Optical transceivers for 16G Fibre Channel: Improving performance in storage-area networks/Finisar revenue grows in fiscal second quarter 2012

Cloud services and storage have exploded in popularity, enabled in part by virtualization technology at the server, the desktop, and in the storage-area network (SAN). For example, the multi-core processors used in today’s servers can manage a large number of data flows, and the memory speed of new storage technology, including solid-state disks (SSDs), can be used to create high-performance data center storage capable of running ever larger transaction-intensive applications.

However, the move towards virtualization can reveal interconnect or I/O bottlenecks. While network managers can circumvent such obstacles initially by simply deploying more bandwidth by multiplying host bus adaptors (HBAs) and adding switches, this strategy undoubtedly leads to network complexity and higher management costs.

With as much as 86% of server workloads being virtualized by 2018, storage equipment and components must keep pace with the need for I/O bandwidth in the SAN. Fibre Channel (FC) continues to be the dominant protocol used for networking virtualized servers to storage. An accelerating ramp of 8G FC deployment will soon give way to even faster 16G FC in director and top-of-rack storage switches, server HBAs, inter-switch links (ISLs), and FC RAID controllers.

16G FC, Physical Interface
The Fibre Channel FC-PI-5 “16G FC” standard completed in 2009 by the INCITS T11.2 Task Group defines the high-speed optical transceivers that will address the I/O bottlenecks that arise with increased channel utilization. These optical transceivers are compliant with small form pluggable (SFP) industry agreements INF-8074i (SFP) and SFF-8431 (SFP+) for mechanical and low-speed electrical specifications. They also are backwards compatible, which provides a simple migration path to better SAN performance.

In a market niche looking for good news, Finisar Corp. (NASDAQ: FNSR) provided some when it reported yesterday that revenues for the second quarter of fiscal 2012 rose sequentially 5.8%. However, Finisar management joined their compatriots at other optical component and subsystem companies by suggesting that macroeconomic conditions and the flooding in Thailand combine to create an uncertain environment going forward.

Finisar’s revenues for the quarter ended October 30, 2011 reached $241.5 million, up from the previous quarter’s $228.2 million as well as the year-ago quarter’s $240.9 million. Success in sales of wavelength-selective switches (WSSs), ROADM line cards, and tunable XFP transceivers led the way. This also was the first quarter in which revenue from the Ignis acquisition contributed for a full three months.

Telecom-related product revenues grew 13% sequentially, while datacom product revenues declined by less than 1%. The company recorded $128.5 million in revenue from these datacom products and $113 million from telecom products during the quarter.

Gross margins remained flat versus the previous quarter at 29.1%. This represented a decrease from 34.2% from the year-ago quarter. Executives pointed to the Ignis operations as one contributor to the gross margin results.

Looking forward, Executive Chairman of the Board Jerry Rawls told analysts on an earnings call yesterday that the company escaped significant direct impact from the flooding in Thailand. Unlike competitors such as EMCORE, Oclaro, and Opnext, the products Fabrinet manufactures for Finisar (PC boards) use the Pinehurst facility that didn’t flood. Rawls said that he doesn’t expect to see much of a direct drag on Finisar’s revenues in the upcoming quarters for this reason.

However, while he believes there is an opportunity to increase market share for some components at the expense of his less fortunate competitors, Rawls also echoed comments from NeoPhotonics that his customers’ inability to receive components from his competitors that work alongside Finisar products might still dampen sales in the short term. Coupled with the overall softness in the macroeconomic environment, this uncertainty led Rawls to forecast revenues for the upcoming quarter will fall within a range of $235 million to $250 million – the same guidance he gave for the just-completed quarter.