Why Viavi Solutions Stock Was Down This Week

What happened

Viavi Solutions (VIAV -0.12%) shareholders lost ground to the market this week. The stock fell 13% through early-Friday trading, according to data provided by S&P Global Market Intelligence, while the S&P 500 declined 0.3%. The networking solutions provider's stock is now down 15% so far in 2023 compared to an 8% increase in the wider market.

This week's slump was sparked by a surprisingly weak earnings update about demand trends into early 2023.

So what

Management on Monday announced preliminary results for the fiscal third quarter that ran through early April. Sales are likely to land at between $246 million and $248 million, executives said, missing their prior forecast of between $256 million and $276 million. Profit margin will also come in lower than expected, with non-GAAP (adjusted) operating margin of about 11% compared to the forecast of between 13% and 14.2%.

These misses were both driven by a spending decline among network equipment manufacturers and semiconductor companies, two important customer niches for Viavi. The pullback was "much higher than anticipated," executives said, while other parts of the business performed as expected.

Now what

Viavi is still focused on cutting costs in a bid to protect profitability during this cyclical downturn. Its previously announced savings plan is progressing and should reduce expense growth over the next few quarters, according to executives.

Still, investors are bracing for weaker sales and profit trends at least through the end of fiscal 2023. Shareholders will get more details on Viavi's reading on the market when management announces its full Q3 results in early May. In the meantime, look for continued volatility in the stock as Wall Street tries to judge the severity of the current demand slump while estimating the timing of the eventual rebound in equipment spending.