Oclaro looks to downsize

Faced with four straight quarters of revenue decline and the expectation of at least one more, Oclaro (NASDAQ:OCLR) has announced a plan to reduce its fixed infrastructure costs.

Faced with four straight quarters of revenue decline and the expectation of at least one more, Oclaro (NASDAQ:OCLR) has announced a plan to reduce its fixed infrastructure costs. The plan, which includes layoffs, site consolidation, and sale of non-core product lines, is designed to enable the company to break even on an adjusted EBITDA basis with $110 million in quarterly revenues.

Oclaro revealed the plan last week as it announced the results of its fiscal 2012 first quarter November 10. The company earned revenues of $105.8 million in the quarter, toward the upper end of its guidance but $4.6 million sequential decline. The company expects the slide to continue into the second quarter, which ends December 31, as it guided revenues to fall between $75 million and $85 million. The anticipated drop reflects Oclaro management’s expectation that the flooding in Thailand, where the company makes extensive use of the two facilities Fabrinet was forced to close, will significantly hamstring its performance.

Oclaro Chairman and CEO Alain Couder said on an analyst call November 10 that the situation in Thailand would cost Oclaro between $25 million and $35 million in the current quarter, plus an additional $10 million to $20 million in the fiscal third quarter ending in March 2012 (see “Oclaro expects Thai flood two affect two quarters”).

Compounded by what Couder termed “soft market conditions,” the situation has led Couder and his fellow managers to sketch a cost-reduction plan. Elements of the plan include:

  • Reduction in head count in its R&D ranks and its European fab. The company will move production of high-powered lasers from Zurich to its facility in Shenzhen.
  • Site consolidation, the details of which Couder did not discuss.
  • Divestiture of non-core product lines. Again, Couder did not offer details, but indicated this process has already begun.
  • Sale of its Shenzhen facility to a “major contract manufacturer,” from whom Oclaro would derive services. This would give Oclaro two contract manufacturing partners, including Fabrinet. Couder said his company recently concluded a new manufacturing agreement with Fabrinet. The sale could net Oclaro between $30 million and $40 million in cash for the company. It also would reduce Oclaro’s employee headcount at the facility from approximately 2800 to about 1200.

Couder said management had expected to guide for revenue growth in the current quarter before the flooding in Thailand occurred.

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