Optical networking component supplier Finisar (FNSR, Financial) came out with eye-popping results recently. The strong results by the company impressed everyone. Because the fiber-optic sector is booming, strong results by Finisar weren't a big surprise.
The Performance
The stock has been very impressive on the market, with a good 30% appreciation in the past month. Finisar is known for its data communications business. The company has been seeing growth in this segment and is expecting more improvements in the future. The company stays confident of its data communication business to improve in the future as a result of growth in data centers. In order to explore more opportunity, the company placing major focus on research and development initiatives.
The company has many new products in the pipeline. It has launched new 100G modules on a test basis. It has many exciting features such as lower power consumption than other products of the same class by competitors. If the company sees growth in demand for the product, it will ramp up the production later this year.
Product Improvements
Finisar, on the other hand, is also focusing on improving its products to make them more competitive. Under this, the company is reducing product size to make it more compact and also reduce the power consumption. Finisar is starting production of its 10-gigabit SFP wire. With this product, the company is expecting to hold an unbeatable position in the optical fiber business, as this wire is more efficient than copper wire. Finisar is seeing huge demand for the product.
With all such moves, it is evident that Finisar is on the front foot. With the growing data center market, the company is expecting more benefits. With Cisco being its customer, Finisar is expecting a sure shot improvement in the future. However, there’s been a concern of late regarding Finisar’s business from Cisco as the networking giant has been working on its silicon photonics technology.
Concern
Cisco has reported that its photonics will enhance connectivity speed between routers and switch line cards while consuming less power, and has even funded a start-up for the purpose of developing this technology. This technology could pose stiff competition for Finisar. However, some analysts expect it to hurt just 6% of Finisar’s business. Thus, Finisar should keep a strict check on its peer’s activity.
Finisar did face some weakness. Revenue from its telecom business failed to meet the company’s expectations and declined 12%. But there some concrete indicators for a robust performance in the future.
However, strong results by optical networker Ciena indicate that the telecom segment is up. Finisar should take a closer look at its operations in the telecom segment to find and rectify the weakness. Ciena, on the other hand, was optimistic about its results. If done properly, Finisar can see more profits in the future from the telecom segment as well.
Customers
Some of the big names such as AT&T, Verizon and other telecom customers are aiding Finisar. This proves the fact that there are more chances of an improvement in this segment, which is good news for Finisar. In response, Finisar is making impressive moves to gain from the telecom segment. With the growing traction of its 100G solutions, Finisar is confident of its outperformance.
Though Finisar saw a decline in revenue in the past, it has posted a better forecast for the coming quarter. But with growth in the telecom sector, the company is expecting it to be a primary driver of revenue.
Conclusion
It’s evident that there’s opportunity for Finisar to grow, and the company is looking to tap this opportunity by innovating and making its products better. The optimism reflects in the company’s own outlook and analyst estimates, which put the company’s earnings growth rate at a commendable 61% for this year and 22% for the next year.
Moreover, with a forward earnings multiple of 13 times and a balance sheet without any debt and ample cash, I think Finisar is a good deal right now.
