Pulse: Opticals Make a Spectacle of Themselves in Today's Action

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Whatever shine optical stocks once had was lost today, as they slid into the dark side.

New Focus on Networks

(NUFO)

dimmed the most, dropping $5.69, or 19.2%, to close at 24. New Focus has lost 73% of its share price since Oct. 20.

Worries about high valuations and weaker telecom expenditures are hurting the opticals stocks, just as they're hurting other high-tech component makers. Despite the recent battering of tech stocks, investors are still unsure if many of the highly valued tech companies are correctly priced.

As one of the optical highfliers of late,

JDS Uniphase

(JDSU)

is one of the companies whose valuation is still a puzzle investors have yet to solve. JDS Uniphase was down $3.94, or 5.97% to $62.06.

Some of the downside also was attributable to company-specific news.

Rumors have been circulating that competitor

Corning

(GLW) - Get Report

will be releasing a new fiber technology that threatens

Corvis'

(CORV) - Get Report

business. Corvis, one of New Focus' large customers, closed down $2, or 7.4% to 25.

Corvis' slide affected New Focus. But the market also is reacting to New Focus' SEC filing last week that says the optical-component maker will put a lot more of the company's shares into play.

Epoch Partners

analyst Mark Langley, who wrote a Nov. 14 note defending New Focus, called the slide a "knee-jerk reaction to supply-demand" imbalance that doesn't take into account the company's broader prospects."These guys are doing a lot of things right. This price weakness isn't attributable to the company's broader prospects," he said. (Epoch has done recent underwriting for New Focus.)

3:22p.m.: Warnings, Analysts Continue to Plague Semi Stocks

The other shoe dropped for semiconductors Monday. And dropped again and again and again.

The

Philadelphia Stock Exchange Semiconductor Index

was trading down 6.6% as continuing worries over inventory build-up plagued more than one subsector in semiconductors and brought down confidence that anyone would be spared.

"If we see three of the four parts of the sector are weak, it's hard to say that the fourth will hold out," said analyst Quinn Bolton of

CIBC World Markets

.

Programmable logic device makers

Altera

(ALTR) - Get Report

and

Xilinx

(XLNX) - Get Report

, led the fall after

Lehman Brothers'

semiconductor analyst Dan Niles issued a downward revision of his revenue forecasts. Altera was trading down $3.88, or 12.4% to $27.31. Xilinx was trading down $9.19, or 16.2%, to $47.43. But, communications chips were close behind, with cable-modem chipmaker

Broadcom

(BRCM)

trading down recently $19.06, or 16.3%, to $98.06, after an analyst cut his price target for the stock.

And DRAM maker

Micron Technology

(MU) - Get Report

was trading down $3.25, or 8%, to $37.43, despite an upgrade, after a separate earnings warning.

One warning after another about slowing demand has plagued the semiconductor shares this fall. First, it was weaker demand for chips for cell phones and PCs. Then, with the warnings by

Nortel

(NT)

and

Cisco

(CSCO) - Get Report

, came the news of weakening demand for communications chips.

Altera and Xilinx, which make the "system-on-a-chip" devices used in communications networks, have both suffered from the warnings. Two months ago, Altera was trading at $48.13 and Xilinx at $79.69 on Sept. 27. Both fell sharply on one piece of bad news after another, the first on a downgrade warning of an impending inventory correction from communications makers.

Another warning came last week when chip distributor

Avnet

(AVT) - Get Report

announced it would miss its fourth-quarter earnings because of an oversupply of semiconductors.

That news took Xilinx down 10% and was the basis for Niles' note today announcing revised estimates for Xilinx and Altera.

"Essentially there is no place to hide in the semiconductor food chain," Niles wrote.

That was true for Broadcom as well.

Salomon Smith Barney

analyst Clark Westmont lowered his target price for the maker of cable-modem chips noting inventory stockpiling, weaker growth in orders and the general drop in value for communications semiconductor makers.

Other communications chipmakers weren't spared either.

Applied Micro Circuits

(AMCC)

was down 11.5% and

PMC-Sierra

(PMCS)

was off 9.2%.

DRAM maker Micron also dropped, despite an upgrade and the news confirming that spot prices for its memory chips have risen in the last week.

Banc of America Securities

upgraded Micron from buy to strong buy in a note today. But,

ABN Amro

cut its earnings estimates for the stock in another note, while maintaining its buy rating on the shares.

Analysts expect manufacturers to work off stockpiled inventories of DRAM chips. The question is whether that correction is going to occur sooner or later.

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