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Finisar Finishes Even

Light Reading
News Analysis
Light Reading
5/31/2001

Playing par for the course, Finisar Corp. (Nasdaq: FNSR) reported break-even pro forma earnings on revenue of $52 million for its fourth quarter ending April 30. That’s in line with its April 16 guidance when the optical subsystems and test equipment maker cut earnings expectations to a range of break-even to a penny a share and revised revenue estimates to $50 million to $55 million.

The earnings are down 2 cents a share from the year-ago period, while revenue jumped 153 percent from $21 million. The pro forma earnings exclude merger costs, amortization of deferred stock compensation, and a one-time gain from the sale of its Opticity product line (see ONI Systems Touts Access Box). Finisar’s actual net loss for the quarter was $42 million, or 25 cents a share, as opposed to earnings of $1.7 million, or a penny a share, a year ago.

For the 2001 fiscal year, Finisar suffered a net loss of $85 million, or 53 cents per share, vs. a $2.9 million profit, or 2 cents a share, in 2000. Revenue for 2001 was $189 million, up 181 percent over $67 million in 2000.

In a conference call after the market closed Thursday, Finisar guided analysts to $250 million to $300 million for the 2002 fiscal year ending next April 30. That’s down from the company’s April downward guidance of $275 million to $325 million. These revised expectations still represent an increase of 46 percent over 2001. Officials expect 2002 gross margins of around 40 percent, dipping from last year's 41 percent.

Analyst Matt Bryson of Avian Research expects Finisar’s growth in metro optical components, which currently account for about 25 percent of revenue, to exceed growth in the storage area. He points out that key storage customer Brocade Communications Systems Inc. (Nasdaq: BRCD) bought more components than it needed last year due to unrealistically high growth expectations. Brocade was Finisar’s biggest customer for the quarter, accounting for 16 percent of revenue. Bryson rates Finisar a long-term “buy.”

Analyst Mark Langley of Epoch Partners says that despite the market downturn, Finisar has been executing well, has good off-shore manufacturing capabilities, and has an attractive acquisition strategy on which it will peg much of its growth. In just over a year, Finisar has made five acquisitions. “People are looking at Finisar as a roll-up company,” says Langley.

Although analysts trimmed their financial projections for the year, some have raised their buy/sell ratings on the stock due to its sagging price. The First Call consensus of 10 analysts gives Finisar an average rating of 1.7. (A No. 1 rating is a “strong buy” and a No. 2 rating is a “buy.”)

Investors who bought Finisar shares on April 6 -- within two weeks of the earnings warning -- picked up Finisar for $6.75 a share, compared with $14.80 a share Thursday in aftermarket trading on Island. Finisar now trades at just over 10 times sales for the current year. And, like its industry brethren, its shares are at less than a third of their 52-week high.

- Tom Davey, special to Light Reading
http://www.lightreading.com

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