Investors Smile on Optics
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