NeoPhotonics Corp NPTN announced preliminary December quarter results Monday that include revenue and margins that are higher than its prior guidance.
Given a recent tender announcement by China Telecom CHA, NeoPhotonics will likely guide to above-normal seasonality for the March quarter, according to Rosenblatt Securities.
The Analyst
Analyst Jun Zhang maintained a Buy rating on NeoPhotonics with an unchanged $13 price target.
The Thesis
NeoPhotonics shares came under pressure Monday, potentially due to news of China sentencing a Canadian drug dealer to death, Zhang said in the note.
This represents “only headline risk” and should be viewed independently of the Sino-American trade negotiations, the analyst said.
Huawei will likely send another representative to deal with the U.S. lawsuit and its CFO Meng Wanzhou will likely be released, Zhang said.
China’s operator spending on transmissions is likely to continue to grow, with 100G and Metro network upgrades scheduled for 2019, according to Rosenblatt. Capex and optical spending could get a boost in the back half of 2019 by way of 5G spending by China-based telecoms, the firm said.
Along with preliminary fourth-quarter results, NeoPhotonics announced the termination of certain client transceiver modules.
The company will discontinue the manufacturing and sales of these products following the completion of the final production runs.
NeoPhotonics also plans to sell its manufacturing operations in Russia for book value. This will improve the company’s profitability in 2019 and beyond, Zhang said.
Price Action
NeoPhotonics shares were trading up by 1.41 percent at $7.17 at the time of publication.
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