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ONI soars on predictions of strong earnings

The maker of optical equipment gear rises 22 percent after two analysts say they expect the company to beat Wall Street expectations.

ONI Systems rose 22 percent Tuesday after two Wall Street analysts said they expect the optical equipment maker to beat Wall Street expectations.

The San Jose, Calif.-based company rose $8.94 to $49 on volume of 8.3 million shares, nearly three times the stock's average daily volume.

Thomas Weisel Partners analyst Hasan Imam initiated coverage on the company with a "market perform" rating and said there is a significant chance the company will beat Wall Street expectations of $180 million in revenue for 2001.

Alexander Henderson of Salomon Smith Barney also issued an upbeat report on the company and believes ONI will beat his fourth-quarter revenue estimate of $20.5 million. Wall Street generally expects ONI to generate $20 million in fourth-quarter revenue, according to First Call. ONI reports its quarterly financial results next month.

Both analysts regard ONI as an attractive investment in the metropolitan networking sector, even though they predict losses for the company until the fourth quarter of 2001.

ONI makes equipment for optical networks in metropolitan areas, a key growth area for the industry over the next five years. Competitors include Ciena, Sycamore Networks and Redback Networks, among others.

The metro market differs from long-haul networks, the long-distance networks that link metropolitan areas and that have received more investment. Many communications carriers are building metropolitan networks to connect business customers to the new high-speed backbone systems that have recently been completed.

According to a study by Dell'Oro Group, the metro networking market, in its embryonic stages, will grow at a fast pace in the coming years. In 2000, the market was valued around $383 million, and Dell'Oro predicts that will balloon to $3.1 billion by 2005, an increase of more than 700 percent.

ONI's stock jumped Tuesday despite the recent expiration of a so-called lockup period that released more than 79 million shares on the market.

"An expiration of a lockup is no reason to push a stock higher," said Lon Gerber, director of research at InsiderScores.com, a Web site that tracks insider stock trading.

The addition of extra shares usually sends a stock down because the supply of available shares increases, thus diluting the value of existing shares, Gerber said.

In fact, many people have considered selling shares of ONI over the past two months, according to InsiderScores, which tracked those regulatory filings with the Securities and Exchange Commission.

A shareholder must file documents with the SEC if they meet certain requirements, including being an "affiliate" of the company. Most senior company executives must file documents with the SEC indicating their intent to sell stock.

InsiderScores estimates insider sales of more than $83 million since early December.

In Tuesday's analyst reports, Thomas Weisel called the lockup expiration "an attractive buying opportunity," and Salomon believes the passing of the lockup expiration will allow Wall Street to focus on ONI's earnings release Feb. 8.

ONI is expected to post of loss of 11 cents per share for the fourth quarter.