Optical/IP Networks

Market Sell-Off Clips Optics

The optical networking market was the focus of a broad Nasdaq sell-off on Friday, as general fears about technology stocks swept through the stock market.

Networking stocks led the selling on one of Wall Street's worst days since May, with publicly held optical networking systems and components vendors seeing a 5 to 15 percent reduction in their valuations. A similar impact is likely to be felt among private companies, most observers seeing it as the inevitable correction in a high-flying sector.

The companies hit particularly hard included New Focus Inc. (Nasdaq: NUFO), which lost $7.50 (10.83 percent) to close at $61.75; Sycamore Networks Inc. (Nasdaq: SCMR), which shed 11.88 (13.18 percent) to close at 78.25; ONI Systems Inc. (Nasdaq: ONIS), down 8.97 (13.45 percent) to 57.72; and Corvis Corp. (Nasdaq: CORV), down 9.56 (14.15 percent) to 58.

Larger players such as Lucent Technologies Inc. (NYSE: LU) and Cisco Systems Inc. (Nasdaq: CSCO) were a little more stable. Lucent was actually one of the sole winners in the market, rising 0.19 (0.57 percent) to 33.19. Cisco lost 1.38 (2.39 percent) to 56.19, and Nortel Networks Corp. (NYSE/Toronto: NT) dropped 4.44 (6.65 percent) to 62.31.

Most Wall Street sources did not have a specific explanation for the bloodshed, other than to point to the overall panic that swept through the Nasdaq Composite Index and technology stocks in general. Because optical stocks tend to be particularly volatile and trade at high valuations, they are more susceptible to dramatic swings in the market.

"A whole series of earnings disappointments and preannouncements are involved here," said Mark Langley, a director at Epoch Partners, an investment bank. "Generally, high-flyer companies with higher multiples are going to be hit a bit harder when this happens."

Several earnings warnings have been issued in the PC sector, including those from Intel Corp. (Nasdaq: INTC) and Dell Computer Corp. (Nasdaq: DELL), but little earnings news of substance has emerged in the optical sector, other than some nervousness about components shortages (see What's Spooked Juniper Investors?). On the contrary, many sources are predicting strong quarterly numbers from some players (see Eyes on Redback's First Optical Quarter) and (see Corvis On Track for First Revenues).

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

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