What happened

Shares of NeoPhotonics (NYSE:NPTN) plunged as much as 24.3% lower on Thursday morning, pummeled by a bearish analyst note. As of 1:30 p.m. EST, the stock had recovered slightly to a 19.1% drop.

So what

The maker of optoelectronic components and modules, designed for use in high-speed networking equipment, held a private meeting with analyst firm B. Riley FBR on Wednesday. The next morning, B. Riley analyst Dave Kang downgraded the stock from buy to neutral with a 25% lower price target on the stock. Kang cited uncertainty around NeoPhotonics' business with Chinese networking giant Huawei, as that company's chief financial officer was arrested on suspicion of breaking U.S. trade sanctions on Iran.

Huawei accounted for 40% of NeoPhotonics' revenue in 2017, so it would be bad news indeed if the Chinese communications titan responded by reducing or canceling orders to American suppliers.

A bundle of optical fibers in front of dark clouds and a lightning flash.

Image source: Getty Images.

Now what

The arrest of Huawei CFO Meng Wanzhou in Canada may result in extradition to American authorities and may turn up the heat on the current trade tensions between Beijing and Washington. James Lewis, a technology policy director at the bipartisan policy think tank Center for Strategic and International Studies (CSIS), compared the incident to Chinese law enforcement arresting a high-profile American business leader.

"If I was a tech executive I would not go to China right now," Lewis told MSNBC.

It's no surprise to see NeoPhotonics take a big hit on Chinese tensions like these, especially when the events involve Huawei in an incredibly direct way.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.