Oclaro weathers Thailand flooding in fiscal second quarter

As it had previously announced (see "Oclaro to beat guidance as it beats Thailand flooding"), Oclaro, Inc. (NASDAQ: OCLR) reported January 26 that it earned $86.5 million in revenue for its second fiscal quarter, $1 million more than the top end of its guidance. Company management credited its efforts to at least partially overcome flooding at their contract manufacturer’s facilities in Thailand as the reason it exceeded expectations for the quarter, which ended December 31, 2011.

Nevertheless, the revenue total represented a decline of almost $20 million from the previous quarter. Management pointed to the flood’s effects as the primary reason for the decline.

Gross margin also took a hit in the quarter. GAAP gross margin dropped 10% sequentially from the first quarter of fiscal 2012, to 13%. Meanwhile, GAAP operating loss was $33.6 million for the quarter versus a GAAP operating loss of $10.2 million in the previous fiscal quarter.

That loss included a $9.1 million write off for equipment and inventory lost in the flood. CFO Jerry Turin told analysts on an earnings call January 26 that the company expects to receive an initial insurance reimbursement of $6.2 million in the near term. Payoffs from other insurance policies are expected in the future as well.

Meanwhile, Oclaro Chairman and CEO Alain Couder indicated that the company is making rapid progress in returning its Thailand production capacity to normal at Fabrinet's Pinehurst facility. Three of the five affected product lines – high-power lasers, tunable dispersion compensators, and amplifiers – should be at pre-flood production levels by the end of March, he said. Meanwhile, the other two – lithium niobate external modulators and wavelength selective switches – should be back to normal by June. Commercial shipments of some sort for all but the wavelength selective switches have already resumed. The switches should resume initial deliveries in April, Couder indicated.

Not surprisingly given the impacts of the Thailand flooding, revenues from telecom components and amplification, dispersion compensators, and switching dipped sequentially during the quarter. Telecom components shrank $2.5 million, to $22.3 million, while the amplification/dispersion compensator/switching segment dropped nearly 50%, to $20.6 million. However, sales of transmission modules grew by more than $7 million, to reach $31.4 million. Tunable XFPs and 40-Gbps coherent modules led the way, according to Turin.

Looking forward, progress in getting the flood-ravaged product lines back in gear is expected to have a positive impact on third quarter sales. Oclaro forecasts revenues for the quarter, which ends March 31, 2012, will range between $90 million and $97 million. Non-GAAP gross margin should come in between 14% and 19%, while adjusted EBITDA will remain in the red, falling in the range of negative $13.5 million to negative $9 million.