This Big News Could Move Oclaro Earnings

Oclaro (OCLR) will release its quarterly report on Monday, and investors have generally been downbeat about the tiny tech company's future prospects. But with the company having recently announced a sale of a major piece of its overall business, Oclaro earnings could look a whole lot different looking forward.

Oclaro makes optical components and related systems for both the optical telecommunications market and the industrial and commercial laser industry. Combining the innovative potential of lasers in areas like health care and consumer electronics with the established demand for optical communications solutions, seemed like a reasonable business strategy, but the company now appears to be moving in a different direction in light of its recent deal. Let's take an early look at what's been happening with Oclaro over the past quarter, and what we're likely to see in its report.

Stats on Oclaro

Source: Yahoo! Finance.

Will Oclaro earnings look clearer this quarter?
Analysts have had mixed views on Oclaro earnings in recent months, narrowing their loss estimates for the June quarter by $0.01 per share, but widening their loss projections for the 2014 fiscal year by $0.05 per share. Until yesterday, the stock had been stuck in neutral, with shares remaining roughly flat since early June before yesterday's big jump.

Oclaro's past results have shown the struggles it has faced in a difficult telecommunications industry environment. The company's March-quarter results came in at the low end of its previous guidance, with sales, gross margins, and operating losses all deteriorating sequentially from the previous quarter. The fact that Oclaro highlighted its success in obtaining short-term bridge financing of $25 million shows just how critical the state of its finances are right now.

But the big news that will greatly affect Oclaro's future came earlier this week, when Oclaro announced it had sold its semiconductor laser business for $115 million to II-VI (COHR 3.74%), consisting of $92 million in cash immediately, as well as $15 million in accounts receivable, and $8 million in conditional payments. In addition, II-VI paid $5 million for the exclusive rights to buy Oclaro's optical amplifier and micro-optics division, which could potentially bring in another $88 million if II-VI exercises its option.

Those strategic moves are part of Oclaro's longer-range plan to refocus on its telecommunications business, matching well with its acquisition of Opnext last year. But for that strategy to work, the company needs to see stronger conditions in the network-communications market. For years, Oclaro customers Alcatel-Lucent (NYSE: ALU) and Infinera (INFN 2.31%) have faced challenges in getting major telecom providers to commit to major equipment purchases. But recently, conditions have started to improve, as major M&A moves among major U.S. carriers make it more likely that Alcatel and Infinera will get bigger orders in the near future. Sharp gains from fellow optical-networking component supplier Finisar (FNSR) have been a positive sign that major players in telecom are starting to spend again.

In the Oclaro earnings report, watch for further discussion of the II-VI sale, and how management will position the company going forward. With a massive infusion of cash, Oclaro is at a crossroads, and needs to execute well in order to take full advantage of the key opportunity it has right now.

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