ON24/TalkOnStocks Broadcast Notes:
These are my notes from the interview with Jerry Rawls, the President and CEO of Finisar. This interview was on the ON24/TalkOnStocks broadcast for 6/6/2000. This was an excellent interview to see exactly what is going on with the company. This was not a softball interview, as the host asked direct and pointed questions.
Merrill Lynch and CIBC have buy recommendations on the stock. Here are some of the summary questions and answers addressed in the interview (but I really encourage everyone to listen to the interview, as Jerry is very upbeat, positive, professional, and direct with his answers).
1) The stock collapsed from a high on 3/10/2000? What happened?
Jerry: Market influences. Greenspan. All I know is that our stock should do well over time.
2) Does Finisar have to many of their eggs in one basket with EMC, since they represent 29% of total Finisar revenues?
Jerry: It is wonderful to have EMC as a customer. EMC is in a sweet spot of the economy. EMC is growing very fast, and they require additional products, which results in a higher % of revenues for us. We are adding new customers.
3) Newbridge Networks' percentage of revenues has gone down. Why, and is this a trend for Newbridge's relationship with Finisar?
Jerry: Newbridge needs our products for their switches. They are going through the acquisition with Alcatel, and I believe sales will increase in the future (after the merger with Alcatel is complete).
4) Why did the gross margins decrease for the past quarter?
Jerry: The margins were 1.7% lower than anticipated. This, in part, was anticipated. An unexpected event occurred, where we had to rebuild expensive circuit boards for a new product in the test systems product line. We did, however, anticipate the following:
Optics is 70% of our business. This is a higher volume business, with lower gross margins than the test systems. This product line is growing at a 120% rate per year. Test systems is 30% of our business. This is a lower volume business, with a higher gross margin than the optics product line. The gross margins are anticipated to decrease 1% in the next quarter due to this mix, and then the gross margins should increase again. The reasons gross margins should increase again are the following: 1) Opticity sales begin this quarter, and 2) Cable TV sales begin this quarter. They both have higher gross margins, which should provide overall higher gross margin rates.
5) Are you having any trouble attracting employees?
Jerry: These are good times in the economy. There are technically skilled employees, including foreigners, whom are seeking employment. We have been successful in attracting employees for the following reasons: 1) Finisar is a fast and growing company, 2) Finisar is a new company, and employees are having fun, and they are enjoying their jobs and the jobs' respective challenges, 3) Finisar offers competitive wages and stock options, and employees can forecast personal wealth based upon the options and how fast the company is growing (where do I sign up?), and 4) there is not any reason to expect a slowdown in the growth for the company.
6) Finisar is selling at twice the"price/sales" multiple that companies like JDSU sell at in the market. How do you feel about this situation?
Jerry: Gratitude that investors have confidence in the company. Finisar is a growth stock, and is in and entering rapidly growing markets.
7) Merrill Lynch has forecast (now I know why the stock went up today, on triple the volume!) that your revenues and sales will increase for fiscal year 2001. Do you agree with the following increased estimates for fiscal year 2001: 1) anticipated sales estimates were increased from $109 million to $120 million, and 2) anticipated earnings per share estimates were increased from 8 cents to 12 cents?
Jerry: Yes, I am comfortable with the revised fiscal year estimates for 2001. This includes the revised revenues and earnings numbers. We want to not only meet the estimates, but also beat the estimates. The increased numbers still gives us the opportunity to meet and exceed the estimates.
8) What is your biggest threat?
Jerry: Capacity. Finisar needs to ensure that we increase manufacturing capacity as fast as our customers demand.
My thoughts:
My overall impression was very positive. Jerry is truly a great spokesman for the company. He is very relaxed, very knowledgeable, and very confident! My optimism is based on the following factors:
1) Finisar is in a hot sector, with no slowdown anticipated
2) analysts are increasing revenues and earnings' estimates
3) the company's biggest threat is providing adequate supply for their customers.
Just the kind of comments I like to hear! Good luck to any longs. advalorem |
