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Bit Parts: Following the Optical Money

Carolyn Mathas
News Analysis
Carolyn Mathas
5/13/2014
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It's earnings season -- and it's always M&A season -- so there's plenty of financial action among the optical components firms such as Avago, JDSU, and Oclaro, as well as general industry news, including developments in the UK.

  • Avago Technologies Pte. has completed the $6.6 billion all-cash acquisition of LSI Corp., a deal first announced in December 2013. Avago, which replaces LSI on the S&P 500, will announce its second-quarter financial results on Thursday May 29. The company's stock is currently trading at a near year-high of $69.13. (See Avago to Buy LSI for $6.6B.)

  • JDSU (Nasdaq: JDSU; Toronto: JDU) has been engaging in a bit of damage control following its disappointing earnings report, announcing that its laser unit booked record orders in the last financial quarter. Laser sales at $30.9 million were up by more than 17% year-on-year, with the company noting strong demand for its Gen 2 fiber laser and solid state lasers, while the company is positive about the future demand for the high-power lasers it added to the portfolio with the acquisition in January of Time-Bandwidth Products. But lasers only account for about 7% of the company's revenues, and sales in other parts of the business didn't match expectations. While there are hopes that JDSU's numbers will improve as the year goes on, the share price isn't reflecting any such anticipation, as it is languishing at just above $11.00, not far above the year low of $10.29. (See Capex Slowdown Slams JDSU.)

  • Oclaro Inc. (Nasdaq: OCLR) shares took a hammering last week, losing about 40% of their value to hit $1.46, after the company reported a fiscal third-quarter net loss of $22.9 million on revenues of $95.1 million. The loss looks weighty, but it was an improvement on the $40 million net loss reported a year earlier. In an investors' conference call, CEO Greg Dougherty, who took over in June 2013, admitted the company hasn't integrated its acquisitions well, or made hard product line decisions. The company's workforce has dropped from approximately 3,000 last June to about 1,400 now, but it plans on hiring some new staff to bolster its 100G product developments. The company also been investing in its indium phosphide (InP) facility in Caswell, UK, and introduced a new pilot production line so that it can ramp such new products as InP-based tunable laser assemblies even faster. Oclaro's stock is currently trading at $1.78. (See Oclaro Makes Changes at the Top.)

  • Finisar Corp. (Nasdaq: FNSR) has been attracting some interesting investment attention. On May 7 traders bought 12,414 put options on the stock, more than five times the daily average of 1,991. Buying a put option protects an investor's existing stock position or acts as insurance if an investor believes the price will drop. Analyst firms have varying opinions on the stock: RBC Capital upgraded the shares from a "sector perform" to "outperform" in late March, while ACI Research downgraded shares to a "sell" rating three weeks earlier. While analyst opinions being varied is nothing really new, the put volume is… Finisar's share price currently stands at $23.06.

  • A new National Dark Fibre Infrastructure Service (NDFIS) funded to the tune of £2.5 million ($4.2 million) by the Engineering and Physical Research Council (EPSRC) will enable a consortium of UK universities to access a dark fiber network via dedicated optical connections. Expectations are that research experiments can more easily take place in such areas as high-order optical modulation or quantum communication. A five-year contract for NDFIS was awarded to a consortium including University College London, and the Universities of Southampton, Cambridge and Bristol. The resulting SDN network, named Aurora2, will also be open to industry partners to test architectures, new communications methods, and new components.

  • UK-based Fibercore Ltd. just unveiled what it claims to be a unique fabrication capability for multicore optical fibers, allowing for virtually any practical configuration, spacing and number of cores. Data cables for data center and exchange use, for example, are traditionally space guzzlers. With Fibercore's method, the cross sectional cable area can be reduced in size by having eight cores within one fiber, replacing an eight-fiber ribbon to a single fiber cable. Alternatively, eight fibers can be replaced by eight multicore fibers, increasing cable bandwidth by a factor of eight. (See Fibercore Boasts Multicore Fiber Capabilities.)

  • SDN startup Viptela snuck out of stealth mode, touting a new architecture that the company claims can change the way enterprises deploy and manage their WANs. The company, which closed $33 million in funding from Sequoia Capital in December, has unveiled its Secure Extensible Network (SEN) software-based solution, which integrates routing, security and segmentation in a single solution that, according to Viptela, addresses the shift from client-and-server-based traffic to the new traffic patterns taking shape due to the use of cloud computing.

  • Optical equipment vendor Coriant has opened a North American facility, based in Coppell, Texas. The "state-of-the-art customer service, logistics and customer solutions engineering center" is just up the road from outposts of the Verizon Communications Inc. (NYSE: VZ), AT&T Inc. (NYSE: T), and XO Communications Inc. empires. That's handy! (See Coriant Launches Dynamic Optical Cloud.)

    — Carolyn Mathas, contributing editor, special to Light Reading

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    Liz Greenberg
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    Liz Greenberg,
    User Rank: Light Sabre
    5/14/2014 | 9:28:09 PM
    Re: Light at the end of the tunnel?
    The normal for transmission companies...or at least those that make the parts having to go with the normal we need more capacity or wait we have too much etc etc.  Rollercoasters have nothing on this segment of the industry.
    Ray@LR
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    Ray@LR,
    User Rank: Blogger
    5/13/2014 | 1:53:32 PM
    Re: Light at the end of the tunnel?
    Swings and roundabouts -- I look forward to running the reports from other quarters this year whene they're all doing well and the stocks are going gangbusters.

    As the analysts say, it can be a bit 'lumpy'... ("Can I get some color on your lumpiness...")
    Liz Greenberg
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    Liz Greenberg,
    User Rank: Light Sabre
    5/13/2014 | 1:13:55 PM
    Light at the end of the tunnel?
    It is always surprising when the optical companies earnings aren't so hot given where the demand should be.  Given all of the growth worldwide in 4G, LTE, 5G, etc.  optical transport is just going to have to keep growing, so it is probably the old timing issue...who is looking to buy what when, what orders have already been booked, etc.  I would think that overall the light should be laser sharp and multicolored at the end of this tunnel.
    DOShea
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    DOShea,
    User Rank: Blogger
    5/13/2014 | 12:26:17 PM
    Finisar
    Interesting about Finisar--seemed like things had been going gangbusters for that company the last year or so, with 100G deployments and other activity surging.
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