OCLR

Oclaro, Inc. (OCLR)

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Oclaro, Inc. (OCLR)

Morgan Stanley Technology, Media and Telecom Conference Transcript

February 25, 2013 7:00 PM ET

Executives

Jerry Turin - Chief Financial Officer

Analysts

Kim Watkins - Morgan Stanley

Presentation

Kim Watkins - Morgan Stanley

Okay. We are ready to go. Great. Okay. Thank you. Welcome everyone here today for presentation with Oclaro. I’ve Jerry Turin, the CFO with me here. My name is Kim Watkins. I’m on the Communications Equipment Research team here at Morgan Stanley headed up by Ehud Gelblum, who is unable to be with us here today due to a death in his family. So I have the great pleasure of sitting down and talking with Jerry.

Before we get started I just wanted to read a quick disclosure sheet, please note that all important disclosures including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at www.morganstanley.com/researchdisclosures or are available at the registration desk.

And with that, let get started. I just wanted to dig in first to more than macro comment.

Jerry Turin

Sure.

Kim Watkins - Morgan Stanley

And you had made some, what I would characterize is kind of qualified statements about demand picking up on your last call? What are you seeing by geography in terms demand, you talked about orders picking up in the first four weeks of the quarter, as that continued? And then, given the more optimistic commentary, putting that together with your guidance, little surprised is down 8% sequentially? So can you just provide us some context?

Jerry Turin

Sure. So, by way of context, first of all, the March quarter tends to be seasonal and optical. Price reduction kicking in early in the quarter. Capital budgets coming out the New Year, tend to come out a little late. Chinese New Year, and again, the Chinese customers tend to -- carriers tend to regroup after Chinese New Year.

So, March, it’s not unusual to expect the softer March than December. At the same time with the market conditions have been softer quite sometime in optical and in the network. So, we are looking for some upside. But, again, within the March quarter, the guidance is fairly typical with what you tend to see seasonally and I guess, fairly typical across the peers as well.

In terms of the order flow in the first few weeks of the quarter. We put that out as a quantitative measure consistent with some other peers that have announced earlier and we put the similar metric.

We caution at the time that four weeks on the back of the fairly extended slow period this space isn’t something that people should take to the bank or assume signals anything other than that data point in time. Today, I don’t really have an update that were, to present in terms of updated order flow information.

Kim Watkins - Morgan Stanley

Okay. Okay. So [taken].

Jerry Turin

[Taken].

Kim Watkins - Morgan Stanley

See once you said on the call that I thought I actually pretty interesting was related to pricing?

Jerry Turin

Yeah.

Kim Watkins - Morgan Stanley

Last quarter you had expected pricing to be at the low end or high end, I guess, the high end of the typical annual price decline 15% and this time you indicated that it was coming at the lower end, what change in the quarter?

Jerry Turin

Well, I’m not sure of anything changed in the quarter per se. We entered the pricing season seeing again that we’ve been in pretty soft markets conditions for over a year and our expectation of more challenging versus less challenging pricing environment was based on that sort of macro view point. It wasn’t based on a particularly product area or a particular customer set, or even anything from a particular quantification point of view, just more from our own expectations given the environment we are facing.

So as we came out of it, there wasn’t any particular area that was stronger than expected or more favorable than expected. If anything can be drawn from it and this might be a stretch as our credit owner, few of our peers become more significant within this space through consolidation.

Over the long period of time we expect that those strategic relationships with customers start paying off in terms of design wins, in terms of roadmap access, in terms of customers wanting to work with a more defined smaller number of suppliers, is there something in the price negotiations that suddenly reflected some progress in that front perhaps, I wouldn’t go so far as to attributed to that though.

Kim Watkins - Morgan Stanley

Interesting. Okay. Let’s change gears a little bit and talk about your balance sheet, you’ve taken some actions last quarter issuing guidance you completed an assets sales, now you have net debt of about $10 million, I believe, almost $100 million in cash, you have a drawdown on your credit line?

Can you walk us through what you did in December the actions that you took? And now why are you -- why you drawn on the credit line given the amount of cash you have? And I guess, in other word ask that question is, what are you feeling on the balance sheet to conduct business?

Jerry Turin

Sure. So as we approach, as we are well into the second half of the year and had expectations coming out of our merger, and coming out of our flood recovery that we’ve start seeing some market recovery, but now wasn’t coming about and when we realized that, while expecting to exceed our merger cost synergy target in December quarter, which in fact we did exceed.

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