Kent --
A quick summary of CC:
DWDM sales tripled year to year and were up 41% sequentially. Total communications revenues were up 117% year to year, and 32% sequentially.
Gov't business declined to 17% from 21% last quarter and will decline further. International was 27% of business, up 85% y/y, 21% sequentially. Revenues from Europe were up 320% y/y, and were 21% of Q1 revenues, 5% Asia/Pacific. Excluding one-time charges, margins were 41.3% versus 38.7% last Q and 32.4% a year ago. This due to more favorable mix of DWDM, increased yields, and ramp-up of pump oaser, and undersea products. R&D was 9.4% of revenues, up 18% sequentially and 35% y/y. 75% of this was for new DWDM development. SG&A was 14%, up 20% sequentially and 74% y/y, due to trade show and recruiting, also new computer system. This rate may continue in Q2 and wind down in Q3.
Operating income up 87% sequentially, and 135% y/y. Proforma income was .29 versus .14 a year ago. Up 107%. DSOs 70 versus 68 (stronger European sales).
From CEO:
Pleased with communications products. Up 117% y/y. Long haul DWDM prime driver. 980 nm lasers and pump modules winning sizeable portion of market b/c of high power/ high reliability. Gratings stabilizer pumps lead advance. Undersea also accelerating. Excellent 980 nm and fiber Bragg for Ala, substantial quantities in Q1. ALA is one of world's leaders. Thrilled to be teamed with them. Will expand dramatically. [Undersea] requires high bandwidth and high number of channels and this requires high pump power. Working closely with two other submarine houses that could lead to 3-5 yr. growth opportunities. Nothing finalized.
Last quarter 5 products chosen for top 30 new products. This quarter a sixth was chosen by panel of judges. Feb. '99 introduced new product. 1.5 watt 1480 nm pump laser. Unique as it delivers 10X the power of others. Used in erbium doped amplifiers for undersea. Beta tested for 6 mos, now new orders from others. Substantial growth opportunities in new market. [I may have this skewed. It got a bit technical re: remote pumping and power loss).
Manufacturing: 2 reactors being added for over 200,000 per year in 2000. Yields improving. Test facility in Santa Clara: added small third shift to manufacturing. 40,000 square foot facility is complete and half installed. Ready for increased demand.
Widening customer base. Q1 6 customers over 2 1/2 million revs each. 18 mo. contract with Corning for 980 nm pump --- largest commercial supply contract in company's history. They are largest pump supplier in industry. Qualifying 980 with powers at 1/2 watt and 1 watt and higher.
Strategy for growth: growth through acquisitions: Polaroid and IOC International. Polaroid annd SDL developed products together. Wealth of intellectual property: 38 patents and 22 licenses. [long term contract with Polaroid.] IOC 2.5 and 10 gigabit lithium niobate light modulators. Closes in Q2. Opens transmitter market. Research shows lithium niobate module market growing 60-70% over next few years. The 10 gig products will reach this market. IOC brings new technology, broader product line and more manufacturing and customers.
1999 will continue communications growth. Sequential won't duplicate Q1.
Q&A after I return from dinner.
Pat |
