Cash on the companys balance sheet dropped from $146 million to $120
million over the last three months, while gross margins took a sequential
plunge from 38 percent to 24 percent. Company officials assigned part of the
blame to the transition of their manufacturing to a new plant in Malaysia.
Once the new operation ramps up, they expect margins to improve
significantly.
Practitioners in the half-baked science of market research expect the SAN
market to sizzle over the long haul. For instance, Gartner/Dataquest expects revenues for the
fabric attached storage market, which includes SANs and networked attached
storage products, to grow at a 45 percent compound rate between
2000 and 2005. Some financial analysts believe corporate earnings for these
vendors should exceed this amount, due to the increased operating
efficiencies of large-scale production. But with the near-term outlook in
corporate IT spending still murky, the demand for SAN products is not likely
to leap from the freezer to the broiler pan.
With Rawls boasting of new customer wins and a pickup in orders, perhaps
the company is already in the midst of a rebound. In the last two or three
quarters, Fibre Channel hasnt seen a lot of growth, but I think sales will pick
up soon due to new software products in the storage space from companies
like
Legato Systems Inc. (Nasdaq: LGTO)
and Veritas
Software, says analyst Matt Bryson of Avian Research LLC.
As an indicator of the companys near-term prospects, investors should
pay attention to the results of its biggest customers. Brocade Communications Systems
Inc. (Nasdaq: BRCD), for instance, recently reported earnings that were
in line with analysts expectations (not great, but not the negative news
that everyone has come to expect nowadays -- see Brocade Hits Numbers). On the other hand, EMC Corp. (NYSE: EMC), another major customer, has been stung recently by negative news regarding
its sales force (see EMC Hits New Lows ).
Analysts views on Finisar have soured recently due to the companys
announcement in July of lowered expectations for the quarter just ended and
the companys inability to forecast beyond the current quarter. The First Call
consensus of 10 analysts gives Finisar an average rating of 2.2, down
substantially from the 1.7 rating at the time of its last earnings report
three months ago. (A no. 1 rating is a Strong Buy, a no. 2 is a Buy, and
a no. 3 is a Hold.)
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