Optics Overview: Better Time Ahead?

Last year was tough for the optical component manufacturers JDS Uniphase and Finisar as telecom operators reduced their IT spending. However, the two companies recently reported good quarters as the economy recovers.

On November 5, JDS Uniphase (NASDAQ:JDSU), with annual revenue of $1.29 billion, reported its first quarter results. Q1 revenue was down 21% to $297.8 million but was at the high end of guidance, reflecting an increase in customer demand. Non-GAAP net revenue was down 21% y-o-y and up 8% q-o-q to $298.6 million, including $7.5 million from the acquisition of Finisar’s Storage Network Tools business. Net loss was $31.9 million or $0.15 per share versus $21.3 million or $0.10 per share last year. Q4 coverage is available here.

Non-GAAP gross margins improved to 44% from 42.3% in Q409 and 43% in Q109. The company was free cash flow positive by $11.2 million for the quarter and ended the quarter with $673.1 million in total cash and investments.

For the fourth quarter, revenue grew sequentially across all segments. Communications Test and Measurement revenue, including the newly acquired SNT business, was $143.4 million, down 11% y-o-y but up 8% q-o-q. Communications and Commercial Optical Products (CCOP) revenue was $101.1 million, down 38% y-o-y but up 12% q-o-q. Within the CCOP segment, Optical Communications revenue of $86 million decreased 39% y-o-y and grew 9% q-o-q while Commercial Lasers revenue was $15.1 million, down 30% y-o-y and up 32% q-o-q. Advanced Optical Technologies revenue was $54.1 million, up 1% y-o-y and 7% q-o-q.

By region, revenue from the Americas was $151.6 million, up $12.5 million from the prior quarter. EMEA revenue was $80 million, up slightly from the previous quarter. Revenue from Asia Pacific was $66.9 million, up $11.2 million from the prior quarter as revenue increased for the laser and optical product lines in the CCOP segment.

For the second quarter, JDSU expects non-GAAP revenue to be between $320 million and $345 million. It is currently trading around $8 with market cap of about $1.8 billion. The stock hit a 52-week high of $8.75 on December 28.

Finisar (NASDAQ:FNSR), which had annual revenue of $541.2 million in 2009, reported its second quarter results on December 3. Q2 revenue was down 1.4% y-o-y but up 13.2% q-o-q to $145.7 million. Net loss increased to $31.4 million $0.49 per share from $11.1 million or $0.18 per share last quarter but narrowed from loss of $189.1 million or $3.55 per share last year. Excluding charges, the company broke even, meeting analyst estimates. Q1 coverage is available here.

Of the $17.0 million increase in revenues from the previous quarter, revenue from LAN/SAN products for applications less than 10 Gbps increased $6.9 million and ROADM products increased $4.5 million while revenues from 10 Gbps products increased $3.4 million. The impact of the recent Optium merger has been positive in the ROADM market, where Finisar is gaining share.

Gross margin increased to 27.3% from 22.8% last quarter and 27% last year. Finisar ended the quarter with $80.7 million in cash and short-term investments, plus other long-term investments that can be readily converted into cash. Non-GAAP operating expenses were $34.2 million, up by $0.4 million, or 1.3% over the last quarter and down $3.2 million or 8.5% versus last year.

For the third quarter, Finisar expects revenue to increase to a range of $148 million to $158 million and gross margin is expected in the 27% to 29% range. The stock is currently trading around $9 with market cap of about $600 million. On September 25, its reverse stock split of 1-for-8 came into effect after going below the $1 mark in March. Its 52-week range is therefore $1.68 to $10.80 even as it hit a 52-week high of $1.18 on September 17.

As the economy recovers, we can expect the increasing demand for optical networks resulting from the use of high-bandwidth applications to translate into revenue growth for JDS Uniphase and Finisar. Across the world, fast broadband networks will only gain ground, and this most certainly bodes well for the sector.

This segment is a part in the series : Optics Overview