This Just In: Networking Isn't Dead

Optical networking companies have been struggling this summer. JDS Uniphase (Nasdaq: JDSU  ) , Oplink (Nasdaq: OPLK  ) , and Oclaro (Nasdaq: OCLR  ) have all reported terrible quarters, or at least disappointing outlooks for the next quarter. Sector stocks have been drawn and quartered, then hung out in the four corners of Wall Street as public effigy.

But optical bellwether Finisar (Nasdaq: FNSR  ) is bucking that trend today. On the heels of its first-quarter report, Finisar shares jumped as high as 20% overnight before settling in to gain close to 10% in late trading. All told, shares prices are back roughly where they were three months ago and outperforming the Dow Jones (INDEX: ^DJI) index for the first time in ages.

Finisar is not the only networker to swim against the challenging currents, as industry giant Cisco Systems (Nasdaq: CSCO  ) also proved its mettle last month. So what do these outperformers have in common, other than a love for high-speed networking?

For starters, these guys managed to keep pace with Street expectations. Finisar's adjusted earnings of $0.21 per share just snuck by the $0.20 analyst consensus, while 10% year-over-year sales growth led to perfectly acceptable revenue of $228 million.

But there are big differences, too. Cisco is a turnaround attempt in progress, heralded by public apologies from CEO John Chambers and deep cuts of every kind. It's a technology bundle in search of a market. By contrast, Finisar has worked itself out of the deep morass that trapped the company several years ago, and its terrific results come from crisp execution. Margins exceeded management's own expectations, driven by lower manufacturing costs.

All of that being said, networking is a cyclical industry, and we're certainly in a downward cycle right now. Finisar is used to annual revenue growth comfortably in the double digits and often as high as 50%, but the company issued a forecast that on the lower end is a drop in year-over-year sales in the coming quarter -- and Mr. Market is OK with that.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Fool owns shares of and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of 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. The Motley Fool has a disclosure policy.

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