Optical components

JDSU, Opnext Detail Flood Effects

JDSU (Nasdaq: JDSU; Toronto: JDU) is seeing some hopeful news out of the flooding in Thailand, while Opnext Inc. (Nasdaq: OPXT) is saying the effects could last multiple quarters.

The difference lies in each company's work with contract manufacturer Fabrinet Co. Ltd. (NYSE:FN) JDSU's products are located at Fabrinet's newer campus, called Pinehurst, which wasn't affected by flooding. Opnext, though, had its products in the older Chokchai campus, which was badly flooded and probably won't return to production before January. (See Thailand's Floods Will Affect Optical Sales.)

Both companies announced earnings Tuesday, and of course, the flooding was the main topic of dicsussion.

JDSU has verified that its equipment is undamaged, and power has been restored at Fabrinet's Pinehurst campus, which wasn't hurt by flooding. It's now a matter of other factors (transportation, utilities) returning to normal so that the Pinehurst employees can get back to work.

About half of JDSU's optical revenues came from products that went through Fabrinet, officials said on Tuesday's earnings call. For the second quarter, which ends in December, JDSU expects optical revenues to be cut short by $35 million to $45 million due to the Pinehurst delays.

Overall, JDSU is expecting second-quarter revenues of $375 million to $405 million. Even with the flooding taken into account, that seems low next to the $448.8 million that analysts were predicting, according to Thomson Reuters -- but that's because of the test-equipment market. Service provider demand has been weak, and JDSU isn't expecting an end-of-year budget flush to boost this sector, CEO Thomas Waechter said. (See JDSU Reports Q1 Losses, Beats Estimates.)

Opnext, which also reported earnings Tuesday, is taking more of a hit, and the company's comments made it sound like it's more than a one-quarter problem.

"Operationally, our direction is clear. What is less clear is the full extent of the impact of this situation on our financial results for the current and future quarters," CEO Harry Bosco said in a statement. Opnext didn't give a forecast for the December quarter.

Opnext is moving production to its facilities in Totsuka, Japan, and Fremont, Calif. Both have built Opnext's 10Gbit/s products before. The company is also working to expand its presence at Chinese contract manufacturers.

Opnext investments at risk at Fabrinet include $8 million in raw materials and $31 million in test equipment; some of that equipment was spared by being moved to the second floor pre-emptively before the floods. Another $8 million worth of finished goods also appears undamaged, Opnext officials said.

Forty-three percent of Opnext's revenues last quarter were from products that passed through Fabrinet.

While the floods are on everyone's minds, it's worth remembering that the optical components sector is also recovering from its customers' inventory buildups. Many of those inventories have been worked down, JDSU officials said, pointing out that seven out of 12 product lines saw bookings increase compared with the prior quarter.

The inventory correction has been affecting two of the most visible optical products: reconfigurable optical add/drop multiplexers (ROADMs) and tunable XFP modules. They accounted for 28 percent and 10 percent of JDSU's first-quarter revenues, respectively, and both declined in revenue during the quarter.

Still, Waechter said JDSU would have seen optical sales begin to grow in "low to mid-single digits," were it not for the flooding in Thailand. In other words, September -- which saw JDSU's optical communications revenues drop to $150.1 million -- would have been the low point of the current lull in sales.

— Craig Matsumoto, West Coast Editor, Light Reading

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