Fiber optics component supplier Finisar Corporation (NASDAQ:FNSR) seems to have turned its telecom business around. The company was feeling the heat due to tepid carrier spending and price reductions, leading to concerns among analysts and investors. But management remained optimistic that telecom revenue would improve and that’s what happened in the recently reported first quarter.
After a sequential drop of 12% in the fourth quarter, revenue from telecom products increased 2.7% in the previous quarter, sequentially. The increase was led by an increased adoption of Finisar Corporation (NASDAQ:FNSR)’s products and strength in telecom spending.
Going forward, Finisar Corporation (NASDAQ:FNSR) expects its telecom business to grow at a faster rate as its products gain more traction and the spending environment further improves. Telecommunication products accounted for 30% of Finisar’s revenue in the previous quarter. So a positive outlook in telecom, along with sustained strength in its datacom business, is good news for Finisar Corporation (NASDAQ:FNSR) investors.
Finisar’s outlook for the ongoing quarter reflects the strength in its end markets. Management guided for revenue between $277 million and $292 million and expects earnings between $0.37 and $0.41 per share. In comparison, analysts were expecting earnings of $0.31 per share on revenue of $273 million.
What’s driving telecom?
The uptick in the telecom business has been long overdue. Finisar Corporation (NASDAQ:FNSR) counts telecom equipment supplier Ciena Corporation (NASDAQ:CIEN) as a customer, which in turn has AT&T, Verizon, and a number of international customers. Ciena Corporation (NASDAQ:CIEN) reported results a day before Finisar did and unsurprisingly, its guidance was better than estimates.
Ciena Corporation (NASDAQ:CIEN) witnessed an increase in orders in the previous quarter that led to a record backlog. It has design wins at several international Tier 1 customers and expects them to begin spending in the ongoing quarter.
Throw in the LTE expansion by AT&T and Verizon’s small cell deployment to make its 4G network better and it is not hard to see why Ciena Corporation (NASDAQ:CIEN) guided for $550 million to $580 million in revenue while analysts were expecting $551 million.
In addition, Finisar Corporation (NASDAQ:FNSR) CEO Eitan Gertel stated that demand from China is also picking up as more base stations are built. This might be a reference to China Mobile Ltd. (ADR) (NYSE:CHL), which recently awarded initial contracts worth $3.2 billion for building its 4G network. The telecom giant intends to build 207,000 base stations as it rolls out its 4G network.