Finisar Stock Just Fizzled Out

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Source: Thinkstock

Source: Thinkstock

Finisar Corporation (NASDAQ:FNSR) has been profitable and the stock has risen over 75 percent since hitting its fifty-two-week low of just over $13. But has the momentum run out? Finisar’s most recent earnings miss suggests the momentum is indeed fizzling.

Finisar isn’t your everyday company. This specialty company provides optical subsystems and components for data communication and telecommunication applications in the United States, Malaysia, China, and internationally. The company’s optical subsystems primarily consist of transmitters, receivers, transceivers, transponders, and active optical cables that provide optical-electrical or optoelectronic interface for interconnecting the electronic equipment used in building communication networks, including the switches, routers, and servers used in wireline networks, as well as the antennas and base stations for wireless networks.

It also offers wavelength selective switches that are used to dynamically switch network traffic from one optical fiber to multiple other fibers without converting the optical signal to an electronic signal. The company’s optical components primarily consist of packaged lasers and photo detectors for data communication and telecommunication applications. It also makes passive optical components for telecommunication applications. It markets its optical products through its direct sales force, as well as through a network of distributors, manufacturers’ representatives, and manufacturers of storage systems, networking equipment, and telecommunication equipment.

The company beat on revenues but missed earnings by $0.02, but there was a lot to be desired after this report. Revenues increased to $306.0 million, up $12.0 million, or 4.1 percent, from $294.0 million in the preceding quarter. The sale of products for datacom applications increased by $12.6 million, or 6.0 percent, compared to the preceding quarter. The sale of products for telecom applications decreased by $0.6 million, or (0.7) percent, compared to the preceding quarter, primarily driven by the impact of the full three months of the annual price reductions for telecom products that typically take effect on January 1.

The company’s GAAP gross margin decreased to 31.7 percent from 35.9 percent in the preceding quarter, primarily driven by the impact of the full three months of the annual price reductions for telecom products that typically take effect on January 1st as well as the impact of the u2t Photonics AG acquisition whose products carry a lower than corporate average gross margin. The company’s non-GAAP gross margin decreased to 34.2 percent from 37.2 percent in the preceding quarter. Further, GAAP operating income decreased $11.5 million to $21.6 million, or 7.0 percent of revenues, compared to $33.1 million, or 11.3 percent of revenues in the preceding quarter. Non-GAAP operating income decreased $7.4 million to $38.9 million, or 12.7 percent of revenues, compared to $46.3 million, or 15.7 percent of revenues, in the preceding quarter. Finally, cash, cash equivalents and short term investments decreased $41.7 million to $513.0 million at the end of the fourth quarter, compared to $554.7 million at the end of the preceding quarter, principally as the result of the acquisition of u2t Photonics AG, an increase in accounts receivable of $29.6 million and capital expenditures associated with the build out of the second building at its new manufacturing site in Wuxi, China.

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