News Article

Opnext Cuts Back As Cisco Takes Stock

The optoelectronic device manufacturer sheds employees, although the Chinese stimulus plan should provide something of a boost.

Optical component and module supplier Opnext has kicked off its new financial year with a change of CEO and a raft of measures designed to stem its cash burn.

Taking the helm on April 1, one of new chief executive Gilles Bouchard s first moves was to cut his own pay by 10 per cent, as the company simultaneously reduced its 800-strong workforce by the same proportion.

Following Opnext s acquisition of Stratalight last year, those measures have been in the works for some time.

More recently, however, Opnext has taken a knock from inventory reductions at network-building giant Cisco Systems, which is responsible for around one-third of Opnext revenues.

According to analyst Paul Bonenfant at investment firm Morgan Keegan, the latest round of cost-cuts were "positive and necessary, given recent accelerated cash burn".

"Opnext isn t out of the red (yet)," he added.

Opnext confirmed to compoundsemiconductor.net that the restructuring will take place across all of the company s operations and manufacturing headcount.

"Through the integration [with Stratalight], we have built a stronger, more focused Opnext," said a spokesperson.

Bonenfant suspects that financial results for the final quarter of Opnext s fiscal year (ended March 31) are on track to reach the forecast of between $80 million and $90 million, with growing Stratalight sales off-setting a sharp drop in organic Opnext revenues caused by Cisco s inventory paring.

Reporting from the Optical Fiber Communication (OFC) Conference held in San Diego two weeks ago, Bonenfant said that many vendors indicated improved orders in March after a "horrible" January and only marginally better February.

In fact, he says, some components have been in short supply and subject to "rush orders".

Bonenfant suspects that this may reflect a simple re-stocking of specific inventory, rather than a sustained rebound in demand, but is much more optimistic with regard to companies selling into the Chinese fiber-optic market.

That is because of the Chinese government s stimulus plan, a $100 billion investment that includes optical back-haul and backbone build-outs to support the country s 3G wireless upgrades (see related stories).

Opnext stands to benefit to some extent, although the Chinese plan should prove more favorable to rivals Bookham, Avanex and Finisar, thinks Bonenfant.

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