How much was the transaction cost for our short buddies to sell and buy 1.2 million shares after hours?
Usually these games are on a Friday afternoon.
OCLR is predicting high 20% GM's now moving into the mid-30% average GM's later in 2016.
These are the same gross margins as FNSR so what is the FNSR problem?
Greg Dougherty, Oclaro, Inc. - CEO 
"So the QSFP28 -- we've been saying we think that that market will start to ramp in the middle of the year. Still believe that. We will be manufacturing that at Fabrinet, when we go to volume. So, that ramp will not be in competition with the ACO ramp, so we'll be able to ramp the two in parallel. And I think a lot of it has to do with systems coming out that utilize QSFP28 in volume. So we do see that as a nice growth opportunity for us."
"We also continue to believe that the introduction of 100 gigabits single mode inside the data center will begin to ramp in the middle of 2016. Our focus has been on single mode duplex fiber architectures. As a result of the outstanding performance of our high-speed lasers, we have received several early design wins for our QSFP28 products, both CWDM and LR4. We are very excited about the prospects for this product family as we ramp production through this summer."
The analysts are conservative with their targets so $5 is just their latest target and should be upgraded quarterly as OCLR management meets and exceeds their revenue and profit goals.
The big pop in the OCLR share price should be in the second half of 2016 as the new 100G products are in volume production.
Optical components are in their own upcycle which actually are helped by the China economic shift as the Chinese spend massive budgets on upgraded internet, mobile, and optical networks with a 5 year budget and plan through 2020.
Additionally this 100G upcycle is being driven by worldwide demand from datacenters and metro optical with these customers waiting for the new volume production 100G CFP2 ACO and QSFP28 modules which are available from OCLR in the second half of 2016.
Currently Oclaro is the market leader in 100G, and in 2016 this market leadership should drive margin improvement to mid-30% GM's.
02/03/2016 – Oclaro, Inc. had its “buy” rating reiterated by analysts at B. Riley. They now have a USD 5.25 price target on the stock.
02/03/2016 – Oclaro, Inc. had its “buy” rating reiterated by analysts at Stifel Nicolaus. They now have a USD 5 price target on the stock.
02/03/2016 – Oclaro, Inc. had its “buy” rating reiterated by analysts at Needham & Company. They now have a USD 5 price target on the stock.
12/18/2015 – Barrington Research began new coverage on Oclaro, Inc. giving the company a “outperform” rating.
12/03/2015 – Craig-Hallum began new coverage on Oclaro, Inc. giving the company a “buy” rating. They now have a USD 5 price target on the stock.
Greg Dougherty, Oclaro, Inc. - CEO 
On the ACO question, Tim, I think that there is very real demand that exists today that is unsatisfied, and that some of it has to do with still with optimizing feature sets and optimizing performance. And that goes hand-in-hand between both our part of the ACO and the DSPs that some of our customers have. And some of it is due to our inability to ramp as quickly as we would -- as our customers would like us to.
So, we see the demand continuing to be strong. We see the market size to be in the couple-hundred-million type of range for 2016 as we've talked before. And I think we said that we think that what will govern the size of the market will be the number of units shipped, not so much the demand.
Tim Savageaux, Northland Securities, Inc. - Analyst 
I'll go back to the ACO as well, and noting the number of recent product launches in the space, especially in the data center interconnect space, guys like Cisco, Arista, several others, I mean, it seems like hundreds of units there would barely be enough to populate tradeshow booths at OFC or what have you.
So I wonder if you can give us a sense of what kind of demand you are seeing beyond sort of beta and field trial units. And obviously you are talking about a ramp very quickly into the thousands. But is all this new product activity -- obviously you've seen it coming down the pike for a while. Are your expectations any larger or smaller in terms of overall ACO demand? And I don't know if you can relate that kind of modest unit volumes near-term in terms to the degree of new product activity and kind of what you're seeing in total market demand from a TAM standpoint.
The best news about the Oclaro plan is that the best is yet to come as Oclaro ramps up the new products. Congratulations to the Oclaro team on a job well done.
"We're seeing very strong demand from China. A lot of the commentary has been about the China Mobile award which involved over 21,000 line side 100G parts. Most of the delivery for this project is scheduled for Q1 and Q2 of this calendar year.
On top of these developments, we have seen additional demand, driven by contract awards from China Telecom and China Unicom which have deliveries slated for Q2, Q3 and later in calendar 2016. While much is said about the number of 100G long-haul ports, please remember that a meaningful ratio of 100G client-side interfaces is also required.
The 100G client interface being deployed in China in 2016 is a CFP LR4 product. And Oclaro was clearly the market leader for this product for both single and dual rate. In addition to the long-haul contracts in China, there are also numerous other provincial and small city or metro projects happening as well. These projects are also generating strong demand for our micro-ITLA lasers, lithium niobate modulators, various 10 gigabit tunable components and modules, as well as our 100G client-side transceivers.
This demand is expected to remain robust for at least the next few quarters. "
Maybe on the topic of gross margins, I think you flushed out your thought process here for your guide for the March quarter here. Pete, can you give us any kind of maybe forward-looking thoughts, even if on a qualitative basis, as we look throughout this year, specifically as we start adding in the [indiscernible] revenues, is there any risk for startup costs here or yield issues as you are ramping obviously pretty quickly here, kind of repeating the continued improvement there? And how should we see this as we look throughout the calendar year?
Yes, I guess, Richard, I'd take it maybe a little wider than that and say we've given a lot of milestones in the past, now that we've blown through those, maybe the right comment in the mid to long term is that a company in our space with a leadership position and technology has shown to be able to achieve gross margins in the mid-30s. And so, the gap left to fill is really going to be driven by the combination of revenue growth, leveraging the front-end fabs along with newer products and innovation"
February 1, 2016 8:21 AM EST
Piper Jaffray reiterated an Overweight rating and $29.00 price target on Fabrinet (NYSE: FN) ahead of the company's 2Q earnings report. Fabrinet is slated to report results after the close on February 1. Piper Jaffray anticipates that the company will beat consensus and guide up for the March quarter.
Analyst Troy Jensen commented, "Fabrinet is slated to report December-quarter results after the close on February 1 and we anticipate the company will beat consensus and guide up for the March quarter. Our confidence is based on recent conversations and reported results from three of Fabrinet's top five customers, which have been implying that near-term demand has exceeded expectations. We also like the set up throughout the year with China demand driving near-term upside, QSFP28 datacom likely to ramp in Q2, and Metro build-outs in the US driving demand in the 2H and beyond. We believe most of the optical stocks will perform well this year, but view Fabrinet as a relatively low-risk, higher-quality investment that is trading at a relatively inexpensive valuation. We are reiterating our OW rating and $29 price target on FN shares."
Shares of Fabrinet closed at $24.91 yesterday.
Assuming that Oclaro executes on the 2016 plan and the OCLR stock continues to go up, then the current shorts will unravel.
This could happen as soon as next week with a positive earning report on February 2nd.
Shorts will not disappear and will open new short positions as the OCLR stock goes up in price.
Concerning Soros, his investment in OCLR has a hedging strategy. I would expect that he will convert sometime in 2016 although there may be some plan to sell OCLR to a larger company and this conversion could be part of the M&A plan.
DNB Asset Management AS recently revealed that they own a 3.3% stake in Oclaro, Inc. (NASDAQ:OCLR) in a Form 13G/A disclosure that was filed with the SEC on Tuesday, January 19th. The investor owns 3,622,089 shares of the stock valued at $12,097,777
II-VI is up 17% after earnings based on a strong outlook for optical in datacenters and China.
What are the results and outlook that we can expect from OCLR on February 2nd?
If you look at the Whale Rock website, they say that their investments are based on:
"UNDERAPPRECIATED EARNINGS POWER
S-Curve + competitive advantage drives exponential earnings growth. The street can often miss this, allowing us to buy what we believe are great companies at bargain prices"
Concerning the shorts let's see what they do next on February 2nd.
What do you think about the Whale Rock Capital disclosure on Friday?
On January 12th, at the Needham conference Oclaro management discussed the revenue outlook in a Q and A with analysts so we have a preview of what they are going to announce on February 2nd.
I would suggest that investors go to the Oclaro investor relations website and listen to the Needham webcast.
The bottom line is that the prospects for 2016 are excellent.
It is ironic that OCLR will be announcing its hottest quarter in at least 5 years on February 2nd while the market is tanking.
Also it is ironic that China is the reason for the general market selloff and is also the reason for the hot OCLR quarter since the China government is investing new massive money into building up the Chinese internet with 100G.
This Chinese investment cycle for 100G is just starting and should last for several years.