This Company Has Turned Around Successfully, Looks Good for More
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Optical networking company Finisar's (NASDAQ: FNSR) second-quarter report wasn't too much of a surprise, as the company was able to beat estimates that were already quite low. But, more importantly, the quarterly report came with a few pointers that the company is moving in the right direction.
Revenue in the quarter increased 5.2% from the year-ago period to $232 million. This rate of revenue growth seems impressive to say the least, as Finisar’s potent rival, JDS Uniphase (NASDAQ: JDSU) had recorded a revenue jump of just 1.2% in comparison. Also, Finisar’s growth came in a quarter when the fiber optics market declined by 7.4%.
Moreover, JDS Uniphase’s outlook was some way off consensus estimates due to uncertain telecom spending when it released results last month, but Finisar did better on this front as well. The company expects revenue of $230 million to $245 million in the current quarter with earnings expected to be between 14 cents and 18 cents a share. Analysts had expected $239.5 million in revenue and 17 cents of earnings and Finisar managed to satisfy their expectations -- more or less.
Positive all the way
These numbers indicate that Finisar might be winning some share in a highly-competitive optical networking market, and its research and development efforts are bearing fruit. Finisar is focused on expanding its product portfolio and the process continued in the previous quarter. It expanded its Flexgrid WSS (Wavelength Selective Switch), 10G, 40G and 100G transceivers and transponders portfolio in the telecom segment. The company has already started shipping samples of the 100G transponders and has received positive feedback from customers.
Also, Finisar continued its trend of winning over more customers in the second-quarter as well. Its new products in WSS are witnessing good traction and Finisar is trying to make them more efficient. Its wide range of Flexgrid WSS modules is aimed at enabling customers to install next generation gridless networks. This could prove to be a big advantage for Finisar as future optical networks will be based on gridless networking.
Benefitting from the data boom
In addition, Finisar is also finding success in its wireless business. The company is benefitting due to growth of LTE networks and is counting on its vertical integration to ramp up the next generation of products such as 10 gigabit SFP+ modules to ride the growth of LTE networks. Also, Finisar’s transceiver business has been going strong, and the company has continued to record design wins and capture share in this segment.
Finisar is also well-positioned in its datacom business, and this should drive the company’s top line to new highs in the future. It is witnessing solid demand for its products and consequently, it is ramping up production and adding more capacity. Moreover, growth in cloud computing is yet another catalyst and presence of a client like Cisco (NASDAQ: CSCO) should help Finisar gain from the cloud.
Cisco is one of Finisar’s 10%-plus customers and its investments in cloud computing are undoubtedly aggressive. Cisco recently announced the acquisitions of Meraki and Cloupia, which is another signal of intent that the networking giant wishes to become a major beneficiary from cloud computing and I won’t be surprised if Finisar gains a lot from the Cisco cloud bandwagon.
The foolish bottom line
Finisar has a lot of positives to offer and looks good for growth in the long run. The current macroeconomic situation might keep the company under pressure as carriers keep their spending under a check and infrastructure build outs are delayed.
However, from a long-term perspective, Finisar does look good with its wide range of products, illustrious clients and growth in data consumption. The company has gradually turned around its fortunes through product innovation after enduring rough weather, and should get better going forward.
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