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Technology Stocks : Corning Incorporated (GLW) -- Ignore unavailable to you. Want to Upgrade?

To: t2 who wrote (867)	9/28/2000 1:45:38 PM
From: t2	Read Replies (2) \| Respond to of 2260

biz.yahoo.com (I think Veerapan is a great analyst) Thursday September 28, 12:29 pm Eastern Time Optical gear makers could elude telecoms slowdown By Ian Karleff TORONTO, Sept 28 (Reuters) - An expected slowdown in spending by telecoms carriers, which has hit the stock of equipment makers Nortel Networks and Cisco Systems hard, will be of little consequence to suppliers in the optical market, where demand will stay hot, several analysts said on Thursday. Demand for high-speed optical Internet networks stemming from the explosive growth in transferring bandwidth hogging files -- movies, streaming video and music -- is expanding at a rapid rate. Nonetheless, shares of Nortel Networks (NYSE:NT - news) and Cisco Systems (NasdaqNM:CSCO - news) were downgraded on Thursday by Sanford C. Bernstein analyst Paul Sagawa. The telecoms sector has been a leading force behind blistering growth in technology spending, and any slowdown could wreak havoc on technology stocks generally. Nortel's shares dipped at the open on Thursday but rose $2 11/16 to $62 1/8 on the New York Stock Exchange in midday trading. Cisco's shares were down $12/16 at $56 9/16 at midday. For the first time in two years, Nortel's shares are trading below their 200-day moving average, which is a key technical indicator, and are down 26 percent this month. Sagawa's morning research note said that spending on telecoms equipment is likely to show a ``sharp deceleration'' in growth from 28 percent in 2000 to less than 20 percent in 2001. Consequently, Sagawa downgraded Nortel's shares to market perform from outperform on the basis that the next two quarters will be strong ``but unlikely to sustain performance.'' Sagawa wrote that Nortel's 40 percent plus revenue growth will decelerate to less than 30 percent in 2001, and its stronghold optical business is unlikely to be spared. Also, a few buy-side analysts point to sales of shares by almost 40 Nortel insiders and managers in mid-August as a warning sign for the company's fortunes going forward. Sagawa also downgraded Cisco to market perform on the premise that its first quarter, ended October 31, will be ``the last quarter of accelerating sales growth.'' Not only is Cisco losing market share to Juniper Networks in carrier class Internet Protocol routers, but margins are deteriorating as are expected growth rates, he wrote. But Sagawa's thesis came under fire on Thursday from a number of analysts. ``The growth of the Internet is continuing, the move to optical systems is growing at a robust rate. Nortel is the largest supplier of optical systems so they should benefit from that trend,'' said Lawrence Harris, a network equipment analyst at Josephthal & Co. Inc. Harris said the ``explosive'' growth in Internet data traffic shows no sign of slowing as people gravitate to high-speed cable and digital subscriber line modems, which is good news for makers of optical transmission equipment. Nortel Networks is a buy at today's price of $59, and within 12 months the shares should trade at $85, Harris said. Merrill Lynch's top rated analyst, Tom Astle, said in a morning note that he remains positive on the equipment makers, and while capital expenditures from carriers will slow, the network equipment industry will grow about 18 percent in 2001. Nortel's optical business will have a hard time sustaining its phenomenal growth rate, but consistent surprises on the upside over the past two years are not expected to change in 2001, Astle wrote. He rates Cisco and Nortel a buy, and views any weakness as a buying opportunity. Several analysts doubt that optical spending will be crimped by the expected slowdown in carriers' capital expenditures, with Benoit Chotard at National Bank Financial expecting Nortel's shares to return to $120 within 12 months. ``We believe that although overall spending may be tight going forward, spending in the optical segment will remain strong,'' Chotard wrote on Wednesday. Arun Veerappan, at Robertson Stephens in Chicago, said a huge amount of spending is expected from carriers to upgrade their networks to ``new world fiber optics''. Companies such as Nortel, JDS Uniphase (Toronto:JDU.TO - news) , Lucent (NYSE:LU - news) Technologies , and PMC-Sierra (NasdaqNM:PMCS - news) will benefit from the roll-out of high-speed broadband infrastructure, and current capacity constraints. ``The optical components manufacturing arena is still very capacity constrained, it is labour intensive and people are not able to get enough product,'' Veerappan said. Veerappan is not convinced that capital spending by carriers will slow considering that there is not one dominant U.S. carrier, and there has yet to be a shakeout in the industry leading to winners and losers. ``Those downgrades are based on premise that capital spending for telecom service providers is going to slow and that is a questionable premise to begin with,'' Veerappan said.