Photonics industry reflects stock-market correction

WORLDWIDE—News on television and in the November 27 issue of USA Today revealed that the stock market is officially in a “correction”—that is, the benchmark Standard & Poor’s 500 index is down 10% or more from a recent peak.

Dec 1st, 2007

WORLDWIDE—News on television and in the November 27 issue of USA Today revealed that the stock market is officially in a “correction”—that is, the benchmark Standard & Poor’s 500 index is down 10% or more from a recent peak. It dropped 2.3% on Monday, November 26 to 1407.22, erasing its 2007 gains and leaving it 10.1% below its October 9 all-time high of 1565.17. The Dow Jones industrial average and Nasdaq composite are also down 10% and 11.1%, respectively. While the correction is attributed to continued turbulence in the credit markets and big losses at many of the world’s banks caused by a growing number of mortgage defaults, the photonics industry is also hurting and reflecting the overall market correction.

Of the top 40 photonics stocks that Optoelectronics Report tracks every two weeks (see page 5), 31 saw losses when comparing closing prices on October 9 to those of November 26. Losses ranged from 4% to more than 47% with an average loss of more than 21% in this group of 31 stocks. There are always exceptions to the rule: Laser solutions provider Excel Technologies (symbol XLTC) saw a gain of 2.28%, fiber-laser manufacturer IPG Photonics (symbol IPGP) saw a gain of 2.50%, Nortel Networks (symbol NT) gained 1.77%, and systems provider Rofin-Sinar Technologies (symbol RSTN) saw the biggest gain of 9.84% despite the larger market downturn. Because Excel, IPG, and Rofin-Sinar revenues are tied closely to the healthy laser materials processing market, one could speculate that this is the reason these companies are ‘bucking the trend’ (see Optoelectronics Report, November 15, 2007, or www.laserfocusworld.com/articles/312619).

However, speculating on the reasons for the overall decline in photonics stock values in this short two-month period is trickier. What is even more depressing than these short-term losses is the fact that for all 31 companies in this period experiencing loss—and even for the four companies that saw gains—the October 9 values were on average 21.41% lower than the 52-week highs for all of these companies. For example, Bookham (symbol BKHM), Cymer (symbol CYMI), Newport (symbol NEWP), and Zygo (symbol ZIGO) began 2007 with 52-week highs (in January/February timeframe) of $4.22, $48.77, $22.60, and $17.36, respectively. By October 9, even with the broader stock market 10% higher than its current levels, Bookham, Cymer, Newport, and Zygo stock prices had dropped to $3.00, $40.50, $15.14, and $13.21, respectively. As of November 26, those values are now an even lower $2.40, $37.96, $13.28, and $10.88, respectively.

Despite these trending stock lows in 2007 across the board for fiber optic, telecom, optics, laser, and imaging companies, no one can predict what 2008 will bring. Certainly none of the companies in our Optoelectronics Report top 40 have seen the sort of 1000% or more stock gains and ultimately losses experienced during the telecom bubble. In fact, most of these companies are seeing single-, and in some cases, double-digit revenue growth in 2007 compared to previous quarters in 2006.

A quick read of the daily blog postings at burnickblog.sovereignsociety.com from investment and securities analyst Mike Burnick will at least shed some light on both the U.S. domestic and world stock markets. I was surprised to learn (see Burnick’s November 23 post) that most of the world stock markets are in the middle of a correction period. Let’s hope that this correction does not yield to a “bear” market—a decline of 20% or more from a previous high! —Gail Overton

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