Quite a contrast today in the world of fiber optics, as shares of Acacia Communications (ACIA) sold off by 15% after the company yesterday afternoon beat Q4 revenue and profit expectations, but forecast this quarter’s revenue well below consensus, while shares of Applied Optoelectronics (AAOI) soared by $8.51, or 23%, to close at $45.98, after the company yesterday reported its own results that slightly beat Q4 expectations and forecast this quarter’s results well ahead of consensus.
Applied’s December-quarter revenue was up 60%, year over year, at $84.9 million, ahead of the average $84.6 million, with profit of 84 cents, topping the average estimate by 5 cents. The outlook for revenue of $87 million to $91 million is nicely ahead of the average $75 million estimate.
Applied also told the Street it thinks that over the “long term” it can have gross profit margin in a range of 37% to 40%, versus the 33% to 35% it had been talking about up until yesterday.
CEO Dr. Thompson Lin cited “strong demand for our market-leading data center products” as a source of the quarter’s results. Said Lin, “as the 100G transition accelerates this year, we see the opportunity to build on our momentum and expand our market leadership.”
Richard Shannon with Craig Hallum reiterated a Buy rating in response, and raised his price target to $53 from $39, writing that the impressive results and forecast are “even more impressive” given that “its data center sales are still skewed toward 40G sales, which is a more competitive market, and is still in very early innings to ramp its 100G LR (10km) solution where GMs [gross margins] are high.”
Shannon likes the margin outlook:
AAOI’s 4Q GM of 38% were an all-time high, but should be beaten in 1Q and possibly beyond. AAOI is getting this benefit from cost reductions, creating similar designs between 40G and 100G, and using automation. While we don’t think AAOI can get better utilization, a mix shift towards 10km solutions could do so after 1Q.
Shannon notes that the company’s commentary seems to suggest that it has won Facebook (FB) as a customer for 11% of its revenue, and perhaps seen its sales into Microsoft’s (MSFT) cloud business decline to around 3%; although it might seem Intel (INTC) is eating into Applied’s Microsoft franchise, Shannon writes that while “some investors may assume INTC is taking share with these PSM4 modules, but we suspect AAOI still has a strong position.”
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