Will Apple, Smartphone Makers Drive Lumentum, Finisar Sales?

Apple (AAPL) and other smartphone makers could emerge as new customers of optical device makers if they build 3D sensors into mobile phones, but a William Blair analyst cautions that the business opportunity "remains difficult to nail down."

Finisar (FNSR) recently joined Lumentum Holdings (LITE) in developing 3D sensors. The biggest traditional customers of fiber-optic parts makers have been phone companies, like AT&T (T) and Verizon Communications (VZ), and more recently internet firms like Facebook (FB) and Amazon.com (AMZN), which need faster communications in data centers.

"While 3D sensing opportunity appears very real, we caution investors not to get ahead of themselves," William Blair analyst Dmitry Netis said in a mid-December report. "The opportunity could serve as a catalyst in late 2017 and into 2018, but the whole ecosystem (lasers, optical filters, consumer electronics contract manufacturers, 3D cameras) must first come together."

"With top smartphone manufacturers such as Apple likely behind this initiative, we see a good chance of it coming together, though quantities and dollar per content remains difficult to nail down at the initial lunch."

There's speculation that Apple could build 3D photography into the iPhone 8, expected out in late 2017, but laser-based 3D sensor devices would likely have other applications, analysts say.

"In broad strokes, we could see roughly $1 to $1.50 per laser and 25 cents to 40 cents per optical filter spanning hundred millions of smartphone units," Netis said in the report.

IBD'S TAKE: While the Trump presidential victory unleashed a torrent of dollars into commodity and cyclical companies (think banking, building materials, and heavy construction), the IBD 50 roster of growth companies is carrying another important message: Don't forget about technology.

TDK on Wednesday agreed to buy Apple supplier InvenSense (INVN), a maker of gyroscopes, in a $1.3 billion deal. In smartphones, 3D gyroscopes are used to tell if a phone is being held horizontally or vertically, being shaken, or pointing in a specific direction.

Lumentum Holdings is developing a 3D-sensing device for an unnamed smartphone maker, Piper Jaffray said in September. Lumentum's forerunner, JDS Uniphase, developed 3D sensor technology for Microsoft's (MSFT) Kinect motion-gaming system, released in 2010 as part of the Xbox 360 gaming box.

Finisar discussed its push into 3D sensors on its Dec. 8 earnings call.

Lumentum stock was down a fraction, near 40, in morning trading on the stock market today. Finisar shares were up 1.3%, near 31.50. Oclaro (OCLR) stock rose 5%, near 9.50, after a fund manager commented on the stock on CNBC. Lumentum stock has shot up 83% in 2016, while shares in Finisar have soared 116%. Oclaro stock has jumped 170%.

IBD's Telecom-Fiber Optics group is ranked No. 33 out of 197 industry groups.

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Source: Will Apple, Smartphone Makers Drive Lumentum, Finisar Sales?