6 March 2015

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

For its fiscal third-quarter 2015 (ended 25 January), fiber-optic communications component and subsystem maker Finisar Corp of Sunnyvale, CA, USA has reported revenue of $306.3m, up 3.1% on $297m last quarter (which had been the firm's first decline in two years) and up 4.2% on $294 a year ago. Growth was driven mainly by demand for 40 and 100Gb/s transceivers for datacom applications, as well as transceivers for wireless applications. The sole 10%-or-greater customer (Cisco) represented 56.1% of total revenue (up from 55.8% last quarter).

Datacom product revenue was $234.4m, up 8.5% on $215.9m last quarter and 11.5% on $210.3m a year ago, driven primarily by demand for 40 and 100Gb/s transceivers for datacom applications, as well as transceivers for wireless applications.

Telecom product revenue was $71.9m, down 11.3% on $81.1m last quarter, due mainly to the impact of one month of the annual telecom price reduction (that typically takes effect on 1 January) and the decrease in demand for transceivers for telecom applications driven by sluggish carrier capital expenditures. This was also down 14% on $83.7m a year ago.

On a non-GAAP basis, gross margin fell further, from 31.1% last quarter to 30% (below the expected 31%). This was due mainly to the annual telecom price reduction plus a 75-basis-point impact from substantial yield loss for a new optical engine product for supercomputing applications that began to ramp into production. This is down from 37.2% a year ago, when Finisar's CFP 100G LR4 product was still an early entrant for 100 Gigabit Ethernet (with 85-90% market share, due to having the only fully functional IC in the industry) and hence on allocation for several quarters, according to executive chairman Jerry Rawls. However, after merchant semiconductor companies corrected the errors in their chips and produced functional chips, competitors entered the market at substantially lower prices, so Finisar had to cut its prices (reducing margins).  

"Although our gross margins declined primarily as a result of our annual telecom price reductions and low yields on a new optical engine product, we significantly decreased our operating expenses [by a more-than-expected $2.2m, from $67.3m last quarter to $65.1m], resulting in a minimal impact to our earnings," says CEO Eitan Gertel.

Operating income hence rose from $25m (8.4% of revenue) last quarter to $26.9m (8.8% of revenue), although this is down on $46.3m a year ago (15.7% of revenue). Net income rose from $23.5m ($0.23 per diluted share) last quarter to $26.7m ($0.25 per diluted share), although this is down on $45m ($0.44 per diluted share) a year ago.

Capital expenditure was $31.7m, back up from $28.4m last quarter (due to a delay of about a quarter in completing construction of the second building of the new factory in Wuxi, China) but down from $35.4m a year ago (and less than the forecasted $40m). During the quarter, cash, cash equivalents and short-term investments rose by $11.4m, from $477.4m to $488.9m.

For fiscal fourth-quarter 2015, Finisar expects revenue to rise to $310-330m. Gross margin should be flat at about 30%, due to the impact of a full three months of the annual telecom price reductions. Operating margin is expected to be 8-9%. Earnings per diluted share should be $0.22-0.28.

Capital expenditure is expected to rise further, back to $35m, driven by continuing construction of the second building in Wuxi. "We expect the second building to be completed by the end of the fourth quarter and we expect to have all remaining volume manufacturing move from Shanghai to Wuxi and re-qualified with the customers by the end of our second quarter of fiscal 2016," says executive VP & chief financial officer Kurt Adzema. "We will continue to perform R&D and NPI [new product introduction] manufacturing work in Shanghai as well as some corporate functions," he adds. 

See related items:

Finisar sees first quarterly revenue drop in two years

Finisar's September quarter to see first revenue decline in two years

Finisar reports 7th quarter of revenue growth to record $306m

Finisar reports sixth quarter of revenue growth to record $294m

Finisar reports fifth quarter of revenue growth to record $290.7m

Finisar opens production plant in Wuxi, China

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