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    Stock Alert for Opnext Inc. (OPXT)

    Opnext Inc. (OPXT) designs and manufactures optical components, modules and subsystems for communications uses. It sells the products, which enable high speed network connectivity to address the increasing data usage by the global population, to other businesses. Additionally, the Company sells infrared and visible light optical devices for industrial and commercial use.  OPXT is the optical technology partner of choice supplying systems providers and OEMs worldwide with one of the industry’s largest portfolios of 10G and higher next generation optical products and solutions.

    OPXT was founded in September 2000 as a subsidiary of Hitachi Ltd. and subsequently spun out of Hitachi’s fiber optic components business. It is headquartered in Fremont, California.

    Share Statistics (04-Feb-11) FY

    2009

    FY

    2010

    %

    Chg

    Q3

    2009

    Q3

    2010

    %

    Chg

    Symbol OPXT Revenue, $Mn 318.56 319.13 0.2% 80.97 86.38 6.7%
    Current price $2.57 Gross marg. 23.4% 19.1% -18.4% 21.7% 20.4% -6.0%
    52wk Range: $1.29-$2.91 Oper. margin -24.3% -15.7%
    Avg Vol (3m): 551,116 Net margin -40.7% -26.4% -35.1% -22.1% -16.7% -24.4%
    Market Cap. 231.02M
    Shares Outstanding 89.89M EPS, $ -0.98 -0.87 -11.2% -0.20 -0.16 -20.0%

    Source: Reuters.com, SEC Filings.

    Investment Highlights

    OPXT shares rallied 29% Friday to reach a new 52-week high of $2.91. OPXT saw trading volume hit 6.50 million, nearly 13 times its average daily volume. It is currently trading above its 50-day and 200-day moving averages of $1.90 and $1.64, respectively. At Friday’s closing market price, OPXT’s market capitalization stands at $231.02 million.

    The optical components maker reported that it narrowed its net loss in the third quarter to $3.79 million, thanks to stronger sales and lower research and development expenses.

    OPX saw another record quarter with revenue of $97.1 million, representing its fourth consecutive quarterly growth. OPXT president and CEO Harry Bosco said the growth was broad based across most product lines and

    was led by strong 40Gbps and above module sales. This growth, together with lower R&D expenses, allowed the Company to achieve a positive adjusted EBITDA, said Bosco.

    For the third quarter, the Company said combine sales from Alcatel-Lucent and Cisco represented 33% of its total revenues, compared to 34% in the previous quarter.

    Looking forward, the Company expects to post revenues of $97 million to $102 million for the fourth quarter of its fiscal year 2011. Analysts polled by Reuters Estimates expect revenues of $92.7 million for the period. OPXT expects revenues from sales of 40Gbps and above modules to continue to grow while most of its product portfolio will be affected by calendar year-end price adjustments.

    New Product Introductions

    Late last month, the Company introduced its high power, 60mW in a 445nm blue laser diode for embedded device mini projector applications, promising a 30% less power consumption as compared to leading blue laser offerings. “Our red laser diode offering for pico projector manufacturers has already been well received. Now, with the addition of a blue laser diode to our product portfolio, we anticipate manufacturers will be pleased with the power and image quality results they can deliver from their system,” said Tadayuki Kanno, president of OPXT’s devices business unit. “Opnext’s focus continues to be on the development of diodes that are high power, high quality and high performance while consuming less energy.”

    Also recently, the laser technology company unveiled the HL40023MG, a high power 404nm, 500mW violet laser diode for biomedical illumination applications, as well as direct imaging on PCB manufacturing surfaces. Biomedical and direct imaging system manufacturers currently utilize solid state laser diodes that are large and consume tremendous amounts of power.  OPTX said the HL40023MG violet laser diode offers manufacturers the option to use a high power diode in a small 5.6mm package. With a typical operating current of 390mA, the HL40023MG provides 400mW of optical output power. The HL40023MG is set for mass production this month.

    Visit OPXT at www.opnext.com

    Financial Summary

    Revenue increased $10.7 million, or 12.4%, to $97.1 million, compared to $86.4 million in the quarter ended September 30, 2010. Revenue from sales of 10Gbps and below products increased $5.3 million, or 9.3%, to $61.8 million, compared to the quarter ended September 30, 2010, primarily as a result of increased sales of SFP+ and X2 modules. Revenue from sales of 40Gbps and above products increased $5.2 million, or 23.5%, to $27.4 million, compared to the quarter ended September 30, 2010, primarily as a result of an increase in module sales. Revenue from sales of industrial and commercial products increased $0.2 million, or 2.7%, to $7.9 million, compared to the quarter ended September 30, 2010.

    Revenue increased $21.0 million, or 27.6%, from $76.1 million in the quarter ended December 31, 2009. Revenue from sales of 10Gbps and below products increased $6.7 million, or 12.2%, compared to the quarter ended December 31, 2009. The growth in revenue from 10Gbps and below products was driven by increased sales of XFP, 300 pin, and SFP+ modules, partially offset by decreased sales of Xenpak and X2 modules. Revenue from sales of 40Gbps and above products increased $10.6 million, or 63.3%, compared to the quarter ended December 31, 2009, primarily as a result of increased sales of modules partially offset by decreased sales of 40Gbps subsystems. Revenue from sales of industrial and commercial products increased $3.7 million, or 88.3%, compared to the quarter ended December 31, 2009.

    Alcatel-Lucent (NYSE: ALU) and Cisco Systems Inc. (Nasdaq: CSCO) each represented 10% or more of total revenues in the quarter ended December 31, 2010. Combined, sales to these two customers represented 33% of total revenues compared to 34% in the quarter ended September 30, 2010.

    Gross margin was 20.0% for the quarter ended December 31, 2010, compared to 20.4% in the quarter ended September 30, 2010. Non-GAAP gross margin was 21.5% in the quarter ended December 31, 2010, compared to 22.2% in the quarter ended September 30, 2010. Compared to the quarter ended September 30, 2010, gross margin percentage was unfavorably impacted by lower average per unit selling prices and a 90 basis point negative impact from foreign currency exchange rate fluctuations and favorably impacted by higher sales volumes and a higher mix of 40Gbps and above revenues.

    Operating loss was $10.0 million for the quarter ended December 31, 2010, compared to an operating loss of $13.6 million for the quarter ended September 30, 2010. Non-GAAP operating loss was $5.3 million for the quarter ended December 31, 2010, compared to $9.8 million for the quarter ended September 30, 2010. The decrease in the non-GAAP operating loss primarily resulted from higher absolute gross margin and lower research and development expenses. Non-GAAP research and development expense decreased from $16.0 million in the quarter ended September 30, 2010, to $13.3 million in the quarter ended December 31, 2010, primarily due to lower material and outsourcing costs related to advanced product development programs as well as prototype builds associated with new product introductions.

    Net loss was $10.2 million for the quarter ended December 31, 2010, or $0.11 per fully diluted share, compared to a net loss of $14.4 million, or $0.16 per fully diluted share, for the quarter ended September 30, 2010. Non-GAAP net loss for the quarter ended December 31, 2010 was $5.5 million, or $0.06 per fully diluted share, compared to a non-GAAP net loss of $10.7 million, or $0.12 per fully diluted share, for the quarter ended September 30, 2010.

    Cash and cash equivalents decreased by $10.1 million to $87.4 million at December 31, 2010, compared to $97.5 million at September 30, 2010, reflecting $2.0 million of cash used in operations, $3.4 million of short-term debt payments, $2.9 million of capital lease payments, $1.2 million of capital expenditures and a $0.6 million unfavorable impact from foreign currency exchange fluctuations. Other than cash and cash equivalents, net current assets increased by $2.3 million as a result of a $3.7 million increase in accounts receivable and a $6.9 million increase in inventories, partially offset by an $8.3 million increase in accounts payable, accrued expenses and net other assets and liabilities.

    EBITDA was negative $1.8 million for the quarter ended December 31, 2010, compared to negative $6.4 million for the quarter ended September 30, 2010. Adjusted EBITDA was positive $1.1 million for the quarter ended December 31, 2010, compared to negative $4.4 million for the quarter ended September 30, 2010.

    Source: www.opnext.com


    Financial Strength (04-Feb-2011) Company Industry Sector S&P 500
    Quick Ratio (MRQ) 1.47 0.53 1.27 0.52
    Current Ratio (MRQ) 2.39 0.64 2.09 0.82
    LT Debt to Equity (MRQ) 6.60 6.00 13.05 106.07
    Total Debt to Equity (MRQ) 23.00 11.08 31.53 150.72
    Interest Coverage (TTM) 0.05 0.69 16.24

    Source: Reuters.com, SEC Filings.

    Analyst Consensus

    This is the consensus forecast among two polled investment analysts. Against the Opnext Inc company.

    Analyst Detail Buy Outperform Hold Underperform Sell No Opinion
    Latest 1 0 1 0 0 0
    4 weeks ago 1 0 1 0 0 0
    2 months ago 1 0 1 0 1 0
    3 months ago 1 0 1 0 1 0
    Last year 0 1 2 0 1 0

    The two analysts offering 12-month price targets for OPXT have a median target of 2.31, with a high estimate of 3.00 and a low estimate of 1.62. The median estimate represents a 16.08% increase from the last price of 1.99.

    Source: markets.ft.com

    Consensus Estimates Analysis


    # of Estimates Mean High Low 1 Year Ago
    SALES (in millions)
    Quarter Ending Mar-11 2 92.70 93.00 92.41 93.90
    Quarter Ending Jun-11 1 96.21 96.21 96.21
    Year Ending Mar-11 2 348.16 349.20 347.11 366.53
    Year Ending Mar-12 2 404.44 405.87 403.00
    EARNINGS (per share)
    Quarter Ending Mar-11 2 -0.09 -0.08 -0.10 -0.05
    Quarter Ending Jun-11 1 -0.07 -0.07 -0.07
    Year Ending Mar-11 2 -0.44 -0.43 -0.46 -0.23
    Year Ending Mar-12 2 -0.21 -0.17 -0.25

    Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=OPXT.O


    Technical Analysis

    Source: http://stockcharts.com

    On Wednesday last week, OPXT closed above its 20-day moving average. This is generally considered to be an indication of a bullish trend.

    OPXT’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility.

    The MACD for OPXT currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9day moving average. Second, the MACD is above 0 which implies that the underlying moving averages are trending higher.

    Comparative Analysis

    Company Name Ticker Price per Mrkt. Cap. P/E P/S
    Feb04-2011 symbol Share, $ $ Mn 2010 2011 2010 2011
    EMCORE Corp. EMKR 1.78 151.86M n/a n/a 0.80 n/a
    Oclaro Inc. OCLR 15.88 766.40M 29.96 13.57 1.54 1.38
    JDS Uniphase Corp. JDSU 22.76 5.07B 30.35 25.57 2.96 2.70
    Finisar Corp. FNSR 38.97 3.01B 23.06 19.00 3.11 2.64
    Semiconductor – Broadline Median 16.63 n/a 2.67 n/a
    Opnext Inc. OPXT 2.57 231.02M n/a n/a 0.66 0.57

    Source: Thomson Financial

    Insider Trading Activity

    NET SHARES PURCHSE ACTIVITY

    Inside Purchases – Last 6 Months

    Shares Transaction
    Purchases n/a 0
    Sales n/a 0
    Net Shares Purchased (Sold) n/a 0
    Total Insider Shares Held 41.37M n/a
    % Net Shares Purchased (Sold) 0% n/a
    Net Institutional Purchases — Prior Qtr to Latest Qtr
    Shares
    Net Shares Purchased (Sold) (2,494,320)
    % Change in Institutional Shares Held (7.34%)

    Source: Yahoo Finance

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