A hedge fund manager who wishes to remain anonymous owns Finisar Corp. (NASDAQ:FNSR). (Note that Jim Cramer has also been bullish on Finisar.) Here’s his exlanation of why he owns the stock, taken from a January letter to investors in his fund:
In December, I traveled to Asia (where I’ve been developing a network for the last 3 years) and also India for the first time. Soon after, I attended The Consumer Electronics Show in Las Vegas. Both trips reinforced some successful themes for the fund in 4Q, and uncovered some new ones as well. Home theatre and mobile wireless broadband continue to grow rapidly, with ever larger LCD TVs, new feature rich mobile phone/PDAs in abundance, and IPTV now becoming a reality. China in particular appears to be poised for a large and rapid roll-out of IPTV over the next several years.
Our view is that these trends will drive demand for the network pipes themselves, which are currently being upgraded around the world. Specifically, fiber-the-to-the-home initiatives in the US, Euorpe, and Asia are driving upgrades to the optical access network. Verizon, British Telecom, China Telecom, and other large players are engaged in upgrades/expansions of their fiber networks to help enable next generation services with an emphasis on video. Network edge equipment, like routers and switches will require significant upgrade to optical interfaces in order to handle this traffic load.
Our play in this area is laser supplier Finisar, who struggled for five years in the optical “melt-down” but started to see firming trends last summer, and was the first optical company to return to profitability. We believe that Finisar and others will show solid secular growth and cash flow generation in the coming 2 - 3 years, now that a protracted secular industry contraction has finally reversed.