3 things to note in Neophotonics Q1 2013 Results


In an earlier article we discussed the decline in the NAV of Harris and Harris Group (NASDAQ:TINY) and noted that it was partially attributed to their liquidation of shares in publicly traded Neophotonics (NYSE:NPTN). NeoPhotonics designs and manufactures photonic integrated circuit, or PIC, based modules and subsystems for bandwidth-intensive, high-speed communications networks. Everyone wants greater bandwidth and the components this firm builds help enable this. In February of 2011 the company priced an IPO at $11 a share. the excitement was short lived and throughout 2012 the company traded for around $5 a share. This was the year TINY liquidated their position.

Moving to the present day, the share price of Neophotonics has increased by over 73% in the past three months. The increase seems to coincide to an extent with their latest 10Q filing on May 15th 2013 after which the stock price rose over 41%.



In Q1 2013, revenue at 56 million was only 3% higher than Q1 2012. The company incurred a loss during the first quarter of 10 million, slightly lower than the 11 million it lost in the same quarter the year prior. In addition to the financial results, the 10Q contains some very informative insights.

Lots of Cash

The company currently has 99 million dollars in cash and cash equivalents and short term investments. That means for every share you buy at 9.00 dollars you receive 3.24 in cash. However given the company’s net loss of 10 million dollars this quarter, that cash will be exhausted in just over 2 years all else remaining constant.

An Acquisition

On March 2013 the comany closed a transaction to acquire the optical semiconductor business unit of LAPIS Semiconductor Co., Ltd. (OCU). OCU is a leading provider of lasers, drivers, and detectors for high speed 100G applications located in Japan. The company believes the acquisition of OCU will serve to enhance their competitive position in 100G products. The total consideration paid by the Company for the OCU was approximately 35.5 million, consisting of  14.6 million in cash, notes payable of $11.1 million and assumed liabilities of $9.7 million.

Concentrated Customer Base

The Q1 2013 revenues are very concentrated among a small set of customers; Huawei (27%), Ciena Corporation (22%), Alcatel-Lucent SA (13%) and Cisco (11%) . This means 73 percent of revenues come from only 4 customers. This presents a serious risk to the company as any decrease in spending by one of these major customers will seriously impact revenues.

Since the transaction for OCU is now closed it will be interesting to see the consolidated financial results as this acquisition may help diversify the company’s customer base.

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