Ciena Corporation (CIEN): Does Finisar Corporation (FNSR) Have Any Growth Opportunities?

Conclusion

Finisar was recently downgraded by Jefferies, which changed its rating to underperform. According to Jefferies analyst James Kisner, the availability of silicon-photonics technology, which would enable a higher rate of data transfer and make optical components obsolete, was posing a serious threat to Finisar Corporation (NASDAQ:FNSR)’s sales. As a result, according to him, companies like Cisco (which contributed to more than 10% of Finisar’s FY12 revenues) and others are likely to be bigger threats to Finisar in the near term as these companies resort to vertical integration and launch competing silicon photonics-based transceivers.  When Chairman Jerry Rawls was questioned regarding this issue at the earnings call, he replied saying that he did not consider it as a major threat but only a technology that they had not used until now because it was not economical. He mentioned that the company was open to using it in its products in the future.

The telecom-equipment space has been struggling as the number of big potential customers has been shrinking and some have been keeping a tight grip on spending. But, investment in new technology and infrastructure have helped some of the companies improve their profitability, including Ciena Corporation (NASDAQ:CIEN). Similarly, Finisar has added some momentum and is turning around its business by upgrading its offerings, and has had a better performance than Uniphase in its second quarter. Finisar Corporation (NASDAQ:FNSR)’s new products are increasingly being accepted as corroborated by design wins and market share gains. Also, revenues should benefit from the sale of components for cloud infrastructure. Furthermore, it expects to benefit from increased leverage at its new Wuxi factory, which will provide it with room for expansion and add new equipment, production lines, and an increase in capacity.

In my opinion, despite Finisar having lower operating margins vs. its peers, its metrics are still stronger. It is well-positioned with its broad product line, extensive customer engagement, profitable vertically integrated business model and strong balance sheet to capitalize on the growing market opportunity.

The article Does Finisar Corporation Have Any Growth Opportunities? originally appeared on Fool.com and is written by Sujata Dutta.

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