Optical/IP Networks

Optical Pessimism Runs Rampant

Thanks to a bevy of recent earnings disappointments, optical and telecom investing is becoming as depressing as homecoming at an orphanage.

Shares of big equipment vendors and the components makers that supply them were off in early trading Tuesday as the Nasdaq crept down to its lowest level since early January. The Light Reading Index was off 25.12 (4.6%) to 520.87.

For the most part, all of last week’s bad news has been absorbed, but a few late stock downgrades by analysts have come rolling in. JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU) was down 2.94 (8.2%) to 32.88 in midday trading after U.S. Bancorp Piper Jaffray downgraded the stock from Strong Buy to Neutral (see JDSU: Less from More). One of JDSU’s most significant customers is Nortel Networks Corp. (NYSE/Toronto: NT), which significantly cut its revenue guidance last Thursday for the first fiscal quarter of 2001.

Another big components house, Corning Inc. (NYSE: GLW), saw its shares drop 2.11 (63.9%) to 30.89 around midday. On Friday Corning reiterated its own earnings guidance, but said its year-over-year revenue growth would only be about 50 percent for its photonics business, down from an earlier guidance that growth would be between 75 percent and 90 percent (see Corning Reaffirms Guidance).

Corning was downgraded by Salomon Smith Barney, Merrill Lynch & Co. Inc. (NYSE: MER), ABN AMRO, and others on Jan. 25, after its most recent earnings announcement. During the week of that announcement, Corning shares traded as high as $70. In the past month, Corning shares have lost more than 52 percent of their value.

Systems vendors, of course, are eating it, too. Cisco Systems Inc. (Nasdaq: CSCO) dragged the Nasdaq down at midday as it slipped 1.69 (5.97%) to 26.56. In an interview with a Swedish newspaper over the weekend, CEO John Chambers reportedly said that much of the U.S. economy was in a recession that is threatening to spread around the globe.

Interestingly, if that happens, Cisco will need to again go back and revise its estimates for the next two quarters. Its current projection that its next quarter's revenues will be between $6.4 billion and $6.72 billion is contingent on a short economic downturn that doesn’t spread abroad (see Cisco Misscos!).

Investors are also increasingly concerned about Lucent Technologies Inc. (NYSE: LU) as it is working this week to close a credit financing deal that would give it some badly needed funding. The Financial Times reported Monday that if Lucent fails to arrange the financing, it may have to call on its backup lending facilities, which could cause credit rating agencies to downgrade its debt even further, making it even more difficult to raise money going forward. At noon, Lucent shares were off 0.10 (0.79%) to 12.57, as the once mighty stock comes ever closer to being a single-digit midget.

Nortel, too, saw its shares slightly lower this morning, dropping 1.02 (5.1%) to 18.98. Adams Harkness & Hill downgraded the stock today, following downgrades by 10 different investment analysts on Feb. 16, the day after Nortel booted all over its previous market optimism by declaring that spending postponements from U.S. carriers would last well into the fourth quarter (see Nortel's Nasty Surprise).

Nortel has lost 40 percent of its value in the past five trading days. Its shares are down 66 percent from their price of one year ago.

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com
photonic 12/4/2012 | 8:52:14 PM
re: Optical Pessimism Runs Rampant
How about

Avnex --> Down 21%
Redback --> Down 17%
Avici --> Down 15%
ONIS --> Down 7%
Ciena --> Down 6.5%
Juniper --> Down 6.5%

When do you plan to stop picking on CSCO, NT and LU??
Scott Raynovich 12/4/2012 | 8:52:13 PM
re: Optical Pessimism Runs Rampant don't get your point. where are the numbers for LU, NT, and CSCO?

If you're pointing out that the market is down, yes, that's clear.
photonic314 12/4/2012 | 8:52:12 PM
re: Optical Pessimism Runs Rampant Is it a surprise to anyone that the optical / Internet hysteria that began mid to late 1999, would fall victim to the ridiculous overvalued prices that the heard / lemmings on Wall Street analyzed. Afterall did anyone really think back in October 1999 that if the NASDAQ (2554) would double in less than 6 months (mar 00; 5132) that that could be sustainableGă¬ofcourse not in less than 10 months it has now been cut to were it should have been all along!

Inspite of all the warnings that the existing network would collapse if fiber optic systems were not installed immediately, was mere Photon babbleGă¬Most of the new companies and some of the existing, have only provided relatively minor improvements to the infrastructureGă¬and in fact the technology that was invested in has not seen wide-scale implementation yetGă¬!

So what is the pointGă¬remember back to the early 80GăÍs when biotech companies were the flavor of the hourGă¬only to see the shakeout occur in less than 18 months half of the funded companies were no longer in business!

Well the wheel is round folksGă¬although in this case facts on optics are more compelling than biotech could ever be! So in this case the wheel is round but this wheel is on a Ferrari! Be patient!

It was predicted back in October 1999, that fiber stocks would sky rocket, only to see a correction, and when the rest catch up it will sky rocket againGă¬(note there has been a lot of hype by many companies on technology that should never have been funded)Gă¬wait until they get synthesized into obscurityGă¬then we will see this market and fiber stocks grow. By February 2002 the NASDAQ will be at 4200, and the fiber stocks including the LR index will have seen a 45% increase!

Rationale: Only 5 million subscribers use High Speed Access Only 50 % of adult uses are connected to the Internet. Only 2003 over 30 million will use High Speed Access.Etc. etc. etc.

Optostock holders, hang in thereGă¬it will be here again!

anyone 12/4/2012 | 8:51:58 PM
re: Optical Pessimism Runs Rampant He was pointing out the fact that all optostocks will be up in the near future, which is true, but i do not think they will see the glory they once did, as the scared become the cautious
WDMer 12/4/2012 | 8:51:57 PM
re: Optical Pessimism Runs Rampant The depression in the market reminds me of
Sycamore networks. IPO of Sycamore brought
Optical networking into spot light...now
we dont hear much of that company?

Is it also the victim of pessimism in the market?
All we here is Ciena, Nortel and at times Lucent..
Where is Sycamore? in dust??!!!
Hilo 12/4/2012 | 8:51:08 PM
re: Optical Pessimism Runs Rampant Hi,

Is there anyone knows any good link of the labs and research centers who are doing research on WDM (DWDM), especially the experiment systems.

Thank you!
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