New Focus Slows Down

In midday trading, shares of New Focus Inc. (Nasdaq: NUFO) were down 2.56, or 12.1 percent, to 18.69 after the company pre-announced a shortfall for first-quarter 2001 results.

After the market closed Monday, New Focus cut its revenue outlook for fiscal 2001 and confirmed that first-quarter revenues would fall short of previous guidance. Company officials cited order push-outs and cancellations caused by a slowing U.S. economy, as well as a slowdown in the telecom sector.

The company now expects fiscal 2001 revenue to be in a range of $170 million to $190 million, as compared to previous guidance of $240 million. Prior to yesterday’s warning, analysts had been expecting revenues of $228 million for the year. New Focus now expects first-quarter sales to be between $38 million and $41 million, which contrasts with the consensus estimate of $46.9 million. The company also said it will scale back production in the U.S. and China in an effort to lower expenses. In all, management expects to lay off about 70 U.S.-based personnel and roughly 260 employees in China.

In a research note issued Tuesday morning, Credit Suisse First Boston analyst James Parmelee wrote, “Though New Focus is scaling back production in the U.S. and China, as well as expenses, lower sales levels push estimated profitability on an operating basis from Q3:01 to H1:02.” Parmelee also believes that pricing for passive components continues to trend down, but not at a rate that will materially impact gross profit margins. The analyst reduced his estimates for the first quarter and full-year to reflect management’s lowered guidance. Parmelee also lowered his 12-month price target to $38 from $65, and maintained a Buy rating based upon a favorable relative valuation and a positive longer-term demand environment.

Other analysts followed with negative reactions to the pre-announcement. Epoch Partners analyst Mark Langley lowered his rating on New Focus shares to “Action Call Negative” from “Action Call Positive.” In a research note issued on Tuesday, Langley comments that “based on the revised outlook, we are reducing our 1Q01 revenue estimate to $38.4 million from $46.5 million, our 2Q01 revenue estimate to $37.8 million from $55.3 million, and our full-year 2001 revenue estimate to $177.3 million from $243.7 million.”

Langely also reduced his 1Q01 earnings per share estimate to a loss of 3 cents a share from a profit of 2 cents a share. In the second quarter, Langley now forecasts a loss of 5 cents a share, down from a previous estimate of a 4-cent profit. For 2001, the author concludes, “We have also reduced our full-year EPS estimate to reflect a loss of $0.07 from a profit of $0.23.”

-- Christopher P. Bulkey, special to Light Reading http://www.lightreading.com