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Optical components

Avanex Trudges Along

Avanex Corp. (Nasdaq: AVNX) reported a down quarter today, as expected, while the company continues to wrestle with moving its manufacturing to Asia.

For its second quarter, ended Dec. 31, Avanex reported a net loss of $13.4 million, or 9 cents per share, on revenues of $36.1 million, compared with a net loss of $16.9 million, or 12 cents per share, on revenues of $41.2 million in the previous quarter.

For its second quarter a year ago, Avanex reported a net loss of $24.4 million, or 17 cents per share, on revenues of $41.9 million.

Last month, Avanex had braced investors for a weak quarter, citing problems in transferring some work to a contract manufacturer. Investors didn't take kindly to being braced. (See Avanex Gets Slapped.)

Still, Avanex managed some good news, as its non-GAAP loss of 6 cents per share was better than the 10 cents per share forecasted by analysts, according to Reuters Research . Its revenues slightly outpaced the analysts' forecast of $35.9 million.

With optical components showing signs of recovery, Avanex and Bookham Inc. (Nasdaq: BKHM; London: BHM) continue to hit stumbling blocks. Bookham's earnings call earlier this month included a tepid forecast for the March quarter, pummeling its share price. It was particularly brutal for those who'd jumped into Bookham stock on a rave from CNBC stock guru Jim Cramer the prior evening. (See Bookham Basks in 'Cramer Effect'.)

Avanex and Bookham have been struggling to cast off the overdevelopment of the dotcom bubble, as both inherited large components groups from other companies. (See Avanex to Buy Alcatel, Corning Units and Bookham EGM Approves 'Combination'.) In Avanex's case, that's led to flat revenues even as executives say that demand is increasing.

"We are in the unfortunate situation of really changing our cost structure quickly at the same time as our market is growing," Major told analysts on a conference call today.

Avanex shed one fourth of its 585 North American and European employees during the second quarter, Major said. The company, like Bookham and JDSU (Nasdaq: JDSU; Toronto: JDU), is moving some operations to Asia in hopes of lowering costs. Avanex also renegotiated its contract with primary customer Alcatel, a move similar to Bookham's maneuvers with its top customer, Nortel. (See Avanex Does a French Trim and Bookham, Avanex Shore Up.)

All told, Avanex employed 605 as of Dec. 31, with 157 of those in Asia, Major said on the conference call.

Still, signs indicate the market is coming back. JDSU offered some hope in its recent earnings call, saying its optical business grew 8 percent from the prior quarter's figures. (See JDSU Inches Toward Profits.)

Avanex's weak position has created headaches beyond the obvious. For example, two bondholders sent Avanex notices of default last year, citing language in Avanex's SEC filings; Avanex resolved the issue, paying out $4 million last quarter to do so. (See More Trouble for Avanex.)

For its next quarter, Avanex expects revenues to be between $36 million and $40 million; analysts were predicting $39.8 million.

Avanex stock was down 2 cents (1.8%) to $1.12 in early after-hours trading.

— Craig Matsumoto, Senior Editor, Light Reading

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DZED 12/5/2012 | 4:06:50 AM
re: Avanex Trudges Along Bookham did not inherit anything, they went out and BOUGHT the component groups of Marconi and Nortel.

Anania's inspired four pronged strategy, acquire - demoralise - decimate - close, does not seem likely to succeed however.
whyiswhy 12/5/2012 | 4:06:50 AM
re: Avanex Trudges Along Jo,

OK, gross margins in the second quarter were 7 percent, 2 percent better. At 2% per quarter, and needing to get to say 30% to have a net to report, that means at least 10 more quarters.

I don't see how the cash can last my friend.

Still in all, good luck.

-Why
deauxfaux 12/5/2012 | 4:06:49 AM
re: Avanex Trudges Along Avanex and BKHM were twins seperated at birth. Neither was ever profitable, both used money obtained in the public markets to buy failing businesses (Alcatel's, Nortel's and Marconi's) because they never did anything useful as startups.

They do share a core competency: entropy production
Pete Baldwin 12/5/2012 | 4:06:47 AM
re: Avanex Trudges Along Still not a lot of love for these two, eh? :) At least they made it this far -- I talked to one investment type a year ago who didn't think both companies would make it to 2006.

Is there any recipe to keep both alive after this year, or do y'all think it's hopeless? Would the elimination of one help the other?
optigong 12/5/2012 | 4:06:44 AM
re: Avanex Trudges Along Craig,

Not sure if the death of one would benefit the survivor, both companies challenges reside in execution. Put Chinese management and both companies will become profitable quickly.
Mr Anania is a gifted salesman but when it comes to fixing a troubled optics company ....
DZED 12/5/2012 | 4:06:42 AM
re: Avanex Trudges Along "Mr Anania is a gifted salesman but when it comes to fixing a troubled optics company ...."

Come again?

Bookham is a troubled optics company BECAUSE Anania is running it. He 'fixed' it in the first place.

Anania has made the most disastrous series of decisions in terms of strategy, and every basic mistake in any management textbook in running the company he assembled.

Clearly if two companies are in direct competition it will be advantageous for one if the other fails.

Who will it be?
Pete Baldwin 12/5/2012 | 4:06:40 AM
re: Avanex Trudges Along Clearly if two companies are in direct competition it will be advantageous for one if the other fails.

Well sure, but my question is whether it will be advantageous *enough*.

There seems to be an optics oversupply for the moment, and the sudden disappearance of Avanex or Bookham would certainly help with pricing pressures et.al.

But if Avanex went away, would that be enough to nudge Bookham into stability, or vice versa?

Maybe the winners in optics will be the companies currently private, or even newer ones that can operate on a fabless model.
deauxfaux 12/5/2012 | 4:06:39 AM
re: Avanex Trudges Along Lets say that AVNX went away

To simplify the discussion a bit, lets assume for a second that all of the SG&A is completely fungible between the two companies and that substantial functional exists. Obviously, any revenue increase through consolidation would help.R&D could certainly be consolidated to some degree over a period of a year or two.

If there is overlap between customers things get a little dicier. There is no way that a major customer that is buying from both suppliers is going to put all of the business into the hands of one manufacturer. If two companies to consolidate at a major customer, the customer will REDUCE their exposure to the combined entity.

Furthermore, if there is no overlap there is a strong probabilty that the parts are custom or at least a little different. This is the real problem. Without real operating leverage in the manufacturing area, you can't move the gross margin number at all, ensuring poor financial performance.

A merger between the two companies might be great for entertainment value, but that is about it.
o-man 12/5/2012 | 4:06:39 AM
re: Avanex Trudges Along Clearly if two companies are in direct competition it will be advantageous for one if the other fails.

ARE we all positive that revenue equal positve cash flow???? Come on now a first grader can tell you what happens if you put too much water is a broken sive...
Pete Baldwin 12/5/2012 | 4:06:38 AM
re: Avanex Trudges Along A merger between the two companies might be great for entertainment value, but that is about it.

Yes.

Likewise, i think most folks believe JDSU has zero interest in acquiring either one -- there's just no reason.
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