OCLR

Oclaro, Inc. (OCLR)

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Oclaro, Inc (OCLR)

F4Q11 Earnings Call

July 28, 2011 4:30 p.m. ET

Executives

Jim Fanucchi – Summit IR Group

Jerry Turin – CFO and Principal Accounting Officer

Alain Couder – President and CEO

Analysts

Ehud Gelblum - Morgan Stanley

Ajith Pai - Stifel Nicolaus & Company

Kevin Dennean – Citigroup

Alex Henderson – Miller Tabak

Dave Kang – Business. Riley & Company, Inc

Natarajan Subrahmanyan – TheJudaGroup

Nathan Johnsen – Pacific Crest Securities

Chris Glancy – Avondale Partners

Presentation

Operator

Good afternoon and welcome to the Oclaro Fourth Quarter and Fiscal Year 2011 financial results conference call. As a reminder this conference is being recorded for replay purposes through August 5th of 2011. At this time, I’d now like to turn the call over to Jim Fanucchi at the Summit IR Group. Please go ahead sir.

Jim Fanucchi Summit IR Group

Thank you operator and thanks to all of you for joining us. Our speakers today are Alain Couder, Chairman and CEO and Jerry Turin, Chief Financial Officer of Oclaro. Statements of management’s future expectations, plans, or prospects for Oclaro and its business including statements about future financial targets and financial guidance and Oclaro’s plans for future operations and any assumptions underlying these statements are forward-looking statements under the Private Securities Litigation Reform Act of 1995. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements including the risk factors described in Oclaro’s most recent annual report on Form 10K. Most recent quarterly reports on Form 10-Q and other documents we periodically file with the SEC.

The forward-looking statements discussed today represent Oclaro’s views as of the date of this conference call and subsequent events and developments may cause Oclaro’s views to change. Oclaro does not intend and does not require to update any forwarding looking statements as a result of future development.

In addition, we will be discussing non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A table that outlines the reconciliation between the non-GAAP financial measures to GAAP financial measure is included in our earnings release which we have filed with the SEC and I refer investors to this release. I would now like to turn the call over to Jerry.

Jerry Turin

Thanks Jim. Revenues in the fiscal quarter ended July 2, 2011, were a $109.2 million compared to a $115.7 million in the prior quarter ended April 2, 2011. The decrease was consistent with our last earnings calls discussion on market dynamics and the related inventory correction. Revenues in our 2011 fiscal year which ended July 2, 2011, with $467 million compared to $392 million up 19% which represent a significant year-on-year growth even though that growth has taken a time out in much of this year due to corresponding slowness in the telecom optical sector.

Major customer revenue is greater than 10% for the quarter. For Fujitsu it's 17% and Huawei at 10%. Both Alcatel-Lucent and Ciena were just under 10% this quarter.

Fujitsu has risen into the major customer category on the strength of 40-gig transponder sales as well as strengthened the customer amplifier product. During the June quarter, we recorded early revenues on a series of new products including our Tunable XFP Transceivers, 40-gig coherent transponders, 40-gig external modulators, and an integrated ROADM line card. In aggregate, these revenues were below $1 million. However, even these modest revenue levels establish important traction on the related revenue guidance.

While we do not expect dramatic ramps of these products in September, which would have been the expectation coming into this calendar year for some of the products, as of now we believe the potential aggregate revenues in the December quarter from all of our 40-gig transponders our tunable XFP, our 40-gig and 100-gig modulators and our WSS ROADM related products, could be in total groups of products in the $25 million to $30 million range. While we are beginning to see some progress on these new products, the overall markets for our telecom optical product has continued to be soft. Alain will elaborate on our current visibility including the mixed signals we are seeing on this front and broader market condition later in the call.

Outside of the telecom market revenues from our high power laser business were up $1 million was approximately 10% quarter-on-quarter. Demand for these products remain strong. We expect similar revenue increases in this business in each of the remaining calendar quarters of 2011 and expect related gross margins to continue moving towards pre-fab transfer levels.

Total revenues from our non-telecom product including these high powered lasers, our filters, and our high volume VCSEL products for consumer applications were $15.1 million in the quarter compared to $13.7 million in the prior quarter. Our overall gross margins for the June quarter were 23% compared to 25% in the prior quarter. The gross margin in the June quarter includes over $3 million for excess and obsolete inventory reserves and related charges.

Our gross margins in June have also been impacted by lower wafer fab overhead absorption caused by a decline in revenues from our photonic components products that tend to be at the package chip level during this current period of market softness and inventory correction.

Currency exchange also add close to one point adverse impact on our June quarter gross margin. The impact was primarily associated with European currencies, in particular the Swiss Franc. At this time, we don’t expect to see meaningful gross margin improvement in the September quarter for the following reasons. We did not yet see a meaningful recovery of the component level product revenues, which I just referred to in the September quarter.

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