10-25-2017, 10:08 AM
It gets a little lost in the long line of comments to our SA article, but here is why we weren't concerned after the first warning
- 100G is in short-supply, the market is booming and Applied Opto has rapidly increasing sales of 100G.
- Amazon sudden switch from 40G to 100G seemed an eminently reasonable explanation, after all, it has happened once before.
- Revenues from other customers besides Amazon are still growing.
- The shares aren't expensive.
And here is why we got concerned after the second warning, and the discovery of a Stocktwitter guy IdoResearch who seemed to know the Amazon problem before the company knew, or before they made that public:
- The shorts knew about Amazon way before Applied Opto management went public with it (on August 2). More importantly, they knew about it before Applied Opto pre-announced Q2 figures mid July, and said nothing about Amazon problems and increased Q2 guidance.
- The explanation for the Amazon problem during the Q2CC on August 2 was that they were switching to 100g, and it was suggested that Applied Opto couldn't respond as quickly because it would take six weeks minimum to change production lines. We now know this isn't the problem, the problem is Amazon's demand has gone way down, from $55M in Q2 to $9M in Q3.
- I struggle to believe, even given their VOI arrangement with Amazon, that they have foresight this bad. I mean how do you plan production if your biggest client can apparently jerk you about this way? How come others knew well in advance that Amazon was cutting demand drastically?
The more I think of it the more it doesn't add up, but let each reach his/her own conclusions. Perhaps I'm overthinking it.