Optical components

Finisar Falls on Q1 'Turbulence'

Shares of Finisar Corp. (Nasdaq: FNSR) plummeted this morning after the company reported an unpredictable quarter and kept forecasts flat for the near future.

Finisar's first quarter, which ended July 29, saw a lot of "turbulence," CEO Jerry Rawls told analysts on a conference call yesterday. "Revenues from a couple of large customers were up more than 50 percent from our forecast, while a group of other large customers were down by a similar amount."

Finisar shares were down $0.69 (18.4%) to $3.07 midday.

What's sinking Finisar today might be the lack of an explanation for the turbulence. CFO Steve Workman suggested during the call that some "pockets of inventory" might be affecting sales, but, overall, systems companies just missed the forecasts they'd given Finisar, both in good and bad directions.

Finisar reported first-quarter revenues of $105.7 million, up from $97.3 million in the previous quarter, but down from $106.2 million in the first quarter a year ago. Analysts were looking for $108.2 million, according to Reuters Research . (See Finisar Reports Prelim Q1.)

The company didn't report net income and other GAAP metrics, as it's still undergoing an audit related to stock-options accounting. Analysts polled by Reuters were expecting Finisar to have non-GAAP net income between 1 and 6 cents per share.

Finisar's second-quarter revenue forecast was $106 million to $112 million -- the same as the prediction it gave for the first quarter. Given the unpredictable quarter it's just experienced, the company is "apprehensive" about making a more aggressive forecast, Rawls said.

"Overall metro and telecom revenues should be about the same as last quarter," the CEO said, while LAN and SAN sales should see "only a slight increase."

In particular, sales of LAN/SAN VCSELs could be down. These are devices that Finisar uses in its own transceivers but also sells to other transceiver vendors.

"If you look around the industry, you see that some of the companies around that industry have acquired VCSEL capacity," Rawls said -- possibly alluding to the JDSU (Nasdaq: JDSU; Toronto: JDU) acquisition of Picolight Corp. , which closed in May. (See JDSU Picks Up Picolight for $115M.) "It's inevitable that our sales to our transceiver competitors will go down over time."

Beyond this quarter, growth areas Finisar hopes to tap include short-reach 10-Gbit/s Ethernet transceivers, Rawls said. He also made mention of the company's GPON effort, reiterating that products should appear during the current quarter. (See Finisar Goes Ahead With GPON.)

As far as expenses go, Finisar's research and development is admittedly "running hotter than we would like," Workman said during the call. Optics R&D was about 15.6 percent of revenues in the first quarter -- ideally it would be 10 to 12 percent, he said -- and R&D for Finisar's network tools division was about 32 percent of revenues.

Still, Finisar doesn't plan to lower those numbers. "While it is tempting to look at reducing R&D in the very near term as one of those levers, we didn't get to where we are by being wimps with respect to R&D investment," Workman said on the call.

Where is that money going? Seventy percent of Finisar's optics R&D is going into 10- and 40-Gbit/s projects, areas that represent just 17 percent of revenues today, Workman said. He also said Finisar has launched a 100-Gbit/s Ethernet product, now that the standard for that protocol is underway. (See 100-GigE, 40-GigE Live in Peace.)

— Craig Matsumoto, West Coast Editor, Light Reading

cw.774 12/5/2012 | 3:03:06 PM
re: Finisar Falls on Q1 'Turbulence' Well, I might be abusing the understanding of convergence (netwroks, tech market forces) here as I live at the bottom of the stack. But how confused are your customer? I know mine are. I think some are simply stuck. Look at:
- mergers (ALC-LU playing out forever)
- architectures who used to live on remote islands, now connecting
- Acces: active E, or, which PON do I use?
In my opinion:
- recovery is slow if not stopped
- too much optical competition/paranoia (well, before we finish this design, what's CISCO doing?, what's CHina doing? who's China?)

It's simply too complex for some key holders. Perhaps more tehcncial harmony might be needed, even if the pool shrinks again.

very humbly yours,
deer_in_the_light 12/5/2012 | 3:03:12 PM
re: Finisar Falls on Q1 'Turbulence' wow, funny to see our friend Jerry get his butt kicked by the street. Remember how arrogant he was a year go, wheel is turning fast, gotta stay humble if you work in this field.
Pete Baldwin 12/5/2012 | 3:03:13 PM
re: Finisar Falls on Q1 'Turbulence' It's not clear whether Cisco was one of the 50% higher-than-expected or 50% lower-than-expected companies.

Either way, Finisar says the Cisco "lean manufacturing" effort, which I think affected sales in past quarters, is basically done.

Interesting that they're seeing this kind of unpredictability.
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