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Finisar hopeful as slump 'nears low point'

Chairman Jerry Rawls laments the absence of an accurate crystal ball, but believes that things will begin to look up after April.

New product qualifications, low inventory levels in the fiber-optic supply chain, and the US stimulus package will all help Finisar to turn around slumping sales over the next few months.

That appeared to be the message projected by the Californian chipmaker s senior management team as it announced Finisar s latest financial performance on March 5 (see related article for the finer details).

Joking that the new, high-tech crystal ball that he had ordered was yet to arrive, company chairman Jerry Rawls indicated that, in the longer term, the economic stimulus package ratified by the US government last month will provide a major boost.

With $7.2 billion earmarked for spending on broadband infrastructure via that stimulus, companies throughout the fiber-optics ecosystem stand to benefit. But the build-out will inevitably take some time to filter down to component-level spending, with Rawls anticipating that any benefit to Finisar will take until the end of this year to materialize.

In the nearer term, Finisar is seeing orders bounce back from the sharp dip witnessed in December. In ongoing technological developments the company will showcase a 100 Gbit/s Ethernet optical link, a 16 Gbit/s FibreChannel demo, and a 43 Gbit/s transponder at the key Optical Fiber Communication conference in San Diego later this month.

Rawls reckons that with fixed-line operators needing to head off the threat posed by competitors offering various flavors of wireless broadband connectivity, there is a very real need for continued investment in a fiber-access build-out.

As a result, he anticipates that the current quarter, which ends in late April, will prove to be the bottom of the slump "“ for Finisar, at least.

Referring back to the fiber-optic industry s 2001 meltdown, the Finisar chairman noted that it took two quarters from the onset of the recession for the bottom to be struck. "We think the upcoming quarter ended April 30 probably marks the low point of this correction," he said.

This time around, Rawls believes that many of the industry fundamentals are in better shape than they were eight years ago. "The industry supply chain carries less inventory than it did back then," he explained. "So in some ways we think that we re better off this time around."

Rawls theories appear to be backed up by the sales performance of the high-speed sectors within Finisar s product portfolio.

At $126.1 million, optical revenues were down 15 per cent on the preceding quarter. However, sales of products destined for 10 Gbit/s or 40 Gbit/s applications held up better, dropping only 9 per cent to $49 million.

For the current quarter, Finisar is expecting to see a more modest decline in optical revenues, with sales of products for short-reach 10 Gigabit Ethernet links actually expected to increase sequentially.

Overall, Finisar posted a net loss of $47.4 million on total sales of $136 million for the quarter that ended February 1, although a goodwill write-down of $46.5 million accounted for the vast majority of that loss.

On its balance sheet, Finisar lists $142 million in long-term debt relating to convertible notes.

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