13 March 2013

Finisar’s quarterly revenue down year-on-year, but profits and revenue up sequentially due to datacoms

For its fiscal third-quarter 2013 (ended 27 January), fiber-optic communications component and subsystem maker Finisar Corp of Sunnyvale, CA, USA, has reported revenue of $238.4m, a drop of almost 5% on fiscal Q3/2012’s $243m a year ago but up 2.7% on $232m last quarter, driven primarily by growth in sales of 10G and 100G transceivers and transponders for datacom applications.

Sales of products for datacom applications increased by $7.8m (5.6%) to $147.7m. However, sales of products for telecom applications fell by $1.5m (1.6%) to $90.7m, due to the impact of about one month of the annual telecom price reductions that typically go into effect around 1 January, partially offsetting the rise in unit sales (including tunable XFP transceivers).

On a non-GAAP basis, gross margin has risen from 30.5% last quarter to 30.7%. Operating income rose by from $15.8m (operating margin of 6.8% of revenue) last quarter to $17.4m (operating margin of 7.3%) as the firm was able to hold its operating expenses relatively flat while revenue grew. Non-GAAP income was $16.4m ($0.17 per diluted share), up from $14.2m ($0.15 per diluted share) last quarter. EBITDA (earnings before interest, taxes, depreciation and amortization) rose from $28.7m (12.4% of revenue) last quarter to $31.1m (13.1% of revenue).

During the quarter, cash and cash equivalents rose from $262.4m to $265.5m. The firm also had about $40m in principal amount of convertible notes outstanding with a conversion price of $10.68 per share.

For fiscal fourth-quarter 2013, Finisar expects revenue of $235-250m. Gross margin is expected to fall back slightly to about 30.5%. “This will be the result of three months of reduced telecom prices,” noted chairman of the board Jerry Rawls. “The higher revenues in the fourth quarter will partially mitigate the impact of the lower telecom prices.” Likewise, operating margin should fall back slightly, to about 7%. Earnings per diluted share should be level at about $0.15-0.19.

“During the third quarter, we continued to invest significantly in technology and product development and made substantial progress on a number of new products for our datacom and telecom products lines [especially in the high-bandwidth products for 40G and above],” said CEO Eitan Gertel during the firm’s analysts’ conference. “For the telecom market, we shipped a number of our new 100G coherent line-side transponders. All the customer feedback has been very positive, we continued to win new customers and are ramping our capacity to meet demand,” he added.

“We continue to invest in the development of next-generation wavelength-selective switches that are smaller, lower power and higher performance,” Gertel continued. “Finisar has the broadest offering of Flexgrid WSS product in the industry, which enables the service provider to deploy next-generation optical networks. We also continue to make good progress in our previously won ROADM line-cards project, as well as engaged in a number of new line-card opportunities.”

Finisar will have a major presence at the Optical Fiber Communication conference (OFC 2013) in Anaheim, CA, USA during the week of 18 March, at which the firm will be making several new product announcements.

During the analysts’ conference Rawls was asked about the emerging and potentially competitive technology of silicon photonics and whether he thought there was a material meaningful difference between Finisar’s monolithic circuitry technology and what silicon photonics could achieve in terms of the size, cost and power. “I don't think so much about technology as I think about products,” he replied. “In the enterprise world, we've got them at speeds from 1-gigabit to 100-gigabits. We use indium phosphide, gallium arsenide, CMOS, silicon germanium - any technology that is available that provides the economics and the performance that satisfies our customers. All these technologies are available to us through foundries or through our own factories,” Rawls stressed.

“With respect to silicon photonics, it is an interesting technology, but it is one that we haven’t used so far in our products because it wasn’t economical or it didn't provide competitive performance. In the future, will we use silicon photonics in our products? The answer is maybe. We'll use whatever makes sense for our customers. So I don't think of silicon photonics as a threat. I just look at it is another technology we will likely eventually use in our product.”

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By Matthew Peach, Contributing Editor