Shares of Oclaro Inc. (NASDAQ:OCLR) fell 17.2% in April, according to data from S&P Global Market Intelligence, after the U.S. Department of Commerce announced a seven-year ban on sales by U.S. companies to China-based telecom equipment manufacturer ZTE (NASDAQOTH: ZTCOY).
Sure enough, Oclaro stock plunged more than 15% on April 16, 2018, alone, the first trading day after the ZTE ban was revealed. And when Oclaro subsequently announced its fiscal third-quarter 2018 results a few days ago, it confirmed it has temporarily suspended all shipments to and activities with ZTE.
For perspective, ZTE represented around 18% of Oclaro's total sales last fiscal year.
To be clear, though, Oclaro is in the process of being acquired in a cash-and-stock deal by Lumentum Holdings (NASDAQ:LITE), which -- when the deal was announced in mid-March -- valued the company at roughly $1.8 billion, or $9.99 per share. As of this writing, Oclaro stock trades at $8.58 per share. So investors are obviously worried that Lumentum may have cause to reduce its offer price in light of the ZTE news before the acquisition's expected close in the second half of 2018.
That said, I think it's unlikely that Lumentum will reduce its buyout price. For one, it's been nearly a month since the U.S. announced the ZTE ban, giving Lumentum plenty of time to renegotiate if it were willing and able.
What's more, Oclaro CEO Greg Dougherty has insisted, "Despite the loss of ZTE as a greater than 10 percent customer for an indefinite period, we continue to believe our solid financial model and tight expense controls, when coupled with our highly differentiated products, will allow us to continue to demonstrate strong financial performance."
Of course, that doesn't mean Oclaro is out of the woods just yet, and I think investors would do well to keep a close eye out for progress on the impending close of its acquisition by Lumentum. But Oclaro is about more than just a single customer. And if everything moves ahead as originally expected, this pullback should prove to be only temporary.