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Finisar expansion on track to meet demand

With fab utilization improving as planned, fiber-optic component maker Finisar is looking towards a profitable year.

Finisar, the Californian fiber-optic component vendor, posted record-breaking total sales of $106.2 million in the quarter that ended on July 31.

The figure "“ which is the highest that Finisar has ever posted - equates to a 30 per cent increase from the same period one year ago, illustrating the strong market demand for datacoms products.

Most of the increase was due to sales of optical subsystems, which totaled $96 million in revenue for the latest quarter.

After accounting for tax provisions and stock compensation expenses, however, Finisar was only able to break even on the bottom line.

But with the market for its modules showing strength, and capacity being ramped at its new wafer facility in Allen, TX, Finisar is confident about its prospects for the coming year.

CEO Jerry Rawls said, "We expect to continue [our] record-breaking pace, at least for the remainder of this fiscal year."

Rawls' confidence is largely driven by Finisar's qualification of a range of 10 Gb/s products at a variety of its customers.

The higher margins that Finisar enjoys on these cutting-edge modules should boost its profit margins over the next 12 months.

John Lau from investment analyst company Jefferies agrees, and adds that a new reactor at its VCSEL fab in Allen, TX, has already helped Finisar to increase capacity by 30-40 per cent.

Production of a 4 Gb/s VCSEL at the same facility should begin within a couple of months, and with a second reactor in Allen in place by mid-2007, capacity should be doubled. These measures will adversely affect margins in the short term, but Lau urges investors to stick with Finisar:

"While investors may be disappointed with the benign sales and lower gross margin guidance, we believe management is implementing the right steps to grow sales and expand margins longer-term with improving fab utilization," Lau said.

He has set a share price target of $6 on the company; the market's current valuation is just $3.70.

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