SA News • Fri, Jan. 23
Finisar's Post-Earnings Weakness Looks Like A Buying Opportunity
- Finisar has dropped after issuing a weak outlook for the current quarter, but the long-term prospects are still in place.
- Finisar's focus on churning out cutting-edge products that deliver better performance at a lower cost should allow it to get back on track in the future.
- Finisar is expected to outperform the industry in the next five years, and considering its valuation, it looks like a good bet.
- Finisar shares have been weak on growing concerns about telecom capex plans and margins, and management's guidance for the next quarter will feed those fears.
- 40G data center upgrades and 100G telecom upgrades are still valid drivers, but companies like Avago are ramping up their own competitive efforts and silicon photonics remains a long-term threat.
- Finisar shares don't look all that cheap on a long-term DCF basis, but stabilization in the optical market could support a price in the low $20s if investors are willing
Update: Finisar Earnings - Delivers Solid Q2 Sales But Weaker Margins And Soft Q3 GuidanceMartin Vlcek • Sep. 5, 2014
- Sales increased 23.3% Y/Y and 7.1% Q/Q on weaker margins mainly due to unfavorable product mix. EPS fell and Q3 guidance was very light on weak telecom customer demand.
- I reiterate my long thesis. My $20 target price offers a ~13% upside within 12 months but the second half of 2014 may be volatile for the stock.
- The long thesis worked well on continued growth, delivering a total stock gain of ~60%. However, since April, this cyclical small-cap lost all gains on weak Q1 results.
Finisar - Dramatic Margin Pressure Triggers A Sell-Off
- Finisar reports soft fourth quarter earnings, as gross margins are under severe pressure.
- Management's explanations for gross margin pressure are not very convincing.
- The very poor guidance for the first quarter warrants the sell-off.
Finisar: This Cisco Supplier Looks Like A Solid Buy
- Finisar has a solid clientele that includes the likes of Cisco and Ciena.
- Finisar is launching faster and more efficient products in the market to benefit from the build out of networking equipment and data centers.
- Cisco’s Internet of Things could be a big driver for Finisar.
- Finisar’s vertical integration is also an advantage, providing a wide portfolio of products and strong margins.
- JDS Uniphase is seeing strong end-market opportunity due to growing data consumption.
- Uniphase has been launching new suite of solutions and has made some good acquisitions to improve its performance.
- Rival Finisar is cheaply valued and has a superior growth rate as compared to Uniphase.
Finisar Has Room To Run On Data Center And Telecom Upgrades
- Finisar delivers a "meet and maintain" fiscal third quarter.
- The data center switch upgrade cycle looks strong, with Finisar increasing 40G capacity.
- Silicon photonics is a long-term threat, but the near-term risks seem overblown.
Finisar: Return To Profit Offers A Volatile Upside Play
Earnings Preview: Finisar Reports Results Wednesday
Fri, Jan. 23, 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.
Dec. 4, 2014, 4:33 PM
- Finisar (NASDAQ:FNSR) expects FQ3 revenue of $297M-$312M and EPS of $0.23-$0.27, below a consensus of $323.9M and $0.28.
- FQ2 datacom revenue totaled $215.9M, +6% Y/Y but -10% Q/Q thanks to deckububg wireless transceiver sales and "lumpy order patterns" from several customers. Telecom revenue remained pressured by weak carrier capex, falling 6% Q/Q and Y/Y to $81.1M.
- Gross margin fell to 31.1% from 32% in FQ1 and 37.1% a year ago. Opex fell 3.1% to $67.3M.
- Low expectations - shares were down 27% YTD going into earnings - are limiting Finisar's AH drop for now.
- FQ2 results, PR, slides (.pdf)
Dec. 4, 2014, 4:02 PM
Dec. 3, 2014, 5:35 PM
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.
Oct. 24, 2014, 12:32 PM
- Though Ericsson (ERIC -3%) beat Q3 estimates, the mobile infrastructure giant stated North American business activity "slowed down during the quarter as operators currently focus on cash flow optimization." It added North American spending patterns make it tough to judge near-term demand.
- Ericsson's North American sales fell 3% Y/Y to $1.93B, partly offsetting strong growth in China, India (+56%), the Middle East (+38%), and other emerging markets. Top-line figures were boosted some by M&A.
- AT&T and Verizon have been taking cautious approaches to capex, and Sprint (though investing heavily in 4G following the SoftBank deal) has been looking to cut costs under new CEO Marcelo Claure. The U.S. and Japan have been ahead of many other developed markets in ramping 4G coverage.
- Juniper (JNPR -6.3%) offered light Q4 guidance two weeks after delivering a Q3 warning, and reported its service provider sales were down 6% Y/Y due to soft demand from Asia-Pac, EMEA, and (especially) U.S. carriers.
- When the world's #2 carrier router vendor was asked on the CC (transcript) about 2015 sales, CEO Shaygan Keradpir admitted Juniper has poor near-term visibility, and that a rebound could take time. "Because we think these cycles typically take 2 to 4 quarters ... our planning assumption is that growth will return in the second half of 2015."
- Nokia and Infinera recently offered more positive numbers/commentary. Bulls have argued strong data/video traffic growth will lift capex. Bears have argued soft (if not negative) carrier revenue growth will continue pressuring spending.
- Decliners: ALU -1.6%. JDSU -2%. INFN -3.1%. CIEN -2.5%. CALX -2.5%. FNSR -1.8%. ADTN -1.5%. The Nasdaq is up 0.4%.
Oct. 15, 2014, 4:07 PM
- In an encouraging sign for beaten-down telecom equipment and chip/component stocks, Adtran (ADTN +5.7%) managed to rally even though it guided on its Q3 CC (transcript) for a low-to-mid teens Q/Q revenue drop. Consensus (doesn't appear to have fully accounted for Adtran's Q3 warning) was for revenue to drop 2% to $154.9M in Q4.
- Adtran attributed much of its Q3 weakness to "a decline in Europe as a large project there had a seasonal slowdown." Enterprise softness also took a toll.
- The company "[expects] to see an upturn in this business" in 2015, but European sales are expected to remain soft in Q4. Other equipment vendors, such as Juniper (JNPR +2%) and Ciena (CIEN +2.7%), have provided weak guidance blamed on U.S. wireline capex; AT&T is generally seen as a big culprit.
- In addition to Juniper and Ciena, many other industry names have closed with healthy gains. PKT +6.3%. INFN +3.4%. ZHNE +6.7%. ALLT +5.2%. AFOP +4.5%. AMCC +12.5%. CYNI +4%. CALX +3.3%. FNSR +3.1%. UBNT +4.2%. OPLK +3.4%. RKUS +3.3%.
Oct. 9, 2014, 5:03 PM
- Finisar (NASDAQ:FNSR) is redeeming its outstanding 5% convertible senior notes due 2029. There are $40M worth of notes outstanding as of today.
- The optical component vendor had $500M in cash/investments as of July 27, and $234M in debt.
- Shares -1.3% AH afte equipment vendors Juniper and Procera both warned amid a soft telecom capex environment. Finisar can relate.
Sep. 11, 2014, 9:14 AM
Sep. 11, 2014, 7:11 AM
- "Combined, the two companies might be valued at $9.85-$14.80 with a midpoint of $12.33," says RBC Capital, upgrading JDS Uniphase (NASDAQ:JDSU) to Outperform, with price target lifted to $18 from $11.
- Previously: JDS Uniphase to split into two public companies
- JDSU +12.4% premarket to $13.61; other optical networking names, Ciena (NYSE:CIEN) +0.8%, Finisar (NASDAQ:FNSR) +1.5%.
Sep. 4, 2014, 4:42 PM
Sep. 4, 2014, 4:20 PM
- Finisar (NASDAQ:FNSR) expects FQ2 revenue of $305M-$320M and EPS of $0.23-$0.27, below a consensus of $337.5M and $0.35.
- The company blames an expected Q/Q drop in wireless transceiver sales following a strong FQ1, along with weak carrier spending and "a decrease in demand from several datacom customers with lumpy order patterns." Several analysts have already voiced concerns (I, II) about weak near-term sales.
- FQ1 datacom revenue +31% Y/Y to $241.2M. Telecom revenue +6% to $86.4M.
- Gross margin -220 bps Q/Q and -310 bps Y/Y to 32%. FQ2 GM guidance is at 31%-32%. Opex +5.4% Y/Y to $69.4M.
- Shares are halted. Rival JDS Uniphase (NASDAQ:JDSU) is down 0.9% AH. Finisar and JDS both sold off in afternoon trading after Ciena issued soft guidance this morning, while blaming the timing of an AT&T contract.
- FQ1 results, PR, earnings slides (.pdf)
Sep. 4, 2014, 4:02 PM
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