27 August 2007
Optical Communication Products, Inc.
6101 Variel Avenue
Woodland Hills, CA 91367
Phone: 818.251.7100 Fax: 818.251.7111
Established in 1991, Optical Communication Products is a growing company in the high-speed, fiber-optics market. It is a sub-assembly manufacturer for major telecommunications equipment companies offering a variety of products such as transmitters, receivers, and transceivers. Its strategy calls for an expanded product offering and broader geographic penetration of the fiber optic universe.
Investor relations write to . . .
The company has built a strategic cash position of nearly $104 million as of June 30, 2007.
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Optical Communication Products and other information.
(numbers refer to bibliography entries that follow)
I. Strong Markets. The telecommunications equipment market, which was oversold, began to recover strongly in September 2005 with major infrastructure investments by the carriers. The industry now contemplates a “triple play” for fiber optics, since it is uniquely suitable to high speed transmission of a combination of voice, data, and video.
Verizon's Commitment to Fiber-to-the-Home Driving Demand for Component Manufacturers; 29
MIT Forecast’s Photonics and Fiber-Optic Communications Industry Trends; 27
Telephone Carrier Spending for Broadband Helps Equipment Makers; 26
Centers of Research Excellence; 22
OCPI focus of The Turnaround Letter's review of telecom-equipment industry; 17
OCPI Looks at New Business Roundtable/CFA Recommendations on Short-Term Guidance; 7
Dr. Paul E. Green, Jr. Interview on Potential for Fiber-to-Home Technology; 13
Fiber to the Home: The New Empowerment; an acclaimed book by Dr. Paul E. Green, Jr.; 12
II. New Management Team. The Founders of the Company, having brought in a new management team, have now moved out of operations. Philip F. Otto is Chief Executive Officer (CEO) and Frederic T. Boyer has become Chief Financial Officer (CFO). Dr. Jacob Tarn, who formerly headed GigaComm, acquired in August 2006, now heads all of the Company’s operations in Asia.
Founders resign, but maintain Board and consulting relationships; announce promotions; 20
Philip F. Otto appointed CEO and joins Board of Directors; 6
Frederic T. Boyer to assume CFO position; 6
Management team expanded with interim CFO and VP Manufacturing; 4
III. Asia Number One. Under new management, the Company has rapidly expanded its operations in the Asia telecommunications market which management considers to be the most dynamic market in the world. It now has a separate General Manager for Asia, new headquarters in Taiwan, a design center in Taiwan, a leading market position in fiber-to-the-home in Japan, and high volume manufacturing operations in China through its partnership with SAE, a subsidiary of TDK. The Company’s initial financing came from Furukawa in Japan, which today holds a 58.2% interest in the Company.
China's Optical Valley Emerging as Leading Research and Development Center; 21
Gigabit Ethernet CWDM SFP Transceiver Product Line expanded; 1
IV. Strong Financial Position. The Company has nurtured its financial strength and has a balance sheet that is one of the strongest amongst its peers. As of June 30, 2007, it has nearly $104 million cash and no debt. Current management has programs in place to increase inventory turns and increase cash flow.
Fiscal 2007 Q3 operating results; 36
Fiscal 2007 Q2 operating results; 33
Fiscal 2007 Q1 operating results; 24
Fiscal 2006 Q4 and full-year operating results; 20,
OCPI announces earnings release and conference call date of February 6, 2007; 23
OCPI announces earnings release and conference call date of December 14, 2006; 18
Analysts Comment on Management changes, GigaComm Acquisition, and Q3 Operating Results; 19
V Gross Margin Improvement Program. Management has launched a series of initiatives to bolster margins which have been under pressure throughout the optical components sector. This includes weeding out older, low margin products; introducing newer, higher margin products under its speed-to-market program; moving volume production to China; adding a second, wholly-owned, cheaper source for lasers in Taiwan; better re-designing products for more economical production; carefully selecting slices of its marketplace that offer more acceptable margins.
Optical Communication Products Patents; 14
Analysts, financial news & newsletters;
General Interest Links
Google search for Optical Communication Products' stories
Topix.net for Optical Communication's product news
OCPI Conference Event Calendar; 25
OCPI Conference Summaries; 28
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Bibliography – News About Optical Communication Products
36. Optical Communication Products Announces Third Quarter Fiscal 2007 Results
Company Press Release -- August 20, 2007
Optical Communication Products announced that revenue for the quarter ended June 30 rose 15% over the year-earlier quarter and that the backlog at June 30 of $11.0 million was up from $7.7 million as of March 31, 2007. A 6.6% gross margin, though below last year’s level, showed sequential improvement from the prior quarter. A jump in operating expenses included costs related to transitioning manufacturing operations to China, a non-cash goodwill impairment charge and stock-based compensation expenses. As a result of the increased charges, a net loss of $8.6 million ($0.08 per diluted share) was realized. The company ended the quarter with $103.6 million in cash, cash equivalents and marketable securities and no long-term debt.
The company also reports that the planned acquisition of the company by Oplink should close by October 2007 at which time it will become a wholly owned subsidiary of Oplink. In other related news, Optical reports that Joseph Y. Liu, president and CEO of Oplink, was elected non-executive chairman of the board of Optical Communication Products effective August 1, 2007.
35. Oplink Signs Definitive Agreement to Acquire Remaining Shares of Optical Communication Products
Company Press Release -- June 20, 2007
Optical Communication Products announced that the board of directors has unanimously approved a definitive merger agreement that will allow Oplink to acquire the 41.9% of OCP’s shares that remain outstanding following Oplink’s earlier purchase of Furukawa’s 58.1% stake. Oplink will pay $1.65 per share. Upon completion of the merger, OCP will be wholly-owned by Oplink. “This transaction is expected to close by September 2007, with the exact timing dependent on the review and clearance of necessary filings by the Securities and Exchange Commission ("SEC"). OCP will file proxy materials with the SEC for a special meeting of stockholders to vote on the proposed merger. . . . Investors will be able to obtain free copies of the proxy statement and white proxy card (when available) as well as other filed documents containing information about OCP at http://www.sec.gov, the SEC's Web site. Free copies of OCP's SEC filings are also available on the investor relations portion of OCP's web site at www.ocp-inc.com.”
34. Court Denies Oplink's Petition; Furakawa To Expand OCP Board
Company Press Releases -- May 18 & 29, 2007
On May 18, it was reported that a Delaware Court had denied Oplink’s efforts to expedite a lawsuit that it had filed challenging OCP’s Speical Board Committee’s decision to implement a 30-day shareholder rights plan. Oplink in late April had entered an agreement with majority shareholder Furukawa to buy Furukawa’s 58.1% interest in OCP. Following on the 29th of May, it was announced that Furakawa had submitted its plans to amend OCP’s bylaws so as to add four new Furukawa directors, thus bringing Furukawa a majority on OCP’s Board and facilitating its plan to consummate the sales of its 66 million shares to Oplink. “The effective date of this action is the earlier of July 4, 2007 or 20 days following the mailing of an Information Statement to shareholders from OCP. Furukawa informed the company on May 25, 2007.”
33. OCP 2nd Quarter: Turnaround Charges Crimp Profitability; Balance Sheet Strong
Company Press Release -- May 15, 2007
Optical Communication Products announced second quarter fiscal 2007 results that reflect the company’s ongoing turnaround plan that is targeting a return to gross margins in excess of 30%. Results in the second quarter, however, were squeezed by costs related to downsizing the workforce, moving manufacturing operation to China as well as lower average selling prices from its older product lines and softness in the Japanese fiber-to-the-home (FTTH) market. An impairment analysis also concluded that the company needed to write down $8.5 million of goodwill. As a result of these adverse events, the company reported a loss for the second quarter of $17 million or $0.15 per diluted share. The company was able to retain nearly $117 in cash, cash equivalents and marketable securities and no long-term debt. Management is now forecasting fiscal 2007 revenue to be between $65 to $70 million and a gross margin of 10%-12%. CEO Philip F. Otto comments, “When we launched our turnaround plan, we said we expected margin volatility and significant transition-related charges throughout fiscal 2007,” Otto continued. “Our second quarter results, however, also reflected industry-wide price erosion and softening of the FTTH market in Japan.” He further states, “We also took a number of actions in the second quarter that resulted in additional charges and write downs that management deemed necessary to reflect our current business operations and asset valuation. These actions further support the fundamental changes that we have been making in the way OCP operates its business.”
Management also provides a quick update on Oplink’s proposed takeover of Optical by, in addition to paying Furakawa $1.5 per share for Furakawa’s 58.1% stake, offering minority shareholders the same $1.5 per share.
A telephonic replay of the conference call will be available through May 29, 2007, by dialing 800-405-2236. International callers may dial 303-590-3000. The replay access code is 11088940#. The webcast may be accessed on OCP's website at www.ocp-inc.com under Investors: Event Calendar and will be archived for 12 months.
32. OCPI Special Board Committee Scrutinizes Oplink Offer.
Company Press Release -- May 4, 2007
Optical Communication Products’ special Board committee has adopted a 30-day shareholder rights plan as a “a precautionary measure to protect our shareholders while we carefully evaluate Oplink's unsolicited offer to acquire OCP's minority shares.” The plan will be effected by a “dividend distribution of one right for each outstanding share of OCP Common Stock to shareholders of record as of May 14, 2007.” The rights, which will expire on June 2, can be exercised “under three specific conditions: the closing of Oplink's purchase of Furukawa's 58.2% ownership interest in OCP, the acquisition of more than 15% of OCP's outstanding common stock by a third party, or the acquisition of any additional shares by Furukawa or Oplink.”
31. OCP Evaluates Proposed Takeover by Oplink Communications.
Company Press Release -- April 25, 2007
Optical Communication Products has assembled a special committee of the Board of Directors to evaluate a proposed acquisition of the company by Oplink Communications (NASDAQ: OPLK). Oplink has entered into an agreement to buy Furukawa’s 58.2% interest in OCPI at $1.50 per share and has proposed to purchase the remaining outstanding shares via a merger equal to a cash purchase price of $1.50 per share.
OCPI has been involved in a major strategic restructuring – to include renovating its product, shifting production to China, securing its own laser supply, and centering more of the Company's activities in Asia. Many in the investment community realize that it is taking steps to add sustainable shareholder value that is not reflected in its current valuation.
30. TDK's SAE Manufacturing Unit Key to OCPI's Asian Expansion.
The Wall Street Journal -- June 19, 2006; page A2; by Henny Sender
In what Henny Sender describes as a “reverse transfer of human technology,” Japan-based TDK is learning that there is more to manufacturing in China than low costs. While the leader of TDK’s SAE subsidiary in China acknowledges that the unit’s costs would be “10 times higher” without its manufacturing operations in Guangdong, there are other, perhaps equally important, advantages. For example, a “more open style of communication” that encourages “younger people to speak up more boldly” provides for a more “candid exchange of ideas” and “swifter” decision making. Engineers are also more directly rewarded with bonuses when they influence the bottom line. OCPI has partnered with TDK’s SAE Chinese subsidiary to do all of its volume manufacturing as part of OCPI’s efforts to focus its activities in Asia.
29. Verizon's Commitment to Fiber-to-the-Home Driving Demand for Component Manufacturers.
USA Today -- March 1, 2007; by Leslie Cauley
In a merger between high tech and old tech, Leslie Cauley reports on the day in the life of Verizon linemen working to rollout the company’s ambitious $23 billion ($18 billion net of maintenance savings) fiber-to-the-home network. The project will “replace hundreds of thousands of miles of copper phone lines with cutting-edge fiber-optic technology” making “fiber-optic broadband connections available to 18 million households by 2010.” In “one of the most ambitious engineering projects in contemporary America,” Verizon has sent out legions of workers to trudge through the backyards of America to make the final connection that will facilitate “an endless array of phone, high-speed data and video services, including high-definition TV.” Ms. Cauley reports that, “Data services can be delivered at mind-bending speeds of 100 megabits per second or more. (Fiber optic service) has nearly unlimited capacity for video, which is transmitted via a separate, dedicated wavelength. That way, Verizon says, video can't interfere with data transmissions, and vice versa.” She further relates that, “Joe Savage, president of the Fiber to the Home Council of North America, a trade group of supplier companies, says America's appetite for broadband is exploding. It has expanded 100-fold since the mid-1990s, he notes. His group predicts it will increase by that much again by 2020.”
28. Conference Event Summaries.
Needham Presentation Jan 07 Highlights Asian Strategy and Gross Margin Program
Gross margin improvement initiatives
Strengthen Asian operations
Build customer relationships
Product speed-to-market initiatives
Five Gross Margin Improvement Initiatives:
Higher volume manufacturing in China
Product speed to market programs
Internally sourced lasers
Improve product mix
Product redesign for low cost Asian manufacturing
Asia as Geographic Center of Gravity for Optical Component Business:
Low cost development capability via acquisition of GigaComm – leading FTTH supplier to Japanese market
Acquired second laser source via GigaComm acquisition
Developing low cost, flexible, higher capacity manufacturing via contracting with TDK subsidiary, SAE
Develop relationships with customers’, Alcatel, Cisco, etc., Asian contract manufacturers
Roth Presentation Feb 07: Broadband Demand Drives OCPI Fiber; Long-Range Financial Goals and Model in 3d Quarter Conference Call
Telecom is Back:
Optical component market to grow 25% in 2007 – Roth analyst
Verizon earmarked $18 billion investment through 2010 – Roth analyst
Telecom/Datacom equipment growing annually 7.5% to $144 billion in 2009 – Infonetics
Global FTTX market growing 26% annually through 2010 – KIM Research
Fiscal 2007 Annual Guidance:
Revenues currently expected at low end of $80 million to $90 million
Gross margin stabilizing in 18% to 19%
Operating expenses 40% to 45% YOY, including transition and other non-recurring charges
Cash reserves expected around $105 million to $110 million at 9/30/07
Will provide financial model and long-range financial goals in 3rd quarter conference Call
Credit Suisse Presentation Mar 07 Highlights Governance and Compliance; Clean Bill of Health on Option Policies
Board to consist of eight people and four committees
All Employees subject to Insider Trading Policies
Code of business conduct and ethics will include anonymous hotline
Sarbanes Oxley compliance expected by 9/30/07
No investigations or inquiries by regulatory authorities into accounting practices
Internal review, reviewed by Deloitte and Touche, found no evidence of misconduct
27. MIT Forecast’s Photonics and Fiber-Optic Communications Industry Trends.
Massachusetts Institute of Technology’s Microphotonics Center
The Microphotonics Center (MPhC) at the Massachusetts Institute of Technology is a research community that is working to facilitate academic and industrial collaboration in applied microphotonics. Photonics refers to the use of the fundamental particles of light, the essential technology behind fiber-optic communications systems. Able to carry the equivalent of 30 million simultaneous telephone calls, photonics is the enabling technology for fully interactive, multimedia Internet services.
The principal mechanism that the MPhC uses to facilitate its mission is the Microphotonics Center Consortium, a “proactive forum where scientists, engineers, and strategists from industry and MIT can work as partners to explore and create innovative microphotonics research and development activities and opportunities.” One of the first efforts of the Consortium was to publish the MIT Communications Technology Roadmap (CTR), a program commissioned in 2000 to examine the varied technologies influencing the telecommunications industry.
According to an MIT release, “the optical components industry stands at the threshold of a major expansion that will restructure its business processes and sustain its profitability for the next three decades. The realization of optical transmission networks will allow any connected individual to access vast computational resources. Unbounded applications, not dependent upon local storage or processing, will be limited only by the imaginations of those who create them. Many of the current economic and distribution barriers between intellectual property owners and end-users will evaporate. The effect of such technology on transportation, commerce, education, entertainment, social interaction, and government will be dramatic. For instance, one only needs to look at the world ten years ago to understand the social impact of the cell phone. The shift to a real-time wide band network promises the same dramatic social effect.”
Key findings of the Communications Technology Roadmap include:
• The future of components technology will be determined by electronic-photonic convergence and short (<1 km) reach interconnection.
• This direction is triggering a major shift in the leadership of the component industry from information transmission (telecom) to information processing (computing, imaging).
• The skill set required for this path does not exist at any single institution.
• A precompetitive R&D Consortium should be established to create the new competence and to recommend standards.
26. Telephone Carrier Spending for Broadband Helps Equipment Makers.
The Wall Street Journal --February 14, 2007; page A1; by Bobby White
“An explosion in online video and other bandwidth-hungry Internet services” is forcing telcom companies into another spending wave on infrastructure products, according to a recent page 1 Wall Street Journal article. The article’s author, Bobby White, points out that the “dramatic change” in customer usage is benefiting large and small suppliers alike in a spending wave that appears “likely to continue for at least a while.” Quoting Infonetics Research, Mr. White writes that the “Overall, North American telcom companies are projected to spend $70 billion on new infrastructure this year. While that's down from the $110 billion they shelled out during the boom year of 2000, it's up 67% from their 2003 total.” And “World-wide, spending on new telcom infrastructure is expected to rise to $240 billion in 2008, up 19% from 2005. Moreover, a greater proportion of that spending is expected to be plowed into accommodating capacity-hogging Internet traffic like video.” Unlike the last spending wave that benefited most all suppliers, this wave is more focused on products that help manage the information flow as compared to simply providing greater capacity.
25. OCPI Calendar
2007-March: B. Riley & Company's 8th Annual Investor Conference; March 13, 2007
2007-February: Roth Capital Partners 19th Annual OC Conference; February 19-22, 2007
2007-January: Needham & Company's ninth annual Growth Stock Conference; January 9-12, 2007
2006-November: CIBC's Optical Technologies 1-on-1 Conference; November 16, 2006
2006-September: Roth Capital Partners Institutional Investor Conference; September 6-7, 2006
2006-August: CIBC World Markets Silicon Valley Optical Components; August 29, 2006
24. OCPI 1st Qtr: Gross Margin Program.
Company Press Release -- February 06, 2007
Optical Communication Products released results for its fiscal year 2007 first quarter that ended December 31, 2006. For the quarter, revenues slipped 4.1% on a year-over-year basis to $17.0 million and 11% from the fourth quarter of fiscal 2006. As expected, the company’s gross margin came under pressure by falling to 18.8%, down from 22.9% in Q4 of fiscal 2006. Management stated their belief that the gross margin will begin to stabilize over the course of fiscal 2007 and have set a long-term goal of “sustainable gross margins ... of greater than 30%.” Operating expenses rose to 52.8% for the quarter due, in part, to executive severance costs and the inclusion of GigaComm which was acquired in August 2006. The combination of lower gross margin and higher operating expenses led to a $4.2 million loss for the quarter. The company’s cash and cash-equivalents balance remained strong at $124 million ($1.09 per share), and the balance sheet continues debt free.
As part of its commentary and outlook, management expressed optimism about the growth prospects for the broadband industry generally and specifically for the “prospective, large scale development of FTTH in the United States.” OCPI is already a leader in the Japanese FTTH market. The company is focusing its product development consistent with its opportunities; during the quarter it announced the release of its “first 10 Gigabit Ethernet industrial and extended temperature XFP components.” Such new products will help bolster the firm’s gross margin. Other margin improvement initiatives include further integrating its internally sourced lasers (resulting from the GigaComm acquisition), “a program to cull older legacy products from our mix,” and further implementing the company’s Asia initiative and speed-to-market product strategies.
A telephonic replay of management’s conference call may be accessed through March 8, 2007 by dialing 800-405-2236; access code 11083393#. The call will also be archived on the company’s website for 12 months at www.ocp-inc.com under Investors: Event Calendar.
23. OCPI Strategy Conference Call February 6, 2007.
Company Press Release -- January 31, 2007
Optical Communication Products will release financial results for its fiscal 2007 first quarter that ended December 31, 2006 on February 6, 2007 after the close of market trading. CEO Philip F. Otto and CFO Frederic T. Boyer will be hosting a conference call at 5pm eastern on the 6th “to review the Company’s financial results and provide an update on business developments.” According to the company’s press release, the details of the conference call are as follows:
Interested parties may participate in the conference call by dialing 800-257-7087. International callers may dial 303-262-2052. When prompted, ask for the “Optical Communication Products Investor Conference Call.”
The conference call will be webcast simultaneously. The link to the webcast will be available on OCP’s website at www.ocp-inc.com under Investors: Event Calendar and will be archived for 12 months.
A telephonic replay of the conference call may be accessed approximately two hours after the call through March 8, 2007, by dialing 800-405-2236. International callers may dial 303-590-3000. The replay access code is 11083393#.
22. Centers of Research Excellence.
Lincoln Laboratory Optical Communications Technology -- January 22, 2007
(2.) Lincoln Laboratory Optical Communications Technology Group: The Massachusetts Institute of Technology is known worldwide as a premiere research institution. One of its central facilities is the Lincoln Laboratory, a center of technological innovation known for its early-stage developments, the licenses of which are managed by MIT’s Technology Licensing Office. The Lincoln Laboratory, “a pioneer in the development of advanced electronics for half a century” has an industry outreach program that includes the Lincoln Laboratory Optical Communications Technology group that offers “an extensive portfolio of optical technology.”
(1.) General List of Optics Research Groups: You can also search here to find other research activities touching on the field of optical communications. A couple representative results include:
SPIE is dedicated to advancing the scientific research and engineering applications of optics, optical, photonic, imaging and optoelectronic technologies through international conferences, education programs and publications.
An NSF Science and Technology Center dedicated to removing the blurring of images caused by changing distortions in optical systems with applications to Astronomy and Vision Science.
21. Wuhan: China's Optical Valley a World Leader.
Global Sources -- October 05, 2006
Wuhan, the capital of China’s Hubei province, is a centrally located province that dates back to the very beginnings of the Chinese people. But today Wuhan is known as China’s Optical Valley, a center known for cutting-edge developments in optical electronics and photoelectronics. The Optical Valley is built upon a “strong network of colleges and institutes that provide technical training,” and the investment provided by “about 600 optical electronics product makers,” including “NEC, IBM, Fujikura and Philips” that help fund “700 R&D units with 200,000 engineers.” The Valley is experiencing rapid growth. Its “production value (has been) growing by an average of 30 percent a year since 2001” and “is expected to reach … $12.5 billion in 2007.”
20. Optical Communication Products Announces Fourth Quarter and Fiscal Year 2006 Results.
Company Press Release -- December 14, 2006
OCPI reported Q4 and full-year results for fiscal 2006 ended September 30, 2006. Revenue growth of 29.2% and 25.3% for the quarter and year, respectively, was driven largely by increased demand from existing customers. The acquisition of GigaComm that “secured a leading position in Japan’s high-growth fiber-to-the-home (FTTH) market” and a second source of lasers closed in late August. While posting a $0.01 per share profit for the year, declining gross margins crimped overall results and led to a $0.01 loss in the fourth quarter. The balance sheet remained strong, however, with cash, cash equivalents, and marketable securities of $126.9 million, or $1.11 per share.
While observing OCPI has traditionally “delivered strong gross margins relative to the industry,” Chief Executive Officer Philip F. Otto notes that, “over the past year, gross margins have declined as a result of our current product mix, which included a higher percentage of low margin products, lower market ASPs, and higher labor costs.” Further deterioration is anticipated over the first half of fiscal 2007 after which a series of margin improvement initiatives should begin to produce modest quarterly improvements. Shortly after the close of the year, OCPI signed an agreement with SAE Magnetics that will provide for low-cost, high-volume manufacturing in China, part of an initiative building on the GigaComm acquisition to develop integrated operations that are “more closely align(ed) with global customers” and facilitate “cost reduction(s)” and access to “design activities.” Efforts will also be ongoing to improve the product mix with higher margined products and products with higher average selling prices (ASP), “including high performance XFP/SFP+ products supporting 10 Gigabit Ethernet applications.” These higher ASP products combined with an additional design center in Taiwan that will aid in “accelerating product development and speed-to-market programs” will help OCPI capitalize on the growing demand for fiber optic components, thus bolstering top-line revenue growth. For fiscal 2007, management is "expecting revenue growth of $80.0 million to $90.0 million, including GigaComm.” Separately, management has stated that they’ll no longer be providing quarterly guidance, but they will be speaking to annual guidance as well as articulating longer-term goals.
OCPI also announced additional management changes, including the resignations of two of the company’s founders, Dr. Muoi Van Tran and Susie L. Nemeti effective December 31, 2006. Dr. Tran will continue as Chairman of the Board and both Dr. Tran and Ms. Nemeti will be available for consulting purposes. “OCP also announced the promotions of David Jenkins, Ph.D. to Vice President and Managing Director, Europe and Middle East, and Terry Basehore to Vice President of Sales, North America.” Previously announced management changes from fiscal 2006 include:
-- Philip F. Otto was appointed President and Chief Executive Officer in July, bringing extensive fiber optics knowledge and broad experience in the telcommunications industry to his leadership role;
-- Frederic T. Boyer was named Senior Vice President and Chief Financial Officer in August, bringing a seasoned background in financial management for several publicly-traded companies;
-- Dr. Liew-Chuang Chiu, OCP's Director of Manufacturing who joined the Company in 2005, was promoted to Vice President of Worldwide Manufacturing;
-- Dr. Jacob Tarn, CEO of OCP's GigaComm acquisition in Taiwan, has assumed responsibility as General Manager of OCP Asia; and
-- In accordance with the Company's bylaws, the Board of Directors increased the authorized number of directors from seven to eight and appointed Mr. Otto to the Board.
19. Analysts Comment on Management changes, GigaComm Acquisition, and Q3 Operating Results.
Analysts Reports -- July, 2006
B. Riley & Co.: Michael Coady, CFA
Roth Capital Partners: Dave Kand and Ankur Wadhawan
In mid July, Michael Coady, CFA of B. Riley & Co., wrote of Optical Communication Product’s announced acquisition of GigaComm that there were positives and negatives, but on balance he was excited by the opportunities that the acquisition presented. The “reasonable price” that OCPI paid “for a leader in a rapidly growing market” suggested that perhaps GigaComm might not be profitable. Nevertheless, one opportunity rests with GigaComm’s largest customer being Mitsubishi, a leading supplier to NTT, a Japanese company engaged in one of the world’s “most aggressive” build outs of fiber-to-the-home networks. GigaComm also brings an “integrated manufacturing facility” and will be able to provide a “second source of lasers for its transceivers” beyond Furukawa who is a majority owner of OCPI. Mr. Coady expects the advantages to be improved “cost and time-to-market efficiencies.”
Responding to OCPI’s third quarter results on July 28, Mr. Coady balanced his report between the apparently strong “demand environment” and revenue guidance of 15%-28% sequentially and year-over-year with weaker-than-expected gross margins. He sees “limited visibility” surrounding the contributions of GigaComm to the bottom line, suggesting that, lacking guidance, it will take a couple of quarters to get “a better sense of where revenues and margins are headed directionally.” Even so, he considers OCPI to be “well positioned in the optical component space” and reiterated his “Buy” rating.
Also on July 28, Roth Capital Partners’ analysts Dave Kang and Ankur Wadhawan responded to OCPI’s third quarter results by noting that earnings were below expectations but that the company is undergoing a “significant transformation,” including a new management team and the pending acquisition of GigaComm. The analysts point out that in addition to acquiring a manufacturing presence in Asia, the GigaComm purchase may also expand the company’s already extensive relationship with Alcatel, “the primary supplier of FTTX equipment for AT&T’s Project Lightspeed.” Alcatel accounts for about 23% of OCPI revenues. The analysts rate OCPI a Hold due, in part, to the challenge in “determin(ing) the combined companies’ earnings model.”
18. OCPI to Report Earnings and Hold Conference Call on December 14, 2006.
Company Press Release -- December 1, 2006
Optical Communication Products will release financial results for its fiscal fourth quarter and fiscal 2006 year that ended September 30, 2006 on December 14, 2006 after the close of market trading. CEO Philip F. Otto and CFO Frederic T. Boyer will be hosting a conference call at 5pm eastern on the 14th “to review the Company's financial performance and strategic objectives.” According to the company’s Press Release, the details of the conference call are laid out as follows:
Interested parties may participate in the conference call by dialing 800-240-4186. International callers may dial 303-262-2139. When prompted, ask for the "Optical Communication Products Investor Conference Call."
The conference call will be webcast simultaneously. The link to the webcast will be available on OCP's website at www.ocp-inc.com under Investors: Event Calendar and will be archived for 12 months.
A telephonic replay of the conference call may be accessed approximately two hours after the call through January 14, 2007, by dialing 800-405-2236. International callers may dial 303-590-3000. The replay access code is 11078043#.
17. Turnaround Letter Likes OCPI's Balance Sheet and Asian Prospects.
The Turnaround Letter -- November 1, 2006
In the November 1, 2006, edition of The Turnaround Letter, editor George Putnam, III advises his readers that, "the long-term factors favoring (telcom equipment) stocks are still in place." He points to an equipment upgrade cycle being fueled by major telephone providers having to meet the demand for new services and the competitive threat from the cable TV industry. Optical Communication Products made his list of "telcom equipment stocks that we think have significant appreciation potential." OCPI's focus in the fiber-optic market and expansion in Asia were spotlighted.
16. OCPI To Begin Manufacturing in China in 2007
Company Press Release -- November 1, 2006
Optical Communication Products has entered into an agreement with a subsidiary of TDK Corp., SAE Magnetics Ltd., that will allow OCPI to begin manufacturing operations in China beginning in 2007. According to Philip F. Otto, OCPI’s CEO, "This transition is a key element in OCPI's long-term strategy to increase revenues and improve financial performance. Manufacturing in Asia will enable us to increase our manufacturing capacity and flexibility, while simultaneously reducing costs.” The ability to ramp up volumes in China will augment the firm’s “proven capabilities in short-run, specialized applications.” There will be interim adjustments, including layoffs at existing facilities and roughly $3 million to #3.5 million in one-time charges that will be taken in fiscal 2007 which started October 1.
15. OCPI to Present at Needham Growth-Stock Conference January 9-12, 2007
Needham & Company, LLC -- October 2006
Optical Communication Products will present at Needham & Company’s ninth annual Growth-Stock Conference scheduled for January 9-12, 2007 at The New York Palace Hotel in New York City. More than 400 companies are scheduled to make presentations at what sponsors call “the largest and best attended growth-stock conference.”
14. Optical Communication Products Patents
13. Paul Green Interview on Potential for Fiber-to-Home Technology
Dr. Paul E. Green, Jr., though retired, continues as a voice for advancing communications technologies, including optical networks as a member of the National Academy of Engineering. While a debate continues between DSL and cable technologies, Dr. Green points out in an interview that two major events are driving communications companies to utilize optical/fiber technology for hooking up homes, known as fiber-to-the-home, across America. He suggests that optical technology “would not only liberate the telcommunication industry but would liberate the entire computer industry too. If you had an open pipe between your machine and anybody else, all of a sudden Microsoft is gonna (sic) find a thousand products that you've got to have that they can make for you.” As compared to copper lines supporting DSL, Dr. Green comments that fiber “is like having something with 25,000 times as much [capacity] as the copper wires;” that, he suggests, is something “you get excited about.”
12. Fiber to the Home: The New Empowerment; an acclaimed book by Dr. Paul E. Green, Jr.
Dr. Paul E. Green, Jr.’s book, Fiber to the Home: The New Empowerment, is winning acclaim for the author’s ability to communicate the essentials of fiber to the home (FTTH) technology to wide-ranging audience. Dr. Green, now retired, brings a long history of involvement in the communications and networking markets beginning with his doctoral thesis at MIT in 1953; much of his career was spent with MIT’s Lincoln Laboratory and IBM. FTTH is essentially the technology that brings high-speed, fiber optic cables directly into homes and offices, the critical “last mile” that will unleash a host of new technological capabilities. For more, see Wiley Publishers or Amazon.com.
11. Analysts Focusing on OCPI's Industry
Roth Capital Partners, LLC
Dave Kang, Senior Research Analyst
Needham & Company, LLC
John Harmon, CFA
Tel: (212) 705-0397
Fax: (212) 371-8415
CIBC World Markets
Tel: (212) 667-7292
10. OCPI at CIBC Optical Technologies Conference November 16, 2006
CIBC -- September 2006
Optical Communication Products will present at CIBC’s Optical Technologies 1-on-1 Conference scheduled for November 16, 2006 at CIBC’s World Markets U.S. Headquarters in New York City. About a half dozen optical component companies will make top management available for “intimate,” 1-on-1 meetings with institutional investors.
9. Optical Communication Products Closes Acquisition of GigaComm
Company Press Release -- 25 August 2006
Optical Communication Products announced that it has completed the acquisition of GigaComm Corp., a Taiwan-based supplier of passive optical network (PON) fiber-to-the-home (FTTH) components. For more details of the acquisition, see citation #5 below.
8. CEO Philip F. Otto Presents at Credit Suisse, CIBC, and Roth Capital Investment Conferences
21 August 2006
1. Credit Suisse First Boston; August 15, Boston
2. CIBC World Markets Silicon Valley Optical Components; August 29, 2006, San Jose
3. Roth Capital Partners New York Institutional Investor Conference; September 6/7, 2006, New York
7. OCPI Looks at New Business Roundtable/CFA Recommendations on Short-Term Guidance
Along with other leading companies, OCPI is examining the recommendations of “Breaking the Short-Term Cycle,” a panel report urging companies to eliminate quarterly guidance for the financial community with the view that it leads to poor corporate governance and, in some instances, to poor management of company operations with a view to dressing up quarterly results. The panel report, cosponsored by the CFA Centre for Financial Market Integrity and the Business Roundtable Institute for Corporate Ethics, can be found here.
6. Optical Reports Third-Quarter Results and Senior Management Appointments
Company Press Release -- 27 July 2006
Optical Communications announced its second-quarter results and two senior management appointments. For its third quarter ended June 30, revenues rose to $14.9 million or 9.5% over the year-earlier period, while earnings fell from a profit a year ago to a loss of $437,000 ($0.00 per share). Dr. Muoi Van Tran, Optical’s Chairman, commented that the results were in line with expectations but short of the firm’s “ambitious long-term goals.” He also commented on the important second-quarter event of the company acquiring GigaComm “which will position us as a major supplier in the highly important fiber-to-the-home (FTTH) market, give us a leading position in the advanced Japanese telcommunications market, and bring us critical mass in the global marketplace with a significant addition to revenues, technology, and manufacturing capability." Excluding the impact of GigaComm, “Optical expects revenue to be within the range of $17 million to $19 million” for its fiscal fourth quarter ending September 30.
It was also announced that Philip F. Otto who’s been serving as temporary CFO will immediately assume the position as CEO as well as joining a newly expanded Board of Directors. Dr. Tran comments, "Phil's roots in the fiber optic sector and his broad experience in the telcommunications industry make him the ideal choice to lead OCP as we extend our Company globally and make our product offerings more comprehensive." Dr. Tran will assume the role as Chief Technology Officer.
Further, Frederic T. Boyer has been named Senior Vice President and Chief Financial Officer, effective August 21, 2006. Mr. Boyer arrives from Qualstar, a NASDAQ-traded storage solutions company. He’s also held senior financial positions at Accelerated Networks, ADC Telcommunications, and Computer Memories.
An earnings conference call was conducted that can be accessed at the company’s web site.
5. Optical Communication to Acquire GigaComm
Company Press Release -- 14 July 2006
Optical Communication announced today that it will purchase privately-held GigaComm in an all-cash transaction valued at about $20 million. Taiwan-based GigaComm is a leading supplier of passive optical network modules to the fiber-to-the-home (FTTH) market in Japan, the largest FTTH market and considered to be the most advanced telcom market in the world. In addition to moving Optical Communication into the FTTH market for the first time and immediately capturing the leading role in Japan, revenues will be boosted by about 25%, Optical will be adding significant manufacturing capacity, it will be establishing a second source of lasers, it will be expanding its pool of talented engineers and executives, and it will facilitate entry into the burgeoning Asian market.
Industry analysts Heavy Reading expect the number of FTTH households to jump from about 11 million in 2006 to 86 million by 2011 with the bulk of the growth coming in Asia. The acquisition reflects Optical Communication's strategy to expand its product offerings, penetrate the Asian market, and generally enhance its global competitiveness. A replay of management’s conference call relating to the acquisition can be listened to at 888-266-2081 (703-925-2533 international) with the access code 938322. It will also be archived at the company’s website www.ocp-inc.com.
4. Optical Communication Products Q2 Revenues and Income Rise; Expands Management Team
Company Press Release -- 27 April 2006
Optical Communication Products reported that revenues for its fiscal second quarter ended March 31, 2006 (year ends September) rose 35.6% to $18.3 million and that net income had swung to a profit of $2.1 million versus a year-earlier loss. The company finished the quarter with nearly $150 million in cash, cash equivalents, and marketable securities, or about $1.30 per share. Though industry conditions continue “to limit the company’s visibility,” management is comfortable with third-quarter estimates of revenues “to be within the range of $14 million to $16 million.”
The company also reports that it has expanded its management team with the addition of Philip F. Otto as interim CFO. Mr. Otto has been serving in an advisory role to Optical’s finance department. He brings a wealth of experience, including CEO roles at MedioStream, California Microwave and Telco Systems. A newly created position of Senior Vice President of Corporate Affairs and Administration and Chief Corporate Development Officer will be filled by Susie L. Nemeti, a cofounder of the company and recent CFO, who brings 18 years of experience in the fiber-optic industry. Other promotions include Dr. Liew-Chuang Chiu to Vice President of Manufacturing. Dr. Chiu joined the company in 2005 following stays with JDS Uniphase and Hewlett Packard. Mohammed Ghorbanali is being promoted to Senior Vice President of Technical Operations and Chief Operating Officer. Mr. Ghorbanali, also a cofounder of Optical, has in excess of 20 years experience in the fiber optics field.
3. Optical Communication Products sells assets and licenses VCSEL-related technology
Company Press Release -- 13 February 2006
Optical Communication Products has sold certain assets at its Broomfield, Colorado from which it has generated immaterial sales to VCSEL technology and licensed related technology to Furukawa Electric Co., Ltd., Optical Communication Products' largest shareholder. The company had disclosed its intent to exit the market for VCSEL fiber-optic technology on January 31.
2. Revenues Jump 26.6% and Profitability Returns in Fiscal 2006 First Quarter
Company Press Release -- 30 January 2006
Optical Communication Products reported revenues increased 26.6% in its fiscal 2006 first quarter ended December 31, 2005 and that net income rose to $1.1 million versus the year-earlier quarter. Revenues fell near the upper end of management’s guidance. Though boosting inventory, the company maintained a strong liquidity position “with approximately $146.6 million in cash, cash equivalents and marketable securities as of December 31, 2005.”
Management expects second quarter revenues to fall in the range of $17 million to $19 million. Management comments that previously announced plans to sell VCSEL related assets will generate short-run savings between $500,000 to $1.0 million per quarter.
1. Optical Communication Products Expands Product Portfolio
Company Press Release -- 20 September 2005
Optical Communication Products has its expanded its product line to support customers’ expansion beyond local area networks with the announcement of the “availability of its industrial temperature (–40°C to +85°C) rated SFP transceivers for Gigabit Ethernet CWDM applications.” According to Kirk Bovill, director of marketing, “The push to outside plant environments requires a more robust transceiver to handle a wider temperature range than standard commercial optics and OCP has addressed that market need with our –40°C to +85°C Gigabit Ethernet CWDM product offering.”
Pricing and shipping information is available by contacting OCP sales at 818-251-7100 or via e-mail at email@example.com.
|DISCLOSURE: Investors Digest is compiled and published by William Dunk Partners, Inc., P.O. Box 3687, Chapel Hill, North Carolina, 27515. All information is taken from publicly available sources that are believed to be reliable, and every effort is made to assure accuracy. Nevertheless, no guarantee or assurance of accuracy can be provided. No offer on our part with respect to the sale or purchase of any securities is intended or implied, and nothing herein is to be construed as a recommendation to buy or sell any securities. Investors Digest is independently produced and maintained.|
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