Optical components

Finisar Flops, CEO Exits, Stock Tanks

Finisar's CEO Eitan Gertel quit late Thursday following disappointing fiscal first-quarter financials and a weak second-quarter outlook that shaved more than 14% from the optical component specialist's share price.

Finisar Corp. (Nasdaq: FNSR) said it has accepted the resignation of CEO Eitan Gertel and will redeploy executive chairman Jerry Rawls back into the CEO slot he filled for several years before Gertel took over in the wake of the Finisar-Optium merger in 2008. (See Eitan Gertel, CEO, Finisar.)

For the quarter, Finisar reported revenue of roughly $314 million, about $4 million to $5 million below consensus analyst estimates. The company also missed EPS projections, reporting $0.23 per share, compared to the $0.26 consensus estimate.

In addition, Finisar's fiscal second-quarter guidance was below what analysts were expecting, including an outlook for revenue in the range of $304 million to $324 million instead of the $328 million figure Wall Street had expected.

At the time of the Finisar-Optium merger, the deal was seen as a harbinger of a huge wave of impending optical components sector consolidation that never happened, with further M&A deals occurring at snail's pace. That consolidation is needed more than ever, as web giants such as Facebook and Google (Nasdaq: GOOG) have emerged as new buyers of components at high volume, increasing price pressure on the sector. Facebook has gone on the record saying it would like to see more consolidation in the market, and Google has taken the step of investing in an components maker itself: It bought a piece of InnoLight last year, which some analysts have seen as a move that would lessen Google's reliance on other suppliers, including Finisar. (See Facebook Wants to See Optical Sector M&A and Bit Parts: Google Invests in Chinese Transceiver Firm.)

There also has been concern about Finisar's general future, as some equipment makers, including major Finisar customer Cisco Systems Inc. (Nasdaq: CSCO), have started to pursue some component development in-house. The fast emergence of silicon photonics is an overall factor in all of these trends, and it's a market evolution that Finisar discounted early on, though within the past year the company has become more aggressive. (See Can Silicon Photonics Add Spark to Hardware?)

Want to know more about optical components? Check out our dedicated optical components content channel right here on Light Reading.

Finsar, which claims to be the world's largest supplier of optical communications products, has been an acquirer in recent years, and strong quarterly revenue postings last year and into this year bolstered its image as a company with great growth prospects. During the past year it has been seen as a potential acquirer of Lumentum Holdings Inc. , the new optical components firm that was just spun off from JDSU.

However, Lumentum recently suggested it might be hunter instead of hunted, and with its latest disappointments, one has to wonder if Finisar is starting to look more like prey. (See Lumentum Looks to Be a Buyer.)

For whom? There was quite a bit of speculation during 2014 that Cisco could acquire Finisar as part of its efforts to build up components expertise and assets. At that point, Finisar's stock price was around $28 per share, and would have commanded a massive bid from Cisco: On Thursday, Finisar's share price closed at $14.91 and in after-hours trading it plummeted by 14.8% to $12.70.

— Dan O'Shea, Managing Editor, Light Reading

COMMENTS Add Comment
chuckj 9/13/2015 | 9:53:38 AM
Good company Chinese competition in this area is killing everyone. The fact that they actually made money in this environment is commendable.
Phil_Britt 9/11/2015 | 10:30:02 PM
Re: Missed opportunity Finisar may be finished, but if stock price continues to drop, it could be a better candidate for a buyout. But some companies -- think BlackBerry -- have held on long after many thought they would be gone.
mendyk 9/11/2015 | 3:58:03 PM
Re: Missed opportunity Not really a barrel of laughs -- more like a 12-oz. glass. But always half full.
DOShea 9/11/2015 | 3:27:19 PM
Re: Missed opportunity Those Heavy Reading guys are a barrel of laughs--who knew?

A couple further footnotes from earnings: Finisar did say a a makor telecom customer had slowed a deployment, pushing it into next year. Is it the same big customer that helped Ciena to a revenue miss last quarter? Rawls was not clear on that...

Also, telecom revenues actually were up for Finisar. Datacomm was down, and because it represents about 75% of Finisar's revenue, took Finisar down with it.

Optical equipment and component maker stocks all dropped sharply today.
Mitch Wagner 9/11/2015 | 11:53:01 AM
Re: Missed opportunity Is Finisar Finished?
mendyk 9/11/2015 | 10:18:56 AM
Re: Missed opportunity Finisar Spanx CEO, Component Maker Goes Girtel-Free -- the possibilities are unfortunately endless.
Sterling Perrin 9/11/2015 | 9:59:11 AM
Re: Missed opportunity With Sub-head: Board says Gertel not the right fit for Finisar
mendyk 9/11/2015 | 9:37:09 AM
Missed opportunity Note to copy desk: Gertel Squeezed Out.
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