Thai Floods Impact Opnext - Analyst Blog
December 30 2011 - 11:45AM
Zacks
Opnext, Inc.
(OPXT) recently stated that production at the Chokchai campus of
Fabrinet (Opnext’s primary contract manufacturer) remains suspended
following the floods in Thailand in October.
Fabrinet has stated that it is
unlikely production at Chokchai will resume. As a result, Opnext
has relocated limited production capacity to its manufacturing
facilities in Totsuka, Japan and Fremont, California.
Additionally, Opnext plans to
divert a portion of the 10Gbps module production capacity, which
was previously located at Fabrinet’s Chokchai facility, to
Fabrinet’s Pinehurst facility. This new facility is located
approximately seven miles north of Chokchai.
Meanwhile, in an effort to minimize
the disruption caused by flooding, Fabrinet has allocated surface
mount technology (SMT) lines at Pinehurst to Opnext and new test
systems are being constructed to replace systems lost in the
flooding.
Nevertheless, Opnext anticipates
that Fabrinet will start production in February 2012 and ramp
production as new test systems come on line. Opnext also plans to
deploy an additional contract manufacturer to diversify its sources
for manufacturing.
Opnext expects to restore
approximately 20% of the lost 10Gbps module production capacity by
the end of December. The company expects to increase production
capacity during the quarter ending March 31, 2012, with a return to
full production capacity expected sometime early in the quarter
ending June 30, 2012.
On the other hand, the loss of
production capacity at Fabrinet will significantly impact both the
topline and bottomline in the December quarter and March
quarter. In addition to the loss of revenue, Opnext has
experienced loss of equipment and inventory in connection with the
flooding at Fabrinet’s facility; the full extent of which is still
not known.
Opnext, Inc. designs and
manufactures optical components, modules and subsystems for
communications uses primarily in the Americas, Europe, Japan, and
the rest of the Asia Pacific region.
Another company, LSI
Corp (LSI) has also been impacted by the floods in
Thailand. The company will experience a revenue loss of $35 million
- $45 million due to supply constraints in its hard disk drive
business.
We continue to maintain a Neutral
recommendation on Opnext. In the short-run. The stock has a Zacks
#4 Rank, which translates into a short-term rating of Sell,
primarily due to near-term pressure on the stock.
LSI CORP (LSI): Free Stock Analysis Report
OPNEXT INC (OPXT): Free Stock Analysis Report
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