Finisar: Fiber Optic Firecracker
by Chris Connor
Senior Technology Analyst, WallStreetCity.com
wallstreetcity.com
In the Right Markets
Almost every single individual investor has heard of the impact that fiber optic stocks have had on Wall Street over the last year, but they may not have heard of a highflying fiber optic company called Finisar {FNSR}. With such high-profile customers as EMC2 {EMC}, Newbridge Networks, IBM {IBM}, Sun Microsystems {SUNW}, Emulex {EMLX}, Extreme Network {EXTR}, and Brocade {BRCD}, Finisar definitely deserves some attention from investors. The company specializes in fiber optic subsystems and test equipment for the storage area network (SANs) and local area network (LAN) markets. FNSR's fiber optic subsystems consist primarily of receivers (convert incoming optical signals into electric signals), transmitters (convert electric signals into optic signals), and transceivers (a combination of a transmitter and a receiver) based on the Fibre Channel and Gigabit Ethernet protocols. Fibre Channel is currently the primary technology for SANs while Gigabit Ethernet is developing into the top LAN standard. It should be noted that there are several storage industry insiders that believe Gigabit Ethernet (or the versions of Ethernet that follow) will ultimately replace Fibre Channel as the backbone of SANs, so Finisar should have its bases covered if that does happen.
What Fiber Optic Slowdown?
As Finisar's Quick Facts demonstrate, the company's revenues have been exploding on a sequential basis. During the past nine straight quarters, the company has grown its sequential revenues at an average of 24.5 percent each quarter. Investors should note that Finisar's sequential revenue growth has also accelerated over its past three quarters. Furthermore, the company has been profitable during eight of its last ten quarters. The company's profitability is of special note because a large number of highflying publicly-traded fiber optic companies such as New Focus {NUFO}, Luminent {LMNE}, Avici Systems {AVCI}, and Corvis {CORV} have yet to even come close to entering the black. Looking over the longer term, analysts project that FNSR will grow its earnings 42.5 percent a year over the next 5 years.
In a Class By Itself
Unlike other fiber optic companies, Finisar serves enterprises instead of telecom service providers. In other words, Finisar's products are used for corporate intranets, whose equipment is usually kept in one building, while fiber optic products from the likes of JDS Uniphase {JDSU} are used in networks that stretch across continents and oceans. This difference has allowed Finisar to avoid the financial impact caused by the reduced telecom spending that has adversely affected the likes of Nortel {NT}. In contrast, FNSR is boosted by the continuing fortunes of its three biggest customers (EMC, BRCD, and EMLX) which make up about 50 percent of Finisar's sales and are benefiting from the still-explosive storage industry. In fact, Finisar CEO Jerry Rawls said in a recent interview with ON24 that Finisar will continue to grow well as long as EMC2, Brocade, and Emulex continue to perform well.
Looking Forward
Besides the obvious enormous potential of the storage industry, Finisar also should benefit from its broadband cable Digital Return Path Link product. This product allows cable operators to offer two-way Internet access without the noise problems that are usually present over fiber optic lines using analog signals (analog signals are vulnerable to noises from various sources which hinder bandwidth). Moreover, Finisar has been extremely adept at using its market leading Fibre Channel and Gigabit Ethernet test equipment to garner business for its fiber optic sub-systems because Finisar is intimately aware of the progress of its customer's product development so it can get the jump on its competitors by developing products to satisfy its customer's needs as soon as those needs arise. With that being said, investors should definitely research Finisar further if they are looking for substantial stock price appreciation from a fiber optic stock without the risk of reduced telecom spending.
Disclaimer: This report is published solely for information purposes and is not to be construed as advice or a recommendation to buy or sell a security. Trading involves risk, including loss of principal and other losses. Trading results may vary. No representations are being made that utilizing techniques mentioned in this article will result in or guarantee profits in trading. Past performance is no indication of future results.
===== |
