Goldman On Acacia Communications: 'Disrupting Optical,' But Initiates With Neutral

Acacia Communications, Inc. ACIA is a “highly disruptive optical component vendor, the first with a commercially available silicon photonics for telecom markets,” Goldman Sachs’ Doug Clark said in a report. He initiated coverage of the company with a Neutral rating and a price target of $39.

Acacia Communications should be able to leverage silicon and continue to offer differentiated products with industry-leading margins, analyst Doug Clark commented. He added, however, that the company’s shares had surged 56 percent from the IPO price of $23 and were trading at a premium to optical peers.

Core Growth Drivers

“Acacia offers pure play exposure to 100G+ next-gen optical technology,” Clark wrote, noting that more than 75 percent of the company’s sales were contributed by metro telecom and data center interconnect [DCI] markets, which represented two of the fastest growth end markets in the $12bn Optical market.

Diversifying its customer base and executing on new product launches would set the company up for the next phase of industry leading growth. The analyst expects Acacia Communications to generate 48 and 32 percent revenue growth over the next two years. He enumerated the three main customer opportunities:

1. Direct sales to hyper-scale data center operators
2. Accessing the top 4 optical system vendors
3. Switching vendors

Clark forecasted gross margin expansion of 400-500bps in 2016 and 2017, backed by “product mix, leveraging silicon, and contract manufacturing expansion.”