Viavi: SOTP Suggests Upside; M&A Reshuffling The Key Question
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.
Wed, Feb. 3, 10:33 AM
- Having gone into earnings just $0.35 above a 52-week low of $4.68, Viavi Solutions (VIAV +12.3%) is flying higher after beating FQ2 estimates and issuing strong FQ3 guidance - revenue of $210M-$226M and EPS of $0.07-$0.09 vs. a consensus of $212.8M and $0.07.
- Viavi, formerly JDS Uniphase's test equipment/network software arm, also announced it has named Oleg Khaykin, formerly a senior advisor at P-E firm Silver Lake, its new CEO, effective today. Khaykin's resume includes stints as the CEO of power management chipmaker International Rectifier (acquired by Infineon) and as the COO of chip packaging/testing firm Amkor.
- Khaykin is replacing Richard Belluzzo, who has been serving as interim CEO since August. Belluzzo will remain chairman.
- Also: A $100M buyback has been announced. It's good for repurchasing over 7% of shares at current levels.
FQ2 details: Optical security & performance product (OSP) sales rose 16.2% Y/Y to $58.8M. On its earnings call, Viavi stated strong demand from the anti-counterfeiting market lifted sales. Network enablement sales rose 5.7% to $136.4M, growing Y/Y for the first time in five quarters. Service enablement revenue fell 21.2% to $36.9M due to weak service assurance product demand.
Lifting EPS: GAAP operating expenses fell 14% Y/Y to $132.6M. Adjusted gross margin rose 10 bps Q/Q and 20 bps Y/Y to 63.7%. Viavi ended FQ2 with $926M in cash/investments and $575M in debt.
- Viavi's FQ2 results, earnings release
Dec. 10, 2015, 2:11 PM
- Ciena (CIEN -16.8%) has tumbled after issuing light FQ1 guidance to go with an FQ4 beat. In addition, the optical networking hardware vendor has guided for 8%-9% FY16 (ends Oct. '16) revenue growth, below a 13.8% consensus.
- With Ciena's outlook raising new fears about telecom capex (under pressure for a while), rival Infinera (INFN -3.3%) is also off, as are optical component vendors Lumentum (LITE -2.2%) and Alliance Fiber (AFOP -1.9%), VoIP/4G signaling infrastructure provider Sonus (SONS -1.6%), and network test equipment/software provider Viavi (VIAV -2%). The Nasdaq is up 0.7%.
- Northland Securities' Tim Savageaux has gone contrarian and upgraded Ciena to Outperform. He notes the company's FY16 outlook still implies an acceleration in organic sales growth (accounts for the Cyan acquisition) to over 7% from FY15's 3%, and calls the selloff an attractive entry point for buying an industry leader.
- Wells Fargo's Jess Lubert (Outperform rating) is also defending Ciena. "While we are disappointed by Ciena’s FQ1 and F2016 outlook, we sense the company’s forecast likely embeds conservative assumptions surrounding the Cyan business and the timing of revenue recognition on several large opportunities. That said, with Ciena having secured 100G metro deployments with many of the world’s largest carriers and likely to see improved mix further benefit margins, we remain positive regarding the company’s 2016/2017 prospects and see the potential for the current forecast to prove conservative if execution remains strong."
Earnings/guidance details: Ciena's FY16 op. margin is expected to be in a range of 11%-12% vs. 10.9% in FY15 before rising to ~15% in the next 3-4 years. Gross margin (non-GAAP) is expected to be in the mid-40s; it was at 44.9% in FQ4, -40 bps Q/Q and +700 bps Y/Y.
The company had two 10%+ customers in FQ4 (possibly AT&T and Verizon) that collectively made up 29.6% of revenue. Non-U.S. customers were 34.5% of revenue, and Cyan contributed $84.4M (12% of total revenue), primarily via its Z-Wave packet-optical (integrated optical networking/Ethernet switching) platform. Altogether, packet-optical products made up 70% of revenue, packet networking (Ethernet switches) 9.2%, optical transport 2.4%, and software/services 18.4%. (earnings release)
Nov. 3, 2015, 10:49 AM
- The former JDS Uniphase (NASDAQ:VIAV) is at its highest levels since September after beating FQ1 estimates with the help of strong optical security/performance (OSP) product sales. FQ2 guidance is for revenue of $212M-$228M and EPS of $0.06-$0.08, in-line with a consensus of $221.1M and $0.08.
- OSP revenue rose 27.1% Q/Q and 48.3% Y/Y in FQ1 to $64.2M. On the earnings call (transcript), the growth was attributed to growing banknote printing volumes for Viavi's anti-counterfeiting business, as well as higher government sales.
- Sales performance: Network enablement (NE) sales fell 11% Q/Q and 3.2% Y/Y to $117.6M. Wireline field instruments were weak (particularly for cable applications), while lab and wireless field instruments were stronger. Service enablement (SE) revenue rose 29.1% Q/Q and fell 5.1% Y/Y to $47.9M. Assurance and wireless sales were soft, while "growth areas" such as location intelligence and enterprise network instruments were stronger.
- NE book-to-bill was above 1, and SE book-to-bill below 1. The latter is blamed on assurance and location intelligence deal push-outs.
- Financials: Adjusted gross margin rose 100 bps Q/Q and fell 60 bps Y/Y to 63.6%. Non-GAAP operating expenses fell 6.1% Y/Y thanks to lower G&A spend, helping adjusted op. margin rise 650 bps to 12.5%. Viavi ended FQ1 with $903.1M in cash/investments, and $568.2M in long-term debt.
- FQ1 results, PR
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. 1, 2015, 4:50 PM
- Continuing the activist efforts it launched when the company was known as JDS Uniphase, Sandell Asset Management (5.1% stake) has called on Viavi (NASDAQ:VIAV) to launch a strategic review to maximize the value of its net operating losses (NOLs).
- Sandell notes remarks from CFO Rex Jackson indicating Viavi has $4B-$4.5B in federal NOLs alone. It argues Viavi could receive over $10/share in a buyout, and could be worth over $12/share if it transformed into a "tax-advantaged platform company."
- Shares rallied today in the face of a 2.9% Nasdaq drop. UBS recently estimated Viavi's NOLs totaled $4.5B, and that its deferred tax assets had a face value of $1.5B.
Aug. 13, 2015, 3:07 PM
- UBS' Amitabh Passi has launched coverage on the former/post-spinoff JDS Uniphase (NASDAQ:VIAV) with Buy rating and $7.50 target two days after it posted FQ4 results, issued FQ1 guidance, and announced CEO Tom Waechter has stepped down.
- Passi: "There are 3 key sources of debate on the name: a) quality of management, b) demand outlook in the test & measurement (T&M) business and c) value ascribed to the $4.5b of net operating losses, or [estimated] ~$1.5b of deferred tax assets (DTA). With the Viavi CEO having just resigned, we believe there is now an increased urgency and willingness by the Board to focus on execution excellence and stabilizing the business."
- He admits the outlook for JDS' network test/measurement equipment ops - they've seen double-digit sales declines - remains "challenged due to a combination of market transitions and execution issues." But Passi also thinks "excess cash, DTAs, as well as the healthy Optical Security Products group (OSP) limit downside." He "conservatively" ascribes a $1.15/share value due to the DTAs, compared with a ~$6/share face value. "Our [sum-of-the-parts] analysis therefore suggests a base case value for Viavi of ~$7.50/share, upside to $12/share and downside to $4.50/share."
Jul. 24, 2015, 5:31 PM
- Signet Jewlers (NYSE:SIG) is replacing DirecTV (just acquired by AT&T) in the S&P 500 after Tuesday's close. Parexel (NASDAQ:PRXL) is taking Signet's spot in the S&P MidCap 400, and Enanta Pharma (NASDAQ:ENTA) is taking Parexel's spot in the S&P SmallCap 600.
- Also: Catalent (NYSE:CTLT) is replacing JDS Uniphase (JDSU - about to carry out a spinoff) in the S&P 400 after the July 31 close. What's left of JDSU (to be known as Viavi) will replace Susquehanna Bancshares (about to be acquired) in the S&P 600, while its Lumentum Holdings spinoff will replace Comstock Resources (NYSE:CRK) in the 600.
- SIG +2.5% AH. PRXL +0.7%. ENTA +4%. CTLT +3%.
Mar. 5, 2015, 4:27 PM
- Though its FQ3 results were nearly in-line, Finisar (NASDAQ:FNSR) is guiding for FQ4 revenue of $310M-$330M and EPS of $0.22-$0.28, mostly above a consensus of $307.9M and $0.23. Compared with FQ3, FQ4 results will benefit from an extra, but be hurt by the timing of the Chinese New Year.
- Datacom revenue rose 8.5% Q/Q and 11.4% Y/Y to $234.4M, lifted by strong wireless transceiver and 40G/100G component demand; Internet data center buildouts likely boosted the latter. Telecom revenue (under pressure for a few quarters) fell 11.3% Q/Q and 14% Y/Y to $71.9M. In addition to weak carrier capex, the Q/Q drop was caused annual price cuts.
- Operating expenses rose 3% Y/Y to to $63.2M (compares with 4% revenue growth). Gross margin fell to 30% from 31.1% in FQ2 and 37.2% a year earlier (price pressure). FQ4 GM guidance is at 30%.
- Finisar is up to $21.35 AH. Rival JDS Uniphase (NASDAQ:JDSU) is following Finisar higher, rising to $13.51.
- Finisar's FQ3 results, PR, earnings slides (.pdf)
Jan. 30, 2015, 2:56 PM
- Optical networking/carrier Ethernet hardware vendor Ciena (CIEN -4%), optical component suppliers Finisar (FNSR -2.4%) and Oclaro (OCLR -2%), and telecom chipmakers AppliedMicro (AMCC -5.9%) and Cavium (CAVM -4.4%) are all off after component vendor JDS Uniphase (JDSU -7.4%) missed FQ2 estimates and provided soft FQ3 guidance.
- On its CC (transcript), JDS observed its FQ2 network enablement (test equipment) and service enablement (telecom software/services) revenue fell a combined 8% Y/Y due to "weaker carrier spending and no budget flush in historically stronger December quarter." Network enablement is expected to remain soft in seasonally weak FQ3 as customers weigh their 2015 spending plans. Service enablement is expected to grow ~24%, after growing 16.6% in FQ2.
- AppliedMicro is down 10% since providing a soft FQ4 EPS guidance (-$0.09 vs. a -$0.07 pre-earnings consensus) on Tuesday afternoon to go with an FQ3 beat. Cavium is giving back the gains it saw yesterday after beating Q4 estimates and providing strong Q1 guidance.
Jan. 29, 2015, 5:21 PM
- JDS Uniphase (NASDAQ:JDSU) expects FQ3 revenue of $418M (+/- $10M) and EPS of $0.09 (+/- $0.02), below a consensus of $431.3M and $0.14.
- Not surprisingly (previous), JDS states weak U.S. carrier spending weighed on FQ2 results. This weakness led network enablement (test equipment) revenue to fall 14.2% Y/Y to $133.7M. Optical component sales fell 4.2% to $167.1M, but laser sales (boosted by industrial demand) rose 70.2% to $40M.
- Service enablement (telecom software/services) revenue rose 16.6% to $45.7M, and optical security/performance products (includes Xbox Kinect components) fell 7.3% to $50.6M.
- Gross margin rose 10 bps Q/Q and 60 bps Y/Y to 49.1%. Op. margin was 9.9%, +80 bps Q/Q but -110 bps Y/Y. JDS expects to finish spinning off its optical component/laser ops (CCOP) by the end of calendar Q3.
Jan. 23, 2015, 10:32 AM
- Infinera (INFN +17.7%) knocked the cover off the ball yesterday afternoon, soundly beating Q4 estimates and issuing strong Q1 guidance on the back of growing demand for its DTN-X optical transmission/switching platform for 100G deployments.
- Rival Ciena (CIEN +3.7%) and optical component vendors JDS Uniphase (JDSU +2.7%) and Finisar (FNSR +2.3%) are rallying in response. The companies followed equity markets higher yesterday after Verizon guided for its 2015 capex to be slightly above 2014 levels (contrasts with AT&T's planed capex cut).
- On its CC (transcript), Infinera said it added 10 new invoiced DTN-X customers in Q4 (3 new to Infinera altogether), raising its total to 59, and that nearly half of all DTN-X clients are now opting for the company's Instant Bandwidth rapid provisioning tech. Initial revenue for the Cloud Xpress point-to-point interconnect platform was received in December, and 8 customer commitments have been received to date.
Dec. 9, 2014, 1:52 PM
- Verizon CFO Fran Shammo has promised his company will continue growing wireless capex (albeit while cutting wireline capex) to keep up with data traffic growth. Small cells and smart antennas were mentioned as areas of interest.
- The remarks have been well-received by investors in telecom equipment and component/chip vendors, many of whom have been hit hard by soft North American and (to an extent) European spending. The Nasdaq is up 0.3%.
- Gainers: JDSU +3.6%. FNSR +3.1%. CYNI +10.1%. INFN +2.8%. CIEN +1.9%. AMCC +3.7%. PMCS +3.7%. ZHNE +3%. OCLR +5.4%. AFOP +2.8%. ADTN +2.5%. UBNT +2.2%. XXIA +1.7%. CALX +3.5%. EZCH +2.9%. SONS +2.4%. Sonus is also benefiting from a bullish Wedbush coverage launch.
- The group was pummeled in November after AT&T set a 2015 capex budget of $18B, down from 2014's $21B.
Nov. 20, 2014, 1:38 PM
- Optical networking hardware vendors and their component suppliers are turning in a good day. The gains come a day after component vendor Oplink announced it's being acquired by Koch Industries for $445M, and will be managed by connector maker Molex (a Koch subsidiary).
- RBC thinks Koch's entrance into the slumping component industry could trigger further consolidation. "Current fab utilization rates remain low ... with optical component vendors unable to charge a premium for their innovation. Gross margins are currently weighed by competitive pressures with optical component makers willing to cut pricing to account for high fixed costs."
- The firm believes Finisar (FNSR +1%) could be a buyer, and JDS Uniphase (JDSU +1.5%) and Oclaro (OCLR +7.1%) sellers. JDS, set to spin off its component unit, is facing activist pressure to put the business on sale.
- Meanwhile, Ciena (CIEN +2.8%) announced this morning it's partnering with Avaya to offer an enterprise solution that pairs its optical networking and integrated optical/Ethernet gear with Avaya's Ethernet switches. Like peers, Ciena is trying to lower its dependence on pressured carrier capex budgets.
- Other gainers: AFOP +3.7%. NPTN +3.3%. ADTN +2.7%. INFN +1.9%.
Nov. 13, 2014, 3:28 PM
- Though Cisco is higher after beating FQ1 estimates and issuing soft FQ2 guidance, many telecom equipment and component/chip names are going in the opposite direction.
- At issue: Cisco reported a 10% Y/Y drop in service provider orders (-18% in the U.S.), while stating on its CC (transcript) it "saw dramatically reduced spend at several large U.S. service providers." The networking giant also suggested demand will remain weak during the next couple of quarters.
- The remarks came just a few days after AT&T set a 2015 capex budget of $18B (down from 2014's $21B), prompting a Monday selloff in equipment vendors and their suppliers.
- Today's decliners: ALU -3.8%. CIEN -2.8%. JDSU -3.1%. FNSR -3.7%. JNPR -1.7%. INFN -3.8%. RKUS -3.4%. ZHNE -3.2%. AMCC -4.1%. CALX -2.7%. CYNI -1.8%. ADTN -3.5%. ALLT -2.4%. FN -1.9%.
Nov. 10, 2014, 9:51 AM
- Declaring its Project VIP network expansion effort ahead of schedule, AT&T has set a 2015 capex budget of $18B, down from 2014's $21B and below a prior forecast of $20B. The figure is equal to only 13% of AT&T's 2015 revenue consensus.
- Telecom equipment and optical component makers, many of whom have already felt the effects of AT&T's subdued 2014 wireline capex, are off in early trading. CSCO -1.4%. ALU -4.8%. CIEN -6.6%. ADTN -7.8%. JNPR -2.5%. RKUS -2.1%. SONS -2.9%. FNSR -2.9%. JDSU -1.1%. RKUS -2.1%. XXIA -2%. FFIV -1.6%. ERIC -1.7%.
- Cisco delivers its FQ1 report on Wednesday. The networking giant reported an 11% Y/Y FQ4 drop in service provider orders, thanks to both weak demand and share loss.
Viavi Solutions, Inc. engages in the provision of network and service enablement solutions and manufacture of optical products. It operates through the following segments: Network and Service Enablement; Communications and Commercial Optical Products; and Optical Security and Performance... More
Industry: Communication Equipment
Country: United States
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