Market Overview

Optical Stocks Under Pressure After US Bans Sales To ZTE

Optical Stocks Under Pressure After US Bans Sales To ZTE

Optical stocks were trading under notable selling pressure Monday morning in reaction to the U.S. government's move to ban American companies from selling their equipment to China's ZTE Corp.

What Happened

The U.S. government slapped a ban on ZTE from buying American telecom equipment as the Chinese company is accused of illegally shipping telecom equipment to Iran and North Korea, Reuters reported. Secretary of Commerce Wilbur Ross said ZTE made "false statements" when the company was originally caught doing business with the two regimes. The company also made false statements during a reprieve it was given and then again during its probation.

Companies With Exposure To ZTE

Optical stocks were under selling pressure, led by a 30 percent sell-off in Acacia Communications, Inc. (NASDAQ: ACIA). The company said in a 10-K filing dated Feb. 22 it generates most of its revenue from a limited number of customers. Among its biggest customers is ZTE, which accounted for 30 percent of its entire revenue in 2017.

Oclaro Inc (NASDAQ: OCLR) saw its stock fall by more than 15 percent as ZTE accounted for 18 percent of its 2017 revenue.

Finisar Corporation (NASDAQ: FNSR) said in a 10-k filing it counts ZTE as a major client, but didn't disclose how much revenue the company accounts for.

On the other hand, shares of Ciena Corporation (NYSE: CIEN) were trading flat Monday morning. The company said in its 10-K filing that ZTE is in fact a competitor and not a client. NeoPhotonics Corp (NYSE: NPTN) made a similar statement in its filing as well but its stock was trading lower by 1.7 percent.

What's Next

American companies could be banned from selling equipment to ZTE for seven years. A government official told Reuters the company can't be trusted which is "pretty important" in international commerce, especially when it comes to lying about selling equipment to North Korea and Iran.

At time of publication:

  • Applied Optoelectronics (NASDAQ: AAOI) was down 5.3 percent;
  • Lumentum Holdings (NASDAQ: LITE) was down 10.4 percent;
  • Finisar was down 5.2 percent;
  • Oclaro was down 17. 5 percent; and
  • Acacia was down 34.4 percent.

Related Links:

Morgan Stanley's Guide On How To Play The Optical Space

UBS Highlights Two Buys, One Sell In The Optics Sector


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