Ortel Conference Call, November 23, 1999
Participating: Steve Rizzone, CEO; Roger Hay, CFO; George Holmes, VP WW Sales; and Jeff Rittichier, VP Marketing.
First Q of profitability since Q1 1999.
Continue to spend on R&D, strengthen infrastructure, accelerate sales and marketing, increase partnerships.
Review of numbers (see press release)
Pleased with progress. Strong momentum. We executed well in re-focusing operations and semiconductor fabrication. We continue to focus on sales, marketing and support to ensure growth. Reorganized field sales team and put technical resources closer to customers. Better website and increased ability to meet shipping targets. Have identified unprofitable businesses and will divest of 50% of product models by end of FY.
R&D focused on broadband CATV. Will have a number of announcements in mid December at the Cable Show. Best of Breed advancements in wafer fab., packaging, and RF distortion.
OC-192 receiver business. 4 new customers. OC-192 laser sampled and exceeded expectation. ON track to enter qualification in this Q. Will expand in key markets. Want partnership agreements in place by end of CY. Balance of year continues to be transition.
Q&A --- every analyst without exception congratulated the company on the excellent quarter.
John Butler Prudential Securities
Q: What are strongest products?
A: Strength in CATV transmitters, aphoto diodes, and WDM demand --- 8 new CATV customers, and 4 new telecom
Q: GI and MOT, close in Jan. Any transitions there?
A: Excellent relationship with GI. Neither has optical capabilities. Optimistic re: future.
Cruttenden Roth
Q: Epitaxx and JDSU --- any changes in receivers market re: competition?
A: OC-192 rec business is heating, demand starting to ramp. Will be competitive. We have outstanding product. Shipping into production. In design win side we've taken wins away from companies like EPitaxx, though not named specifically. Photo diodes --- as MAN market opens up going into next year, far larger market in pin diodes because reach is shorter. Focus on how to open up metro market.
Q: What about Harmonic and Finisar?
A: Keeping customer base quiet. We only talk about those with reportable revs. Those mentioned are up and coming and ones we want to go after.
Q: Headcount? Engineers?
A: Cont. to add engineers and scientists. Concerted effort to expand team as indicated in R&D expense. Over month or so in particular we've had good success in bringing on a number of PhDs. Headcount not risen dramatically. Some increases in operations to support direct side of business. Recruiting has gone well. Final stages of Sr. VP engineering recruitment. Two finalists. Decisions in next couple weeks.
Q: New products to follow OC192?
A: Yep. You better believe it. We'll have several things to talk about at [optical show]. Marketing team doing a marvelous job. Getting design wins b/c we have best of breed products. Support org. provides outstanding support. Improvements in operations makes on-time delivery a competitive advantage.
Sutro and Co.
Q: OC-192 business . . . market for Metro could be as big or larger than long haul. When will metro market kick off?
A: As metro market starts to open up it will probably become interesting toward end of CY2000. Look in Lightwave on passive side 7x larger than longhau. Don't know if it's the same over active. We believe it is significant. We can be competitive.
Q
: Ramp in rev. in 192 direct modulator transmitter?
A: We've talked about long qualification times. We're in samples. We'll ramp mid to late next year. Getting design wins is key. Qualification cycle is long. Will get design wins through balance of this year. Will kick in 6 to 9 months later.
Q: OC192, four new telecom customers. . . number of trials for transmitter?
A: Can't talk about transmitter. Wins are for 192 pin-receivers.
Q: Sales team?
A: Final re-org in Q1. Q2 added field applications guys. Added 2, will add 3 more in next month or so.
Field applications --- strategy. Want technologists as close to customers as possible. Helps get design wins. Putting highly competent guys --- these are designers from guys who would be our customers. They are designers already. Want to get products designed in to customer.
CIBC World Market
Q: How was WDM market this quarter?
A: WDM business is strong for us, combined with digital return path aps, we see it continuing to grow. New ops turning up in inter-facility lengths. Looking for growth there.
Q: Volumes, are they meaningful?
A: Yes, absolutely. This is no longer TCI driven.
Q: SGA going forward?
A: Went down as percentage. Up in dollars. Growing going forward. Some hiring to do. Dollar wise growing. But % will come down.
Nubia (?)and Co.
Q: Ownership in Tellium? Participating in follow-on financing?
A: Current is 18%. They're currently involved in another round. We havne't talked to them. We can't discuss details.
Q: Do you supply components to them?
A: OC-192 receiver products, yes.
Q: Will you attract more business?
A: Naturally, yes. These (products) are critical to their business. As they grow, we expect to grow. It's a significant investment for us. . . will continue to supply components.
Q: You've hit home run on that one. . . or will. . Comments on quarter going forward?
A: Analysts say revs. around $20 million and between 2 and 3 cents EPS. We can't comment on predictions.
AG Edwards
Q: design wins for OC192 diode space?
A: Right around 12. Such a tremendous amount of activiity--- we only count if we're shipping in pre-production. On ADLs for 12
Q: Telecoms in 10 to 15% of sales range?
A: Yes
Q: Still have 2 customers in 10% or larger?
A: Yes, still the 2.
Concluding remarks, thanking analysts for participating.
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