WSJ(9/28): Heard On The St:Fiber-Optic Shares Lure Investors
By Susan Pulliam
Staff Reporter of The Wall Street Journal
Call them standing-room-only stocks. It is getting pretty crowded in a few
quarters of the technology sector these days, as momentum investors elbow
their way into a dwindling number of stocks that, for the nano-second anyway,
are considered havens as the sell-off in the broader technology group continues.
Take a look at shares of Ciena, for instance. The maker of fiber-optics equipment
shook off worries about the financial health of some of its customers a few weeks
back and hit a high on Monday of $136.25. Then there is network-routing
manufacturer Juniper Networks, which also hit a high on Monday, of $240.
And don't forget Corning, affectionately known among traders as "glowworm"
because of its GLW stock-market symbol. It came within a hair's breadth
of its all-time high of $340 set on Sept. 1, when it bounced up to
$338 on Monday.
Compare that with the overall technology group, which has taken a
pounding since Sept. 1 as a result of worries about a looming slowdown
in the torrid growth the group has enjoyed in recent years. The Morgan
Stanley High Technology index is down nearly 16% since Sept. 1.
Most companies that manufacture the equipment for the booming
Internet have been hit hard in recent weeks, with Cisco Systems down
20% since Sept. 1 and Nortel Networks down 30% in the same period.
Investors are wringing their hands about the possibility of a
slowdown in capital spending by telecommunication-service providers.
That would be bad news for the equipment manufacturers since the
telecom-service providers constitute the bulk of the customer base
that has fueled red-hot growth in not only their sales and earnings
but also their share prices.
So why are a handful of stocks in the Internet
equipment-manufacturing group behaving as if they are Teflon-coated?
Chalk it up to the odd migration patterns of the momentum crowd, which
always feels safest in numbers.
"Investors keep looking for where to settle and where to sit and
feel comfortable about growth. Right now, the world feels the only
safe place is optical," says Sanford C. Bernstein telecom-equipment
analyst Paul Sagawa, referring to the makers of fiber-optic gear. The
result has been a bottle-necking effect.
Yesterday, some of the fizz began to fade amid rumors of more bad
news coming today about telecom capital spending.
Juniper, Ciena and Corning all fell sharply, though their shares are
up strongly over the past two weeks. Ciena dropped $4 to $123.13 while
Corning skidded $17 to $305. Juniper fell $5.50 to $225.
Still, Juniper's shares are up 23% since Sept. 11, while Ciena rose 34%
in the same period. Corning is up 3%. And there is a bit of logic behind
the rush into these select optical-networking stocks.
In the case of Ciena, Juniper and Corning,
it is their "earnings visibility" that is attracting momentum
investors, says Nikos Theordosopoulos, an analyst with UBS Warburg. By
that, he means the trio is considered better equipped by investors to
beat Wall Street's earnings expectations for the rest of the year than
other Internet-equipment makers.
"These companies can see out better than others," he says. "Corning
has long lead times, Juniper has great visibility because they are
only one of two companies that can make the routers they supply, and
Ciena has many new customers they are adding."
But don't bet the fast-money crowd will hang around for long if
there are any signs of trouble. And, when the momentum crowd turns its
back on a stock, it isn't a pretty sight, as any holder of a dot-com
stock can attest.
Part of the explanation for yesterday's moves may have been buzz
around hedge-fund trading desks about a conference call planned for
today by Bernstein's Mr. Sagawa, who has been relatively negative on
the growth outlook for networking-equipment manufacturing companies.
The rumor being bounced around among traders was that Mr. Sagawa plans
to downgrade some of the companies he follows, including Nortel,
Cisco, Motorola and Nokia.
For his part, Mr. Sagawa says, "I've said nothing about whether I'm
going to downgrade or upgrade" and declines to elaborate on that
point.
In sending out a fax inviting clients to participate in the
conference call, he laid out the topics he plans to discuss. According
to the fax, the call will focus on telecom industry capital spending
for 2001 and include the spending outlook in the U.S. and Europe based
on a Bernstein survey of 60 carriers.
"I've been negative on the industry for a couple of months," Mr.
Sagawa says. "So this shouldn't be a surprise to anyone who was paying
attention." As for his survey results, he says, his findings aren't
dramatically different from those done by other Wall Street analysts,
some of which have pointed to big reductions in spending plans by
service providers next year.
What does it all mean for the handful of equipment manufacturers
that have remained aloft in recent weeks? "It's the one place that
doesn't seem to have been hit by doubts," he says. "All of this is
driven off the same driver. I don't know that you can think of the
optical sector as a safe haven. Certainly, the opticals have solid
growth. But you can't accelerate forever and it's a question of when,
not if" they will be affected by the general slowdown, he says.
[Greg, did he call you Wednesday, or what?]
And there are dark clouds, as well, relating to the financial
troubles of upstart local-service providers. Ciena may have shaken off
one round of such bad news, but investors wonder whether the troubles
won't eventually catch up with its shares.
Rumors were circulating about which companies have exposure to Jato
Communications in Denver, which on Friday said it expects to lay off
about 350 employees, according to Jerry Maglio, vice president of
marketing at the closely held high-speed Internet provider. The
company last week said it has scaled back its national ambitions,
refocusing on secondary markets in the Rocky Mountain and Southwestern
region.
Shares of a few companies fell on worries about exposure to Jato,
including Copper Mountain Networks, which was one of yesterday's
biggest losers, closing at $38.63, down $10.63. Turnstone Systems fell
$3.31 to $45.63, on similar concerns.
Richard Gilbert, Copper Mountain's chief executive, said Jato is a
customer, but that he had been expecting sales to Jato to slow based
on changes Jato announced in July. The new strategic shifts have "no
direct effect on us."
Mr. Gilbert said Copper Mountain remains "comfortable" with
analysts' estimates of $92 million in revenue and earnings of 26 cents
a share for the quarter ending Saturday. Concerns about spending by
telecom companies are being "overblown," he said. Copper Mountain
makes equipment for high-speed digital-subscriber lines, which have
reached only about two million of the nation's 200 million phone
lines, Mr. Gilbert said.
Mr. Maglio strongly denies a market rumor that Jato is planning a
bankruptcy filing. "No, we're absolutely not preparing for a Chapter
11 filing," he says. "That isn't anything we're working on." He says
the layoffs would leave the company with more than 200 employees.
Mr. Maglio also says Jato this week is finalizing a new funding
commitment from its existing investors, while declining to specify the
amount or source. Jato says it previously raised more than $102
million in equity from venture-capital firms as well as from
Microsoft, Global Crossing, Qwest Communications International, 3Com
and TCI Satellite Entertainment.
Jato says it also has a long-term agreement with Lucent Technologies
valued at as much as $50 million that gives it access to Lucent's
products and service. Jato has no public debt or equity.
---
Paul Sherer contributed to this article.
(END) DOW JONES NEWS 09-27-00
11:42 PM
- - 11 42 PM EDT 09-27-00
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TAL News Server History:
ADD : 00/09/27 23:45
Greg? Tim? It is beginning to look as if the emperor has no clothes.
Are we all in the perfect storm with our heads stuck in the last airpocket?...jj
Thanks to bearsforlunch on the RB JDSU thread for this piece...jj
ragingbull.altavista.com |
