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Tuesday, July 18, 2006

Widely Traded 48 Hour Clock: Finisar's Woes

Finisar is being pummelled today, with shares down 15% by -$0.45 at $2.55. It has traded over 35 million shares today alone. It usually trades about 14 million shares. So what gives?

Yesterday, Adtran (ADTN) was up about 5% before earnings on hopes it would avoid the scythe. Unfortunately they posted results that gave us a lackluster feeling and a disappointing outlook for 2006. They aren't a fibre related stock provider per se like Finisar, but they are in the same sector in the sense that they sell to telecoms. What does the telecom merger wave of consolidation mean to equipment suppliers: Few customers; Big Hits & Bad Misses; High Dependence Per Customer; etc. Their business to storage providers probably has issues too as we have seen warnings in this arena.

The sector is also probably not at all welcoming the fact that Microsoft (MSFT) signed this unified communications device integration from one device in a pact with NorTel (NT) in field that already has its issues. Microsoft even thinks this could be a $40 Billion market in unified communications. So Finisar is not deemed the winner there. NorTel was perhaps chosen as the partner because of the deal they were likely willing to sign, and Microsoft said this is a non-exclusive deal.

Finisar is most likely not going to be left completely in the wind and will still get fiber orders, but the company haxs only recently re-emerged as a profitable company. Here is how they describe themselves:

"Internet video, high-definition television, voice over Internet (VoIP) and the exploding volume and growth of enterprise data - these factors are driving a global explosion in the world's need for information and bandwidth. Optical communications are the foundation. Finisar provides optical components and modules for network equipment vendors, instruments and software for communications designers, and products and services to help large enterprises run storage networks."

The company is also in a field of names that is embattled with stock option probes. They are also under this filing period for shares to be sold under the June filing that would allow holders to sell over 24 million shares. This chart looks like it in on the right side of the classic head and shoulders pattern, which is the wrong side. It is down 50% from its highs in May. We'll have to see if anyone cares about the name, but with so many companies reporting earnings it may not get attention until it issues news of its own. We haven't even gotten to see any analysts trying to throw it a parachute yet, but you can bet some of them will try to step in defending it at some point. There could even be some fears of lower monies coming out of that DirecTV judgement that went in Finisar's favor. For now it looks like this is probably out of fear that the share sale will occur, but that may be conjecture only. The contrarians and momentum players may be punishing it additionally just because it was a Cramer tout. Stay tuned.

Jon C. Ogg
July 18, 2006

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