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We thought in March that Finisar (FNSR) had sold off too much on mostly temporary issues. There now seems to be some tailwinds emerging:
Along with revenue estimates at least 5.7% higher than forecast, and net income nearly 15% higher, gross margins are coming in more at 42.5% to 42.9%, above expectations for 38-40%.
That's due to big (and still growing demand) from major data-center players including Facebook, Amazon.com and Microsoft, as well as some supply constraints in 100G transceivers.
"The vast majority of the 100G opportunity still lies ahead," says Cowen's Paul Silverstein, who has one of the highest price targets after boosting it to $75 from $66 (more than 60% upside). The company can keep boosting gross margins despite price erosion due to vertical integration among 100G components, he says.
Jefferies notes peers most likely to benefit from Applied's successful results: Chiefly Finisar (FNSR +3.1%), along with Oclaro (OCLR +0.9%), Lumentum (LITE +1.6%) and Mellanox (MLNX +0.5%). Q2 guidance should be strong, analyst James Kisner notes, with China resuming purchases and hyperscale demand ramping up.
It's bumping off the lower bound:
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We're buying 5000FNSR at $22.54.
It's cheap and way oversold and there is no news out for the sell-off today. As noted in the previous post, the AAOI pre-announcement strongly suggests that the industry is healthy.
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Below the only related news out today is this, but this is old news already, as this is what we wrote two weeks ago:
On Wednesday, new issues which could impact Finisar's earnings came to light in the form of rumors of a delay of the introduction of the new iPhone.
Buy Alert In Finisar - Finisar Corporation (NASDAQ:FNSR) | Seeking Alpha
Apple's (NASDAQ: AAPL) iPhone 3D sensing ramp-up could be delayed by one to two months, but isn't cancelled, according to Credit Suisse analyst Jerry Su, citing feedback from supply chain checks.
Su thinks this is likely due to tighter specs and manufacturing complexity but the 2H17 OLED iPhone will still be equipped with a 3D sensing feature. Equipment pull-in is on track and some upstream components have already started pilot production in April. However, supply chain checks with component makers involved in illumination and NIR CMOS suggest that mass production ramp-up could be delayed by 1-2 months.
Su said the potential delay could be negative for Himax Technologies (NASDAQ: HIMX) as this would reduce its total addressable market for the DOE (diffractive optical element) to 80 mn units in 2017 from ~100 mn. Su's base-case scenario is that it will share the market with other vendors with 50% allocation.
Key compenent suppliers for iPhone 3D sensing include
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Laser diode: II-VI, Lumentum Holdings (NASDAQ: LITE), Finisar (NASDAQ: FNSR).
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DOE: Taiwan Semi (NYSE: TSM)+Xintec, Himax
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WLO: Hepatagon
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Filters Viavi
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CIS: Sony/STM, Tong Hsing providing wafer construction
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Module/packaging: LG Innotek, Sharp
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Testing: Chroma
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Some more news:
Worries about a slowdown in China are hitting optical networking names today, after similar concerns earlier this year about slowing orders from Chinese equipment makers after a hot 2016.
Finisar (NASDAQ:FNSR) is 9% lower today, leading a list of decliners that includes Lumentum (LITE -5.9%), Emcore (EMKR -2.6%), Oclaro (OCLR-2.4%) and Applied Optoelectronics (AAOI -1.4%).
Neophotonics (NYSE:NPTN) -- which UBS says has the biggest exposure to China, at 60% of revenue -- is off 3.4%. Oclaro is next on that list, at 40% of revenue, as is Acacia (NASDAQ:ACIA), down just 0.8% today.
Increasing data-center market revenue may be promising, somewhat mitigating a slowdown in orders from China firms including Huawei and ZTE.
Fiber-optics part makers take hit amid concerns of China slowdown - Finisar Corporation (NASDAQ:FNSR) | Seeking Alpha
Soo, NPTN is down 3% with a 60% exposure to China and FNSR is down 9% with a 20% exposure to China, that makes sense..
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