While Finisar is similar to other optical vendors in spinning market research analysts (who then tend to dutifully spew up the exact propaganda) and with executives occasionally talking out of both sides of their mouths publicly, such as when it comes to the future of higher data rates, the firm is still in a league by itself for overall integrity, a characteristic which starts with the CEO, Jerry Rawls. Honest assessments of market conditions and technological advancements are often in conflict with the storylines of prominent, sometimes condescending investment analysts, and a price can be paid, such as with disproportionately lower valuations. (Finisar’s depiction of silicon photonics several years ago was a prime example.) Unfortunately, such an ethical leader, who will stick to the truth, will, in our opinion, also open himself up to being taken advantage of by large customers, such as Apple, which looks for any opportunity for self-aggrandizement and for business control of componentry, as well as perhaps to curtail the expression of views, which are in conflict with the narrative surrounding its products. These contradictions are frequently left unchallenged by more than a few willing, self-important, collaborators in the press as well.
In contrast to Apple’s Advanced Manufacturing Fund providing money to Corning this past May, which resulted in a lingering state of misunderstanding, Finisar as swiftly and diplomatically as possible clarified just what the smartphone supplier was purchasing. Rawls was even more emphatic with Apple’s COO standing right next to him that his company was looking at a variety of opportunities, making it very clear that Apple had no control over Finisar’s 3D-sensing business.
Several analysts on the Street still view Lumentum as being well-positioned in the space. After all, it has apparently shipped in greater quantities than any other company, and it has all of those back orders. fibeReality has written about the specific technical hurdles faced by Lumentum, which we do not think the supplier has been really forthcoming in discussing, related to the use of six-inch wafers, and we continue to find it hard to believe that they have all been resolved.
On the last quarterly earnings call, Rawls could not have been more upfront about the issues faced with such devices, despite its “rich history in this technology cover[ing] more than two decades…of research, development, design, and manufacturing” – far more experience than Lumentum. On getting qualified in time for 2018: “It’s going to be tight, no matter what. So, the answer is, we’ve got to execute flawlessly based on everything that we’ve learned so far and getting up and online and in production. And it’s not a slam dunk, I’ll tell you….[W]e have never processed six-inch wafers. Now, we have people in the company that have processed six-inch wafers at prior employment, but it will be a new experience for Finisar. So, it will be challenging.”
So, instead of reevaluating the assumptions surrounding Lumentum, when there is a historically straight-shooter talking about the major obstacles, and his company along with Philips Photonics, another vendor far out on the learning curve with VCSELs, have stayed as long as possible with four-inch wafers, the Street is tending to walk in lockstep that the purported leader in the marketplace will definitely remain in that position. In the meantime, Apple is not standing still in looking at as many alternatives as possible, such as its recent acquisition of InVisage Technologies.
The irony is that it will really be only after Rawls retires, these analysts will wish he were still there.
[written by Mark Lutkowitz]