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Bizarrely, Wall Street's hottest sector finds the specter of tech laggard



hanging over it.



, lately among the Street's favorite optical component makers, this afternoon will usher in earnings season for the companies that make telecommunications network gear. SDL's third-quarter earnings should exceed Wall Street's 38-cent-a-share consensus expectation by a few cents, say a pair of bullish analysts, while tripling from year-ago levels.

But as highfliers always do, SDL faces the prospect that any shortfall, whether in revenue growth or against the so-called earnings whisper number, will prompt a massive selloff. The chances of a shortfall are heightened this quarter, analysts say, by the massive failures at free-falling Lucent that are now spreading through the optical supply chain. And the focus is even sharper on SDL because of its pending $41 billion merger with components giant

JDS Uniphase



Dimmer Switch

During SDL's discussion with analysts that will follow the earnings report, some expect to hear that Lucent's

meltdown will hurt sales for the quarter. While the company will be able to say the damage was minimal, the outlook for upcoming quarters may remain in doubt. Lucent is a large buyer of silicon wafer products from

Photonic Integration Research

, a company SDL purchased in June.

"I don't expect a real blowout this quarter because Lucent is a significant customer of PIRI," says

TheStreet Recommends

U.S. Bancorp Piper Jaffray

analyst Conrad Leifur. "It's heavily exposed to Lucent. That limits the upside without a doubt." Leifur has a strong buy rating on SDL, and his firm has done no underwriting for the company. SDL was up $12.31, or 4.4%, at $291.19 Thursday afternoon.

Alphabet Soup
SDL and JDS over a year, top, and since deal

SDL executives will also be unlikely to help with guidance on the state of the proposed $41 billion merger with JDS. Investors have been very eager to hear how the merger is progressing, but it's not clear whether management can offer anything that would alleviate the pressure on JDS stock since the deal was announced.


reported July 7, at the time of the proposed merger, the combination of JDS Uniphase and SDL sent up warning flags because it would consolidate the vast majority of pump laser production within one company. Federal antitrust officials have been investigating the potential impact of that tie-up by questioning top customers, including Lucent and



. Since the deal was announced, JDS shares have slid some 20%, while SDL has continued to rally.

No Supply

SDL has emerged, along with JDS and rival


(GLW) - Get Corning Inc Report

, among the strongest companies in the entire technology sector. SDL supplies lasers, amplifiers and communications chips to networking equipment makers.

SDL has told analysts that it is completely sold out of its pump lasers through early next year. And even as the phone and Internet service providers atop the food chain have experienced a cash crunch that in turn has sent a chill through the equipment sellers' sector, the slowdown has not been evident at the component level, say analysts.

Still, it's hard to get a good read on demand when there is so little supply.