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Ciena Finally Reconciled with Its Future?

December, 2017

During the summer of 2015, fibeReality published the following article: “Ciena’s Last Chance to Fulfill its Destiny” in which we asserted: “…Ciena can either finally resolve to fully execute as an optics player to ensure its survivability – or it can continue to go down a path of not fully embracing its legacy by looking to get into other markets outside of its core competency….” At its last quarterly earnings conference, we believe the President and CEO, Gary Smith, came as close as he would allow himself, to make it clear that the firm intends to remain an optical company moving forward. In our opinion, it may have even been a demonstration of not just the vendor’s growth becoming “mature.” We suspect that the “Nortelization” of Ciena, at least in this situation, played a positive role. The Canada-based contingent, which has the most influence over the company’s direction, wants to ens ...

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Oclaro Showcasing Itself for M&A

December, 2017

  While it is quite possible that there have been recent discussions between Finisar and Oclaro about a merger, Greg Dougherty seems to be taking the opportunity at investment conferences to have kind of virtual mini-interviews with Finisar for the top-level position. If nothing else, Dougherty is making an effort to anticipate and alleviate any concerns by Jerry Rawls, while reinforcing the advantages of a marriage between the two corporations. Given that we advocated that Finisar look to exit during the aberration of the China boom, as it might never have a better opportunity again, now we believe that it could be risky to its competitive position to potentially allow Lumentum to purchase Oclaro. Conversely, Rawls may be betting that the latter would only hook up with the former as a last resort because Doughtery would likely not become the CEO of that new entity, and that Finisar’s pl ...

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Infinera: Actions Speak Louder Than Words

November, 2017

As Infinera continues the messaging of ambitious product development plans, its comparatively quiet, top-level management changes indicate a supplier that is in a state of crisis, and that it will now be open to radical changes in an attempt to survive in the marketplace. While at the last quarterly earnings conference this month, it was announced that the company had taken on a new Senior VP and GM of Product and Solutions, it was evidently decided to minimize the impact of the move initially by not putting out a press release of him coming aboard this past June. In the meantime, the President of the company (also a co-founder), who was most identified with PICs remaining the domineering course forward, had his title changed to Chief Technology and Strategy Officer, which appears to be a demotion. In our opinion, it also seems that he has been expelled from day-to-day corporate decisio ...

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Lumentum: The Street’s Latest Sacred Cow

November, 2017

There was Infinera with the unflinching belief of the cost benefits of PICs (which in our opinion, was never proven), and being oblivious to a traditional long-haul player forcing Transmode to take a backseat in its metro program. Then there was Acacia Communications, although a highly proficient technology company, and the beneficiary of the positioning of its IPO during a perfect storm, the valuation for just a DSP player became absurd. Later it was Applied Optoelectronics, which pretty much had the 40G market to itself for intra-data centers transceivers along with a very low-cost operation, while there was inadequate appreciation for both the low-entry barriers at 100G as well as the other drawbacks of being in the hyperscale space. Now Lumentum Holdings remains the latest darling on the Street based solely on apparently being the market leader in 3D-sensing, while not questioning th ...

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AOI: Lesson of Hyperscale Operators Trap

November, 2017

Although Applied Optoelectronics’ inevitable fall from grace was at least partially self-inflicted, the actual moral of the story has to do with the potential hazards of getting too far ensconced in the hyperscale data center space. The opportunity in general has produced a great deal of fascination for high-level executives at both optical component and system vendors, and they could not resist penetrating the market with the hope of a rewarding return on their investments. They wanted to show off that their companies associated with customers, which have been among the biggest movers and shakers in the US economy. Even in ADVA Optical Networking’s situation, in which the leadership was apparently hesitant to go too deep into the abyss, the enticement was too great to overcome. The other side of the coin has tended to be ignored, which are irregularities in order rates mainly because of ...

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Finisar/Oclaro: Nearsighted Beyond 4x50G

November, 2017

As with fibeReality, both Finisar and Oclaro have problems foreseeing 400GbE in any meaningful way in the anticipatable time ahead. While each is more than glad to mention development efforts in this direction, their powerful statements included in a couple of recent articles on Gazettabyte cannot be dismissed. An executive from Finisar said, “There is probably more technical risk in 400 gigabits than any of the historical data-rate jumps we have seen.” The Chief Commercial Officer from Oclaro said, “The industry really wants four channels. When you use more lasers, you are adding more cost." In addition, with the expectation of NG-PON2 becoming the de facto standard for at least many large portions of the globe, 25G will even have longer legs. Any vendor that can produce a low-cost 25G laser will be a big winner in the future optical access space. All in all, it is not even that easy to ...

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Ericsson/Calix: De Facto NG-PON2 Model

October, 2017

fibeReality fully expects Ericsson/Calix to be the primary beneficiary of NG-PON2 becoming the de facto standard for much of the world. We anticipate that the vendor combo will take the lead on both 5G wireless and supporting optical backhaul/fronthaul equipment for Verizon, which is in the process of quietly setting up next-gen infrastructure well beyond its publicized trials. The service provider is fully committed to the realization of NG-PON2, which would represent the first time in the history of optical communications that such a large disparity at the outset in first cost would not be a prohibitive factor in moving forward on a solution. Despite any rhetoric to the contrary, Verizon has its whole future riding on the success of 5G, and other access alternatives are simply inadequate to completely provide all of the desired functionality.  While overcoming the high cost of NG-PON2 ...

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Inphi’s 100G DSP: Another Blow to Acacia

September, 2017

As usual, when a vendor, such as Inphi, makes a series of announcements on products or on R&D direction, the bulk of the attention is always on the most cutting-edge feature or solution, not necessarily the most practical, which would frequently be more inclined to ultimately make the most money for the company, especially over the very long term.  Its new COLORZ-Lite is really just an extension of a niche product. There is a lot of emphasis on Inphi’s development of 50-gig and 100-gig IOs, not taking into account how much further 25G should remain competitive, including our expectation that NG-PON2 will likely become the de facto access standard for most of the world (which we addressed in real time during a 5G workshop at ECOC 2017), not to mention the technical challenges in moving to these higher serial rates. Naturally, even with the LightSpeed-III M200, the focus on the name is on ...

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3D-Sensing: Broadcom & Philips Sleepers?

September, 2017

The quietest potential vendors of VCSEL dies for next-generation smartphones and other consumer-related solutions, Broadcom and Philips Photonics, should not only be ruled out, but ought to be strongly considered given their learning curve with such devices, and their greater amount of experience to scaling up to the tremendously higher quantities compared with the three perceived leaders, Lumentum Holdings, Finisar, and II-VI. The assumption in the market that has been made is that Broadcom cannot reach the margins levels it would desire at this point in time, but that could all change if Lumentum does not remain a viable long-term player (and actually there is some other analysis, which points to this possibility), the probably safe betting that II-VI never makes this space a primary concern, and if Finisar at the end of the day, decides to stick to its traditional knitting. Like Finis ...

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AOI Cheerleaders Few and Far Between

September, 2017

The brief China boom in optics attracted a lot of fascination from members of the financial community, many of whom had no appreciation of the historic nature of the industry. Before this period, investors were not even close to being as interested with such suppliers, and would kind of stay away from stocks (as always, fibeReality does not recommend any kind of security).  For example, we have pointed out before that there was very little venture capital money spent on 100G. So, more recently, our firm would consult to investment bankers, VC firms, etc., who were legitimately doing due diligence, as they would point out how remarkably well these optical component firms were performing, and they were enthusiastic about using their capital in this space, or even considering taking a particular vendor public. In addition to a specific evaluation by us of a manufacturer, our response would ...

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Finisar-Oclaro Merger Very Plausible Now

September, 2017

In the past, we would have thought at least twice about Finisar buying Oclaro, given the less than stellar experience the former had earlier in acquiring more of a telecom-centric entity. Of course, Jerry Rawls was still in effect running the firm as Chairman of the Board. The dynamics have changed dramatically now with Rawls’ retirement announcement. After putting his heart and soul into the company, he will want to leave it in good hands. The most important advantage in a potential merger with Oclaro is that Finisar would automatically get a top-notch CEO, Greg Dougherty, who has been battle-tested to say the least, and shares some of the same characteristics as Rawls, a low-key, practical leader. There would be other benefits as well, including Finisar saving face, if it were to choose to pull back from the consumer-centric, 3D-sensing market. Given the unique and stringent challenges ...

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MACOM and Fabrinet: Sound of Silence

August, 2017

On our daily market perspectives page, we have been discussing the mystery surrounding the lack of discussion on Amazon at public events involving MACOM Technology Solutions and Fabrinet. While there is not access to what was totally addressed at these conferences, as we go to publication of this article, it appears that both of the companies are ignoring the opportunity, and for whatever reason, the financial analysts at these meetings are not asking any questions on the matter. As a result, there remains only the notes of one investment firm, which was likely selected for being the most bullish on the optical space recently, as the only obvious source of the apparent agreement between the three companies. However, as we pointed out on our last blog post, even if Amazon were to change its mind in building its own 100G CWDM4 devices, the jolt of the possibility has already affected vendo ...

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Applied Optoelectronics’ Freneticism

August, 2017

AOI’s major hyperscale data center customers are undoubtedly sitting back and enjoying the vendor’s frantic activity in making heroic efforts to cut its manufacturing costs to the bone. Here is a company that announced substantially more vertical integration in real time with its last quarterly earnings conference report. Fewer than two weeks later, there was a major powwow with various investors, and slides were released publicly, which gave further details on the dramatic extent of its impressive expenditures. Naturally, regular buyers of its gear, including Microsoft and Amazon, will be the principal beneficiaries of such actions, as they will certainly be in a position to eventually demand much lower prices from AOI for intra-data center gear, which will possibly set a new bar for the other players in the space as well. They will be able to confidently insist on such new pricing beca ...

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II-VI & Lumentum: 6″ 3-D Sensor Fixations

August, 2017

There are apparently mutual types of obsessions regarding the state of the 3D-sensing businesses of II-VI and Lumentum Holdings, which raise some serious questions: Why did II-VI stress the 6-inch capability of the fab it just purchased, when (as we discussed on our daily blog page) "in the press release announcing Kaiam's acquisition of the facility several months earlier, those production lines were mentioned only in passing, and the emphasis seemed to be on InP devices, which are produced at a smaller size" (and then later it became clear on II-VI's last earnings conference call, there was the distinct possibility that it may do little or even no manufacturing of 3D-sensors there)? Even if we assume Apple punished Lumentum for its hubris, how does the specific Gross Margins (GMs) go from 50% and higher to close to a negligible impact by these devices on its total GMs in the foreseeabl ...

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Infinera: No Way Out?

August, 2017

On Infinera’s last quarterly earnings call, a financial analyst asked: “Does Infinera make sense as a stand-alone business?" The response was somewhat contradictory in that R&D expenditures could lead to “pressure on this industry consolidating,” while also stating, “I don't see people wanting to buy optical companies right now." Our own view is that we find it unlikely that any other vendor would be interested in purchasing a company, which has a fairly bleak future. The one bright spot was the admission that the vendor dropped the ball with the TM series. While it may be too late, Infinera’s only prospect for survival may be dependent on finally devoting greater resources to the ex-Transmode operation, as well as a leadership shakeup that puts the Swedes at the top executive level (even if that requires outright replacements of existing execs), in order to ensure their total independen ...

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$2B AOI Cap Worse Than Old $3B Acacia

July, 2017

  While we would find it impossible to ever recommend securities of any kind because of the irrational ups and downs of the prices, we have a great deal of respect for many of the financial analysts to whom we provide consulting services on a regular basis, and they tend to be conscientious, informed, and trustworthy. Nevertheless, those people in the industry who have direct access to our second blog by following us there, realized that we felt compelled to publish the following article the other day: “Mind-Boggling Amount of Ignorance About Optics on the Street?” It was a directly a reflection of a “very close to an obscene” valuation of Applied Optolectronics, which has been hovering around the $2 billion mark for a while, and in our opinion, has been spurred on by too many individuals influencing optics stock prices, who are disingenuous, unknowledgeable, or unwilling to make basic d ...

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Oclaro’s Limited Options?

July, 2017

Regular followers of our other blog were able to read the recent article, “Oclaro's Possible Mistake,” in which we stated: “While we have been very complimentary toward the Oclaro leadership, we believe it could have made an error in advertising [to financial analysts] that it would be open to selling the company….Now that everything appears to be set up as well as possible for a purchase, [such as relatively attractive margins and an impressive balance sheet], what does Oclaro tell the Street, if it does not get a reasonable bid, which we assume would be no lower than $2 billion?” Optimally, it would have been better to stay relatively quiet about its intentions, and have potential suitors make unsolicited offers. Although in fairness, Oclaro tried to walk any such discussion back earlier this year, including by stating, “[C]ompanies get bought, not sold,” it seems to be trying to have ...

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ADVA/MRV: Another Ecosystem Break

July, 2017

      In the past, we have provided countless examples of the dominant ICPs demonstrating an unsatisfactory amount of concern for the long-term viability of the optical ecosystem. One of the most damaging practices has been the emphasis on OLS, which allow these customers to selectively pick and choose various piece-parts of different system vendors in order to achieve the lowest cost per bit possible in the aggregate, including less expense somewhat operationally, such as with the least amount of power usage. In our opinion, it is quite clear that ADVA Optical Networking felt forced to buy MRV, despite at a minimum, the short-term headaches of having to support a second platform (which has hardly been a revenue/profit powerhouse) as well as the burden of taking on debt, so that it could obtain unique transponder as well as optical plug solutions for its current FSP 3000 CloudConnect off ...

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Lumentum Overtaken by Finisar at Apple?

July, 2017

When it comes to 3D-sensors, both Lumentum Holdings and Finisar are being gutsy in striving to make a tremendous amount of penetration, not only away from their traditional market strongholds, but also in a new product space, VCSEL dies, (arguably even a somewhat brand, new experience for Lumentum), which has technology challenges not meant for the fainthearted. Those individuals following our other blog have been able to keep up with some of the potential minefields in being a chip vendor to Apple’s iPhone including 1) only a minimum of two vendors needed for Apple to lower prices to shockingly low levels (and other smartphone competitors will expect their charges to be in the same ballpark); 2) the effects of iPhone pricing strategy itself; and 3) the increasing willingness for Apple to bring chip production in-house, and even leasing manufacturing equipment out, if a particular vendor ...

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Infinera’s Crack at Quasi-Reconstruction

June, 2017

Actions speak louder than words. The rather isolated introduction of the XTM II is a new attempt by Infinera to straddle the line between joining the rest of the community of optical system vendors, which determined a long time ago, the lack of merit with choosing a Photonic Integrated Circuit (PIC) approach, and the supplier’s stubborn adherence of continuing to push a PIC template in its marketing efforts. fibeReality still believes that these PICs not only fail to provide substantial differentiation, but can actually be counterproductive. Similarly, in our opinion, the small minority of financial analysts, who have been outspoken advocates of the “optical sypercycle,” which we have referred to previously as a “farce,” are striving to reconstruct their credibility, especially with the huge dip presently in the China optical space, as they are being forced to straddle the fence themselv ...

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Amazon’s Whole Foods Buyout and DCI

June, 2017

Over the last week, those individuals following our second blog read that we were at least inclined to dismiss several narratives making the rounds, including: 1) Amazon’s purchase of Whole Foods (WF) being akin to the telecom bubble; 2) other suitors making counteroffers for WF; 3) Wal-Mart’s purported unreasonableness in having outside tech firms using Amazon’s cloud service; and 4) Verizon really liking its new strategy of being a landlord. All of our responses to these four matters are related to Amazon’s growing retail position, including its need to branch out to physical locations, which will embrace new technology solutions (including sensors) to significantly lower the costs of such operations. In addition, they are all connected to how Amazon’s competitive pressure has been instrumental in creating a commercial real estate bubble, as retail stores increasingly shut down, result ...

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Lumentum and the Problem with Hubris

June, 2017

At least up until recently with the China boom, which has subsided for now, the extraordinary challenges in being an optical transceiver supplier have become manifold over the last 15+ years, including poor margins, direct competition from large customers, and a high level of market fragmentation. Such conditions would hopefully lead to a greater amount of introspection on the part of the leadership at these corporations, which would prevent getting carried away with excessive rhetoric or specific projections on performance with new opportunities. While Lumentum Holdings will clearly dominate the 3D-sensing space with its shipments to Apple for the latest generation of its iPhone this year, it would be very surprising that even if 50%+ gross margins are initially achievable, their sustainability in the very short term appears to be highly unlikely. As we pointed out about a week ago to f ...

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Acacia Casualty: Back to Si Photonics Hype

June, 2017

In addition to the start of out-of-whack valuations for optical component companies resulting from the convergence of two massive market forces, the initial overexcitement about Acacia Communications in general, and its focus on “silicon photonics” (“SP”) specifically (despite arguably, the superficiality of any positive impact on the firm’s cost), unfortunately made it more necessary for vendors to include that capability in their marketing efforts, regardless of any strict definition of the term. In several cases, such a transition would occur irrespective of their previous public stances on the technology. It also seems to be ignored that there are doubts that a high-volume producer of SPs, Luxtera, is even profitable, albeit Intel, regardless of actual shipments, helped to artificially drive PSM4 prices at the 100G rate down. Furthermore, at least for a while beforehand, it became fa ...

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AOI’s Stabilizer is 40G

June, 2017

Since the beginning of the arrival of the 40G data rate, there has been a consistent mantra in the industry of its impending decline and ultimate demise. Large market research firms have supported this point of view as they received the vast majority of their business from the dominant transport equipment vendors, which concentrated their product development as well as public relations efforts on 100G and beyond. A principal beneficiary of the continuing good health of 40G in the data communications space is Applied Optoelectronics (AOI), which remains the dominant 4x10G transceiver supplier. Given the company’s strong position in this sector, including a relatively high level of vertical integration, price pressures at that speed have been minimalized, and helps to creates a buffer against its gross margins perhaps getting any further down than the low-to mid 30s in the foreseeable futu ...

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MACOM’s Aggrandizement of Optical Space

May, 2017

After recently discussing Acacia Communication’s seemingly compelled retreat to a level further down on the food chain, MACOM Technology Solutions Holdings, which has products that are no higher than that third layer has a tendency to embellish expectations, most notably this month on the future potential of the data communications portion of the optical market. At its Cloud Data Center Forum for Analysts and Investors in Boston, there was an emphasis on “Moore's law pace of innovation,” “the need to be having…terabit discussions today,” and the requirement “to move to a merchant microelectronic semiconductor model.” In examining MACOM, there is also the more practical consideration in that although it provides just about all of the piece-parts that will go into an optical transceiver/module, much of them were obtained through acquisitions, of perhaps varying quality, and so, there may b ...

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