Is This an Optical Warning Shot or an Opportunity?

Shares of optical networking component maker Oclaro (Nasdaq: OCLR  ) are worth a fraction of yesterday's price today -- about three-fifths, in fact.

The stock took a 38% hit after reporting the double error of weak first-quarter results and an even worse outlook for the coming period. The report was so distressing, in fact, that it also caused 10% drops or worse in early trading for competitors Oplink Communications (Nasdaq: OPLK  ) , JDS Uniphase (Nasdaq: JDSU  ) , and Finisar (Nasdaq: FNSR  ) . Oplink is due to report earnings after the bell and JDS next week; the next update from Finisar is over a month away.

Oclaro's sales increased by 42% year over year to $121 million, but The Street had expected a couple of million more than that. The company's $0.06 of non-GAAP income per share was way less than the $0.22 analyst target. Management decided to stick with "cautious" guidance, but reminded investors that, in its opinion, "the growth prospects for Oclaro and our customers in 2011 continue to be strong."

Given the multiple buildout projects of next-generation wireless networks and the continued general growth of networking needs across the globe, I would agree with the positive long-term assessment. I remain a fan of the optical networking industry, and this severe hit looks more like an opportunity to build a position than a signal to get out.

We'll have more clarity after the Oplink and JDS reports, of course. If those guys pile on with more of the same demure forecasts, there's an industrywide slowdown going on that should eventually spread to upstream networking specialists, including Cisco Systems (Nasdaq: CSCO  ) and Juniper Networks (Nasdaq: JNPR  ) , in the next earnings season. If not, Oclaro's problems could very well be Oclaro's own.

To follow this nail-biter of a story, add Oclaro and any other optical networkers you like to your watchlist.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Fool has written a bull call spread on Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1350647, ~/Articles/ArticleHandler.aspx, 10/24/2014 10:59:25 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement