Thailand floods wash away Opnext revenue in third fiscal quarter

Not unexpectedly, Opnext Inc. (NASDAQ: OPXT) reported February 7 that the flooding at Fabrinet’s Chokchai facility significantly curtailed revenues during its fiscal third quarter. However, senior management says that alternative production resources have come online, leading to moderately optimistic guidance for the fiscal fourth quarter.

Opnext reported unaudited revenue of $53.1 million for the quarter ended December 31, 2011. That figure represented a decline of 38.3 percent from the previous quarter and 45.3 percent year-on-year. The company pointed to the flood’s impact as the main culprit. Most of Opnext’s 10-Gbps and below transceivers were produced at the Chokchai facility. That segment saw a revenue decline of 42% from the previous quarter.

However, sales of products for application at 40 Gbps and higher also declined 37% sequentially. Reductions in client-side 40-Gbps and 100-Gbps product sales accounted for most of this shortfall, spurred by a decrease in carrier deployments, Harry Bosco, Opnext chairman and CEO, told analysts on a conference call February 7. He also said that Chinese systems houses continued a trend toward replacing line-side direct-detect 40-Gbps transponders from outside sources with internally developed alternatives. However, he reported that the 40-Gbps and above segment overall has shown signs of rebounding in the current quarter.

EBITDA came in at negative $38.9 million, compared to negative $1.5 million for the previous quarter and negative $1.8 million for the quarter ended December 31, 2010.

Bosco struck a brighter tone when discussing the future. The company has already shifted production of 10-Gbps and below products to facilities in Totsuka, Japan, and Fremont, CA. It also plans to begin using Fabrinet’s Pinehurst facility beginning this month. Meanwhile, the company also is negotiating with a second contract manufacturer it hopes to bring online quickly. As a result, the 10-Gbps production activities in Totsuka and Fremont should transfer back to contract manufacturing facilities during the June quarter.

Customers have assured Bosco that once the production capacity returns to pre-flood levels, so will Opnext’s market share, he said on the call.

Bosco also reported progress on a pair of important new product initiatives. He revealed that Opnext has already shipped qualification samples of its 100-Gbps coherent transponder to four customers, with others waiting in line. Meanwhile, sampling of its tunable XFP should begin this quarter, with full production following during the middle of the year.

"Based on our 10G production recovery plan and the improvement to date in orders for 40G and above products, we expect total revenue for the March 2012 quarter will be between $70.0 million and $75.0 million," Bosco said.