Why Shares of NeoPhotonics Tumbled Today

What happened

Shares of optoelectronic solutions provider NeoPhotonics (NYSE: NPTN) slumped on Thursday after the company announced restructuring actions and preliminary third-quarter results. The company is laying off employees, consolidating its real estate, writing down inventory, and writing down idle assets. Both third-quarter revenue and third-quarter earnings are now expected to come in well below analyst expectations. As of 12:53 p.m. EDT, stock was down 13.3%.

So what

NeoPhotonics is taking these restructuring steps to better align its business with the current demand environment. The company sees no clear indication of increased demand in China in the third quarter, despite recent reports of a major tender for optical components from China Mobile.

NeoPhotonics expects to incur $4.2 million in asset write-off costs and $0.6 million in severance costs, mostly in the third quarter. Once the restructuring actions are complete in the first quarter of 2018, the company expects ongoing quarterly operating costs to be reduced by roughly $2 million.

NeoPhotonics' third-quarter preliminary results reflect weak demand from China. Revenue is expected between $69 million and $71 million, below analyst expectations of $73.5 million. Non-GAAP EPS is expected to be a loss of $0.27 to $0.35, well below an expected loss of $0.12.

Now what

NeoPhotonics CEO Tim Jenks emphasized that the company's R&D efforts would not be diminished: "In taking these actions, we have maintained our research and development focus on products for next generation coherent systems, operating at 400 Gigabits/sec to beyond 1 Terabit/sec, wherein our advanced hybrid photonic integration provides the highest value."

The company is aiming to accelerate its efforts to return to profitability with these restructuring steps, but it will likely take a pick-up in demand for NeoPhotonics to return to the black.

10 stocks we like better than NeoPhotonicsWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and NeoPhotonics wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of September 5, 2017

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.