Shares of Networking Companies Take Another Body Slam
Computer and telecom networking stocks took another sharp hit Tuesday as investors again lowered their sights for the industry’s near-term sales and earnings growth.
The Amex networking index, which tracks 16 major networking stocks, including Cisco Systems, Lucent Technologies and Juniper Networks, slumped 3.3% to 655.25, a new 52-week low. The index broke through the previous low of 656.64 reached Jan. 2.
On a down day for technology stocks in general, fiber-optics networking giant JDS Uniphase deepened the sell-off in networking stocks late in the day when it said it would give Wall Street new earnings guidance after trading ended.
Once markets closed, JDS--which on Tuesday completed its $13.5-billion purchase of rival SDL Inc.--warned that earnings will come in below expectations for the quarter and the year.
The company now expects to earn 17 cents a share, excluding certain costs, in the fiscal third quarter ending March 31, on sales of slightly more than $1 billion.
Analysts had expected the company to earn about 21 cents a share.
For the fiscal year, JDS said it expects to post operating earnings of 74 cents a share. Analysts had expected about 81 cents.
JDS Chief Financial Officer Tony Muller said the company faces a slowdown in spending by phone companies and decisions by some customers to cut inventories--problems that are affecting many networking companies after several years of heady growth.
“At the end of the second quarter, we said the near-term prospects were affected by uncertain capital spending. These conditions remain as they were, or may have become somewhat less favorable,” Muller said.
“Very quickly, telecom expenditures are changing,” said Michael Cohen, who manages the Alpha Analytics Digital Future Fund, which owns JDS and SDL shares. “What [is JDS] seeing now that they weren’t seeing a couple of weeks ago?”
In regular Nasdaq trading, JDS shares (ticker symbol: JDSU) fell $2.13 to $38.50--their lowest price since late-1999--then eased to $38.38 in after-hours trading.
Other networking stocks sliding in regular trading Tuesday included Cisco Systems (CSCO), down $1.06 to $28.50; Brocade Communications (BRCD), down $9.56 to $53.44; Openwave Systems (OPWV), down $7.13 to $57.75; and Lucent (LU), down $1.26 to $13.54.
Also, Sycamore Networks (SCMR) fell 50 cents to $22.56. The company reported quarterly net income of $13.8 million, or 5 cents a share, compared with a loss a year earlier. Sales jumped to $149.2 million from $29 million a year earlier.
But Sycamore, too, is feeling the effects of weaker tech spending by many companies. Chief Executive Dan Smith said that although demand for Sycamore’s new products is strong, he’s reluctant to boost full-year forecasts because some customers may slow their purchasing.
“There remains a great deal of uncertainty” in the outlook for capital spending by phone companies, Smith said on a conference call. That situation “could create a more challenging environment for Sycamore.”
Sycamore stock, like most networking shares, now is a shadow of its former self: The company’s shares peaked at $199.50 last year.
Though investors still expect the industry to grow at a brisk rate over the next few years, many of the stocks remain highly priced relative to near-term earnings, even after their declines.
Sycamore, for example, is expected to earn 23 cents a share this fiscal year--which gives the stock a price-to-earnings ratio of 98, even though the share price has plummeted 89% from its 2000 peak.
Ticker Talk: Krispy Kreme Doughnuts, which turned into one of last year’s hottest initial public stock offerings while most tech-stock IPOs crashed, may be trying a stock-boosting tactic favored by many tech firms in their heyday: Krispy Kreme said Tuesday it will split its stock 2-for-1 effective March 19. Before the announcement, the shares (KREM) closed unchanged at $67.69 on Nasdaq, well off their November peak of $108.50. The price moved up to $68.50 in after-hours trading. The Winston-Salem, N.C.-based doughnut chain went public at $21 a share last April.
Trouble on the Data Line
The Amex index of 16 major computer networking stocks fell 3.3% to a new 52-week low Tuesday amid fading expectations for the industry’s growth rate.
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Amex networking index, weekly closes and latest
Tuesday: 655.25
Source: Bloomberg News
