Finisar Beset By Weakness In China, Manufacturing Issues In Q1

Finisar Corporation FNSR announced Thursday after the market close fiscal first-quarter results and second-quarter guidance, all of which trailed expectations.

As such, Barclays maintains its Equal-Weight rating on shares of Finisar, citing the general uncertainty related to the timing of upticks in the core business and success in 3D. However, the firm lowered its price target from $36 to $26 due to the adjustment it made to its model.

At the time of writing, shares of Finisar were slumping 5.43 percent to $20.80.

Commenting on the results, Barclays analyst Joseph Wolf said the company was constrained by weakness in China and manufacturing issues.

Weak Datacom Revenues

The analyst noted that Datacom revenue fell 3 percent sequentially, dragged by weak 10G performance and lower speeds. The lower speeds were attributed to the slowness in 40G deployments in hyperscale data centers.

However, the analyst noted that 100G QSFP28 remained the bright spot. The analyst believes the company can crack the $100 million/quarter level, given the $15 million incremental revenues in the OCT quarter.

Additionally, Barclays noted that telecom revenues fell 8 percent sequentially, which however, was not as bad as feared.

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China: A Sore Spot Near Term, But A Potential Opportunity

However, the firm said China remained weak, although it believes it would be a source of potential upside. The firm endorsed the firm's stance of not committing on the timing and magnitude of upside.

The firm also views U.S. metro to be another potential upside catalyst in the calendar year 2018.

Manufacturing Woes At 3D

Meanwhile, the firm noted that 3D has been delayed due to a manufacturing issue with its high-power module that will delay revenues. The firm, however, is uncertain regarding the near-term high-power 3D opportunity and does not expect much contribution for Finisar. This is despite Finisar remaining confident and excited by the broad 3D opportunity and therefore it continues to invest.

As against $200 million revenue opportunity for rival Lumentum Holdings Inc LITE, the firm feels Finisar is set to reap in revenues of merely $20 million from 3D in the second half of the calendar year 2017.

Giving effect to the higher spending levels on capex, mainly 3D and China fab, higher annual salary driving up operating expenditure and lower revenues impacting the top line, the firm adjusted its model.

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