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Finisar: Previewing Earnings

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First, I'll say that I think it would be worthwhile to look at the cornucopia of content I've provided on Finisar (FNSR) as I think all the key long-term catalysts are still in play. In short, a near decade of underinvestment in core networks will have a period of reckoning. This, coupled with a half-decade of massive growth in connected devices which are moving data at ever-faster data rates have turned a very overbuilt "fiber highway" into a very crowded one. Add in the proliferation of video and high-capacity bandwidth drivers and traffic loads today are much bigger than even the most bullish projections in the early 2000's. Then lastly, we have just begun to move huge files into the Cloud for "instant" archiving, retrieval, and distribution.

Thus, the future for 100G and beyond capacity solutions is very strong. The rub is this long tail view might mean very little in any one quarter. For the bulk of 2010, the above thesis was very much in vogue and since the second half of 2011 through this year, it has been largely ignored.

So for the quarter tonight, I'm going back to what I said yesterday -- that this is another quarter where having much of an edge either way is pretty tough. There is still a great deal of uncertainty on both the macro front and and near-term networking budgets that FNSR is likely still mired in a world of pressured pricing. But all this name and the group needs is a few more data points like we got with AT&T's (T) budget announcement. If order trends firm a little, and the annual revenue run rate increases just modestly, the leverage in FNSR's (and Ciena's (CIEN) and others) models will start to work for rather than against them.

Tonight's keys will be China orders, North American orders, and when the 2013 budgets start to translate to new orders and a possible firming of product pricing. Again, I don't think FNSR management will say they have much visibility yet. I would have said this same thing 2-3 weeks ago before AT&T's budget increase, as a budget increase for the whole of 2013 doesn't translate to order uptake in just a few weeks. The good news this quarter is that FNSR comes into the report with a stock that has been a lot more beaten up than n some prior quarters where the stock was trading in the $17-20 ranges.

My view right now is to assess the commentary from the call and see if we get any more clues to changing conditions. But the setup here is that all the stock needs is a "whiff" of positive commentary for it to act better now. I would also be a a buyer if we see a shock drop to the low $11's or lower on minor negatives with revenue and/or earnings guidance.

If I had to guess right now, I think this FNSR quarter might setup a lot like the Qualcomm (QCOM) quarter in mid-2010 where I publicly stated "this was the last bad quarter".

We will know a lot more tomorrow, and I will definitely be on the call listening closely.

Twitter: @UdallTechStrat
POSITION:  Position in FNSR,QCOM,CIEN

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