Optical Networking Is Dying Again! Right?

Here we go again; the optical networking industry is dying. Shares of optical equipment maker Ciena (Nasdaq: CIEN  ) are down as much as 10.4% after this morning's first-quarter report, which surely is a sign of impending disaster ... right?

The company reported a $0.13 non-GAAP net loss per share on sales of $433 million. Integration costs of Ciena's substantial Nortel asset acquisition weighed heavy on overall results.

End times are near! Sell Ciena! Dump Finisar (Nasdaq: FNSR  ) ! Get rid of JDS Uniphase (Nasdaq: JDSU  ) ! Hold NeoPhotonics (Nasdaq: NPTN  ) at your own risk! All of these stocks are swooning today, some more than others.

However, their collective slump is only a calamity if you're focusing on today's chart with myopic precision. Other than NeoPhotonics, which has only been public for about a month, all of these stocks have rewarded shareholders something fierce over the last quarter:

Company

3-Month Return

CAPS Rating (out of 5)

Ciena

62.2%

**

Finisar

73.9%

***

JDS Uniphase

98.7%

**

NeoPhotonics

5.9%

***

Price data from Google Finance, accurate as of mid-morning March 7, 2011.

Simply put, optical networkers have been kicking butt and taking names since the last report of the sector's demise. Today's action is nothing more than a correction -- some simple profit-taking as investors digest Ciena's results and ponder what's next for one of the hottest growth sectors in technology today.

If you're still skeptical, consider that analysts would have settled for a $0.16 loss per share on $422 million of revenue -- considerably worse than the actual results. The quarter was helped by some sales moving from the second quarter to the first, which leads to a more timid second-quarter outlook than expected, but the net effect of these puts and takes over two quarters is right in line with analyst expectations.

Finisar reports earnings of its own tomorrow night, but most of the other optical operators are weeks away from presenting fresh data. Barring a major flub by Finisar, I think Ciena has already shown us that the industry is in good health. Those raucous three-month gains may have overshot reality a little bit, but this is still a growth story of epic proportions.

Click on Ciena, JDS Uniphase, or Finisar to add these optical heavyweights to your watchlist, or start a new watchlist and add any company you like. You'll get valuable updates as well as immediate access to a new special report, "Six Stocks to Watch from David and Tom Gardner." Click here to get started.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. 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.


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