JDS Uniphase Wins the Round but Finisar is Fighting Back
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When different players in the same industry sing different tunes, it becomes a bit easier to separate the leader from the laggards.
Last month, optical networker JDS Uniphase (NASDAQ: JDSU) said that it is seeing an improvement in its market share in the fiber optics market and carried a healthy book-to-bill ratio of more than 1. This implied that the other two companies in the sector, Oclaro (NASDAQ: OCLR) and Finisar (NASDAQ: FNSR), would be in for a difficult time.
Oclaro is in its own World
Oclaro had released its results before JDS did, and there’s nothing much to write home about them. It missed estimates on the bottom line and is currently focusing more on synergizing its business after completing its merger with Opnext, as a result of which it didn’t give out guidance. Also, management focused mostly on the merger on the conference call and skipped important points such as the health of the telecom industry and the recovery in spending, which doesn’t give us too much clarity about where Oclaro is headed.
JDS Uniphase was the Boss
A couple of weeks after Oclaro’s report, JDS lifted the gloomy optical networking sector, which is currently subdued due to controlled spending by telecom companies in the midst of economic uncertainty. JDS thrashed consensus estimates, announced an acquisition to improve its position in the Asia-Pacific, and is progressing well with its cost control efforts and product development. It improved its order book, which is the best one could do in a gloomy spending environment by telcos.
Finisar’s Troubles Continue
Up next, it was Finisar’s turn and its results weren’t at all surprising. The company missed estimates and its guidance left a lot to be desired. Soft spending by telecom companies due to the European lockdown, sluggish growth in China and two less days of shipping dragged down Finisar’s results. Finisar’s top line has hit a road block due to the cut down in spending by telecom companies and the trend might continue as long as the economy doesn’t start looking up.
Also, advances made by JDS Uniphase at capturing market share have cast some more uncertainty over Finisar’s prospects. Its stock price performance has been the worst of the lot, with negative returns of 21% this year as against Oclaro’s 8% decline and JDS Uniphase’s 7% appreciation, and the outlook suggests that Finisar is in for some more difficulties.
But the Future doesn’t Seem so Bad
But Finisar is making some moves in order to bring back its glory days. The company’s R&D efforts are moving ahead nicely and it recently acquired RED-C Optical Networks for improving its product portfolio. The company is counting on this acquisition to improve its position in the market by offering more efficient products. Apart from this, Finisar has a number of other product lines in the works and has recorded impressive design wins for its WFS platform, transceivers, transponders and next generation line cards at various customers.
All through the conference call, management seemed intent on hitting the point home that Finisar is looking to win market share through its innovative products. The company is set to release a number of new products and designs in Amsterdam this month and expects to gatecrash JDS Uniphase’s party with their help.
Hence, it seems that the optical networking sector is a two-way race at the moment, with Oclaro currently busy integrating its business with Opnext while the other two engage in a duel for market share. It should be kept in mind that both JDS Uniphase and Finisar would find a lot of room to flex their muscles in the long run as telecom companies build infrastructure for faster 4G networks.
The Takeaway
Finisar sees sequential revenue growth returning in the current quarter and management sounds quite confident about design win momentum, which indicates that it might have reached bottom. It is intent on winning market share through some more design wins. It is also looking to improve its position in the market by delivering more efficient products and also by broadening its offerings. Throw in the fact that it is currently trading close to its 52-week lows and it might prove to be a good investment over the long run if you are willing to take some risk.
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