JDS Misses Out on Optical Fun Amid Growth Worries

The stock slides even as the companies it supplies enjoy a relief rally.
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Concerns blew like snowflakes around Wall Street Friday as investors turned cold on

JDS Uniphase

(JDSU)

over the optical component maker's growth prospects.

Deutsche Banc Alex. Brown

analysts told investors that JDS would likely meet earnings and revenue expectations for its current fiscal second quarter, but that the company may lower its forecast for next year. That set off the selling Friday afternoon, as JDS shares swung more than $10 from an intraday high of $48 to a low of $37. JDS closed down $2.12, or 5%, at $40.93 on a day when other optical plays rallied sharply.

Some investors have asserted it is only a matter of time before JDS starts to experience the spending slowdown that has already rocked big buyers such as

Nortel

(NT)

and

Lucent

(LU)

. One of the leading concerns is that JDS will have flat sales in the first quarter of 2001 as its buyers work through their presumed oversupply of lasers and amplifiers used to operate fiber optic networks.

Those concerns are compounded by the overhanging worries about component

supply inevitably outstripping a slackening demand along with a longer than expected

SDL

(SDLI)

merger review process. All these pressures have weighed on the stock amid a prolonged tech selloff. JDS is now trading at its lowest level for the year.

"Investors have concerns about sales into Nortel and Lucent with the understanding that the components folks feel it last," says James Jungjohann of

CIBC World Markets

, referring to the pattern of shortfalls that ripple down the chain of suppliers.

Jungjohann says he's confident JDS will meet expectations for this quarter and next year. "The 80-cent-per-share earnings target next year is quite doable, even in today's market conditions," says Jungjohann, who has a strong buy on JDS. CIBC advised JDS in its merger with SDL.

But some investors say that JDS must address the looming slowdown to maintain credibility with the Street.

"I think if they need to come clean and admit that they are going to be affected by the inventory correction, just as their customers are affected," says one hedge fund manager who has no position in JDS or SDL.

"I'm sure they will give a bullish long-term view and say that the second half 2001 looks great," this same manager continues. "But the market probably won't give them credit until that scenario becomes more obvious."

Other fiber optic outfits staged strong recoveries Friday after a week of downtrends.

Corning

(GLW) - Get Report

shares rose $1.75, or 3%, to $56.25;

Ciena

(CIEN) - Get Report

rose $17.12, or 29%, to $77; and Nortel added $1.19, or nearly 4%, to $32.37.