For its fiscal second-quarter 2014 (ended 27 October 2013), fiber-optic communications component and subsystem maker Finisar Corp of Sunnyvale, CA, USA has reported a fifth consecutive quarter of revenue growth, to a record $290.7m. This is up 9.3% on $266.1m last quarter and up 25.3% on $232m a year ago, driven by both datacom and telecom products.
Fiscal Q2/2013 Q3/2013 Q4/2013 Q1/2014 Q2/2014 Revenue $232m $238.4m $243.4m $266.1m $290.7m
Revenue for datacom products was $204.3m, up 46% on $139.8m a year ago and 10.7% on $184.4m last quarter, driven mainly by increased sales of 10G-and-above Ethernet transceivers. Revenue for telecom products was $86.5m, down 6% on $92.2m a year ago but up 5.9% on $81.6m last quarter, driven mainly by increased sales of wavelength-selective switches (WSS) and reconfigurable optical add-drop multiplexer (ROADM) line-cards.
"We continued to make significant strides in new product development [resulting in the delivery of a record number of new products to customers] that we believe will drive future revenue growth," says CEO Eitan Gertel. "For example, we demonstrated our new 100Gbps CFP4 Ethernet transceiver for short-reach datacom applications. This transceiver provides 75% greater face-plate density and 80% less power consumption than our original CFP," he adds.
As a result of the higher revenue, a favorable product mix and operating leverage, oon-GAAP basis, gross margin has risen further, from 30.5% a year ago and 35.1% last quarter to 37.1% (above the guidance of 36%).
Operating expenses have risen from $60.9m last quarter to $63.2m, due mainly to higher compensation expenses. Despite this, driven by the revenue growth and improvement in gross margin, operating income has risen further, from $15.8m (operating margin of 6.8% of revenue) a year ago and $32.4m (12.2% of revenue) last quarter to $44.8m (15.4% of revenue, above the expected 13.7-14.7%). Likewise, net income has risen again, from $14.2m a year ago ($0.15 per diluted share) and $31.3m ($0.31 per diluted share) last quarter to $43.8m ($0.43 per diluted share, above the guidance of $0.37-0.41).
During the quarter, cash and cash equivalents rose by $28.1m, from $288.4m to $316.5m. This was after capital expenditure of $29.7m, up again, from $27.9m last quarter, but again below the expected $32m. Last quarter, Finisar attributed that shortfall to "a slight delay in the timing of payments related to the new manufacturing facility we are building in Wuxi, China".
For fiscal third-quarter 2014, Finisar expects revenue and operating income to increase again for the sixth consecutive quarter and to set new company records. Revenue should rise to $290-305m, driven by growth in datacoms, as telecoms business will be relatively flat (due to the impact of 1 month of the annual telecom price reductions that typically take effect on 1 January). Nevertheless, gross margin should still be 37%, reflecting leverage from higher volumes. The firm also expects operating margin to rise further to 15.5%. Earnings per diluted share should be $0.43-0.47.
Capital expenditure is expected to rise further, to $32m, driven primarily by starting construction on the shell of the second building at the firm's new production site in Wuxi. "We expect the shell of the building to be complete by fall of 2014, and it will be fitted out a floor at a time, as needed to accommodate growth and migration of manufacturing to lower-labor-cost regions," says chief financial officer Kurt Adzema.
"Revenue is driven primarily by growth in the world demand for bandwidth for the ever-increasing distribution and use of video, images and digital information," notes executive chairman & co-principal executive officer Jerry S. Rawls. "Another important trend that is benefiting us is the growth in cloud services, with larger data-centers and increasing number of longer, higher-speed connections. This increases the optical content in data-centers and creates more opportunities for Finisar products," he adds. "Over time, both enterprise and carrier spending will continue to increase to provide more bandwidth capacity. We believe Finisar is uniquely positioned with our broad product line, extensive customer engagements, profitable vertically integrated business model and strong balance sheet to capitalize on these market opportunities."
