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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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orourke6 12/5/2012 | 4:06:35 AM
re: Avanex Trudges Along After the bubble burst Avanex swallowed whole 3 optics co's each larger than itself with all of Corning's optical patents while maintaining a steady revenue stream.
They have an enviable relationship with the powerful Alcatel (a 70% commitment for optical components until 2007) including Alcatel Shanghia-Bell, the largest & most successful western co operating in China.
They have a proprietary patented solution for dispersion compensation, the key enabler in the transition to faster networks and have a quality customer list second to none.
They are a leading player in the optical submarine market.
Their CEO, Jo Major, has been with Avanex only 18 months & from day one has been focused on eliminating the co's substantial cash burn while re-positioning Avanex in a low-cost contract manufacturing environment & both objectives are just now being completed. Name another CEO who has done as well in that time frame.
He did this at the expense of the stock price which means that those among us who have the balls to buy low have a great opportunity to make some money. Maybe!
If you are willing to bet in this space you would do well to put your money on the bandleader.
deauxfaux 12/5/2012 | 4:06:33 AM
re: Avanex Trudges Along 1) After getting all of the money from the IPO, why would AVNX need to swallow 3 optics companies?

Answer: Despite the wildly successful IPO, AVNX was not a successful, profitable business.

2) Why would any company buy a cash sucking, unprofitable business with NO commercial customers of size other than the "mother ship?"

Answer: AVNX had to guarantee the business to get rid of the brick around their necks

3) Everyone has a proprietary dispersion compensation technology: JDSU, BKHM, etc. etc.

4) The submarine market is nascent at best

5) Jo is a nice guy, but the company is still unprofitable and losing lots of cash. Everyone is going to China; big deal.

It sounds like you really don't know what you are talking about. Are you a refugee from the yahoo message boards?



orourke6 12/5/2012 | 4:06:31 AM
re: Avanex Trudges Along 1- Why would AVNX need to swallow 3 optics companies?

To add customers and products to portfolio - standard stuff.

2- Why would any company buy a cash sucking, unprofitable business with No customers other than the "mother ship?"

Because the "mother ship" is Alcatel. Nuff said or should I draw pictures.

3- Everyone has a proprietary dispersion compensation technology.

True. But some are better than others and AVNX sells considerably more than their fair share.

4- The submarine market is nascent at best.

All of optical is nascent.

5- Jo is a nice guy but the company is still unprofitable. Everyone is going to China. Big deal.

In addition to being a nice guy, Jo may also be a nascent turn-around artist.
JDSU's great strength during the bubble was the depth & breadth of its manufacturing empire. Post-bubble nobody was buying what they were selling even at suicidal below cost prices. Now they are schlepping around China like everybody else. It's called a level playing field.
JDSU's advantage is the size of their wallet. AVNX's advantage is the "mother ship." Bookham has gambled that the money they have spent building an enormous mfg facility in China has not been in vain. Bookham's problem IMHO is in buying Nortel's optical they bought the largest Sonet equipment supplier in the world. Sonet is history and Nortel has gone wireless.
Right before AVNX bought the 3 optic co's they had a little over 100M in cash. After buying the co's, they suffered through the optical nuclear winter like everybody else burning cash along the way, paid through the nose to close the French plant because of the French labor laws, re-structured & re-focused as a contract manufacturer in China and Taiwan, have manageable debt, and still have about 48M in cash.
Have a nice day!




UberNeoCon 12/5/2012 | 4:06:30 AM
re: Avanex Trudges Along ROTFLMAO....I needed a laugh; thanks. You've got to be an employee, or someone that drank a gallon of AVNX Kool-Aid.

As for "drawing pictures," knock yourself out. I love comedy

Steve0616 12/5/2012 | 4:06:30 AM
re: Avanex Trudges Along If BKHM's on the slippery slopes of sonet, that only means AVNX will still have to slug it out head to head with JDSU's big wallet.

Anyway you slice it, it looks like Avanex will need a big cash infusion somewhere in the near future.
Vent 12/5/2012 | 4:06:29 AM
re: Avanex Trudges Along Craig
One good reason for an advantage if one or other goes is the Fab.
the avanex fab is not closed only reduced in size and capacity, Bookham has consolidated the operations of it's fab at Caswell. Fabs cost,
and as more or less opto fabs are yet to get of the ground you can't outsource. Combining fabs would save money Lots. In fact this was bookhams plan they were also on the game for Alcatel optronics and were only just pipped (the french worried about job losses, funny with hindsight)
If you can get enough volume to get the fab producing at a sensible level this does make sense, the rest of the packaging can be outsourced.
Now if one of the new startups can make a succesful buisiness using a fab abd packaging outsourced model that might be interesting.
oh and my fault with Arnania is that he didn't shut the dead ducks quickly enough
(i.e ASOC, Marconi GaAs if something is not going to be profitable ....)
O and don't expect any of the opto companies to make much money sonn (next 4 years) there are still too many players, too many start ups etc keeping prices low

Venting
palogrande 12/5/2012 | 4:06:22 AM
re: Avanex Trudges Along Ultra low fab cost & hybrid research. Very bold.
Will outperform peer group if demmand flourishes.
Will it??????????????
Vent 12/5/2012 | 4:06:17 AM
re: Avanex Trudges Along Palogrande
Care to elaborate
How does avanex have ultra low fab cost with the
fab plant in France
and what does hybrid research mean

Vent
palogrande 12/5/2012 | 4:06:14 AM
re: Avanex Trudges Along Avanex has moved all of its manufacturing operations to Asia (China & Thailand). It has done so using an outsourcing model to keep mnfg. costs very low.They will be very competitive.
Restructuring efforts call for this quarter to have the biggest savings from the transition strategy. Next quarter thet-¦ll have additional operational savings in the order of $5MM.

Here is the link to the Co.-¦s IR Dec.2005 presentation.

http://media.corporate-ir.net/...

With respect to research, the Co. is using a hybrid model. It started an engineering office in Shangai to support Asian sales. It uses Chinese engineering talent to develop and design several solutions to its clients while at the same time it keeps research centers in Italy, France and the USA to develop and research new product lines.

flying4s 12/5/2012 | 4:06:07 AM
re: Avanex Trudges Along Its an interesting concept. Ship all the mfg overseas, let go all your mfg staff, keep engineering and R&D at home and save money. Minor stumbling point, 5% of getting an optical component successfully to market is having a great technical idea, but 95% of the work is learning how to mfg it.

Unlike the fabless models in other technologies, building components remains more an art then a science. There are also no good tools to use sitting back at home designing new concepts, and then simply shipping these ideas overseas for building, like those for chips, or pcb implementations. Its still smart people, excel spreadsheets, and lots and lots of lab time.

Can you drive down your mfg costs by going overseas, particularily since they are mainly manual labor costs? Sure, but unlike other technologies where the paper design is key, in optical components the mfg process is the key. Take mfg away from engineering and R&D and soon your "minor start-up issues" become unsolvable long distance headaches, engineering on airplanes, and impossibly detached mfg processes.

Finally in fiberoptics there never has been enough volume to support this fabless model except for a small group of select components. Hardly enough to justify splitting Engineering from Mfg.

Its a very PC idea, outsourcing. But the realities will hit over time, as the companies struggle to create manufacturing controls at a distance that they could not create when it mfg was located just down the hall.

I truly wish them well, because the longer it takes to learn how to build these products simply, reliably, consistently, the less likely the technology will be considered worth the risk by the end customer.

Best guess, kiss US participation good bye as we move engineering and R&D overseas as well in an attempt to once again get the technical folks down the hall from the mfg plant.

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