Applied Optoelectronics (AAOI) is trading sharply lower today (-16%) after lowering Q3 guidance last night. In case you're not familiar, AAOI is a provider of fiber-optic access network products primarily for three networking end-markets: data center, cable television (CATV) and fiber-to-the-home (FTTH). It makes a range of optical communications products from components, subassemblies and modules to complete turn-key equipment.
AAOI is primarily focused on the higher-performance segments within all three of its target markets. Its data center business is benefitting as Internet content providers spend heavily to upgrade and expand their data center infrastructure. The transition to 100G has been accelerating.
Its CATV business is being driven by the DOCSIS 3.1 upgrade cycle, which AAOI has described previously as a "large scale rollout...spanning several years." As the market share leader in cable TV and given its history in working with the top cable equipment manufacturers, AAOI expects this large scale rollout will be a nice tailwind for AAOI for several years.
Turning to last night's news, AAOI lowered Q3 revenue guidance to $88-89 mln from $107-115 mln and non-GAAP EPS guidance to $1.04-1.09 from $1.30-1.43.
That is a pretty big guide down, so what happened? AAOI said that Q3 fell short due to lower than expected sales to one of its large data center customers. AAOI says that while it's disappointed, it still feels good about its leadership position in advanced optics and remains optimistic based on the customer traction it's seeing with its 100G products, especially its 100G CWDM transceivers.
In sum, the stock is selling off pretty aggressively today on this news as investors are disappointed that AAOI has guided Q3 revenue below market expectations twice within ten weeks. On August 3, AAOI guided to Q3 revenue of $107-115 mln, which was a good bit below market expectations at the time. Investors should understand that optical component stocks are notoriously difficult to predict as they have a high boom-bust component. So you have to be careful with these names.
Possible sympathy plays on weak AAOI guidance: LITE, OCLR, FNSR, ACIA, NPTN, IIVI, VIAV, IPHI, FN, COHR, INFN, ADTN, CIEN.