• Finisar (FNSR) is Apple’s 3rd largest VCSEL array supplier, accounting for about 5% of iPhone X VCSEL arrays.
• Tonight the company reported earnings for the Apr-18 quarter.
• Finisar continues to expect a ramp in VCSEL demand in their Oct-18 quarter, suggesting more iPhone models will incorporate Face ID and 3D sensing for AR.

Finisar is Apple’s 3rd largest VCSEL array supplier, which enables 3D sensing applications such as facial recognition through a flood immolator and dot projector on the front of the iPhone X. While VCSEL revenues were suppressed in the quarter due to seasonality, Management’s commentary remains mostly in-line with the previous quarter, with the company still expecting to see a ramp in demand in the Oct-18 quarter from Apple.

What they said. In line with Management’s expectations, Finisar’s VCSEL revenue (about $5 -7M in the quarter) was down sequentially as a result of seasonality in the quarter. While demand for VCSELs will be flat in the Jul-18 quarter, the company highlighted they continue to anticipate a ramp in the Oct-18 quarter in anticipation of a key customer’s (Apple) new product launches. Finisar also highlighted the new Sherman facility remains on track to go live in Fall 2018. Note this facility is the new 700,000 square foot capacity expansion initiative the company announced shortly before Apple awarded Finisar a $390M contract for future orders.

Read on iPhones. Finisar’s comments are in-line with previous comments, so we are not making any changes to our iPhone estimates. That said, we believe Management’s comments around an Oct-18 quarter ramp suggests this fall the Apple will introduce multiple new iPhones incorporating Face ID 3D sensing technology. In addition, with the Sherman facility going online this fall, we believe demand for VCSELs will accelerate into 2019 as more phones and other products integrate 3D sensing technologies. This, in turn, will be a key adoption driver to augmented reality (AR) applications.