While channel checks suggest a strong demand environment, the move by Lumentum Holdings Inc (NASDAQ: LITE) to become an optical component supplier could result in increased profitability, according to Rosenblatt Securities.
Analyst Jun Zhang maintains a Buy rating on Lumentum with an unchanged $80 price target.
Channel checks with system suppliers and carriers in China indicate strong demand for reconfigurable optical add-drop multiplexer — ROADM — solutions in the country, Zhang said in the report.
Faced with rising labor costs, China Mobile and China Telecom are looking to increase ROADM adoption to build new metro networks, the analyst said. Lumentum’s China ROADM business could deliver healthy growth in 2019, and the coming years could bring sustained growth in ROADM deployment in China, he said.
Chinese wavelength selective switch, or WSS, demand is growing fast, Zhang said. Although Huawei has inventory and could serve WSS demand through 2019, the Chinese telecom manufacturer’s inventory level “won’t be a big issue” as demand in China continues to grow in 2020, the analyst said.
Pump laser demand is also strong, and Lumentum is facing supply shortages, according to Rosenblatt. The company’s capacity could increase after the move to its Thailand factory in the second half of this year, the sell-side firm said.
Lumentum’s decision to sell its high-cost Japan manufacturing facility will result in significant operating cost savings, Zhang said.
Lumentum shares were down 0.3 percent at $46.76 at the time of publication Thursday.
Raymond James: Lumentum Still A 'Strong Buy' Despite Apple's Guidance Cut
Rosenblatt Defends Lumentum Holdings, Highlights Encouraging Outlook
Latest Ratings for LITE
|Jan 2019||Raymond James||Maintains||Strong Buy||Strong Buy|
|Dec 2018||Raymond James||Maintains||Strong Buy||Strong Buy|
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