One of the great things about making money hand-over-fist when you are a dominant technology company is you often have a huge pile of cash on your balance sheet. While many companies like to use some of that cash stash to buy back shares, others acquire companies that can add to growth or start new projects that could revolutionize other areas of tech and commerce.
Facebook Inc. (NASDAQ: FB) recently hosted its inaugural Telecom Infra Project (TIP) Summit event, held at the company headquarters. At the summit the social media giant announced the development of Voyager, which is a new piece of data center networking hardware known as a transponder, which takes packets from switches and routers and gets them ready to be sent out over fiber optic cables. Facebook intends to share the design for the device under the Technology Innovation Program.
Top Wall Street analysts agree that three companies look poised to benefit, and all three are red-hot technology companies that dominate their respective sub-sectors. We screened our 24/7 Wall St. research database, and all three companies have multiple Buy ratings across the board.
This company had a red-hot IPO and the stock has backed up huge after a recent secondary offer. Acacia Communications Inc. (NASDAQ: ACIA) is a leading supplier of high-speed coherent optical interconnect products to network equipment manufacturers, hyperscale cloud companies and service providers. The company’s foundation is in its Digital Signal Processing (DSP), and a unique approach with its silicon-based photonic integrated circuit (SiPhi PIC). The company primarily combines the DSP and PIC to create modules, which are integrated into optical/networking equipment to provide high-speed optical interconnect.
Top Wall Street analysts have increased estimates following Acacia’s positive preannouncements and secondary offering. The company continues to benefit from strong demand across Web 2.0 direct customers, Chinese original equipment manufacturers (OEMs) and metro 100G cycles. Acacia additionally is benefiting from strength in China broadband optical roll-outs.
Analysts expect that Facebook will use Acacia’s AC400 transponder module with 400G dual-channel coherent digital signal processing application-specific integrated circuit.
The Merrill Lynch price target for the stock is a gigantic $130, and the Wall Street consensus target is $119. The shares closed yesterday at $73.02, and the company reports earnings after the close today.
This formerly was known separately as Avago and Broadcom, and it is a member of the prestigious Merrill Lynch US 1 list. Broadcom Ltd. (NASDAQ: AVGO) is a leading designer, developer and global supplier of a broad range of analog and digital semiconductor connectivity solutions. Its extensive product portfolio serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial and other.
Applications for the company’s products in these end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.
The company produces radio frequency (RF) front-end for LTE-enabled Apple products. Wall Street estimates that the company does 15% of its total business with Apple. Additional estimates are that Avago has between a 13% and 17% revenue exposure to Apple in the wireless communications segment, which was guided up 10% or so quarter over quarter for the third quarter.
Facebook is expected to use the company’s Tomahawk switching chip in the Voyager project.
Broadcom investors receive a 1.15% dividend. Merrill Lynch has a $215 price target, and the consensus target is $202.38. Shares closed Wednesday at $173.42. The company will report earnings on December 7.
This top optical company also looks to benefit big-time from the Voyager project. Lumentum Holdings Inc. (NASDAQ: LITE) manufactures and sells optical and photonic products in the Americas, the Asia-Pacific, Europe, the Middle East and Africa. It operates in two segments. The Optical Communications segment offers components, modules and subsystems that enable the transmission and transport of video, audio and text data over high-capacity fiber optic cables.
The Commercial Lasers segment offers diode, direct-diode, diode-pumped solid-state, fiber and gas lasers. It serves customers in markets and applications, such as manufacturing, biotechnology, graphics and imaging, and remote sensing, as well as in precision machining, including drilling in printed circuit boards, wafer singulation and solar cell scribing. Its lasers products are used in various OEM applications.
This company is expected to provide Facebook with an open line system, such as terminal amplifiers and reconfigurable optical add drop multiplexers.
The $45 Stifel price target compares with the consensus estimate of $44.71. Shares closed Wednesday at $36.50.
All three of these companies are doing outstanding with their current business, and the potential for additional revenue from this hot new Facebook project is just more fuel for the proverbial fire.