Newport Corp.’s extended run on Wall Street hit a snag last week.
For most of this year, the Irvine-based maker of production gear for fiber-optic equipment makers has seemed bulletproof. At the end of September, Newport shares were up more than 1,000% for the year, far and away the biggest surge in any Orange County stock.
But Newport shares have turned sharply downward this month. Late last week, they were trading at around 129, off by about a third from their late September high of 189. A profit warning last week from fiber-optic bell wether Lucent Technologies Inc. only compounded Newport’s slide.
Still, investment fund managers,for whom Newport has been a darling,aren’t jumping ship. Lucent’s problems are specific to the company, they contend. Newport’s long-term growth potential remains intact, they said. “The company is doing well,” said San Francisco-based Zero Gravity Internet Group Inc.’s Patrick Wong, a manager of Zero Gravity Internet Fund. “The stock’s had a long run, but fundamentally it’s sound. I don’t think people should be as concerned about them as Lucent.
Lucent gave fiber-optic investors something to worry about when it said its profit for the quarter ended Sept. 30 would fall about 27% from the same year-ago period. Lucent blamed, among other problems, a 5% decline in sales of optical networking systems.
Newport’s equipment for the production of fiber-optic networking components made up nearly 40% of the company’s $97 million in first-half sales. Customers include Lucent, Nortel Networks Corp., JDS Uniphase Corp. and others.
Fiber optics allow computers to transmit vast amounts of data using light pulses sent over strands of glass, instead of electrical signals over copper wires. Newport’s gear helps automate the production of fiber-optic equipment.
Shares in Newport dropped by 9, or 7%, the day after Lucent issued its warning. The news also dragged down other fiber-optic players, including Corning Inc. and JDS Uniphase.
Silver Lining
While Lucent spooked investors, Steven Brase, one of the managers of Houston-based AIM Management Group Inc.’s AIM Constellation Fund, sees a bright side for Newport in Lucent’s announcement.
Lucent’s troubles stem from its optical systems business, which counts big communications companies as customers, he said. Newport sells to Lucent’s optical components business, part of its microelectronics division, which is expected to be up 50% for the recently concluded quarter.
Newport is set to announce its third-quarter results this Thursday. Analysts polled by First Call Corp. expect Newport to earn 22 cents a share for the quarter, up from 8 cents in the same year-ago period.
For the year, profit estimates for Newport stand at 73 cents a share, which would be a 143% jump from 1999. Analysts expect strong growth to continue: They see earnings growing at 50% a year for the next five years, according to First Call.
“Newport will do well at the tailwind of optical components companies,” Wong said. “Right now in optical components, there’s a huge lack of supply in the market.” n
Gondo is a freelance writer for Investor’s Business Daily and other publications.
