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Why Shares of NeoPhotonics Tumbled Today

By Timothy Green - Oct 5, 2017 at 12:54PM

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The company isn't seeing improved demand from China, prompting a series of restructuring steps meant to cut costs.

What happened

Shares of optoelectronic solutions provider NeoPhotonics (NPTN -0.19%) slumped on Thursday after the company announced restructuring actions and preliminary third-quarter results. The company is laying off employees, consolidating its real estate, writing down inventory, and writing down idle assets. Both third-quarter revenue and third-quarter earnings are now expected to come in well below analyst expectations. As of 12:53 p.m. EDT, stock was down 13.3%.

So what

NeoPhotonics is taking these restructuring steps to better align its business with the current demand environment. The company sees no clear indication of increased demand in China in the third quarter, despite recent reports of a major tender for optical components from China Mobile.

A yellow road sign that says "Cost Cutting Ahead."

Image source: Getty Images.

NeoPhotonics expects to incur $4.2 million in asset write-off costs and $0.6 million in severance costs, mostly in the third quarter. Once the restructuring actions are complete in the first quarter of 2018, the company expects ongoing quarterly operating costs to be reduced by roughly $2 million.

NeoPhotonics' third-quarter preliminary results reflect weak demand from China. Revenue is expected between $69 million and $71 million, below analyst expectations of $73.5 million. Non-GAAP EPS is expected to be a loss of $0.27 to $0.35, well below an expected loss of $0.12.

Now what

NeoPhotonics CEO Tim Jenks emphasized that the company's R&D efforts would not be diminished: "In taking these actions, we have maintained our research and development focus on products for next generation coherent systems, operating at 400 Gigabits/sec to beyond 1 Terabit/sec, wherein our advanced hybrid photonic integration provides the highest value."

The company is aiming to accelerate its efforts to return to profitability with these restructuring steps, but it will likely take a pick-up in demand for NeoPhotonics to return to the black.

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