WSJ has a great article on fiber optics. If it was posted earlier, I apologize for the re-post:
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January 22, 2001
Despite Spending Fears, Quarter To Be Good For Fiber Cos
By JOHNATHAN BURNS
Of DOW JONES NEWSWIRES
NEW YORK -- Despite signs that the world's largest communications carriers are curtailing infrastructure spending, a host of fiber optics components and systems makers are expected to post strong results in the fourth quarter.
Led by component sector bellwether JDS Uniphase Corp. (JDSU), fiber cable maker Corning Inc. (GLW) and systems maker Ciena Corp. (CIEN), fiber optic companies will show swelling revenue and earnings growth as they continue to sell into the sweet spot of telecommunications spending.
"The optical market is still growing in the 40% range," said Tom Lauria, telecommunications equipment analyst with ING Barings LLC. "I don't think we'll see it slow down (in 2001)."
However, a couple of companies with exposure to the broader telecommunications equipment market will report disappointing results for the quarter, as spending in legacy and non-fiber equipment slows. One-time equipment king Lucent Technologies Inc. (LU) will report disappointing results as it continues to recover from a disastrous 2000, while ADC Telecommunications Inc. (ADCT) issued a profit warning Friday after seeing carrier spending drop.
JDS Uniphase, the largest independent maker of fiber optic components, is expected to earn 19 cents a share in the company's fiscal second quarter, according to a First Call/Thomson Financial survey of analysts. The company earned 9 cents a share in the year-ago period. Revenue is expected to land between $916 million and $920 million.
Jim Jungjohann, telecommunications equipment analyst with CIBC World Markets Corp., said he expects JDS Uniphase to post sales of $924 million, up 228% year-over-year. He also expects margins to top 50%.
The company sells components to systems makers like Lucent, Nortel Networks Corp. (NT) and Alcatel SA (ALA), and therefore JDS Uniphase's revenue will be seen as an important indicator of the entire sector's health.
The company's stock valuation has not been immune to the general slowdown in carrier spending. However, SG Cowen analyst John Butler said he remains very bullish on JDSU.
"We believe that the long-term capital spending cycle for optical systems and components remains well intact and based on this, we believe JDSU's long-term opportunity remains solid," he said in a recent note.
Fellow component maker SDL Inc. (SDLI) is expected to report fourth-quarter earnings of 49 cents a share, the last earnings it will report if its merger with JDS Uniphase closes at the end of the month as planned. In the year-ago period, the company earned 15 cents a share, adjusted for a 2-for-1 stock split, according to First Call. Revenue is expected to be somewhere around $170 million, based on strong sales from the company's pump laser business.
Corning is expected to earn 28 cents a share in fourth quarter, according to First Call. Last year, the company earned 18 cents a share. Revenue is expected to top $2 billion, as demand for the company's cable continues to outstrip supply.
"All indications are that the market for optical fiber remains strong, to the point that some companies in the optical fiber market are reporting record orders, backlog and even prepayments on 'take-or-pay' contracts," said Raj Srikanth, optics analyst with Deutsche Banc Alex. Brown.
Component maker ADC Telecommunications, which issued a profit warning Friday, will still see its fiber connectivity sales double, but slowing spending across its copper connectivity and systems integration product lines will tug at earnings. The company said it will earn between 5 cents and 7 cents a share during its fiscal 2001 first quarter while revenue comes in at about $800 million. The company had been expected to earn 12 cents a share on revenue of about $850 million.
On the systems maker sides, Ciena is expected to earn 15 cents a share in the company's fiscal first quarter, according to First Call. The company earned 3 cents a share last year, adjusted for a 2-for-1 split.
Revenue is expected to be around $320 million.
"The straight wave division multiplexing business has been very strong for Ciena," Lauria said. "They're as well placed in the sector as anyone, because they are a pure optical play. And they have been growing their revenues fairly well."
Lauria said he expects to see the company's CoreDirector optical switch continue to gain market acceptance.
Tellabs Inc. (TLAB) is expected to earn 56 cents a share in the company's fourth quarter, according to First Call. The company earned 41 cents a share last year. Revenue is expected to be about $1 billion.
Meanwhile, Lucent is expected to have a loss of 27 cents a share in the company's fiscal year 2001 first quarter, compared with earnings of 33 cents a share a year ago.
The company is expected to record revenue of $6.2 billion as it struggles to cut costs and realign its business around high-growth products.
"I certainly think Lucent has a 2001 where the company has a lot of room to outperform expectations," Lauria said. "This company could possibly have some positive surprises. Right now, it's not clear what the drivers will be. It really is a stock that people want to believe in."
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