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5 February 2009


Finisar cuts costs after worse-than-expected 14% sales drop

For its fiscal third-quarter 2009 (ended 1 February) Finisar Corp of Sunnyvale, CA, USA has reported revenue of $137m. This is up 22% on $112m a year ago, though due mainly to the merger with optical subsystem maker Optium Corp of Horsham, PA, USA last August. Revenue is down 14% on last quarter’s $159.5m (below guidance of down 5-10% due to shortfall across all product lines apart from products for 40Gb/s and short-distance 10Gb/s applications).

Finisar said it continued to make progress with respect to additional new product customer qualifications including:

  • 40Gb/s line-side transponder with one customer;
  • 40Gb/s client-side transponders with four customers;
  • XPAK-SR, X2-LRM and XENPAK-SR transceivers for short-distance 10 Gigabit Ethernet applications with two customers;
  • X2-LR and XENPAK-LR transceivers for longer-distance 10 Gigabit Ethernet applications with one major customer; and
  • 50GHz 88-channel wavelength-selectable switch (WSS) reconfigurable optical add-drop multiplexer (ROADM) line-card with one customer.

However, in light of the current economic environment, Finisar urges caution in assuming that additional revenues resulting from these product qualifications will be sufficient to offset a further decrease in revenues from existing products in fourth-quarter 2009 (ending 30 April). In addition, many customers are electing to carry less inventory, contributing to the current softness in orders.

Finisar has undertaken cost-reduction actions that are expected to result in total annual savings of about $40m compared to the cost structure of the combined company for the full fiscal second-quarter (ended 2 November 2008). A substantial portion of these cost savings (about $28m on an annual basis) will begin to benefit the firm in the current fourth quarter, with the other $12m following by fiscal second quarter 2009 (ending 31 October). Additional cost savings are currently being evaluated that should be realized in fiscal second-half 2009 (ending 30 April 2010).

The recent actions that should have a near-term benefit include:

  • further staff cuts of about 200 (17% of the workforce excluding operations in Malaysia and Shanghai - after already cutting 120 jobs in the US last quarter);
  • salary cuts of 10% for officers, directors and most staff; and
  • elimination of 401(k) matching company contributions.

Other cost-reduction actions that are expected to benefit Finisar from fiscal first-quarter 2009 (ending 31 July) include: (i) the transfer of product manufacturing to the firm's lower-cost off-shore locations and (ii) cost savings from engineering changes to enable the broader use of internally manufactured components.

“Current economic headwinds make it difficult to achieve revenue growth regardless of the important progress we're making on the new-product customer qualification front,” says executive chairman Jerry Rawls. “However, we are doing the one thing we can control in this environment, and that is aggressively reducing costs,” he adds.

“With the cost reductions we have identified, we believe our non-GAAP earnings before interest, taxes, depreciation and amortization (EBITDA) can continue to remain healthy even at reduced revenue levels,” says CEO Eitan Gertel. “We believe the actions we have undertaken recently to reduce costs will not significantly impact our product design activities, which should position us well for the future.”

See related items:

Finisar’s growth in storage offsets Optium’s CATV downturn

Finisar and Optium hit record revenues prior to merger

Search: Finisar Fiber-optic communications


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