Acacia Communications Sandbags Investors Again Using The Same Company-Specific Quality Control Issue

The drama and pain continues for Acacia Communications and its beleaguered investors. Once again, this morning, the company is pre-announcing lower numbers for the June quarter and taking down guidance for the current quarter ending in September.

The company says, Our second quarter results were adversely affected by the quality issue identified at one of our three contract manufacturers that we announced on May 31. As we previously announced, we identified a circuit board cleaning process as the likely root cause of the quality issue.  This cleaning process was eliminated and manufacturing at the impacted contract manufacturer resumed.  Although we began to ramp manufacturing capacity with our contract manufacturers during the quarter, we experienced supply constraints as capacity was used to both build replacement units and to meet new demand from customers for our AC400 and CFP units, said Raj Shanmugaraj, President and Chief Executive Officer of Acacia Communications. We anticipate completing our remediation efforts with respect to the remaining impacted units during the third quarter of 2017.

While we are disappointed with the impact that the quality issue had on second quarter results, looking ahead to the third quarter, we believe we are well positioned to meet customer demand for our products, which we believe continues to be driven by the strength of our product capabilities, said John Gavin, Chief Financial Officer of Acacia Communications. We remain excited about Acacias future growth opportunities, and believe that the new products we are currently ramping up will be contributors to our anticipated growth in the second half of 2017 over the first half of 2017.

As a result of the company-specific issue, Acacia is pre-announcing June quarter revenues between $77 million and $79 million and earnings in a range of $0.17 and $0.20 per share. At midpoints, that's $78 million and $0.185 per share versus Wall Street consensus of $91 million and $0.31 per share. Quite the sandbagging, no?

If that miss were not enough, Acacia says that results for its September quarter will now come in between $95 and $110 million and earnings will be in a range of $0.25 and $0.40 per share. Again at the midpoint, we get $102.5 million and $0.325 per share versus Street consensus of $108 million and $0.47 per share.

On May 31, Acacia has already warned investors that they were having a quality control issue at one of its OEMs but also stated that that issue was cleaned up.

Investors will be tempted to sell off the entire fiber optic sector on this company specific issue that Acacia is struggling with for the last couple of quarters now.

Looking at the prices in early trading in the sector, investors are doing just that.

Big mistake, in my opinion.

Investors need to take a look at the positive pre-announcement from Applied Optoelectronics to see what is really happening in that sector and write-off Acacia as a totally company specific issue.

That might be hard to do,  given the fact that the always-short-never-wrong gang, the kindly uncles and the do-over-Dudley's will try to make it a demand issue (which it definitely is not), but needs to be done if one is in the market to make money.

Incidentally, just yesterday I was asked by one of the traders in my chat-room about going long Acacia and I suggested that he not do so at this time. Acacia has been sandbagging investors for a while now.

Words to the wise as always.

(no position in acia, long aaoi, long aaoi calls)

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