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Finisar Corporation (FNSR)

2012 Citi Technology Conference

September 6, 2012 9:30 AM EST

Executives

Eitan Gertel – CEO

Moderator

Welcome to our presentation with Finisar. My name is Kevin Dennean. I’m the comp equipment analyst here at Citi. We are very happy to have with us CEO of Finisar, Eitan Gertel.

Eitan Gertel

Good morning.

Moderator

Thanks for joining us, thanks for your participation at the conference. So it’s a pleasure to speak with Finisar. A couple of quick housekeeping issues, one is the closure up at the front desk, we encourage you to take a look at. Two, the webcast is being – I am sorry, the, presentation is being webcast. We are going to go slide by charts. We are going to leave plenty of time for Q&A from people in the audience. The one thing we would ask you is if you have a question, raise your hand, wait for a Mic to reach you so that people listening on the webcast can have the benefit of hearing your question. Last housekeeping point, what we are doing this year at the conference is we have three questions that we want to ask all of the companies. We’re going to collate the data and we’ll share that with you. And Eitan, I guess diving into those questions.

The first question we have if you thinking about your expectations for the back half of the year and obviously Finisar have reported just a couple of days ago. But if we think about expectations for the back half of the year now versus a mid-year. Things materially have been downgraded in terms of expectations, are things – is the back half of the year shaping up about the way you would have expected or is there actually some improvement?

Eitan Gertel

So if you look at our business, obviously our business is divided to Datacom and Telecom and Datacom has been strong and growing for the last many number of quarters and Telecom has been flat for the last six quarters. So we’ve seen – last quarter we reported it was probably the lowest Telecom quarter in while, but also what we reported is we guided for Optic revenue. So we guided for Optic revenue to like $225 million and $240 million. And majority of the Optic is coming from Telecom. So we have seen demand in Telecom improving specifically the demand improvement on the Telecom side come from WSS and Tunable XFP. There are other products that are growing but those two products are substantial improvement.

So we see improvement in the Telecom. I cannot, I am not going to sit here and tell you that there’s a huge demand coming in the second half of the year. We are encouraged that the demand is improving. We’ve seen robustness on the Datacom too. Our Datacom business is obviously changing quarter-over-quarter because overall Datacom is pretty robust in growing but the prior quarter we had 9% quarter-over-quarter, which means this current quarter we had a softer quarter but that’s changing if you integrated across the year you’ll see a continuous growth in our business. So we are encouraged, we are guiding up, it’s a great thing for us, but how big the second half of the year will be, I don’t know exactly how to say …

Moderator

Is the second half kind of in line with your expectations that you had at mid-year or as the economy issues in Europe is that starting to really have more of an impact than maybe you expected say in the May, June, July timeframe.

Eitan Gertel

Obviously the issues in Europe are slowing down the recovery. Our customers in Europe are not only European customers – they are worldwide companies who reside in Europe and export. So in some cases we see improvement from all OEMs in Europe but I am not sure if that output is going to Europe itself but definitely Europe is an overhead.

Moderator

So we want to ask about geography. So I think the tough part with Finisar where your ship isn’t necessarily where you product get installed, so we’ll skip past that. But let’s talk about cash on the balance sheet. I think Finisar is really differentiated in the Optical industry in that you have a good balance sheet, you have nice healthy cash position, you actually generate some nice cash. So what are – can you rank order for us from your perspective, priorities of cash in terms of M&A, dividends, share buybacks or just status quo. Keep on generating cash and keep on putting it on the balance sheet.

Eitan Gertel

So, obviously we have a very healthy balance sheet. We just acquired a company called RED C, and even post acquired the company for cash. We actually have more than $220 million as ending last quarter on the balance sheet. We have not had a decision made to do dividend or share buybacks. We are a company that is built on growth; we always add in technology, we are investing a lot of R&D. Right now we are extending our production facilities, we are fully booked in China, we have to build another facility which we announced last quarter and that’s our Wu Shi facility. So the use of the cash for us is either to do acquisitions or basically to finance the company going forward.

Moderator

Alright. Perfect. So let’s – before we talk about some longer term issues, you just reported – let’s just talk a little bit more about the quarter. If I recall correctly I think your July guidance called for a relatively constant mix across Datacom and Telecom. Datacom was in line with your expectation at down at 4.5%, the Telecom businesses was much worse. Can you – if we break Telecom into three buckets of ROADM, Tunable, and then other. Can you walk through what you saw happen through the quarter? Why the categories performed as they did, what some of the drivers were?

Eitan Gertel

Majority of the performance in Telecom depends on exactly the market demand. If you looked at our largest OEM that we deal with and those are the largest OEM around the world, you can see their performance and you can directly relate their performance to our optical Telecom performance. Now if you compare to some of our competitors, you’ll see they have a different dynamics in the revenue versus what we have and the issue with that is do they have some specific customers for specific products, do they have different set of customers who actually fair out better than our customers that we were aligned with. So the mix of revenue for our competitors was different and that’s why the dynamics on their numbers was different. In addition to that, we have not got any hits from the floods in Thailand, our competitors had. So they took a hit in the deduction of revenue a couple of quarters before and I think this was the last quarter when they are still showing quarter-over-quarter growth but that relates to a hit they took a couple of quarters before which we didn’t.

So I would say as you look forward and you see how we add products and how we actually qualify the new products with customers we didn’t have, effectively we are expanding our market share to the customers we didn’t have and we see that mix actually getting a lot better for us.

Moderator

So just staying on kind of the non-Tunable, non-ROADM part of your Telecom business. Can you talk about what where you seeing in terms of the pricing? We are hearing pricing in 10G from system’s vendors is particularly aggressive. We are hearing down 15% to 20% and at the same time we are hearing their volumes are coming under pressure. Have you seen that in your business?

Eitan Gertel

10G is a big component for us even though in Tunable for Telecom, price pressure I would say 10% to 15%, you have to remember that generally on Telecom, basically on Telecom we negotiate prices once a year and we implement prices, all the price reductions in January. So if you see price pressure, it’s not -- there are major customers which have all the price negotiated the year before. Our season of start negotiating prices going forward for Telecom starts in October/November of this year which we implemented in January 1. But in general if you look at the atmosphere right now, I don’t see much difference deviating much higher or much lower from the 10% to 15% historically.

Now, as the business migrates from more of a fixed channel towards to the tunable, you can an XFP moving from a fixed XFP to tunable XFP. The differentiation in the market because you can’t have that many suppliers who supply that device unless you are vertically integrated, then make you own tunable component that goes into that device, you almost have no way of getting that component to get into this market. So you start seeing that size matter and the ability to develop internal components matters and that generates differentiation. That may make the price war on the lower components, on the non-tunable maybe a little bit more aggressive.

Moderator

One or two last questions on your July results. ROADMs I think we are particularly weak in the quarter for you, in July quarter.

Eitan Gertel

I don’t know if it was particularly weak but I will say that it’s a low point but I said quarter-over-quarter they went down like the rest of the …

Moderator

Right, if was if I remember right it was 14 %?

Eitan Gertel

Yes.

Moderator

So what’s going on in the world of business because we’ve seen some improvement in other vendors for ROADMs? Is this the function of you are kind only as good as your customers on the ROADM. You are going to have a great ROADM but until you get design winds with the customers that are out there winning in the market, that your success is somewhat hinged on their success. Can you give us some insights of what you see happening in world as well?

Eitan Gertel

I think its two things. I think one thing in the weakness of the ROADM is the demand on Telecom. I mean how many systems going to get deployed, is how many ROADMs get deployed. You definitely depend on the customers you are associated with or you have as customers. And for that what I said is this couple of customers we were not associated with actually had better performance than others. We are already qualified with those customers that either WSSs or line cards. So our share there is ramping right now. So that diversity is actually expanding.

Now if you look at the overall ROADM markets that suffered from the Telecom softness as we migrate to the next peak, which you have to be upgraded because end market demand is still there. What’s being integrated into those systems is Flexgrid, everything is based on Flexgrid. So we see older system use either one-by-four, one-by-nine, whatever the port count is in 50 or 100 Gigahertz. Flexgrid is what is being implemented in all of the new systems that are being designed and being deployed. We are the only company who has Flexgrid across all our product lines. We actually introduced this concept more than five years ago and it took the market a while to actually warm up to this concept which allows the user to have the flexibility, protection and actually improve system flexibility. So we are in large of customers right now with our Flexgrid products and my expectation is you are going to start seeing 2013 as those products, just top the product to manage from the system management, because not only they are switching on the wavelength, now they have a flexibility of opening different routes and different bandwidth on the fly without interfering with traffic flow. So just for system to take advantage of that, the system management takes time to develop, but they are already into RFQ, they are already in orders then they started to being deployed. So I expect that in 2013 to grow much faster.

Moderator

And following up on ROADMs, your WSS components has always been or largely has been a duopoly between Finisar and JDCU. One point of difference between JDCU and Finisar is that they’ve had more success in ROADM line card solutions. You had a ROADM card solution I think maybe it gets back to your performance in the ROADM line cards where is largely a function of the performance of your customer in the market. You sounded I think enthusiastic about Flexgrid ROADM line cards. The point that you are just bringing up now, your excitement about 2013. Should we think about that as hitting on -- as positively impacting ROADM line cards for you and what will that mean for the P&L for Finisar?

Eitan Gertel

So if you look at the overall ROADM business WSS, we talked about WSS alone as the Flexgrid component. Line card, we have historically one line card of customer. So we were depending on that specific customer for the last four years. The way his demand moves our line card performance. Our effort in line card started about a year ago. It’s a much more broad effort because now we don’t only make the WSS, we make the Optical amplifier itself, we make the Channel monitor itself. So 100% of the hardware goes into the line card is made in Finisar. And now we are broadly starting offering it to other customers. We have won a large number of customers and now we are developing this. The problem with line card is it takes about 12 to 16 months from the time you start developing the line card until it deploys in the system because line card until it deploys in the system because it’s not just a component off the shelf. If you give the customer and every customer is different. There is not MSA for line card. So the first impact of revenue from line card will starting to hit right now as it’s ramping but in more significant impact to the revenue will be at the beginning of 2013 calendar year.

Moderator

So I think one thing with line cards as you point out, you are not just getting paid for the WSS, you are getting paid for the WSS, OCMs, the Amps, you are probably also getting paid for some level on that design work that you are doing and if we use JDCU as an example we are talking about 50,000 lines of code, maybe more. How should we think about that impacting gross margins? Can you maybe size for us every additional 10 or 20 million or however you want to do it? Just help us understand what the impact to gross margin can do from ROADM line cards as that ramps?

Eitan Gertel

I think if you look at ROADM line cards is because you have a combination of Optical components and then you have a lot of circuitry in the back of ROADM which is basically electronics, which adds to the cost. Effectively the gross margins on the ROADM cards will be slightly lower than just the components themselves. How much lower are you talking about? The 5% type average gross margins which lower than just cylinder components itself, but we expect it to be well within maybe even slightly higher than our average gross margin company wise.

Moderator

So let’s turn now and talk about your guidance. Beginning of our conversation you talked about your – since our guided for positive sequential growth in the quarter led by Telecom. Telecom I think for about this past I don’t know if it’s five or six quarters or something like that, we’ve contraction in the business. When -- nobody has perfect visibility into end demand, it’s a modeled macro environment but if you are biased right now to think that we’ve seen a low in Telecom or is there still kind of a concern that the strength that you are seeing is really just a snap back from the weakness that you saw in July. Have we seen a definitive bottom-and-turn in Telecom?

Eitan Gertel

So it’s tough to say what I would tell you is that demand growth has been seen is not coming from one customer, it’s a broader and it’s indifferent in a very variation of absolute number I mean some customers are stronger than the other but its more broader than just one customer or coming back, which is a good sign for us. The second thing is obviously we go from the low to a higher quarter. It’s still a ramp but you can see the magnitude of them on those two products is pretty significant so it’s not just snapping back a quarter before, it’s more than that.

We feel better that theirs is a snap, we feel better that there is a broad interest and demand on other products. Is that start of the growth of the ramp going to continue forward? I can’t tell for it 100% but if we look at 2008 when the demand stopped and then in one quarter it just turned on and we are going 15% to 20% for us quarter-over-quarter for six quarters in row, I don’t see 15% to 20% right now, but it definitely feel much better for us when we the overall demand like that.

Moderator

So one thing that we’ve thinking about is – I think investors are accustomed to kind of these new shape to recoveries and Optical and some of that is supply chain dynamics, right? Your customers probably worked at inventories too much, lead time shrank and shrinking lead times we get shorter lead times and then you get a V-shaped recovery as soon as everybody realizes that the world is not ending and we are all going to watch YouTube. But is there anything different in this recovery? Have you moved a lot of your Telecom business to VMI or is it still vendor management inventory which means you don’t have customers giving you orders per se, you are depositing inventory at hubs or is the Telecom business for the most part still operating under traditional kind of ordering, booking methods?

Eitan Gertel

Telecom business is virtually all VMI, our Telecom business VMI used to be in the 15%, 20% and now it’s more like 35%, 40%. So the VMI percentage of the business is growing. Some of it is hub that we hold in our facility for our customers; some of it is VMI and their location depending on the level of the customer. Obviously when the industry was down for six quarter level of VMI towards us actually went down a little bit. We expect that to grow but if the question is the problem we have in 2008 we were allocation for many quarters in a row, we couldn’t catch up. Today, we have most of our – virtually all of our production in China. We have much more capacity plugged into our manufacturing. We have a lot more VMI with our customers so our ability to answer demand growth…

Moderator

Getting much booking ship, right?

Eitan Gertel

Booking ship is much quicker and we are much more vertically integrated so we have more control on supply. We still depend on certain IPs and some outside vendors, but a lot of sensitive optical components that before we had to source outside. Now it’s all under our control. So our ability to answer demand growth is much, much stronger.

Moderator

So let’s turn now and talk about some kind of higher level issues, some longer term issues in the industry. We’ve seen some I would say significant consolidation in the industry of late. Finisar has been a consolidator. You’ve been a part of that process. What are your thoughts on the Oclaro/Opnext merging in terms of what does it do for the industry? Because in the past we’ve heard Jerry say what the industry kind of needs is a reduction of capacity. This isn’t a reduction of capacity, but the Oclaro/Opnext merger seems fairly complementary. Will this help rationalize pricing?

Eitan Gertel

So the way we look at this is, the industry in total needs consolidation and consolidation is good for us. So my point of view this consolidation is helpful. The question is, so first of all from their point of view they have a big hurdle to climb by combining two companies and their projections the way they’re making. They have a lot of work to do. But as it relates to Finisar, the more combination you’re going to have, the more people are forced to be profitable in generating cash in our model, the more rational pricing will become and that’s always good for us. Now, the question is, would we be the consolidator rather than let the market consolidate without us? We would love to be the consolidator but every time we look at those data it has to make sense, it has to be accretive and it has to be accretive in the relative short term. Relative short term is the way we look at it less than a year. So, unless you can get both sides to agree to something that’s manageable, it’s impossible to do.

Moderator

So you just mentioned that you like to be consolidator, but when we look at the optical landscape, are there really any significant consolidation opportunities left?

Eitan Gertel

The more we wait the less there are. But yes, right now there’s obviously less players and the number of targets is lower. We continue to buy technology. We have continued to buy smaller companies and add on a token-type acquisitions to broaden our product line. Now, what you would see with that the longer the time passes, the more technology we had, the tougher it would be to represent an accretion with other companies because the broader the base you have to just buy capacity and shut it down rather than having accretion on technology.

Moderator

Is there any reason that we should hold and hope that the traditional 10% to 15% ASP declines in the industry become 7.5% to 10%?

Eitan Gertel

I think so but I don’t think it’s this year. I think as – what you would see as the industry goes to a higher bit rate and you go to 100 gig and beyond, then the ability to compete on that becomes – depending on the critical mass you can afford in your R&D and the people who do the R&D do not want to offer those components to the general market. They just want to sell their overall modules. So access to technologies and have critical mass to do those types of products will limit the number of suppliers. The more commoditized markets will still be aggressive. The less commoditized markets will be more realistically you can get faster return on investment or better gross margin or better behavior on price reductions. But I just don’t see it happening this year. I think this year we’re still within the same range. But as time passes and the more mix of product goes through the higher end product, I think this will become better.

Moderator

So I think we look at Finisar’s operating margins, we look at some other leading optical component player operating margins and I think people, if we had this conversation two years ago and I said these are the margins that the industry will print in the midst of the downturn, people would have been shocked. So the industry has held up a lot better in this downturn. But there’s this dynamic where the component guys are actually out earning their customers. So I want to take it back to the notion of price and price pressure from your customers. How long is this sustainable? How long can Finisar and JDSU and others out earn their customers?

Eitan Gertel

Well, I don’t know how to answer that because our customers have a different business than us. They sell systems. Their core competency is system design and software really and how do you see enough movement of hardware to us and system design to them. The market will have to balance at some point it says what’s the right mix. Would they buy more line cuts and put more of their R&D in their core competencies? Would that change their model or is there too many system providers fighting for the same business? I don’t know how that dynamic is settling out, but in reality the way we got to our operating margin is we are the lowest cost producer in this market. We’re the most vertically integrated company and we are basically, our manufacturing is in Asia, whether it’s, out of the 9,000 employees in the company, less than 1,000 are in the US.

The majority of our employees are in Ipo, Malaysia or in Shanghai, China. So we have moved the company to a cost structure that allows us to deliver this type of performance and within that we’re actually investing significant amount of our operating costs into R&D. Right now our R&D is running on $140 million a year. So how is this all balanced out, I don’t know. Obviously there’s a pressure with our customers have challenges in their gross margins. But I think you’re going to see this leveling out as some of their hardware R&D moving towards like with the line card help towards us. They concentrate on the core competency.

Moderator

So we’ve heard of some of your customers – so some of your customers have done acquisitions that seem to be speaking of getting back into more of a vertical integration model because I think hearing what you just said, the optical component industry is out earning the customers because of consolidation. Finisar is finishing well because the vertical integration in low cost structure. We’ve seen some of your customers do some acquisitions. We’ve heard of some of your customers actually making an effort to build their own transceivers, like one in particular. What are your thoughts on some of the acquisitions that your customers – that a couple of your big customers have done? And what are your thoughts around one significant inquiry in the optical systems market trying to make transceivers which wouldn’t make a lot of sense for me from where I sit but…

Eitan Gertel

Look, everybody makes their own plans. The way we look at this is, that’s what the industry has been in the past and that’s what the industry diverted out of because they said I cannot afford the R&D to be number one in all the products I need to make and still only supply the component to myself, not to my competitors and that’s why you have merchant suppliers like us which supplies to everybody and effectively dividing the R&D cost over the product line. So somehow they want to generate differentiation. They have other things that drive them. I don’t think at the end of the day we have to prove that we can deliver products that enable the customer to do what they want at better time to market and better cost so they can even it do themselves.

We’re in the business of doing it for years and we will continue to do it. We’re investing in R&D. we do in all the things we need to do to basically prove that we bring better value than what they can do on their own. In some cases they can do separate things that – different things that will work well for them, that’s okay. But I think at the end of the day our differentiation and our value in this market is by you just deliver that value to customers and that’s what we’re committed to do. And I think we’ll be good.

Moderator

So I’m going to ask another question and we’ll turn it out to the audience. We’ve got about 10 minutes left to see if there’s any questions. Can we get your thoughts on optical and silicon photonics? We’ve heard Jerry talk about that. The notion of silicon photonics has been around for a long time and you at least done it very successfully. What are you seeing there? What are your thoughts on particularly the acquisition which was made by a large customer? I guess in the meantime let me jump in to finish the question. I guess what I’d really be interested in your assessment of what the potential impact on Finisar revenues would be from that.

Eitan Gertel

Well, we don’t know. We don’t think if there are hopefully successful still a long term thing for them to develop the product and we’ll see what happens and historically the customer as you’re talking about even if they develop their own, they still go alone. Their business units will decide how much they buy internally, how much they buy from people like us and it depends who brings the value to them for their product. The way we look at Silicon optics is it has been in existence for a long time. It’s sort of a solution looking for a problem for a while and we still think that the line of products we have we haven’t found the right application where we think it actually solved something that cannot be solved otherwise whether with by direct modulation or any other solution we have.

The one thing you have to remember about us, if it comes to a system that does need external modulation, I don’t need to use silicon to solve my problems because since we make our own external modulators indium phosphate, we can make array of those modulators on one tiny chip and that can be very, very efficient solution for us. For people who don’t own their own fab, it may be a different issue. So can you go to a silicon fab and have them develop the modulator for you to do it? It’s a question. How much is that modulator going to cost you? But when you own your own indium phosphate fab and you make your own modulator, maybe even or just the modulator to modulator comparison you have a more efficient way of doing it that way.

Moderator

So it’s really a vertical integration issue here?

Eitan Gertel

It’s vertical integration issue and then comes to the full times. You’ve got to have the efficiency, to have the thermal efficiency and overall you get better performance and our view right now is we have a number of ways to address it and by the way if we need access to silicon photonics we have the access too.

Question-and-Answer Session

Moderator

How about we see if there’s any questions from the audience.

Analyst

We are seeing a broader recovery in the telecom side. Can you talk about the datacom side which has been strong? Are you seeing let’s say action there?

Eitan Gertel

Datacom is going great. Datacom is driven by data centers and growth. Data centers growth have been robust for many quarters in a row and we’re very excited about that business. One thing that’s been going strongly in the data centers is 100 gig 4 by 25 CSP LO4 device is very, very strong for us. We have all the QSSP 10 gig and pluggable devices which actually offer a much higher density. That’s a high growth device for us and 10 gig overall is very, very good in data center. So what’s driving the datacom business is data center growth which is everywhere you look. The data centers are growing and the high bit rates in a data center is actually growing very strong.

Moderator

Okay. And the other question was, in the last cycle where you had significant over ordering, you had an underlying growth rate that was probably much less. Do you have a sense of what the underlying growth rate was over the last two years in telecom side and what’s the delta for the next few years? What’s the normal growth rate you think?

Eitan Gertel

Which over ordering? Are you talking about an ’08?

Moderator

Yeah. Through the last cycle, through the Chinese builders.

Eitan Gertel

Yeah. So if you look at a telecom piece in ’08, so the demand growth was about 15% to 20% quarter-over-quarter for six quarters in a row. Some of it was catch up of the industry what was not bought. So if you look at an overall CAGR is about 11% to 14% take your pick. You say it takes me about four, let’s leave four, five quarters like that to catch up to what we have missed when nobody was buying anything. If you look at our quarters we went as low as $108 million a quarter at the lowest point and from that point we started growing until we got to about $260 million a quarter over six quarters. Now, the industry have over, it’s human nature to over buy when they have shortage and we were in capacity limitation. So we couldn’t supply in the lead time that they wanted. So people over ordered in order to over compensate for that. There probably was a quarter or quarter and a half when people overbought and still got shipments and then the demand has stabilized. Now I think question is do I expect that to happen again?

Analyst

(Inaudible) book rate do you think?

Eitan Gertel

We probably won’t get that double ordering like we did I would assume. I don’t know because the industry has not updated as much capacity as they have done in the past. From what our customers are telling us demand or capacity utilization and system is very high currently, more higher than usual and end customer demand for bandwidth keeps growing. People buy more phones, they transfer more videos so that end customer demand is very robust going forward. So the longer they wait with more significant upgrades the bigger the step function is going to happen. So I don’t know if it’s going to be as significant as 2008 or not, but end customer demand is still robust and it proved in 2008 it didn’t stop and it’s right now the same situation.

Analyst

What would be the normal growth rate then do you think?

Eitan Gertel

I can only point to a third party study which says the CAGR is about 11% to 14% depending on the product mix.

Moderator

We have another question from the audience. I’ll follow up on that. So not too long ago we heard both Cisco and Juniper reset expectations lower longer term. 11% to 14% seems high versus their very pedestrian single digit rate. Is there a way that you can bridge that delta for us? You’re saying that you rely on third party estimates, but from where we sit should we think about those estimates maybe being old at this point? Or is that view of the market being dated off where maybe the system guys have pretty good visibility into what revenues will grow?

Eitan Gertel

Obviously our biggest customer is affecting us. So that’s the projection affecting us. But they have much broader business than what we address in their business. So if we sell a transceiver to an enterprise business, I don’t think they just say that the enterprise itself is going to be slower. They said overall business is slower. So you have to translate the mix, how it relates to our business versus their overall business. The other thing you see in that 11%, that’s a mix of old transceivers. It’s telecom and datacom combined. So between that you’ve seen when some of our customers say they have down quarter-over-quarter or very flat quarter and we actually had growth.

A large portion of our growth in the company historically have been from new products. So you can either look at a datacom market today and say it’s actually weaker than your growth, than Finisar growth because a lot of our growth comes from new product and new product deployment. So when we look at the market available for us and how we grow, it’s always a mixture between available market share and current products as demand grows and new products which we are introducing to the markets and growing. Past year we talked a lot about 100GB and the huge part of our growth and that’s the product that two years ago may not have been projected as part of the compnany.

Moderator

I think we have time for one more question. Anybody? Okay, I’ll take the opportunity then. So you mentioned 100G and let’s talk about 100G in telecom. Right now most 100G solutions and let’s focus on the transponder side. So those are in house designs and 100G seems to be quickly displacing 10G. What impact is that having on Finisar?

Eitan Gertel

So we actually have growth in 10G because for a telecom side you’re looking at FSPs actually growing and this quarter has actually grown faster than either…

Moderator

And that’s the 300 pin replacements primarily?

Eitan Gertel

Not yet. A lot of it goes to 300 pin replacement, but not much of it is cannibalizing our own 300 pin. So you can talk about it as market share growth or actually addressable market growth. It depends how you look at it. But so that’s – if you look at a 10G cannibalized by 100G, obviously there is some overhang there but we haven’t seen a major effect from that yet. If you look at our access to 100G, we’re already sampling our 100G coherent to customers. We have another version of 100G which is a 4 by 28 which already sampling and selling to customers. So we are addressing the 100G in telecom also. We have 100G datacom which is 4 by 25 and we have 100G in telecom with two versions and that should be a large growth. But the 100G contribution, the most significant contribution on telecom will be toward the end of 2013.

Moderator

Okay, terrific. I think with that I think we are out of time. Thanks everybody for your time. Eitan, thank you for your participation. Good having you hear.

Eitan Gertel

Thank you.

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Source: Finisar Corporation's CEO Presents at the 2012 Citi Technology Conference (Transcript)
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