Oplink: Tepid Revenue Guidance

Highlights include Oplink Communications, Inc. (OPLK - Snapshot Report), Tellabs, Inc. (TLAB - Analyst Report), Alcatel-Lucent (ALU - Analyst Report), Nortel Networks Corp. (NT) and Cisco Systems, Inc. (CSCO - Analyst Report).

Oplink Communications: Q3 EPS Beat & Tepid Revenue Guidance

Oplink Communications' (OPLK - Snapshot Report) fiscal Q3 results were impressive on EPS (non-GAAP), although revenues came in marginally ahead of our estimate. Q2 EPS guidance also compares favorably to our expectation, while the revenue guidance (the same as the prior quarter guidance) leaves little room for upside in spite of the fact that overall business conditions are beginning to improve compared to the prior quarter.

Oplink reported fiscal Q3 revenues of $30.8 million, slightly above the midpoint of the $28-$32 million guidance range, and slightly ahead of our estimate of  $30.4 million. Reported revenues were down 25% y/y and 18% q/q. 10% customers included Tellabs (TLAB - Analyst Report) and Huawei with Alcatel-Lucent (ALU - Analyst Report), Nortel (NT), Fujitsu and Cisco (CSCO - Analyst Report) also as major customers.

Non-GAAP gross margins were 30.3%, up nearly 7% q/q. Gross margin was buoyed by as much as 2% in the quarter based on recognition of deferred revenue related to Nortel, as well as higher sales of previously written-off inventory. Excluding these, gross margins would have been 26.4%, nearly 3.3% better than the prior quarter.

Pro-forma EPS was $0.10, above the $0.00-0.05 guidance range and above our $0.01 estimate. Notably, the company generated $13.0 million in cash from operations during the quarter and closed the quarter with cash, cash equivalents and short and long-term investments of $157.1 million, an increase of $10.3 million from the prior quarter.

Management indicated that customer confidence is beginning to stabilize, with channel inventory being worked down, and that revenues are leveling off at the current levels. The company also stated that it has reduced operating expense by $0.8 million in the quarter and eliminated headcount by 256 employees. OPLK expects further operating expense reduction in Q4 as it transfers the remaining OCP segment to the company’s Fremont headquarters.

We have a Hold rating on shares of OPLK.