Opnext just reported fourth-quarter earnings, and the report did very little to lessen my worries.
Sales fell 29% year over year to $67.6 million, producing a $0.16 non-GAAP loss per share. That's worse than Wall Street's average targets at $72.7 million and ($0.15) per share, respectively. The company burned $5.2 million of cash from operations -- more than twice the year-ago period's cash use -- but made up for it to some degree by spending less on capital expenses. Opnext ran up $7 billion in negative free cash flows all in all, 58% more than in the year-ago period.
Management waxed poetic over rising demand for high-end optical components that work at 40 gigabits per second, or Gbps. However, Opnext is running into unspecified supply constraints on the absolute top-end products at 100 Gbps. Sales guidance for the next quarter was $70 million to $80 million, falling entirely below the Street's current $84.4 million estimate. At the midpoint of that range, Opnext would be staring down a 20% revenue drop year over year.
So, yeah, Oclaro is hardly hitching its wagon to a winning horse here. The merger was billed as a play on economies of scale, as Opnext plus Oclaro would exceed the high-speed optical-component sales of chief rivals JDS Uniphase
It's rare to see share prices soaring on an earnings miss and disappointing guidance, but investors clearly didn't have much confidence on Opnext going into this report. And they still don't.
Both stocks have plunged more than 45% since the merger was announced, even after Wednesday's modest bounce. Yes, Oclaro gained roughly 6% on this report and Opnext jumped 4.2% -- the wonder twins will largely move in tandem until the stock-swap merger is consummated.
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