Finisar’s record FY11 revenues likely not enough for Wall Street

Finisar (Nasdaq:FNSR) announced today after the closing of the markets that it achieved record revenues in fiscal year 2011. However, given the fact that revenues were down quarter-on-quarter in 4Q11 and guidance for 1Q12 left little expectation for immediate improvement, the optical communications component and module supplier’s stock is likely to take a pounding.

Finisar (Nasdaq:FNSR) announced today after the closing of the markets that it achieved record revenues in fiscal year 2011. However, given the fact that revenues were down quarter-on-quarter in 4Q11 and guidance for 1Q12 left little expectation for immediate improvement, the optical communications component, module, linecard, and subsystem supplier’s stock is likely to take a pounding.

In fact, trading of the stock was suspended this afternoon prior to its 4Q11 earnings announcement. When trading resumed at 4:30 PM, the plunge began, with the stock dropping by double-digit percentages almost immediately.

Finisar reported revenues in the quarter ended April 30, 2011 of $236.9 million, 25.7% greater than the prior year period but 9.9% less than 3Q11. As the company had forecasted during its 3Q11 earnings announcement (see “How long will the optical communications correction last?”), soft demand from Finisar’s telecom customers, particularly Chinese OEMs, applied most of the downward pressure.

Product line performance decreased quarter-on-quarter across the board. The sale of 10-Gbps or faster products decreased by $8.2 million (-7.0%), the sale of less than 10 Gbps products decreased by $3.6 million (-3.9%), WSS/ROADM line card products decreased $13.7 million (-28.7%), and analog and cable television (CATV) product sales shrank $0.5 million (-13.6%).

Meanwhile, gross margins in 4Q11 of 31.6% suffered in comparison to the previous quarter’s 32.0%.

Things aren’t likely to pick up over the next three months, the company indicated. Finsar expects revenues in 1Q12 to be in the range of $221 million to $236 million, well below market expectations. That would translate into a GAAP operating margin of approximately 3.3% to 5.3%; on a non-GAAP basis, operating margin would be 7.3% to 9.3% and earnings per diluted share would be $0.16 to $0.20.

The disappointing end of the year did not prevent Finisar from proclaiming fiscal 2011 a success. "In our just completed fiscal year ended April 30, 2011, our revenues were a record $948.8 million, which represented 50.6% growth over fiscal 2010,” said Executive Chairman Jerry Rawls in a press statement. “In addition, we achieved records for fiscal year operating profit, net income, and earnings per share.”

Meanwhile, income and margin in 4Q11 were better than in the same quarter of fiscal 2010.

"During the quarter we continued to invest in our new product development programs, including tunable XFP, to generate a significant pipeline of new products,” said Eitan Gertel, Finisar's Chief Executive Officer, in the same press release. “We expect this pipeline will enable us to win new opportunities with both LAN/SAN and telecom customers and expand our market share. We are currently in qualification with fifteen customers for our tunable XFP transceiver and expect production of this product to start to ramp during the first fiscal quarter of 2012.

“In addition, on May 18, we successfully closed our previously announced cash tender offer for the shares of Ignis ASA,” Eitan continued. “We now hold approximately 81% of the outstanding shares of Ignis. We believe Ignis's whole-owned subsidiary, Syntune, will provide us a secure supply of superior tunable lasers used in producing our tunable XFP transceiver."

For more on what Finisar execs had to say during their earnings call, see "Finisar factoids from 4Q11 earnings call."

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