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To: lightwave51 who wrote (33759)	10/25/2000 10:38:03 AM
From: tekboy	Read Replies (2) \| Respond to of 54805

Briefing.com's take on the NT news and its implications for the sector: 10:11 ET **** Optical Breakdown : For a while now, we have been warning of overvaluation in the optical sector, and it looks like some of that excess will be wrung out today. The reason is of course yesterday's Nortel (NT-17 7/8) earnings report, as discussed in a preceding comment. One of the factors discussed for a potential optical breakdown has been the troubles in the telecom service sector, where financing difficulties and plunging valuations are expected to hit capital expenditure plans. Interestingly, however, NT's disappointment appears to be unrelated to this factor. NT said that falling lead times for its optical gear allowed customers to reduce inventories. While that is certainly not as frightening a reason for a disappointment as falling demand from service providers, we're not so sure that investors should take much solace in that. Here's why. First, just because NT didn't cite service provider problems for its revenue shortfall doesn't mean that this is not an issue. In fact, we continue to believe that service provider financing issues will inevitably reduce demand for telecom equipment. That doesn't mean that demand will actually fall, but demand growth will be less than it otherwise would have been. Second, you don't need a good reason to prick a valuation bubble. The bubble was irrational in the first place, so the reasons for deflating it can be just as irrational -- all it takes is a catalyst, any catalyst. Ciena's (CIEN) loss of a $28 mln receivable due to a bankrupt customer, Lucent's (LU) ongoing woes, and NT's report have all been catalysts. We continue to believe that the optical sector is for real in the business sense. The telecom network will transition rapidly to optical solutions over the next five years, and service providers will have to make that transition to survive. That does not mean, however, that optical stocks are fairly valued and that all optical companies will succeed. As we have continued to argue in our optical series of Stock Briefs and Story Stocks, do your research now but buy later. Today's correction is neither the end nor the beginning - our guess is that we are somewhere near the middle of this optical correction. The time will come soon to start scaling in, but we're probably not there yet. - Greg Jones, Briefing.com 09:29 ET **** Nortel (NT) 63 5/16: Nortel is trading down $18 in the pre-market after reporting Q3 results which fell short on the revenue line. The entire fiber optic space is very weak in the pre-market. Investors get nervous in a sector with sky-high valuations when the first one starts to show weakness. Quickly what happened: While EPS was a penny better, the top line came in at $7.4 bln vs consensus of $7.63 bln. NT's Optical Internet Solutions segment grew 90% yoy in the qtr which was less than expected. On the conference call, management stressed the shortfall was more of an inventory issue than demand. Its argument is that as NT is doing a better job with its inventory lead times so customers no longer need to hedge. Lead times have dropped from 4-6 months to 8 weeks. As a result, adjustments are being made by key customers particularly WorldCom. Management reiterated that overall demand for optical systems remains strong. Going forward, management stated that Q4 optical growth could be as high as 35%-40% sequentially. For 2001, management expects growth of 30%-35% for sales and EPS....You can bet Nortel received top billing on all the morning calls at the big brokerage houses this morning. Many firms are out defending the stock calling Q3 a one-time blip although some are reducing forecasts for Q4 and 2001. Lehman downgraded to Outperform from Buy....So who else is being affected? Pretty much any company in the optical space. As NT represents 20% of its business, SG Cowen downgraded Applied Micro (AMCC) to Buy from Strong Buy citing valuation and Nortel issues....While many believe overall industry growth remains extremely robust for optical systems and components, the fear is that NT's announcement could be an indication that the consensus view may be somewhat optimistic. Kudos to Sanford Bernstein for downgrading NT and CSCO in late Sep....Whether this a one-time blip for NT or not, today's performance for the sector will be a good example of how jittery investors are with these high valuations in the optical sector. -- Robert J. Reid, Briefing.com tekboy/Ares@me,IjustpickedupsomemoreJDSULEAPSonthedip,BWTFDIK.com