I've had several ask why I've over-weighted my SDLI position and to support my answer I went back to the last CC. Worth a glance for those who may have missed it and worth re-reading for anyone who's forgotten what was said.
Formal presentation:
Message 12738086
Q&A:
Q: [lisa salomon sb]: What's in non-fiber products and how to model?
A: two parts : space satellite: fell by 50% seq; 90% y/y; industrial was up 35% y/y, seq down 10%. Non fiber optics will increase 10-15% next year. This transition into higher power chips --- we will mfg. lower power to meet current contracts, and transition into higher power chips for new designs. Being tested today for incorporation.
Q: if you're sole supplier, would any of your customers want to design amplifiers that use them if they could only get high powered (later?) How will they deal with not having another high pwered product?
A: Many of customers are sole-sourced for amplifers now. That's the position they find themselves in. And is why we have over 50% share in high-powered DWDM sector. B/c we have capable chip, same situation may arise in future. Customers obtain best performance from SDLI.
Q: CIBC world markets: Great quarter. On undersea, ALA is largest. Is number 2 larger than number 1?
A: no. ALA is largest, followed by number 2. Don't provide that amt. of detail
Q: Number 3 under discussion. How big? As large as other customers?
A: We do have prod. order from 3rd customer. Beginning ramp in 1Q. Prod. ship in Q2. Struggling to find enough capacity. Customer is significant. Won't comment if bigger than ALA and second. It will be among top 3. Second Q will be sig. revenue.
Q: 1450 dist. Raman. Is it ramping faster than we thought. No longer just undersea? Is it for 10 or 40?
A: (Greg) Current work is terrestrial, not just to undersea. At ten and extending to 40. Hesitate to say immediate sales, but we are positioned well for both 10 and 40.
Q: How big can Raman be in 2000?
A: Hard to say how many --- hard to tell when you're at leading edge (terrestrial). We are in production right now for undersea.
Q: 10-gig modulator business, what percentage? Yields? New wins?
A: Less than 10% total rev. (incl modulators and drivers), yields could stand improvement, working hard on yields to improve cost and increase production, orders are tremendous. Will go to 4X over 1999 and could do better if we improve.
Q: What drove accts. receivable down?
A: Was high in Sept. Collection was better. And mix was to faster paying customers. Not a one-time event.
Q: ML --- expanding product line being a priority. . . tunable laser market? GMs held back. . . can you explain.
A: Source laser and tunable lasers, we have made presentations about 1550 tunable, we do not have a production reactor for these fully operating. We do have them in house. Aim is to make those products production ready. Present focus is on installing mfg. and capacity in those areas. GMs, always positives and negatives: 1) prod. ramp up continues dramatically 2) major effects were incentive plan charges, we had unusually large incentive accruals, 3) standard changes. . . we had to record lower inventory value. . . positive for going forward. . . forecast shows higher margins going forward.
Q: Herald Brown and Co: re: JDS and Corning, as LaserTron contracts run out, what is plan for extending? Thoughts on those two customers?
A: Good relationship with both. We are presently discussing extensions of those contracts beyond end of year. Both have indicated that they anticipate using SDL beyond 2000. Several reasons: excellent technical differentiation. Customers can be at leading edge. No one sells products if they're not at top end of chain. We have lowest cost structure in industry. We reduced inventory cost b/c our improvements in yields and cost reduction program. Cost standpoint, our customers will be happy. Thirdly, we have strong patent position. Industry moved to Fiber Bragg grating, b/c it improves performance of DWDM high-channel count products. No one wants sole-source. B/c of shipping history and quality, we'll maintain customers. Feel positive going forward.
Q: Can they unlock your technology?
A: People have been trying to understand how we make our products. We ieep it confidential. Around 1000 proprietary steps, and mistakes in any lead to sub-par performance. Reasons we have factor 2 increase in power.
Q: Great demand for talent. Are you able to find talent you want?
A: Over years we have good reputation in industry. We attract stop cientists and engineers. Our acceptance rate remains unchanged. Turnover rates are below what we projected at beginning of year.
Q: Metro market: do you consider SDL at beginning of this market?
A: In its infancy. Is small proportion of our revenue. It's likely it will increase significantly in 2001. Shouldn't say it hasn't increased in 1999 --- certainly 40% seq is growing nicely --- as for significant, it will take till 2001.
Q: JP Morgan (congrats) --- Review your longer term growth in operating margins. . . Supply and demand for optical components, like Cisco and Ciena, will we move to parity in supply and demand?
A: Operating margins. No guidance on that. Expect to see further improvements. As we increase % of business in fiber optics, we'll approach others in this space --- mid to high 20s.
Q: Where will submarine sales go?
A: first half they'll be subst. above 30%. Supply vs. demand: bandwidth continues to be hot commodity, particularly with new entrants and as fiber pushes closer to user, demand will outstrip supply for foreseeable future.
Q: US BancCorp: congrats --- comment on direction of backlog from Sept. levels?
A: B to B was strongly positive.
Q: Modulator business, grew 50% seq?
A: Yes.
Q: outlook, ability to grow capaicity? What sort of growth rate?
A: Projection for 2000 in mod/driver area, in year will grow revs 4X.
Q: New design wins in mod. side?
A: Rev. coming from designs we'd won. We are seeing fair amt. of activity in new players in optical networking space. a lot of interest in 10 gig.
Q: SunTrust. Congrats --- As you expand into new product lines how is internal R&D a factor. Also as Raman is integrated, how does that change the edge of the market? Price and cost? Where we may be a year from now? What new ops does RAM present?
A: Will continue to invest 9 to 10% in R&D. Have super team of scientsists and engineers. Will improve capa. in iridium phsophide area. Good results. Alot toward impoving mfg. capability, and yields. RAMAN is area of high focus. Tremendous market awaiting in that area. Nice growth in 2000, 2001 before it takes off.
Q: split in 980 undersea vers. modulators? Feeling re: what you need?
A: 75% was fiber optics communications, 30% of that was undersea, with cable under 5%. Leaves 40% of total was terrestrial DWDM.
What we would be acquiriing versus dev. internally. Don't think we should comment. Lots of competition. Safe to assume we have interest in any product line vertically, allowing broadening of market penetration. Internally Indium phosophide (?) area and areas I prefer not to mention.
Q: Warburg Dillion Read: Metro access development. What about lower power?
A: One product will have direct impact on metro market, where cost is important. Don't want to pre-announce at this time.
Q: Sutro: Cable business? When to 10% of revenues?
A: Growing so fast in other businesses, don't see how it can catch terr. and undersea. Maybe over 5 year period. 2002, 2003, cable might make it there. Hard to beat 44% seq growth in terr and undersea. They're all growing quite nicely.
Q: Gruntal and co: congrats --- any RAMAN amps deployed? CapX for 2000? Product pipeline?
A: Raman, we don't know when they'll be deployed, are in production for undersea now. 12m per quarter for capX. Products, one was announced today, ALA --- we've decided not to preannounce other products for competitive reasons.
Q: H&Q --- IOC -- is it profitable?
A: It's going to be quite profitable next year. Not quite break-even Q4. Don't want to say re: Q1. Production business from 5 different customers.
Q: SG Cowen: Will RAMAN be competitive?
A: RAMAN will be deployed for next gen. products. Deployed terrestrially for 40 gig system. Need lower noise, better amplification, and therefore RAMAN will be very complimentary to EDFA. Won't take away business.
Q: Given capital expenditures discussed, will it translate to equal growth re capacity increases for rest of year?
A: Decent growth in Q2, but not willing to commit. Can we grow capacity by same amount? Highly confident spending that much money.
Q: Lisa, follow-up: New start-ups mentioned several times,. . .
A: Products that are being tried include EDFA, RAMAN pumps, modulators, drivers, . . . access to customers, goiing direct for a number, but also going through standard suppliers for others. It's a combination.
Q: Dain Rausher Wessels: how can RAMAN be dev. with solitons?
A: Raman and solitons, indeed the amplification can be used. Think of Raman as making fiber more transparent. Market size? Only projections come from one analyst . . . $750M by 2003 or 2004. That was before it was talked about at conferences. It may not meet or may exceed.
Q: Nice quarter. . . Which products had lead times extending between end of 3Q and 4Q. Which leads are going down?
A: (laughter) A lot is existing business where customers wanted to ramp. Working on cycle times. Shrinking cycle times quite a bit. Business going to high end. Accelerates as we put in capacity.
Q: You mentioned margins might have been hurt by 1/2% in quarter. Any additional comments on costs that were revised downward?
A: Standards were revised in middle of quarter. No further comments.
Q: How far off am I in seeing at least 5 to 10% improvements as products ramp?
A: No, not expecting increases at those levels. |
