Why Shares of Acacia Communications Are Soaring Today

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What happened

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Shares of fiber-optic network equipment provider Acacia Communications (NASDAQ: ACIA) jumped on Thursday in response to an analyst note regarding a large order for optical transport network equipment by China Mobile from a variety of suppliers. According to the analyst, the order is the largest ever placed by the Chinese telecommunications company. As of 12:32 p.m. EDT, Acacia stock was up 9.2%.

So what

Jun Zhang, analyst for Rosenblatt Securities, believes that China Mobile's order for 42,000 cards and ports is the largest ever by the company, beating out a previous order in 2015-2016. The analyst pegs the total value of the order at 2 billion to 3 billion yuan, or $300 million to $450 million.

Details are scarce, and it's unclear how much Acacia will benefit from this large order. Zhang expects other companies, like Huawei, to win the bulk of the business. Shares of Acacia have slumped since peaking in late 2016, thanks in part to a slowdown in orders from China. The China Mobile order has the potential to turn the tide.

Now what

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Acacia stated in its second-quarter earnings press release that it expects improving order rates during the third quarter, particularly from its largest customer in China. The China Mobile order seems to confirm that optimism.

At this point, there's no telling how much this will affect Acacia's results. The company's third-quarter guidance still calls for a steep revenue decline, although revenue is expected to grow compared to the second quarter. When Acacia will return to year-over-year growth is an open question.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.