I believe that, but not all of the people that build it will make a return on capital. He thinks consolidation among service providers would force reductions in capital spending, which would hurt the stocks of equipment makers. On Thursday, BellSouth said it plans to curtail equipment spending. Those who own optics stocks take solace in the long-term outlook because the pressure remains on carriers to upgrade their networks, both to cut costs and to keep customers. And they say that, while overall spending may slow somewhat, the percentage spent on optics is increasing.
Money managers are also concerned about signs of backups in inventory.
Nortel and Lucent also reported increases in inventory for the third quarter. We're trimming or at the margin on a couple of the components vendors that might take longer to recover. He says the market has been too quick to punish optics stocks indiscriminately, without heed to the quality of individual companies. At Focus 20, Hahn says managers are seeking out companies, like SDL, that fill unique market niches. We're trying to stay away from companies that make things like transceivers.