The optical component vendor is selling off its lagging 10G lines to focus on the next generation of faster networking products, even as the company is experiencing lower yields on those new products.

Brian Santo, Senior editor, Test & Measurement / Components, Light Reading

December 20, 2016

3 Min Read
NeoPhotonics Sells 10G Line to APAT

NeoPhotonics said it is selling its Access and Low Speed transceiver product lines to APAT Optoelectronics Components Co., in a deal that involves several contingencies but which NeoPhotonics calculates will be worth about $26.4 million.

APAT, based in Shenzhen, China, is a designer and manufacturer of optical sub-assemblies for telecom and datacom markets, including some passive optical network (PON) products. It is buying intellectual property, inventory and fixed assets for NeoPhotonics Corp. (NYSE: NPTN)'s PON products including GPON and GEPON transceiver products at up to 10G data rates, plus 10G and below telecom, bidirectional and specialty transceiver products.

The deal is not huge, but it is emblematic for two reasons, one technological, one political.

The market for 10G networking is slowing, as networking at 25G (and multiples thereof) gains in popularity. But demand for 10G isn't going away entirely; it is just becoming a somewhat smaller commodity business.

NeoPhotonics reports that the in 2015, the lines it is selling generated $92.8 million in revenue and $16.7 million in profit. Through the first nine months of 2016, the trend is down, as expected. Thus far this year the product lines have brought in $50.7 million in revenue and $9.7 million in profit. Previous guidance from the company included a projection that the low speed products would bring in $10 million in revenue for the fourth quarter.

Meanwhile, China has an explicit plan to devote as much as $150 billion over the next five years to buy semiconductor assets. Chinese investors have been bidders in a number of recent transactions -- sometimes successfully, sometimes not. Chinese investors have in recent years targeted Anadigics, Atmel, Lattice Semiconductor, Marvell Technology, Micron and PMC-Sierra among others.

Want to know more about communications ICs? Check out our comms chips channel
here on Light Reading.

US federal agencies that manage US trade engage in heightened scrutiny of technology assets to Chinese interests. That said, the sale of a relatively small business in trailing-edge technology might be less likely to inspire regulatory resistance. NeoPhotonics did not even cite the concern.

NeoPhotonics stock took a hit, probably due less to the news of the sale than to a revised forecast that was mostly ointment but still part fly.

The company said its revenue growth rate for the continuing business is expected to be higher as a result of the divestiture, and that demand in the fourth quarter for high-speed products (25G and higher) is great. On the other hand, NeoPhotonics revealed demand exceeds its abilities to fulfill it.

Neophotonics said it is increasing production capacities to meet demand, but production yields at one of its fab facilities "have been lower than anticipated, resulting in delayed shipments and higher manufacturing costs during the quarter versus previous projections."

The result will be pressure on margins until production efficiency is increased. That should be a short-term problem, but it no doubt factors into the drop value of the stock.

— Brian Santo, Senior Editor, Components, T&M, Light Reading

Read more about:


About the Author(s)

Brian Santo

Senior editor, Test & Measurement / Components, Light Reading

Santo joined Light Reading on September 14, 2015, with a mission to turn the test & measurement and components sectors upside down and then see what falls out, photograph the debris and then write about it in a manner befitting his vast experience. That experience includes more than nine years at video and broadband industry publication CED, where he was editor-in-chief until May 2015. He previously worked as an analyst at SNL Kagan, as Technology Editor of Cable World and held various editorial roles at Electronic Engineering Times, IEEE Spectrum and Electronic News. Santo has also made and sold bedroom furniture, which is not directly relevant to his role at Light Reading but which has already earned him the nickname 'Cribmaster.'

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like