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18 September 2008


Finisar and Optium hit record revenues prior to merger

For its fiscal first-quarter 2009 (ended 3 August 2008), Finisar Corp of Sunnyvale, CA, USA has reported record revenue of $128.7m, up 21.7% on $105.7m a year ago, and exceeding the firm's guidance of $120-125m. Growth was driven by record revenues for both optical subsystems and network test systems.

Revenue from optics (fiber-optic communications components and subsystems) was $115.8m, up 20.1% on $96.4m a year ago. In particular, revenue from products for 10-40Gb/s applications was $32.2m, up 76.6% on $18.2m a year ago (due mostly to longer-reach applications).

Driven by a favorable product mix of optical subsystems (mostly due to higher-margin products for metro telecom applications) as well as revenues for network test (which has much higher gross margins than optics), overall gross margin has grown from 30.6% a year ago and 32.9% last quarter to 38.4%. On a non-GAAP basis, net income was $11.6m, up on $3.7m last quarter and $7.9m a year ago.

Finisar’s performance underscores the power of vertical integration when combined with a leading market-share position, reckons executive chairman Jerry Rawls. The merger with optical subsystem maker Optium Corp of Horsham, PA, USA (announced in May and completed on 29 August) will add additional momentum to the progress that Finisar is making, he adds.

Finisar also reported that revenue for Optium’s fiscal fourth-quarter 2008 (ended 2 August) was a record $47.2m, up 76.3% on $26.8m a year ago.

In particular, driven by record growth in pluggable and 300-pin tunables, 10-40Gb/s revenues grew 71% year-on-year (to 65% of total revenue), including 40Gb/s alone growing from slightly over $200,000 to $2.7m. Accelerated R&D investments (such as those contributing to full production of DPSK 300-pin solutions) drove 40Gb/s to 6% of total revenue (beyond the targeted 5%). New products (e.g. small-form-factor tunables as well as new customer opportunities in pluggable optics) contributed to success.

Optium’s operating expenses have risen from $7.7m to $11.5m, due mainly to expenses incurred from ramping product introductions and production capacity for the new reconfigurable optical add/drop multiplexer (ROADM)and 40Gb/s product lines. Despite this, gross margin of 25.7% was up from 23.5% a year ago. Operating income was $0.78m, an improvement on last quarter's loss of $1.4m.

“The addition of Optium’s strong product lines directed toward high-growth markets such as ROADMs and 10-40Gb/s products for telecom applications, as well as a significant position in the cable TV market, will provide additional fuel to power the Finisar model,” says Eitan Gertel, Finisar's new CEO (formerly chairman & CEO of Optium). These investments will provide Finisar with a powerful platform for capturing the high-growth trends in the optical communication markets, he reckons. From an integration standpoint, with little product overlap and two best-in-breed manufacturing models, Optium and Finisar together can build a powerful organization with unmatched product line and resources dedicated to high-growth markets and manufacturing efficiency, Gertel concludes.

“The benefits of the merger with Optium are considerable, given our core strengths in enterprise storage and networking metro Ethernet combined with Optium’s core strengths in long-haul telecom and CATV,” says Rawls. “We now have one of the broadest product portfolios in the industry,” he reckons. “The merger will also combine Finisar’s vertically integrated low-cost manufacturing capabilities with Optium’s mass customization expertise to create a formidable supplier with a broad range of capabilities.”

Both Optium and Finisar are engaged in a large number of new product qualifications at many customers for both data center and telecom products, which should drive additional revenue growth. “While there may be pockets of slowness within telecoms, our completion of a number of new product qualifications and the ongoing penetration of a fast-growing 10 and 40Gb/s markets should translate to an exciting period of growth through fiscal 2010 and beyond,” believes Rawls. Qualifications include more than a dozen 10Gb/s products at 40 different customers, while the firm’s latest generation of 40Gb/s client-side transponders are being qualified at nine different customers.

Finisar foresees continued strong growth for 10-40Gb/s applications, not only for next quarter but particularly in its fiscal second-half 2009 (from November). “Our customers are optimistic about the next several quarters... we expect our data center and telecom product sales to increase this fiscal year,” forecasts Rawls.

“We also made significant progress in gaining new customers around the world, an effort that I believe is only at the early stages in terms of opportunity,” says Gertel. “We expect activity with these new customers to continue to develop in the coming quarters and as we continue to leverage the strength of an even stronger product portfolio as a combined company,” he adds.

For the upcoming quarter, Finisar expects combined revenues of $156-167m, including $145-155m from optics. Excluding about $35m from two months’ contribution from Optium, Finisar’s optics revenue should therefore be roughly flat on $115.8m, before growing once again in fiscal second-half 2009 (from November).

In the meantime, with Optium’s gross margins initially lower than those of Finisar, combined gross margin should drop to about 36% in the upcoming quarter (fiscal Q2), especially since Optium’s XFP product (for which revenue grew 30% sequentially last quarter) have the lowest gross margin of the firm’s 10Gb/s portfolio. A benefit of the merger is being able to produce the XFP products the same way as Finisar and hence to improve the gross margin, says Gertel. The impact of such synergies on operating expenses should begin to kick in from fiscal Q3 in January, translating to net income of $11-12m.

See related items:

Finisar completes merger with Optium

Finisar grows 25% year-on-year, driven by 10/40Gbps

Search: Finisar Optium Fiber-optic communications