Welcome to the NeoPhotonics 2012 Fourth Quarter and Year End Conference Call. This call is being webcast live on the NeoPhotonics event calendar webpage at www.NeoPhotonics.com. This call is property of NeoPhotonics and any recording, reproduction or transmission of this call without the expressed written consent of NeoPhotonics is prohibited. You may listen to a webcast replay of this call by going to the NeoPhotonics event calendar webpage. I would now like to turn the call over to Erica Mannion, Investor Relations for NeoPhotonics.

Good afternoon. Thank you for joining us to discuss NeoPhotonics operating results for the fourth quarter and full year of 2012. With me today are Tim Jenks, Chairman, President and CEO and JD Fay, CFO. The call today contains forward-looking statements that involve risks and uncertainties. These include statements related to NeoPhotonics’ business outlook for the quarter ending March 31, 2013 and full year 2013, future periods, industry trends, and forward-looking statements that management may make in response to questions. Forward-looking statements are generally indicated by words such as would, believe, should, expect, outlook, estimate, anticipate, forecast, and similar expressions that look toward future events or performance. Actual results may differ materially from forward-looking statements. Factors that could cause results to differ materially from statements include those described in today’s press release as well as those detailed in the section entitled Risk Factors of the company’s quarterly report on Form 10-Q most recently filed with the SEC. NeoPhotonics cautions you not to place undue reliance on forward-looking statements, and that these statements speak only as of the date they are made. Non-GAAP financial measures will be discussed today. Please visit NeoPhotonics Investor Relations webpage for the company’s press release, which contains an explanation of these non-GAAP financial measures and a reconciliation to the comparable GAAP measures. Now, I will turn the call over to Tim Jenks.

Thank you for joining us today. We made solid progress in 2012. We accelerated our growth rate, growing 22% year-over year and reaching record annual revenue of $245.4 million. In the fourth quarter our revenue was $62 million, which was at the high end of our projected range of $58 million to $62 million. This is down $4.1 million, or 6%, from the prior quarter and up $4.8 million, or 8%, from the fourth quarter of 2011. Returning to our revenue in the fourth quarter of 2012, we experienced 8% growth over the same period last year, with the strongest growth of products used in coherent and other high speed networks and Agility products. Gross margin for 2012 was 25.0%, up from 24.9% in 2011; non-GAAP gross margin for 2012 was 27.0%, up 130 basis points from 25.7% in 2011. And Adjusted EBITDA for 2012 was $9.3 million, up from $2.7 million in 2011. Each of these measures shows our progress in scaling our business and achieving favorable benefits from key growth products over the past year. Our net loss per share from continuing operations in the fourth quarter of 2012 was $0.10. On a non-GAAP basis, we were approximately breakeven in the fourth quarter after having achieved profitability in the third quarter of 2012. Our non-GAAP net loss per share from continuing operations was $0.00 for the fourth quarter, a significant improvement from a loss per share of $0.26 in the fourth quarter of 2011. Our net loss per share from continuing operations for the full year 2012 was $0.62. For the year our non-GAAP net loss per share from continuing operations was $0.16 for 2012, a significant improvement from a loss per share of $0.40 in 2011. We are particularly pleased with the increase in revenue from our…

Thank you, Tim, and good afternoon. I will review the financial results for the fourth quarter ended December 31, 2012, the full year of 2012, and conclude with our outlook for the first quarter of 2013, with additional notes on expectations for the full year. For the fourth quarter of 2012, revenue was $62 million, a decrease of approximately 6% from the third quarter of 2012. While the sequential decline is consistent with seasonality that we typically expect in the fourth quarter, our fourth quarter was nevertheless at the high end of our projections and the highest fourth quarter of revenue in our history. GAAP gross margin for the fourth quarter of 2012 was 22%. Non-GAAP gross margin for the fourth quarter was 23.9%, and compares to the previous quarter’s Non-GAAP gross margin of 32.9%. Non-GAAP gross margin for the fourth quarter of 2012 excludes stock based compensation expense, and amortization of purchased intangibles and other assets and costs relating to the 2011 acquisition of Santur, of approximately $1.2 million. Loss from continuing operations for the fourth quarter of 2012 was $3 million, as compared to income from continuing operations of $0.7 million in the third quarter and a loss from continuing operations of $22.8 million in the fourth quarter of 2011. Diluted loss per share from continuing operations for the fourth quarter of 2012 was $0.10. Non-GAAP loss from continuing operations for the fourth quarter of 2012 was $0.1 million, as compared to Non-GAAP income from continuing operations of $2.7 million in the third quarter and Non-GAAP loss from continuing operations of $6.4 million in the fourth quarter of 2011. Non-GAAP diluted loss per share from continuing operations for the fourth quarter of 2012 was zero cents, and compares to Non-GAAP diluted income per share from continuing operations of…

Thank you, JD. NeoPhotonics is a technology company that designs and produces photonic integrated circuit, or PIC, based optoelectronic modules and subsystems for bandwidth-intensive and high-speed communications networks including Coherent 100 Gig data rates, plus fiber-to-the-home networks and 3G and 4G LTE wireless backhauling. Our current product development actions focus on deploying PIC-enabled capabilities into fast growing segments of optical communications, and can have a positive impact on our potential for future growth. We have previously stated that design wins, wherein customers qualify NeoPhotonics products for use in their systems plus we have received a purchase order for the products, can be leading indicators of future revenues. For 2012, we secured 17 total design wins with our tier 1 customers, and our cumulative design wins increased to 141 as of the end of 2012, up from 124 at the end of 2011. Our design wins in 2012 spanned our range of product families and included multiple design wins for our 100 Gig products including our integrated coherent receiver, and 100 Gig CFP module. For clarity, for a customer, a single design win can have multiple individual product numbers over time. And given the long life cycles of our customers’ systems, a single design win for NeoPhotonics can provide us revenue for several years, in many cases 7 to 10 years. Our tunable laser product line has grown handsomely during the past year, as our narrow line width ITLA product gained market share in the market for Coherent 100 Gig and 40 Gig systems. We supplied narrow line width ITLAs to approximately 15 customers in 2012. We plan on introducing a new micro-ITLA narrow line width tunable laser which leverages our core PIC array laser technology. The product would be designed to provide enhanced performance in a smaller size and add…

Thank you. The question and answer session will be conducted electronically. (Operator Instructions). And our first question will come from Simon Leopold with Raymond James. Simon Leopold – Raymond James: Great, thank you. Just a couple of things. First, if you could just clarify, you went through the segment contributions and I caught the Access at 29%. I missed what you said the Agility was.

Speed and Agility was 60%, Simon. Access was 29% and so the remainder is what we would call other telecom. Simon Leopold – Raymond James: Great. And, then you talked about the effects on gross margins and Speed and Agility this quarter. I think JD said special causes. I wanted to make sure, I understood what that really meant, it sounded like you were suggesting maybe some of the issues were yield problems, but were you also talking about having to raise compensation for the staff, something that would be more sustainable as a headwind.

No, I wasn’t talking about competition or things like that. I was talking predominantly about two specific items, one is higher production costs, meaning yield loss and scrap, for one of our high-speed 100 Gig products. The product’s growing very rapidly. We’re excited about actually its trajectory, but in the manufacturing process as we ramped it we did experienced higher than forecast yield and scrap. So we’re working to mitigate that. The second is wafer fab utilization. Compared to our forecast entering the quarter a couple of our products that are produced in one of our fabs experienced lower than planned demand. As a result, we ended up selling more through inventory versus as a result of production in the quarter, and thus the cost of that fab was under absorbed and then hit the income statement. Simon Leopold – Raymond James: And where are you today in regards to remedying the problems you experienced in the fourth quarter that affected the gross margin?

We are in the middle of remedying these problems, but we still have a ways to go. I do expect there to be an impact to gross margin in the order of $2.5 million to $3.5 million in the first quarter as we make incremental progress compared to the $4.3 million, I estimated for the fourth quarter. And then finally in the second quarter I believe based on our road maps and our work that we’ve done that we will fully remediate the problem, but the expense in the second quarter should be somewhat mitigated but close to that $2.5 million to $3.5 million, I forecast for the first quarter. Simon Leopold – Raymond James: Thanks, that’s helpful. And you mentioned opening up a new factory, which I guess it should be a good sign about growth prospects. Could you talk a little bit about what that does in terms of cash flow on CapEx?

Sure, the CapEx related to the new factory is relatively modest. Just as a reminder, our CapEx budgets for our business are approximately 6% of total revenue and for 2013, our goal and objective is to be in line with that historic trend. And so, it’s on the order of single-digit million dollars. But it’s within the larger context of maintaining our budget target of 6% of revenue. Simon Leopold – Raymond James: Great. And then, I just wanted to end with more of a thematic question. There’s obviously been a lot of talk within that component market about silicon photonics and the integration of semiconductor manufacturing techniques and optical components. I generally thought about this as kind of your secret sauce in speed and agility. I wonder if you could maybe help put that discussion in context of what this trend means to NeoPhotonics.

Sure, Simon, this is Tim. The silicon photonics has certainly gathered a lot of attention. We would describe it as a type of a PIC platform; we do tend to refer to monolithic or hybrid PICs which we design, develop and produce in our - use that as a core technology. I would point out though that the PIC products that we make often incorporate essentially active elements as well as passive elements, so they can integrate for example indium phosphide based lasers and photo diodes into the device. Silicon on the other hand doesn’t [lays][ph], so it has a certain functionalities that it is – it is amenable to and some that it is not. It also is – it tends to be used in a very short distances due to optical loss. As a company, I think we produce a lot of our Waveguide-based devices on silicon substrates and ultimately have a broad capability that could complement this as an industry direction however today it’s really not the mainstay of where our product technologies are in – are growing, we do see a lot of interest on a technical level particularly in backplane, and short reach applications. Again, that’s not where most of our business is, but it is an area of long-term potential technical interest. Simon Leopold – Raymond James: Thank you.

(Operator Instruction) Next we’ll move to Tal Liani with Bank of America. Eric Ghernati – Bank of America: Hi, gentlemen. This is Eric Ghernati for Tal. A few clarifications. So did I hear you say correctly that you expect 8% to 10% organic growth in 2013?

That’s correct, 8% to 10% organic growth and that did not include the potential adders that would be the result of Lapis Semiconductor OCU as an acquisition. Eric Ghernati – Bank of America: Got it. And, JD your comments on the profitability, I guess lack thereof for the first half is that on an organic basis or on a combined basis?

That’s on an organic basis, just to try comparing with apples to apples, we’ll come out with combined data once we’re at that closing stage with OCU. Eric Ghernati – Bank of America: Got it. And just – similarly once again like when you talked about CapEx is 6% for 2013, was it on organic or combined basis?

That is on an organic basis, as well. Eric Ghernati – Bank of America: Got it, okay. So I guess my question is first of all on the pricing impacts, so first of all I thought I heard you say the impact on all the – the manufacturing issues was $4.7 million on COGS, but then again, you said $4.3 million, what’s the delta?

It’s not the pricing impact that’s for… Eric Ghernati – Bank of America: No, no, no. I know it’s – It’s the manufacturing issues.

Yes. Eric Ghernati – Bank of America: You said earlier it was $4.7 million impact on COGS of 700 bps, but then again, you said $4.3 million. But your answer prior question?

Sorry, no, it’s intended to be the same number. Eric Ghernati – Bank of America: Okay. $4.7 million. Okay. And so I guess if I look at, I’m trying because it does seem, if you strip out the $4.7 million from the gross margin line and then you look at your gross margin guidance for Q1 it does seem like the pricing does have sort of a negligible impact versus what’s at least, I was led to believe, can just explain like the effect on that pricing has on your Q1 guidance?

Sure. Well, as Tim talked a lot about, yeah, first, let me clarify, at least my comments, prepared remarks, do have $4.3 million and for the manufacturing costs, Eric. So I think that’s correct unless I misspoke orally but that’s $4.3 million. Eric Ghernati – Bank of America: Okay.

But in the context of pricing, we did say in our last call that ASP declines was on the greater end of our historic 10% to 15% per year range. And that – and that’s still true. Of course, we had the manufacturing costs which we just discussed that makes the whole process or the numbers more complicated, but when you exclude that, what you find is that we actually had a fairly favorable product mix in the quarter. And as Tim talked a lot about, we had a good continued growth even ex seasonality in 100 Gig products, in particular 40/100 Gig as a combined group grew nearly 300 or over 300% year-over-year. Our access business was also steady, and of course that has typically lower than average gross margins. And so with greater higher gross margin products relatively to the access business, it tends to also provide an uplift. So underneath all of the manufacturing costs, what you find is, I think some fairly healthy positive trends in high speed and higher gross margin products. So that I think actually explains the reason why you don’t see the full impact of the ASP declines in the fourth quarter. Finally, of course the ASP declines tend to go into effect at the end of the quarter. So that impact is not the full 15% of course or 10% to 15%. It’s only approximately one-third of that. Eric Ghernati – Bank of America: But even if I look at the Q1 guidance, and I add back the $3 million. It does seem like in on-apples-to-apples basis, you’re basically looking at a pricing impact shall we call it in the neighborhood of like 200 bps. And so, it doesn’t seem like it’s similar to the 10, the high end of the 10% to 15% range as you guys discussed. Is this all like just more favorable product mix that’s what the reason is?

It is a lot to do with the mix. Of course, we don’t negotiate every product in this period and not every product has the same pricing change, but we continue to believe that our high-speed and higher gross margin products will continue to grow over time. We also believe that they’ll become a larger percentage of the total. And so I think you will see a more muted effect in the first quarter compared to doing the straight math. Eric Ghernati – Bank of America: Okay. And how should we think about the catch-up for these costs in the second half. Like, are you going to recover like the whole $4.7 million plus $3 million plus $2 million or like how should we think about it?

Well, it’s our expectation that the manufacturing costs topic that we’ve been talking about will be eliminated by the end of the second quarter. So, we do not expect that to continue into the back half of the calendar year. Further, we have a whole host of cost reduction activities, as we do each year that are planned for the year. And that’s one of our main strategies to mitigate the ASP declines that occur in a more step function way at the beginning of the year. Those cost reduction plans require the better part of the year to implement up. So, we should and we do expect to see more of those positive impacts in the back half the year. And then finally, as we go into the middle part of the year, we would expect to be in the growth position relative to where we think the market is going as Tim talked about earlier in terms of its improving. We believe the fundamentals will improve, the CapEx will grow, plus it’s our seasonal high period. So, we would expect more absorption in our factories. Therefore more operating leverage and margin leverage when combined with increased cost reduction, we think will increase the gross margin. Eric Ghernati – Bank of America: Okay, thank you.

You’re welcome.

Next, we move to Brian Modoff with Deutsche Bank. Vijay Bhagavath – Deutsche Bank: Yeah, hi guys. This is Vijay Bhagavath calling on behalf of Brian. You can hear me, okay.

Hi, Vijay. Yeah, we can hear you, just fine. Thanks. Vijay Bhagavath – Deutsche Bank: Yeah, hi. So, yeah two questions. The first one is you obviously talked to a lot of your OEMs and customers in China. What’s your view of China service provider spending, you think it could improve heading into the back half, it could stay flattish. I mean, we’re hearing conflicting views on that?

Are you specifically referring to what are the China carrier CapEx plans for the year. Is that you are referring? Vijay Bhagavath – Deutsche Bank: Yeah, and know kind of any from your own discussions with customers and/or service providers. Do you get the sense service provider Telco CapEx spending in China would improve as we hear it…?

Yeah. Okay. Of course, as we’ve seen over multiple years and as JD mentioned briefly the timing of the Lunar New Year, the Chinese Spring Festival, as it were, it just ended. And so it is generally after this period of time that annual plans are announced and rolled out. And so that it is generally subsequent to this period that demand forecast are fully known. Now what we have seen is increasing forecasts from some of our customers and so that the forecast then are expectations that are in line with what they believe the CapEx plans will be of course, this year we also have the overlay of new government and how their new policies will affect in terms of infrastructure investments and growth. Generally speaking, we would expect to see the June quarter reasonably higher than the March quarter for that reason as plans rollout post Spring Festival, the lead times for products tend to have very limited effect in the first quarter, but a strong effect on the second quarter and then going into the third quarter as long ago as September, October of 2012 we heard discussions of the so-called Broadband China initiative, which we expect to continue to increase demand for access products and then we’ve seen increasing rates of deployment for high speed coherent 100 Gig networks as well. So both in the high-speed coherent 100 Gig as well as in the fiber to the home we expect the market drivers in the China telcos will be reasonably strong. Vijay Bhagavath – Deutsche Bank: And the second question is a little more conceptual which is you obviously have to do these down rounds of price negotiation every year. But then you have fixed costs, you’ve manufacturing costs. So any thoughts on rethinking the vertical business model because you obviously have to do price negotiation, but you can’t negotiate down your costs, your cost of running your fabs and whatever else in manufacturing?

Well, the reality of our business is that there are strong volume drivers in the business overall. We are seeing substantial increases in volume on a quarter-on-quarter and year-over-year basis. There are very strong increases in forecast for the high-speed and coherent products. And so we are over time actually working on cost reductions not just on a variable level, but also on a fixed level, we do serve the industry’s largest customers and the fact that we do operate many of our own manufacturing facilities we tend to be faster in our ability to ramp than average, more able to ramp quickly for a focused demand and our large OEM customers appreciate that capability. So ultimately, if we do have the internal capability with faster response. We do get the benefits of increases in demand with more business, more volume and then we’re able to spread our fixed cost over that larger volume and the result of that is really, every year for the last seven or eight years, we’ve grown our business in the range of 20% plus per year. And, we do that recognizing that ASPs will decline in that cost reduction, particularly cost reduction through technology advances and design benefits has to drive our ability to provide lower-cost solutions to customers, but it is a complex and a competitive business. But, that is not a trend that we anticipate is going to rapidly change. So I hope that addresses your question. Vijay Bhagavath – Deutsche Bank: Yeah, thanks, very helpful. And then final question is on the mix, you have roughly 60% exposed to speed and agility, little over 30% to access, do you see that percentage mix skewing towards speed and agility this year or it roughly remains to 60% - 30% split?

Well, we do see that generally continuing, what we did talk about is the fact that particularly, the high-speed products are going to continue to grow. The fact that they are continuing to grow, we’ve seen that quarter-over-quarter. I did mention 40/100 Gig products being 17% in the first quarter, 25% in the second. Now they are in the range of a third of our business for the year. We would expect that to continue to trend up actually. So generally speaking, we might see the trend on the 40/100 Gig continue upward towards 40% of our business and we might see the access business in the range of a quarter of our business. So that, I think the trends will continue. Vijay Bhagavath – Deutsche Bank: Very thanks, very helpful.

And there are no further questions at this time. I would like to turn the call back to over Mr. Jenks for additional or closing remarks.

Thank you very much to everyone for joining us today. Before we conclude, I would like to thank our shareholders for their time today and their continued interest in our company. I also want to thank our customers for their continued support, and our exceptional employees for their dedicated, diligent, and professional efforts. We look forward to our next update with you. Thank you very much.

And that will conclude today’s call. We thank you for your participation.