Analyst: Acacia Will Be Hurt By ZTE Ban, Others Will Win

Optical stocks led by Acacia Communications, Inc. ACIA were hit hard Monday morning after the U.S. government slapped a seven-year restriction on the sale of optical equipment by American companies to China's ZTE.

The Analyst

MKM Partners analyst Michael Genovese commented on the optical sector and selected winners and losers from ZTE's ban.

The Thesis

The U.S. government's decision to ban optical equipment sales to ZTE is a negative for Acacia given its 30-percent revenue exposure to the Chinese company in 2017, Genovese said in a Monday report.

The report is positive for NeoPhotonics Corp NPTN, which has "much smaller" exposure to ZTE and 40-percent exposure to Huawei, a rival to ZTE that will likely gain share and accelerate its inventory build at ZTE's expense, the analyst said. 

Elsewhere, the-10 percent decline in Lumentum Holdings Inc LITE represents a buying opportunity for investors given that its exposure to ZTE stands at 2 to 3 percent, Genovese said. There is also a "less clear" buying opportunity in Finisar Corporation FNSR, which is down 5 percent and has 10-15 percent exposure to Huawei, he said. 

Finally, Oclaro Inc OCLR's stock is a buy below $8 per share, and Lumentum is unlikely to demand a change to its proposed takeover offer of around $10 per share, according to MKM Partners.

It is unlikely that the ZTE sanctions will have any impact on the Chinese regulatory approval process, Genovese said. China's government is unlikely to be "overly concerned" with the sanctions, since it is "closely associated" with Huawei — a company that ironically "strongly dislikes" ZTE, he said. 

Price Action

• Shares of Acacia Communications were down more than 35 percent at the time of publication midday Monday.
• Shares of NeoPhotonics were up 0.44 percent.
• Shares of Lumentum Holdings were down more than 6 percent.
• Shares of Finisar were down more than 3 percent.
• Shares of Oclaro were down nearly 12 percent. 

Related Links:

Craig-Hallum: Lumentum's Oclaro Purchase Could Trigger Further M&A In Optical Sector

Morgan Stanley's Guide On How To Play The Optical Space