NeoPhotonics (NPTN) Margin Scare Is Misplaced - Needham

Needham analyst, Alex Henderson, noted that NeoPhotonics (NYSE: NPTN) reported a strong quarter, announced a 50% increase in capacity additions into the second half, with the vast majority of products sold out currently. Revenue growth guidance increased from 12-15% to 20-25% but the stock sold off in the aftermarket based on the 2Q Gross Margin guide which the analyst believes is "misplaced". No change to Buy rating and PT increases to $17.

Neo announced a 50% increase in planned capacity additions for a variety of products including iTLAs and coherent receivers, and a 2x increase in multi-cast switch capacity.

Aggregate Price Reductions Are Running LESS Than Normal and are Not an Issue--Pricing Should Be Flat Q-Q in 3Q and Again in 4Q.

Gross Margin Guidance of 29-31% down from 32.8% in CY1Q is Causing Confusion. We are not at all concerned. Moreover, Neo's Gross Margins are likely to rebound to the 33%-35% vicinity in 2H. GMs beat in 1Q due to customers pushing for more volume during sold out conditions. Neo was able to charge more for this volume by postponing the realized timing of agreed-upon price reductions. The result is the price declines normally occurring in 1Q didn't, and instead they should impact 2Q fully.

For an analyst ratings summary and ratings history on NeoPhotonics click here. For more ratings news on NeoPhotonics click here.

Shares of NeoPhotonics closed at $13.33 yesterday.

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