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To: Bill Harmond who wrote (6665)	4/28/2001 1:04:39 AM
From: Mark Fowler	Read Replies (1) \| Respond to of 57684

Bill only a few of the optical players like Cien -- systems makers with no exposure to legacy phone equipment are doing well, however, im concerned if this slow down last into the 2H, 2001 then that could leave Cien vunerable since it trades at a high premium. Management's guidance for 2Q looks good but beyond that it looks questionable. I remember CIEN has raised its financial outlook for the remainder of the year. However, i'm cautious and concerned on the whole group that is tied to capex.

To: Bill Harmond who wrote (6665)	4/28/2001 1:15:27 AM
From: Mark Fowler	Respond to of 57684

" Tim Savageaux, telecommunications equipment analyst with WR Hambrecht, said recent decisions by Ciena's competitors to exit the high-growth optical switch market or delay major product releases is testimony of Ciena's market dominance. "[The optical switch market] is forecasted to be larger and will almost certainly be more profitable than the long-haul dense waved division multiplexing market that composes the bulk of Ciena's current revenues," he said. "Ciena has the opportunity By Johnathan Burns Dow Jones Newswires NEW YORK -- After two years of staggering sales increases, the world's leading fiber-optic companies will experience growing pains this quarter, as a slowdown in telecommunications spending hurts components and systems makers alike. Industry leading component makers JDS Uniphase Corp. (JDSU) and Corning Inc. (GLW) have had to lower quarterly or annual financial targets as the industry's ability to anticipate demand is as bad as anyone can remember. "The fundamental strength of the group last year has reversed itself 180 degrees as both the [component] companies and their [systems-making] customers have limited visibility into their growth prospects in 2001," said UBS Warburg analyst Joseph Wolf. "Exacerbating the situation, we estimate that inventory building began in the third quarter and the current deployment environment means it will take longer for that inventory to be worked through." The big domino in all of this is the lack of funding for startup phone companies. Funding began to dry up in the middle of last year. The startups, who were building optical telecommunications networks, no longer have the cash to spend on optical equipment, and some have declared bankruptcy. As a result, the large incumbent phone companies, which had to spend aggressively to protect their customer base, have curtailed their own spending plans as the overall economy soured. Only a few of the purest optical players -- systems makers with no exposure to legacy phone equipment -- have managed to swim against the stream. Most notably, optical systems maker Ciena Corp. (CIEN) has raised its financial outlook for the remainder of the year. Most component and systems makers have announced large work force reductions and cost-cutting plans. Given the labor-intensive nature of making optical components, companies had built up armies of employees to assemble gear to keep up with staggering demand, not this year's slowdown. Still, the optical sector will present a mixed bag during the first calendar quarter, with some components makers improving both earnings and revenue -- though not hitting the notes Wall Street had expected -- and other players posting losses while restructuring their businesses. Lucent Technologies Inc. (LU), the whipping boy for the telecommunications sector, is in full-restructure mode, having already shed its internal optical components business into a separate company and mulling a sale of its highly profitable optical-fiber business. Lucent is expected to post a loss of 23 cents a share in its fiscal second quarter on revenue of $6 billion, compared with earnings of 21 cents a share on revenue of $6.5 billion a year ago, according to a Thomson Financial/First Call survey of analysts. Last year's numbers are adjusted for spinoffs and divestitures. Chief Executive Henry Schacht has promised that the company will improve throughout the year. Of greater concern for investors will be Lucent's debt and cash position at the end of the quarter. The company's credit rating is just a notch above junk-bond status, and it has had to move aggressively in a bear market to improve its cash position. Network equipment maker Tellabs Inc. (TLAB), which also twice lowered its first-quarter estimate, is expected to earn 29 cents a share on revenue of $844.3 million versus 26 cents a share on revenue of $639.5 million a year ago. The company's first-quarter results were hurt by the inability to recognize revenue from its new Titan 6500 product, due to accounting requirements, and an $83 million delay in orders for the Titan 5500 from some carriers. That has cast doubt on the company's targets of generating 30% growth in revenue and earnings for the year. "We believe management's target of 30% [growth] in earnings per share in 2001 will not be met," said ABN AMRO Inc. telecommunications equipment analyst Ken Leon. "A pullback in spending by incumbent providers has hurt Tellabs' traditional products." Ciena continues to baffle the market. But during the wave of pronouncements, Ciena management stood firm with its raised annual estimates. Ciena officials have repeatedly said that since the company installs its own equipment, it has detailed access to carriers' spending plans in its products several quarters in advance. Tim Savageaux, telecommunications equipment analyst with WR Hambrecht, said recent decisions by Ciena's competitors to exit the high-growth optical switch market or delay major product releases is testimony of Ciena's market dominance. "[The optical switch market] is forecasted to be larger and will almost certainly be more profitable than the long-haul dense waved division multiplexing market that composes the bulk of Ciena's current revenues," he said. "Ciena has the opportunity to run away with the optical switch market." Ciena is expected to earn 16 cents a share on revenue of $379.6 million in its fiscal second quarter compared with six cents a share on revenue of $185.7 million a year earlier. Optical component heavyweight JDS Uniphase is expected to earn 14 cents a share on revenue of $926.6 million in the fiscal third quarter versus 11 cents a share on revenue of $394.6 million last year. However, Deutsche Banc Alex. Brown optical analyst Raj Srikanth believes the company will post revenue of $902 million, primarily due to projected softness in the market for thin-film filters and gain modules. "Longer term, we believe the industry and JDS Uniphase will pick up, although we believe it will never return to the extravagant heights of last year," he said. Corning, the world leader in optical fiber, lowered its projections for sales growth in that area and in its optical-components business. The company is expected to earn 28 cents a share on revenue of $1.88 billion in the first quarter compared with 64 cents on revenue of $1.38 billion in the year-earlier period. Mr. Wolf noted that Corning had to lower its full-year earnings numbers because of a downward shift in the ratio of high-priced premium fiber the company expects to sell compared with regular fiber. Still, the company continues to be sold out of optical fiber through the end of the year. "Although world-wide fiber demand growth will not be as strong as originally anticipated, demand for single-mode fiber continues to exceed supply," Mr. Wolf said. "Demand is especially strong in Asia, where Corning has acknowledged it has not done a good job of meeting demand due to the hyper growth in North America over the past two years." Mr. Wolf said the key to whether Corning can meet full-year estimates is fiber pricing, and he hasn't yet seen evidence other fiber makers are competing on price. Component maker ADC Telecommunications Inc. (ADCT) is also expecting a time of readjustment as it cuts jobs and products to get its cost structure and business aligned with key markets. The company is expected to post a fiscal second-quarter loss of 12 cents a share on revenue of $651.4 million compared with earnings of 10 cents a share and revenue of $771 million last year. Write to Johnathan Burns at johnathan.burns@dowjones.com