Belden Walks Out on Digi!

logo_digi#Belden $BDC announced that it has rescinded its proposal to acquire 100% of #Digi International $DGII in light of the fiscal second quarter 2017 results and full-year 2017 outlook reported by Digi on May 4, 2017.

Belden’s offer of $13.82 per share in cash, initially disclosed on November 11, 2016, was based on a 10x EBITDA multiple on #EBITDA of $24M implied by the high end of guidance provided by Digi to its shareholders on October 27, 2016.

Earnings before interest, tax, depreciation and amortization (EBITDA).

$DIGI tumbled 13% on the news to close at $10.70. Shares were trading around $10 when the buyout was announced.

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3D Sensing Outlook Sends Lumentum Shares Higher


Shares of Lumentum Holdings $LITE are sharply higher after investors put a higher premium on the consumer electronics potential ahead of its near term fiber optic woes.

3D SENSING OPPORTUNITY: On its earnings conference call held earlier today, CEO confirmed that the company haslite received “volume” 3D sensing production orders for delivery in the September quarter. Amid industry speculation that #Lumentum or #Finisar $FNSR or both may be chosen by #Apple $AAPL as suppliers for 3D densor devices, the CEO highlighted that “We expect 3D sensing to be a significant growth driver over the coming years.”

Apple is said to be interested in 3D technology to enhance the new iPhone version with facial recognition as well as augmented reality. Referring back to earlier 3D comments, the CEO added that the “multimillion unit orders are just the initial orders. We expect to be receiving orders on a weekly basis moving forward to cover our lead times. As I said in the prepared remarks, we have been approved to start volume production. And so, we are ramping our production to be able to achieve the volumes and our customers need in the short-term. And you can imagine that the cycle time of 3D sensing for us a few months, and so, given that we are in production today, you can determine when the production ramp starts and given a 13-week lead cycle time. So we will be ramping through the quarter. And in the December quarter, we will be at full volume production capability assuming the program goes as we expect.”

Adding to investors’ enthusiasm for the 3D sensor potential in consumer electronic, Chief Financial Officer said that 3D sensing gross margins will be “significantly north of our corporate gross margin average and it’s going to be should be over 50%.”

PRICE ACTION: $LITE is up 11% to $47.45 in afternoon trading, while rival Finisar is up nearly 2% to $23.01.

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Smartphone Sales in China Decline!

Market research firm #IDC yesterday released its estimates of Q1 #smartphone shipments in China, reporting that total shipments to the country rose just 1% to 104.1M partly due to “high inventory” from the previous quarter.china-phone

Breaking the quarter down by company-specific performance, #Huawei took the top spot with shipment growth of 25.5%, while #Apple $AAPL took fourth place on a 26.7% decline in shipments.

IDC commented, “Despite a soft first quarter in China, the second quarter should pick up sequentially given not only’s $JD June promotions, but also activity around a number of new products like vivo with its Y53, #Xiaomi with its Mi 6, Meizu with its E2, and Gionee with its M6S Plus.

Apple has been seeing double-digit YoY declines for the fifth quarter in a row, but we believe that Chinese consumers are holding out for the launch of Apple’s 10-year anniversary iPhone at the end of the year.” Other publicly traded companies in the space include #Samsung $SSNLF .

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China Woes Send Optical Communication Shares Lower!

Investors have been skittish on the prospects for RMB#optical communication companies since late last year, mostly centered on a slowdown in #China spending.

IHS Markit pointed out in a report from December 2016 that the pace of China’s spending on optical network equipment slowed in Q3 of 2016. Sales in China dropped more than 19% sequentially, according to the report. Operators in the country still spent 14% more than in Q3 of 2015, thanks to deployments of 100G infrastructure led by China Mobile.

A recent report from MKM Partners on #Oclaro $OCLR peer #Finisar $FNSR noted concerns on a number of fronts, “including China, for all products and 10G Datacom and Fibre Channel/SAN in the U.S. and Europe.” The analyst saw Q4 demand in China weak due in part to lower demand from Huawei with weakness in product demand across the board, including WSS,10G Datacom and Telecom, and CFP2.

According to the note, FiberHome and ZTE are also sluggish for Finisar. Oclaro CEO Greg Dougherty expanded on China during the company’s earnings call on Tuesday night. “In April, we were informed by both of our major Chinese customers that demand would be even slower than previously anticipated for Q4. While both customers have signaled a slowdown for demand in the China market, the majority of the projected Q4 impact is coming from one customer. This slide-dark-fibercustomer cited both the reduction in demand for the Chinese market as well as in inventory correction,” the CEO said.

On a positive note, #Dougherty sees the fundamental demand drivers in China still intact, and believes growth will return later this year from metro and provincial networks deployment.

ANALYSTS WEIGH IN: In a report out Wednesday morning, Jefferies analyst James Kisner said he believes the post-earnings selloff in shares of Oclaro brings a compelling entry point. The analyst was pleased with the gross margin performance and thinks the outlook suggests “healthy industry dynamics and product differentiation.” He lowered his price target for the shares to $12 from $14 and reiterated a Buy rating on the name. In a separate note out Wednesday, Needham analyst Alex Henderson pointed out that a C-Suite mandate to improve cash flow at Huawei is causing a more dramatic inventory correction than expected and that there was a “modest” amount of inventory to mop up at #ZTE.

OPTICALS DOWN: Shares of other companies in the space are also lower, including Finisar (FNSR), #Lumentum $LITE , #NeoPhotonics $NPTN , #Acacia Communications $ACIA , #Viavi $VIAV , and Applied Optoelectronics $AAOI .

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