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Key iPhone X Supplier Receives Qualification and Meaningfully Expands Capacity
Apple, Augmented Reality

Finisar (FNSR) reported earnings for the Oct-17 quarter and the company announced they began shipping production quantities of VCSEL arrays. 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 face of the iPhone X (see below). In addition, the company announced they acquired a 700,000 square foot facility in Sherman, Texas, which will allow them to scale production of their VCSEL arrays. This new site is expected to go live in 2H18. With the combination of volume orders beginning, as well as capex initiatives, we believe Finisar received final qualification from Apple, and will begin shipping larger quantities of VCSEL arrays in the Jan-18 quarter and throughout CY18.

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. What was incremental was acquisition of the Sherman, Texas production facility which suggests that Apple will add the VCSEL array to all of its new phones starting the fall of 2018. Today the VCSEL array is limited to the iPhone X. Separately, our daily checks suggest iPhone X remains supply constraint. We believe the VCSEL laser is causing production bottlenecks for the iPhoneX and with Finisar now receiving Apple qualification we expect the supply/demand imbalance will ease in the next month.

What they said. Finisar VCSEL revenue in the quarter was in the low-single-digit millions, but the company anticipates sales can grow to “tens of millions” of dollars per quarter beginning in Jan-18 and beyond. Once they are at full capacity they will see revenues reaching $30M. However, this compares to Apple’s largest VCSEL array supplier, Lumentum, who recorded $40M in VCSEL revenue in the Sep-17 quarter.

Finisar and Lumentum continue to talk about one customer (Apple) driving demand for VCSEL arrays. We believe both companies remain supply constrained, but 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.

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.

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