Finisar Buys Again

For a company thats lost hundreds of millions of dollars for three straight years, Finisar Corp. (Nasdaq: FNSR)isn’t shy about spending on acquisitions.

Finisar plunked down $16 million in stock today for the assets of Data Transit Corp., a private company that gives Finisar SAS and SATA testing and monitoring tools. Finisar has equipment to test most Fibre Channel SAN equipment but lacked SAS and SATA products.

It was Finisar’s third acquisition this year. The company bought Honeywell International Inc.’s (NYSE: HON) VCSEL business for about $75 million in cash in January, and closed a $263 million stock deal for Infineon Technologies AG’s (NYSE/Frankfurt: IFX) Fibre Optics business earlier this month. The Honeywell and Infineon deals were on the fiber optics side of its business, which provides the bulk of its revenue (see Finisar Acquires Infineon Fiber Optics Biz, Heavy Reading Hires Senior Analyst, and Finisar Buys Honeywell VCSEL Biz).

Finisar marketing VP Brian Staff says around 29 of Data Transit’s employees -- mostly engineers -- will join Finisar's Network Tools Division at the vendor's Sunnyvale, Calif., headquarters. Data Transit’s headquarters were in San Jose.

Data Transit’s top two executives -- CEO Dale Smith and VP of engineering Michael Steen -- will not join Finisar, although sales VP Jim Robertson will. Smith founded Data Transit in 1990 and helped it become one of the rare successful, private storage companies to spurn venture capital funding (see They Don't Need No Stinkin' VCs).Analyst Shaw Wu of American Technology Research says Data Transit’s products appear a good fit for Finisar. “The price appears reasonable, the acquisition rounds out Finisar’s network test business with next-generation storage interfaces, and Data Transit is profitable,” he says. Wu has concerns about Finisar’s rising costs, though. “It’s a step in the right direction, but Finisar needs to tighten up its costs more."

Data Transit claims it generated $7.3 million in revenue in the first six months of this year and recognized approximately $2.5 million of pretax income. Brian Staff says the private company has about 75 percent of the SAS/SATA test market, while Finisar has around 45 percent of the Fibre Channel market for test gear. Finisar had been developing SAS/SATA testing products but had yet to bring them to market -- missing a big opportunity as the new serial drive technology has ramped up (see Report: SATA & SAS to Share Systems, SATA Saturates SANs, and Cheaper Than Fibre Channel, Faster Than Tape).

Finisar will sell Data Transit’s Bus Doctor protocol analyzer and PacketMaker traffic generator under its own brand, and eventually it plans to incorporate the products into its Xgig Analyzer Suite (see Finisar Intros Xgig Analysis Platform and Finisar Releases SAN Health Check).

“This gives us products we didn’t have, people and skills we didn’t have, and customers we didn’t have,” says Staff, noting Data Transit’s customer list includes Dell Inc. (Nasdaq: DELL), Intel Corp. (Nasdaq: INTC), and Maxtor Corp. (NYSE: MXO). Finisar’s major customer is Cisco Systems Inc. (Nasdaq: CSCO), which accounted for 22 percent of its $185.6 million in revenue for the fiscal year that ended in April. It also lists EMC Corp. (NYSE: EMC), Emulex Corp. (NYSE: ELX), and Hewlett-Packard Co. (NYSE: HPQ) as customers.

Finisar has spent a lot recently for a company that was thought to be on the block itself at the start of 2003 and posted losses of $218.7 million, $619.7 million, and $113.8 million in the last three years (see Finisar Denies Takeover Talks).Finisar executives claim the acquisitions will help fuel significant revenue growth. Then again, they've been predicting better things in general: Before this acquisition, CEO Jerry Rawls gave guidance for the present quarter between $58 million and $63 million -- up from $57 million in the previous quarter -- and predicts revenue will grow to $70 million to $80 million by the quarter that ends next March.

— Dave Raffo, Senior Editor, Byte and Switch