OCPI Bomb Confounds the Experts
Case in point: Optical Communication Products Inc. (OCPI) (Nasdaq: OCPI), a key components player in the promising metro market, stunned analysts during a Tuesday earnings call when it announced paltry revenue guidance of $7 to $9 million for the December quarter, about half of what Wall Street was expecting. The disclosure peeled 22 percent off the company’s stock price Wednesday. And in the last couple of days, analysts have scrambled to revise their projections downward.
Although it has been public for only a year, Optical Communications is no fly-by-night startup. The 10-year-old company has been profitable every year, and revenues topped $100 million the last two years in a row. The customers who buy its transmitters, receivers, transceivers, and transponders are a “Who's Who” list of networking companies.
Most of the eight analysts who follow the stock expected at least $14 million revenues for the fiscal first quarter, which closes in December. They believed sales had fallen to a trough and had at least stabilized. But OCPI's new guidance sent them back to their calculators, where several pounded out new projections through 2003 that bear little resemblance to each other.
“Almost everyone was modeling flat revenue of around $15 million going forward,” says Shawn Slayton, an analyst with Ferris Baker Watts, noting that a surprise was not out of the question. “The company has never said we see a bottom.”
Slayton, who just two days ago projected $15 million for the quarter, is now going with $7 million. He has penciled in 2 cents per share earnings on flat revenue of $31 million for the 2002 year, insisting that anyone’s revenue expectations are still questionable. He’s not ready to even consider projections beyond 2002.
He still likes OCPI's strong cash position and its ability to quickly control expenses. Although he rates the stock a Long-Term Accumulate, Slayton feels uncertain about when revenue growth will resume, because the components vendor is at the bottom of the telecom food chain.
Most of the other revenue revisions were dramatic. U.S. Bancorp Piper Jaffray analyst Conrad Leifur cut his 2002 earnings from 14 cents to a nickel and revenue to $38 million from $84 million. For 2003, he’s expecting 9 cents a share on $54 million revenue. He rates the stock a Neutral.
Likewise, UBS Warburg analyst Joseph Wolf, who dropped his 2002 revenue estimate to $33 million from $73 million, now looks for a penny earnings. For 2003, Wolf expects 3 cents a share on $50 million revenue. Placing OCPI on a scorecard of “optical survivors,” Wolf clings to his Buy rating despite his relatively negative outlook for the next two years.
Contrast them with Lazard Frères & Co. LLC analyst Truc Do, who had just initiated coverage on the company Monday with a $14 million estimate for Q1, then chopped his number to $8 million after the call. Do trimmed his fiscal year 2002 revenue estimate to $55 million from $70 million and stuck with his original 8 cents earnings estimate. For 2003, he expects 17 cents a share on $100 million revenue. Do maintains to his Buy rating as he anticipates OCPI's recent expense slashing, which included 100 job cuts during the last quarter, will offset the revenue shortfall.
The most conservative of the bunch is Credit Suisse First Boston analyst Max Schuetz, who dropped his 2002 estimate to $30 million from $59 million and downgraded the stock from Buy to Hold. He also slashed his 6 cents earnings projection for the year to a 3 cent loss. Perhaps wisely, Schuetz is not yet sticking his neck out on 2003.
When and to what extent OCPI recovers is still anyone’s guess. But one thing is certain: At least some of these analysts will be wrong.
— Tom Davey, special to Light Reading