Though a fan of optical networking hardware vendors Ciena (NYSE: CIEN), Infinera (NASDAQ: INFN), and Xtera (NASDAQ: XCOM), Needham's Alex Henderson thinks many component makers have more 2016 upside. "We see more upside to revenues, better margin leverage, and more room for valuation improvements with the component names. We point out the current supply constraints on broad classes of Optical components at the end of CY15, which we expect to persist through CY16."

He sees 2016 as a good year for optical, and 2017/2018 even better ones. "The driver of this should be the continuing strong growth in the [data center interconnect] market and the substantial ramp-up of the Metro Core Market. We strongly believe CY16 is the beginning of the Metro 100G/200G cycle, which should last through CY2020."

Lumentum (NASDAQ: LITE), formerly JDS Uniphase's component arm, is one of Henderson's favorites. "LITE has roughly 50% of its optical product line in sold- out conditions well into CY16. The Industrial laser business is also likely to accelerate ... [supply constraints] reflect strong demand across numerous segments ... including Long-Haul and [data center interconnect] with Coherent modulators, Metro with ROADMs, and Access Metro with the T-XFP 10G transceivers. LITE is currently trading at 13x [enterprise value/EPS] on CY16 estimates and just 1.1x [enterprise value/sales]."

He also likes Fabrinet (NYSE: FN), citing a valuation of 0.7x EV/sales and 9x EV/EPS, and Oclaro (NASDAQ: OCLR). “[T]he primary reason we are recommending [Oclaro] is the ACO 100G Coherent pluggable . Oclaro is first to market in this emerging category and if they ramp production smoothly we think they can sell whatever they can produce.”

Looking at networking hardware firms, Henderson likes data center switch vendor Arista (NYSE: ANET) and networking visibility/monitoring hardware firm Gigamon (NYSE: GIMO). Arista is expected to benefit from 25G Ethernet adoption and the rollout of Broadcom's Jericho switching chip, which contains a 720Gbps packet processor and will allow Arista's gear to support edge routing functionality at much lower costs than rivals (read: Cisco). "We think Arista could pick up 3-5 points of market share, which we calculate could drive over 30% top-line growth."

Regarding Gigamon: "After a strong year in CY15, Gigamon is likely to produce a more 'normalized' year with growth in the 20% plus vicinity against tough comps with a gradual upward bias to Gross Margins driven by increasing security-driven transactions."