nLight outlook hit by Chinese optics squeeze

nLight’s stock price has dropped in value significantly after the company’s management team warned that sales in the current quarter ending September would be hit by a new supply issue impacting optical components sourced from China.

Updating investors on the latest developments during a conference call last week, CEO Scott Keeney from the fiber and high-energy laser manufacturer said that around $17 million in sales revenues the firm had previously expected to report in the current quarter would be pushed back.

It means that September quarter sales will now be somewhere between $63 million and $73 million - down from the record-breaking figure of $82.6 million nLight had just posted for the June quarter.

“Q2 was a record quarter, and we've got very strong demand across the board,” the CEO told investors. “And we would have guided higher had it not been for the supply chain challenges that we're seeing.

“Those challenges come from what appears to be China increasing scrutiny on dual-use products for defense technology products.”

The particular commodity in questions is optics, Keeney confirmed, adding that the supply squeeze did not relate to specialized components.

De-risking China

nLight CFO Joe Corso added: “We are currently experiencing challenges in getting some parts and materials from certain Chinese suppliers.

“While these materials do not represent a large portion of the overall bill of material of our products, delays in sourcing these materials, which primarily affect our commercial products, will not allow us to fully satisfy our customer demand in the third quarter.”

Corso said that the issue was a new one, having cropped up over the past few weeks, and although the majority of the impact would be on commercial products used in materials processing applications, there would also be some knock-on effect on lasers being built for the defense sector.

“We have been de-risking China for some time now,” pointed out Keeney. “We've shifted our focus to markets outside of China. We've moved our manufacturing out of China. But it does take time on the supply chain side to requalify, redesign some of these complex lasers.

“We're evaluating and qualifying new partners. The majority of our defense supply chain is domestic. But we do use some of our own commercial items, which do have exposure to some of these Chinese components that go into our defense products.”

Last-time buys

That supply issue took the shine off of an otherwise upbeat report of nLight’s recent activities, which has included selection on a major new US military effort to develop a laser weapon for cruise missile defense.

The Joint Laser Weapon System (JLWS) project is expected to realize 150 kilowatt prototypes initially, before scaling up to as much as 500 kilowatt output for field use. nLight has won an initial award worth $44 million, but that total could ultimately rise to around $600 million if all follow-up options are exercised.

The ongoing shift in emphasis of nLight’s business was evident in the latest set of accounts, which showed that aerospace and defense applications accounted for $57.3 million sales in the June quarter, up 41 per cent on the same period last year.

The remaining $25.3 million of June quarter sales were attributed to industrial and microfabrication applications, up 20 per cent year-on-year thanks in part to demand for sales associated with last-time buys of cutting and welding lasers, markets that the company has decided to exit.

Despite the record-breaking sales figure nLight still posted an operating loss of $3.6 million, although after adjusting for stock-based compensation the company delivered an earnings before interest, tax, depreciation, and amortization (EBITDA) figure of $10.7 million.

• Following the August 6 update nLight’s Nasdaq-listed stock price dropped in value by around 15 per cent the following day, and has continued that downward trend since. In early trading on August 11 the stock price stood at just over $51, down from $74 shortly before the earnings announcement.