Excellent article.
Photonic equipment stocks will trade at a premium, as long as expectations are met. Clearly the trend towards higher valuations is impacting the entire optical networking group, and not limited to one or two individual stocks. The broad nature of this affect suggests that it is market driven, and not company specific. The valuation benefit photonics companies are receiving as Internet enablers is both legitimate and sustainable, given their roles in this new market. I believe the market for photonic networking products?both systems and components?will remain vibrant through the next five years, as Internet-driven infrastructure spending continues. And these companies will likely trade at premiums to the larger telecom equipment sector as a result.
While I agree photonics companies will trade at a premium to telecom equipment, the question is how much. The other question is how much effect Internet growth statistics will have on these stocks on a day by day basis. We're often given consumer statistics but the real impact to the industry will come from commerce --- business-to-business transactions more than e-commerce as represented by Amazon and eBay.
In today's IBD networking analyst Reinhardt Krause discusses long haul wholesale fiber carriers and whether they can exist without offering differentiated services. The gold rush of raw fiber is real, but at some point someone has to refine it and turn it into products and services people will pay for. In another century beaver hats were the rage and for a time trappers couldn't kill enough to satisfy demand. I don't think anyone believes the Internet will go the way of beaver hats, but I do think there's a possibility for stock manipulation if enough people say there's a fiber glut. This won't happen as long as there's sustained growth in companies like JDSU, SDLI, ETEK, and perhaps some of the lesser players. The minute it begins to wane, alarmists will come out in force.
Your article says 5 years and while I believe it will happen, I think the path will have many twists and turns. I hold both SDLI and JDSU and I readily admit their valuations make me nervous.
Here's the IBD article, "Fiber Firms Smell Threat, Make Contingency Plans:"
investors.com
Pat |
