Oclaro Results as Expected

In-line quarter for OCLR

Oclaro, Inc. (OCLR - Analyst Report) recently reported results for the fiscal fourth quarter.

GAAP revenues came in at $66.9 million, up from $41.2 million in the previous quarter. Non-GAAP revenues came in at $72.0 million which included two months of revenues of Avanex Corporation, compared to $47.0 million in the previous quarter which included no Avanex revenues. (Oclaro, Inc. was formed in April 2009 combining Bookham, Inc., and Avanex Corporation.)

Non-GAAP gross margin came in at 25% compared to 23% in the previous quarter. GAAP EPS came in at $0.09. Non-GAAP came in at $0.04, came in line with the consensus.

Management expects only modest revenue growth in the remainder of calendar 2009 as the economic environment remains tough. The integration remains on track and the company will focus on achieving profitability in the coming quarters. By the June 2010 quarter, the company expects to achieve breakeven revenues of $80 million.

The company currently expects revenues between $76 million and $84 million for the September quarter. Non-GAAP gross margin is expected between 19% and 23%.

Oclaro provides high performance optical components, modules and subsystems to the telecommunications market and is one of the largest providers to metro and long haul network applications. The company is one of the smallest players in the optical industry and competes with JDS Uniphase (JDSU - Snapshot Report), Finisar Corp. (FNSR - Analyst Report) and Oplink Communications Inc. (OPLK - Snapshot Report).

The merger should give the new entity critical mass in terms of R&D investment and meaningful operating expense reductions. However, it remains to be seen if the company achieves the targeted synergies. We think the merger appears to be a sensible alternative in an already overcrowded component space. As of now, we maintain our HOLD on the stock.