Applied Optoelectronics Disappoints Investors, Again

Shares of Applied Optoelectronics AAOI lost more than 20 percent Friday morning. The company announced Thursday afternoon its largest customer, Amazon.com, Inc. AMZN, is no longer placing orders to buy its components.

The announcement was made in conjunction with a revision to Applied's third-quarter revenue guidance and it's difficult to imagine how the company can recover the lost revenue, BWS Financial's Hamed Khorsand commented in a report. In fact, Amazon was placing orders at the 100G level and there are multiple competitors Amazon already uses for 100G.

"This is only the beginning of the challenges Applied Optoelectronics could face in the coming quarters," the analyst emphasized. Accordingly, Khorsand maintains a Sell rating on Applied Optoelectronics' stock with an unchanged $25 price target.

The announcement marks the second time the company has "disappointed investors," the analyst said. The first being Intel Corporation INTC's decision to ship competing CWDM4 transceivers in the third quarter, which poses a threat to its 100G sales it has been generating from another key client in Facebook Inc FB

"The scope of decline in revenue and how we do not believe AMZN will be coming back in the fourth quarter in any meaningful way paves the way to reaffirm our $25 price target," Khorsand concluded.

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