Inphi Shares Pricing In Significant Growth In Data Center And Optical

There is a long list of companies in the chip and networking space leveraged to meaningful growth in optical deployments (long-haul and metro) and expanding adoption of higher-speed networking technologies in the data center. Inphi (IPHI) is uncommonly focused on this market; while adoption of 200G and 400G technologies is important to Mellanox (MLNX), Broadcom (AVGO), Finisar (FNSR), MACOM (MTSI), MaxLinear (MXL), and Semtech (SMTC) to varying degrees, Inphi is intensely focused on DSPs, drivers, TIAs, and PHYs used by equipment companies like Cisco (CSCO), Huawei, as well as hyperscale data center customers like Microsoft (MSFT) and Amazon (AMZN), and lacks the diversification of rivals like Broadcom.

There have been more than a few bumps in the road for Inphi, as data center deployments haven’t always matched up with bullish projections, and the company has been vulnerable to volatile spending patterns in markets like Chinese optical deployments. What’s more, the shares aren’t exactly cheap, as they already factor in meaningful revenue acceleration over the next three years and significant margin expansion. While Inphi does have strong technology and engineering capabilities, and I believe there is likely an M&A “backstop” to valuation, the markets Inphi participates in are intensely competitive.

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Inphi Shares Pricing In Significant Growth In Data Center And Optical

Ams AG: 3D Sensing And Sensibility

Investing in chip technologies tied to smartphones always comes with certain risks, including serious price erosion, rampant competition, and the risk that your customers will eventually replace you with their own internally-developed chips. Even so, Austria's ams AG (OTCPK:AMSSY) (AMS.S) looks to be worth a closer look on the basis of the company's strong integrated approach to 3D sensing and opportunities to generate growth in areas like industrial/auto, audio, and environmental sensing on top of significant opportunities in handset-based 3D sensing.

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Ams AG: 3D Sensing And Sensibility

Seeking Alpha: Finisar At Risk Of Profitless Prosperity

I've written in the past that Finisar (NASDAQ:FNSR) is best looked at as a fleeting engagement for active investors, and the last nine months underline why - the shares have lost about 40% of their value as the company has underwhelmed on revenue growth and found no traction with margins. To that end, revenue estimates for FY2016 are now about 6% to 10% lower than they were back in May and earnings estimates have fallen even farther.

The basic bullish driver for Finisar, increasing data traffic growth and increasing demand for 40G (and, eventually, 100G) equipment in the data center, is still valid but the current environment is challenging. Finisar doesn't have a good record of generating meaningful economic profits and the optical sector badly needs consolidation. What's more, the adoption of silicon photonics remains a significant long-term risk. These shares could still see the low-to-mid $20s on a renewed wave of bullishness on the data center upgrade opportunity, but that valuation is predicated in part on the market once again forgetting that this is a cyclical business with a bad record of full-cycle profitability.

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Finisar At Risk Of Profitless Prosperity

Seeking Alpha: Finisar Still Looking For Leverage

"Picks and shovels" is a popular trope in investing and sometimes there is logic to it - instead of trying to pick winners and losers in industries like oil/gas exploration and mining, sometimes it makes more sense to invest in the service and equipment providers. The details really do matter, though, and going the picks-and-shovels route doesn't serve investors as well when there are plenty of pick-and-shovel vendors and the buyers can play them off each other for better pricing.

Finisar (NASDAQ:FNSR) continues to be a tough case to evaluate within the networking universe. I thought the shares looked washed out back in September of 2014 and the shares have risen almost 20% since then, matching fellow components supplier JDSU (NASDAQ:JDSU) and broadly tracking customers like Ciena (NYSE:CIEN) and Cisco (NASDAQ:CSCO). On the other hand, the company's operating performance hasn't been stellar and particularly so at the margin line.

I am unconvinced that Finisar is a stock that readers should consider as a long-term holding, but I do believe it has more positive attributes as a shorter-term play. Ciena and Cisco should see 100G metro orders pick up next year as a Verizon deployment picks up, and a better CFP2 module and capacity constraints at rival Oclaro (NASDAQ:OCLR) should help the datacom business as Web 2.0 deployments pick up. A recovery in margins could run the shares into the high $20's (or higher), but I think investors should go into this thinking "whirlwind romance" and a long-term engagement.

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Finisar Still Looking For Leverage

Seeking Alpha: Applied Optoelectronics Looking To Two Primary Growth Drivers

Ideas tend to breed other ideas - doing my regular and routine due diligence on component and subsystem companies like Finisar (NASDAQ:FNSR), Avago (NASDAQ:AVGO), and JDS Uniphase (NASDAQ:JDSU) has led me to dig deeper into Applied Optoelectronics (NASDAQ:AAOI). This company looks like an interesting play on the 10G/40G data center upgrade cycle, as well as fiber to the home, with a strong core competency in lasers. This is a highly competitive space, though, and I think readers may do well going into it with the assumption that any investment relationship is likely not to be of the long-term variety.

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Applied Optoelectronics Looking To Two Primary Growth Drivers

Seeking Alpha: Finisar Taking Its Lumps

Optical components manufacturer Finisar (NASDAQ:FNSR) has become a miserably bad call for me. Six months ago, I wrote that I would never want to hold Finisar for the long term and that I thought the shares were already trading at their inherent DCF-based value (with some bullish assumptions). I also thought, though, that momentum in the datacom business would support the business in the near term and lend strength to the shares. With the stock down more than 20% over the past six months, though, that clearly has not happened.

Along with fellow component manufacturer JDS Uniphase (NASDAQ:JDSU) and telecom equipment companies like Alcatel Lucent (NYSE:ALU) and Ciena (NYSE:CIEN), Finisar is contending with weaker than expected telecom carrier spending. Finisar is also seeing lumpier datacom spending from Web 2.0 customers and weakening growth in wireless transceivers while pursuing lower-margin sales into the Chinese telecom market.

I didn't see a lot of intrinsic value in the shares six months ago, and I don't see much now either given the company's lower guidance. I can also construct a bearish scenario that would see the company retest the $11-$13 range. Finisar is part of a volatile sector and is heavily shorted, though, and the shares could bounce if business conditions improve and the company delivers beat-and-raise quarters. I do think that Finisar has good technology in 40G/100G transceivers and transponders, as well as opportunities with its wavelength selective switches and ROADM cards, but this is a pretty tough sector for value-oriented buy-and-hold investors like me.

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Finisar Taking Its Lumps

Seeking Alpha: Advanced Photonix A High-Risk Optoelectric Play

Microcap optoelectronic components company Advanced Photonix (API) hasn't had the easiest time of it, with supply issues interfering with its telecom business and frustratingly slow progress with the company's terahertz product platform. A recent equity offering has bought the company a little more breathing room and management is looking for 20% growth in the next fiscal year, helped by a strong recovery in telecom. The optoelectronics market is very competitive and customers constantly push for lower prices, but internal cost reductions, a ramp up in Chinese telecom spending, and increased fiber to the home bandwidth requirements could support better results.

Before going further, investors need to appreciate the above-average risks of a stock like Advanced Photonix. The company hasn't reported positive earnings in over eight years, nor positive cash flow, and the sharecount has more than doubled over that period. While the stock is relatively liquid, the market cap is tiny and this is a highly speculative investment candidate.

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Advanced Photonix A High-Risk Optoelectric Play

Seeking Alpha: Finisar Has Room To Run On Data Center And Telecom Upgrades

Optical components supplier Finisar (FNSR) has a lot going for it. The company has leading share in the $6 billion-plus optical components market and good technology in attractive markets like 10G/40G/100G transceivers and transponders, tunable XFP, and WSS/ROADM. What's more, with a significant data center switch upgrade cycle and ride-along potential in telecom with clients like Cisco (CSCO) and Huawei, growth over the next few years ought to be good.

The real question for Finisar is whether a reader is comfortable buying a stock that is highly unlikely to be a good long-term holding. Consistent revenue and FCF growth in this market has been all but impossible, and threats like silicon photonics loom on the horizon. I believe that Finisar shares still look pretty interesting for the next year or two, but I would be careful not to push my luck and hold them deep into the cycle.

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Finisar Has Room To Run On Data Center And Telecom Upgrades

Investopedia: JDSU's Results Highlight The Volatility Of The Telco Capex Recovery

Happy days are here again in the telecom capex market, right? After all, companies like Juniper (Nasdaq:JNPR), Ciena (Nasdaq:CIEN), and Finisar (Nasdaq:FNSR) have seen their stocks shoot up over the last three months, and even Alcatel-Lucent (NYSE:ALU) is looking viable again. Certainly if Alcatel looks like it could make it, the market must be improving, right?

Well, yes and no. Spending is still lumpy and idiosyncratic, and there are gaps between what companies are saying about orders (and what analysts/investors are projecting for 2013/2014) and what's actually happening in the here and now. And that's where JDSU's (Nasdaq:JDSU) earnings come into play – JDSU didn't have a bad quarter and management sounds optimistic about the recovery, but the actual business still needs time to come around. Of course, those investors who think they can just wait until they see the recovery in the financials before they buy the shares may well find that most of the gains have already gone to others by then.

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Investopedia: Finisar Perking Up On Datacom, With Telecom (Hopefully) On The Way

With Cisco (Nasdaq: CSCO), Juniper (Nasdaq:JNPR), and Ciena (Nasdaq:CIEN) all having decent enough recent quarterly reports, things were set up for Finisar (Nasdaq:FNSR) to do pretty well this quarter. Luckily, the company delivered, as strong datacom sales offset ongoing weakness in telecom. There is plenty of controversy around this name – ranging from customers self-sourcing components to the threat of silicon photonics – but the current stock price doesn't appear to capture all of the potential over the next two or three years.

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http://www.investopedia.com/stock-analysis/062013/finisar-perking-datacom-telecom-hopefully-way-fnsr-jdsu-csco-cien.aspx

Investopedia: Hard-To-Value Finisar Could Be In For Better Days

It can be dangerous to have a good feeling about a company's stock, but not be able to back it up with strong quantitative data. And yet, that broadly describes most turnaround situations, as the timing and magnitude of earnings and cash flow recoveries are so hard to model accurately. With that in mind, I think Finisar (Nasdaq:FNSR) could be in for better days as upgrade cycles in the data center and telecom markets take revenue and earnings higher.

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http://www.investopedia.com/articles/active-trading/12/hard-to-value-finisar-could-be-in-for-better-days.asp

Investopedia: JDSU Still Predictably Unpredictable

When I last wrote on JDSU (Nasdaq:JDSU) about a year ago, I pointed out that there were encouraging signs across the business, and that if this historically boom/bust company could show some consistency the stock could perform well. Flash forward one year: severe flooding did real harm to a contract manufacturer; weak carrier spending rippled through equipment providers; and just about everybody started to worry about the sustainability of tech hardware spending.

A Good Quarter, But ... 

JDSU actually had a surprisingly strong fiscal second quarter. Operations in Thailand recovered faster than anticipated and the company's sequential revenue decline of 2% was considerably better than Street analysts had predicted. Still, it was a tough quarter. Test revenue did rise almost 6% from the preceding quarter, but optical components and advanced technologies both saw declines (nearly 10 and 3%, respectively).

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http://stocks.investopedia.com/stock-analysis/2012/JDSU-Still-Predictably-Unpredictable-JDSU-FNSR-CSCO-DHR0206.aspx

Investopedia: Ciena - Performance From Margins Or Marginal Performance?

The communications and networking infrastructure space is sort of like a primetime medical drama. The patients come in riddled with holes or coughing up blood, they stabilize, they seem to get better, there's a sudden turn for the worse (usually about midway through), and then about twenty minutes of artificial tension as the outcome hangs in the balance.

Unfortunately for shareholders, there's nothing artificial (nor especially entertaining) about the travails and challenges for companies like Alcatel-Lucent (NYSE:ALU), Adtran (Nasdaq:ADTN), Infinera (Nasdaq:INFN), Finisar (Nasdaq:FNSR) or Ciena (Nasdaq:CIEN) these days. While the future of bandwidth demand has never looked brighter and customers are queuing up for new technologies in the 40G/100G category, inventory corrections, unstable order patterns and rampant competition have rippled through the sector for a while now.

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http://stocks.investopedia.com/stock-analysis/2011/Ciena---Performance-From-Margins-Or-Marginal-Performance-CIEN-ALU-INFN-FNSR-JDSU-CSCO-JNPR0905.aspx

Investopedia: Severe Static For Telco Providers

When a sector sits in the top 5% of sector performance, it is often a safe bet that momentum investors have crowded into the stocks, and expectations are running hot. Unfortunately, the very nature of the momentum game means that the stocks can get rocked at the first sight of cracks in the growth story.
Such is the case for companies in the telecomm equipment space these days.

Investors had been piling into stocks like JDS Uniphase (Nasdaq:JDSU), Finisar (Nasdaq:FNSR) and Ciena (Nasdaq:CIEN) on the idea that the spread of smartphones and tablets is going to strain the networks of service providers even further and lead to significant capacity upgrades. To be fair, growth had been looking good off the bottoms of the recession and demand in China has been strong.

Unfortunately for investors, it looks like the sector has hit a pothole. Although JDSU gave pretty encouraging guidance not all that long ago, Finisar had a much less rosy outlook. Not only did Finisar cite weaker growth in China as a proximate cause, the company indicated it was an industry-wide phenomenon. Couple that with disappointing guidance from Ciena, and the stage was set for a significant pullback.

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http://stocks.investopedia.com/stock-analysis/2011/Severe-Static-For-Telco-Suppliers-JDSU-FNSR-CIEN-GLW-OPXT0311.aspx

Investopedia: JDS Uniphase Comes Through Loud And Clear

Tech investors have not been too forgiving to companies through this earnings cycle, but JDS Uniphase (Nasdaq:JDSU) largely took matters into its own hands with a stellar result. While there is still plenty of room to debate JDSU's long-term future, the near-term outlook for optoelectronics seems to be pretty strong. 

A Blowout in the Fiscal Second Quarter
JDS Uniphase delivered everything investors wanted in its fiscal second quarter and then some. Revenue jumped 16% from the first quarter (and 39% from the year-ago level) and handily smote even the high estimate on the Street. Revenue growth was definitely fueled by test and measurement business (up 27% sequentially), but the optical products business was no slouch at 14% sequential growth. While the Advanced Optical Technologies unit saw a 10% sequential revenue decline, analysts did not expect a lot from this business.

As revenue jumped ahead of plan, the company was able to leverage better profitability. Gross margin increased 140 basis points on a sequential basis, while the operating margin expanded 450 basis points to over 15%. (For more, see The Bottom Line On Margins.)

The Road Ahead
If management is right, this was not a one-quarter recovery in JDS Uniphase's business. The company guided for a level of March quarter revenue that looks to be about 7% higher than where estimates had been, and while there could be some sequential pullback in profitability, it would seem that numbers should be going up overall.


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http://stocks.investopedia.com/stock-analysis/2011/JDS-Uniphase-Comes-Through-Loud-And-Clear-JDSU-FNSR-OCLR-CIEN-DHR0207.aspx