10-18-2017, 01:46 AM
And another interesting perspective from Guttaperka as a comment to the same article:
Jay, thanks for the run-down of the competitive landscape, awesome the way you share your vast knowledge! I share your assessment that if AAOI's AMZN business has been affected by another vendor, the most likely candidate would seem to be INTC. I still find it unlikely that this has happened. Reasons:
1. AMZN is surely more of a CWDM buyer than PSM, based on the size of their datacenters.
2. INTC only announced volume shipments of CWDM 100G products with Azure as their sole customer about 2 months ago, about one year behind their PSM product. INTC must be seen as a risky vendor to put a lot of eggs into, especially since they launched their PSM product in 2015 with much ballyhoo, only to then postpone commercial availability for one year. Not likely that AMZN would take such a risk with their new product.
3. Even reading what Richard Shannon (Craig Hallum) is saying, he mainly referred to AMZNs “hard shift” from 40G to 100G as the AAOI head wind and also said “Intel is making inroads into 100G optics as well", he notes, "and that could hit revenue growth as soon as Q4.” This does not specifically refer to AMZN, and if you google other research notes from him, he has been an INTC SiPh bull for at least a year, always talks about them.
4. There are actually no concrete rumours of INTC entering AMZN with SiPh, just speculation on these conversation forums. I’m sure that an important event like this would not go unnoticed by analysts. Moving over to my “theory” that AMZN simply ran into disruption by a sudden management decision that turned out more disruptive than expected, this is how I support it:
JNPR is obviously Amazon Web Services (AWS) other main core network vendor, (switches, gigarouters). AWS is (was?) JNPRs sole +10% customer. The exact same thing seems to have happened to them as to AAOI: "The (third-quarter) miss could suggest lumpiness at AWS, which we believe was Juniper's first 10% customer in several years," Steven Milunovich, a UBS analyst in a report. "Our industry contacts tell us AWS is changing its data center architecture; we believe this change could be creating softness in AWS spend on Juniper." Here is the article: http://bit.ly/2zloJFX
This would be the timing of the “sudden management decision” sequence. Around July 13: Right around the time for AAOIs awesome q2 update they get informed by AWS that they will be moving hard style from 40G to 100G. AAOI can’t tell anyone about it until their earnings call August 3 due to that they are in a “quiet period”. The info shocks the market on August 3. In the meanwhile AWS are scrambling with a new network design where they have to relocate 40G stuff to peripheral parts of the network to replace it with faster 100G in the central parts. This turns out to be very disruptive and time consuming slowing down AWS buildout severely. (Perhaps the network revamp also contains other complexities that we don’t know about). Around September 3: Stefan Murry is interviewed by Barron’s (published Sept 11th) right after hurricane Harvey has hit AAOI HQ. At that time he is probably worried because AWS has hardly picked up any stuff, but their contacts say it will resume soon, so he puts up a brave and optimistic face in the interview, where the topic is hardly touched upon.
Stefan says that 40G demand is going down, but that is “hardly a surprise” as it is being overtaken by 100G. October 11: JNPR announce soft guidance October 12: AAOI announce soft guidance. When AMZN data center core traffic handling buildout will pick up is anyone’s guess, but for sure they will be in deep sh-t unless they get rolling soon. Of course this theory of mine may not be the explanation, but to me, it is the most plausible turn of events to match what I’ve seen lately. I do believe that AMZN will bring in other vendors as we go along, but always in a smaller initial scale (like Macom-FN). I don’t think anyone else than AAOI has the credibility to take on AMZNs main massive 100G CWDM business at this time, and if that happened, we would know about it. Good luck to all!