Rosenblatt Negative On Finisar Corp (FNSR)

Rosenblatt analyst Jun Zhang pushed a note to clients Monday morning on Finisar Corp (NASDAQ: FNSR) with negative overtones. Zhang says FNSR will see a ~$20 million impact to revenues along with about 3-4% ding to gross margins following the company's disqualification from Huawei.

Zhang says he is concerned about the short term issue with Hauwei. He writes "Although we like Finisar in 2017 due to strong 100-200G demand and increasing ROADM deployment from China Telecom (CHA:NR), we are concerned due to the short-term issue with Huawei. Recently, we visited Chinese equipment vendors, including Huawei and ZTE (000063-SZ:NR), and we believe Finisar's 100G CFP2 has been disqualified to supply to Huawei in January due to a module’s firmware issue resulting in incompatibility. We estimate that Finisar shipped around 7K CFPs to Huawei per quarter with an ASP of around $3K; therefore, we estimate around a $20M revenue impact on Finisar in the calendar March quarter. We also believe that 10G-25G demand is ramping from China due increased investments in data centers, but even though we believe 10G-25G could partially offset the revenue impact, Finisar's gross margin will still be impacted in their February quarter."

Zhang believes the disqualification is "a serious penalty" and estimates it would take at least 1 quarter to re-qualify, at best. He sees Oclaro (NASDAQ: OCLR) and Limentum benefiting in the near-time due to this Finisar disqualification.

He has no rating on Finisar.

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