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7 November 2008


Avanex’s gross margin falls more than expected as revenue shrinks 13%

For its fiscal first-quarter 2009 (to end-September), optical communications component and module maker Avanex Corp of Fremont, CA, USA has reported revenue of $45.3m, down 13% on $51.8m last quarter and 17% on $54.7m a year ago.

Gross margin was 17%, down from 31% last quarter and 28% a year ago, and well down on early October’s guidance of 20-23%. Net loss was $9.6m, compared with net income of $1.3m last quarter and $45,000 a year ago.

Previously, in fiscal fourth-quarter 2008, Avanex’s revenue had rebounded by 5% from a previous low of $49.6m in fiscal Q3/2008, driven by an increase in transmission products sales, but this had been boosted by $1.2m of deferred revenue after the settlement of legal proceedings concerning a distribution agreement with former French subsidiary 3S Photonics.

But in early October Avanex said that, for fiscal Q1/2009, it expected gross margin of 20-23% due to: lower revenue of $44-48m (due mainly to a market slowdown in Asia plus pricing pressure); a temporary shift in product mix towards lower-margin legacy products (for which Avanex is aiming to reduce sales); a higher-than-expected double-digit decline in average selling price (ASP) for one of Avanex’s highest-revenue products from one particular customer (for a legacy system); and investing in new capacity for key products such as reconfigurable add-drop multiplexing (ROADM) modules and tunable transponders (with R&D expenses also rising slightly to address such growing markets).

“The company is facing some significant challenges in light of the current macro-economic environment,” says interim CEO Giovanni Barbarossa (who replaced former CEO Jo Major in July, when chief financial officer Marla Sanchez also left the firm). “To better position ourselves, we moved quickly last quarter to implement a significant cost cutting plan to improve financial performance.” In early October, Avanex said that, by the end of October it would cut staffing by about 47 (8% of the workforce that it had at the end of June). The cuts include closing the firm’s facility in Melbourne, FL, USA (acquired in July 2007 along with the MSA 300-pin transponder and XFP transceiver business of the Commercial Communication Products Division of Essex Corp) and transferring the product lines, inventory and fixed assets to Avanex’s facilities in either Shanghai, China or Villebon Sur Yvette, France (where transponder and transceiver transmission products are made, including 40Gb/s tunable transponders). As part of the cost cutting, all of Avanex's executive officers have voluntarily agreed to a 10% cut in salary from October onwards.

For fiscal second-quarter 2009 (to end-December 2008), Avanex expects revenue to fall further to $37-42m (down on $52m a year previously), but gross margin to get no worse, at 17-21%.

See related items:

Avanex cutting 8% of workforce and closing Florida facility

Avanex’s sales rebound, but profits fall during new-product ramp

Avanex stockholders authorize reverse stock split

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