Merrill Lynch analyst's comments today on optics from Quicken via AMCC thread.
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not being as depent upon NT.NEW YORK (Dow Jones)--With Nortel Networks Inc. (NT, news, msgs) and
Lucent Technologies Inc.'s (LU, news, msgs) disappointing results, investors have been asking if the growth in
optical networking is over and the answer is no, said Mike Ching, a Merrill Lynch telecom analyst.
"When you look at the overall optical networking market there are certain segments that are doing better," Ching
told Merrill Lynch clients during a conference call Wednesday to discuss the optical market after Nortel's
September results sparked a wide reaching sell off in anything related to optics.
Enterprise optical networking continues to "be very robust" and in that space Cisco Systems Inc. (CSCO, news,
msgs) is doing very well, Ching said. "Concerns about Cisco's optical business is unwarranted," he added.
There are specific issues going on right now in the optical market, said Ching, but Merrill is still bullish about the
overall market going into 2001.
Nortel disappointed investors when it reported revenue of $7.31 billion that was at the low end of Wall Street's
expectations due to a slowdown in optical sales growth.
Nortel Chief Executive John Roth attributed the sequential decline in optical sales to a constrained ability to install
the equipment. Sales were up 90% from a year earlier, but lower than the 150% growth in the second quarter.
And Lucent warned earlier this week when it reported September earnings that it would have a break-even
December quarter.
Tom Astle, a Merrill Lynch & Co. telecom analyst who also participated in the optical conference call, said the
optics growth rate will be 50% to 75% going into 2001. "The optic sector is in the vacuum tube era," said Astle.
There is a fair bit more growth to come, he added.
Astle said news that Nortel's optics business declined sequentially was a surprise. He speculated that a few select
large U.S. customers built inventory in the previous quarter to hedge against a shortage and Nortel brought on a fair
amount of capacity because of that. The analyst said he still thinks Nortel's business will return to high growth rates
in the fourth-quarter.
As for JDS Uniphase Corp. (JDSU, news, msgs), which saw its stock fall 25% Wednesday on Nortel's news,
Astle said he is not too concerned that it will miss its numbers when it reports Thursday, but that guidance could be
weaker than in past quarters.
Mark Lipacis, Merrill's chip analyst, said there is a host of other optical networking companies that are seeing
success in the market, like Juniper Networks Inc. (JNPR, news, msgs), Ciena Corp. (CIEN, news, msgs), and
Sycamore Networks Inc. (SCMR, news, msgs).
Lipacis said that Applied Micro Circuits Corp.'s (AMCC, news, msgs) Nortel revenue declined 30% sequentially
while revenue increase by 30%. He said that the revenue growth tells the story that AMCC is no longer reliant on a
Nortel upside to meet or beat numbers. AMCC's stock took a substantial beating Wednesday on the Nortel news.
As for Vitesse Semiconductor Corp. (VTSS, news, msgs), another chip stock that fell in tandem with Nortel,
Lipacis said that Vitesse's biggest customer is Lucent, yet still reported sequential growth for the quarter. "On the
semiconductor side I still believe there is some weakness and volatility, but at these levels, it's compelling to use the
weakness as an opportunity to buy stocks." |
