Red-hot demand seen to fuel optical results
By Susan Taylor
OTTAWA, Oct 23 (Reuters) - Recent market-beating results from fiber-optic component makers bode well for the sector's performance this quarter, but analysts say they will scrutinize industry leader JDS Uniphase Corp. <JDSU.O> numbers on Thursday to determine the impact of wilting demand from Lucent Technologies Inc.
JDS Uniphase, the world's largest supplier of fiber-optic components and modules that boost the capacity and speed of optical networks, is expected to meet or slightly better consensus estimates in its first quarter.
On average, 27 brokers polled by First Call/Thomson Financial expect sales of $755 million and net adjusted earnings of 16 cents per share.
Wall Street's radar will be tuned for any fallout from a 5 percent decline in optical network sales at Lucent <LU.N>, the world's No. 1 telecommunications equipment maker and JDS Uniphase's largest customer.
"The number one issue that people are going to be looking at is what happens to the Lucent business," said Kevin Slocum, an optical analyst at Wit SoundView. In JDS Uniphase's last quarter, Lucent represented 20-21 percent of sales, and Nortel Networks Corp. <NT.N> about 16 percent.
Lucent, which plans to report its fourth quarter on Monday, one day ahead of its earlier schedule, has warned it will fall short of profit estimates partly due to a drop in optical networking system sales. Lucent also said on Monday it ousted chief executive Rich McGinn and slashed its outlook for the first quarter of 2001.
An insatiable appetite for the components that go into those networks is expected to compensate for any lull in Lucent orders this quarter, which Slocum said could slip as low as 13 to 14 percent of JDS Uniphase's revenue.
Analysts will focus on how quickly JDS Uniphase says it expects sales to grow. In this first quarter, it is forecast that revenues will rise sequentially by about 17 percent.
Slocum said it would not be surprising if JDS Uniphase, which has been expanding through a string of acquisitions and most recently announced plans to buy component maker SDL Inc. <SDLI.O>, projects growth of 15 percent.
"A slowdown at Lucent, we believe could only impact JDS Uniphase for at most one quarter," wrote Merrill Lynch in a recent research report. "Other customers would be happy to take over the capacity."
Growing streams of data traffic fueled by the Internet are driving a huge demand for optical networks and the parts that go into them. Fiber-optic networks, which transmit communication signals as pulses of light, can be easily enlarged as demand grows.
Nortel, the world's largest supplier of fiber-optic networking systems and JDS Uniphase's second largest customer, is expected to beat consensus profit estimates of 17 cents per share when it reports its third quarter on Tuesday.
There are other encouraging signs of continued white-hot demand for optical components, analysts say.
Fiber-optic maker Corning Inc. <GLW.N> said on Monday that its third-quarter profits more than doubled and it expects earnings to grow about 25 percent next year. Corning reported pro forma earnings of $317 million, or 35 cents per share, from $148.1 million, or 19 cents a share, a year ago.
SDL, which counts on Lucent for more than 10 percent of sales, reported earnings last week of 45 cents a share versus an estimate of 38 cents as third-quarter sales surged 332 percent over last year.
"This is still a very capacity-constrained market and demand is certainly quite high," said Arun Veerappan, analyst at Robertson Stephens. "That's positive news not just for SDL and JDS Uniphase but every other optical component vendor."
JDS Uniphase is introducing a range of automation measures and acquiring companies as part of a plan to boost capacity four times every 18 months. |
