20 December 2016

NeoPhotonics selling low-speed transceiver business to China's APAT for $26.4m

NeoPhotonics Corp of San Jose, CA, USA (a vertically integrated designer and manufacturer of hybrid photonic integrated optoelectronic modules and subsystems for high-speed communications networks) has agreed to sell its Access and Low Speed transceiver product lines to APAT Optoelectronics Components Co Ltd (APAT OE) of Shenzhen, China, a designer and manufacturer of optical sub-assemblies for telecom and datacom markets, primarily fiber-to-the-home (FTTH).

Assets to be sold include the intellectual property, inventory and fixed assets for NeoPhotonics' passive optical network (PON) products including GPON and GEPON transceiver products at up to 10G data rates, plus 10G-and-below telecom, bi-directional and specialty transceiver products.

The transaction is valued at about $26.4m (inclusive of post-closing payments under a transition services agreement). This consists of an equivalent of $25m purchase price plus an additional $1.4m to be paid as certain transition services are delivered (not less than the equivalent of $23m to be paid in cash in China Renminbi at close and not more than $2m in a US dollar denominated promissory note). In addition, APAT OE will assume outstanding supply chain purchase commitments and will be responsible for the payment of value-added tax obligations. The purchase price is subject to adjustment after closing for inventory adjustments and by up to $10m in the event of potential claims under transaction warranty commitments of NeoPhotonics. The transaction is expected to close in January (subject to customary closing conditions). APAT OE is further subject to a $1m breakup fee to be held in escrow, which will be applied to the purchase price upon closing or forfeited if the transaction does not close due to certain reasons attributable to the purchaser.

The secured promissory note of up to $2m is for an initial term of six months with an initial interest rate of 6% per annum. It is renewable at six month intervals with an increase in the interest rate by an additional 4% per annum. The note will be secured by inventory and certain fixed assets being purchased in the transaction.

The Low Speed Business generated revenue of $92.8m in 2015 and $50.7m in the first 9 months of 2016, and gross profit of $16.7m and $9.7m, respectively. Net assets for the business were about $18m as of 30 September.

"This transaction underscores our objective to focus our efforts on growing high-speed optical networking products and solutions based on our advanced hybrid photonic integration technology platform." says NeoPhotonics' CEO Tim Jenks. "The Low Speed Business will benefit from APAT OE's expertise in Access and PON products while continuing to provide quality products, support and services to customers," he believes.

"We look forward to having more products to sell to our largest customers as well as the opportunity this transaction creates for us to gain many new customers," comments APAT OE's founder & CEO Rex Gu.

Updated outlook for Q4/2016

Given recent developments, NeoPhotonics has also announced an updated outlook for fourth-quarter 2016. Demand continues to exceed the firm' capacity to supply high-speed products while production capacities continue to increase. As new capacity has been brought on line, production yields at one fabrication plant have been lower than expected, resulting in delayed shipments and higher-than-expected manufacturing costs during the quarter.

For Q4/2016, NeoPhotonics hence now expects revenue of $105-109m (still up on Q3's $103.3m to a new record). On a non-GAAP basis, gross margin should be 28-31% (up from Q3's 27.6%), operating expenses $27-$29m (up from $24.7m) and earnings per share ($0.03-0.11).

The firm's previously outlook anticipated that the Low Speed Business would generate revenue of about $10m in Q4/2016 and $40-45m in 2017. The comparable annual revenue for the Low Speed Business in 2016 is expected to be about $61m. Upon divesting the business, NeoPhotonics' revenue growth rate for continuing business is hence expected to increase.

See related items:

NeoPhotonics reports record revenue of $103.3m in Q3, up 24% year on year

Tags: NeoPhotonics PICs

Visit: www.neophotonics.com

Visit: www.apatoe.com