Optical/IP Networks

LR Index Update: Fed's Impact Minimal

The Light Reading Index dropped slightly today, depite strong earnings reports from New Focus Inc. (Nasdaq: NUFO) and Advanced Fibre Corp. (Nasdaq: AFCI). The Fed's decision to lower interest rates didn’t help, as the cut was already expected. The Index closed down 9.91 (1.32%) to 741.15.

The Federal Reserve Board cut the Fed funds rate and the discount rate each 50 basis points and indicated that further cuts were likely. The Federal funds rate stands at 5.50 percent and the discount rate at 5.00 percent. The next cut will probably come before the next meeting, scheduled in March. The Fed last cut rates in early January (see Fed Fuels Comeback Rally ).

New Focus reported an upside earnings surprise after the market closed last night (see New Focus Ups Forecast). New Focus is a component manufacturer whose largest clients are Corvis Corp. (Nasdaq: CORV), Agilent Technologies Inc. (NYSE: A), and Corning Inc. (NYSE: GLW). It makes a range of optical components, including lasers and beam combiners. New Focus closed up 10.81 (21.90%) to 60.19.

Advanced Fibre also posted impressive results on Tuesday night, beating Street estimates (see AFC Posts Record Q4 Sales). The company is a provider of access gear for telecom companies and network management software. It reported revenues of $116.1 million, up 40 percent from $82.8 million in the fourth quarter last year. Pro forma earnings were $20.2 million, or 24 cents a share, a 165 percent increase over last year’s $7.6 million, or 9 cents a share. Advanced Fibre closed up 4.25 (20.67%) to 24.81.

Alcatel SA (NYSE: ALA: Paris: CGEP:PA) announced positive earnings this morning but lowered guidance for 2001 (see Alcatel Releases Year-End Results). As a result, it was downgraded by Merrill Lynch & Co. Inc. (NYSE: MER). Alcatel said it would work down inventory levels. This could hurt JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU), which is a big supplier to Alcatel. Alcatel closed up 4.42 (8.21%) to 58.26.

Cisco Systems Inc. (Nasdaq: CSCO) announced new products today, including the 12000 series core router and an OC192 line card (see Cisco Ships OC192). In addition, Cisco will be announcing some new customers for its routing and optical products. Sprint Corp. (NYSE: FON) and AT&T Corp. (NYSE: T) are expected to be among the new customers, according to sources close to Cisco. Cisco closed down 0.56 (1.48%) to 37.44.

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

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Scott Raynovich 12/4/2012 | 8:57:57 PM
re: LR Index Update: Fed's Impact Minimal what's next for the LR Index?
hippo 12/4/2012 | 8:57:56 PM
re: LR Index Update: Fed's Impact Minimal We can no longer get a reaonsable explaination from the investors' actions these days.

Nothing will make them satisfy. They have already "expected" a .50 pt cut. So, if the fed cut by .25, the investors would definitely not be please; the Fed cut by .50, they expected more, a .75; but if the fed cut by .75, then they would come up with lame reasons like, "oh, the economy is really in a bad shape, or the fed would not have cut by this much..."

Well, I guess it is the 21st century, people don't have to have a reason for their actions...
kingkong 12/4/2012 | 8:57:56 PM
re: LR Index Update: Fed's Impact Minimal I think the investors are just waiting for the optical networking tree to shed all the failed startups( corv, ironbridge etc) and focus on the a company ( cien, rbak,fibr, onis) that will provide both revenue and profitability.
rafaelg 12/4/2012 | 8:57:46 PM
re: LR Index Update: Fed's Impact Minimal When the gov. cuts interest rates, its always too late. The economy is like a big heavy wheel. A cut in interest rates applies a little grease to the axle. If the grease comes when it slows down, it it will take a while to speed up again. It will also be a while before the idiots can agree on a tax cut. Get ready for a hard winter and possibly an empty stocking next Christmas!!!
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