Optical Stocks In Focus Following Apple's Deal With Finisar

Apple, Inc. AAPL announced Wednesday a new $390 million investment in vertical-cavity-surface-emitting-laser (VCSEL) supplier Finisar Corporation FNSR, sending shares of the stock soaring by 29 percent. Other fiber optic and optics technology stocks are moving in sympathy following the news, creating some major trading opportunities on Wednesday.

What Does It Mean?

Loup Ventures analyst Gene Munster wrote that Apple is clearly doubling down on its bet on augmented reality with the Finisar deal.

“But more importantly, it locks down VCSEL supply, which will make it tough for other smartphone players to compete longer-term in AR,” Munster wrote.

On Wednesday morning, Finisar competitors Lumentum Holdings Inc LITE and II-VI, Inc. IIVI shares plunged 5.9 percent and 2.9 percent, respectively.

A Buying Opportunity

Munster doesn't believe the Finisar investment poses a threat to Apple’s relationship with Lumentum considering each company’s limited manufacturing capacities. Rosenblatt also defended Lumentum, saying “Lumentum is the #1 source for VCSEL at Apple” and the Finisar deal “doesn’t change anything.”

Stifel also said nothing about Lumentum’s fundamentals has changed.

“In total we continue to see a huge market opportunity for 3D Sensing measured in the billions, see no threat to Lumentum’s standing as having #1 market share today and into the future (we note our expectation of $150 million in revenue in the December quarter already eclipses what Finisar could recognize in revenue at its peak output assuming $100 million at Sherman), and believe the sell off today will ultimately prove to be an attractive buying opportunity,” the firm wrote.

More Deals Ahead?

Oclaro Inc. OCLR shares jumped 6.9 percent on speculation that the company could be Apple’s next target.

Apple has a track record of scooping up suppliers when the timing is right. Apple acquired stakes in major NAND suppliers during the peak of its iPod production days. Back in May, Apple invested $200 million in Corning Incorporated GLW, which supplies glassware for iPhones and other Apple devices.

For Apple investors and customers, Munster said the Finisar investment likely confirms Apple will be including the VCSEL array currently found in the iPhone X in all of its next family of iPhone models expected out in the second half of 2018.

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