Optical/IP Networks

LR Index Builds Momentum

Momentum continued to build on the Light Reading Index as it closed up for the second week in a row, following some healthy earnings reports. For the week, the Index closed up 69.81 (9.46%) to 807.37.

Nortel Networks Corp. (NYSE/Toronto: NT), one of the sector bellwethers, reported healthy earnings yesterday after market close (see Nortel Logs Good Quarter, Great Year), soothing some nerves on the Street. The company reported revenues for the fourth quarter of $8.8 billion, up 34 percent from $7 billion a year ago. One highlight was that Nortel beat its own optical revenue target of $10 billion for the year. Optical sales were $10.1 billion, more than double its sales the previous year. Today Nortel closed up 3.31 (9.03%) to 40.00.

Not everything was sunny, however. ADC Telecommunications Inc. (Nasdaq: ADCT), announced today that it was lowering earning expectations to $800 million or 6 cents per share, from 12 cents per share. ADC makes equipment for the access market, including hybrid fiber coax products and optical gear for cable TV systems. Its stock was downgraded by several analysts, including SG Cowen and Robertson Stephens. ADC closed down 5.75 (26.98%) to 15.563.

Redback Networks Inc. (Nasdaq: RBAK) on Thursday reported it had met its earnings estimates, but investors were disappointed by their decreasing margins, which went from 76.3 percent to 54.3 percent (see Why Redback Got Whacked). Redback’s management also announced it will no longer break down its earnings statement by product line. On Friday Redback lost another 0.94, (2.29%) to 39.94 after falling 16 percent on Thursday. The stock is down 15 percent on the week.

Earlier in the week Juniper Networks Inc. (Nasdaq: JNPR) and Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC) both reported strong earnings (see Juniper Crushes Estimates in Q4) that helped fuel a technology rally. Extreme Networks Inc. (Nasdaq: EXTR) met estimates, while Xilinx Inc. (Nasdaq: XLNX) fell short.

-- Matt Malina, research associate, Light Reading http://www.lightreading.com

Scott Raynovich 12/4/2012 | 9:00:09 PM
re: LR Index Builds Momentum Head fake, or a solid networking rally underway?
Scott Raynovich 12/4/2012 | 9:00:09 PM
re: LR Index Builds Momentum Head fake, or a solid networking rally underway?
munchkin 12/4/2012 | 9:00:08 PM
re: LR Index Builds Momentum so good you posted it twice?
Scott Raynovich 12/4/2012 | 9:00:08 PM
re: LR Index Builds Momentum don't mean to be self-promting.
Munchkin--lighten up, and buy some platform shoes.
vomonquan 12/4/2012 | 9:00:00 PM
re: LR Index Builds Momentum The optical craze has all the hall marks of the dotcom mania before it. Too many players/startups with me-too products. The optical space can't support that many players. The shake out is coming and take under with it 95% of the body count. LR index will be down into mud. Component vendors will flame out on the day of reckoning. The results will be unthinkable.
The Internet and optical market will still be here but it will be a lot less players.
God bless us all.
dnmun 12/4/2012 | 8:59:57 PM
re: LR Index Builds Momentum heh, you can post twice anytime, i like your stuff, i'm thinking about getting into fdry or rbak after all this bad news, but up to my ears in alpha industries after their boston twang won me over.

i read the redherring too so i appreciate your comments twice as much. hard to believe how ignorant i am of this area and how important it really is. this is not dotcom marketing mania, this is back to just aggressive PE for high growth, i think the bubble is different this time, but the move since the fed talked first in dec has helped me out a lot. thats why i like twice. double your capital, twice as nice, but of course i didn't know about ciena then, seems too far ahead of me now, thats why i'm waiting for fdry or rbak to make a base. dennis
Scott Raynovich 12/4/2012 | 8:59:49 PM
re: LR Index Builds Momentum This is definitely not another Dot-com bubble.
And to say the LR Index will go lower is fundamentally insane. The list is filled with some very powerful, fast growing, innovative public companies that will push the Index higher in the long run. The problem with dot coms was that they were mostly low-margin retail and media businesses being applied to a new distribution model--there were not technology companies at all.
vomonquan 12/4/2012 | 8:59:44 PM
re: LR Index Builds Momentum I agree with you that there are quite a few good companies. But that doesn't change the fact that there are too MANY companies/startups going after a limited number of carriers. Product porfolios are more or less the same. Telcos can't possibly buy from all of them, so many system vendors will supernovae and pull down with them component vendors. Each bubble has different characteristics. Last year the tagname was dotcom, this year it is somekind of Networks. Were you at this year BrassRing? Amazing, row after row of xxx Networks. Everyone I bump into in a supermaket, or a reunion works for somekind of optical networks company! The Ponzi scheme will collapse when a few high profile optical startups run out of money this year. And you know LR index will be in the mud.
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