Thai rains knock out Fabrinet, worry optical communications customers

Oct. 27, 2011
Flooding from monsoon rains in Thailand that has caused hundreds of deaths also has shuttered a manufacturing facility of Fabrinet, a contract manufacturer whose clients include several companies in the optical communications space.

Flooding from monsoon rains in Thailand that has caused hundreds of deaths also has shuttered two manufacturing facilities of Fabrinet, a contract manufacturer whose clients include several companies in the optical communications space. Fabrinet expects at least one of the facilities to remain closed for the rest of the year, imperiling the ability of companies such as Emcore, Infinera, JDSU, Oclaro, and Opnext to meet delivery schedules.

Fabrinet says its Chokchai facility in Pathum Thani, Thailand, is under approximately 3.5 feet of water, the Associated Press reported on Monday. Its Pinehurst facility currently is not flooded, but also has been shut down nevertheless.

Several optical communications companies that have partnered with Fabrinet subsequently have stated they expect the closure to affect their businesses. For example, EMCORE (NASDAQ: EMKR) noted that “rising water penetrated the campus’s facility, including the areas used to manufacture the Company’s fiber-optic products and submerging some of the Company’s manufacturing and test equipment.

“The Company now expects that the flooding of the Thailand facilities will have significant impact on the company’s operations and its ability to meet customer demand for its fiber-optic products in the December quarter,” EMCORE concluded.

Meanwhile, Opnext (NASDAQ: OPXT) says it expects lost revenues from the facilities shut down will be “material” during its current fiscal quarter, although it did not speculate on a dollar amount. The company says it is looking to move production to other locations as well as increase production at other facilities.

Oclaro (NASDAQ: OCLR) relies on the two Fabrinet facilities for approximately 30% of its finished goods. Because it can’t get to the facilities to assess the damages, Oclaro Chairman and CEO Alain Couder announced that he has postponed announcement of its first quarter FY 2012 financial results. However, he says he expects those results to remain within guidance with profitability at the upper end of expectations. The quarter closed October 1, before the Fabrinet shutdowns.

JDSU (NASDAQ: JDSU) (TSX: JDU), meanwhile, is fortunate in that its products are manufactured at the Pinehurst facility. The company says it will report on the impact of the current Pinehurst shutdown when it reports first quarter earnings results on November 1.

Finally, Infinera (NASDAQ: INFN) says that it is moving production of its equipment to other facilities and enacting related contingency plans. However, it doesn’t expect to fully make up for the loss of Fabrinet’s services. As a result, Infinera estimates that it could see a revenue drop from its December quarter guidance of between 5% to 15%.

Other optical communications companies that Fabrinet has announced as customers include amplifier developer RED-C Optical Networks and, most recently, u2t Photonics AG.

This is the second time this year that a natural disaster in Asia has disrupted the optical communications industry. The earthquake and tsunami in Japan earlier in the year knocked out fiber-making facilities and disrupted several undersea cables. The fiber facilities are now back online.

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