Getting hit by the "China Hockey Stick" sounds like it would hurt, but many companies in the optical sector are hoping to land squarely in its path.
Needham & Co. analyst Alex Henderson writes in a research note this week that China Mobile Ltd. (NYSE: CHL)'s coherent 100G build-out -- the world's largest planned 100G backbone deployment -- appears set to take a big bite out of optical components supply and drive the health of optical sector stocks in the coming months.
Henderson writes, "There is growing evidence that China will actually implement the long discussed and much anticipated but yet to be seen 'China Hockey Stick'. China Mobile is expected to build out 13-14 thousand fiber lines between 400 cities across China."
This outlook comes a week after China Mobile started a new round of procurement for its 100G build, and companies such as Huawei Technologies Co. Ltd. , ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), FiberHome Technologies Group , and Alcatel Shanghai Bell Co. Ltd. are believed to be in line for more business after winning parts of two earlier procurement rounds last year. (See China Mobile Awards 100G Deals.)
At the components level, Finisar Corp. (Nasdaq: FNSR), which counts Huawei and Alcatel-Lucent (NYSE: ALU) as customers, has been cited by both Henderson and Raymond James analyst Simon Leopold as a possible major beneficiary. Also, semiconductor firm NeoPhotonics Corp. (NYSE: NPTN), which acquired Lapis Semiconductor last year to boost its 100G aspirations, will be looking to gain from Chinese market activity. (See The Week in 100G, NeoPhotonics Closes Lapis Deal, and Finisar, u²t Acquire 100G Tech.)
"We think opportunities at China Mobile could positively surprise in CY14 given that Huawei is the biggest beneficiary of the 100G backbone build, with Alcatel-Lucent also participating in the project as the only non-Chinese vendor," Leopold wrote in his own research note on Finisar late last week.
Henderson's research note actually centers on his downgrade of Riverbed's stock to "hold," but he takes it as an opportunity to offer some commentary on the China Mobile deployment, and on the broader market, adding, "It looks like a good year for networking and optical. We think the conditions are poised to show solid improvement in the US and Europe, which should pull along a rebound in emerging markets."
— Dan O'Shea, Managing Editor, Light Reading