Finisar CEO departs after disappointing 1Q16

Market flagship optical component and subsystem vendor Finisar Corp. (NASDAQ: FNSR) has given investors and observers a pair of shocks. The company announced Chief Executive Officer and director Eitan Gertel has resigned. Concurrently, the company announced results for the first quarter of its fiscal 2016 that missed Wall Street expectations for revenue, gross margin, and earnings per share. And the company's guidance for the fiscal second quarter fell short of consensus estimates as well.

Gertel joined Finisar in 2008 when the company acquired his previous employer, Optium (see "Analysts get behind Finisar/Optium merger"). Finisar executives did not provide an explanation of Gertel's unexpected resignation, either in the official announcement or on the analyst call to discuss the results of 1Q16, which ended August 2, 2015.

"Eitan's resignation resulted from a decision made mutually by him and the board of directors," commented Executive Chairman Jerry Rawls during the analyst call. "It had nothing to do with performance or any particular event or circumstance."

Jerry Rawls will assume Gertel's responsibilities with the added title of CEO.

The company reported revenues of $314 million for the first quarter, short of consensus expectations for $319 million. The revenue total also represented a sequential dip from the $320 million earned in the fourth quarter of fiscal 2015. In a press statement, Rawls laid the blame for the sequential decline on the fact that the previous quarter contained one more week than the recently concluded three months.

Revenues from datacom products fell $8.7 million (3.6%) sequentially, while telecom product sales actually increased by $2.7 million (3.4%).

Gross margin for the quarter of 30.2% just missed the Street's 30.4%. Earnings per share of $0.23 missed consensus estimates by $0.03.

Looking ahead, Finisar management predicted the second quarter of fiscal 2016 would see revenues of between $304 million and $324 million, non-GAAP gross margin of approximately 30%, non-GAAP operating margin of approximately 8% to 9%, and non-GAAP earnings per diluted share between $0.20 and $0.26. On the analyst call Rawls said, "We expect the remainder of fiscal 2016 to be challenging."

Investors took the news badly. Finisar's stock price dropped on Friday $19.35% from Thursday's closing price of $14.91. MKM and B. Riley downgraded the company's rating to Neutral. The tide swamped several other telecom and optical communications stocks in its wake; Oclaro was down 5.6% and NeoPhotonics a more modest 0.78%.

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