Shares of Acacia Communications (ACIA) tumbled but Oclaro (OCLR) stock rose as several optical communications companies presented at a Needham & Co. conference and weighed in on demand from China and other growth trends.
Demand from China has been driving revenue growth for fiber-optic component makers, as is the upgrade to 100-gigabit-per-second technology in metropolitan areas by telecom firms in the U.S. and elsewhere. New demand also is coming from interconnecting cloud computing data centers packed with computer servers.
Some analysts speculated in late 2016, though, that demand from China has softened, in particular from telecom gear maker Huawei. ZTE is another top Acacia customer.
Acacia stock sank 9.6% to 57.54 on the stock market today, the lowest since July. Oclaro stock gained 3.3% to 8.54, but found resistance at its 50-day line. Lumentum Holding (LITE) stock advanced 3.2% to 37.50, Finisar (FNSR) stock rose 0.5% to 28.75 and Ciena (CIEN) stock fell 0.5% to 24.100.
In early 2017, Lumentum and Finisar stocks have moved below their 50-day moving averages. IBD's Telecom-Fiber Optics group, a leader in mid-2016, is now ranked No. 55 out of 197 industry groups.
Oclaro still sees strong demand coming from China, said Needham analyst Alex Henderson, in a report published on Tuesday.
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"Oclaro sees no change in the trajectory of China beyond the normal seasonality. Oclaro noted there has been a lot of noise about soft communications sector" demand, but pointed out that this is (not) reflecting optical."
Acacia was more guarded in its commentary on China.
"Within China, there is a shift from spending on the national backbone to spending in the provincial build-outs," Henderson said. "(The first quarter) in China always starts a little slow but picks up robustly as the quarter progresses."
At William Blair, analyst Dmitry Netis on Tuesday released a "State of the Industry" report. His top optical stock pick is Infinera (INFN). He also favors Ciena and Finisar.
"The national broadband network initiative under China's 13th five-year plan broke ground in major tier-1 cities in 2016 with all three major Chinese carriers shifting capital spending from wireless to fiber-optic networks; it will move to provincial deployments and metro network in 2017 covering over 600 cities, which we expect to last for three years," Netis said in a report. "China buildouts are expected to reaccelerate shortly after the Chinese New Year (Jan. 27 to Feb. 4)."
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