9:15 AM -- As I'm typing this on Thursday, JDS Uniphase Corp. and Opnext Inc. appear to have beat expectations with their earnings reports. Both stocks are up more than 15 percent in after-hours trading.
Both companies also gave pretty sunny projections for the current quarter:
Table 1: Revenue Guidance
But what if it's all about to end? Remember that last year, Ed Zabistky of ACI Research was warning of a bubble forming in semiconductors and optical components. (See Chips Start the Downslide.)
I don't think he's being sensationalist. If anything, he's describing the normal cycle of this business. Shortages cause extra ordering; when shortages end, big inventories linger, putting a drag on sales.
Zabitsky isn't just going on gut feel. In multiple reports, he's been pointing out that Verizon Communications Inc. has finished an optical buildout. That's a chunk of demand that won't be recurring. He also considers China to have been undergoing a de facto stimulus plan -- meaning telecom demand, which is inherently strong, was propped up to look even stronger.
The trick to all this, of course, is to predict when the music stops. It wasn't this quarter. But I think Zabitsy's reasoning is sound. Buying is being spurred by shortages, and no matter how careful the industry claims to be, there's usually an inventory jolt at the end of the cycle.
— Craig Matsumoto, West Coast Editor, Light Reading