Oclaro delivers its best margins and operating income

01 Feb 2017

Second quarter figures exceed guidance, although seasonal factors play their part.

Quarterly financial results for optical components supplier Oclaro testified to the current robustness of its core communications sector and the continuing trend towards faster networks.

"Our December quarter was very strong with improvement in all our financial metrics," said CEO Greg Dougherty. "Revenue increased 14 percent from the first quarter of fiscal 2017, and 64 percent from the same quarter last year, with demand for our newer 100G and beyond products driving this excellent growth."

Figures for the second quarter of fiscal 2017 confirmed the general picture that Oclaro had outlined earlier in January. Revenues reached $153.9 million, an increase from the $135.5 million reported for the preceding quarter and well up on the $94.1 million reported for the equivalent quarter of 2016.

The company said its gross margins would reach 39.5 percent, compared to 34.2 percent in the previous quarter. Non-GAAP operating income was $36.2 million for Q2, up from $20.9 million sequentially and $5.3 million year-on-year. Cash and cash equivalents stood at $243.5 million at the end of calendar 2016.

Speaking to analysts, Dougherty attributed the healthy increases to a richer 100G and 10G product mix, assisted by a favorable foreign exchange environment against Japanese, Chinese and British currencies. He commented that revenues are currently being driven by opportunities in China - now accounting for 42 percent of quarterly sales - alongside growth in the market for 100G technology in metropolitan data centers, and the demand for cloud-computing servers.

A different company from one year ago
"We expect China revenue to grow but it may drop as a total percent of sales because of the growth in data centers in metro markets, which tend to be more North America and European-centric," Dougherty commented.

Oclaro stock had promptly risen by 17 percent when the company pre-disclosed its general performance earlier in the month, followed by a smaller subsequent fall in line with the downwards pressure on tech stocks that has accompanied the early days of President Donald Trump's administration.

Shares picked up in the hours leading up to the announcement of Q2 figures, before slipping by 2 percent in after-hours trading.

Analysts noted that the company's guidance for Q3 predicted revenues again reflecting seasonal pricing pressure and increasing more modestly, falling in the range of $156 million to $164 million.

Alluding to the restructuring that Oclaro has undertaken since he assumed the chair in 2013, including the elimination of its convertible debt during 2016, Dougherty indicated that Oclaro was "quite a different company from just the year or so ago," and commented that "as an industry we need to be smarter in terms of how we're pricing the market, because there shouldn't be an assumed 10- to 15 percent drop every quarter for the rest of our lives."

Political factors are now inevitably on the radar, however. "We have no reason to believe things will change," said Dougherty. "But it's very hard to predict some of the political winds, particularly right now."