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Macom Plunges 24%, Takes Down Optical: Sorting Through the Wreckage

Shares of fiber-optic component vendor Macom Technology Solutions (MTSI) are down $14.64, or 24%, at $46.42, after the company yesterday afternoon missed fiscal Q3 estimates, and forecast a gigantic shortfall in revenue this quarter, blaming both on China’s halt in deployments of “passive optical network” connections to homes and offices.

Macom’s warning about China has dented most fiber optics stocks today: Finisar (FNSR) is down $149, or almost 6%, at $26.13; Fabrinet (FN), a contract manufacture working for many fiber parts makers, is down $1.91, or 4%, at $43.25; Lumentum Holdings (LITE) is down $1.65, or 2.6%, at $62.05; and Applied Optoelectronics (AAOI) is down $4.45, or 5%, at $95.16.

During the conference call wth analysts, analysts repeatedly peppered CEO John Croteau and CFO Bob McMullan with questions about the China matter. Croteau insisted it has nothing to do with losing market share, saying he was told in trips to China last quarter that revealed orders for existing transceivers “dried up completely” as telcos there burn down inventory before implementing “10G,” or 10-gigabit optical connections.

"I can tell you, 0 indication of share loss,” said Croteau.

On the flip side, the company’s data center business, supplying “hyper-scale companies,” soared by 300% in the quarter.

In an exchange with one analyst, Croteau made remarks that seemed to allude to something I discussed in an article I wrote in Barron’s last week, in which I discussed how the company has business with (AMZN) to supply transceivers manufactured by Fabrinet. Croteau didn't discuss Amazon, but he alluded to an important deal to supply parts that's "disruptive":

We got to be really careful about what we talked about, our lead customers' level of business. There's a high degree of sensitivity when our customers' talking about their business to investors. When you get more diversified businesses with multiple customers, it helps. When you have one big...