Applied Optoelectronics (NASDAQ:AAOI) Stock just fell 27%, Buy The Dip.

- August 3, 2017

Applied Optoelectronics (NASDAQ:AAOI) Stock just fell 27% in after-hours, buy the dip.  Applied Optoelectronics is a near pure play on the increasing demand for fast data as they require quality fiber optic network products especially for data centers.  AAOI Stock has been on a tremendous run, up 52% in the last month, 99% in last 3 months and 629% in one year.  They have leading edge productions in a niche industry.

In particular the trend towards building 100G (fast) mega data centers is a big revenue driver, as each data center requires a huge volume of fiber optic network products.  Think of the boom that cloud storage has created. AAOI is replacing out older products such as 40G with 100G.

Applied Optoelectronics (NASDAQ:AAOI) Makes The Products That Help Us To Use High Speed Internet

Applied Optoelectronics (NASDAQ:AAOI) is perfectly positioned to supply what we need to use high speed internet,  and we all need faster and better internet service!

An American Company Applied Optoelectronics is based in Texas and designs, develops and manufactures optical devices, packaged optical components, optical subsystems, laser transmitters, and fiber optic transceivers.  Or put more simply,  they are a leading, vertically integrated provider of fiber-optic network products, such as transmitters and receivers.

Source

The end use for their products is with data centers, cable TV, and fiber to the home.  The focus being the upper end of the market that requires large amounts of high speed data.  Sales of high speed optics to mega data centers of cloud companies is expected to exceed $2 Billion by 2020.

Fiber optic network products demand growing strongly

Source

AAOI Revenue Breakup

  • 83% data communications – Coarse Wavelength Division Multiplexing ((CWDM)) 54%, and Parallel Single-Mode PSM ((35%)).
  • 14% cable TV.
  • 3% other.

 

Revenue drivers

The trend for more and more data to be required by consumers (via internet, cable TV) at greater download/upload speeds requires better and faster fiber optic solutions.

Web 2.0 (“interactive websites”) operators require faster and more data transfer.  Examples would be Facebook live, Messenger video call, YouTube, hosted services, and chat rooms etc.  As we move towards Web 3.0 then Web 4.0 the amount of transfer of data and hence fiber optic connections will become enormous.

Just consider the Internet of Things ((IoTs)) where all devices will communicate with each other, or a global network of autonomous vehicles sending data to the cloud.

Web evolution

Source

Competitive Advantages

  • Vertical integration – cost advantages (Asian manufacturing), and faster time to market.
  • First to product with 100G,  this is replacing 40G (especially in data centers).  100G fabric features 5x bandwidth and double the up-links.
  • A trend to CWDM from PSM-4.

Competitors

Some competitors include Finisar Coporation (NASDAQ:FNSR) which I wrote about here.  Others include NeoPhotonics (NYSE:NPTN), Oclaro (NASDAQ:OCLR), and Lumentum (NASDAQ:LITE).  They are generally more Telco focused.

 

 

 

 

 

 

 

 

 

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