2004 Top Ten: Stock Gains & Pains

So ends another so-so year for telecom. The recovery was nice while it lasted, but the gains in many telecom-related shares started slowing in late 2004, as reflected in this year's biggest gains and "rightsizings" in telecom stocks.

Of the nearly 250 telecom-related names we checked, decliners outnumbered gainers by 2 to 1 -- and that's in a year when the Nasdaq composite was up 6 percent. Part of the problem is that the shakeout still isn't done in telecom. Layoffs are continuing at small and large companies alike, and despite progress on VOIP adoption and fiber-to-the-curb buildouts, the telecom recovery is still too weak to float all boats.

The prices below and percentage gains are based on annual gains, as of market close on December 22.

Enterprise business remains a stronger play than telecom, but we didn't include pure enterprise networking plays. Had we not cast off enterprise security from our list, F5 Networks Inc. (Nasdaq: FFIV) would have topped the explosions (priced at $47.00, up 87%), and Websense Inc. (Nasdaq: WBSN) would have made the list ($50.82, up 74%). In the storage realm, Network Appliance Inc. (Nasdaq: NTAP) would have had a shot as well ($34.04, up 67%).

And while neither routing giant made this list of pains and gains, rivals Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR) played out a little drama of their own. Juniper had a banner year, climbing 44 percent to $26.94 and picking up a couple of Leading Lights awards -- including one for best investment potential (see LR Reveals Leading Lights Winners). But Cisco, in a story bemoaned by many an analyst, was down 20 percent this year at $19.36 and couldn't even earn a pop from the new CRS-1 core router -- arguably its most important product announcement in many, many years (see Cisco Sees Big, Bold Growth).

Enough about those guys. Here, in technicolor hindsight, are the stocks to have owned -- or sold short -- in 2004.

GAINS

From the list of stocks we tracked, no eligible stock grew even 100 percent on the year. By contrast, a gain of 500 percent didn't crack the top five last year. But given the doldrums of telecom and the modest gains seen by Nasdaq overall, these companies had performances to be proud of.

No. 5 Visual Networks Inc. (Nasdaq: VNWK)

Jan. 1, 2004 price: $2.24
Dec. 22, 2004 price: $3.45
Change: +54%

OSS vendor Visual Networks got off to a good start in 2004 and finally clawed its way to profitability with the quarter ended in September. Revenues have grown during the year as well, to $13.8 million for the September quarter.

OSS was a hot topic this year -- presaged by a June 2003 Light Reading Insider report (see Insider Details OSS Opportunities). Keep it in mind, because the subject comes up later.

No. 4 Telus Corp. (NYSE: TU; Toronto: T)

Jan. 1, 2004 price: $18.00
Dec. 22, 2004 price: $28.05
Change: +56%

Hands across Canada! The country's second largest telecommunications company climbed back to profitability early this year with a strategy to emphasize wireless and data services, and it's been on a roll ever since.

Telus's offerings include all the fancy buzzwords of the day, including IP VPNs and VOIP traversing a newfangled IP/MPLS core. Telus Mobility accounted for 37 percent of Telus's revenues in the first nine months of 2004, and the carrier recently announced that it expects that percentage to increase next year.

No. 3 Ericsson AB (Nasdaq: ERICY)

Jan. 1, 2004 price: $17.70
Dec. 22, 2004 price: $31.49
Change: +78%

Last year's gain of 150 percent hardly got Ericsson noticed -- it was like having a good hair day while sitting next to Catherine Zeta-Jones. But Ericsson kept its progress rolling this year to stand out against the dreary field.

The impressive part is that Ericsson was down enough to incur a 1-for-10 split in 2002. The stock has sailed northward from there, spurred by major deals including the IPTV win Ericsson might have garnered with BellSouth Corp. (NYSE: BLS).

The company also added to its roster of partnerships, teaming up with France Telecom SA (NYSE: FTE) for IP multimedia services and with Cisco for Class 4 and 5 switch replacement.

No. 2 Marvell Technology Group Ltd. (Nasdaq: MRVL)

Jan. 1, 2004 price: $18.97
Dec. 22, 2004 price: $34.60
Change: +82%

Yes, this is cheating a bit, because much of Marvell's surge is coming increasingly from the consumer market. Still, the company has telecom aspirations, particularly when it comes to Ethernet, and it's trying to lead the wave of chip makers providing software and even systems design to outsource-happy OEMs.

By the way -- rival Broadcom Corp. (Nasdaq: BRCM), the analysts' darling, was down 8 percent on the year, at $31.08.

No. 1 InfoVista SA (Nasdaq: IVTA)

Jan. 1, 2004 price: $2.93
Dec. 22, 2004 price: $5.79
Change: +98%

Behold the power of network assurance OSS. The sector ended 2003 with some glowing earnings reports, and InfoVista got to show off a second-hand GIG-BE win, in the form of a one-year job with Juniper. The company is still racking up losses, but maybe investors like the steady stream of product introductions.

PAINS

The stock gains were dampened compared with 2003, but the same can't be said of the collapses. As last year, several companies sagged on continued weak prospects.

Left off this list are liquidations (a 100% decline just isn't as interesting) and a few noncontenders. For example, Turnstone Systems Inc. (Nasdaq: TSTN) fell 89 percent but was officially dissolved last year; the stock continues trading among speculators and/or the very confused. Celeritek Inc. (Nasdaq:CLTK) fell 89 percent as well but dropped most of its telecom-related products last year.

What's left, then are the companies that took the worst hits but remain going concerns. And wow, we had a bit of excitement going into the home stretch today ...

No. 5 VocalTec Communications Ltd. (Nasdaq: VOCL)

Jan. 1, 2004 price: $4.53
Dec. 22, 2004 price: $1.45
Change: -68%

This article was ready for press with Internap Network Services Corp. (Nasdaq: IIP) in the No. 5 spot. But an inexplicable surge -- up 23 percent today at $0.81 -- kicked Internap out of the running. Suddenly it looked like Redback Networks Inc. (Nasdaq: RBAK) -- down 67.6 percent on the year, at $5.44 -- was going to make the list for the second year running.

But no! VocalTec edged down just slightly in trading on Wednesday, crossing the finish line just ahead of Redback. It's been a hard year for the VOIP equipment maker (a theme you'll hear again later in this list).

VocalTec Wakes Up

No. 4 ITC^DeltaCom Inc. (Nasdaq: ITCD)

Jan. 1, 2004 price: $6.06
Dec. 22, 2004 price: $1.59
Change: -74%

Maybe it's that annoying caret. Or maybe the canceled two-stage merger with Florida Digital Network Inc. and Network Telephone Corp. Either way, the southeastern U.S. service provider clawed its way back onto the Nasdaq this year only to get slapped down by the market.

No. 3 Copper Mountain Networks Inc. (Nasdaq: CMTN)

Jan. 1, 2004 price: $10.77
Dec. 22, 2004 price: $2.78
Change: -74%

These guys are still around? Yes, and they're still duking it out for edge-equipment sales. But the company is also running short on cash, and that's forced the board to start considering options including a sale. Copper Mountain has some hope as carriers pour money into access networks. Of course, the same could have been said for Redback last year, and look what happened there.

No. 2 Verso Technologies Inc. (Nasdaq: VRSO)

Jan. 1, 2004 price: $3.23
Dec. 22, 2004 price: $0.75
Change: -77%

Talk about a bad start. Verso stock fell 40 percent on Jan. 8 when the vendor announced its earnings would disappoint, and it's been downhill from there. The VOIP equipment maker is trying out a new president. But it's possible that as the VOIP fallout begins to claim weaker companies -- and you know it will, eventually -- Verso will be the zebra with the bum knee and one blind eye, waiting to get culled from the herd.

No. 1 Bookham Inc. (Nasdaq: BKHM; London: BHM)

Jan. 1, 2004 price: $25.00
Dec. 22, 2004 price: $4.47
Change: -82%

We're as shocked as you are -- were they really that bad? Bookham was supposed to be a high flier by now, standing as one of the few component makers to not only survive the crash but stand up to JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU), thanks to acquisitions including that of Nortel Networks Ltd.'s (NYSE/Toronto: NT) components group.

But components appear to be the last of the crash victims to revive. After shedding its initial ASOC aspirations, Bookham spent the last part of the year announcing layoffs followed by extra layoffs. Along the way, there was a headquarters move to the U.S. and a 1-for-10 stock split that didn't exactly pull an Ericsson.

— Craig Matsumoto, Senior Editor, Light Reading