11 December 2015

Finisar’s sales driven by higher-than-expected growth in 10G tunable transceivers and wavelength-selective switches

For its fiscal second-quarter 2016 (ended 1 November 2015), fiber-optic communications component and subsystem maker Finisar Corp of Sunnyvale, CA, USA has reported revenue of $321.1m, up 8% on $297m a year ago and up 2.3% on $314m last quarter (and towards the upper end of the guidance range of $304-324m).  

Datacom product sales rose by just $0.5m (0.2%) from last quarter, as the growth in 100 Gigabit Ethernet transceivers was offset by a decline in 40 Gigabit Ethernet transceivers (after a record quarter for 40G last quarter).

Telecom product sales rose by $6.6m (8.2%) from last quarter (rather than the forecast of being relatively flat), driven mainly by the growth in 10G tunable transceivers and wavelength-selective switches (WSS).

Finisar again had two 10%-or-greater customers, but the top 10 customers fell back from 60.7% of total revenue last quarter to 58.2%.

Finisar's quarterly revenue trends.

On a non-GAAP, gross margin has fallen further, from 31.1% a year ago and 30.2% last quarter to 30%.

Operating expenses were $68m (21.2% of revenue, better than the expected 21.4%), down from $68.4m (21.8% of revenue) last quarter (and 22.7% of revenue a year ago).

Operating income has risen further, from $25m a year ago (operating margin of 8.4% of revenue) and $26.5m (8.4% of revenue) last quarter to $28.2m (8.8% of revenue, at the high end of the forecast range of 8-9%).

Net income has also risen further, from $23.5m ($0.23 per diluted share) a year ago and $24.5m ($0.23 per diluted share) last quarter to $26.9m ($0.25 per diluted share, at the high end of the forecast range of $0.20-0.26).

Capital expenditure (CapEx) $29.5m, lower than the regular $35m, due to the timing of expenditure related to final build-out of the second building at Finisar’s facility in Wuxi, China.

During the quarter, cash, cash equivalents and short-term investments rose by $25.1m, from $495.7m to $520.8m.

For fiscal third-quarter 2016, Finisar forecasts revenue of $300-320m. The firm expects telecom revenue to grow again and strong demand to continue for 10G tunable transceivers and wavelength-selective switches. Demand from China should also remain strong. “We are seeing continued demand for 100 Gigabit Ethernet transceivers, however we expect that growth to be more than offset by reduced revenue in 40 Gigabit Ethernet transceivers,” says chairman & CEO Jerry Rawls. “This is due to the lumpiness in demand at multiple large data-centers,” he adds. “We also expect a decline in sales of Ethernet transceivers for wireless applications that we include in our datacom bucket.” Overall, datacom revenue should decline slightly.

Finisar expects gross margin to be level at about 30%, as the positive impact of favorable product mix is offset by the impact of one month of the annual telecom price reductions that typically take effect on 1 January. Operating expenses should be flat to down slightly, at $67.5-68m. Operating margin is expected to fall to 7.5-8.5%. Earnings per diluted share should be flat to down, at $0.19-0.25. CapEx will be back up to the $35m per quarter expected during the Wuxi facility build-out. However, this should be finished in fiscal 2016, so in fiscal 2017 CapEx should drop to about $30m per quarter.

“While we expect the remainder of fiscal 2016 to be a bit challenging, we are optimistic about fiscal 2017,” says Rawls. “We expect the benefit from the ramp of many new products and associated revenue growth driven by both data-center construction and upgrades and the increased deployment of ROADMs [reconfigurable optical add-drop multiplexers] and 100G and 200G coherent transceivers in the telecom metro market,” he adds.

“We continue to believe that the long-term growth prospects of our company and the optical communications industry are positive,” continues Rawls. “From our position as the industry leader, we will continue to develop the technology and the next generation of products for both the datacom and the telecom markets. Finisar’s revenue is driven primarily by growth in the global demand for bandwidth due to the increasing distribution and use of video, images and digital information. In addition, Finisar continues to benefit from the growth in cloud services, which drives network hardware upgrades of existing data centers and the build-out of new hyper-scale data centers.”

See related items:

Finisar's CEO Eitan Gertel resigns

Finisar's profits fall after higher-than-expected costs from new-product qualifications

Finisar's quarterly revenue grows despite annual telecom price reductions

Finisar reports quarterly revenue up 3% to $306m, as 40-100Gb/s datacom growth outweighs slow telecom carrier spending

Finisar sees first quarterly revenue drop in two years

Finisar opens production plant in Wuxi, China

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