Finisar expects revenue pace to continue

Finisar Corp. (NASDAQ: FNSR) announced December 5 that its fiscal 2014 second quarter, which concluded October 27, 2013, saw the company once again set a revenue record. Perhaps more impressive, however, was the fact that the Finisar leadership team expects the upward momentum to continue in the current quarter, despite widespread pessimism about carrier spending.

"I am pleased to report second quarter revenues were $290.7 million, a new all-time record for Finisar. Revenues increased by $24.7 million, or 9.3%, over the first quarter and $58.7 million, or 25.3%, over the second quarter of the prior year,” said Jerry Rawls, Finisar's executive chairman of the board, via a press release. “Revenues grew for the fifth consecutive quarter. This quarter's revenue growth came from both datacom and telecom products."

The $290.7 million was at the upper end of its guidance of $277 million to $292 million (see “Finisar reports fourth consecutive quarter of revenue growth”).

As Rawls noted, both datacom ($204.3 million in sales, up 10.7% from Q1) and telecom ($86.5 million, up 5.9% from the previous quarter) products did well. The datacom side benefitted particularly from sales of Ethernet transceivers at data rates of 10 Gbps and above. The telecom side saw strong demand for wavelength selective switches and ROADM line cards.

GAAP gross margin for the quarter came in at 35.6%, also up sequentially from the first quarter’s 34.3%. GAAP net income was $29.965 million ($0.29 per diluted share) versus $26.011 million ($0.26 per diluted share) in the prior quarter.

Non-GAAP gross margin for the quarter was 37.1% compared with the previous quarter’s 35.1%. Non-GAAP net income reached $43.767 million ($0.43 per diluted share), a hefty increase from the first quarter’s $31.269 million ($0.31 per diluted share).

Finisar management expects to maintain the revenue momentum in its fiscal third quarter, guiding for revenues of $290 million to $305 million. GAAP operating margin will be approximately 11.5%, they added; non-GAAP operating margin will be approximately 15.5%. Non-GAAP earnings per diluted share should be in the range of approximately $0.43 to $0.47, they added.

The optimism contradicts the general pessimism surrounding the optical communications sector regarding spending on the type of optical hardware for which Finisar supplies components, subsystems, and optical transceivers. High flyer Infinera guided flat to down for the current quarter, for example (see “Infinera guidance disappoints Wall Street”). Meanwhile, market research and analysis firm Infonetics Research predicted that the fourth calendar quarter of 2013 won’t see the type of seasonal budget flush the market has come to expect in the last three months of the year (see “Infonetics expects downturn in optical network hardware spending”).

Asked on an analyst call held December 5 to explain why he was so optimistic despite some customers forecasting a rough end to 2014, Rawls responded, “In any quarter, we typically have about 1000 customers. And they're spread all over the world. And so we always want all of our customers to do extremely well. But the good thing is, we got enough of them doing well that it's carrying our business forward.”

This is particularly true in the datacom sector, according to Simon Leopold, managing director and communications equipment analyst at Raymond James. “Datacom is benefiting from strong tailwinds including higher optical content, increasing contributions from Web 2.0, and higher overall datacenter spending,” he wrote in a note on Finisar issued Friday, December 6. “Lumpiness remains a risk and we attempt to restrain estimate increases; the long-term prospects for optical adoption in datacenters keep us positive and we raise our target to $29.”

Finisar’s stock ended the day Friday at $21.82, up $0.06. Finisar’s optimism benefited other optical stocks as well.

For more information on optical transceivers, visit the Lightwave Buyer’s Guide.