29 July 2020
For first-half 2020 deposition equipment maker Aixtron SE of Herzogenrath, near Aachen, Germany has reported revenue (including spare parts and service) of €97m, down 27% on €132m a year ago as expected, remaining on track despite the COVID-19 pandemic as operations continued running without interruption due to early counter-measures and a stable supply chain. In fact, second-quarter 2020 revenue was €56m, down 11.5% on €63.3m a year ago but up 37% on €41m in Q1. The main drivers of demand are the growing markets for gallium nitride (GaN) and silicon carbide (SiC) power electronics, lasers for ultra-fast optical data transmission, and specialty LEDs for display and disinfection applications.
Equipment revenue in particular (excluding spare parts and service) has fallen by 28% from €106.5m (81% of total revenue) in first-half 2019 to €76.4m (79% of revenue) in first-half 2020. However, although still down on €50.3m (79% of revenue) in Q2/2019, quarterly revenue has rebounded by 56% from €29.9m (73% of revenue) in Q1/2020 to €46.5m (83% of revenue) in Q2.
On a regional basis, 76% of first-half 2020 revenue came from Asia, 13% from the Americas and 11% from Europe.
Despite regional coronavirus-related lockdowns (first in China and later in Europe and the USA) which led to the postponement of delivery and commissioning of a few systems at the request of customers, Aixtron has continued to show strong profitability and return on investment.
Gross margin fell only slightly from first-half 2019’s 40% to 39% in first-half 2020, as the dip in Q1 to 36% (following delayed final acceptances of metal-organic chemical vapor deposition systems, due mainly to pandemic-related travel restrictions) was compensated by a rebound to 41% in Q2/2020 (level with Q2/2019), aided an improved higher-margin product mix.
The significant increase in revenue and margins between April and June resulted in a significantly improved operating result (earnings before interest and taxes) from -€1.1m in Q1 to €3.3m in Q2. Overall, first-half 2020 EBIT of €2.2m (EBIT margin of 2% of revenue) compared with first-half 2019’s €19.1m (margin of 14%).
R&D spending was €28.6m (30% of revenue) in first-half 2020, up 13% from first-half 2019’s €25.3m (just 19% of revenue). R&D for leading-edge technologies is focused on the development and improvement programs for next-generation MOCVD systems – for all application markets – and the organic light-emitting diode (OLED) qualification project, where Aixtron has achieved some critical specifications and is working intensively on achieving further specs. In parallel, the firm is commencing discussions with the customer on the next steps in the joint OLED program.
As a result of the lower revenue and margin in first-half 2020, net profit was just €2.5m, down from €15.8m in first-half 2019. However, the quarterly net result recovered from -€0.8m in Q1 to €3.3m in Q2/2020.
However, due to Aixtron’s further build-up of inventories by €12.2m in first-half 2020 (from €79m to €85m during Q1 then €91.2m during Q2) in preparation for increasing shipments in second-half 2020, operating cash flow was -€7.9m in Q2 and hence -€3.2m in first-half 2020 (compared with +€1.8m in first-half 2019). Capital expenditure (CapEx) was €3.4m in Q2 and hence €5.2m in first-half 2020 (cut from €6.6m in first-half 2019). Free cash flow in first-half 2020 has therefore worsened from -€4.8m in first-half 2019 to -€8.4m in first-half 2020 (with -€11.3m in Q2 outweighing +€3m in Q1).
Cash and cash equivalents including short-term financial investments (bank deposits with a maturity of at least three months) hence fell during Q2, from €300.8m to €288.6m.
Total orders (including spares & services) have risen further, from €68.8m in Q1 to €69.6m in Q2/2020 (up 56% on €44.7m in Q2/2019), taking first-half orders to €138.4m (up 41% on €98.3m a year ago) driven by continued strong demand from the power electronics, optical data communications and LED sectors.
Consequently, Aixtron enters second-half 2020 with strong order backlog (equipment only) of €156.6m, up 7% on €146.3m at the end of Q1/2020 and up 42% on €110.1m at the end of first-half 2019.
Based on (1) the solid order backlog, (2) the currently estimated low impact of the COVID-19 pandemic and (3) the budget exchange rate of $1.20/€, Aixtron expects order intake for full-year 2020 to grow to €260-300m (up from €231.9m in 2019).
Based on equipment order backlog (convertible into 2020 revenue) of €130m at the end of first-half 2020, joined by €11-51m of expected order intake shippable during 2020 plus an estimated €22m of spares & services revenue, for full-year 2020 Aixtron still expects revenue of €260-300m, with gross margin of about 40% and EBIT margin of 10-15% of revenue.
“In the second half of the year, our business should grow much more dynamically again,” comments president Dr Bernd Schulte. “We expect revenues to grow strongly in the third quarter and then again in the final quarter,” he adds.
“The renewal of our product portfolio is making good progress,” believes president Dr Felix Grawert. “With our new products we will be able to better support our customers in their growth in future markets such as 5G mobile network expansion and e-mobility”.
SFP-DD MSA releases updated 4.1 hardware spec
11 August 2020
The Small Form Factor Pluggable Double Density (SFP-DD) Multi-Source Agreement (MSA) Group has announced its updated 4.1 hardware specification and drawings for the SFP-DD pluggable interface designed to enable high-speed 100+Gbps high-density networking equipment. The SFP-DD form factor uses 2-lane pluggable modules, is backward compatible with SFP+, and offers improved host-to-module management communication based on a two-wire interface (TWI).
The SFP-DD revision 4.1 hardware specification includes added features to support ResetL, dual-function IntL/TXFaultDD and ePPS. Newly added timing tables will also allow for low-speed signals, soft control and module status. The former chapter 7 Management Interface is now part of chapter 4, Electrical Specification. The updated hardware specification includes port mapping, optical connectors and module color coding moved out of Mechanical and Board Definition chapter 5 and into a new chapter 5. Lastly, TS-1000 Normative Module and Connector performance requirements were added as Appendix A.
New approach enables greater interoperability
Targeting support of optical modules up to 3.5W, the SFP-DD form factor addresses the technical challenges of achieving a double-density interface and ensuring mechanical interoperability for module components produced by different manufacturers while still enabling the use of legacy SFP modules. This updated specification supersedes previous versions and has updated mechanical connector dimensions. Users should note that the connector dimensions specified in the 4.1 supersede all previous versions.
SFP-DD MSA promoters include Alibaba, Broadcom, Cisco, Dell EMC, HPE, Huawei, II-VI Inc, Intel, Juniper Networks, Lumentum, Molex, Nvidia and TE Connectivity. Contributors include Accelink, Amphenol, AOI, Eoptolink, FIT, Fourte, Genesis, Hisense, Infinera, Innolight, Maxim Integrated, Multilane, Nokia, Oclaro, Senko, Source Photonics, US Conec and ZTE.
AOI’s laser production hits record 1.1 million units in July
11 August 2020
Applied Optoelectronics Inc (AOI) of Sugar Land, TX, USA – a designer and manufacturer of optical components, modules and equipment for fiber access networks in the Internet data-center, cable TV broadband, fiber-to-the-home (FTTH) and telecom markets – says that its production of laser diodes in July reached a record of over 1.1 million units, nearly 65% higher than pre-COVID levels.
“AOI has been investing in capacity by adding additional production equipment, improving our manufacturing processes to increase yield and enhance quality, and adding staff,” says founder & CEO Dr Thompson Lin. “The result of this hard work and investment is that we’ve reached a significant milestone in terms of laser production capacity. The vast majority of our current laser production is 25G lasers, which are in high demand now in our data-center and telecom segments, including 5G wireless. This additional capacity will help us meet this increased demand,” he adds.
“Having produced over 1.1 million tested and qualified lasers in the month of July is a significant step to achieve our near-term goal of producing 1.5 million lasers per month, which we expect to reach in Q4 of this year,” says Dr Fred Chang, senior VP & North America general manager. “Even more importantly, the significant improvements we’ve made in our manufacturing process have increased our manufacturing yield, which in many cases have also resulted in improved reliability that is critical for our customers.”
NeoPhotonics’ Q2 revenue rises a more-than-expected 26% year-on-year
11 August 2020
For second-quarter 2020, NeoPhotonics Corp of San Jose, CA, USA – a vertically integrated designer and manufacturer of silicon photonics and hybrid photonic integrated circuit (PIC)-based lasers, modules and subsystems for high-speed communications – has reported revenue of $103.2m, up 6% on $97.4m last quarter and up 26% on $81.7m a year ago, and exceeding the $94-102m guidance.
Sequential growth was driven by cloud and data-center demand as 64-gigabaud and other products for 400G-and-above applications accelerate. High-speed products (for 100G-and-above data rates) now consistently comprise over 90% of revenue.
Based on a review of products that NeoPhotonics ships, revenue was not materially impacted by the addition in late May of China’s FiberHome Technologies Group to the US Department of Commerce’s Bureau of Industry and Security (BIS) Export Administration Regulations (EAR) Entity List (joining Huawei Technologies, added in May 2019).
Similarly, revenue was not materially impacted by the BIS’ latest ban (announced this May) on the use of US software and technology worldwide to design and manufacture chips supplied to Huawei, since NeoPhotonics designs all of its own products.
“We were expecting about $10m of supply-chain headwinds,” says senior VP & chief financial officer Beth Eby. “We were able to mitigate almost all of those, which is how we got the revenue over our guidance range.”
Largest customer Huawei again contributed 52% of total revenue, with the next four customers contributing 30% (down from 33% last quarter). “Our 400G-and-above solutions are also increasing our customer revenue diversification,” says president, CEO & chairman Tim Jenks. “Almost all of the world’s leading network equipment customers leverage NeoPhotonics’ products for their 400G-and-faster systems. Moreover, these customers are now ramping their deployments,” he adds. Excluding NeoPhotonics’s top two customers, the other eight in the top 10 grew revenue collectively by 35% in Q2 over Q1/2020, and this trend is expected to continue.
On a non-GAAP basis, gross margin has risen further, from 25.6% a year ago and 31.2% last quarter to 33.2% (toward the high end of the 30-34% guidance range). Within this, product margins were 36.3%, up from 32% a year ago and 35.8% last quarter due to increased volume. Other cost-of-sales charges had an impact of 3.1 percentage points (an improvement from 4.5 points last quarter), consisting of about 1 point of warranty charges, 1 point of residual tariff adjustments, and 0.5 point of under-utilization and other minor charges.
Operating expense is up from $20.3m (20.9% of revenue) last quarter to $23.6m (22.9% of revenue), but this is lower than the expected $24-25m due to continued pushouts related to the impact of the COVID-19 pandemic.
Net income was $8.7m ($0.16 per diluted share), down from $9.1m ($0.17 per diluted share) last quarter but a big improvement on a net loss of $1.2m ($0.03 per diluted share) a year ago, and exceeding the $0.05-0.15 guidance range as a result of “outstanding execution” in a challenging quarter.
Cash generated from operations was $9.6m, down from $24.9m last quarter but up from just $0.7m a year ago. “We have now had eight quarters of delivering year-over-year revenue growth, expanding gross margin and positive free cash flow,” notes Eby. “We have also delivered four quarters in a row of profitability.”
During the quarter, the firm paid down $4m of debt. Cash and cash equivalents, short-term investments and restricted cash rose by about $4m from $109.5m to $113.3m.
Inventory has been increased from $46.1m to $50.4m. “Increasing our inventory is planned to buffer continued supply-chain volatility,” notes Eby.
“Over the last year, we have reported that our largest customer, Huawei [and their affiliate HiSilicon], has had a plan to build strategic inventory due to trade tensions,” says Jenks. “This action is now complete and future orders will better reflect end-customer demand,” believes Eby. “Given the strength and demand of our highest-speed products, we expect that our other customers will continue to ramp, largely offsetting the Huawei decrease. The net result is a Q3 revenue outlook which is nominally in line with Q2,” she adds. “We are still seeing supply-chain impacts [of COVID-19] in Q3 but, based on our experience in Q1 and in Q2, we believe that we will be able to mitigate those through the quarter. The spending delays are not impacting our project timing.”
For third-quarter 2020, NeoPhotonics expects revenue of $97-105m. Gross margin should be 30-34%, reflecting some increase in under-utilization charges as a result of slower-than-planned deployment by a couple of customers (due to COVID-19) of silicon photonics-based transceivers that use NeoPhotonics’ fixed-wavelength lasers. Operating expenses will rise to $25-26m. “We expect to make up the first-half underspend in the back half of the year to ensure continued success of our 64-gigabaud and 400ZR programs [NeoPhotonics’ 400ZR and 400ZR+ pluggable coherent modules for cloud and Ethernet applications were launched in fourth-quarter 2019, moved from initial sampling in Q1/2020, and are in customer qualifications now]… Investment will continue to drive revenue growth and customer diversification in 2021 and beyond,” says Eby. Earnings per share are hence expected to fall to $0.03-0.13.
“With increasing momentum in 400G-and-above product design wins across almost all of the major network equipment manufacturers globally, and with increasing momentum in 400ZR opportunities, we remain optimistic about the growth prospects for NeoPhotonics,” says Jenks. “Our products for 400G-and-above applications will approach 20% of our total revenue this year,” he adds.
“We will have additional industry leaders become 10% customers during second-half 2020, based on our existing customer orders and delivery commitments for 400G-and-above products,” believes Jenks. “Trade tensions are causing market share shifts between our customers due to the breadth of our design wins and customer base. NeoPhotonics is likely to be a beneficiary of these shifts. For example, a market share shift of one 400G-and-above port, away from our largest customer and to another industry leader, would likely be favorable to NeoPhotonics in revenue terms. Similarly, a market share shift of one 100G port away from our largest customer and to another leader would likely be roughly equivalent to NeoPhotonics in revenue terms,” he adds.
“As our next group of customers ramp their respective systems for 400G-and-above applications, we believe the strength of deployments from these customers will offset potential revenue impact from Huawei’s inventory adjustments,” Jenks concludes.
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