After markets closed, Finisar (FNSR) reported earnings for the Jan-18 quarter. Finisar is Apple’s 2nd largest VCSEL array supplier, which powers 3D sensing applications such as facial recognition through a flood immolator and dot projector on the front of the iPhone X. While the company’s VCSEL contribution remains small ($8 – 10M), Management’s commentary remains mostly in-line with the previous quarter, and the company seems to be positioning itself for a large 2H18. Following this update, we continue to believe Apple is preparing to integrate 3D sensing into multiple iPhone SKUs that will be released this fall.

What they said. We believe Finisar’s VCSEL revenue in the quarter was minimal (~$8 -10M), and the company expects VCSEL revenue to be down sequentially in the Apr-18 quarter as a result of seasonality. However, most importantly, Finisar provided an update on the company’s new Sherman facility, which is the new 700,000 square foot capacity expansion initiative the company announced shortly before Apple awarded Finisar $390M contract for future orders. While Management highlighted yield improvement is a primary focus, the company continues to believe the new plant will go live in 2H18.

Impact to Apple. In terms of a read on demand for iPhone X, 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 a 2H18 ramp remains positive for Apple’s new iPhone launch this fall, where we expect the company to introduce multiple new iPhones and all will incorporate 3D sensing technology. This in-turn confirms that Apple will make augmented reality (AR) a core feature in all new iPhones this fall.