OCLR

Oclaro, Inc. (OCLR)

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Oclaro, Inc. (OCLR)

Morgan Stanley Technology, Media & Telecom Conference Call

February 27, 2012 7:50 pm ET

Executives

Jerry Turin – Chief Financial Officer

Analysts

Ehud Gelblum – Morgan Stanley

Presentation

Ehud Gelblum – Morgan Stanley

Thank you everyone for joining us and sticking with us through the end of the day. My name is Ehud Gelblum. I’m at the Data Networking and Telecom Equipment, analyst here at JPMorgan Stanley and very happy to have as the last presenter of the day, Oclaro. That after this there is a panel, moderated by Mary Meeker, our former internet analyst here at Morgan Stanley. So you make sure to look at that afterwards and so good everyone sustain for this.

With us on the call today is Jerry Turin, the CFO and very happy to have him with us. He’s been at the Oclaro ‘05 I believe and he’s been CFO. And I think, well, he was going to dive into some kind of what’s going on with the respect to A) The industry, B) supplies and given the Thai floods, growth in the industry, new areas and new products that you’ve gotten into and just to understand a little bit more about kind of what’s going on Oclaro.

And you first read the disclosure that I fail to read in a bunch of other sessions. So let me posthumously or not posthumously I’m still alive but whatever there is a word for that just read it now, just please note that all important disclosures including personal holding disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures.

So Jerry, can you just kind of throw it off by saying for us where Oclaro is, especially with the recovery from Thailand, but also just a real bit of a description of your business and how do you look at the different piece of your product portfolio? And then just a slight intro and then we’ll get into more detailed Q&A.

Jerry Turin

Okay. Well, Oclaro is an optical components companies decline in the communications space primarily into the telecom communication space, metro and long-haul, not into the Datacom or access site at all. Vertical integration is a key proposition, other strength at the chip level, component level and FABs as well as vertically integrated into transponders and transceivers on the transmission side of the network and amplification, switching, routing and dispersion compensation on the line management side.

As they heard it was alluding to that we suffered in the last two quarters from a production point of view from our facilities in Thailand being flooded, specifically our contract manufacturing being flooded, which took out roughly 30% of the capacity. So we’ve been working all the way back from that December was the quarter on which it occurred.

In the March quarter, we entered the quarter with I think it was four out of five of our production lines backup with commercial production, full commercial production and three of those by the end of the March quarter, our full commercial production on the fourth early in the June quarter and full commercial production in the fifth which we didn’t really have too much of a revenue impact because we’re able to absorb the demand in some of our western site, but by the end of the June quarter. So we continue to on track that was the timeline we gave out a few weeks ago at our quarterly earnings and we continue to execute to that.

Challenge in the space is that it was a relatively sluggish year leading into the Thai recovery. So two questions though, what’s the current demand environment and is that starting to pick up? And secondarily, you know, with overly disruption from Thai flood and revenue levels, you know, what does our business profile look like compared to pre-flood and post flood because we’ve taken actions to reduce cost streamline and create some efficiencies as well.

So to touch on one, we use June to June as a frame of reference and we’re about a $110 million of revenues in the last June quarter, which was a fairly sluggish year but pre-floods. So if we come back from the $85 million we did in December and we’re recovering from the flood get back to the 110 range in June and of course that’s going to be a function of demand conditions that are still evolving. But if we get back to that data point, we believe we’ve improved our bottom line by about $5 million, 12 months on 12…

Ehud Gelblum – Morgan Stanley

Because the OpEx reductions….

Jerry Turin

Well part at OpEx reductions and part manufacturing overhead reductions, part margin improvement other than kind of the typical sort of new product margin improvements. So we hope the edges of flood condition with something relatively breakeven from an EBITDA point of view, if in fact we get revenues back to that. And then that gives us a sound foundation to continue to drill the margins from there as we tend to be a scale oriented business that drives gross margin and operating margins. We continue that margin upside from putting more of our own internal components into our 40-gig products where we’re clear leaders in particular in DPSK modulation and in 40-gig coherent.

And from the demand environment point of view, China seems to stabilized and solidified and we see some growth in China, I wouldn’t say dramatic growth but certainly when you’ve been through this period we have been through, stability and some upside in that part of the world is a good thing. And then the big question in everyone’s mind right now is North America where logically it feels as well there should be a lot of data points pointing towards growth into the middle of the year until the June quarter. Still relating, still waiting for a lot of the anecdotes at the carrier level to translate into you know a real business from customers and real visibility from our customers.

Read the rest of this transcript for free on seekingalpha.com