Analyst: Worst is over for JDS Uniphase

By market close, shares were up 85 cents, or about 8 percent, to $11.76. The fiber-optic component maker was the second most actively traded stock of the day on the Nasdaq Stock Market.

"Customer activity levels are unsustainably low and in our judgment the company's September-quarter guidance will prove the low," wrote analyst Kevin Slocum.

Slocum added that shares could double over the next 12 months as the trend "takes hold in the December quarter and beyond."

The upgrade was part of Slocum's broader message about the optical communications sector.

"We believe the shares of most stocks in the photonics sector have reached levels where it is time to be controversial," he wrote.

The sector has been slammed in recent months, with companies such as Nortel Networks, Cisco Systems and Lucent Technologies issuing warnings and writing off inventory.

Analysts and industry insiders have said the problem was that high-speed networks had been built out as far as they were going to go, at least for the foreseeable future. Rather than continue to spend on expansion, carriers were hunkering down and trying to get the most out of what they had already built.

For instance, Nortel's chief finance officer, Frank Dunn, recently pointed to a customer that had planned on ordering around $350 million worth of equipment. As engineers worked on the network, they were able to expand its capacity and ended up ordering only about a quarter of that amount.

And several analysts have predicted that spending will not pick up again any time soon.

But Slocum challenged that view Friday.

"We expect carriers to improve their spending patterns moving through next year. That should drive improving results from the levels that will be reported for the June quarter and predicted for September," he wrote. The economic concerns that exacerbated the slowdown in spending "precipitated an unsustainably low level of equipment investment."

In addition to upgrading JDS, Slocum upped Optical Communications Products from a "strong buy" to a "buy," raised Nortel from "hold" to "buy," and reiterated "strong buy" ratings on Ciena, Cisco, Digital Lightwave and Finisar. He also reiterated "buy" ratings on Tellium and Corning.

The upgrades boosted just about all the companies he upgraded. By market close, Corning was up 36 cents to $14.85, Optical Communications rose 85 cents to $11.41, and Nortel was up 30 cents to $8.75. Ciena was up $2.26 to $41.50, Finisar rose 87 cents to $14.87, and Tellium was up 54 cents to $15.84. However, Cisco fell 16 cents to $17.52, and Digital Lightwave lost 46 cents to $30.

Slocum isn't entirely alone with his upbeat view. CIBC World Markets analyst Steve Kamman recently noted that he expects to see a "massive return" to carrier spending once U.S. residential broadband sales pick up, which he expects to occur toward the end of 2002.