Oclaro, Inc. (OCLR) recently released preliminary results for the first quarter of fiscal 2013.
The company reported revenues of approximately $149 million in the first quarter, below the low end of its previously provided guidance of $154 million – $168 million.
The softer-than-expected revenues were primarily due to weak market conditions in the optical communications space where Oclaro serves. In addition, the slower-than-expected recovery of customer share of certain products to pre-flood levels, this includes certain data communications products. Moreover, revenues were also lower than expected due to slower ramp up of new products particularly certain customer-qualified new 40G and 100G products.
In a separate development, Oclaro and Opnext completed their merger on July 23, 2012. In March 2012, Oclaro announced that it entered into an agreement to acquire its peer Opnext Inc.
Under the terms of agreement, Opnext shareholders will receive a fixed ratio of 0.42 shares of Oclaro common stock for every share of Opnext common stock they own.
Management stated that integration activities are underway and the company is on track to achieve the targeted synergies. The combined company will attain its much-needed scale of economies to supply a wide range of products to telecom service providers.
The merged entity can significantly reduce their costs of operations by shifting production facilities to the low-cost Asia Pacific region. Oclaro has already started moving its test and assembly facilities to Malaysia and Thailand. The merged entity is expected to achieve annualized cost synergies of $35 million to $45 million within 18 months of the close of the transaction.
These factors will strengthen the company’s future performance and hence the company expects revenues to be up in the December quarter.
In tandem with other industries, the optical component industry is currently going through a downtrend. We continue to maintain a Neutral recommendation on Oclaro, Inc. Our Neutral recommendation is supported by a Zacks #3 Rank, which translates into a short-term rating of Hold.