Management needs to restore confidence

[admin]

For shares to experience a durable recovery, management needs to answer a few questions:

• Why did they only notice the plunge (from $55M to $8M-$9M) in sales to Amazon almost at the end of the third quarter?
• How come they have such poor visibility with their largest customer?
• What exactly does that VOI model entails, how can they plan for production if they have so little grasp on orders?
• Do they have better visibility with other large clients?

Now, we understand that the company cannot discuss everything in public that's related to a specific customer. We also understand that there is an unequal power balance between Applied Opto and Amazon, but management needs to enlighten investors as much as it can on these issues.

If they don't do that the credibility of their guidance is impaired and that already has affected valuation levels.

[Cann]

What if management cannot really answer these questions? It didn't look as if they were willing to go into details on previous occasions, saying it was confidentiality stuff..

[baff]

I wouldn't want management to discuss too much in public. That said management could have handled this better. I assume they will keep a closer look at the inventory from now on.

[admin]

Yes, you are right, they can't say too much in public. They have to walk a fine line maintaining their (former?) biggest customer and their shareholders happy. There is probably a pretty unfavorable trade-off here. Still, two things are not very comfortable:

• Others knowing before management (or in any case before management went public) about Amazon cutbacks.
• The magnitude of the cutbacks and the late second warning and the late nature of that. Didn't they see that coming earlier, a decrease of that magniture?

[baff]

Maybe they saw it coming but didn't believe their eyes.

[admin]

Well, in any case, today is the day of reckoning. The noises out of other optical networking companies are fairly downbeat and the sector has been selling off, can Applied Opto escape the trend? We'll know tonight.

[admin]

It's powering ahead in AH trading, $42+ up 12% and counting, so it looks like much of the fears are being quelled and they have a decent Q4 outlook.

[admin]

And indeed, this is better:

Applied Optoelectronics (NASDAQ: AAOI) reported Q3 EPS of $1.08, $0.06 better than the analyst estimate of $1.02. Revenue for the quarter came in at $88.9 million versus the consensus estimate of $88.53 million.

GUIDANCE:

Applied Optoelectronics sees Q4 2017 revenue of $81-90 million.   

[admin]

Up 20% now..

[baff]

Seems the report was inline with the Q3 guidance. Q4 guidance pretty conservative, which makes sense. That after hours rally could be explained by short covering. I assume the original shorts used their guru status to oversell the bearish thesis to other shorts, so they could cover their own huge position. I assume Amazon is still a big question markt but the rest of the business seems to be doing fairly well. As always I keep my shares.