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Optical components

Components Companies Face a Chilly Winter

Earnings reports from optical components companies yesterday sealed it: This quarter promises to be awful.

Every major optics company has now forecast March-quarter revenues lower than Wall Street had predicted -- and some, like Avanex Corp. (Nasdaq: AVNX) and Opnext Inc. (Nasdaq: OPXT), disappointed with December-quarter numbers as well.

Of course, tech companies across the board are facing a tough stretch. This week, Cisco Systems Inc. (Nasdaq: CSCO) lowered its sales forecast down to the level of two years ago. (See Cisco's Still Sinking.)

But the optical components sector didn't enjoy Cisco-like growth during the last two years. Adding to the drama was the fact that so many of these companies announced earnings during the last couple of days (see table below).

Table 1: Downhill Slope
Company December Quarter
Revenues
March Quarter,
Predicted Revenues
March Quarter,
Wall Street Expectations
JDSU
$357M
$275M-$300M
$368.8M
Opnext
$113.5M*
$80M-$90M*
$98.3M*
Bookham
$50.2M
$43M-$50M
$61.1M
Oplink
$37.6M
$28M-$32M
$35M
Avanex
$38.0M
$24M-$31M
$38.8M
Source: Company reports, Thomson Financial
* Includes StrataLight, acquired in January




Note that we're skipping Finisar Corp. (Nasdaq: FNSR), which hasn't reported earnings yet. But the company did catch the Disappointment Train, saying third-quarter revenues would be $137 million, rather than the $146 million Wall Street was expecting. (See Finisar Preps Layoffs.)

Here are some highlights from yesterday's earnings calls.

JDSU
The company is cutting 2,000 jobs and some other fixed costs as it sells its Shenzhen, China, manufacturing facility to Sanmina-SCI. (See JDSU Selling Shenzhen Facility.) Another 200 jobs are likely to go, separately, meaning JDSU (Nasdaq: JDSU; Toronto: JDU) is trimming about one third of its 6,645 employees.

JDSU has already said it's planning to cut several manufacturing sites.

"More than 20 percent of presently occupied real estate will be vacated," new CEO Thomas Waechter said on yesterday's earnings call.

The Shenzhen deal, expected to close within a month, would lower JDSU's breakeven point to revenues of around $290 million.

JDSU stock was down 23 cents (5.6%) at $3.88 in midday trading.

Opnext
StrataLight came up light for Opnext, with revenues of $24 million in the company's third quarter, which ended Dec. 31. That's down from $33 million in the previous quarter.

But StrataLight might be the growth engine for Opnext during the next year or even two. Opnext says revenues for its fourth quarter will be $80 million to $90 million. Assuming StrataLight revenues stay flat, that means sales from the original Opnext are declining quite a bit -- because Opnext by itself managed to amass $80 million in sales back in September.

Opnext wowed investors in the wrong direction with its earnings, reporting losses of 10 cents per share when analysts were expecting a profit of 1 cent.

Opnext shares were down 14 cents (6.2%) at $2.11 midday.

Avanex
Like JDSU, Avanex is cutting staff. The company has 486 employees -- down about 29 from a quarter ago -- and is laying off another 5 percent of its staff this quarter, CEO Giovanni Barbarossa said on yesterday's earnings call.

Avanex's cash and short-term investments fell to $37.3 million, from $49.7 million in the previous quarter. In a research note this morning, analyst Paul Bonenfant of Morgan Keegan & Company Inc. called the drop "precipitous" and noted that it's one incentive for Avanex to be merging with Bookham Inc. (Nasdaq: BKHM; London: BHM). (See Bookham, Avanex Tie the Knot and Bookham, Avanex Defend Their Deal.)

Avanex's non-GAAP losses of 40 cents per share missed Wall Street's 30 cents estimate by plenty. The stock was trading down 4 percent at $1.70 midday today.

— Craig Matsumoto, West Coast Editor, Light Reading

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Pete Baldwin 12/5/2012 | 4:12:17 PM
re: Components Companies Face a Chilly Winter Anyone want to take a guess at the next consolidation play? One more merger before OFC/NFOEC?
steady 12/5/2012 | 4:12:16 PM
re: Components Companies Face a Chilly Winter I have a question from an odd angle. Some people like accusing the competition from China company such as Huawei, saying Huawei screwing up the industry.

Assuming this kind of accusation is correct. While for component industry, the main players are still western companies, what is wrong within it? It is not wise to explain it as a spread of depression along the food chain, since system vendor is much better than component vendor, even though facing Huawei directly.
Stevery 12/5/2012 | 4:12:16 PM
re: Components Companies Face a Chilly Winter Opnext wowed investors in the wrong direction with its earnings, reporting losses of 10 cents per share when analysts were expecting a profit of 1 cent.

I need to ask: If analysts missed predicting the biggest meltdown in the past 7 decades, then just what they hell good are they, and why are they breathing so much of our air?

Do any of these guys do more than draw straight lines through data?

Seriously: If you can't predict something of this magnitude (especially when even clowns like me posted about it last july) then it's time to evaluate what exactly is your value-add.
paolo.franzoi 12/5/2012 | 4:12:15 PM
re: Components Companies Face a Chilly Winter
The entire market is broken from top to bottom. Fundamentally we need a lot fewer players investing a lot less dollars in R&D.

This is true for Systems players and Component players.

seven
Stevery 12/5/2012 | 4:12:10 PM
re: Components Companies Face a Chilly Winter Any ideas on why csco raised $4B last week?
HomerJ 12/5/2012 | 4:12:10 PM
re: Components Companies Face a Chilly Winter Although painful for the people involved, the Great Optical Depression of 2009 is exactly what is needed. Consolidation is not the answer. Complete liquidation is. So many companies were born 1998-2000 in the "glory years" and they still live off their cash. Companies need to simply disappear.
bollocks187 12/5/2012 | 4:11:59 PM
re: Components Companies Face a Chilly Winter Many of the optical companies sadly need to go away as there is an oversupply of optical stuff on the market but NO vendors to leverage and use as no customers are building large networks. The duopoly market of Verizon and ATT will make sure that no vendors make a profit.

We cannot even get fiber to the home in any meaningful way in this country. And when we do we get the same old ancient technology and limited bandwidth from the big boys.

paolo.franzoi 12/5/2012 | 4:11:57 PM
re: Components Companies Face a Chilly Winter
Wow, I guess BT, NTT, DT, FT, Vodaphone, China Telecom, China Mobile, BSNL.... all do not exist.

seven
bollocks187 12/5/2012 | 4:11:56 PM
re: Components Companies Face a Chilly Winter Everyone of them is cutting back in spending.

BT, DT, NTT, China Telecom are all monopolies

There is not enough optical business in mobile carriers so we don't need to go there.

7 from all you bombastic posts I suspect you work and operate for a 'FAT' company (a telco like Verizon or ATT or an Alcatel). I would guess you have never been in a "startup" company in your life. Content to read specifications but never have never actually built a product - a technocrat at heart - lol


paolo.franzoi 12/5/2012 | 4:11:55 PM
re: Components Companies Face a Chilly Winter
Bollocks,

You are hysterical. I have worked for a startup. I simply pointed out that you divided all the world's capex between 2 companies. I found that funny that suddenly the systems companies issues were because of AT&T and Verizon - as no other companies buy equipment.

Let me add to my list...Comcast, Time Warner...there are dozens and dozens of large carriers. There are plenty of competitors. You are not wrong about the structural problems of the industry. If you think the customers should change from demanding the best prices, then you are kidding yourself.

seven
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