02 Nov 2011
With nearly half of its sales dependent on the flood-hit Thai contract manufacturer, Opnext shifts production to Japan and the US.
Photonic component and module manufacturer Opnext is ramping production of 10 Gbit/s modules at its internal facilities in Japan and California, as the impact of the recent severe flooding in Thailand becomes a little clearer.
Fabrinet is Opnext’s largest contract manufacturing partner, and, presenting the company’s second-quarter results for fiscal 2012, CFO Bob Nobile said that some 43% of Opnext’s revenues in the quarter related to products manufactured at Fabrinet’s Chokchai facility. He added that approximately $16 million worth of raw materials and finished goods were on-site in the form of inventory before production at Chokchai was suspended on October 22.
Aside from a small amount of raw materials, most of that inventory is thought to be undamaged. Production equipment with an original value of $31 million had also been installed at Fabrinet, although it is believed to be covered by insurance, while the more sophisticated kit has been moved upstairs at the affected plant and is believed to be unaffected.
In response to the disruption – Fabrinet has said that it does not expect to resume production in Chokchai this year - Opnext is shifting production of 10G optical modules to its corporate headquarters in Fremont, California, and to Totsuka in Japan as part of its contingency plan. Other products will be made by existing contract manufacturers in China and Japan.
With the Thailand floods having such a major impact on its operations, Opnext was unable to provide any guidance on revenue expectations for the current quarter. “While I am immensely encouraged by how swiftly the team has responded, we will not be able to transition capacity quickly enough to avoid a significant impact on our results for the December quarter,” said Opnext's CEO Harry Bosco in a statement.
“Opnext's priority is to invest the necessary resources to minimize the number of customers impacted and to limit the impact on those affected.”
Assuming that Opnext is able to deal with the disruption of the Fabrinet floods, longer-term prospects for the company are promising. Speaking at the recent European Conference on Optical Communications (ECOC) event in Geneva, Opnext CEO Harry Bosco quoted figures from Cisco suggesting that IP traffic would grow at a compound annual rate of 32% through 2015 – if correct, it would mean that global traffic had quadrupled in just five years.
Meanwhile mobile data traffic is predicted to almost double year-on-year, with the number of devices connected to IP networks in 2015 likely to be twice the world’s population – the latter having just reached 7 billion.
That rate of growth will demand much of optical networks and the components and modules that power them – particularly modules operating at 40G and above, which will migrate out of the backbone to feature increasingly in metropolitan and regional links. And while economic problems in developed western markets may put a brake on demand, that will be compensated for by growth in China and Japan, Bosco said.
Sales of 40G+ products typically account for more than one-third of Opnext’s revenues. However, in the latest quarter the firm saw 40G+ sales decline 6% sequentially to $32.1 million. Overall, the company posted sales of $86 million, down 8% sequentially, and a net loss of $10 million.
Though best-known for its optical communication products, Opnext, which has a rich technological heritage as a spin-out of Hitachi’s former photonics operation, also manufactures devices used in applications as varied as head-up displays, laser targeting and blood analysis. Sales of non-comms products increased to $9 million in Q2, up nearly 17% year-over-year.
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