Finisar At Risk Of Profitless Prosperity
Stephen Simpson, CFA
Stephen Simpson, CFA
Finisar May And Should Help Start Consolidation
Darspal S Mann
Darspal S Mann
Wed, Mar. 16, 1:52 PM
- Oclaro (OCLR +5.4%) has begun producing 100G QSFP28 optical transceivers that respectively have 2km and 10km ranges. The products are meant for 100G data center switch interconnects - a fast-growing market thanks to the insatiable capacity/performance needs for Internet giants - as well as conventional router and optical transport system interfaces in core telecom networks.
- The company has also unveiled 25Gbps laser diodes for its 25G and 100G transceivers - Oclaro argues its support for non-hermetic packages (lowers a device's footprint and costs) will aid data center adoption.
- The announcements come ahead of the optical networking industry's annual OFC conference (runs from March 20-24). Oclaro plans to demo both its 100G products and next-gen 400G offerings.
- Last week, rival Finisar (FNSR +3.7%) mentioned on its FQ3 earnings call (transcript) it expects QSFP28 100G transceiver sales to ramp this year thanks to strong data center client demand. CEO Jerry Rawls: "The growth rate [for QSFP28] will be very impressive for us and probably the highest growth part of any of our product lines that we sell."
Fri, Mar. 11, 1:21 PM
- Optical component vendors Fabrinet (FN +6.3%), Alliance Fiber (AFOP +3.8%), and NeoPhotonics (NPTN +4.6%) are rallying after Finisar (FNSR +18.3%) posted mixed FQ3 results, offered in-line FQ4 sales guidance and above-consensus EPS guidance, and forecast datacom sales would pick up as Web 2.0/hyperscale clients deploy 100G transceivers. Telecom chipmakers Inphi (IPHI +3.8%), Cavium (CAVM +3.9%), and AppliedMicro (AMCC +4.4%) are also doing well. The Nasdaq is up 1.3%.
- Craig-Hallum's Richard Shannon and B. Riley's Dave Kang have upgraded Finisar to Buy. Shannon thinks the FQ4 guidance suggests Finisar could be reaching a turning point, and sees 100G component adoption providing a margin boost. Kang is also upbeat about 100G sales.
- Piper's Troy Jensen (Overweight rating, target hiked by $3 to $20): "The upbeat FQ3 results and forward guidance were driven by robust demand for 100G Telco and Datacom optics. We believe telco strength continues with demand from China driving near-term upside and U.S. metro deployments will act as a tailwind in the back half of 2016 ... We also believe Finisar is one of the first to materially benefit from the 100G Datacom cycle, and expect QSFP28 [100G transceivers] to grow meaningfully for the next several quarters. We are expecting the real QSFP28 inflection to begin in 2H16, and believe this accelerated demand will be reflected in the July quarter guide."
- On the earnings call (transcript), CEO Jerry Rawls stated Chinese demand is benefiting from long-haul and wireless buildouts by the country's big-3 carriers, North American demand from metro buildouts, and broader telecom demand from sales of wavelength selective switches, ROADM line cards, and 100G/200G transceivers. He added Finisar is capacity constrained for the aforementioned products, and is building capacity to address the issue.
- Component makers rallied last month in response to good numbers from Oclaro and Fabrinet.
Fri, Mar. 11, 12:46 PM
Fri, Mar. 11, 9:17 AM
Thu, Mar. 10, 5:38 PM
Thu, Mar. 10, 4:25 PM
- In addition to beating FQ3 EPS estimates (while missing on revenue), Finisar (NASDAQ:FNSR) is guiding for FQ4 EPS of $0.22-$0.28, above a $0.21 consensus. Revenue guidance of $307M-$327M is in-line with a $314.7M consensus.
- Financials: Boosting FQ3 EPS: Non-GAAP operating expenses fell by $0.7M Q/Q and rose by only $2.2M Y/Y to $67.3M. Also helping: Gross margin rose 30 bps Q/Q and Y/Y to 30.3%, slightly beating guidance of 30%. FQ4 GM guidance is also at 30%. Finisar ended FQ3 with $531M in cash and $228M in convertible debt.
- Top-line performance: Weighing on sales: Datacom revenue fell 6% Y/Y to $219.3M. However, telecom revenue rose 25% to $89.9M. Datacom sales were hurt by lower 40G transceiver sales stemming from reduced capex by Web 2.0/hyperscale data center clients (that should soon be changing) in anticipation of next-gen 100G transceivers. Strong wavelength selective switch demand fueled telecom growth. Various telecom component vendors have been seeing strong demand related to 100G buildouts.
- Finisar is up 8.6% after hours to $15.40. Rival Lumentum (NASDAQ:LITE) is up 2.4% to $25.06. Both companies were stung on Tuesday by U.S. sanctions placed on China's ZTE.
- Finisar's FQ3 results, earnings release, slides (.pdf)
Tue, Mar. 8, 9:50 AM
- Several suppliers for telecom equipment makers have sold off following news the U.S. Commerce Department has imposed sanctions on ZTE over alleged attempts (using shell companies) by the Chinese telecom equipment maker to re-export items to Iran.
- At issue: U.S. suppliers will now have to apply for an export license before shipping any American-made parts or equipment to ZTE. ZTE can appeal the decision, which (naturally) has been criticized by Chinese authorities.
- Optical component vendor Oclaro (OCLR -14.4%) is the biggest decliner. Other apparent casualties include component peers Lumentum (LITE -6.3%), NeoPhotonics (NPTN -4.8%), Fabrinet (FN -5%), and Finisar (FNSR -6.1%), and telecom analog/mixed-signal chipmaker Inphi (IPHI -4.6%).
- In a brief statement, Oclaro notes ZTE is expected to account for over 10% of its FQ3 (calendar Q1) revenue, and that FQ3 revenue is now expected to be at the low end of the guidance it provided in its Feb. 2 FQ2 report. "Oclaro is currently reviewing the impact of this action by the Department of Commerce on our ability to continue to ship products to ZTE and intends to fully comply with the Department's final rule."
- Update: Though U.S. ZTE suppliers can apply for a license, the Commerce Department says it's operating under a "policy of presumption of denial" for granting licenses.
Wed, Feb. 3, 1:32 PM
- Though the Nasdaq is down 1.5%, many telecom equipment and optical component firms are rallying after network test equipment/telecom software provider Viavi (VIAV +17.6%) and optical component vendor Oclaro (OCLR +11.4%) beat calendar Q4 estimates and issued strong Q1 guidance.
- The list includes optical networking hardware firms Ciena (CIEN +3.9%) and Infinera (INFN +4.9%), component vendors Finisar (FNSR +5.3%) and Alliance Fiber (AFOP +2.2%), Wi-Fi hardware provider Ruckus (RKUS +3.5%), and VoIP and 4G signaling hardware/software firm Sonus (SONS +2.5%).
- Component maker NeoPhotonics (NPTN +14.7%) is posting double-digit gains, aided by an upgrade to Strong Buy from Raymond James. RJ says its checks point to strong sales fueled by Chinese demand and 100G metro optical buildouts.
- Oclaro guided for calendar Q1 (FQ3) revenue of $97M-$100M, soundly above a $90M consensus. The FQ2 beat was fueled by a 21% Y/Y increase in 100G product sales (53% of total revenue), which offset a 7% drop in sales of 10G and lower-speed products (35% of revenue). (earnings release)
- Viavi's beat was aided by a 5.7% Y/Y sales increase for the company's core network enablement (test instrument) business. The unit delivered Y/Y sales growth for the first time in five quarters. (earnings release)
- Viavi and Oclaro's numbers came shortly after optical component contract manufacturer Fabrinet soared in response to an FQ2 beat and strong FQ3 guidance. Fabrinet's revenue from 100G programs nearly tripled Y/Y in FQ2.
Fri, Jan. 8, 11:21 AM
- Believing slowing growth and tough competition will weigh on optical component vendors, Barclays' Joseph Wolf has downgraded Finisar (FNSR -3.3%) to Equal-Weight and Lumentum (LITE -0.2%) to Underweight. His targets are respectively $17 and $19.
- Wolf on Finisar: "We believe that investors should not be too excited by the seasonal uptick in 3Q and 4Q and while metro [networks] could be a driver in telecom we do not think it is enough to support double-digit growth or significant margin expansion." He also thinks the top-line, competitive, and margin pressures that weighed on Finisar in 2015 could do so again in 2016.
- Wolf on Lumentum: "Our main concern is that optimism surrounding the opportunity in telecom is at its peak and that following the next few quarters, we do not have a clear line of sight on a next leg for growth." He sees optical gross margin remaining under pressure for the foreseeable future (industrial lasers are considered a relative strong spot), and still thinks Finisar warrants a higher multiple than Lumentum due to its strong datacom growth.
- Needham offered a more bullish take on Lumentum last week, naming it (along with Oclaro and Fabrinet) a top optical component pick.
Dec. 11, 2015, 6:10 PM
- On a brutal day for equities, Lumentum (LITE +4.1%), Oclaro (OCLR +1.5%), NeoPhotonics (NPTN +0.8%), and Fabrinet (FN +0.2%) stayed green after peer Finisar (FNSR +22.3%) beat FQ2 estimates on the back of strong telecom optical component demand, and offered slightly soft but better-than-feared FQ3 guidance.
- On its earnings call (transcript), Finisar forecast telecom component sales will rise Q/Q again in FQ3 thanks to continued strength for 10G tunable transceivers and wavelength selective switches, as well as healthy Chinese demand. Datacom component sales are expected to "decline a bit" Q/Q, as 100G Ethernet transceiver demand is offset by "lumpiness in demand at multiple large data centers" for 40G Ethernet transceivers, and lower Ethernet transceiver sales for wireless applications.
- When asked about Chinese sales (under pressure for many telecom suppliers in recent quarters due to soft 4G network spending), CEO Jerry Rawls stated several catalysts were boosting demand. "Wireless is pretty strong in China. I think we don’t participate in the [passive optical network] market, but they are spending a lot of money on [it]. The long-haul upgrade program for 100-gig coherent [optical networks] is well underway and is moving in a very positive direction ... In addition they are building a number of big data centers over there..."
- Needham's Alex Henderson reiterated a Buy rating and $18 target on Finisar. "We had been bracing for worse, but improvements out of China and strong volumes were enough to offset pricing pressures in Data Comm. Further, improving demand in ROADMs and T-XFP [transceiver] 10G metro aggregation products helped results. Despite the solid quarter against low expectations, the guide was still softer than our and Street estimates. As a result, we are trimming estimates. But we think we have not only found a base, but the bad news appears to be over for Finisar."
- The gains came a day after several telecom equipment and optical component makers sold off in response to Ciena's disappointing guidance.
Dec. 11, 2015, 12:47 PM
Dec. 10, 2015, 5:36 PM
Dec. 10, 2015, 4:12 PM
- Finisar (NASDAQ:FNSR) has jumped to $13.05 after hours after posting an FQ2 beat. FQ2 sales strength is attributed to strong demand for Finisar's 100G Ethernet transceivers, as well as rising sales of 10G tunable transceivers, and wavelength selective switches (WSS) among telecom clients.
- FQ3 guidance is for revenue of $300M-$320M and EPS of $0.19-$0.25. That's below a consensus of $318.6M and $0.24 at the midpoints, but better than feared given low expectations. Shares went into earnings less than a dollar above a 52-week low of $10.66.
- Top-line performance: Datacom revenue rose 0.2% Q/Q and 8.3% Y/Y to $233.8M; 100G transceivers were a strong point, while 40G transceiver sales fell following a record FQ1. Telecom revenue rose 8.2% Q/Q and 7.8% Y/Y to $87.4M.
- Financials: Gross margin (non-GAAP) fell 20 bps Q/Q and 110 bps Y/Y to 30%, but was in-line with guidance. FQ3 GM guidance is also at 30%. Operating expenses fell by $0.4M Q/Q and rose by $0.7M Y/Y to $68M. Finisar's cash balance rose by $25.1M Q/Q to $520.8M; convertible debt totaled $226M at quarter's end.
- Finisar's FQ2 beat, earnings release
Oct. 28, 2015, 1:42 PM
- Optical component vendors NeoPhotonics (NPTN +12.6%), Oclaro (OCLR +9.4%), Viavi (VIAV +6.9%), Finisar (FNSR +3.8%), Alliance Fiber (AFOP +4%), and Fabrinet (FN +3.1%) are rallying after optical transport hardware vendor Infinera (INFN +14.6%) beat Q3 estimates and issued strong Q4 guidance. Infinera rival Ciena (CIEN +3.4%) hit yesterday by a bearish Off Wall Street report, is also doing well.
- For Oclaro, the shoe is now on the other foot: Infinera rallied last week after Oclaro pre-announced strong calendar Q3 sales.
- On the earnings call (transcript), CEO Tom Fallon stated Infinera saw "a substantive increase" in sales of its Cloud Xpress data center interconnect platform. Cloud Xpress customers now stand at 14 (up from 12 as of July), and growing machine-to-machine traffic within data centers is expected to boost demand for 100G interfaces. Infinera's core long-haul system sales were also healthy.
- Fallon did admit Infinera is seeing "some conflicting signals" regarding market demand. "On one hand, we are seeing some pockets of slightly softening demand. On the other, we're seeing positive indications in the industry, such as lead-times extending for optical components and continued capacity expansion from cloud providers." The optical component remarks might be contributing to today's rally in component makers.
- Needham's Alex Henderson, who upgraded Infinera earlier this month, is reiterating a Buy rating today. "Infinera reported a strong quarter and offered a strong guide in its first quarter with Transmode partially in the base and fully in the CY4Q guidance. Negative commentary on the Street on INFN and CIEN regarding industry price pressure has set-up a solid entry point and we expect investors will take advantage of this recent weakness."
Sep. 11, 2015, 12:45 PM
- Finisar (FNSR -18.4%) has plunged to its lowest levels since 2012 after missing FQ1 estimates, providing soft FQ2 guidance, and announcing chairman Jerry Rawls is replacing Eitan Gertel as CEO.
- Optical component/module peers Alliance Fiber (AFOP -4.6%), Lumentum (LITE -2.3%), and Oclaro (OCLR -6%) are also off, as are equipment vendors Infinera (INFN -3.8%), Ciena (CIEN -2.8%), Adtran (ADTN -2.3%), and Calix (CALX -2.5%). The Nasdaq is nearly flat.
- During Finisar's earnings call (transcript), Rawls noted his company continues to "see a high level of competition," and is aiming to cut operating expenses to ~20% of revenue from FQ1's 21.8%. CFO Kurt Adzema mentioned wireless and legacy 100G datacom component sales were soft in FQ1, and that Finisar is now seeing "some lumpiness" for 40G data center sales.
- Adzema insisted the competition (much of it around low-end/10G products) is business as usual. "The lower end products always [face] competition from non-tier 1 companies and in some period of time, it just takes whether it’s a one year or a three year or whatever the period, tier 2 competitors always catch up." Rawls promised 25G/100G Ethernet data center upgrade cycles would drive growth next year.
- MKM and B. Riley have downgraded Finisar to Neutral, and several other firms have cut targets. MKM's Michael Genovese cites datacom competition/price pressure, and states he's "becoming less convinced that there is an easy path to industry consolidation that will help alleviate ... significant Optical component industry challenges,"
- At the same time, Genovese defends Ciena, Infinera, and Lumentum (formerly JDS Uniphase's component unit). "Ciena and Infinera actually slightly benefit from more [component] competition and lower prices since they are customers ... we believe the negative revisions in Finisar's outlook are much more on the Datacom side than on the Telecom side ... Finisar is an incumbent that derives 75% of overall revenues from Datacom, while Lumentum is a relatively new challenger with only 20% of revenues from Datacom ... we are much more confident in the demand and pricing environments for 100G Telecom (Metro and [long-haul]) components than we are for Datacom, and Lumentum has significantly more exposure to 100G Telecom than Finisar."
Sep. 11, 2015, 12:44 PM
Finisar Corp. provides optical subsystems and components that are used in data communication and telecommunication applications. Its optical subsystems consist primarily of transmitters, receivers, transceivers, transponders and active optical cables that provide the fundamental... More
Industry: Networking & Communication Devices
Country: United States
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