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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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Pete Baldwin 12/5/2012 | 4:05:58 AM
re: Avanex Trudges Along palogrande:
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.

Sure, but hasn't everyone else done the same thing? What makes you think (as you said in a separate post) Avanex can outperform its peers?
orourke6 12/5/2012 | 4:05:57 AM
re: Avanex Trudges Along Jo Major, Avnx CEO, is not a lawyer or accountant. He knows the production end of the business from the ground up.
Listen to last weeks CC at their website. He doesn't sound like a guy sitting in the dark somewhere forming committees that will identify problems in a language he can understand and formulate options for his perusal.
He has put together a specific game plan that will take him where he wants to go and seems to have the ability to make decisions on the fly to get the product out the door.
Management counts.
whyiswhy 12/5/2012 | 4:05:56 AM
re: Avanex Trudges Along "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!"

You have a nice day too, Jo. It's hardly a level playing field when the competition has all the cash on their side of the field.

http://users.belgacom.net/harm...

Playing?

-Why
palogrande 12/5/2012 | 4:05:34 AM
re: Avanex Trudges Along Craig,

The main difference I see is related to FNSR and BKHM. JDSU has opted for the same model. The other two own the manufacturing. From a PNL point of view Avnx is more leveraged. After they-¦re done with the transition their Gross Margins should be in excess of 30+%.Any pickup in demmand will translate in bigger bottom line.
The key, like some else here said, will be in controlling the mnfg. from a distance. They have already scored some big design and mnfg. wins out of their Asian Ops.
I-¦m confident Jo will pull this through.
oemarket_com 12/5/2012 | 4:05:33 AM
re: Avanex Trudges Along Are there major technology advantages in Avanex's core products? How long can they maintain such advantage? Without it, they can only compete on prices, which is very hard for their current shape.
orourke6 12/5/2012 | 4:05:25 AM
re: Avanex Trudges Along IMHO there is a misconception that component prices were beaten down by excessive competition among too many component companies even though the number of companies has been reduced dramatically.
The reality is that the surviving purchasers of components refused to buy knowing they could not build and maintain next generation networks paying bubble component prices and make money.
This situation is not going away which means the component companies have had to find a way to prosper as low-cost producers to survive long-term.
That's happening now and it remains to be seen which strategy will work best. It's also true that business is not always a sum-zero game where one company dominates and everybody else withers away.
lite-brite 12/5/2012 | 4:05:24 AM
re: Avanex Trudges Along "IMHO there is a misconception that component prices were beaten down by excessive competition among too many component companies even though the number of companies has been reduced dramatically. "

sounds like a Cisco components buyer!!!
oemarket_com 12/5/2012 | 4:05:23 AM
re: Avanex Trudges Along "The reality is that the surviving purchasers of components refused to buy knowing they could not build and maintain next generation networks paying bubble component prices and make money."

True. Maybe component companies will be the last one to benefit from a recovering telecommunication industry, if there is one major recovery.
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