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Why Finisar is Set to Soar

August 13, 2014 | About:
sandyinvestment

sandyinvestment

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Finisar (FNSR) hasn’t really performed well for investors in 2014; however, the long-term prospects for the company look bright. The company is a good buy on the pullback as it has a lot of upside potential. Let’s take a look at the reasons why you should buy Finisar.

Decent quarter

Finisar reported an upbeat fourth quarter with revenues touching $306 million while the annual fiscal 2014 revenues went over $1 billion. These are both records for the company with annual revenues reaching a $1.156 billion mark. The quarterly revenues increased by $12 million sequentially and $62.6 million year-over-year while the annual revenues increased by $222.5 million over the prior fiscal year.

The gross margin was 34.2% compared to 37.2% in the previous quarter while the operating expenses were $65.9 million, up $2.7 million. Average diluted shares totaled $105.4 million. Revenue from data communications segment was $223 million, up from the previous quarter while revenue for Telecom products was $83 million, a decline from the previous quarter.

For the first quarter of fiscal 2015, the company expects revenue to be in the range of $320 million to $335 million while the gross margins are estimated to be approximately 32%. The operating margins are expected to be between 10.3% and 11.3% while EPDS will be in the range of $0.30 to $0.34 per share.

Bright prospects

Finisar currently is a leading provider of optical subsystems and components for telecom and data communication applications. The company’s revenue is driven primarily by growth in the demand for bandwidth to manage the ever-increasing distribution and use of video, images and digital information. The company also benefits from growth in cloud services with larger data centers and an increasing number of longer, higher speed connections.

In the telecom segment, Finisar is now shipping beta samples of the tunable SFP+ modules. These modules feature less power consumption and, thus, will allow the company strike the fast-growing market for data centers and telecom. In datacom, the company launched its 100G CFP2 LR4 and expects this product to swindle throughout the calendar year.

Finisar launched its new 100G transceivers, such as its CFP2 LR4 product, and it is now working on the next-generation CFP4 product. The company's vertically integrated business model helps it deliver efficient solutions to customers with low power consumption. As a result, Finisar's solutions have a good grip in 100G and 200G coherent metro and long-haul markets. The company witnesses increased sales of 10-gigabit per second, faster Ethernet transceivers and transceivers for LTE wireless applications.

The wireless product CPRI business continued to show growth this quarter; it is further expected to grow due to accelerated LTE deployments globally, but especially in China. The company is also planning to reduce the costs for its data rate solutions while expanding production capacity in order to feed the market demands.

In the parallel markets, the company is expanding its customer base for both of its 10 gigabit and 25 gigabit per channel mounted optical engines, which are proprietary products for Finisar. These high density solutions deliver high performance computings, routers, interconnects and server applications. The company mainly focuses on its 25 gigabit per second per channel product.

In this quarter, the company completed the acquisition of Berlin-based u2t Photonics, whose high-speed receivers and photo detectors are used by several system manufacturers. This acquisition is bound to strengthen Finisar's product offerings as it will allow the company to offer a comprehensive suite of optical components to customers while strengthening its vertical integration further. With u2t Photonics the company is working on its CFP2 coherent module. With Finisar’s advanced Indium-Phosphide laser, modulator and receiver components, it will have the industry-leading product in when it comes to power consumptions and performance.

Conclusion

All the factors mentioned above will drive Finisar’s shares up, making it a good buy at present valuations.


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