Potential Winners And Losers In The Optical Space From The Tariff Dispute

The auto and agriculture industries are getting plenty of headlines related to the international trade war. However, B. Riley analyst Dave Kang says the trade war could have a big under-the-radar impact on the optical components industry as well.

What To Know

President Trump’s proposed tariffs on $200 billion Chinese goods includes optical receivers used by U.S. companies, including Finisar Corporation FNSR, Oclaro Inc OCLR, NeoPhotonics Corp NPTN and Applied Optoelectronics Inc AAOI.

At the same time, domestic contract manufacturers Fabrinet FN and Lumentum Holdings Inc LITE could be big winners if U.S. optical companies drop Chinese manufacturers due to the tariffs.

Why It's Important

“The tariff situation could have a disruptive effect on some of its datacom competitors such as AAOI and FNSR, providing a window of opportunity for LITE to gain market share, especially since LITE is in the process of introducing cost-competitive datacom transceivers in 2HCY18,” Kang says.

Kang says even U.S. companies with manufacturing facilities in China could be hit by the trade war. For example, two of Applied Optoelectronics three main manufacturing facilities are located in Taiwan and China.

The new round of tariffs won’t go into effect until late September, and Congressional hearings related to the tariffs are expected to be held in late August.

Ratings And Targets

• B. Riley has the following ratings and price targets for the stocks mentioned:
• Finisar - Neutral rating, $17.50 target.
• Oclaro - Neutral rating, $9.50 target.
• NeoPhotonics - Neutral rating, $6.50 target.
• Applied Optoelectronics - Neutral rating, $30.50 target.
• Fabrinet - Buy rating, $40 target.
• Lumentum - Buy rating, $83 target.

Related Links:

An Overlooked Loser In The Trade War: The VIX

A Trade War Primer: The Tariffs Imposed, Threatened, And Expected By The US, Canada, Mexico, China And The EU