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Optical components

Investors Smile on Optics

For once, it was a sunny day for optical stocks.

Avanex Corp. (Nasdaq: AVNX) and JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) each enjoyed strong gains Thursday, though for different reasons.

But the effect didn't rub off on competitor Bookham Inc.'s (Nasdaq: BKHM; London: BHM) shares, which went unchanged at $4.70 yesterday. Let's start with Avanex, which was up 10 cents, about 15 percent, to 75 cents yesterday, with a trading volume of 3 million shares compared with the company's average of 1.9 million.

The reason? It appears that Corning Inc. (NYSE: GLW) has started selling its shares, according to David Fore, an analyst with independent research firm Sur Terre Research LLC.

Corning owns more than 10 million Avanex shares -- a 7.4 percent stake -- from the sale of its optical components division to Avanex in 2003. Terms of that deal limited how much stock Corning could sell, but those limitations expired recently, and nearly everyone watching optics expected Corning to begin selling off shares once that happened. (See Corning May Sell Avanex Stake.)

Fore claims Corning won't have a hard time selling the shares. "There's absolutely demand out there from people who want to take blocks of 1 million shares," he says. "Investors are kind of warming up to the optical sector coming back."

JDSU, which was just recently named one of Light Reading's Best Investment Finalist in the Leading Lights awards, rose 23 cents, about 9 percent, to $2.80 as investors approved a reverse stock split with a ratio between 1-for-8 and 1-for-10. (See LR Names Best Investment Finalists). The reasons for the split include an attempt to get the stock above the $5.00 share price institutional investors often demand before they make an investment.

"We believe it is important that we increase our institutional ownership. With institutional ownership, it specifically results in lower volatility of our stock price and increases the visibility of our stock to Wall Street," said CFO David Vellequette at yesterday's JDSU shareholder meeting.

Other telecom firms have undergone reverse splits for similar reasons. Fellow components firms Agere Systems Inc. (NYSE: AGR.A) and Bookham each split 1-for-10, in September 2004 and May 2005 respectively. On the systems side, Redback Networks Inc. (Nasdaq: RBAK) used an astounding 1-for-73 reverse split in its post-bankruptcy plan. (See Agere Posts Q2 Loss, Plans Reverse Split, Bookham Rises on Nortel Assurances, and Redback Sees End to Red Ink.) As a side benefit, a reverse split will lessen the 1.6 billion shares JDSU has outstanding. With that many shares, a quarterly net income of $16 million or $24 million can appear the same, as they both amount to an earnings per share (EPS) of 1 cent per share. "You lose the visibility of the progress that the company is making," CEO Kevin Kennedy told investors.

That could be important, because JDSU is just on the brink of profitability. According to Thomson Financial, analysts see JDSU's earnings per share at zero cents for this quarter and next, and 1 cent for the following two quarters. A reverse share split might make those numbers more dramatic, making JDSU's projected growth more obvious to investors.

— Craig Matsumoto, Senior Editor, Light Reading

Pete Baldwin 12/5/2012 | 2:52:10 AM
re: Investors Smile on Optics JDSU is nearly profitable. Avanex and Bookham have shored up their cash for the time being.

Is the optical components market poised for a comeback in '06? I'm not so sure; a lot depends on whether prices and margins can improve, yes?
optigong 12/5/2012 | 2:52:07 AM
re: Investors Smile on Optics Things are much better out there but consolidation is still badly needed, Oplink is talking to a few parties. Bookham has got to do something before Nortel last buy revenue dries up.
Avanex needs a deal to get the stock moving again.
Finisar, OCPI and Agilent should get together.
Too many private companies.
Balet 12/5/2012 | 2:51:57 AM
re: Investors Smile on Optics Craig Matsumoto: Is the optical components market poised for a comeback in '06? I'm not so sure; a lot depends on whether prices and margins can improve, yes?

Actually, fromm where I am standing carriers are buying/deploying again, meaning system OEMs are building full speed (good ones), component vendor cracking 2.5 and 10G gear, may of them reaching full capacity. It looks like the market is coming back. What do you think?
whyiswhy 12/5/2012 | 2:51:57 AM
re: Investors Smile on Optics "For once, it was a sunny day for optical stocks. Avanex Corp. (Nasdaq: AVNX - message board) and JDS Uniphase Corp. (Nasdaq: JDSU - message board; Toronto: JDU) each enjoyed strong gains Thursday, though for different reasons."

WSJ Sat Dec 3 2005 - Facts frown on reporters lead line...

AVNX: http://finance.yahoo.com/q/bc?...
JDSU: http://finance.yahoo.com/q/bc?...

I see the modest gain in JDSU, due entirely to their reverse split, but I fail to see any gain for AVNX. I would also say a gain due to reverse split is no gain at all. In fact their losses increased, only offset by the sale of real estate.

-Why
sigint 12/5/2012 | 2:51:56 AM
re: Investors Smile on Optics Actually, fromm where I am standing carriers are buying/deploying again, meaning system OEMs are building full speed (good ones), component vendor cracking 2.5 and 10G gear, may of them reaching full capacity. It looks like the market is coming back. What do you think?
__________________________________________________

Any street news on what inventory positions are like? That should be a compelling indication.
materialgirl 12/5/2012 | 2:51:53 AM
re: Investors Smile on Optics If SCMR is any indication, they had a decent October quarter, led by an initial roll-out at KT and additions at Sprint. They had some 23 customers taking product in the quarter, which jumped 92% y-y to $27M or so. They had been flatlined at $13M/Q for YEARS.

Notably, management declined to give any revenue forcasts, citing "lumpy" conditions. Howerver, the cc sounded positive, at least for them. They cited their superior control plane software that can mix rings and meshes, along with GMPLS, along with a new modular all singing all dancing interface card that seems to do everything. Sales of this device helped margins in the quarter.
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