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Two Optical Networking Stocks That Investors Should Consider

July 03, 2014 | About:
jaggom

jaggom

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JDS Uniphase (JDSU) is one stock that has impressed the market, and was a great pick in 2013, surging almost 30% in spite of weak telecom spending. On the other hand, it’s rival Finisar (FNSR) also had a terrific time, but it could not maintain the growth and the stock ended the year with a drop of 3%.

Finisar is making good moves

Finisar's recently-reported quarter was quite impressive, as it outperformed market expectations by a big margin. The company has also boosted its outlook as it provided healthy guidelines for the current quarter. The company seems to turning around, while its peer JDS Uniphase has suddenly hit a roadblock. Finisar posted remarkable revenue growth of 5.2%, while JDS had just 1.2% revenue growth in the recently reported quarter, though the optical networking market contracted 7.4% in the quarter.

This suggests that Finisar is outpacing JDS as it managed to grow its revenue in a contracting market, winning market share. Also, its upbeat outlook indicates that investors will certainly see better days ahead for the optical networker. In addition, telecom spending is expected to strengthen this year as carriers look to upgrade their networks.

Finisar is also expected to benefit tremendously as AT&T plans to boost its capex plans in the coming three years to $14 billion. Also, AT&T’s move to aggressively deploy faster networks should lead other telecom companies to increase their spending as well.

Apart from this, Finisar has been consistent in improving its product portfolio. Its Flexgrid WSS (Wavelength Selective Switch) products are ramping up well and have received good response from customers. Further, the deployment of LTE networks is expected to drive growth of its wireless business, while growth in cloud computing could provide impetus to its datacom business. Besides, Finisar is also counting on its strong relationship with networking giant Cisco and hence, it is well-positioned to benefit from its client’s aggressive investments in the cloud.

Hence, keeping these factors in mind, it won’t be surprising if Finisar manages to turn its fortunes around this year.

JDS Uniphase can turnaround

On the other hand, JDS also look strong and investors shouldn’t avoid this stock either. JDS will benefit from the improvement in telecom spending like Finisar. Though the company looks little sluggish in its outlook, it is one of the best optical networking stocks to play the data boom. Additionally, its unique 4G LTE test solutions continue to drive its growth as it has a competitive edge over its peers. Besides, the company continues to make significant investments in its cutting-edge technology that should drive its growth going forward.

JDS’ new products are finding good adoption rates in the market, as they have been bringing in more than half of its core network revenue over the past year and a half. Also, JDS has plentiful pilot projects for its PacketPortal solution, and it won’t be surprising if it successfully executes them, considering it had brought on six new customers onboard for this solution in the previous quarter.

JDS Uniphase also focuses on inorganic means to improve its business further, as evidenced by acquisitions of GenComm and Dyaptive. Hence, a strategic mix of organic and inorganic growth initiatives and a booming market for data and network equipment would probably help it improve going forward.

Conclusion

After a mixed performance, it seems carrier spending is set to improve this year and optical networkers Finisar and JDS Uniphase are well-positioned to benefit. Thus, it would be prudent for investors to take a look at these two stocks and benefit from the build-out of faster networks and growth in cloud computing.


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