5 August 2010


Oclaro reports record profitability on 44% revenue growth year-on-year

For its fiscal fourth-quarter 2010 (ended 3 July), optical component, module and subsystem maker Oclaro Inc of San Jose, CA, USA has reported revenue of $112.7m. This is up 11.4% on $101.2m last quarter and up 44% on revenue of $78.1m a year ago on a pro forma basis (including $6.1m of revenue of Avanex Corp of Fremont, CA prior to its 27 April 2009 merger with Bookham Inc to form Oclaro). This took fiscal 2010 revenue to $392.5m, up 86% on fiscal 2009’s $210.9m (excluding $24.8m from the Advanced Photonics Solutions division’s New Focus business, swapped in July 2009 for the high-power laser diode business of Newport Spectra Physics).

Of total fiscal Q4 revenue, Alcatel-Lucent was 14%, Huawei at 13%, and CNI-Nortel was just under 10%.

Telecom revenue was $98.5m, up more than 13% on $87m last quarter. Advanced Photonics Solutions (APS) revenue was $14.3m, relatively flat on last quarter’s $14.1m (although fiscal second-half 2010 revenue for APS was up more than 40% on fiscal first-half 2010). Much higher-than-expected demand for APS meant that, as for fiscal Q3, sales were capacity constrained again by $5–6m in fiscal Q4. “Customers have very short visibility on their orders,” comments president & CEO Alain Couder. “We get very short-term orders, and we do not necessarily have all the materials and components needed.” In the meantime, Oclaro is concentrating on supporting its established customer base while qualifying and ramping new lines.

On a non-GAAP basis, gross margin has risen from 23% a year ago and 27.7% last quarter to 30.7% (exceeding the 30% target set during the April 2009 merger of Bookham and Avanex). The rise is due to increased scale in revenue growth, from realizing cost savings from the shutdown of the former Newport Spectra-Physics fab in Tucson, AZ (after transferring APS production to Oclaro’s facilities in Europe), and from moving beyond March-quarter price reduction (the largest percentage of customer price reductions for the year). This boosted fiscal 2010 gross margin to 28%, from 23.5% in fiscal 2009.

Compared with a $2m operating loss a year ago, operating income has tripled from $3.2m (operating margin of 3.2% of revenue) last quarter to $9.6m (8.5% of revenue, exceeding the 5% target set a year ago). This has contributed to operating income of $15.7m for fiscal 2010, compared to fiscal 2009’s operating loss of $12.4m.

Adjusted EBITDA has continued to rise, from just $0.7m a year ago and $5.8m last quarter to $12.3m. This has boosted adjusted EBITDA for fiscal 2010 to $26.5m, compared to negative $1m for fiscal 2009.

Compared with a net loss of $6.7m a year ago, net income has more than tripled from $3.4m last quarter to a record $11.5m. This has contributed to net income of $16.5m for fiscal 2010, compared with fiscal 2009’s net loss of $3.3m.

“We are proud to have been profitable on a non-GAAP operating income basis for our first year as Oclaro, our adjusted EBITDA has increased each quarter, and our operating margins continue to trend upwards,” says Couder.

During the quarter, cash, cash equivalents, restricted cash and short-term investments rose from $55.7m to $111.6m. However, this includes $77.1m received in the May follow-on public offering of common stock, partly offset by $7.5m paid in late May for the firm’s investment in ClariPhy Communications Inc of Irvine, CA, USA (a privately held fabless semiconductor company developing mixed-signal digital signal processing ICs for 10, 40 and 100Gb/s optical networks in enterprise backbone, enterprise data center and telecom environments). Capital expenditure was $6.2m (up from $3.7m last quarter), reflecting Oclaro’s continuing investment towards executing on the strong demand it sees, says chief financial officer Jerry Turin.

Also, on 21 July, Oclaro spent $12m in cash to acquire Mintera Corp of Acton, MA, USA, which makes high-bit-rate optical transport sub-systems. Mintera’s quarterly revenue has fallen from $7–8m a year ago to $2–3m due to several customers worrying about its financial stability before acquisition. However, the 40G market is “working again”, says Couder. “We feel reasonably confident in the ability to ramp given their relatively mature organization and delivery to those revenues before.”

For fiscal first-quarter 2011 (ending 2 October 2010), Oclaro expects revenue to be up 9% to $120–126m (including $3–4m from Mintera) and adjusted EBITDA to rise to $12.5–15.5m. Non-GAAP gross margin should rise to 31–33%, but it will be constrained by higher-margin APS sales growth continuing to be limited by production capacity still being unable to fulfill demand.

“Our technology differentiation and product breadth are creating new opportunities for Oclaro; and so we believe our growth will continue through 2010 and that calendar 2011 is shaping up to be a strong growth year,” says Couder.

Oclaro expects Mintera’s operating loss to be $2.5m in the September quarter, but to improve to $1.5m in the December quarter and break even in the March 2011 quarter (considering transitioning products, aligning operations, in-feeding products, as well as scale from revenue growth). Initially, margin should be “quite a bit below the low-30s range”. However, Oclaro’s target model for Mintera is gross margin of 40–45% and non-GAAP operating margin of 20–25%.

Oclaro targets reaching overall gross margin of 35% by fiscal Q4/2011 (to end June). “But, with solid revenue demand, we could achieve target as early as this December,” reckons Turin.

Oclaro is hence increasing its target non-GAAP operating margin from 10–12% to 12–15%. “When we first achieve 35% gross margins, we would initially expect non-GAAP operating margin to be about 12%. With continued revenue growth at 35% margin, non-GAAP operating margins should continue to have leverage and scale towards 15%,” he adds. “We continue to have a longer-term goal of driving our model towards 40% gross margin or even higher towards the end of next year (with operating margin scaling accordingly), scaling revenue growth and moving manufacturing to low-cost countries [e.g. from Texas to Asia for the 40G DPSK module].”

Couder’s forecast for annual revenue growth was 20–30%, but it is now 30–40%. “We are more bullish than before,” he comments. “We have a plan to scale the company quickly and reach the $1bn revenue rate in 2–3 years,” he says. “We have a significant organic momentum... We may also supplement this with strategic acquisitions,” Couder adds. “We are constantly exploring potential addition to our technology portfolio... We have more than 10 small companies on our radar screen.”

See related items:

Oclaro grows margin for third consecutive quarter

Oclaro grows 10%, driving cash generation and investment

Oclaro acquires wavelength selective switch firm Xtellus

Oclaro goes into underlying operating profit

Search: Oclaro