Finisar Feels Heat From Agilent
byteandswitch.com
Shares of optical and storage component maker Finisar Corp. (Nasdaq: FNSR - message board) fell more than 20 percent Monday after the company was downgraded by J.P. Morgan Chase Bank & Co. and RBC Capital Markets because of evaluation concerns and increased competition.
RBC Capital Markets cut its rating on the stock to Sector Perform from Outperform as a result of pricing pressure in the storage sector, specifically from Agilent Technologies Inc. (NYSE: A - message board), according to a research note by the brokerage firm.
"As Finisar defends its share and cost reductions lag, this effect may impact margins and loss levels over the short term," wrote RBC analyst Robert Montague in a note to investors. Recent bids appear to have been submitted with 10 percent reductions, the note adds.
Meanwhile, J.P. Morgan lowered its rating on Finisar to Market Perform from Long-Term Buy, citing concerns that profitability will continue to get pushed back as the company sees more aggressive pricing from its OEM customers.
"Historically, Finisar's roots are in the storage business," says Jay Garcia, SAN optics marketing manager for Agilent, "but we know for a fact that we are winning designs away from them." He was unable to provide specifics other than to confirm that all the major storage array and switch vendors are either evaluating or qualifying Agilent's new 2-Gbit/s optical transceivers for Fibre Channel SANs (see Agilent Intros 2-Gbit/s Optical FC Gear).
Agilent is a major player in the market for Gigabit Ethernet fiber optic transceivers, ranked No. 1 by the Dell'Oro Group, and is hoping to use this position to accelerate its position in the storage networking market. It already offers Fibre Channel and iSCSI controllers.
"Storage is a very important market today, which is why we have entered with some unique products," says Garcia. He says Agilent's fiber optic transceivers for Fibre Channel are small form factor (SFP) pluggable components with increased operating temperatures and voltage specifications, as well as a new "de-latch" mechanism that eases the process of unplugging the transceiver. This combination of features, which is not available from any other vendor, Garcia claims, eases design and increases performance for 2-Gbit/s SAN products, including mass storage systems, switches, and host bus adapters (HBAs).
RBC believes Finisar has sufficient cash to weather this storm but has nevertheless reduced its forward-looking numbers to reflect the potential impact of increased pricing pressure and competition on the company.
J.P. Morgan analyst Tony Carbone slightly raised his fiscal fourth-quarter 2002 estimate for revenue and earnings per share from $39.1 million, or $0.05 per share, to $40 million, or $0.05 per share, but cut his 2003 earnings per share estimate to $0.10 from $0.15.
Analysts polled by First Call are currently expecting Finisar to post breakeven operating results for its fourth quarter 2002, which ended April 30. It will report fourth-quarter earnings June 6, 2002. In mid-afternoon trading Monday, Finisar was down 24.14 percent at $3.08 a share, much more than the broader market. Agilent was off 2.07 percent at $29.39 a share.
— Jo Maitland, Senior Editor, Byte and Switch
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