Opticals Taking Back Lost Market Share, According To Rosenblatt

The optical market has undergone "interesting changes" and companies like Applied Optoelectronics Inc AAOI could rebound.

The Analyst

Rosenblatt Securities' Jun Zhang.

The Thesis

Zhang's research in the optical market suggests Applied Optoelectronics gained incremental share of business from Facebook, Inc. FB after facing challenges in 2017. The company may be able to grow its share around CWDM4, mostly due to aggressive pricing strategy and quality issues at rival Innolight.

Applied Optoelectronics may have seen "weak" performance in the first quarter, but the analyst's assumptions implies a "strong sequential rebound" in the second quarter.

"During our recent trip to Asia," Zhang wrote in a note, "we found that server demand is very strong and we believe data center deployments in both China and US are ramping quickly."

Zhang also found Finisar Corporation FNSR is positioned to take back some of the share it lost at Alphabet's GOOG Google, while Lumentum Holdings Inc LITE is positioned to take back some lost share at Amazon.com, Inc. AMZN.

The analyst said CWDM4 module prices will likely fall below $200 in the fourth quarter, which is below a prior estimate of $230 to $250 per model.

Rosenblatt has a Buy rating on Lumentum.

Price Action

Shares of Applied Optoelectronics were higher by more than 10 percent Wednesday morning, while Lumentum was higher by 4.5 percent and Finisar was higher by 2 percent.

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