NeoPhotonics Analyst Breaks Down Chinese, US Demand Trends After Q1 Print

NeoPhotonics Corp (NYSE: NPTN) reported first-quarter revenue in-line with the consensus estimate Thursday, while missing expectations on the EPS front.

With its 400G product expected to ramp only in 2020, the company is unlikely to deliver any meaningful revenue acceleration in the second half of 2019 due to some uncertainties surrounding U.S. data center interconnect spend, according to Rosenblatt Securities.

The Analyst

Rosenblatt Securities’ Jun Zhang maintained a Buy rating on NeoPhotonics with an unchanged $13 price target. 

The Thesis

Demand from China has remained healthy in the first half 2019, Zhang said in a Friday note. (See his track record here.) 

China Telecom has announced a tender that entails around 50,000 100G ports, and Huawei is likely to have obtained an additional 25,000 100G ports, the analyst said. 

These developments will likely have a positive impact on NeoPhotonics in the third quarter of the calendar year, Zhang said. 

China’s growth in demand for 100G ports could decelerate in the second half, the analyst said. Rosenblatt's forecast for 100G demand was based on the current tender pipeline and expectations of China Mobile Ltd. (NYSE: CHL) announcing a tender in May, with a potential acceleration in spending in the back half of the year, he said. Chinese demand for 100G could surpass the sell-side firm's current expectations, Zhang said. 

The North American DCI market may hold uncertainty in the second half following strong growth over the last few quarters, the analyst said, adding that he expects Ciena Corporation (NYSE: CIEN) to lose market share to Acacia Communications, Inc. (NASDAQ: ACIA).

NeoPhotonics remains a strong potential acquisition target for bigger players, according to Rosenblatt. 

Price Action

NeoPhotonics shares were falling by 6.73 percent to $6.44 at the time of publication Friday. 

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