Coming Soon: An Optical Uptick?
Even if the global economy doesn't recover soon, the optical components sector might see an uptick in a quarter or two.
Wouldn't that be something? An industry that's been struggling for years could actually be a bright spot for once?
The theory, which got kicked around by executives and analysts at OFC/NFOEC this week, is pretty simple. The recession left customers with inventories stockpiled (that's probably true all over the business world, not just in optical components). Orders stopped.
But executives at OFC/NFOEC claimed carrier spending hasn't stopped (or, if it did, it's slowly restarting). That means those inventories have gotten depleted -- which means component orders could kick back into gear. Some of that logic is expressed in this video segment, from the OFC/NFOEC show floor:
"That doesn't mean we're not in a huge short-term slump, but the component guys you could see snap back in the second quarter," says analyst Edward Zabitsky of Active Communications Integration.
That would jibe with the latest report from Finisar Corp. (Nasdaq: FNSR). Executives there suspect that their current quarter, which ends in April, could be the low point of the recession for them. That doesn't means sales will skyrocket, but they expect them to at least perk up, normalizing to a level that might be down but not so down. (See Finisar Sees Hope, Again.)
The question is whether the snapback would be a temporary event or the start of a real recovery. "We harbor some concern that the order uptick reflects targeted channel re-stocking vs. a sustained rebound in demand," analyst Paul Bonenfant of Morgan Keegan & Company Inc. wrote in a report yesterday.
One wildcard is Cisco Systems Inc. (Nasdaq: CSCO), which Bonenfant believes is ready to trim back its inventories and lead times again, a move that hammered some components companies last year. His report cited Finisar and Opnext Inc. (Nasdaq: OPXT) as having particularly big exposure to Cisco.
Regardless of what happens to revenues, executives were hopeful that the recession might finally winnow the number of components suppliers out there. (See Optical Components: Still Too Crowded.)
"Speaking as an outsider, this is an industry that has been too in love with its own technology," says Gilles Bouchard, the former HP Inc. (NYSE: HPQ) executive who becomes CEO of Opnext on April 1. (See Opnext Completes StrataLight Buy.) "I'm convinced we're going to see the end of it, and that is the best thing for the industry."
— Craig Matsumoto, West Coast Editor, Light Reading
For more coverage of OFC/NFOEC, click here.