One single trading day, no matter how unconventional, should not ordinarily provide an indication that a change in is in the offing, but at the end of last Friday the question on the lips of all and sundry on Wall Street was, "where have all the sellers disappeared to?" The Senate had just voted down the rescue plan for the auto industry, and news was beginning to emerge of the biggest single act of fraud in the history of Wall Street, a scam that makes Enron pale into insignificance by comparison. But there were no signs of panic among potential sellers, and the ones that did were once again short traders eager to buy shares and close positions as prices rose.
Speaking on his program "Mad Money" on CNBC, after the close on Friday, Jim Cramer said it had been the best trading day since the colossal u-turn on November 21, when the market was on the verge of total disintegration after the S&P 500 Index dived to a low not seen since 1997, but subsequently ended the day up sharply, as did the other indices. What should have been a short sellers' paradise last Friday, turned into their worst nightmare, Cramer said, urging hedge fund managers who often sell short, to change their attitude to the market.
This week is the final full trading week in the 2008. The year is already shaping up as one of the worst ever on Wall Street, with declines of 35-40%. Investors have long since given up on 2008 and are now focusing their attentions on 2009 in the hope that it will be a good one for the stock markets, although few would deny that it is set to be a year of recession, the extent of which is as yet unclear. Such anomalies have frequently happened in the past, as was the case, for instance in 1982, when share indices in the US rose by 20-30%, while the economy contracted 2%.
Two broadband network equipment companies, Ciena Corp. (Nasdaq: CIEN), and Alactel-Lucent (NYSE: ALU) were in the news last week, and the announcements by both will have repercussions for two Israeli companies, EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH) , and Alvarion (Nasdaq: ALVR; TASE: ALVR).
Ciena, which rose more than 20% over the first three days of last week before unveiling its results, subsequently lost nearly all of it on Thursday, after failing to meet the market estimates and lowering its guidance for the next quarter. Ciena is a customer of EZchip, and according to the announcement it released in March, it is using EZchip's NP-2 processors for its CN 4200 FlexSelect Ethernet platform.
It appears that there is no risk to Ciena's business with EZchip, despite the collapse in the former's share price last week, since the platform is understood to have been the sole source of consolation in what was a tough quarter for Ciena. Its sales climbed to a record $59 million in the October quarter, up 42% on the July quarter. Judging by the conference call the company held following the release of its results last Thursday, the momentum will probably be maintained in the current quarter, so EZchip's fourth quarter looks sound, at least as far as its business with Ciena is concerned.
As for EZchip's own strong third quarter results, I expect the company to repeat them in the fourth quarter, despite the recession. Aside from Ciena, its largest customer, Juniper Networks (Nasdaq: JNPR), revealed in its presentation last week, that it is seeing strong demand from the big telephony companies for web-enabled video platforms containing EZchip processors.
Ciena's results and guidance were dismal, due to the recession, but it was interesting to hear the comments of company CEO Gary Smith, on the present long-term prospects for broadband infrastructure investment at his customers, most of which are telephony and cable companies. The current situation, said Smith, was incomparable with the slump experienced by the telecoms industry in 2001-2002. He explained that at the end of the 1990s, networks with phenomenal transmission capacity were built on the basis of speculative demand conjured by the dream merchants of the bubble era, which led in turn to the major collapse several years later.
Since the slump at the beginning of the century, the industry has been turned around, with a fresh wave of investment based on real demand, most of which was triggered by the phenomenal growth in networked video transmission. This wave of investment has yet to run its course, and Ciena believes that to meet the increasing needs, a further $70 billion to $90 billion will have to be invested in network infrastructure. This, it believes, will be phased over an entire decade, although the recession will undoubtedly slow this down over the coming year. Smith's forecast is strikingly similar to the comments his counterpart, Cisco Systems Inc. (Nasdaq: CSCO) John Chambers, has been repeating for weeks.
Published by Globes [online], Israel business news - www.globes-online.com - on December 16, 2008
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