For its fiscal third-quarter 2014 (ended 26 January), fiber-optic communications component and subsystem maker Finisar Corp of Sunnyvale, CA, USA has reported a sixth consecutive quarter of revenue growth, to a record $294m. This is up 1.1% on $290.7m last quarter and 23.4% on $238.4m a year ago.
Fiscal Q3/2013 Q4/2013 Q1/2014 Q2/2014 Q3/2014 Revenue $238.4m $243.4m $266.1m $290.7m $294m
Revenue for datacom products was $210.3m, up 3% on $204.3m last quarter (driven primarily by sales of 40-Gigabit Ethernet transceivers) and up 42% on $147.7m a year ago.
Revenue for telecom products was $83.7m, down 7.7% on $90.7m a year ago and 3.2% on $86.5m last quarter, due mainly to the impact of one month of the annual price reductions for telecom products that typically take effect on 1 January.
On a non-GAAP basis, gross margin has risen further, from 30.7% a year ago and 37.1% last quarter to 37.2%, primarily as a result of favorable product mix, partially offset by the impact of the annual telecom price reductions.
Operating expenses were $63.2m, level with last quarter but up from $55.8m a year ago. Operating income has risen further, from $17.4m (7.3% of revenue) a year ago and $44.8m (15.4% of revenue) last quarter to $46.3m (15.7% of revenue). Net income has risen from $16.4m ($0.17 per diluted share) a year ago and $43.8m ($0.43 per diluted share) last quarter to $45m ($0.44 per diluted share).
Capital expenditure was $35.4m, above the expected $32m and up from $29.7m last quarter (which had low due to a delay in payments related to the new manufacturing facility being built in Wuxi, China).
During the quarter, cash, cash equivalents and short-term investments rose by $238.2m, from $316.5m to $554.7m, principally reflecting net proceeds of about $255m from a convertible debt offering (of $258.75m of principal amount of 0.5% convertible notes due in 2033).
“During the quarter, we continued to make significant strides in new product development for both datacom and telecom products,” says CEO Eitan Gertel.
“In the datacom, we have production released our 100G CFP2 LR4 product. Due to our vertical integration of lasers, receivers and optical subassemblies, our modules consume the lowest amount of power of any solution on the market,” claims Gertel. “Our 100G CFP4 and our QSFP28 module developments are progressing very well. We continue to be designed into new applications with our parallel optical engine product that operates up to 28 gigabits per channel,” he adds.
“In telecom, we are now shipping beta samples of our tunable SFP+ module, which utilizes our internal low-power tunable lasers and optical subassemblies, allowing a total power consumption of approximately 1.5W,” continues Gertel.
“We are scheduled to make several important product announcements and demonstrations at the Optical Fiber Communication trade show in San Francisco [11-13 March],” he adds.
In early January, Finisar announced that it had agreed to acquire u2t Photonics AG of Berlin, Germany for about $20m in cash, subject to certain adjustments and that Finisar would also assume net debt of about $7m. This transaction closed on 31 January, one week into fiscal fourth-quarter 2014.
“With this transaction, Finisar added u2t indium phosphide-based, high-speed receivers and photodetectors, including their 100G and 200G coherent receivers that are used by multiple system manufacturers,” says Gertel. “This acquisition consolidates Finisar’s previously announced partnership with u2t on InP-based Mach-Zehnder modulators for 100G and 200G coherent applications. These receivers, photodiodes and modulator technologies and products, combined with Finisar’s narrow-linewidth tunable lasers, provide a full suite of vertically integrated optical components that enables Finisar to offer its customers the very high-performance modules for the 100G and 200G coherent metro and long-haul markets,” he adds.
“In addition to using these components for OIF discrete 100G and 200G applications, Finisar will utilize key components in our CFP2 coherent modules, as well as new form factors such as CFP4 and QSFP28 and SFP+, for next-generation telecom and datacom applications,” says Gertel.
Without taking into account the acquisition of u2t, for fiscal fourth-quarter 2014 Finisar expects record revenue of $290-305m (up for a seventh consecutive quarter). Gross margin should fall to about 36%, due to the impact of the full 3 weeks of the annual telecom price reductions since 1 January. Likewise, operating margin should fall to 13.8-14.8% and earnings per diluted share to $0.38-0.42.
After taking into account the acquisition of u2t (including the elimination of any intercompany revenue or expense transactions), Finisar expects revenue up to $296-311m, but gross margin down to about 35.5%, operating margin of 12.8-13.8%, and earnings per diluted share of $0.36-0.40.
Capital expenditure is expected to be $33m, driven primarily by construction on the shell of the second building of Finisar’s new production site in Wuxi, China. “We expect the shell of the building to be completed by fall of 2015 and now plan to immediately start to fit out several floors of the building and then fit out additional floors over time, as needed,” says chief financial officer Kurt Adzema.
Finisar expects the acquisition of u2t to be accretive to earnings per diluted share in about one year as it realizes cost and other synergies over time.
“We view the acquisition of u2t as strategically important in allowing Finisar to provide a differentiated vertically integrated solution to address the 100G coherent transceiver market,” says executive chairman Jerry S. Rawls. “This market is forecasted by LightCounting to be over $500m in calendar year 2017.
