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Optics Overview: JDSU, Finisar

Posted on Thursday, Apr 9th 2009

Let’s take a look at what’s happening in the optical component sector. On February 5, JDS Uniphase (NASDAQ:JDSU) a leading optical component provider with annual revenue of $1.53 billion, reported its second quarter fiscal year 2009 results. Net revenue was down 10.5% to $357 million. Net loss was $705.3 million or $3.28 per share compared to net income of $21.2 million or $0.09 per share last year. Non-GAAP net income was $24.8 million or $0.11 per share.

The decline in revenue was mainly due to weak demand in the Communication and Commercial Optical Products segment and also to nonpayment of $10 million for optical communications products that were shipped to Nortel before its bankruptcy.

Communication and Commercial Optical Products revenue was down 21% q-o-q and 15.8% y-o-y to $127.9 million. Optical Communications revenue was down 22.2% q-o-q and 15.6% y-o-y to $109.5 million. Commercial Lasers business revenue was down 13.7% q-o-q and 16.8% y-o-y to $18.4 million. Communications Test and Measurement revenue increased 6.6% q-o-q but decreased 10.8% y-o-y to $176.2 million. Revenue from the Advanced Optical Technologies segment was up 6.6% y-o-y to $53.1 million.

By region, Americas revenue was $165.7 million, down 2% q-o-q.  EMEA revenue was $108.2 million, down 8% q-o-q. Asia revenue was $83.1 million, down 10% q-o-q.

JDS Uniphase ended the quarter with $689.0 million in total cash. During the quarter, the company reduced its outstanding debt by $125.0 million. Non-GAAP gross margins were 43.5% versus 43.3% in Q1 2009 and 46.3% in Q2 2008.

Headcount at the end of the quarter was 6,645. The total company headcount is expected to decline by more than 2,200 by the end of the fiscal year. Operating expenses in the quarter were $137 million, down from $144.6 million in the last quarter and $139.4 million last year. The lower operating expenses follow reductions in discretionary spending, office consolidation, work-week shutdowns, reductions in headcount and the favorable impact of foreign exchange rates.

JDS Uniphase says its priorities are to simplify and scale the business model, innovate, expand its global presence to high-opportunity markets across Asia-Pacific, Eastern Europe, Latin America, the Middle East and Africa and, finally, maximize utilization of assets. With regard to M&A, it wants to focus on strengthening its core businesses and expand into adjacent high-growth markets that are accretive.

From January 1, 2009, JDS Uniphase has had a new CEO: Thomas Waechter who was earlier president of its largest business segment, Communications Test and Measurement. On April 1, the company announced that Dave Holly had been appointed president of this segment.

For the third quarter of fiscal 2009, JDS Uniphase expects revenue to be in the range of $275 million to $300 million. It expects gross margins to be hurt, mainly by the lower customer demand and by the transition cost associated with the transfer to contract manufacturers. The stock is currently trading around $4 with market cap of about $855 million. It hit a 52-week low of $2.21 on November 20.

Chart for JDS Uniphase Corp. (JDSU)

On March 5, Finisar Corporation (NASDAQ:FNSR), a global technology leader for fiber optic subsystems and network test systems with annual revenue of $440 million, announced its third quarter results. Revenue was up 20.9% y-o-y but down 14.5% q-o-q to $136.4 million. The increase in revenue was mainly due to the Optium merger in August, 2008. Q3 net loss was $47.4 million, or $0.10 per share, compared to net loss of $186.8 million, or $0.44 per share last quarter and a net loss of $11.5 million, or $0.04 per share in Q308. Read my interview with Jerry Rawls for the story of Finsar’s remarkable turnaround. Q2 analysis is available here. However, the company is not yet on completely solid ground, given that demand is slowing and credit has tightened. Finisar has convertible debt that need restructuring.

By segment, Optics revenues decreased 14.7% q-o-q but increased 22.5% y-o-y to $126.1 million. Network Test revenues decreased 12.6% q-o-q but increased 5% y-o-y to $10.3 million.

Gross margin was 30.2%, the same as last quarter but down from 33.4% last year, mainly due to the Optium merger. Cash and short-term investments, plus other long-term investments that can be readily converted into cash, totaled $35.3 million at the end of the third quarter, down from $51.9 million at the end of the last quarter.

Operating expenses were $39.8 million down 9.7% from last quarter.  Finisar has implemented a number of cost reduction measures which are expected to save about $44 million annually. These include headcount reduction by 200 people or 17% of the workforce, a 10% reduction in salaries, and suspension of 401(k) matching company contributions. As a result of these measures, Finisar saved about $24 million in annualized savings as of Q3. From the first quarter, it also plans to save costs by transferring certain product manufacturing to its lower cost offshore locations and increasing use of internally manufactured components.

For the fourth quarter, Finisar expects revenues to be in the range of $115 to $128 million. Revenues from network tools are expected to decrease to about $9 million, while optics will range from $106 to $119 million. Gross margins are expected in the range of 30% to 31%. The stock is currently trading around $0.60 with a market cap of about $290 million. It hit a 52-week low of $0.21 on March 3.

Chart for Finisar Corp. (FNSR)

This segment is a part in the series : Optics Overview

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