30 January 2012

Oclaro’s quarterly revenue down 28% year-on-year

For its fiscal second-quarter 2012 (to end-December 2011), optical communications and laser component, module and subsystem maker Oclaro Inc of San Jose, CA, USA has reported revenue of $86.5m, down 18% on $105.8m last quarter and down 28% on $120.3m a year ago.

Major customers (greater than 10% of revenue) were Fujitsu (14%), Infinera (11%) and Ciena (10%). Other customers traditionally over 10% include Huawei and Alcatel, which were both at 9% (with Huawei down from 17% a year ago and 13% last quarter), with mix changes associated with the flooding in Thailand.

Financial results were materially impacted by flooding on 22 October at the Chokchai and Pinehurst facilities of Thailand-based primary contract manufacturer Fabrinet Co Ltd (which manufactured 30% of Oclaro’s total finished goods). However, revenue was above the guidance of $75-85m provided on 9 November, due mainly to recovery efforts from the flooding.

By segment, revenue from Telecom Components has fallen from $24.8m last quarter to $22.3m. Some strengthening in Asia was more than offset by a drop in external modulator revenue due to the flooding.

Revenue from Transmission Modules has risen from $24m last quarter to $31.4m, driven by growth in tunable XFP and 40G coherent transponder products. “We probably had more demand upside in this category, however we were limited in the short term by availability of printed circuit boards we purchased from our contract manufacturer in Thailand,” says chairman & CEO Alain Couder.

Revenue from Amplification, Dispersion Compensation and Switching products has almost halved, from $40m last quarter to $20.6m. This was the category most severely hit by the floods, as many of the firm’s amplifier products, tunable dispersion compensation products and some wavelength-selective switching (WSS) products are sourced from Thailand.

Revenue from Industrial & Consumer products has fallen from $17.1m last quarter to $12.2m, due mostly to high-power lasers being impacted for part of the December quarter by the flood, as well as some seasonal softness in consumer lasers.

Cost and expenses directly associated with the flood totaled $9.1m, including write-off of damaged inventory and equipment totaling $7.2m, and the cost of personnel directly engaged in recovery and other incremental outside costs.

On a non-GAAP basis, gross margin has fallen further, from 30% a year ago and 23% last quarter to 13%, due mainly to the drop in revenue (while the fixed manufacturing and overhead base through the rest of the firm remained largely in place) as well as lower overhead absorption levels in corresponding de-stocking of inventory.

Compared to +$10.1m a year ago and negative $4.5m last quarter, adjusted EBITDA has worsened to negative $14.3m. However, this was at the high end of the guidance range of -$13-18m due to the higher-than expected revenue plus cost-control efforts.  Likewise, compared to net income of $5.9m a year ago, net loss has worsened from $11m last quarter to $17.7m.

Compared with $10m per quarter in fiscal 2011, capital expenditure has been more than halved from $6.2m in fiscal Q1/2012 to just $3m. During the quarter, cash, cash equivalents and restricted cash rose from $51.7m to $54.2m. No additional amounts were drawn under the firm’s $45m credit facility (of which $19.5m remains).

“We expect to be able to fund our Thailand recovery with about $10m CapEx in total,” says Couder. “We expect CapEx in the March and June quarter of $6m per quarter, including CapEx associated with the flood recovery,” he adds.

Production of high-power lasers (at the Pinehurst facility) resumed in November, and is now back to pre-flood capacity. As of 4 January, Oclaro had re-started commercial production for four of the five affected product lines, including those transferred to Pinehurst from the defunct Chokchai facility (which represented 60-70% of Oclaro’s Fabrinet-produced revenue). “We expect full commercial production by the end of March for three of our five affected product lines and within the June quarter for the remaining two,” says Couder.

Specifically, amplifier production resumed in the last week of December, and should be at pre-flood levels in March. Lithium niobate modulator production has resumed and will be at full capacity by the June quarter (meanwhile, some limited shipments have been coming out of Oclaro’s sites in Italy). Tunable dispersion compensator production is due to resume production at the end of January, and be back to capacity by February. WSS production should resume in April and be at full capacity in the June quarter (meanwhile, a significant portion of Oclaro’s WSS shipments have been coming out of existing sites in the West and Korea).

For its fiscal third-quarter 2012 (to end-March), Oclaro expects some recovery in revenue to $90-97m (though this is still impacted by $10-20m by the Thailand flooding). Gross margin should recover slightly to 14-19%, and adjusted EBITDA to negative $13.5-9m.

“In spite of the flood, we remain focused on enabling Oclaro to emerge from this period better positioned than before, in terms of our market position on certain existing products, recent introductions and our pipeline of new products and new technologies,” says Couder. “By the June quarter we’ll have improved our EBITDA bottom line by $5m per quarter, versus June 2011 (assuming similar revenue levels),” reckons Turin.

See related items:

Oclaro’s quarterly revenue flat due to Asian telecom slowdown

Oclaro’s ramp of higher-margin products delayed by optical telecom inventory correction

Oclaro hit by Chinese telecom inventory correction

Oclaro cuts quarterly revenue guidance by 8%

Oclaro’s profit dips during investment and ramp-up

Tags: Oclaro

Visit: www.oclaro.com