Applied Optoelectronics (AAOI - Free Report) is still hurting from uncertainty as to its data center business. The estimates for 2018 continue to decline on this Zacks Rank #5 (Strong Sell).
Applied Optoelectronics provides fiber-optic networking products, primarily for three networking end-markets: cable television, or CATV, fiber-to-the-home, or FTTH, and Internet data centers. Applied Optoelectronics designs and manufactures a range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment.
80% of its sales are from data center optical transceivers with 15% from optical elements for the cable TV industry. Its three largest customers in the data center business are Amazon, Microsoft and Facebook.
The Pivot to 100G
The industry is pivoting to 100G from 40G. But it's been unclear if AAOI could handle the pivot or if its largest customers weren't going to other suppliers.
After it lowered its third quarter guidance ahead of its quarterly report, and then projected fourth quarter revenue as being flat to slightly lower, analysts and investors have been jittery on the stock.
Given the lower fourth quarter guidance of just $81 to $90 million, it has likely seen erosion from either Facebook or Microsoft in the fourth quarter.
It doesn't report earnings again until late February. Unless it gives preliminary numbers, as it did last quarter, there's nothing to do but wait.
Estimates for 2018 Continue to Fall
The analysts appear to be hedging their bets that the pivot isn't going well for AAOI.
2 estimates have been cut for 2018 in the last month pushing the Zacks Consensus Estimate down to $3.61. That's a far cry from the $5.70 estimate from just 90 days ago.
However, looking on the bright side, the company only made $1.39 in 2016 so even the slashed estimates are still showing tremendous earnings growth compared to just 2 years ago.
It's also fairly cheap. It has a forward P/E of just 10.5.
Shares Remain Depressed
Applied Optoelectronics has fallen 62% from its August 2017 highs.
There will be a lot riding on the next earnings report though. Is it able to make the pivot, with its current big 3 customer base, or is its revenue going to continue to sink?
If you want to invest in this area, you might want to consider one of AAOI's competitors. Oclaro, Inc. (OCLR - Free Report) is a Zacks Rank #3 (Hold) and it's also cheap, with a forward P/E of 12.
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