Finisar's Outlook Disappoints

| About: Finisar Corporation (FNSR)

Optical communications components provider Finisar (NASDAQ:FNSR) reported weak first-quarter results and issued disappointing second-quarter guidance. Revenue during the first quarter fell 3% year-over-year to $220 million, slightly lower than consensus expectations. Non-GAAP earnings were essentially flat at $0.12 per share, though that was a few pennies shy of the consensus expectation. However, the company's outlook was even more under-whelming, with the firm forecasting second-quarter earnings of $0.12-$0.16 per share on $225-$240 million (lower than the consensus estimate of $0.19 per share in earnings on $236 million in revenue).

Finisar's results echoed what we heard from Ciena (NASDAQ:CIEN) last week, citing lower demand as a result of weakness in Europe. The firm also attributed the weak telecom spending to slowing growth in China. Still, Finisar expects revenue to grow sequentially and operating expenses to remain flat, so profitability should improve in coming periods. Specifically, the firm expects operating margins to be in the range of 5.7%-7.2% compared to its first-quarter operating margin of 5.4%. In its quarterly commentary, management remains excited about product launches that occurred in the both its datacom and telecom business lines. The company also expects the integration of its RED-C Optical Networks acquisition to improve efficiency while accelerating top-line expansion.

Though the firm carries negligible debt and is poised to expand margins going forward, we aren't huge fans of the company at current levels. Finisar receives the vast majority of its revenue from outside of the US, where the growth picture remains blurry. The company scores a 6 on our Valuentum Buying Index and falls within the bounds of our fair value range. We continue to prefer Cisco (NASDAQ:CSCO) in the networking arena on the basis of its dominant market position, echoed what we heard and strong cash stockpile.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.