For its fiscal fourth-quarter (ended 27 April), fiber-optic communications component and subsystem maker Finisar Corp of Sunnyvale, CA, USA has reported its seventh consecutive quarter of sequential revenue growth, to a record $306m (up 4.1% on $294m last quarter and 25.7% on $243.4m a year ago). Full-year fiscal 2014 revenue was a record $1156.8m (over $1bn for the first time), up 23.8% on fiscal 2013's $934.3m due to datacom product revenue rising by 39.1% despite for telecom product revenue falling by 2.5%.
Fiscal Q4/2013 Q1/2014 Q2/2014 Q3/2014 Q4/2014 Revenue $243.4m $266.1m $290.7m $294m $306m-
Quarterly revenue for telecom products was $83m, up 4.4% on $79.5m a year ago but down 0.7% on $83.7m last quarter, driven primarily by the impact of the full three months of the annual price reductions for telecom products that typically take effect on 1 January. Revenue for datacom products was $223m, up 6% on $210.3m last quarter and 36% on $163.9m a year ago, due mainly to continued strong demand for 10Gb/s or faster Ethernet transceivers and for transceivers for LTE wireless applications.
"Finisar's revenue is driven primarily by growth in worldwide demand for bandwidth to handle the ever-increasing distribution and use of video, images and digital information," says executive chairman Jerry Rawls. "Another important trend that is benefiting us is the growth in cloud services with larger data centers and an increasing number of longer, higher-speed connections. This increase in the optical content and data centers creates more opportunities for Finisar products," he adds.
On a non-GAAP basis, full-year gross margin has risen from 30.9% for fiscal 2013 to 35.9% for fiscal 2014. However, although up from 32.2% a year ago, quarterly gross margin in fiscal Q4 was 34.2%, but down on 37.2% last quarter (and below the expected 35.5%). This was due mainly to the annual price reductions for telecom products as well as the impact of key acquisitions whose products carry a lower gross margin than the corporate average. At the end of January (just one week into fiscal Q4/2014), Finisar acquired u2t Photonics AG of Berlin, Germany (which makes phosphide-based, high-speed receivers and photodetectors) for about $20m. Due mainly to the acquisition of u2t, operating expenses have risen from $63.2m last quarter to $65.9m.
Full-year net income has more than doubled from fiscal 2013's $63.4m ($0.64 per diluted share) to a record $159.2m ($1.53 per diluted share) for fiscal 2014. However, although almost doubling from $20.3m ($0.20 per diluted share) a year ago, quarterly net income of $37.5m ($0.36 per diluted share) is down from $45.5m ($0.44 per diluted share) last quarter.
During the quarter, cash, cash equivalents and short-term investments fell by $41.7m from $554.7m to $513m, principally due to the acquisition of u2t Photonics, an increase in accounts receivable of $29.6m, and capital expenditure associated with the build-out of the second building at Finisar's new manufacturing site in Wuxi, China. CapEx rose again, from $35.4m last quarter to $36.5m (above the expected $33m).
"We continue to develop and release new products, which we expect will enable Finisar to expand our market share and continue to grow revenue," says CEO Eitan Gertel. For fiscal first-quarter 2015, Finisar expects an eighth consecutive quarter of revenue growth to another record of $320-335m. Gross margin should fall to about 32%, due mainly to the less favorable product mix (including sales of additional transceivers for wireless applications). Operating margin should be 10.3-11.3%. Earnings per diluted share are expected to be $0.30-0.34.
CapEx is expected to rise further to about $40m in fiscal Q1/2005, driven mainly by continued construction on the shell of the second building of the Wuxi production site. The shell should be completed by fall 2015. "We plan to immediately finish a couple of floors and to fit out additional space one floor at a time, as needed to accommodate growth," says chief financial officer Kurt Adzema. The new building should be occupied by the end of fiscal 2015, he adds.
"During Q4 we closed acquisition of Berlin-based u2t Photonics, and we are happy to announce that we have successfully completed the integration of their team into the Finisar organization," says Gertel. "The first major development program to utilize the former u2t Photonics is our CFP2 coherent module, where we are making excellent progress in our development. By utilizing our vertically integrated advanced indium phosphide laser, modulator and receiver components, we believe we will have the industry-leading product in terms of power consumptions and performance. To date, the market feedbacks have been very positive and more customers are indicating that they are planning to migrate to a pluggable CFP2 coherent for 100G and 200G coherent architectures," he adds.
"We are continuing to ship qualification samples of our tunable SFP+ to many of have new customers and we expect multiple key qualifications to be completed by the end of the year," Gertel continues. "As a result of our next-generation vertically integrated optics, we continue to believe we will have the lowest-power-consumption module of the industry, of about 1.5W. We expect to be in full production of this product in the second-half calendar year 2014," he adds.
"Our standard and low-profile twin WSS [wavelength selective switch] development is progressing very well and we are being qualified on multiple new line-cards at our customers," Gertel notes. "Due to our long history of developing innovative LCoS [Liquid Crystal on Silicon]-based WSS product, we are offering our customers a higher level of performance than they can obtain from other solutions. Our designs are using one common platform that can address multiple markets and give our customer the flexibility of buying one product that can be deployed in many different applications and configurations," he claims.
"Our wireless product CPRI [Common Public Radio Interface] business continued to grow in Q4, and we expect this market to continue to grow due to accelerated LTE deployments around the world, but especially in China," Gertel says. "We have a very broad portfolio of short- and long-reach and different data-rate solutions for this market, and we are continuing to cost reduce this product and extend our portfolio while expanding production capacity to meet market demand.
"In datacom we have production released our 100G CFP2 LR4, and we expect this product to ramp throughout the calendar year. Due to our vertical integration of lasers and receivers, our module consumed the lowest power of any other module in the market," he claims. "We are currently adding capacity in order to shorten our lead times and address opportunities to extend our market share," Gertel adds. "In the 40G market we have increased our market share and we believe we have the broadest portfolio in the market for both transceivers and active optical cables in single-mode and multi-mode configurations.
"In the parallel markets, we are continuing to win new customers for both our 10Gb/s and 25Gb/s per channel board-mounted optical engines, which are proprietary products for Finisar. These high-density solutions are now being used for high-performance computing, routers, interconnects and server applications," Gertel notes. "Currently, our main development focus is on our 25Gb/s per channel product, where we are expecting strong demand from multiple customers in the second half of 2014 calendar year."
