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Analyst Has Eye on Optical Networkers

NEW YORK ( TheStreet) -- Optical networking stocks slumped Thursday on weak earnings from Finisar (FNSR - Get Report), but one analyst see the downturn as an opportunity.

Finisar reported conservative guidance. Does it affect the rest of the sector?

Finisar shares plunged after the optical networking equipment maker posted mixed quarterly results and gave a below-consensus outlook.

The Sunnyvale, Calif.-based company reported earnings of 23 cents per share on revenues of $241.5 million.

Alex Henderson of Miller Tabak said the quarter was good, but he was surprised by the guidance for the upcoming quarter. "The guidance was quite conservative, more so than we thought. The [Wall] Street was looking for $250 million in revenues for next quarter, and the company provided guidance of $235 million to $250 million, which was the same guidance given at the prior quarter. This indicates a little bit of pressure on the margin side," Henderson said.

Competitors such as JDS Uniphase (JDSU), Oclaro (OCLR), and Oplink Communications (OPLK) are seeing declines in their shares.

"We continued to execute well on our product development plan and have delivered to customers a number of innovative products..." said Finisar ETO Eitan Gertel.

The pricing in the quarter was a little more aggressive than expected, Henderson said, with the company typically cutting prices 10% to 15%. The company reported revenue of $26.7 million for its highest margin product, the 1x9 Wavelength Selective Switch (WSS), but guidance was flat for the product. Finisar and JDS Uniphase have a duopoly in this market.

Despite the decline, Henderson believes that the time to buy optical networking names is when inventory corrections are "putting in a base."

The 13% haircut the stock took Thursday was overwrought, according to Henderson, who said he would be buying Finisar, as well as others in the space on the dip.
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