SDL, Inc., Q4 conference call, January 24, 2001
Don:
Pleased and proud to announce our ninth straight quarter of record growth. We give credit to our outstanding employees and strong customer base.
In Q4 we met all our targets. Record bookings and backlog. Fiber optics represented 92% of revenues, up 22% sequentially and 3.7X y/y. Terrestrial and undersea were both strong. Saw strength in international and in emerging companies. We also had further improvements in yields and efficiencies. This quarter we recorded $319,000 in revenue per employee. The best ever. We believe our financial report is among the best in the industry.
Mike:
Exceeded estimates for revenue, EPS, and margins. FO was up 265% sequentially.
Terrestrial revenues were a result of sales into higher channel-count/ higher data-rate systems, Up 21% sequentially and 352% y/y.
Undersea revenues represented 26% of revenues and were up 26% sequentially and 166% y/y.
Fiber optics were up 3.6X, or 257% for the year, and represented 89% of revenues for the year, versus 67% in 1999.
Customer base is broadening. Three 10% customers were Alcatel, Corning, and “second undersea customer who remains unnamed.” [ALA Deepthroat]
Gross margins were 56.8%, up slightly sequentially and up 12 pts y/y. Yields and efficiencies continue to improve.
R&D up 20% sequentially
SG&A at 10.5% up slightly
Operating income grew 5X, or 424% y/y
Net income was .53, 8% above consensus estimates.
EPS was up 212% y/y.
Tax rate 36.5%
For the year, EPS was $1.55 or up 237% y/y.
Balance sheet remains strong:
$414M in cash and investments
$54M in cash flow
$166M cash flow for year
CapX was $29M for Q4 and $69M for year
DSOs under 60 days at 58
Inventory turns at 5.0
Continued strong revenue growth. Favorable book-to-bill
For 2001 we confirm guidance at 2X revenues to $1Billion
1Q could have the lowest growth of the year b/c of yearly price adjustments. The latest analyst guidance has us at $193M to 202M for Q1 and we feel this range is appropriate. Q1 margins could be slightly below Q4 levels b/c of added staff. GMs could trend slightly lower b/c of price but hope to offset this by yields and efficiencies. Guidance for Q1 could be moved up by 2 to 3 cents. Currently at .53.
Don:
We supply the high end of the market where our products are very well received. This is also the highest growth market.
We’re broadening our range of customers. This quarter 59% came from international, vs. 50% year ago. We saw 100% growth in Asia Pacific.
Diversifying our customer base. Shipments to “other than top five customers” were up 50% sequentially and 4X y/y.
Eight customers over $10M in revenues vs. 1 a year ago.
We’re specifically targeting new customers.
New products: Our 980nm won “outstanding new product” of the year from a major industry group. It has the highest out-put with stabilization and ramped 5X quarter over quarter. All 980 grew 32% sequentially. [Hope I got that right.]
Q4 we saw transition to higher power 980 chips in undersea.
Shipments of first micro-amplifiers. Received volume order and now have 10 paying customers. This product can compensate for losses in low channel systems. Targetting at metro switching market.
Raman amplifier market is expanding. Now in qualifications for semiconductor lasers in 1400-1480 nm range. They can be used for Raman or 1480 EDFAs. Indium Phosphide chips --- samples Q4. Modulators will sample late Q1 or early Q2.
Transmission products had great quarter, up over 60% sequentially. Added to New Jersey facility. Had 18,000 sq. ft facility. Now have 130,000 sq. ft. facility. Will be moved into half of it by end of Q1. Anticipate using more in future quarters.
PIRI --- has diversified customer base. Shipping AWGs to over 1 dozen customers. Adding as fast as possible. Many customers moving to AWGs. Announced new product with VOAs (variable optical attenuators) --- that allow equalization of power in each channel. Shipping in volume. Will grow over 12 to 24 (customers?). Added 70,000 sq. ft. Pleased with ability to expand. We’re number one in the industry in volume and performance.
Looking ahead to 2001:
1. Continue introducing leading edge products. Have 20 set to launch at OFC in March --- across amplifiers, pumps, modulators, AWGs, and transceiver/receiver markets.
2. Ramp manufacturing capacity. Over 250,000 sq. ft. added in 2001.
3. Broaden customer base. Expanded products reach more customers. Plus we’re expanding sales and marketing b/c of merger with JDSU.
4. We’ll reach $1B in sales in 2001. This will be achieved in spite of choppy outlook given by others in the industry.
5. Looking forward to joining JDSU. Merger will close in mid February. We’re in final stages of DOJ approval and have submitted remedy.
Q&A:
Q: Can you comment on price reductions versus demand? Also Veritek business?
A: Demand is relatively good --- from a broader base of customers. Record orders, BtoB is substantially positive. Growth will be lowest of the year in Q1 due to price reductions. This is standard scenario. We have best products and best customers and we adjust prices to increase volumes. Veritek had 60% growth sequentially. Discrete and modules are both strong. Over time modules will have greater demand.
Q: PIRI and AWGs? Was demand as strong as expected?
A: PIRI division did a good job of diversifying customer base. LU was the primary customer when it was acquired. We have over a dozen customers now. We are sold out for that product and ramping quickly. LU has been a disappointment --- but our many new customers fills in that space.
Q: Lead times?
A: Vary by product and specification level. Many remain sold out. Some aren’t. Same as over the last 5 years. No huge changes.
[The following 4 questions were from Kevin Slocum:]
Q: PIRI --- last Q indicated flat --- did it grow?
A: Q4 were were down at PIRI --- that was part of strategy to satisfy customers who were new. Q1 forecast is strong.
Q: Advanced solutions, how are they looking ahead?
A: They will be significant but won’t dominate.
Q: Fiber optics, overall, 980nm was your biggest contributor, might that change?
A: No major changes. We’ve brought out great products. Allowed a number of changes: smaller package, higher power, also ramped manufacturing. Now can supply low-cost pumps to the Metro market. Micro-amplifier line.
Q: 980 is long haul --- it would be a comfort if that part were only 30-50%, then other products would fill in.
A: Mocro amplifier is not for long haul, but for switching in metro and add/drop markets. It’s a new market and we’re getting a lot of design wins. Undersea continues to show healthy signs. Really really pleased with high-speed circuits group --- sales will be significant --- also into WAN and enterprise/metro markets. Also PIRI has success in Metro market. We have a dozen or so players there.
Q: How much did the top 3 grow vs. the 2 that weren’t above $10M?
A: We won’t single anyone out. All were very good. One disappointment was LU, but that’s not new news. Highlight: all the rest grew extremely rapidly.
Q: How about growth among customers who weren’t in the top five?
A: Yes, great growth. The best Q in the year.
Q: How about the channel monitor business?
A: Moving from single customer-based designs to product-based platform (annc. set for OFC). Bullish outlook. Capable of handling both C and L bands.
Q: What percent was Asia?
A: Asia was over 10% of revenue (a lot of upside there).
Q: What’s driving that growth?
A: We acquired new customers and some exisiting customers are ramping. Additional deployments driven by Asian-based systems companies.
Q: 40 gig modules?
A: Development activity is on-going, plus we’re working on auxiliary equipment --- more surprises for OFC.
Q: Headcount?
A: 2400, up 300 in the quarter.
Q: Long haul, was decline b/c of LU?
A: LH did not fall off. Terrestrial was up 21%, undersea up 26%.
Q: Moderation in long haul business?
A: Perhaps a little.
Q: AWGs --- gaining against other technologies, what is it displacing?
A: Competes with multi/demultiplexer, thin films and fiber Bragg gratings. Not taking away but adding capability of packaging. 40-channel is primary market.
Q: PIRI and AWG prices? How rapidly can you sift from customer to customer?
A: Product line is platform-based and we can move quickly. Days not weeks. Pricing on traditional AWGs holding up well. Seeing higher price in more complex solutions.
Q: 10gig modulators --- are you past customization issue? And did you reach $30M for the year?
A: Still in start-up phase, driven by customers, continued to staff and expand. Resolved issues late in Q2. Slightly below $30M target.
Q: International, will it continue to grow?
A: It’s growing across all product lines. High-speed circuits, PIRI, Micro amps all doing well. Percentage should stay the same.
Q: GMs in general?
A: Could decline. Now don’t expect change for the whole 6 mos. Expect to get better yields and more efficiencies. Could be down ½ pt, but maybe not. Raman 2001 will be 5% or less of total, but growth outstanding, and great potential for 2002.
Q: Corning guided down, and mentioned capital spending from telecoms. What about SDL?
A: We do not sell to that level of customer. We sell at high level, leading edge, where new deployments occur. We tend not to see some of those issues. 50% sequential growth from some who weren’t top 5.
Q: What are the top 5 saying?
A: No significant issuew with inventories. LU was not as significant as in the past.
Q: Planar package? What percentage of 980 will it represent?
A: Ramped planar --- 5X Q4 vs. Q3. Customers love package and product and want more. In Q1 will be 20%, by Q4 it will be 95 to 99%. We’re qualified at all major customers.
Q: Indium Phosphide?
A: Will sell at all levels of integration. Will differential ourselves by technology.
Q: Sequential growth for LiNiobates?
A: Lumped in with transceivers/receivers, up 60% sequentially.
Q: Threat from newer competitors?
A: We offer good products and haven’t seen change in competitive landscape.
Closing remarks:
Last conference call I expected it to be the last. It’s been a pleasure working with you and I hope to interact with you as part of JDSU.
>>>>>>>>>>>>>>>>>
All errors are mine.
Pat |
