Optical components

OCPI Bomb Confounds the Experts

Optical networking stocks have been trending upward in recent weeks. But is a recovery in the cards anytime soon? To judge from the misguided and wildly various outlooks of financial analysts, it’s anyone’s guess.

Case in point: Optical Communication Products Inc. (OCPI) (Nasdaq: OCPI), a key components player in the promising metro market, stunned analysts during a Tuesday earnings call when it announced paltry revenue guidance of $7 to $9 million for the December quarter, about half of what Wall Street was expecting. The disclosure peeled 22 percent off the company’s stock price Wednesday. And in the last couple of days, analysts have scrambled to revise their projections downward.

Although it has been public for only a year, Optical Communications is no fly-by-night startup. The 10-year-old company has been profitable every year, and revenues topped $100 million the last two years in a row. The customers who buy its transmitters, receivers, transceivers, and transponders are a “Who's Who” list of networking companies.

Most of the eight analysts who follow the stock expected at least $14 million revenues for the fiscal first quarter, which closes in December. They believed sales had fallen to a trough and had at least stabilized. But OCPI's new guidance sent them back to their calculators, where several pounded out new projections through 2003 that bear little resemblance to each other.

“Almost everyone was modeling flat revenue of around $15 million going forward,” says Shawn Slayton, an analyst with Ferris Baker Watts, noting that a surprise was not out of the question. “The company has never said we see a bottom.”

Slayton, who just two days ago projected $15 million for the quarter, is now going with $7 million. He has penciled in 2 cents per share earnings on flat revenue of $31 million for the 2002 year, insisting that anyone’s revenue expectations are still questionable. He’s not ready to even consider projections beyond 2002.

He still likes OCPI's strong cash position and its ability to quickly control expenses. Although he rates the stock a Long-Term Accumulate, Slayton feels uncertain about when revenue growth will resume, because the components vendor is at the bottom of the telecom food chain.

Most of the other revenue revisions were dramatic. U.S. Bancorp Piper Jaffray analyst Conrad Leifur cut his 2002 earnings from 14 cents to a nickel and revenue to $38 million from $84 million. For 2003, he’s expecting 9 cents a share on $54 million revenue. He rates the stock a Neutral.

Likewise, UBS Warburg analyst Joseph Wolf, who dropped his 2002 revenue estimate to $33 million from $73 million, now looks for a penny earnings. For 2003, Wolf expects 3 cents a share on $50 million revenue. Placing OCPI on a scorecard of “optical survivors,” Wolf clings to his Buy rating despite his relatively negative outlook for the next two years.

Contrast them with Lazard Frères & Co. LLC analyst Truc Do, who had just initiated coverage on the company Monday with a $14 million estimate for Q1, then chopped his number to $8 million after the call. Do trimmed his fiscal year 2002 revenue estimate to $55 million from $70 million and stuck with his original 8 cents earnings estimate. For 2003, he expects 17 cents a share on $100 million revenue. Do maintains to his Buy rating as he anticipates OCPI's recent expense slashing, which included 100 job cuts during the last quarter, will offset the revenue shortfall.

The most conservative of the bunch is Credit Suisse First Boston analyst Max Schuetz, who dropped his 2002 estimate to $30 million from $59 million and downgraded the stock from Buy to Hold. He also slashed his 6 cents earnings projection for the year to a 3 cent loss. Perhaps wisely, Schuetz is not yet sticking his neck out on 2003.

When and to what extent OCPI recovers is still anyone’s guess. But one thing is certain: At least some of these analysts will be wrong.

— Tom Davey, special to Light Reading
fhe 12/4/2012 | 7:36:01 PM
re: OCPI Bomb Confounds the Experts I don't know if it will ever happen, but I really think these analysts should just stop whatever they are doing, pack up, and go home.

Forget all these "modelling", or "projections", they have absolutely no ideas!!! Who in this world can claim they know exactly what the future is like??? No one can predict the future, and neither do these analysts...

Again, if they think they know so much, they would't be doing "projections" all these years. We should make analysts as an illegal occupation.
MaxQoS 12/4/2012 | 7:35:59 PM
re: OCPI Bomb Confounds the Experts Contrast them with Lazard Fr+¿res & Co. LLC analyst Truc Do, who had just initiated coverage on the company Monday with a $14 million estimate for Q1, then chopped his number to $8 million after the call.

Aren't these guys supposed to make the move from $14M to $8M BEFORE the call? What value is a brokerage that tells you the company is in trouble AFTER the stock tanks? I do that all the time for free.

Instead of eliminating analysts, we should start a business around handicapping them. I suppose this is already done but perhaps we need an equivalent of Morningstar where you could figure out who the five star analysts are. And we should extend the concept to those who cover technology too. Does anyone aver go back to find out how often Gartner and all of the other technology prognosticators are wrong?
cwolvert 12/4/2012 | 7:35:55 PM
re: OCPI Bomb Confounds the Experts No, I DISAGREE! If these folks stopped doing what they are doing, we would have just way too many out-of-work astrologists and sooth-sayers on the streets. Many would have to go into folk medicine and pull chicken parts out of healthy humans. Keep 'em working'.

nevermind 12/4/2012 | 7:35:53 PM
re: OCPI Bomb Confounds the Experts GǪ.BUT, you have to understand what their job is. It's to tell you (Joe Public), what their collection of insiders would like you to do. For example, once all of the insiders are done selling their shares of stock X, they downgrade it so that you will sell, thus driving the price of the stock down further. Their collection of insiders will eventually buy into the stock and when they are finished, the Analysts upgrade the stock so that the collection of insiders can sell. That is why stocks almost always fall before they are downgraded, and they almost always rise before they are upgraded.

Just my little conspiracy theory, which expect for that GÇ£almostGÇ¥ part has made me a lot of money.

HarveyMudd 12/4/2012 | 7:35:37 PM
re: OCPI Bomb Confounds the Experts The Wall Street Analysts cannot be trusted. They always bring up and bring down stocks.Analysts always make money regardless of wheather a stock goes up or down.

Most of the analysts are simply are not qulified to understand the products and technolopgies of many companies.

At the time Lucent's stock stareted to go down, some analysts had predicted that Lucent's stock would go upto $150.00 per share. In about 8 months the stock was down to $6.00.

If the analysts can not predict the stock of public companies, how can they predict and write about the stocks that have not gone public.

VCs cannot be trusted either. They teach their clients companies how to lie and iuncrease company evaluation.

Many companies such as Lucent and Nortel have been victimized by the Bay Area VCs. Once a company buys a Bay Areaompany, probably they should be looking forward to filing bankruptcy. The case in point is Lucent's acquisition of Acend Communications.

The optical companies will go out the window the same way as did the dot com companies. The similarties are strikingly similar.

Curently there are over 600 optical companies. Most of them attempting to do the same thing. Some are doning things that do not make sense but have been funded by the VCs.
ericwaynedavis 12/4/2012 | 7:35:33 PM
re: OCPI Bomb Confounds the Experts Ever seen a swarm of flies buzzing about a dead animal or a pile of crap? Seems like a decent analogy.

Of course, most of these publicly traded companies are just as guilty as the so called analysts. Six years ago, companies like Nortel (previously known as Northern Telecom), Lucent (previously known as AT&T), Alcatel, Cisco, etc. did not advertise to the masses during prime time.

Ever asked yourself why they did this? It sure as hell was not desinged to get Joe Public to buy a router or a SONET ADM. It was designed to increase brand awareness amongst the ignorant masses that traded in these companies.

My neighbor, who is an add writer, used to constantly speculate in technology stocks, of which he knew nothing about the underlying technology or business plan. He may as well been investing in a gold digging operation on planet Xanthros. As long as others did it, and analysts said it was a good thing, then value was created, right?

One day, soon I hope, I'll be an Engineer again working in an obscure industry that the mainstream public knows (or cares) little about. It will not be sexy, or glamorous, or get rich quick. It will be plain old telephone (err data) service.

I cannot wait until the crap dries up and the flies move on to the next pile!
greatwhitenorth 12/4/2012 | 7:35:26 PM
re: OCPI Bomb Confounds the Experts Reading about these guys, I just can't help thinking about some sort of slapstick farce, a la keystone cops or three stooges. Or a little group of Benny Hills running around without rhyme or reason, with that amusing little ditty playing in the background... Better to laugh, I guess, than call these guys what they really are, the snake oil vendors of our times. Let's all tell our parents and grandparents to keep their money, if they have any left, under the mattress (unless, of course, the analysts start talking about mattresses...)
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