Trump Reverses Course On ZTE And Optical Stocks Follow

Optical stocks jumped Monday following a weekend tweet from President Donald Trump indicating a reversal of last month’s move to ban American companies from doing business with China’s ZTE Corp.

President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!

— Donald J. Trump (@realDonaldTrump) May 13, 2018

What Happened

The U.S. Department of Commerce announced April 16 that American companies would be banned from selling components to ZTE for seven years. The move was in response to the company violating U.S. sanctions against sales to Iran and North Korea.

The ban threatened ZTE’s survival, with the company shutting down its main business operations May 9. In an exchange filing, the company stated it “maintains sufficient cash and strictly adheres to its commercial obligations subject in compliance with laws and regulations.”

In response to the news, optical stocks with exposure to ZTE faced heavy selling pressure, led by Acacia Communications, Inc. ACIA, which dropped 38.2 percent by the day’s close.

What To Watch

Several of those same companies were trending up Monday, again led by Acacia. The stock was up 13.87 percent at the time of publication. 

Oclaro Inc OCLR was up 5.95 percent. Shares of the company had dropped 15.2 percent when the ban was first announced.

Applied Optoelectronics Inc AAOI was trading up 1.4 percent. The stock was relatively unaffected by the ban, trading down as much as 5.3 percent on April 16 but ultimately ending the day within 1 percent of its previous close.

Finisar Corporation FNSR was up 2.9 percent Monday morning. The stock had fallen 4 percent on the Commerce Department news in April.

Several other optics stocks stand to gain. In a Monday note, Bank of America Merrill Lynch analyst Vivek Arya also highlighlited the semiconductor space as one that could benefit from the news. Other stocks to watch include:

• Lumentum Holdings Inc LITE
• Ciena Corporation CIEN
• Coherent, Inc. COHR
• II-VI, Inc. IIVI
• Inphi Corporation IPHI
• Skyworks Solutions Inc SWKS
• Integrated Device Technology Inc IDTI
• Qorvo Inc QRVO
• Xilinx, Inc. XLNX
• Broadcom Inc AVGO

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