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10 November 2008


Opnext’s revenues fall during lull after initial 40Gb/s deployments

For its fiscal second-quarter 2009 (to end-September 2008), optical module and component maker Opnext Inc of Eatontown, NJ, USA has reported revenue of $80.2m, down 4.8% on $84.2m last quarter. Sales of 10Gb/s and above products fell 5.5% to $65.6m (nearly 82% of total revenue), while sales of less than 10Gb/s products fell 6.3% to $9m, and industrial and commercial product sales grew 7.7% to $5.6m.

Specifically, lower sales of XENPAK modules and 40Gb/s (the latter down from $10m to $7m, versus capacity of $13-14m) were partially offset by increased sales of XFP and 300-pin tunable modules.

“40G sales, while disappointing, suggest a typical pattern associated with the deployment of new networking technology,” says president & CEO Harry Bosco. “We’ve experienced significant growth in 40G modules since we first introduced them in 2006. This initial growth occurred during the production and qualification phases of our customers and the early deployment of trial networks,” he adds. “Today, our 40G client-side modules is qualified in most of the key equipment suppliers of 40G systems.” Following the current temporary lull in demand during initial deployment of networks using the new technology, Opnext expects growth to resume as network deployments continue.

Gross margin has fallen from 35.2% a year ago and 32.2% last quarter to 30.5%, due mainly to an unfavorable product mix and lower sales volumes, outstripping the benefits from foreign currency exchange fluctuations and related hedging programs. Non-GAAP net income (excluding $1.5m of stock-based compensation expense and about $700,000 of litigation expense) was $3.3m, down on $4m last quarter and $6.8m a year ago.

“The market generally remained strong, although we began to see some pockets of weakness near the end of the quarter in certain product areas and with certain customers, which we believe was in reaction to the financial turmoil and tight credit markets,” says Bosco. In response to the growing economic uncertainty, Opnext has recently stepped up efforts to control costs. Hiring of new staff has been trimmed to selective positions.

“Looking ahead, we believe that industry fundamentals remain intact and that network demand will continue to drive optical sales even in a slowing capital expenditure environment,” says Bosco. “However, based on discussions with some of our largest customers, we believe that some softness could continue for the next couple quarters,” he warns. “We are not naive to the severity of the global economic and financial turmoil and its potential to slow sales in the optical component sector.”

Given the mixed signals within the past quarter, particularly near the end of the quarter, coupled with a tempered customer view, Opnext says that it has taken a cautious view of next quarter’s guidance. For its fiscal third-quarter 2009 (to end-December 2008), it expects revenue to fall 2-10% to $72-78m. Bosco sees continued growth in tunables, but believes that 40G is not going to recover in the December quarter. “We’ll see customers push out their 40G orders.”

Nevertheless, Opnext is proceeding toward closing its acquisition of StrataLight Communications Inc of Los Gatos, CA, USA (announced in July, and now expected to close late this year or early next year). The combination of Opnext’s device and module technology with StrataLight’s subsystem expertise should create new opportunities in the 40Gb/s arena and accelerate development of Opnext’s 100Gb/s product family, the firm reckons. “We are looking forward to combining our efforts to provide a broad portfolio of 40G and 100G modules and subsystems,” Bosco says. “We will continue to improve our execution and readiness in high-growth areas of the business such as tunables and XFP modules as well as 40G, which we will believe will rebound in the first half of next year.”

See related items:

Opnext grows 15.8% sequentially to record $84.2m revenue

Opnext to acquire StrataLight

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