Oclaro, Inc. OCLR and Acacia Communications, Inc. ACIA have announced a collaborative deal wherein the former will partner as a second source of 100G/200G CFP2-DCO coherent optical transceivers based on the latter’s Meru DSP (Digital Single Processor). Along this line, Oclaro is set to roll out a new CFP2-DCO module equipped with pluggable compatibility with Acacia CFP2-DCO and expects to begin sampling the module by the end of this year, making it market-ready by early next year.
Are Shareholders Impressed?
Since the announcement, the share price has recorded fluctuations, suggesting the probable dilemma of shareholders. It is difficult to say whether the slight fluctuations were a result of the news or certain macroeconomic issues. However, the stock closed at $8.56 as on May 31, 2018 down from $9.04 on May 29 on which date the news went public.
CFP2-DCO: Its Significance in the Telecommunication Industry
With the rising demand for faster optical networks, CFP2-DCOs (Digital Coherent Optics) are becoming more and more important owing to their ability to create high transmission speed by integrating coherent DSP into a pluggable module. According to advocates of the CFP2-DCO, the technology allows addition of coherent optical transmission capabilities based on pay-as-you-grow deployment model, particularly on systems not designed for coherent transmission. Further, simpler integration between module and system leads to quicker service activation.
Service providers have a preference for the CFP2-DCO technology. However, both the partnering companies believe that an ecosystem of multiple suppliers of CFP2-DCOs will attract even more service providers. The companies have come together to develop related items to ensure optimal compatibility between Acacia’s transceiver and Oclaro’s CFP2-DCO module. The collaborative innovation will support modes that meet all speed requirements, including that for 100G Open ROADM MSA.
Oclaro believes that using different material approaches to build the CFP2-DCO module will result in a bolstered ecosystem. On this note, the company declared that the module will be purely based on its Indium Phosphide expertise, unlike Acacia, which uses silicon photonics. The company believes that this collaborative solution will enable customers to access two trusted sources of coherent optics supply, allowing them to efficiently upgrade their networks to higher speeds. The pluggable interoperable modules from the partnering companies will support the transmission of 100G and 200G data speeds. These modules back density, which is four times higher than current generation 100G CFP-DCOs.
Oclaro’s technological shift strategies, including the adoption of 100GB per second transmission modules over the past few years have made it a leader in the optical networking technology, resulting in significant growth in profits.
In the past three months, the stock has outperformed the industry with a gain of 15.5% against a 1.4% decline for the latter.
Zacks Rank and Stocks to Consider
Oclaro currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry space are Motorola Solutions, Inc. MSI and Ubiquiti Networks, Inc. UBNT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Motorola has an expected long-term earnings growth rate of 8%.
Ubiquiti has an expected long-term earnings growth rate of 18.6%.
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