Special thanks to Austin Bohlig for his work on this note.
We have updated comments regarding the upcoming iPhone launch following Finisar’s (FNSR) FQ1 earnings results, which we believe is one of Apple’s VCSEL array suppliers. Vertical-cavity surface-emitting lasers (VCSEL) are a key technology that adds 3D sensing capabilities and enables advanced augmented reality applications.
Finisar VCSEL Array. Source: Laser Diode Source
What They Said. Finisar reported Jul-17 results today after the bell, and while they talked up the opportunity of VCSEL array demand from one of their customers (aka Apple), the company experienced a delay in customer approval for their VCSEL production units. Due to the delay, Finisar was forced to push out production shipments to Oct-17. That said, the company anticipates this problem will be solved by the end of Oct-17, and to begin shipping much larger quantities in Jan-18 and following quarters. Finisar expects VCSEL revenue to be in the low-single-digit millions in Oct-18, but believe sales can grow to “tens of millions” of dollars per quarter beginning in Jan-18 and beyond, which is in-line with management’s previous comments. We do want to highlight, the company indicated they do not expect revenues to be in the “hundreds of millions” per quarter, but once they are at full capacity they will see revenues reaching $30M.
We also would like to point out that Finisar and other VCSEL array suppliers continue to talk about one customer (Apple) driving demand for VCSEL arrays. We believe Apple has secured a high percentage of all VCSEL lasers created, which we view as a large competitive advantage that will make Apple a leading AR player in the smartphone space.
What This Means For Apple? If Finisar can resolve this problem in the upcoming quarter, we do not believe this will not affect the iPhone launch. Lumentum, which we believe is supplying Apple with 75 – 80% of their VCSEL arrays, announced a $200M order last quarter (more from us here). With Lumentum shipping everything they can produce, we believe Apple will have a sufficient supply of VCSEL arrays to support initial demand for the iPhone incorporating this technology. However, given how capacity constrained Lumentum is for VCSEL arrays, if Finisar issues extend beyond Oct-17, we do believe it could delay iPhone orders.
We continue to anticipate the iPhone Pro being the only phone incorporating these advanced VCSEL arrays for 3D sensing that will enable augmented reality applications. We expect Apple to ship 133M units in the back half of CY17, of which, 43% will incorporate 3D sensing. Looking into 2018, we believe Apple will ship a total of 239M iPhones and 67% of them will include 3D sensing capabilities.
Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.