Please ensure Javascript is enabled for purposes of website accessibility

Why Applied Optoelectronics, Inc. Shares Fell 14% Today

By Anders Bylund – Sep 28, 2018 at 11:33AM

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

Quality issues with a single product type and a single client drove third-quarter revenue projections 35% below management's original expectations.

What happened

Fiber-optic networking specialist Applied Optoelectronics (AAOI 5.81%) slashed its third-quarter revenue guidance early Friday morning, sending its shares sharply lower. As of 10:35 a.m. EDT, Applied Optoelectronics traded 14.5% below Thursday's closing price.

So what

The company now sees third-quarter revenue landing near $57 million -- far below the original guidance target of roughly $87 million.

CEO Thompson Lin explained that his company ran into quality issues with some of its 25-gigabit lasers, forcing Applied Optoelectronics to suspend transceiver shipments to a specific -- but unnamed -- customer.

"We have since determined that less than 1% of these lasers were subject to this issue, we have enacted a solution and with the agreement of the customer, resumed shipments," Lin said in a prepared statement.

A handful of fiber-optic cable strands set against dark clouds and lightning bolts.

Image source: Getty Images.

Now what

The situation most likely involves one of Applied Optoelectronics' largest clients since a temporary suspension of shipments for a specific transceiver model to a single client drove third-quarter sales 35% lower. Lin confirmed that no other accounts were rattled by this issue:

"Outside of the temporary delay in shipments that impacted our third-quarter revenue, sales and shipments as well as the pricing environment were consistent with our prior expectations."

It would be good to know whether Applied Optoelectronics lost the missing orders to its rivals or simply pushed most of them into a later reporting period. Unfortunately, this update didn't supply enough information to solve that riddle. Management did not change its bottom-line target and declined to update full-year revenue guidance. To get that level of detail, investors will have to wait for the third-quarter report, currently scheduled for Nov. 7.

Anders Bylund 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.

Premium Investing Services

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