Sunday, September 7, 2014

Seeking Alpha: Finisar Taking Its Lumps

Optical components manufacturer Finisar (NASDAQ:FNSR) has become a miserably bad call for me. Six months ago, I wrote that I would never want to hold Finisar for the long term and that I thought the shares were already trading at their inherent DCF-based value (with some bullish assumptions). I also thought, though, that momentum in the datacom business would support the business in the near term and lend strength to the shares. With the stock down more than 20% over the past six months, though, that clearly has not happened.

Along with fellow component manufacturer JDS Uniphase (NASDAQ:JDSU) and telecom equipment companies like Alcatel Lucent (NYSE:ALU) and Ciena (NYSE:CIEN), Finisar is contending with weaker than expected telecom carrier spending. Finisar is also seeing lumpier datacom spending from Web 2.0 customers and weakening growth in wireless transceivers while pursuing lower-margin sales into the Chinese telecom market.

I didn't see a lot of intrinsic value in the shares six months ago, and I don't see much now either given the company's lower guidance. I can also construct a bearish scenario that would see the company retest the $11-$13 range. Finisar is part of a volatile sector and is heavily shorted, though, and the shares could bounce if business conditions improve and the company delivers beat-and-raise quarters. I do think that Finisar has good technology in 40G/100G transceivers and transponders, as well as opportunities with its wavelength selective switches and ROADM cards, but this is a pretty tough sector for value-oriented buy-and-hold investors like me.

Continue reading here:
Finisar Taking Its Lumps

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