Please ensure Javascript is enabled for purposes of website accessibility

Why NeoPhotonics Stock Tumbled Today

By Timothy Green – Apr 25, 2018 at 1:12PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The U.S. Department of Justice is reportedly investigating the company's biggest customer.

What happened

Shares of NeoPhotonics (NPTN) slumped on Wednesday, potentially due to news that Chinese company Huawei was under criminal investigation for violating U.S. sanctions related to Iran. Huawei is NeoPhotonics' top customer. This comes less than two weeks after the U.S. Department of Commerce banned the sale of components to ZTE Corp. for reasons related to the company's violation of the Iran sanctions. Shares of NeoPhotonics were down about 7.4% at 12:10 p.m. EDT, after being down as much as 11.9% earlier in the day.

So what

The U.S. Department of Justice is reportedly investigating if Huawei violated U.S. sanctions against Iran, according to The Wall Street Journal. It's unclear at this time how far the investigation has progressed, and the exact allegations being explored.

A man with his head down on a table with a slumping chart in the background.

Image source: Getty Images.

The U.S. Department of Commerce banned the sale of components to ZTE Corp. earlier this month due to the company violating the agreement it struck after pleading guilty to violating sanctions against Iran. Companies that depend on ZTE for a large portion of their revenue, including Acacia Communications, saw their stocks crumble.

NeoPhotonics issued a press release on April 17 saying that just 5% of its annualized revenue would not be realized due to the ZTE ban. A similar action against Huawei, however, would be catastrophic. In 2017, Huawei accounted for 40% of NeoPhotonics' revenue.

Now what

The best-case scenario for NeoPhotonics is for this criminal investigation of Huawei to yield no major actions from U.S. authorities. The worst-case scenario is a ZTE-style ban that vaporizes 40% of its annual revenue. That's certainly within the realm of possibility, but it's too early to tell at this point how worried NeoPhotonics shareholders should be.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

NeoPhotonics Corporation Stock Quote
NeoPhotonics Corporation

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.