Will Finisar Join in the Optical-Networking Renaissance?

On Wednesday, Finisar (FNSR) will release its latest quarterly results. With the stock having traded down sharply from its highs in early 2011, investors are hoping that the company can finally pull off a long-awaited turnaround and send shares higher.

Finisar and many of its rivals have faced the difficulty of weak demand for its optical-networking products. But a few signs point to a reversal of that trend, potentially pointing the way to better times for the company. Let's take an early look at what's been happening with Finisar over the past quarter and what we're likely to see in its report.

Stats on Finisar

Source: Yahoo! Finance.

Can Finisar keep its earnings up?
Analysts haven't budged in their views on Finisar's earnings over the past few months, making no changes to their consensus figures for the April quarter. But they've reined in their fiscal 2014 estimates by $0.02 per share, and the stock has responded negatively, falling about 3% since mid-March.

Finisar has been under pressure for some time, with factors including slowing growth in China and the ongoing slump in Europe hurting its prospects. Finisar relies on orders from telecom companies and data-network operators, so when business conditions in those industries are poor, the pessimism tends to flow through to Finisar's results as well.

But recent good news from Ciena (CIEN -1.13%) has Finisar investors looking for better times ahead. Earlier this month, Ciena's stock jumped 17% after the company reported a 6% increase in sales, pointing to a revival in spending on network infrastructure. Comments from Ciena CEO Gary Smith suggest strength not just for his own company but also for the industry as a whole, and that sent both Finisar and larger rival JDS Uniphase (VIAV -1.44%) higher on the news. JDS Uniphase issued a fairly weak earnings and outlook early last month, needing to temper expectations for a revival in its own sales during the current quarter. As a result, Ciena's news came as a pleasant surprise for the industry, and with Finisar counting Ciena as a customer, Ciena's success reflects directly on Finisar.

Finisar can point to several catalysts that could boost its prospects. For instance, Cisco (CSCO -1.67%), which is also a Finisar customer, has had to respond to challenges from rivals to its networking dominance, and Cisco has also tried to branch out into broader areas of the big data trend. Greater investment from Cisco and its peers could lead to more orders from them for Finisar products, given Finisar's emphasis on makers of storage systems, networking, and telecommunications equipment.

In Finisar's quarterly report, watch for commentary about what recent good news from industry peers like Ciena means for the company going forward. If times are indeed getting better, Finisar needs to capitalize rather than letting its competitors grab all the glory.

Click here to add Finisar to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.