Strong demand still hasn't translated to revenues as Avanex continues its transition to Asian manufacturing

Craig Matsumoto, Editor-in-Chief, Light Reading

February 8, 2006

3 Min Read
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

About the Author(s)

Craig Matsumoto

Editor-in-Chief, Light Reading

Yes, THAT Craig Matsumoto – who used to be at Light Reading from 2002 until 2013 and then went away and did other stuff and now HE'S BACK! As Editor-in-Chief. Go Craig!!

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