Scott Fields, Editor-November 1, 2018, 11:26 AM

Optical device and component manufacturer Applied Optoelectronics (AAOI) has suffered tremendous choppiness over the past two years. The dramatic shift in sentiment came from quality-control issues with the company’s 100G CWDM4 transceivers. Specifically, the laser component within the transceivers have failed after only thousands of operating hours.

Adding insult to injury, Rosenblatt analyst Jun Zhang reiterates a Sell rating on AAOI stock, with a price target of $15.00, which implies a downside of 22% from current levels. (To watch Zhang’s track record, click here)

Zhang opined, “AAOI’s laser quality issue seems to have returned, after we believed the company had resumed shipping to Facebook in late September. With the return of the laser quality issue, we believe AAOI will not be able to continue shipping to Facebook, resulting in the company’s revenues from Facebook being very small in Q4. We believe AAOI may guide C4Q revenues of $30 million or less. Gross margins could also see a significant impact, while operating margins may turn negative.”

“We believe the laser quality issue will negatively impact AAOI’s shipments to other potential clients. Although AAOI may achieve some progress for its 100G product at Amazon, we do not believe AAOI will ship its 100G CWDM4 to Amazon in the near term. Microsoft is AAOI’s second largest client, after Facebook. We believe demand from Microsoft has been stable and believe AAOI’s shipments to MSFT will be flat q/q in Q4,” the analyst added.

As of this writing, AAOI shares are down nearly 1% to $19.50.

http://www.smarteranalyst.com/analyst-insights/technology-stocks/applied-optoelectronics-aaoi-tumble-another-22-rosenblatt/