NeoPhotonics Layoffs Announced as Demand for Optics Drops in China
For many Americans working for multinational American corporations, with significant exposure to markets outside of the U.S., there always remains one particular downside—the potential risk of losing their jobs if things go off-target in the foreign market. That’s exactly what caused NeoPhotonics Corp (NYSE:NPTN) layoffs this week, as the company announced U.S. job cuts due to slowing demand for its optics products in China.
San Jose, California-based optoelectronics manufacturer NeoPhotonics has announced a major restructuring plan this week, as part of which the company will be reducing its workforce and writing down some of its idle assets.
Drop in Demand for Optics in China Leads to NeoPhotonics Layoffs
The layoffs follow the company citing a slowdown in demand for its core optic products in China. To prevent unsold inventories from piling up, company management has decided to cut back on production. As a consequence, employees at its manufacturing sites in Silicon Valley in the U.S. and in China may be affected by job cuts.
Although the company has not given an official accounting of the affected employees, the number could be in the dozens as evident from the restructuring charges the company expects to incur.
NeoPhotonics expects to bear $4.8 million in restructuring costs in the coming two quarters, of which $4.2 million will be related to the asset write-offs, while the remaining $0.6 million will be for severance packages offered to the departing employees.
The CEO of NeoPhotonics, Tim Jenks, explained the situation in a statement, saying, “Lacking a clear indication of increased demand in China in the third quarter, we initiated several operational changes with the goal of expediting our return to profitability, including implementing certain restructuring initiatives designed to align our business with the current demand environment and lowering manufacturing output to manage inventory levels.”
Huawei Reduces Purchases of Optic Products
NeoPhotonics is a leading manufacturer of optoelectronic products, which facilitate high-speed data transfer. It mostly sells its optics products to bandwidth-intensive telecommunications and networking companies. NeoPhotonics draws nearly 60% of its revenue from China, where demand for optics is beginning to soften.
Huawei, one of the biggest Chinese networking and telecom companies and a major customer of optics products in China, has significantly reduced its purchases of optics beginning this year. Likewise, China Mobile Ltd. (NYSE:CHL)—the largest consumer of optics in 2016—may have already deployed most of the optics in its network in the past couple of years, left with much lesser capacity to further add optics.
All in all, NeoPhotonics’ management has already foreseen further declines in demand in the coming quarters and has consequently cut its revenue and profit guidance for the year. The restructuring initiative has seemingly been undertaken in a preemptive move to control expenses ahead of time.
However, it’s worth warning that if the demand continues to wane, more NeoPhotonics layoffs may follow in the coming quarters.
NeoPhotonics Layoffs: Who’ll Be Affected
As of December 2016, NeoPhotonics had 2,401 employees and non-employee contractors around the world. Of these, 310 are based in the U.S. and none of them are represented by a labor union. Meanwhile, the majority of its employees—about 1,913—are located in China, with an additional 117 in Japan, 52 in Russia and Europe, and nine in Canada.
“NeoPhotonics Announces Restructuring Actions and Preliminary Financial Results for the Third Quarter,” NeoPhotonics, October 5, 2017.
“Optics will grow in 2017 despite China slowdown, says LightCounting,” Fibre Systems, May 3, 2017.
“ANNUAL REPORT ON FORM 10-K For the Fiscal Year Ended December 31, 2016,” NeoPhotonics Corporation, last accessed October 6, 2017.