Earnings Cheat Sheet: iPhones Clogging Up Your Network? Buy Finisar, Profit Off The Solution.

Earnings: 1Q profits of $0.31 vs. estimates of $0.23.

Revenue: Up 62% YoY to $207.9 million vs. June guidance of $190-$205 million, which was above analyst expectations at the time.

“In our just completed first quarter, we reached our previous target financial model earlier than we had predicted,” said Jerry Rawls, Finisar’s Chairman of the Board.

“We achieved company records for revenues, gross margins, operating margins and EPS. Furthermore, the demand environment continued to be very strong for us, particularly for our higher data rate transceivers and our ROADM products. As a sign of that ongoing strength, our book-to-bill ratio in the quarter continued to be above 1.0.”

Eitan Gertel, Finisar’s CEO, noted that, “adding capacity continues to be a top priority for us next quarter, particularly for our ROADM products where demand currently exceeds our ability to supply.”

Comment: For those of you who aren’t familiar with Finisar (NASDAQ: FNSR), they’re the second-biggest fiber-optic equipment maker in the U.S., behind only JDS Uniphase Corp. (NASDAQ: JDSU).  FNSR provides the optical subsystems and components that connect short-distance local area networks and storage area networks with longer-distance wide area networks, cable television networks, and various other networks.

In a nutshell, the borderline absurd increase in data traffic over traditional telecomm networks brought on by the advent of smartphones, etc., has stressed these networks to the point that they can no longer operate efficiently.  The obvious example of this would be the manner by which the iPhone has single-handedly made AT&T into a “terrible” wireless carrier.  In reality, it’s not so much that AT&T has a sub-par network as much as it is that those networks were built to accommodate telephone calls, not 15-minute youtube videos of your friends dog eating a sandwich.

This is the predicament referred to as “wireless backhaul.”  We send a little bit of data to the network, i.e., dogeatssandwich.com, but the network must send back (thus “backhaul”) an exponentially greater amount of data, i.e., the 15-minute video.  The solution to this problem involves rehashing much of the existing network, and happens to be one of the few true high-growth domestic themes in existence.  All of the companies involved stand to benefit greatly, and FNSR may be at the forefront.

After nearly doubling during the period of Jan 1 – Jul 26, FNSR began selling off, firstly in sympathy for a revenue shortfall by Oclaro (NASDAQ: OCLR), and then with the rest of the market during the Aug selloff.  FNSR recently retook its 200-day MA, and after accounting for the 10% shares added on after-hours, they’re set to open up above $15 for the first time since the Oclaro selloff.

After-hours pops of 10% are often followed by brief pullbacks, and the market may be primed for a bit of a pullback as well, so if you don’t currently have a position in FNSR, beginning one tomorrow may be a bit unseemly.  Nonetheless, FNSR is one of the higher-visibility growers out there, and would definitely make a solid pick for any portfolio.  Look for shares to test July highs at around $18 if the market can keep from falling too much.

Disclosure: No holdings in FNSR.