drive demand for speed over distance.
• Our highest speed products for 400G, 600G and 800G are gaining traction with leading NEMs. These are expected to be 20-25% of 2020 revenue and exit the year at >40%.
• We expect 40-50% revenue growth from customers beyond Huawei over the next year.
• 400ZR and 400ZR+ high speed modules are expected to ramp in 2021. Port growth is forecasted at an 80% CAGR 2019-2024.
• Recent BIS / Department of Commerce increased restrictions on Huawei for U.S. and foreign-produced items using U.S. technology
• We expect to meet our Q3 2020 outlook provided on August 4, 2020. Shipments to Huawei in Q3 are expected to contribute ~$40 mil of revenue in Q3.
• Beyond Q3, assuming BIS restrictions remain in place and provided we are unable to obtain licenses, NPTN will not rely on revenue contribution from Huawei.
34
Outlook for Q3’20: No Change from August 4th Outlook
• Q3’20 Non-GAAP Gross Margin reflects an increase in underutilization; customer projects delayed by Covid-19.
• Supply Chain risks continue, but we are expecting to continue to be able to mitigate the risks.
• Operating Expense reflects push out of H1’20 expenses to H2’20 to ensure continued success in customer qualification of 64 Gbaud and 400ZR products.
• Given current trends in FX, the EPS forecast includes $1M of unfavorable impact for FX.
Notes: Q3’20 non-GAAP outlook excludes $3.4M of anticipated stock-based compensation expense, $0.3M of amortization of acquisition related intangibles and other costs, and $0.4M of non-GAAP tax adjustments. Non-GAAP EPS outlook assumes approximately 54.7 million fully diluted shares outstanding.
GAAP Non-GAAP
Revenue $97M to $105M
Gross Margin 29% to 33% 30% to 34% Operating Expenses $28M to $29M $25M to $26M
EPS ($0.03) to $0.07 $0.03 to $0.13
Based on current information, profitability is expected to continue for the 5th consecutive quarter. Demand for network bandwidth capacity continues to be strong. Completion of strategic inventory build at Huawei is expected to be offset by growth from other Top 10 customers for our highest speed products.Outlook reflects company view of update Entities List rules.
35
The target for Gross Margin remains 35%
Drivers and Trends
Product margins have increased 10%+ since Q1’19and will increase slightly on improved product mix.
Eliminating 40% of revenue, excess capacity chargeswill increase significantly.
Insourcing of new products to leveraging capacity
Start up costs for modules to drive growth andcustomer diversification
Operating Profit
We will return to operating losses beginning Q4’20, without Huawei revenues We are forecasting a return to operating profits by the end of 2021
NPTN team has a proven track record of improving results for cash, cash flow and profitability
Gross Margin Operating ExpenseThe target for OpEx remains 25% of revenue
Drivers and Trends
Complete start up of modules at new customer group
Review products and programs for highest return
SG&A difficult to scale
Variable compensation reduced on reduced profitability
36
Our Priorities Are Clear, with or without Huawei
Markets: Doubling our Accessible Market Size• Continued leadership in coherent components for highest speed performance applications
• Double our customer base serving global Cloud and Hyperscalers with DCI solutions, as well as telecom NEMs and their supply chain partners
Products: Leadership for Highest Speed Over Distance• Clear leadership in highest speed over distance optical solutions ─ coherent lasers and
leveraging integration
• Product suite for highest performance and speed over distance (Indium Phosphide) and cost benefit (Active Silicon platform)
• Gain market share with performance and feature differentiation
• A profitable, growth solutions business path serving fast growing 400G modules
Financial performance: Increasing Operating Leverage• Drive growth to increase operating leverage
• Maximizing revenue and gross margin for every unit of production capacity
• Continue to rationalize excess capacity and infrastructure
We are pursuing a path to deliver accelerating revenue growth and consistent higher profitability
THANK YOU