Optical device makers tumbled broadly on Monday after the US Commerce Department banned US companies from selling their wares to Chinese telecom gear maker ZTE (SHE:000063) following a probe into illegally shipped equipment to Iran and North Korea.
Acacia Communications Inc (NASDAQ:ACIA) lost more than a third of its value, cratering nearly 36.8% to US$25.32, while Oclaro Inc (NASDAQ:OCLR) plummeted 12.5% in midday trading. Lumentum Holdings Inc. (NASDAQ: LITE) fell more than 6% to around US$60.38.
"ZTE made false statements to the U.S. government when they were originally caught and put on the Entity List (in 2016), made false statements during the reprieve it was given, and made false statements again during its probation," Secretary of Commerce Wilbur Ross said in a statement. "Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored."
According to a Raymond James research note, Acacia gets nearly 30% of sales from ZTE, while Oclaro gets at least 14%. Lumentum, Finisar and NeoPhotonics get up to 3% of sales from ZTE, said the report.
“The ZTE ban is uncategorical bad news for Acacia,” chimed in Loop Capital analyst James Kisner.
Applied Optoelectronics Inc (NASDAQ:AAOI), a major player in the telecom fiber optics group, fared a little better as it has limited exposure to ZTE.
AAOI shares were down 2% at US$29.58 on a day that its competitors fell much harder.
"Perhaps there were other or bigger reasons behind the seven-year ban but the new actions seem harsh at first blush, hurting equally the U.S. component companies betting on strong growth in China," said Dmitry Netis, a William Blair analyst in a report cited by Investor’s Business Daily.