Earnings Expectations Remain High

Midway through the earnings season for the next-generation networking companies, the mood is optimistic. But such optimism is clearly built into many of the stock prices of companies that have yet to report.

Juniper Networks Inc. (Nasdaq: JNPR) destroyed estimates for its quarter, while Redback Networks Inc. (Nasdaq: RBAK) pleasantly surprised investors. But both stocks have been trading in a range since the announcements.

Companies including Sycamore Networks Inc. (Nasdaq: SCMR) and Ciena Corp. (Nasdaq: CIEN) have yet to report -- and everybody expects upside surprises. Ciena reports at 8:30 a.m. ET on Aug. 17 and Sycamore will report at 4:30 p.m. ET on Aug. 24.

These companies may need to astound Wall Street to significantly move their stocks, as history has shown that with the sky-high valuations in optical stocks, beating the Street is not enough to excite investors (see Earnings Jump, but the Market Dumps). Both Ciena and Sycamore shares have risen significantly since May, anticipating good things to come.

Likewise, if a company disappoints, as Lucent Technologies did in their recent quarterly announcement, the stock will get creamed.

Steve Levy, an analyst with Lehman Brothers, on Tuesday morning issued an optimistic forecast for both Ciena and Sycamore, as well as ADC Telecom (Nasdaq: ADCT), which also reports on Aug. 17.

"We expect strong overall numbers from Ciena, with upside coming from the CoreStream DWDM product line and the emerging MultiWave Metro metropolitan WDM platform," wrote Levy.

Likewise, Levy had predictions for Sycamore's quarter: "Management should recognize its first-ever revenues on the SN16000 switch, which would be its third revenue-generating intelligent optical-networking solution."

Levy also tracks ADC Telcom, a large diversified manufacturer of networking products with over $1 billion in revenue. ADC has recently been focusing on optical technology. He rates all three stocks a "Buy."

-- R. Scott Raynovich, executive editor, Light Reading http://www.lightreading.com
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