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6 March 2007


Finisar’s 10G and metro-area growth counteracted by SAN transceiver inventory correction

For its fiscal third-quarter 2007 (to end-January) fiber-optic component and subsystem maker Finisar Corp of Sunnyvale, CA, USA has reported revenues of $107.5m. This is up 16.3% on a year ago, but down slightly on $108.2m the prior quarter, and down on the management's guidance of $108-112m. “We are disappointed that, for the first time in 14 quarters, our revenues did not grow sequentially,” says president and CEO Jerry Rawls.

In addition to Finisar’s Test & Measurement revenues of $9.5m, optical communications revenues were $99m, down $1m from the prior quarter (though up 16% on a year ago).

In particular, revenues for local-area network (LAN)/storage-area networks (SAN) applications (for which Finisar claims the largest market share) fell by $7.1m. This is down 11% from the prior quarter’s $62.6m to $55.5m (though still up 12% year-on-year). SAN revenues continue to be impacted by excess inventories of short-wavelength transceivers at certain customers, which those firms built up during fiscal Q4/2006-Q1/2007 as an insurance, says Rawls, while Finisar qualified the new MOCVD reactor for vertical-cavity surface-emitting lasers at its fab in Allen, TX.

However, sales of products for metro-telecom applications rose by $6.1m (up 17%, from $36.4m to $42.5m). This included shipments of 10G and 40G products totaling $11.6m (up 44% on the prior quarter and more than doubling year-on-year). In fact, 10G sales were constrained due to part shortages at an external supplier, so 10G sales could have been even higher, Rawls adds.

Due to the favorable shift in the optics product mix toward more profitable 10G and metro-telecom applications, gross margins improved significantly in comparison to the fiscal first-half year, rising above 40% for the first time since 2001.

In the next quarter (fiscal Q4), Finisar expects 10G and 40G product revenues to rise from Q3’s $11.6m to $14-17m (as the total 10-40G market is forecast to grow rapidly from $462m in 2006 to about $600m in 2007).

However, gross margin is expected to fall back below 40% in fiscal Q4, with LAN/SAN revenues down by $5-6m (keeping optical revenues flat on Q3 amid total revenues of $104-110m).

But, VCSELs grown in the new reactor in Allen have now been qualified both internally and in transceivers at some customers (and all other customers are in the process of qualification). So, in fiscal Q1/2008 (after the end of the SAN inventory correction in fiscal Q4/2007) optical revenues are expected to bounce back to $98-104m, contributing to total revenues of $108-115m and driving gross margin back up to the level of Q3 (over 40%).

Rawls adds that full-year fiscal 2008 should show revenue growth over fiscal 2007, driven by 10G product sales that are expected to double annually for the next two years.

* Finisar’s fiscal Q3 results are preliminary. The company intends to file a Form 12b-25 with the Securities and Exchange Commission stating that it will be unable to file its report on Form 10-Q for the quarter (due 9 March) until the firm has completed its voluntary review of its past stock option grant practices.

Previously, on 14 December 2006, Finisar received a Staff Determination letter from the Nasdaq Stock Market indicating that it was not in compliance with Nasdaq's continued listing requirements due to the delay in filing Form 10-Q for the quarter to end-October and, therefore, that its common stock was subject to delisting from the Nasdaq Global Select Market. On 15 February, Finisar appeared before a Nasdaq Listing Qualifications Panel to present a plan for regaining compliance. Pending the panel’s decision, Finisar's common stock will continue to be traded.

See related items:

Finisar reports 13th quarter of growth, but reviews stock option grant practices

Emcore and Finisar receive Nasdaq delisting notices