Interview: the outlook for the telecom industry
>> signs of life in the telecommunications industry. verizon and s.b.c. increased their capital spending. they want to provide more lucrative services, things like high speed internet access and video on demand. that bodes well for the telecom equipment makers. j.d.s. uniphase is the largeest maker of fiber optic equipment. earlier today brian sullivan spoke with kevin kennedy. he started out asking about the outlook for j.d.s. uniphase and the telecom industry.
>> the telecom products range anything from devices that go into enterprises such as storage area networks to things that go into metro and long haul systems. we have had pretty good success on the telecom side. revenues last quarter, in fact, grew 20% quarter on quarter. i don’t expect that to repeat quite subversery again. the growth in general in the last four quarters have been very strong. and that particular market i have tried to use the sense that the market is healing, meaning that any one customer could turn off or on but in general across the world, there seems to be an updraft of that market . the consumer and commercial products we have three major areas. one is ink and pigments, one of which we have inks and pigments that go into our currencies, 92 currencies in the world including the u.s. currency. we serve the options and display markets . the move to high definition tv is a major positive force for that particular business. these are speciality optics that are built around ultraviolet light in some cases, polarized light. then we have a small laser business which goes into medical products. that really roughs out to the commercial and consumer products business is driving it single digit quarter on quarter growth and communications business has been moving at about a double digit quarter on quarter growth.
>> last quarter there was a slight uptick in long haul optics. you didn’t sound that bullish about the near term shift for long haul. what do you think is holding that back?
>> i wouldn’t say anything is holding it back. it turns out we had tremendous growth both long haul as well as metro. and so both were working good. as we mentioned, 24% quarter on quarter growth is almost unexpected. so i think this quarter we’ll settle down due to the phenomenal growth for the last quarter.
>> let’s talk about metro because i know verizon rolled out directly in the suburb of dallas. how do you get these providers to use more of j.d.s. uniphase’s products.
>> we provide our components through our systems providers. anything like ciena, alcatel, lucent, nortel. so first it’s to make sure we get our products into the reference designs for those particular customers. the metro buildout has been going strong for a long time. as we stated on the conference call, we probably have in the metro area for every design when we have a long haul, we have two designs in metro. very, very significant. it uses less optical component content than fiber to the curb or fiber to the home. we still think that that rollout in terms of a significant uplift is perhaps three to four quarters off.
>> before we get into consumer product aspects for retail, i want to ask you about outsourcing. you have been doing more outsourcing making things like circuit packs. do you expect this to increase quarter over quarter for the foreseeable future?
>> we do. the way the telecom market systems providers are, there are 13 providers or systems guys that share some place between zero and 14% market share. as they try to improve their r&d productivity, they’re outsourcing things they get less value for. two components providers and actually to contract manufacturers. so i do expect that trend to continue over the next two years.
>> quickly, consumer products like this one i’m looking at right here, a big television. you are in rear projection tv products. could be demand over the holiday season. what early demand are you seeing right now, kevin?
>> we saw pretty good demand last quarter. but number one, i think the great part of hdtv is we’re early and there are many more quarters or years ahead of it. we saw a lot of demand last quarter for specific comparable components. we’re seeing some seasonality at moment. i’m―i don’t know exactly how the quarter will turn out on that set of products. but in general i think the wave will continue the next several years so we’re well positioned there.
>> that was j.d.s. uniphase c.e.o., kevin kennedy, with our brian sullivan. a look at how the shares finished the day. down two cents at $3.15 a share. up next, a new target in the insurance industry. new york attorney general eliot spitzer has filed another lawsuit. details when we return. so keep it here
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Listen Market briefing --- Mike (fast)
Bears and bulls--- Su (fast)
NYSE --- Julie (slow)
welcome to “world financial report” from our washington studios tonight. i’m michael mckee. the benchmark stock indexes finished the friday session with gains across the board. the dow jones industrials finishing up by 69 points to the highest close in seven months since april 6. 10,539. over the past three weeks, the dow up 8%. so is the s&p. it finished up by 11 points today at 1,184. nasdaq hit ago nine-month high closing up 24 points at 2,085. volume on the new york stock exchange today was 1.5 billion shares traded. that’s about 200 million more than the six-month average. trading also heavy today on the nasdaq. almost 500 million shares above the six-month average. over two billion shares traded. taking a look at broader market index, also a good day there. new york stock exchange composite higher on the day by 63 points. the amex up by 15. the russell small caps finishing six points higher. that’s an all time high at 6,21 621.98. wilshire 5000 for its highest close since june of 2001. for a closer look at market now and how investors and market strategists view this year end rally, with the broader market trading at its highest in more than three years, bears and bulls adjust their outlook. su keenan with more on what they see now. su?
>> mike, there is concern in both camps, the bulls and bears that share prices may have risen too far given the prospect of profit growth. some strategists such as ozan oczin say this was not an exceptional earnings season.
>> not bad results. here we are done with the reporting season and you are looking at 60%, 62% of the s&p 500 beating analyst expectations and 20% or so missing. that’s in keeping with the long- run average. i think the markets are used to the fact that companies tend to beat analyst forecasts anyway.
>> pwaoegt the forecast is one catalyst for the rally. another is the drop in oil prices which has happened during the s&p 500’s three-week rally. crude oil futures plunged 14% during that time. that’s the longest weekly decline since june. while technology has been a big gainer, the pace of the rally is slowing. the nasdaq posted four weeks of gains as mike mentioned, rising 9%. longest winning streak since the start of the year. >> we are seeing laggards to start to perform better and technology pick up. we have seen a pickup in the consumer space and the high flyer for the year, whether the utilities or some of transports, you know, in as much as they’re making new highs, the level to which they’re moving has slowed down a little bit.
>> brett gallaher, head of u.s. equities at julius baer asset management, says profit concerns keep him in the bear camp.
>> but if you look out a little further, i think the expectations embedded in the market right now are a bit high. you have margins at all time record levels. just a return toward more average positions would result in earnings falling short.
>> falling short. robert morgan says he is a strong bull for 2005 but like so many strategists he is becoming a bit more cautious between now and year’s end.
>> i think where we are now the market is pricing in $50 oil well into next year. the fed funds rate going on a rocket ride from 1% to 4%. and i would definitely agree with bret that profitability is decelerating. but it’s from 20% to 10 plus%.
>> not bad. he’ll take it. to recap, the broader market ‘s 8% gain over the past three weeks, mike, is the largeest such gain in roughly two years. getting a lot of attention.
>> it certainly is. su keenan. also getting a lot of attention, dell shares posting their biggest gain in almost two years today following a release of the company’s latest results and outlook. stock up more than 8.5%. call it 9% closing in at its highest level since september of 2000. a $3 gain. dell c.e.o. kevin rollins says demand for the company’s products are quite healthy. rising sales of printers, p.c.’s and other products boosting profits and sales aid by lower component costs. dell shipped eight million servers, laptop and desktop p.c that’s a 22% rise from last year. the company also succeeded in boosting sales to large corporations.
>> dell’s largely driven by the corporate upgrade cycle. that is really why you saw strength this quarter in their business. a lot of that did come from the corporate side of the company.
>> rollins forecast strong growth for the current fourth quarter saying dell will post earnings of 36 cents a share on a 17% rise in sales. $13.5 billion. dell says it will shift five million―ship five million printer this is year generating $1 billion in revenue. for your cocktail chatter party this weekend, michael dell’s stock holdings rose by $887 million.
>> dell was a big story. let’s look at other industry stories. groups moving the markets today. julie hyman has this report from the new york stock exchange.
>> the s&p 500 once again closing at a more than three- year high in today’s session. also winning on the week, that 8% gain for the three-week period for which it has been gaining. the biggest in two years’ time. incidently, the beginning of that three-week rally is also a record high close we reached in oil. since oil has been declining, equities have been gaining. for the dow, it posted a seven- month high in today’s session. also gained just about 8% over the past three weeks or so. also gained four consecutive three-week periods. in today’s session, really the gains we saw were on optimism about the u.s. economy. we had a couple of things that supported that. the september minutes from the september fed meeting that came out talking about more economic growth. we had the consumer confidence figure better than expected as well as retail sales better than expected. the trio of information encouraging investors that the economy is indeed on track. that is what they were telling me throughout the day. in terms of the groups we saw gaining the most in today’s session, really across the board energy dog well, even after crude closed lower. technology hardware strong. semiconducters strong as well as consumer durables. really across the board. the effect in technology lard ware in particular fell because of dell. we saw cisco systems rallying for a second day. apple and hewlett not up as much. definitely contributing to gains we saw in that group. also the retailers in today’s session because they were gaining on that advanced retail sales report. really starting to see bigger stocks gaining. wal-mart, target doing well. kohl’s declined after third quarter earnings were up 19% but sales missed estimates. downgraded at prudential as well as deutsche bank. also want to touch on the s&p 500 homebuilders index because that closed with a record high in today’s session as did stocks within that index including toll brothers. i’m julie hyman, bloomberg news at the new york stock exchange.
>> speak of the economy, two economic reports for investors to consider. both of them focusing on the consumer. first up the university of michigan’s preliminary index of consumer sentiment rising for the first time in four months to a reading of 95.5 in early november. economists say the increase is due to higher stock prices, lower oil prices and bush’s uncontested re-election. the commerce department says retail sales rose more than expected climbing .2% in october. september’s figures also revised higher. if you exclude auto sales, sales jump .9% in october, biggest increase since may. consumers buying more clothes, gas and general merchandise. taking a look now at u.s. treasuries and how they responded to all of today’s news the benchmark 10-year rising for the first day this week as its yield neared a three-month high. right now it has fallen seven basis points to 4.18%. on the shorter end of the curve, two-year finishing up the week with its yield down three basis points to 2.81%. the dollar trading lower across the board with the yen posting its biggest gain in five weeks. euro and british pound also rising on the day. investors speculating that the u.s. may tolerate a weaker dollar so the trade deficit. stay with us on the “world financial report.” back in just a moment with more news on the state of the telecom% -pindustry.
