Nortel Pall Continues to Cast Shadow on Opticals

Fiber optic companies continued to fall today, as it became clear that the slowdown talked about by Nortel (NT Quote) last week may be wider and deeper than expected.

Shares of the leading optical component maker, JDS Uniphase (JDSU Quote) were dropping after U.S. Bancorp Piper Jaffray analyst Conrad Leifur cut his rating to neutral from strong buy. Leifur said the impact from Nortel's forecasted shortfall could last into the September quarter for JDS Uniphase. Leifur also reduced JDS' earnings estimates for the March quarter to 16 cents per share from 17 cents and, for the year, to 69 cents from 74 cents. His company has done no underwriting for JDSU.

JDS has lost 40% of its value over the last month because of an earnings disappointment from Cisco, the Nortel announcement and its own warning about a shortfall in telecom spending. Nortel is JDSU's biggest customer. Some signs pointed to a dramatic shift in optical networking product demand as the culprit of many problems. TheStreet.com's Scott Moritz covered the story separately.

JDS was trading down $3.31, or 9.2%, to $32.50.

A drop in Nortel's stock, which has lost more than 36% since Thursday's close, trims the value of the deal JDS Uniphase struck to sell one of its to Nortel to win regulatory approval for its merger with SDL.

To be sure, the analysts have been busy scouring this sector. UBS Warburg, Lehman Brothers and Dain Rauscher Wessels each trimmed estimates on JDSU.

But JDSU isn't alone. Many of the next generation optical equipment makers that rose on the break-out earnings report last week from networker Ciena (CIEN Quote) also were falling again today. "Valuations at these companies are at a premium. And my field checks show that shipments are being delayed. Put those together and it's not pretty," said analyst Joseph Bellace at Jefferies and Co.

Ciena rose 15.8% on Thursday after its earnings report. After Nortel's warning, Ciena dropped 7.2%. It was lower again this afternoon, recently down $6.63, or 8%, to $76.

New Focus (NUFO Quote), on the list of tech guru George Gilder's favored companies, was also falling. Despite a repeat blessing from Gilder in a television interview last week, New Focus was down $5.44, or 14.9%, to $31. New Focus has hit the same wall as shares of others in the optical networking space --the one with Nortel spraypainted on it. New Focus sells to Nortel and a number of other companies that supply the optical networking market.

Optical network maker Corvis (CORV Quote), which lists Nortel as a customer and is a large customer of New Focus, dropped for the second day. Corvis dropped 13.2% Friday. It was lower again today, down $1.44, or 10%, to $12.88.

Major New Focus customer Corning (GLW Quote) cut its earnings outlook on Friday. Analyst Joseph Wolf of UBS Warburg followed today, trimming the company's growth-rate estimates for this year from 83% to 49%. Wolf rates Corning a buy. His company has done no underwriting for Corning.

Corning, which lost 21.4% Friday, was off $2.68, or 8.1%, to $30.32 in recent trading.

Agilent Technologies (A Quote), another of New Focus' customers, was sinking today ahead of its earnings report that comes out after the market's close. Agilent was down $5.53, or 11.1%, to $44.47.