NeoPhotonics Corporation
Q4 2020 Earnings Call Transcript

Published: 25 Feb 2021

[Operator:]

Good day. Welcome to the NeoPhotonics Fourth Quarter 2020 Conference Call. This call is being webcast live on the Company's website at www.neophotonics.com on the Events page of the Investors section. This call is a property of NeoPhotonics and any recording, reproduction or transmission of this call without the expressed written consent of NeoPhotonics is prohibited.

[Erica Mannion:]

Good afternoon. Thank you for joining us to discuss NeoPhotonics' operating results for the fourth quarter of 2020 and outlook for the first quarter of 2021. On the call today are Tim Jenks, Chairman and CEO; Wupen Yuen, Chief Product Officer; and Beth Eby, Chief Financial Officer. Tim will begin with a review of the Company's business in the fourth quarter and a discussion of relevant market trends. Wupen will provide a summary of products, technologies and growth drivers for our highest speed products. Beth will then provide financial results for the fourth quarter and provide the outlook for the first quarter of 2021. The operator will then open the call for questions. The Company's press release and management statements during this call will include discussions of certain non-GAAP financial measures and information, including all income statement and balance sheet amounts and percentages other than revenue, unless otherwise noted. These non-GAAP financial measures are not prepared in accordance with GAAP and are not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. These financial measures and reconciliation of GAAP to non-GAAP results are provided in the Company's press release and related Form 8-K being filed today with the SEC and can be found in the Investor Relations section of the NeoPhotonics website. Material contained in the webcast is the sole property and copyright of NeoPhotonics with all rights reserved. Certain statements in this conference call, which are not historical facts, may be considered forward-looking statements that involve risks and uncertainties. And include statements regarding future business results, product and technology development, customer demand, inventory levels, economic and industry projections and subsequent events. Various factors could cause actual results to differ materially. Some of these factors have been set forth in our press release, dated February 25, 2021, and are described at length in our annual and quarterly SEC filings. Now I will turn the call over to CEO, Tim Jenks.

[Timothy Jenks:]

Thank you, Erica, and good afternoon. NeoPhotonics completed a strong 2020 with revenue of $371 million. We continue to be a leader in high speed optoelectronic solutions. NeoPhotonics is the primary supplier of ultra-pure light tunable lasers for the highest speed over distance applications, and we provide the highest bandwidth receivers and highest baud rate modulators.

[Wupen Yuen:]

Thank you, Tim, and good afternoon. The acceleration of our components for 400G and above chassis-based systems, which drove much of the growth in 2020, is a strong beginning. As the market continues to move to higher and higher speeds including 600-gig and 800-gig, we are increasingly well positioned to ride this next wave of growth. We have announced and are now sampling our newest 96-gigabaud component suite for superb 800G DCI and 400G long-haul transmission, enabled by our ultra-low noise tunable lasers and ultra-wide bandwidth modulators and receivers. We expect these products will reach general availability in Q4 of 2021, adding to the revenue stream of our leading 64-gigabaud component suite. Layered on top of these chassis-based opportunities is the 400ZR and 400ZR+ coherent module market. We believe we have been a leader in launching 400ZR and 400ZR+ modules. These products effectively double our addressable market, while serving a particularly fast growing segment, given the importance of hyper-scale metro data center interconnect applications. We believe cloud providers, especially hyper-scale data center customers, will be the early adopters of this technology. These will be new volume customers for us, beyond our customer base of network equipment manufacturers. Our new 400ZR and 400ZR+ coherent module products are game changers. They package state-of-the-art data rates and system-level interfaces in very small and low power form factors, enabling them to be plugged directly into routers and switches, bypassing traditional DWDM equipment. This capability enables operators to realize major savings in network equipment, as well as lower total power consumption and better environmental sustainability, thereby driving adoption rates and expanding use cases, including in new areas such as interconnects for distributed edge networks and for 5G cell sites. We have sampled our 400ZR QSFP-DD and OSFP modules to multiple hyper-scale customers and are in the test and qualification process. We are one of the very few who are capable of meeting the challenging 400ZR optical specification. We continue to expect completion of qualifications in the first half of 2021, with deployments starting in the second half of the year. An important addition is that we have now demonstrated 400ZR+ performance in a QSFP-DD form factor by leveraging the industry-leading optical performance of our tunable laser and silicon photonics components. We believe that 400ZR+ in QSFP-DD form factor will be widely adopted in cloud-based metro networks for 5G. This is important as the 400ZR+ market segment substantially expands that of standard 400ZR. We expect that our 400ZR+ modules at metro and longer distances will provide a third major growth revenue stream that will begin to ramp in 2022.

[Elizabeth Eby:]

Thank you, Wupen, and good afternoon. NeoPhotonics continued to execute well through a tough 2020. We are seeing the results of our investments in speed over distance products, with growth in revenue overall for the year and in the 400G and higher speeds. We delivered substantial increases in gross margins and profits for the year, and when the Department of Commerce tightened the rules around shipments to Huawei, we took action to improve structural costs and reduce expenses while continuing to invest for growth. We are ahead of schedule on those changes. All of this resulted in record levels of cash. Summarizing the full-year 2020, we delivered revenue of $371 million, up 4%, even with the additional Department of Commerce restrictions. Non-GAAP gross margins of 31%, a 4 point increase over 2019, and GAAP gross margins of 28%, a 3 point increase year-over-year. Lower year-over-year operating expenses and increased operating leverage, while we maintained the investments that will drive accelerated growth.

[Operator:]

Thank you. And first we will go to Fahad Najam from MKM Partners. Your line is open.

[Fahad Najam:]

Thank you for taking my question. First, a clarification and then a question. Clarification is on, did I hear you correctly that you had four 10% customers in the fourth quarter and – who were the four 10% customers?

[Timothy Jenks:]

Sure. In the fourth quarter we did have four customers and the percent of revenue ranged from 10% to 22% and as usual, well those four added up to 67%, Fahad. What we did is we did disclose in the prepared remarks, the four customers – 10% and above customers for the year, okay. So I hope that helped.

[Fahad Najam:]

Okay. Now to my question. There are two parts here. One on diversification, can you tell us in terms of where you think with your ZR value ramping, what type of you think ZR to the dividend 10% of total revenue for the year. And then a more broader forward-looking question for you, Tim, is on – as you look at 800-gig getting inside the data center, there's talk about using TAM4 technology users, higher modulated speeds at 96-gigabaud. Do you see that as a potential TAM expansion opportunity and that further enhanced your diversification strategy? Thank you.

[Timothy Jenks:]

Yes. There is a lot in that. Let me comment first of all about 400ZR in revenue, and then I think I'll ask, Wupen Yuen to comment on the use of technologies for intra-data center. The expectation based on customer schedules for 400ZR is that, after qualifications, we may have some low level production by the end of the first half, but primarily that would be for ramp purposes, it would be in the second half, and it is conceivable that it could reach 10% of annual revenue. But I think that's – it's in that range. The different customers have different schedules. And so it remains to be seen. How many people actually started deployment and have a meaningful volume in 2021. Wupen, do you want to comment on the question about TAM4 technology?

[Wupen Yuen:]

Yes. Definitely, so 800G technologies, I think both the TAM4 and coherent will likely be used. And for coherent side, intra-data center would be an opportunity that could expand our TAM and sort of diversify our business going forward. In the meantime, also, just keep in mind, we also have optical devices, lasers, and other – optical devices actually can go into the TAM4 as well. So we do see both the TAM4 and coherent will play a role in the data center, 800G. And we will view those both as the opportunity for us to diversify our business further.

[Fahad Najam:]

Thank you. I appreciate the answer. Wupen, if I can ask you a follow-up regarding the use of 96-gigabaud technology TAM4 inside the 800-gig opportunity. If I'm not mistaken, there are not many existing intra-data center optic suppliers that have modulators that can attend those – that kind of performance. Do you think that had 96 – 90-plus-gigabaud type of performance using TAM technology inherently kind of favor you guys or even leveraging your high speed modulator technology. Could you explain that potentially in TAM4 solution?

[Wupen Yuen:]

Yes. I think the answer is yes. 800G, you could use 96 or even higher baud rate. And we do think such a high baud rate is getting very challenging to implement, and that definitely is a strength of the NeoPhotonics. So we'll definitely see that opportunity where our technologies to be applied to 96-gigabaud or higher.

[Fahad Najam:]

Appreciate the answer. Thank you very much. I’ll back off.

[Operator:]

And next we will go to Dave King from B. Riley. Your line is open.

[Elizabeth Eby:]

Hi, Dave.

[David Kang:]

Thank you. Hi. Yes. So Beth, I’ll ask you the first question then. What do you think the cash usage will be in the first half? I think you gave us that data points for fourth quarter and first quarter. What about first half this year?

[Elizabeth Eby:]

Yes. We don't – as you know, we don't generally forecast our cash flow other than to say that CapEx runs 4% to 6% of revenue on average for the any given year. And we still expect to – we've also said that we expect to be in the high end of that range for 2021 because of the ramp of 400ZR. We are at the moment is as you saw in the numbers, our inventory has been about flat. So we're still working to burn off some of the inventory that was on order as the Department of Commerce tightened the rules around Huawei.

[David Kang:]

Got it. And then, maybe Tim, maybe you can pick this. Price adjustment in December or late last year?

[Timothy Jenks:]

Price reductions each year, historically they've been in the 10% to 15% range. But this year is actually a little better than average, so low end of that range.

[David Kang:]

Got it. Do you guys have any kind of a chip supply chain issues?

[Timothy Jenks:]

I'll tell you what, we're reading about it. We're seeing some impact. Some suppliers are complaining about it. Thus far we haven't actually had any impact to our supply chain, but we are on top of it in terms of monitoring and looking further up the supply chain. But I hope that addresses the question.

[David Kang:]

Yes. And then maybe my last question is regarding your first quarter outlook assumptions. How should we think about – you gave us some color as to how 400-gig plus will grow year-over-year. How will that change high-speed optic versus non-high-speed optic? High-speed was about 46%. How is that number going to – how will that change in the first quarter?

[Timothy Jenks:]

Yes. So actually high-speed, which we've classified as a 100-gig and above was – I think for the year it was 92% of the full-year.

[David Kang:]

Sorry, I'm interested in 400-gig plus – 46%.

[Timothy Jenks:]

I thought so, but I just wanted to clarify, okay.

[David Kang:]

It’s okay.

[Timothy Jenks:]

What we say is high-speed products is a – as a product group was 92% of revenue. In the 400-gig and above products, they've been accelerating throughout the year and by the fourth quarter, the fourth quarter contribution from 400-gig – products for 400-gig and above applications actually was 46% of total revenue. And in my prepared remarks, I also said that that was up 153% over the same quarter of the prior year. So it has been growing rapidly and it's now approaching half of our business.

[David Kang:]

So can I assume that's going to be more than half in the first quarter, assuming it sounds like 100-gig and below is experiencing softness?

[Timothy Jenks:]

Well, I said in my prepared remarks that we actually do expect in the first quarter for it to, again, double over the prior first year.

[David Kang:]

Okay.

[Timothy Jenks:]

Whether or not that gets to –I'd say, we're creeping up on half of our business, but I'm not going to actually say when that happens. I don't know now.

[David Kang:]

And actually, this will be my last question. Just to be clear, when you talk about some softness, some push-outs, I'm assuming you're talking about optics below 400-gig. Is that right?

[Elizabeth Eby:]

I think we're seeing it in the overall market and it's a deployment timing thing same as some of our other co-travelers in this market has been – had been talking about. 400-gig and up will also be included just because it is a system deployment timing issue related to COVID and travel.

[David Kang:]

Got it. All right. Thank you.

[Operator:]

And next we will go to Paul Silverstein from Cowen and Company. Your line is open.

[Paul Silverstein:]

Yes. Perhaps you are bit clear and pretty sure to the response you just gave about the , I just want to make sure I understand. From a demand perspective, you now think it soften the demand, but some weakness you are referencing you believe that you do logistical issues related to COVID-19 in terms of the ability of your equipment customers to get access demand components of the weakness?

[Timothy Jenks:]

So what we're hearing from customers is more of the former. And there is kind of a chorus of customer interest that suggest that they expect their demand as a result to be more back-half loaded. So overall we are now kind of in the current quarter, we're hearing more concern about chips, as I indicated previously, that hasn't impacted us at this point. But to the extent that it impacts customer's ability to do something with our products, it may have an impact. But generally the bigger impact thus far has been how has COVID affected the rate of bandwidth deployments certainly in 2020 and then how is it affecting new system deployments today.

[Elizabeth Eby:]

As you well know, Paul, the overall demand profile for increasing bandwidth is the underlying profile that drives our business and it has not changed.

[Paul Silverstein:]

All right. logistical issues in terms of your customers getting ?

[Timothy Jenks:]

No. It's hard for us to go to a root cause basis, but what their guidance has been and what the conversations with them have been is that there is an impact in deployment rate. Very, very recently, we've heard some references to do chip supply, but there's also kind of the latent effects of share between and among network equipment companies as a result of the Huawei restrictions on our way. And so share shifts between customers can impact short-term orders though the overall demand rate may not have changed, so that's as we see it today.

[Paul Silverstein:]

I mean this is going to be obvious. When you respond to make the share shifts, the share shifts from Huawei , that’s what you are thinking?

[Timothy Jenks:]

Yes. In the case of share shift because we're supplying products to each of the major network equipment companies, and as we've commented in prior quarters is to the extent that if a share shift moves from Huawei to another one of the Western customers, net-net, overall, that may end up being favorable to us in the – the situation with share shifts between or among Western customers is a little harder to quantify, but it also is a question right now is to who's winning share and where.

[Paul Silverstein:]

Understood. Tim, I recognize you won’t get removed on this similar question. Obviously, you , again, I recognize you won’t get removed, but do you have any insights direct or indirect as to whether or not that's going to have some transitory impact. And I recognized spectrum deployed in operational. On the other hand, obviously, service providers are concerned about the bills that are given in cash flow and so you have two , anything that you can share with us?

[Timothy Jenks:]

Wupen, maybe you have some perspective here.

[Wupen Yuen:]

Hey, Paul. So what we are hearing so far is still the demand is still kind of second half of the year loaded. With this stellar result of band option today from SPC and the carrier has spend a lot of money, right. But we have not heard any changes on demand profile being more of a second half of the year.

[Paul Silverstein:]

I’d like , how much, 600-gigabit, 800-gigabit as percentage of total revenue and what percentage of the 400 plus ?

[Timothy Jenks:]

Now we just have 400-gig and above, and that was 46% of revenue in Q4.

[Paul Silverstein:]

All right. But you can’t tell us .

[Timothy Jenks:]

Yes. We don't break it out because in a lot of cases we can't, but we're very clear on which products are used in 400-gig and above, but because of the fact that the products are actually baud rate rather than bit rate, it's not really possible to see that as granular as what’s 600 and what's 800.

[Paul Silverstein:]

Understood. One last quick question. How many of your customers can expect revenue this year? How many commitments do you have?

[Timothy Jenks:]

How many commitments for what?

[Paul Silverstein:]

[Timothy Jenks:]

I think we're going to forecast that when we can actually talk about design wins. So there are only a few who actually has scheduled for 2021. So it's a modest single-digit number, so it's not a lot.

[Paul Silverstein:]

All right. I appreciate it. Thanks guys.

[Timothy Jenks:]

Okay. Thanks, Paul.

[Operator:]

And next we'll go to Samik Chatterjee from JPMorgan. Your line is open.

[Samik Chatterjee:]

Hi. Thanks for letting me ask the question. Just quickly, I think first quarter on gross margin about 33%, 34% gross margin north about $100 million of revenue. As we look forward, how should we think about return in terms of what you need for some revenue just given the product mix is going to change, and maybe you've done cost improvements over as well? So just wanted to get a specific guidance about any indication of what revenue still you need to pick that gross margin level. And just also on the second part, wanted to understand how to think about the impact from gross margins once we launched the ? Thanks.

[Elizabeth Eby:]

So I am going to start with the second question first. We do not have any estimate for the 400ZR margins yet. Those terms are all still in discussion. We do expect them to be healthy once we get through the initial ramp. So we've got to – right, you’ve always got in the initial phases of a product, you've got some yield improvement to go off and do. On the overall gross margin, our target remains 35%. We hit 34% in Q3 and over a $100 million in revenue. So that remains our target. We have done – as you can see in our historical financials, we have done substantial improvements on gross margin. So we're at $68 million in Q4 for revenue and we're at 25% gross margin. And we were at – last time, we’re down at $68 million in revenue, we were at 15% gross margin. So we've substantially improved gross margin over time. But until we hit our target of 35%, that remains our target.

[Samik Chatterjee:]

Okay. Thank you. Thanks for taking the questions.

[Operator:]

And next we'll go to Tom Diffely from D.A. Davidson. Your line is open.

[Timothy Jenks:]

Hi, Tom.

[Thomas Diffely:]

Yes. Good afternoon. Just following up on the last question. Do you expect any meaningful changes in OpEx over the next couple of quarters? You’ve been cutting cost, but also you got a ramp coming up, so just curious expect to do.

[Elizabeth Eby:]

What a good question. As we said, we did a restructuring, we're at about $24.5 million, and this is all non-GAAP in Q3, midpoint of our guide for Q1 is about $22.5 million. So we're hitting that target for that $2 million of restructuring savings a quarter earlier than we had initially forecast. What we will, we could see OpEx pop-up a little bit as we're doing the final ramps for the 400ZR, just because that is a major driver of growth. And if we need a couple extra dollars and we're certainly not going to hold that back, but I would expect to remain, as we said, for the restructuring in the 22% to 23% overall range for – until we get revenue and profit back.

[Thomas Diffely:]

Okay. That makes sense. And then just two quickies on the 400ZR. Are you expecting a qualification to happen in the first quarter? The second part of the question is, do you need more than one customer to hit your 10% of revenue this year?

[Timothy Jenks:]

So it’s the case that initially last year in 2020, we anticipated that the initial qualifications maybe completed by the end of the first quarter, it's now looking like it's in the second quarter as we indicated. The answer to your second question actually depends on who the first customer is, and it's a customer and share award question that, it's entirely possible for us to do it. But we don't know. So I think it would be inappropriate to try and predict that outcome.

[Thomas Diffely:]

Okay. That makes sense. Thank you.

[Timothy Jenks:]

Thanks, Tom.

[Operator:]

And next we’ll go to Simon Leopold from Raymond James. Your line is open.

[Timothy Jenks:]

Hi, Simon.

[Mauricio Roldan:]

Thank you for taking the question. Mauricio on for Simon today.

[Elizabeth Eby:]

Hey, Mauricio.

[Mauricio Roldan:]

Hey, Beth. Apologies. Did you guys provide the annual revenue contributions for 400-gig and above is Huawei in 2020?

[Timothy Jenks:]

For 400-gig and above ex-Huawei, no, we just provided it in the fourth quarter, which was 46%. Let's say, for the year, ex-Huawei, I think it's 35%.

[Mauricio Roldan:]

Total sales. Got it. Thank you. And then your update on the ZR, I think before that, I think I heard that you guys now explain the revenues to grow from 25% to 33% year-over-year. And in 2021, what you mentioned was the North America demand. Can you please explain a bit on that softness? What operators a component of growth in North America Tier 1 operators. If you could talk about that, please.

[Elizabeth Eby:]

So I think, Mauricio, you've seen a lot of this . You've seen a lot of this from other players in the market as well. It looks like we're all kind of seeing the same thing of just a pause in deployment from, and for us, we see it from the North American equipment – network equipment companies, but I think it's…

[Timothy Jenks:]

I think it’s also – and those guys all tend to be serving DCI. But where there's deployments, it's not limited to one.

[Mauricio Roldan:]

Thank you. That's helpful. And then, 400ZR I think that now you said qualifications will take some time in the second quarter mostly in the first quarter before. Can you please talk about the competitive landscape? I think you previously identified Acacia and Inphi as your closest competitors, maybe VR market, just wondering if that continues to the case. Or is that competitive pool somehow expanded to include orders? And I have a follow-up.

[Timothy Jenks:]

Yes. I think you're accurate, Mauricio. I think we're one of the very few who can meet these competitive specs currently and the two that you cited, we do see them out there as well. So I think in addition to NeoPhotonics, Acacia Communications and Inphi have 400ZR. I think there are a lot of considerations here because there are 400ZR and there are 400ZR+ opportunities going forward. There are also considerations about power and the low power consumption, and – as companies are initially rolling out products, it's meeting the appropriate specifications. But keep in mind also that, of course, Acacia is in a contract to be acquired by Cisco and similarly Inphi, is planning to be acquired by Marvell. And so I think NeoPhotonics is the independent operator in this conversation.

[Mauricio Roldan:]

Yes. That makes sense. Very quickly on that. I assume that one of your large hyperscale customers get qualified for the ZR. How should we think about your working capital after the wake of 2021 given that some of the requirements of the hyperscale operators in terms of required to have et cetera?

[Elizabeth Eby:]

Absolutely, these are fairly demanding customers. They ask what you carry a certain amount of inventory for them on their site and commit to certain levels of replenishment rate. So we would expect our working capital to increase. And which is why we've got $123 million in cash. And people ask me on a regular basis, what are you going to do with all that cash? And my general response is, priority number one is absolutely making sure that we can ramp these webscale customers.

[Operator:]

And next we'll go to Alex Henderson from Needham. Your line is open.

[Timothy Jenks:]

Hey, Alex.

[Alexander Henderson:]

Thank you. I was wondering if you could talk about the relative advantages or disadvantages of 400-gig ZR versus the 800-gig products that are out there. And to what extent that those are lower power envelope or different cost per debt or some other elements in terms of flexibility. How is the competition between 800-gig and 400-gig ZR setting up?

[Wupen Yuen:]

Hey, Alex. Wupen speaking. That’s a good question, Alex. This is how we view this. 800G is going to be a universal platform as you know. It goes short distance DCI to long-haul. We do see the 800G strengths really in the – really as for long-haul high-performance applications. And we do see 400ZR being able to bypass and speed up the inbox, just plug into a routers or switches, provides a lot of flexibility and potential cost savings to the webscale customers. So we see 100G being a universal platform, powerful. But then we see 400ZR being a flexible platform, that's cost reducing and enabling new applications.

[Timothy Jenks:]

I think the new application…

[Alexander Henderson:]

[Timothy Jenks:]

Well, certainly, the use cases are, you've got the 400ZR initially, but then there's an opportunity for the new use cases to emerge beyond DCI. And so that goes with 400ZR+ and longer reach, then you're able to start accessing metro area, interconnects, 5G back-haul, and then potentially a longer distance regional, but that takes place over time.

[Alexander Henderson:]

Yes. And so what I was asking though, if I look at it on a cost per bit basis and see what the transceiver, it doesn't strike a competitive advantage product, it's only in new factor that it's possible and that it changes the architectural pattern of the way the transceivers are deployed. That really is where it sparkled and changes the dynamic. Is it right to think about this as an architectural issue, as opposed to just simply a cost per bit power and location?

[Wupen Yuen:]

Actually the first to think about really is the cost per bit issue because you skipped the entire DWDM box and all the associated clients’ site connections, right? You really plug, you save one layer, right. You go directly plug the DWDM capable into a router. Prior to this, it was not possible to plug a router capable plugable DWDM that can go long distances before. But now this is really the first time that happened. So you can think about this really as a cost-driven approach and which then results in an architectural change.

[Alexander Henderson:]

Right. But it's in the architectural change that the cost to bit is lower, not cost per bit on a per light basis. If I don't look at the change in the architectural, just plug the transceiver into an existing DWDM box. It wouldn't have a cost advantage, it’s actually disadvantage. That would probably trigger that challenge, right?

[Wupen Yuen:]

Right. But that change is enabled by the fact that you have a very small pluggable form factor.

[Operator:]

And next we will go to Harsh Kumar from Piper Sandler. Your line is open.

[Harsh Kumar:]

Yes. Hey, thanks for fitting me in. Quick question. First of all, what do you think your exit run rate will be for 400-gig plus products as you either enter second half or you exit the year, calendar year, let’s say?

[Timothy Jenks:]

Harsh, this is Tim. The answer to your question has a couple of parts. The first one is that with the rapid rate of growth of 400-gig that we've experienced this year, you can predict a high exit percentage. However, it's also noteworthy that our passive products as Wupen said in the prepared remarks, we have products that do must and the must functions that are particularly good for the 400ZR architecture that will also deploy. Those products are in our – they're not in our high-speed group. We report them as part of our network products. And so we would expect growth there. And then in addition, as Beth said in the prepared remarks, if we do have some level of increased shipments for lower speed, for example, there are some current tenders pending in China that tend to be at 200-gig. So there are possible growth areas that are not 400-gig to basically offset the rapid growth of 400-gig. So I think we're not going to get too high in forecasting. We would like to see it'd be more than half of our business, but hard to predict at this point.

[Harsh Kumar:]

Okay. For my follow-up, can I ask you – you talk to them about sort of a softening that you're seeing at some of your customers. I was wondering if you would have visibility one level below that, in other words, the actual hyperscalers or or whoever that it is, that you can – coming from, what do you think is causing that? Is it some level of inventory build? Is it just that if you like demand peaked, if you have any visibility in that would be really helpful?

[Timothy Jenks:]

In addition to the things we've already said, we think the – there's also overall share shift. And so we – I think that'll play out over the next quarter or two as we see deployment rates happen with and between the network equipment companies. And as we said earlier, they're all our customers, but how that share shifts plays out matters.

[Harsh Kumar:]

Thank you.

[Timothy Jenks:]

Thank you.

[Operator:]

And at this time, I'll turn it back to Tim Jenks for closing remarks.

[Timothy Jenks:]

Well, thank you for joining our call today and for your interest in NeoPhotonics. The core trends of the industry play into our strengths in 2021 and in subsequent years. So I'm very proud of our team for what they've achieved. We do look forward to updating you in the future. Have a good evening.

[Operator:]

And that does conclude our call for today. Thank you for your participation. You may now disconnect.