Can Optical Investors Read the Warning Signs?

Anders Bylund (TMF Zahrim), The Motley Fool

Updated July 14, 2016 at 9:20 p.m.·2 min read

When JDS Uniphase (NAS: JDSU) stood in the middle of Wall Street yesterday, frantically waving warning flags, Oplink Communications (NAS: OPLK) investors looked the other way. Maybe they should have paid attention.

Today, Oplink's own fourth-quarter report is in, and the stock has joined JDSU in a double-digit fall over the past two days. Year-over-year sales growth of 12% and flat earnings largely met Street estimates, but a dismal outlook for the coming quarter sank the ship.

Meeting the top end of management's first-quarter guidance would mean missing revenue estimates by 6% and earnings targets by 36%. And even those unreachable Street projections describe year-over-year shrinkage in the first place.

For an optical-components specialist with 23% annual growth over the past five years and a 30% long-term annual growth projection pegged on it by analysts, that just won't do. Yet Oplink CEO Joe Kiu keeps a stiff upper lip: "As we continue to introduce building blocks for ROADM and flexible networks, Oplink is well positioned to gain market share."

Just not anytime soon. Kiu admits that "visibility is limited" and not at all helped by the uncertain economy. "The telecom equipment market is in its early stage of another upgrading cycle to higher capacity," he says, pointing past direct-systems clients Huawei and Tellabs (NAS: TLAB) and passing the buck to foot-draggers at Verizon (NYS: VZ) , AT&T (NYS: T) , and China Mobile (NYS: CHL) . Slow orders from that rung of the networking industry are bad news for the whole ladder.

And once again, Mr. Market is taking this message the wrong way. If business is slow for both JDSU and Oplink, then why did Finisar (NAS: FNSR) stay sanguine on Thursday and even jump on Friday? Granted, that stock has already seen lots of pain priced in over the past six months, but Finisar owners may still be in for a rude awakening when the company reports results -- and offers guidance -- in two weeks.

Keep an eye on the optical networkers:

Add Oplink Communications to My Watchlist.
Add JDS Uniphase to My Watchlist.
Add Finisar to My Watchlist.
Add Tellabs to My Watchlist.

At the time thisarticle was published Fool contributorAnders Bylundholds no position in any of the companies discussed here. The Motley Fool owns shares of China Mobile.Motley Fool newsletter serviceshave recommended buying shares of China Mobile and AT&T. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. You can check outAnders' holdings and a concise bio, follow him onTwitterorGoogle+, or peruseour Foolish disclosure policy.

Yahoo Finance
Stock market today: Dow looks to snap longest losing streak since 1978 with Fed decision on deck
Stocks eyed a rebound Wednesday, with the blue-chip Dow looking to snap its longest losing streak since 1978
Yahoo News UK
When is the deadline to claim pension credit including winter fuel payment?
The government and campaigners are urging people to check if they are eligible for pension credit following changes to the winter fuel allowance.
People
Host Nikki Glaser Is ‘Not Out for Blood’ at the Golden Globes. But These Stars, Movies and Shows Are Fair Game (Exclusive)
The stand-up comic plans to have fun at what she calls "a glamorous event where people are taking themselves too seriously"
Reuters
US EPA approves California plan to ban gas-only cars starting in 2035
The U.S. Environmental Protection Agency said on Wednesday it has approved California's landmark plan to end the sale of gasoline-only vehicles by 2035. President-elect Donald Trump has vowed to rescind approvals granted by the EPA to California to require more EVs and tighter vehicle emissions standards.
PA Media: Video
Starmer ‘punching British people in face’ with policies, says Badenoch
Kemi Badenoch accused Sir Keir Starmer of “punching the British people in the face” as she attacked his policies on tax and pensioner benefits. The Conservative Party leader criticised the Prime Minister for withdrawing winter fuel payments from more than nine million pensioners, claiming the changes could contribute to deaths and end up costing taxpayers more money.
Yahoo Life Shopping
Shake, rattle and go! Grab the best shaker bottles for post-workout nutrition in 2025
Sip your protein on the go with trainer-approved options from brands like BlenderBottle, BrüMate, Bolde and S'well.
The Canadian Press
The group behind a new European soccer competition has resurfaced. Here's what they propose
The group behind a proposed breakaway European soccer competition is back.
PA Media: UK News
Not guilty pleas entered after teen accused of Southport attack does not speak
Axel Rudakubana failed to reply when he was asked to enter pleas to 16 charges he faces.
Evening Standard
Tottenham: Ange Postecoglou drops Lucas Bergvall team news hint ahead of Manchester United visit
The teenager impressed on his first Premier League start for Spurs
Associated Press
Mystery drone sightings continue in New Jersey and across the US. Here's what we know
A large number of mysterious drones have been reported flying over New Jersey and across the eastern U.S., sparking speculation and concern over where they came from and why. The FBI, the Homeland Security Department and state agencies have been investigating, but officials say there has been nothing so far to suggest that any drones have posed a national security or public safety threat. In fact, authorities say, many of the drone sightings have actually been legal drones, manned aircraft, helicopters and even stars.
Sky News
Driver Thomas Johnson jailed for killing three teenage passengers after inhaling laughing gas at the wheel
A driver who inhaled laughing gas at the wheel has been jailed for nine years and four months after he admitted killing his three teenage passengers in a high-speed crash. Thomas Johnson, 19, had admitted to taking nitrous oxide through balloons while driving and exceeding speeds of more than 100mph on a road with a speed limit of 30mph. Addressing Johnson, Judge Emma Nott said his actions were "all for teenage thrills" and he would be "forever defined" by his "teenage mistakes".
The Canadian Press
China has expanded its nuclear force and strengthened ties to Russia, the Pentagon says
WASHINGTON (AP) — China is expanding its nuclear force, has increased military pressure against Taiwan and has strengthened its ties with Russia over the past year, according to a Pentagon report Wednesday that details actions accelerating key areas of conflict with the United States.
FTW Outdoors
Tom Izzo and Greg Kampe wore matching Grinch sweaters while coaching against each other
Something strange happened: The Michigan State and Oakland head coaches intentionally wore the same outfit to coach against each other. Michigan State's Izzo and Oakland's Kampe played in Detroit at Little Caesars Arena on Tuesday. Izzo has led his Spartans to eight Final…
WWD
Daisy Edgar-Jones Sees Green in Victoria Beckham Minidress at the ‘Cat on a Hot Tin Roof’ After Party in London
The actress' look comes courtesy of Beckham's spring 2025 ready-to-wear collection.
Associated Press Finance
EPA grants California authority to ban sales of new gas cars by 2035. Action faces reversal by Trump
The Environmental Protection Agency on Wednesday granted two requests from California to enforce strict standards for vehicle emissions, including a rule aimed at banning sales of new gasoline-powered cars in the state by 2035. The incoming Trump administration is likely to try to reverse the action. The California rule is stricter than a federal rule adopted this year that tightens emissions standards but does not require sales of electric vehicles.
Evening Standard
Gemma Arterton's guide to London: secret gardens, stunning stationary shops and Singer Sargent
The star on working as a karaoke hostess in Waterloo, run-ins with the law, and where she recommends for a first date
Reuters
Tire maker Continental plans IPO of automotive unit by end 2025
It also reiterated that Original Equipment Solutions (OESL), its business that supplies rubber products to automotive manufacturers, will be made independent in the near future, with the sales process starting in the first quarter of 2025. Continental has aimed to spin off part of its business as European carmakers face hurdles including high costs and Chinese competition, which in turn is hitting their suppliers. Continental had announced job cuts in its automotive division in February.
GuruFocus.com
Quantum Computing (QUBT) Extends Gains: 33% Early Trading Surge on Contract Win
Quantum Computing (QUBT) jumps 33% in early Wednesday trading, fueled by momentum from its NASA contract
USA TODAY
Kamaka Air plane crash near Honolulu Airport during training flight; 2 dead: Reports
A plane crashed near the Daniel K. Inouye International Airport in Honolulu leaving two people dead, reports state.
FTW Outdoors
How to watch UNLV vs. California football, LA Bowl TV channel, free live stream
The UNLV Rebels will take on the California Golden Bears in this year's edition of the LA Bowl held in Inglewood, California. If you want to watch this Wednesday's late-night college football postseason action on TV or via live stream, you have come to the right place.…

Latest Stories