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2HRS2GO: Corning shows strength of tech suppliers

COMMENTARY -- Everyone is worried about a tech slowdown, but Corning (NYSE: GLW)'s rise today serves as a reminder that the overall driver of the technology industry -- networking hunger -- continues to roar.

Intel (Nasdaq: INTC) and Dell (Nasdaq: DELL) may fret about PC demand. Worries about Web advertising might haunt shareholders of Yahoo! (Nasdaq: YHOO). Doubts could linger about profits for (Nasdaq: AMZN).

But the Internet still has plenty of room to grow. People and businesses want more bandwidth now, and it won't come unless the Cornings of the world keep turning out network fiber and parts.

Also keep in mind the component supply constraints cited throughout the industry. It's causing pain for OEMs and network builders, but the suppliers are feeling good.

Thus, Corning not only sees surging demand for its fiber cable, optical components and flat panel displays, but can command higher margins for them. Corning CFO James Flaws credited higher-than-expected prices for fiber for driving earnings higher not only in the third quarter, but for the rest of the year.

Corning's optimistic view didn't carry over much -- the only other major optical networking stock to gain today is Corning's chief rival in optical components, JDS Uniphase (Nasdaq: JDSU). JDS has held up well all week against the rest of the stock market, so I wouldn't credit all of JDSU's gains today to the Corning announcement. But it probably helped.

The ongoing strength of companies that supply optical network building blocks remains impressive. Although both Corning and JDS are down from their summer highs, neither stock has taken the kinds of hits applied to other technology leaders.

In retrospect, Corning's inability to land a deal for the optical components business of Nortel Networks (NYSE: NT) probably helped, although I liked the idea; Corning is enjoying a robust business without it, and without the accompanying shareholder dilution that would have resulted.

Other issues:

  • Advanced Micro Devices (NYSE: AMD) came in light on revenue
  • compared to some analysts' estimates and sounded cautious about low-end processor sales in the fourth quarter, and that's all the excuse the market needed to knock a bit off AMD shares today.

    At this point, Wall Street doesn't care that AMD has gained market share against Intel. Any caution, even the smallest, most miniscule, barely visible sign of possible weakness, is enough to tear a chunk out of a tech company's value these days.

    But if you can ride out the market's current malaise -- and if you're a long-time AMD shareholder, you survived some long periods of bleakness -- you have nothing to worry about. You can't fault AMD for the sluggishness of its motherboard suppliers, and the chipmaker appears well-positioned both in flash memory and processors.

  • AMD isn't alone in being victimized by market sentiment -- see Redback Networks (Nasdaq: RBAK)
  • , down today despite a strong quarterly report and a strong outlook. But unlike AMD, whose Duron uncertainties gave analysts a reason to chip estimates slightly, Redback showed no cracks at all.

    Redback's market is huge and growing fast, the company's network systems are well-received by communications companies, there are no signs of slowing down anytime soon. This is a company that has everything going for it, save one: valuation.

    At 64 times trailing 12-month sales, Redback's market cap is simply unsustainable in such a negative market, barring a major uptick than forward expectations. Until the stock market as a whole turns it around or RBAK's stock price plummets unbelievably, Redback investors can't expect much.

  • Look no further than FileNet (Nasdaq: FILE)
  • to see how much a stock can be helped by boosting future guidance. Like RedBack, FileNet reported a strong quarter, but the latter also said First Call's consensus forecast of 99 cents per share for the full year should be raised by one to seven cents. Shares of FileNet gained more than 25 percent today.

    FileNet's market cap is also relatively low, so there's room to raise it.

    Perhaps whining also helps:

    "And you can tell, I'm pissed," CEO Lee Roberts said during this morning's conference call. "This company is grossly undervalued for what it does."

    Relax, Lee. Wall Street agrees with you for now. 22GO>