Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Jerry Turin – Chief Financial Officer

Analysts

Ehud Gelblum – Morgan Stanley

Oclaro, Inc. (OCLR) Morgan Stanley Technology, Media & Telecom Conference Call February 27, 2012 7:50 PM ET

Ehud Gelblum – Morgan Stanley

Thank you everyone for joining us and sticking with us through the end of the day. My name is Ehud Gelblum. I’m at the Data Networking and Telecom Equipment, analyst here at JPMorgan Stanley and very happy to have as the last presenter of the day, Oclaro. That after this there is a panel, moderated by Mary Meeker, our former internet analyst here at Morgan Stanley. So you make sure to look at that afterwards and so good everyone sustain for this.

With us on the call today is Jerry Turin, the CFO and very happy to have him with us. He’s been at the Oclaro ‘05 I believe and he’s been CFO. And I think, well, he was going to dive into some kind of what’s going on with the respect to A) The industry, B) supplies and given the Thai floods, growth in the industry, new areas and new products that you’ve gotten into and just to understand a little bit more about kind of what’s going on Oclaro.

And you first read the disclosure that I fail to read in a bunch of other sessions. So let me posthumously or not posthumously I’m still alive but whatever there is a word for that just read it now, just please note that all important disclosures including personal holding disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures.

So Jerry, can you just kind of throw it off by saying for us where Oclaro is, especially with the recovery from Thailand, but also just a real bit of a description of your business and how do you look at the different piece of your product portfolio? And then just a slight intro and then we’ll get into more detailed Q&A.

Jerry Turin

Okay. Well, Oclaro is an optical components companies decline in the communications space primarily into the telecom communication space, metro and long-haul, not into the Datacom or access site at all. Vertical integration is a key proposition, other strength at the chip level, component level and FABs as well as vertically integrated into transponders and transceivers on the transmission side of the network and amplification, switching, routing and dispersion compensation on the line management side.

As they heard it was alluding to that we suffered in the last two quarters from a production point of view from our facilities in Thailand being flooded, specifically our contract manufacturing being flooded, which took out roughly 30% of the capacity. So we’ve been working all the way back from that December was the quarter on which it occurred.

In the March quarter, we entered the quarter with I think it was four out of five of our production lines backup with commercial production, full commercial production and three of those by the end of the March quarter, our full commercial production on the fourth early in the June quarter and full commercial production in the fifth which we didn’t really have too much of a revenue impact because we’re able to absorb the demand in some of our western site, but by the end of the June quarter. So we continue to on track that was the timeline we gave out a few weeks ago at our quarterly earnings and we continue to execute to that.

Challenge in the space is that it was a relatively sluggish year leading into the Thai recovery. So two questions though, what’s the current demand environment and is that starting to pick up? And secondarily, you know, with overly disruption from Thai flood and revenue levels, you know, what does our business profile look like compared to pre-flood and post flood because we’ve taken actions to reduce cost streamline and create some efficiencies as well.

So to touch on one, we use June to June as a frame of reference and we’re about a $110 million of revenues in the last June quarter, which was a fairly sluggish year but pre-floods. So if we come back from the $85 million we did in December and we’re recovering from the flood get back to the 110 range in June and of course that’s going to be a function of demand conditions that are still evolving. But if we get back to that data point, we believe we’ve improved our bottom line by about $5 million, 12 months on 12…

Ehud Gelblum – Morgan Stanley

Because the OpEx reductions….

Jerry Turin

Well part at OpEx reductions and part manufacturing overhead reductions, part margin improvement other than kind of the typical sort of new product margin improvements. So we hope the edges of flood condition with something relatively breakeven from an EBITDA point of view, if in fact we get revenues back to that. And then that gives us a sound foundation to continue to drill the margins from there as we tend to be a scale oriented business that drives gross margin and operating margins. We continue that margin upside from putting more of our own internal components into our 40-gig products where we’re clear leaders in particular in DPSK modulation and in 40-gig coherent.

And from the demand environment point of view, China seems to stabilized and solidified and we see some growth in China, I wouldn’t say dramatic growth but certainly when you’ve been through this period we have been through, stability and some upside in that part of the world is a good thing. And then the big question in everyone’s mind right now is North America where logically it feels as well there should be a lot of data points pointing towards growth into the middle of the year until the June quarter. Still relating, still waiting for a lot of the anecdotes at the carrier level to translate into you know a real business from customers and real visibility from our customers.

So we will comment on the costs we have seen, you know hopefully we’ve seen that pick up in a tangible fashion but still waiting for the visibility to clear.

Ehud Gelblum – Morgan Stanley

Okay, when revenue levels drop because of the flood, when we expect if demand had say the same, there you’ll be seeing a backlog come up either there or your customers start taking in components out of their own inventories, inventory levels may have dropped. Do you think that happen, that inventory levels drop or did the world’s demand for optical systems…

Jerry Turin

Yeah

Ehud Gelblum – Morgan Stanley

Drop at the same time that the supply drops in Thailand conveniently, so that there is no excess backlog hanging out there?

Jerry Turin

Well I think, all of that happens, so I think customers certainly would have, seen inventories come down I think, I think many of us, many of our peer group we probably saw our own inventories come down, in areas where weren’t flood affected. And from an order point of view in the December quarter we saw orders that were similar in magnitude to the previous two quarters even though obviously revenues were down and delivery capability were down, which implies some level of backlog build up.

Ehud Gelblum – Morgan Stanley

Do you actually cut backlog and have backlog does excess orders you can’t fulfill that they going to backlog and you fulfill them, so we see an actual ramp there perhaps to above the trend line as we get back to capacity?

Jerry Turin

Well through, again through the March quarter clearly we are going to be constrained by the production we get there. And in the question in June is how much of that translates to real backlog that contributes the momentum into June, and how much of it doesn’t

Ehud Gelblum – Morgan Stanley

No, I wouldn’t, if there was excess demand versus what you could actually supply in the December and March quarters. Why wouldn’t when you get back the capacity levels, why wouldn’t that flow through almost customers and elsewhere?

Jerry Turin

Well exactly that’s why we need to see it in the next three to six months, next two to four months I guess as we get into the June quarter, with full capacity. Is that demand still there, that, those should still be there, but our new orders going to last or other people, so that’s one of the unknowns for June right, which is to carriers CapEx get locked down and do you have a relatively stronger budget position and the carriers going into the June quarter. Do you have any backlog or pent-up demand that builds up in Thailand, that helps the June quarter, those are all things that logically makes, make some sense, but until you see things actually play out, see that there when you get to June you can’t say it primitively one way or the other way that they are concrete.

Ehud Gelblum – Morgan Stanley

Okay, when you speak to your customers. Do you think you may have lost a little share had they told you that, yeah hey we’re going to elsewhere for right now, but we’ll be back do you get a sense…

Jerry Turin

No, I think customers in general want to maintain in particular restore share. I don’t think there, if I look at the key product areas that we supplied out of Thailand, that our competitors supply out of Thailand. I don’t see anything at our product level where there is any profound share change. And if you think about our business where customers tend to add multiple sources of supply and tend to have a well managed supply chain, where they really think about that they’ve got the right balance, right. They want to get back to balance they had going into the flood. It’s in their interest because they are the ones that likely optimize the balance of their suppliers. So we think it gets rate back to normal has been as everyone as kind of back on their feet. There maybe a few small point products where there’s maybe some displacement but I think fundamentally it gets back pretty much to where it was going in.

Ehud Gelblum – Morgan Stanley

Okay. So demand should come back to normal levels. We should be relatively steady. You should be able to get back to that same $110 million level you are at before given that that it seems as though there should be a little bit of backlog.

Jerry Turin

Yeah, well at this stage, June of last year wasn’t, the markets weren’t on fire.

Ehud Gelblum – Morgan Stanley

Right.

Jerry Turin

At the same time growing from $85 million to $110 million is still over two quarters, even if it’s getting your production back. We’ll get there before I predict they were there.

Ehud Gelblum – Morgan Stanley

Now, the other thing that’s going in as you said Asia and particularly China, and now you said stabilized and you’ve seen a little bit growth.

Jerry Turin

Yeah.

Ehud Gelblum – Morgan Stanley

You mentioned on your conference call two has that accelerated or at least maintain itself through the month of February?

Jerry Turin

I would say maintain, I wouldn’t say accelerated. I’d caution to think that there is an artistic effect. But there is stability and it’s moving in the right direction. And you know by contrast this to last year at this time where it was going through the roof and the bottom fell out the next day, so to speak. I think a little bit of stability and consistent upside in the right direction. There is probably a better, better dynamic.

Ehud Gelblum – Morgan Stanley

Okay. A few quarters ago and I think is because of the flood, you announced that you were selling new house manufacturing facility.

Jerry Turin

It was not because of the flood…

Ehud Gelblum – Morgan Stanley

Okay

Jerry Turin

Really does not because of the flood, yeah. It was a combination of work we’ve been doing since the early summer and thinking about what are the long-term manufacturing footprint should be. Three four years from now, do we want to build another Shenzhen. And then just to back up so everyone has the context of our 65% of our back in the assembly and test is in our own Shenzhen facility. Roughly, 45% in contract manufacturing, most of that in Thailand, where the flood took place.

So we are doing an exercise is that three years from now with revenue growth, with unit growth, which grows faster than revenue, where do we want to be three or four years now building another Shenzhen where we want to be 30% in-house, 70% outsourced to one contract manufacturer or more contract manufacturers with optical capability doing a 30-30-30 and then we thought about the different value propositions that we realize we didn’t have enough information.

And so we went into a fairly involved RFQ process with a quite number of our product areas out to a large number of contract manufacturers. Through December that culminated in a process with about six or seven. And then offline a few approach, there is about different approaches, maybe just want to sell your Shenzhen facility, maybe you want to transition all of your internal manufacturing to us. Let’s make some proposals that would lay down to one party that we’re working through during the announcement of the flood and that’s when we announced that we’re involving those process. So while the convenient to be able to refer to a potential transaction that could monetize significant amount of the assets in the balance sheet it is been in process while before the flood took place.

Ehud Gelblum – Morgan Stanley

Okay. So that’s still the plan on its one process

Jerry Turin

Still one process, whether it’s executed what form it gets executed, the devils in the details because one of our priority continues to do what it was in late summer in early fall, which is what’s the best long–term business model or we’re going to have stable margin, our stable margin trajectory of the contract manufacturer in the short-term and long-term upside. Do we really believe with that model better than focusing our resources on Shenzhen, it’s going to be our long-term business model that is the decision maker not the fact that you can monetize the cash in the short-term.

And the devils in the details, when we look at all the different drivers of your cost base on your manufacturing side not just your direct product costs. But retention of employees and the impact on productivity, your ability to level out some of your other overhead costs, if you are in one model versus another, we have a hybrid model now, where you try to be best-in-class as a manufacturer. And the best-in-class, as a manager of contract manufacturing relationships not necessarily the same store sets, not necessarily the same processes. We have to look at all those different potential improvements of our contract manufacturing model before you sign off and conclude on any deal that maybe in the process

Ehud Gelblum – Morgan Stanley

So when do we here whether the (inaudible) and what is that contingent upon right now?

Jerry Turin

Well, hopefully in weeks.

Ehud Gelblum – Morgan Stanley

By April, we could hear that you have in fact all that the entire cost cutting

Jerry Turin

To be continuing, we’re not going to

Ehud Gelblum – Morgan Stanley

While excluded in the middle

Jerry Turin

No when the law, when the flood hit certainly began to accelerate the process and then we said only the outlet this is a long-term process, long-term decision. We can’t let our short-term need to show some upside from the cash point of view to drive this decision. We need to ensure, we need to maximum leverage as a potential customer and we need to do full and careful analysis to be sure we are coming out with the right answer, does that get us there in two weeks, does that get us there in six weeks, does that get us to appoint in three weeks that we know we don’t have something I can’t predict that. So I certainly can’t set expectations one way or the other

Ehud Gelblum – Morgan Stanley

When is the deal contingent upon what you are waiting for? Is the other part of Europe…

Jerry Turin

I can’t get into there fine points of deal negotiation.

Ehud Gelblum – Morgan Stanley

Okay. You got your cash position, let’s talk about that for a minute you’ve got I think about $54 million in cash in the balance sheet as of last quarter, but you also have $20 million drawn from your revolver that’s in that $54 million.

Jerry Turin

Correct.

Ehud Gelblum – Morgan Stanley

What cash level do you feel comfortable whether is that fine or…

Jerry Turin

So the way I look at that is, I have that cash resource, I have a $45 million line of credit in total. During the trough of this flood, the entire $45 million won’t be available with something in the high $30 million should be available. So increment resource there, incremental resource there and I’ve received $6 million in insurance advances. We believe that those resources are not to fund our way through June recovery. It’s not our grandiose number.

I’d certainly like to have a stronger number than that but we believe that that finances our way through June. It doesn’t give a lot of flexibility, it doesn’t give a lot of cushion but it should be adequate then we think about the contract manufacturing deal. We think about additional insurance proceeds. We think about different things that we’re doing from a working capital point of view to create some upside of cushion to that but we believe that we’re positioned to finance our way through the June recovery.

Ehud Gelblum – Morgan Stanley

That $6 million insurance advancement that’s already in $54 million?

Jerry Turin

No that was received subsequent to the December quarter end.

Ehud Gelblum – Morgan Stanley

Okay.

Jerry Turin

That’s incremental.

Ehud Gelblum – Morgan Stanley

How much do you think you’re going to recover in total from insurance?

Jerry Turin

Impossible to predict because a big part of its business interruption and then tell you we’ve actually experienced the loss, we can’t then predict what your recovery is. But we have looking our property insurance that should cover the equipment and inventory, inventory itself better selling price in equipment replacement cost and business interruption which in theory should be your contribution margin on your lost revenue.

Ehud Gelblum – Morgan Stanley

Right.

Jerry Turin

Gets quite complicated though because did you lose the revenues or did they get pushed into a subsequent quarters…

Ehud Gelblum – Morgan Stanley

That’s what I was asking before.

Jerry Turin

Exactly, so I can’t answer now it’s tough for me to figure out from an insurance point of view, what the cumulative loss will be. But it could be a significant number obviously but I don’t think that the bulk of it, I don’t think we’ll be selling until this second half of the year.

Ehud Gelblum – Morgan Stanley

Okay.

Jerry Turin

And maybe able to get some additional advances but because there’s so many moving pieces now that can all make analysis, I wouldn’t expect the full settlement until the second half of the year.

Ehud Gelblum – Morgan Stanley

How much is the equipment piece that’s somebody should be able to get, get your arms around right?

Jerry Turin

In rough terms I don’t think, I’m trying to think if I go back to what our write-off was I think we had about $8 million or $9 million of write-off in the December quarter. I think from a replacement cost point of view, I guess we have been out front with what the cost of capital were bringing back the lines is and we think that that’s under 10 million. So if you think about replacement cost point of view, it’s something in that order. And then from an inventory point of view, I think we had about $5 million or $6 million of reserves related to written off inventory. So it gives you maybe a ballpark range of what the asset side of it is, again that was in the details I’m showing there will be a lot of work to substantial decline the goals of the insurance company. So, rough numbers may – maybe less than or maybe more than what the ultimate number is.

Ehud Gelblum – Morgan Stanley

Okay. That gives us great times. And asking about financing you was referring that’s lets talk about the products, growths and business. Pricing environment, what does it look like, right now?

Jerry Turin

It looks very consistent with annual expectations, yeah we tend to see something in the range of 13% as the annual – annualized impact of pricing and that’s what we saw this year. When we were going into the fourth quarter, prior to the flood we thought this could be a challenging year given sluggish economy, given everyone waiting for the traction to come. And Thailand hit now I think it reinforced with customers, we need to think strategically, with very much focused on the long-term cost reduction roadmaps that work with customers. Given and take new allotments on areas where we said we are taking a lower allotment to maintain a price and all-in-all, we came out thinking there was fairly productive set of discussion. And pricing consistent with what we’ve tend to see year-on-year.

Ehud Gelblum – Morgan Stanley

Okay. One quick thing about back on what you have seeing before in terms of EMS providers. Your negotiations with one EMS provider, you have been working obviously with Fabrinet for lot of your stuff. Is there a feeling that you should be diversifying away? And therefore I mean assuming you did slightly to other provider to that Australia business a little more than before. Is that strategic?

Jerry Turin

All right. So in a short-term I would say no, in fact we’ve reestablished our production in another facility at Fabrinet, which was very convenient, and assisted in our rapid recovery, and in fact Fabrinet has done an excellent job as a partner in the recovery. I would think if I go back my discussion about what we want to be three years from now, or four year from now. I think under our contract manufacturing dynamic, over that period of time what it gives you is maybe the flexibility, to have many partners. And to have a diversification of sources required we are able to move product lines relatively, seamlessly between folks. So I wouldn’t look that is being diversifying away from anyone, but I think the more flexibility you have, would be the better in the long run.

Ehud Gelblum – Morgan Stanley

Okay, back to product, the tunable XFP market.

Jerry Turin

Yeah.

Ehud Gelblum – Morgan Stanley

JDSU dominates it right now, you have recently entered it, Finisar is coming to this market as well. How do you differentiate the tunable XFP from the others. How much share do you expect to gain and how do you model it out? How do you look at the competitive dynamics?

Jerry Turin

Sure. When I look at the competitive dynamics, I look first that, in our sole compared to JDS, and we both have a monolithic integration in the chip level. So a single chip doing laser and modulator, which of course, better and multiple chips and just a small form factor and we’re both vertically integrated, so you maintain the cost base in-house. So certainly, from a footprint point of view, power consumption and long-term cost road map, it’s an inherit advantage, and its some more advantage that we have in the (inaudible) JDS in the transmission side of the business, where you vertically integrated and you are doing higher level assemblies as well as the components that go into them.

Most of the tunable XFP sales to-date had negative chip characteristic, which tends to be adequate for shorter reach application and for the longer reach applications you require a characteristic called zero-chirp and we believe where the first one is qualifying zero-chirp. We believe most of our specification and our product performance, are superior to the competition.

And I think as far as obviously JDS has invested for a long time, and really establish a nice footprint entering the market about a year half ago and earn it and we think we are a solid number two and we think Finisar is probably got about similar traction to where we are now, but we see, some of those value propositions in the long-term positioning us quite well.

Ehud Gelblum – Morgan Stanley

Do you think the bigger opportunities in becoming the second source of JDS consumers or is it going after new customers that are just getting into tunable XFPs for the first time?

Jerry Turin

Yeah it’s probably a combination, but I think it’s probably more there is a lot of market opportunities. I don’t think it’s a point where there is JDS is a 100% share and Finisar taking share from them, combination of that, but I think lot of it, there is just, just look at the sort of numbers we and even Finisar talk about in terms of customer or large number of customer engagement, large number of qualifications underway and I think that’s a testimony to a lot of market that isn’t being served yet

Ehud Gelblum – Morgan Stanley

Okay, so let’s talk about that market that something served, a lot of 300-pin transponders business can convert over to tunable piece overtime, you are in that business?

Jerry Turin

Yeah

Ehud Gelblum – Morgan Stanley

How larger you in that business right now and is there risk cannibalization or is there can you use that base for sort of branch of them.

Jerry Turin

So overtime there is no doubt that, there will be cannibalization. If I think about the markets that tunable XFP serves, from a shorter reach it’s our replacement for 10 gig fixed wavelength XFP which we don’t sell into, so that’s Greenfield for us.

Ehud Gelblum – Morgan Stanley

But you said that you are because of your zero-chirp you will started opening up the long reach opportunity

Jerry Turin

As well, we have negative make it sure.

Ehud Gelblum – Morgan Stanley

Right, I’m sorry.

Jerry Turin

We have both right so

Ehud Gelblum – Morgan Stanley

Right.

Jerry Turin

So we have the Greenfield in the fixed wavelength. A lot of Datacom service providers a lot of folks with the enormous Datacom centers our consumers have tunable XFP it’s almost a new market we are regardless. So again we’ll play in that market.

And then yeah as you get to the longer reaches, you are ultimately going to be displacing 300-pin, quite a few players in that 300-pin gig we’re up among the leaders maybe the leader in smaller form factor probably single-digit million we’ve been had a fairly significant presence, I think I’ll be quite over a fair period of time that ends being cannibalized again the zero-chip we are sampling and the zero-chip can be required for those longer distances tend to be a slow transition too because customers where you’re designed into it that has their equipment designed into a network application or not going to switch, so tends to be a long-term transition.

Ehud Gelblum – Morgan Stanley

So you think 300-pin business is safe for now because that’s a longer term story.

Jerry Turin

Right, I see

Ehud Gelblum – Morgan Stanley

Fixed wavelength.

Jerry Turin

In the short term I see no more growth in 300-pin and then I gradually see that transition into to erosion the future. So I think it’s more of a

Ehud Gelblum – Morgan Stanley

Its not that you’re saying but the near term opportunity the closer opportunity for tunable XFP is more in the datacenter and the short reach where you’re not going to be cannibalizing yourself?

Jerry Turin

I think so and I think that’s speculating of course but I think that’s probably JDS has made most of their foray and it kind of make sense when you think about a new product that’s a challenging product and appear first to market Datacom, applications or datacenter users are going to have much more relaxed specifications and much less stringent needs than required in the long haul transmission lines. So I expect that’s where most of the deployment has been focused in those areas today I would speculate

Ehud Gelblum – Morgan Stanley

Okay, let me see if any questions before I going on. From the audience. Please free feel to say something. Otherwise I’ll continue. Let’s talk about 40-gig modules.

Jerry Turin

Yeah.

Ehud Gelblum – Morgan Stanley

What does the market look like? What’s your position there? What kind of growth do you see it out of the business?

Jerry Turin

So we’re the clear leaders in the 40 gig merchant market, clear leaders in the DPSK modulation scheme and the first merchant supplier is a 40 gig coherent. We are up to fairly significant to our revenue level in the second quarter of introduction and believe we had continued market time to market advantage that gives us upward momentum. Coherent in the modulation scheme that will continue in 100-gig, so 100-gig coherent, our coherent world is really where the transmission side of this business is heading towards. People talk a lot about what is the 40-gig to 100-gig or 10-gig to 40-gig to 100-gig transition cycle looks like. Is 40-gig going to be a meaningful cycle…

Ehud Gelblum – Morgan Stanley

Right.

Jerry Turin

And that’s…

Ehud Gelblum – Morgan Stanley

Right. What’s your answer that as 40-gig is a real market for 40-gig…

Jerry Turin

Yeah, there is also a real market for 40-gig and it will be a long market that it won’t be a market as long and sustained as 10-gig and 100-gig will probably have characteristics of 10-gig in that regard but the timing of transition to 100-gig is quite a long cycle. And so 40-gig is going to have once had a significant run or continue to have a more significant run and as a 110, there’s 100 becomes cost effective. It tends to be in a lot longer reach applications because you save other network process helping to improve the economics of it.

You tend to see a gradual transition where 100-gig will gradually take more share, 40-gig will have a good run and we’ll gradually lose share to 100. And underneath that 10-gig will continue to have strong share for a longtime and it will gradually [moving] as well. So we tend to have fairly long-term side cyclical evaluations in these data rate and while 40-gig won’t be as bigger cycle as 10, it will be significant.

Ehud Gelblum – Morgan Stanley

What is the price delta, price ratio between 40-gig and 10-gig right now and 100-gig and 40-gig, is 40-gig more than four times 10-gig right now or is it basically…

Jerry Turin

Well it’s more, it’s more than that and again similar with the 100-gig, when you get into longer reach applications, there is other savings in the network that make it cost effective. So…

Ehud Gelblum – Morgan Stanley

Mainly the fiber…

Jerry Turin

Fiber some of the components on the fiber, some efficiencies it depends if you’re the quality of the fiber so forth. So you don’t have to be 4 to 1 and I’m not sure what the delta is now but it’s just getting closer to 4 to 1. 100-gig, there is really not transponder solution of 100-gig now. So when you think about 100-gig deployment, it’s mainly equipment companies with kind of system level or line card level of deployments that are quite expensive, very expensive.

So it was not enough that we’ll be announcing soon our 100-gig transponder and timing (Inaudible) and so forth. And I think by the end of this coming year, you’ll start to see merchant suppliers delivering 100-gig transponders in probably sample volumes but at that point, you’ll have something that you can start to do the 40-gig versus 100-gig comparative metric because we’re comparing the 40-gig transponder to the customer solutions at the system level now. It’s not really the economic proposition so much as customers is making the investments…

Ehud Gelblum – Morgan Stanley

Right

Jerry Turin

And getting that 100-gig footprint as well.

Ehud Gelblum – Morgan Stanley

And what’s interesting is the 40-gig market from the systems level has been around that for three years may be four years?

Jerry Turin

Yeah.

Ehud Gelblum – Morgan Stanley

You’ve got the merchant silicon, the merchant solution is only coming out sort of knowledge, I mean has been not merchant coherent of the product…

Jerry Turin

Correct, yeah.

Ehud Gelblum – Morgan Stanley

In the 100-gig world that is, there is some clearly seeing as the 100-gig solution and that’s sort of that, but it seems that the merchant coherent solution is coming out concurrently.

Jerry Turin

Yes.

Ehud Gelblum – Morgan Stanley

We’ve the systems guys as opposed to three or four years behind it.

Jerry Turin

Yes.

Ehud Gelblum – Morgan Stanley

How does that change the dynamic and the place that the merchant solution, your solution will have…

Jerry Turin

Sure.

Ehud Gelblum – Morgan Stanley

Versus the OEMs keeping their…

Jerry Turin

Well

Ehud Gelblum – Morgan Stanley

So that makes sense and then we’ll…

Jerry Turin

Well, certainly it will bring not all of the equipment providers are making investment on our gig solution. So they’ll bring them to market on prior with some of the dealers that are making investment at the system level solution. If I go back and think about the 40-gig evolution, you are referring to 40-gig coherent.

And in Nortel at the time their own proprietary system level solutions happen to be coherent. And they were leaders in 40-gig appointments, but two private companies Stratalight and Mintera and we’ve been acquired Mintera (inaudible) of course acquired Stratalight had quite significant 40-gig revenues in the other modulation schemes.

So I don’t think at that point so much coherent versus DPSK or so forth. I think where you saw us as the system provider with its own system level solution did very well. But you saw startups with right product at the right time have a really good run at an early stage of 40-gig, I’m selling to merchant guys as well.

And importantly from our point of view, as rigs from Stratalight Mintera’s products, which are responders not system level. So a lot of those deployments that went into some key network, we have the established footprint going back to that, once you get the upward prints in major network deployments from some of the major carriers. That continues to be an advantage and there is always continually built out and that’s why that’s not the erasion why 40-gig continues to, will continue to be a very good market for us, and it wont be a bigger site for 100-gig, it’s meaningful.

Ehud Gelblum – Morgan Stanley

Excellent, with that we need to wrap. Jerry, I appreciate for being here.

Jerry Turin

Thanks so much

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Oclaro's Management Presents at Morgan Stanley Technology, Media & Telecom Conference (Transcript)
This Transcript
All Transcripts