Fabrinet Hits, Oclaro Misses

Fabrinet Co. Ltd. (NYSE:FN) announced a good first quarter on Monday, contrasting with a surprisingly bad earnings report from Oclaro Inc. (Nasdaq: OCLR).

The companies aren't in the same business -- Oclaro is an optical-components vendor, while Fabrinet is a contract manufacturer serving Oclaro and its competitors. But both announced earnings on the same day, making for a striking comparison.

"The contrast between these two companies couldn't have been starker," writes analyst Alex Henderson of Needham & Co. , in a report issued Tuesday morning.

Oclaro reported that demand has been flat, and that the company's focus on the recently closed Opnext acquisition distracted officials. "The execution is the primary part of the miss, although we did see demand softened later in the quarter," Oclaro CFO Jerry Turin said on Monday's earnings call. (Earnings-call transcript courtesy of Seeking Alpha.)

The bigger concern is that flat demand will drive down gross margins, which Oclaro is predicting will be 12 to 18 percent in the December quarter, Henderson writes. "Companies in this sector need to offset annual price declines of between 11 percent and 15 percent. In order to do this they need productivity gains. These gains are almost always volume driven."

Fabrinet, meanwhile, seems to be doing OK, having recovered from the flooding at its Thailand facilities a year ago. Revenues were down from a year ago (see below), but non-GAAP net income of 36 cents per share, with a possibility for a little bit of growth in the December quarter, "looks pretty respectable" given the difficult global economy, Henderson writes.

Fabrinet stock was up $2.40 (25 percent) at $12.10 in early trading Tuesday. Oclaro shares were down 16 cents (9 percent) at $1.73.

Oclaro reported first-quarter revenues of $141.8 million and net losses of $31.1 million, or 12 cents per share. For the same quarter a year ago, Oclaro reported revenues of $105.8 million and losses of $11 million, or 22 cents per share; those figures don't include the acquisition of Opnext.

Oclaro's non-GAAP losses of 39 cents per share were worse than the 29 cents analysts expected, according to Thomson Reuters .

Fabrinet, for its first quarter, reported revenues of $158.6 million and net income of $12.8 million, or 46 cents per share. For the same quarter a year ago, Fabrinet reported revenues of $186.4 million and net income of $16.6 million, or 45 cents per share.

Fabrinet's non-GAAP earnings of 36 cents per share were better than the 31 cents analysts expected.

For more

• Oclaro & Opnext Strive for Scale
• JDSU, Opnext Detail Flood Effects

— Craig Matsumoto, Managing Editor, Light Reading