Opnext boosted by Japan recovery

20 May 2011

Despite some lingering concerns over the supply of lasers, the component maker has recovered well from the impact of the devastating earthquake.

Optical component maker Opnext, whose module manufacturing operations were interrupted for ten days after the recent earthquake and tsunami in Japan, says that it has largely recovered from the impact of the disaster.

In the company’s financial update for the fourth quarter of the fiscal year – which ended on March 31, twenty days after the earthquake struck – CEO Harry Bosco described the return to near-normal operations as “a remarkable accomplishment”.

Investors appeared to echo that sentiment, sending the company’s share price up by close to 40%, although its valuation remains well below levels just prior to March 11. That is in part a reflection of the market’s response to sluggish demand for optical components used in communications networks, a sentiment that has also dragged down Finisar, JDSU and Neophotonics.

One remaining issue facing the company as a direct result of the quake is an external supply of lasers, after a key supplier was forced to re-process a number of semiconductor wafers that were in production at the time. That has constrained Opnext’s ability to meet demand, although the problem should be resolved within the next two quarters.

Costly resignation
Despite the interruption and subsequent restrictions on the electricity supply, Opnext posted only a slight sequential decline in revenues to $95.3 million for its closing quarter of the fiscal year, bringing full-year revenues to $357.6 million, up 12% on the prior year. However, the company, which was originally a division within Hitachi, still posted a substantial net loss of $31.8 million, with the resignation of former CEO Gilles Bouchard in December 2010 adding $530,000 to the expenses column.

Though an improvement on the previous year, that loss came despite a gain of $21.4 million made by Opnext in its fourth fiscal quarter, after it sold off assets relating to its development of ASIC technology used in long-haul optical communications. Juniper Networks is buying that technology for $26 million, of which $23.5 million was paid at the time of the agreement in February 2011.

Opnext’s sales are dominated by applications in the communications sector, but around 10% of its business ($8.2 million in the latest quarter) is typically driven by sales to industrial and commercial products, including the company’s blue and violet laser diodes based on gallium nitride structures. Bosco said that new products such as violet lasers used in medical illumination, and a blue laser developed for applications in projection displays, had been well received by customers.

The CEO also forecast that total revenues for the company would be flat in the current quarter, and likely to come in at between $93 million and $97 million as the company continued to deal with the supply issues in Japan.