11-03-2017, 04:37 AM
There might be another explanation for the sudden enthusiasm for AAOI shares (although much of that has no petered out) on a day when the whole sector sells off brutally on surprising softness in demand from datacenters, which is the main market AAOI sells into. Here is commentator mtachjian:
1)Oclaro reiterated what Aoi said....DC is "Lumpy" and they have "little to no visibility". They gave an interesting reason I hadn't heard yet, which jives with Jays thoughts that this was an unusually low quarter. They stated that they thought data center customers acquired too much inventory, too quickly so they wouldn't be caught short like last year. Now have a slight buildup that they need to work through. So not really a transition event. Its a relief to hear 2 separate companies say the same thing about visibility and lumpy orders.
2)"Shift to CWDM4" --- Oclaro is seeing a buildup in their LR4 products as data centers are shifting to CWDM4(this is AOis strength and they are the market leader). Oclaro looked like they had an Aoi like healthy growth in 100G revenues(although they have a different mix)
3)Oclaro is NOT a direct player in the CWDM4 market but they want to be(who doesn't?). They indicated that they will know next quarter if they can provide transceivers. If not, they will just supply lasers to other companies that make the CWDM4 transceivers. They were questioned on this point several times. Greg indicated that 'pricing is very tough in CWDM4'. That means AOis claim to being 'much cheaper' than competitors in CWDM4 is accurate as Olcaro is not sure they can compete with pricing.
4)Intel and Silicon Photonics. Oclaro was asked directly about this. They said that they have seen ZERO COMPETITION from SiP. That most SiP business is lower end and in the PSM4 market. As an added aside, Many people dont ever mention that AOi has had a team working on silicon photonics for years. They have this tech. They feel It is a useful technically for very short distances, but as distances increase, it becomes less price competitive to other lasers. In total, it seems we have some confirmations. Data Centers want more of what AOi makes(CWDM4). Some data center customers may have 'overeaten' the last 2 qtrs and have to digest inventory. SiPhotonics from Intel is not a competitor. The pricing offered by Aoi at 100G CWDM4 is very 'tough to beat'(at 40+% margins).