Oclaro, Inc. (OCLR)

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Oclaro, Inc. (OCLR)

U.S. Small/Mid Cap Conference Call

November 15, 2011 1:55 am ET


Jerry Turin – Chief Financial Officer


Kevin J. Dennean – Citigroup Inc.


Kevin J. Dennean – Citigroup Inc.

[Call Starts Abruptly] Optical Equipment Analyst here at Citi. Thank you for joining us at Citi's 8th Annual Small and Mid-Cap Conference here in Las Vegas. We’re very happy to have with us today, Jerry Turin, CFO of Oclaro. Before we get started I just want to mention there are some disclosures for you up at the front desk. With that, I think what we’re going to do is turn it over to Jerry for a brief presentation. We’ll do a Q&A session afterwards. We do have mics in the room. I would ask you just to wait for the mic to reach you, as this presentation is being webcast.

With that, I’ll turn it over to Jerry.

Jerry Turin

Thanks, Kevin. Let me start with just a little overview on who Oclaro is, then I’ll get into some short-term dynamics that are probably more relevant at this time. Oclaro is a manufacturer of optical components everything from chip level products to sub-system servicing. We are largely the telecom equipment providers.

Over recent years, we’ve executed in the industry roll ups and this time last year, we’ve executed our 12 months merger targets from the profitability gross margin and gross point of view and since then, our sector and then the broad economy at large has slowed and suffered some setbacks, and just as we were hoping to get some traction towards the end of the year ourselves and a number of our peers suffered from a large contract manufacturer being exposed to the floods in Thailand. So a lot of those dynamics how this years transpired where we are at today. Some of the actions we’ve announced in our recent earnings call are probably what we’ll focus on in the slides and then perhaps in the questions with Kevin as well.

So we’ll go to the first slide, which is slide three for those on the webcast. The key messages that I’ll touch on are, that our September quarterly results was expected, and in fact, shows some early momentum in some operating efficiencies and cost improvements we’ve been working on.

New product momentum is accelerating. Large part of this year’s story is in anticipation of second half, new product introduction growth in some, what I’ll call headline product areas. What’s important is, as we continue to introduce and announce more products through the year so, the pipeline is anything but close and we think we’re all well positioned from that point of view.

The telephone market itself continuous to experience a little short-term uncertainty bad conditions aside, felt like traction was beginning to pick up, but with the macroeconomic conditions, I think our sector is not too different from an awful lot of areas where there is a little bit of tentativeness at this point in time.

One of our challenges in the last year was ramping our high-powered laser business after the transfer of the fab associated with one of our acquisition activities. We’ve recovered that business and had record revenues from that business this quarter, so that’s an important point to takeaway.

In response to the conditions I've talked about this year, we’ve stepped up to take actions to lower our break-even level. Earlier in the year, it looked like we are in a short-term inventory correction in our sector. As we got beyond the June quarter, it was clear that there was going to be some level of softness in the second half, and that we started taking actions to adopt our business model accordingly. In the mean time, a lot other things we’re talking about today reinforce our commitment to core value proposition including differentiation at the wafer and fab levels as well as others. We’re facing what looks like a short-term two-quarter challenge, because of the Thailand floods. We think we maybe positioned by even more stronger from the market position and from a product position coming out, but of course two quarters is quite a long time when you’re facing the responses and challenges that we and the peer group are facing in that regard.

And as we talked about during our conference call roughly a week ago, as more information arises we’re trying to keep (inaudible) investors well advice as far as progress and any changes from what we’re describing because it is circumstances that develop as we move along.

As far as some of the specifics in the September quarter, our revenues were in line with guidance and our gross margin to adjusted EBITDA works towards the high end of the range and so achieving that when we start the market softness and some exposure in both of those areas that shows some underlying traction in some of the changed management programs that we’ve been working hard on through the year.

From a new product point of view, our 40-gig continues very strong and in fact, this is the first quarter where we shipped significant commercial lines volumes of 40-gig coherent, and we believe we are the first component supplier with coherent solution of 40-gig and that’s really exciting.

Strong position in 10-gig and transponders pluggable, shipping commercial volumes of tunable XFP to one of the top two OEMs in our space as well as one of the top internet service providers, and with that basis we extend the qualification to one customer at a time and we see significant potential in this business.

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