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Interesting tidbit on AAOI($91.70)...


02:04PM, DJ Applied Opto: 40G Biz Eroding Even Before 100G, Says BWS Financial -- Barron's Blog



By Tiernan Ray

Shares of fiber-optic component vendors Applied Optoelectronics ( AAOI) just turned south a short while ago following a negative report from boutique research shop BWS Financial's Hamed Khorsand.

Khorsand, who has a Sell rating on Applied shares, speculates that "this part is coming to an end," after the company pre-announced better-than-expected June-quarter results just last week.

Khorsand takes his cue from a close reading of last week's press release, in which one single phrase stands out as more muted, from "We are pleased with our momentum," to "We are pleased with our performance."

They have "removed any wording to suggest business continuing to remain strong," is how he interprets that.

This change in language is significant to Khorsand because he thinks the company is going to loose sales to Amazon ( AMZN), its largest customer, because of new transceiver modules being built by Fabrinet ( FN), the contract manufacturer, and directly supplied to Amazon.

"We have learned from industry sources that shipments would begin in the fourth quarter, which would imply AAOI would begin losing some orders from AMZN."

Moreover, Khorsand believes Applied hasn't yet mastered " 100G," the higher-speed transceiver, and is mostly shipping 40G. He thinks the company's already losing some 40G business with Amazon, "We have also learned AMZN has been cutting backlog with its 40G vendors, which would further affirm our belief AAOI would lose revenue from AMZN when the crossover to 100G is made versus the current consensus that business would continue as normal."

In addition, he doesn't think they have the resources to make the lasers required for 100G:

There are multitudes of companies making 100G transceivers and we do not believe AAOI would be able to compete when the time comes for crossover in the technology. Specifically, we believe the laser required for these higher end products is something AAOI does not make. Simple search of AAOI's website for "eml" would show zero results versus the same search for "dml" would bring up the page related to the digital tab on AAOI's website where there is a list of dml lasers. DML is for directly modulated laser and it is being used for 100G QSFP28 transceivers because of the short supply in electro- absorption modulated laser. This is more of a band-aid solution since EML has shown smaller chromatic dispersion and stable wavelength, which are mandatory for high throughput data centers.

Applied shares are down 17 cents at $92.37, giving up earlier gains.

More at Barron's Tech Trader Daily blog, http://www.barrons.com/tech-trader
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