Finisar Lowers Guidance

Changes and rechanges in orders are causing distress at Finisar. Is Fibre Channel to blame?

April 17, 2001

3 Min Read
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Another day. Another disappointment.

Finisar Corp. (Nasdaq: FNSR) slashed earnings expectations in an announcement after market close Monday (see Finisar Lowers Q4 Outlook).

The company, which supplies components and test equipment to many makers of optical and storage area networking gear, blamed two factors: across-the-board order slowdowns and the now ubiquitous "general economic slowdown."

"Orders have been scheduled and rescheduled until they're a moving target... We wanted to warn analysts and investors right away," CEO Jerry S. Rawls told analysts on a conference call Monday night.

Finisar says earnings per share (EPS) will range from breakeven to a penny on revenues of $50 million to $55 million for the present fourth fiscal quarter of 2001. Previously, the company and analysts forecast quarterly EPS of about 4 cents on revenues of $60 million to $65 million. Finisar also lowered estimates for the coming year by about 36 percent. The company now expects revenues to fall between $275 and $375 million.Executives said the majority of revenues this year and next will come from fiber optic subsystems, such as transceivers used for Sonet and storage networking devices. These components will contribute roughly 70 percent, or $35 to $40 million, to this quarter's revenues, they said.

While Finisar will still realize about 180 percent growth in revenues from fiscal 2000 to 2001 at these estimates, the adjustments signal the ongoing problems of oversupply and reduced demand that have become a litany to optical networking industry observers.

One analyst says orders for traditional Fibre Channel components are a key culprit in Finisar's case.

"Fibre Channel is dying," says James Jungjohann, analyst at CIBC World Markets. He says Finisar OEMs that are relying on traditional 1-Gbit/s Fibre Channel components are "definitely not having a good quarter." Their supplies of parts are gathering dust as end users stop orders and look to newer, faster gigabit Ethernet gear, or wait for the emergence of high-speed Fibre Channel gear based on speeds of 2-Gbit/s.

Finisar execs acknowledged that a backlog of unsold "legacy transceivers" contributed to the slowdown. And at one point, Rawls said that key customer Brocade Communications Systems Inc. (Nasdaq: BRCD) "has a pile of inventory." Still, he added that Brocade is "working through" the excess and that the leftover transceivers aren't the only products Brocade purchases from Finisar.Other analysts aren't so quick to target Fiber Channel. Mark Langley of Epoch Partners, notes that Brocade hasn't changed or lowered its fiscal guidance for this quarter, although two other Finisar storage customers have done so, specifically EMC Corp. (NYSE: EMC) and Emulex Corp. (Nasdaq: EMLX).

Langley says gigabit Ethernet orders are also a key element in the witch's brew that's lowered Finisar's expectations. Price erosion due to the present buyer's market is affecting gigabit Ethernet parts, which also are crucial to Finisar, he says.

On the upside, Finisar says it's got lots of new products planned, including small-form-factor OC48 transceivers, a serial transceiver for 10-Gbit/s Ethernet, a slew of new 2-Gbit/s high-speed Fibre Channel parts, and coarse wavelength-division multiplexing (CWDM) components to fuel metro-space equipment.

Finisar's also been on a buying and selling spree (see Finisar Acquires Shomiti, Finisar Lowers Q4 Outlook, ONI Systems Buys Finisar Folly, and Finisar Boosts Its Telecom Prospects

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