Shares of fiber-optic component vendor Finisar (FNSR) are up $5.07, or over 26%, at $24.37, in early trading, after Apple (AAPL) this morning announced it is giving the company $390 million in funding to expand production in the U.S. of so-called vertical-cavity surface-emitting lasers, or "VCSELs," which can be used for augmented reality applications in the iPhone.
This appears to be a big win for Finisar relative to competitor Lumentum Holdings (LITE), which most believe has been a large initial supplier of the VCSELs used in the "TrueDepth" camera on the front of the iPhone that performs facial recognition and things such as the " Animoji " animations.
Lumentum stock is down $4.75, or 9%, at $47 in the pre-market.
In a note to clients this morning, Piper Jaffray's Troy Jensen reiterated his Overweight rating on Finisar stock, and raises his target to $28 from $22, writing that he thinks the deal "will also lead to significant future share of Apple's VCSEL needs."
THe money, which comes out of Apple's " Advanced Manufacturing Fund," totaling $1 billion, will be used to re-open facilities in Sherman, Texas, said Apple, that had been "long-shuttered. Apple and Finisar declared Sherman will become "the high-tech VCSEL capital of the U.S." The funding will "create more than 500 high-skill jobs" at the facility, said the companies.
Apple touted its own VCSEL prowess, saying it "has rapidly adopted depth-sensing technology in recent years, leading to the development and production of the most advanced VCSELs used in the history of consumer electronics."
The deal implies future revenue for Finisar, with Apple saying "In the fourth quarter of 2017, Apple will purchase 10 times more VCSEL wafers than were previously manufactured worldwide over a similar time period." Apple said "one hundred percent" of VCSELs it buys from Finisar "will be made in Texas."
Writes Jensen in his note this morning, "We believe Finisar deserves a higher multiple given the investment from Apple likely secures more market- share opportunity."
He's reviewing his estimates for Finisar to "determine how much share Finisar can capture and the timing of this revenue ramp."
"As a result, we are now using a 17x multiple (up from 13x) on our marginally taxed FY19 operating income assumption plus cash."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
