Why Finisar Corp. Shares Fell

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Finisar Corp. (NASDAQ: FNSR  ) plunged more than 10% during intraday trading Thursday after networking giant Cisco -- to which Finisar supplies optical components -- issued significantly weaker-than-expected forward revenue guidance.

So what: Cisco, for its part, also fell 11% today after it stated revenue next quarter is expected to fall 8% to 10% year over year. Finisar isn't scheduled to release its own fiscal second quarter 2014 results until December 5th, but it's obvious Cisco's ominous warning of difficulties in the space were more than enough to spook skittish investors sitting on big gains. As it stands, remember that, even after today's drop, shares of Finisar have risen by more than a third year to date. 

Now what: In early September, Finisar issued fiscal second-quarter guidance with revenue in the range of $277 million to $292 million, with non-GAAP earnings per share in the range of $0.37 to $0.41. As a result, analysts on average are looking for Finisar to report adjusted earnings of $0.39 per share on $285.7 million in sales.

But remembering that Cisco is currently Finisar's single-largest customer, investors are rightly worried it may not bode well for their company's own outlook going forward. As it stands, even though shares of Finisar are currently trading at just 13 times next year's estimated earnings, those estimates could certainly come down if Cisco's weakness translates to its suppliers.

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