Apple-supplier Lumentum Holdings (LITE) hit an entry point Monday ahead of its fiscal fourth-quarter earnings report. But a big debate on Lumentum stock looms over its Apple (AAPL) market share battle with II-VI.
Up to now, Lumentum has supplied the lion’s share of Apple’s optical 3D sensors — used to support facial recognition for unlocking screens. But II-VI (IIVI) is ramping up a new factory in Sherman, Texas, that came with its 2019 acquisition of Finisar. Finisar was a key alternate supplier of 3D sensors for Apple.
Apple had invested $390 million in Finisar in December 2017 in order to have multiple suppliers of 3D sensors and ramp up manufacturing in a new plant. The plant is finally production ready.
So now the question is whether II-VI can gain share, either for 3D sensors used in facial recognition or, in the long run, in devices that support augmented reality apps.
“Lumentum vs. II-VI has remained a consistent topic of debate since last earnings season,” Raymond James analyst Simon Leopold said in a recent report to clients. “We believe II-VI bulls consider the certification of the Sherman plant as initiating a continuous process of 3D sensing share gains.”
Growth Engines For Lumentum Stock
Milpitas, Calif.-based Lumentum mainly sells optical devices used in data center gear and telecom networks. But Apple, as well as makers of Google Android-based smartphones, present new growth engines.
Apple is expected to roll out iPhone 12 models early in the fourth quarter. Apple plans to expand use of 3D sensors into augmented reality and other apps, analysts say. In that case, 3D sensors would be built into both the front and rear of iPhones.
Those high-end iPhone 12 models will also support 5G wireless services, analysts say. Smartphones mark a new market for Lumentum stock.
Initially, Lumentum is expected to supply the 3D sensors used in augmented reality apps. That could boost Lumentum stock.
Leopold added: “The Lumentum bulls argue that with the addition of sole support for the new ‘world-facing’ elements in the upcoming iPhone that Lumentum will maintain its share.”
Morgan Stanley analyst Meta Marshall estimates Lumentum supplied over 80% of 522 million 3D sensors for Apple in 2019. He sees Lumentum supplying 57% of 756 million 3D sensors that Apple gets in 2020, with II-VI accounting for 29%.
“We think both (Lumentum) and II-VI can see upside on 3D sensing in 2020 as II-VI makes inroads on existing (front facing) components while (Lumentum) should benefit from ‘world facing’ modules on premium iPhones,” said Marshall.
Can Both Apple Suppliers See Upside?
Lumentum stock has climbed nearly 16% in 2020. Shares were up 2.7% near 95.35 in morning action Monday, passing an entry point of 93.33.
Lumentum’s earnings report is due Aug. 11. Shares have consolidated since its last earnings report, forming a new base.
One trading strategy for investors heading into company earnings reports is using call options.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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