Tuesday, January 22, 2013

Finisar (NASDAQ:FNSR): Overblown Fears on “Silicon Photonics” Misconstrue Technical Merits and Market Segmentation—Reiterating Buy

Following the scathing downgrade from Jefferies on Friday Finisar (NASDAQ:FNSR) is getting some supportive comments from Needham's Networking team.

- Overreaction to “Silicon Photonics” fears—they think hype and innuendo drive fears more than technical merits do.

It appears that Silicon Photonics advances from Intel are being used to imply co’s CPAK is a threat to Finisar. Needham strongly disagrees.
They do not see CPAK as superior to Finisar’s current or future technology. Firm points out that Intel’s technology is applicable to very short PCI Bus architectures and has tightly constrained distance limitations. The physical limitations of silicon, lasers and composite chips limit Intel’s design to very short distances for connectivity within a single rack where optics are not used. It is replacing copper in a rack, and is not replacing any Finisar offerings.

Cisco’s CPAK CMOS technology cannot scale down—as monolithic designs are shipped they believe Finisar can deliver lower power, tighter density and lower costs than CPAK. First generation CPF LR4 100G devices are not yet monolithic. As the more integrated versions ship, Needham expects them to easily surpass Cisco’s CPAK CMOS Silicon Photonics offerings even before they ship. This is simply not a threat to Finisar, in firm's opinion.

Reiterate Buy—Silicon Photonics not a threat. FUD (fear, uncertainty, doubt) is a problem and the technology is difficult to explain, but it won’t impact revenues and profits, Needham says. Reiterates their Buy rating and $18 price target.

Notablecalls: Just a FYI. Now pick your side.

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