Optical component mfr Fabrinet just reported

Fabrinet is an optical component manufacturer. They create subsystems used by many of the optical equipment manufacturers so they can assemble the final gear. They are the Skyworks and Ambarellas for the Apples and the GoPros.

Tonight, Fabrinet reported earnings that surpassed estimates. Shares are up over 11% AH. Some of the other component manufacturers also rose in AH who are set to report later this week.

Fabrinet supplies a number of components to Infinera, as we can see from here:

http://investor.fabrinet.com/releasedetail.cfm?ReleaseID=684…

FABRINET NAMED MANUFACTURING SUPPLIER FOR INFINERA OPTICAL SUBSYSTEMS

and this bulletin from a few years ago:

https://www.infinera.com/wp-content/uploads/2015/07/pr201110…

Infinera (NASDAQ: INFN) today announced that flooding in
Thailand is impacting the operations of component and service suppliers to the optical industry. Fabrinet, one of Infinera’s contract manufacturers, reported this week a significant escalation of the impact of the flooding on its facilities in Thailand.

and we have this gem here:

http://blogs.barrons.com/techtraderdaily/2015/12/30/lumentum…

Henderson sees good trends for fiber-optic buildout in dat centers and in the “metro” market of telecom lines, and although he likes three systems vendors — Ciena, Infinera (INFN), and Xtera Communications (XCOM), he prefers their suppliers:

We think good returns are possible with all three of these names. However, we think there is more upside at many of the component names. We see more upside to revenues, better margin leverage, and more room for valuation improvements with the component names. We point out the current supply constraints on broad classes of Optical components at the end of CY15, which we expect to persist through CY16.

Lumentum, one half of the splitting up of JDSU that happened this summer (the other is Viavi Solutions (VIAV)), is his “single best idea” for 2016:

He has nice things to say about Fabrinet (FN), too: “Priced at just 0.7x EV/Sales and 9x EV/E, we see FN as an inexpensive, low risk vehicle to attain exposure to accelerating and broadening optical demand.”

And Oclaro (OCLR): “the primary reason we are recommending the stock is the ACO 100G Coherent pluggable. Oclaro is first to market in this emerging category and if they ramp production smoothly we think they can sell whatever they can produce.”

Below are some snippets from Fabrinet’s earnings call transcript:

http://seekingalpha.com/article/3854276-fabrinets-fn-ceo-dav…

Toh-Seng Ng
Thanks Tom, and good afternoon, everyone. I would like to provide you with more details on our performance by end market and our financial results.
Total second quarter revenue was $223 million and was above the high end of our guidance range. Revenue increased 24% from a year ago, or 29% when you exclude the impact of $8.4 million in consignment revenue in the second quarter of fiscal 2015. Our optical communications business represented 72% of our total revenue, consistent with our recent performance. Optical revenues of $168.7 million increased 26% from a year ago, and 9% from the first quarter.

Within optical, the revenue split was 54% to telecom markets and 46% to datacom markets, which are consistent with the first quarter. Our datacom represented a 10 percentage point increase from a year ago, as datacom revenue grew 64% from a year ago, while telecom revenue grew 5% from a year ago.

As in the first quarter, growth in our optical communications business was driven by our advanced optical components and modules, including our 100-gig solutions and new programs. In fact, revenue from 100-gig programs nearly tripled from a year ago, while revenue from 10-gig programs grew 36%, both of which more than offset the decline we saw in revenue from 40-gig programs.

We ended the quarter with approximately 90% of our capacity in our existing facility Thailand occupied. However, it is important to realize that with our [factory within our factory model] will continue to have capacity to add additional equipment lines within our existing building.

Troy Jensen
Maybe a couple of questions from me. First of all, if you think about your March quarter guidance, can you give us any indications on what you think datacom and telco will be in that mix? Are you expecting both to grow roughly the same or one will be stronger than the other?

Toh-Seng Ng
So if you look at Q2 results, majority, we’re riding on the datacom and we are so happy that telecom finally come to the party. So that momentum will continue. And again, we will see growth in both sectors, obviously datacom is going to slow down a little bit, but we are very encouraged that telecom have a real good momentum right now. So I’ll say both sectors are growing with telecom probably growing a little bit faster than datacom now.

David King
Any particular products that really stood out last quarter and then expected to be better than the industry average this quarter as well?

David Mitchell
I don’t think we mention that way, Dave. Again, maybe [my customer] maybe able to tell, right. But in general, this metro upgrade, we see a lot of activity in the 100-gig transceiver or modulator. We talked about that. And also in [indiscernible] that’s what I can tell you.

Best,
–Kevin

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