In the last two weeks, many of the next-generation networking stocks have dropped severely, some by more than 50%. Although people had at various points said that this would happen, we had no idea when, or how hard these companies would fall. The first portion of this might be more important. Even if we looked at companies like Juniper Networks (Nasdaq: JNPR) and said, "Wow, based on any fundamental model I can think of, this company is really expensive," what we did not and could not say was "This company is going to drop in November. It has to. Optics stocks always drop in November."
Nor should we declare the game over for Juniper, Redback Networks (Nasdaq: RBAK), Broadcom (Nasdaq: BRCM), Avanex Corp (Nasdaq: AVNX), or any of the other companies that have been hit so hard, because they really haven't been hit very hard. Certainly, a 60% loss is tough to take, but it has come so fast in response to a rapid rise, that the companies even now are only back at where they began 2000. In the grand scheme of things, it could be argued convincingly that neither the rise nor the fall were based on company fundamentals. Rather, the market is just in the process of finding an equilibrium for companies with highly promising futures.
The valuations of canals, railroads, airlines, car companies, computer manufacturers, and other innovators shot through the roof when their gee-whiz technologies first came on the scene, only to come back down as the realities of economics set in. Optical technologies are coming and coming fast. But, when a company is priced at 1600 times its present cash flow, its sales just cannot come fast enough.
Nor should we declare the game over for Juniper, Redback Networks (Nasdaq: RBAK), Broadcom (Nasdaq: BRCM), Avanex Corp (Nasdaq: AVNX), or any of the other companies that have been hit so hard, because they really haven't been hit very hard. Certainly, a 60% loss is tough to take, but it has come so fast in response to a rapid rise, that the companies even now are only back at where they began 2000. In the grand scheme of things, it could be argued convincingly that neither the rise nor the fall were based on company fundamentals. Rather, the market is just in the process of finding an equilibrium for companies with highly promising futures.
The valuations of canals, railroads, airlines, car companies, computer manufacturers, and other innovators shot through the roof when their gee-whiz technologies first came on the scene, only to come back down as the realities of economics set in. Optical technologies are coming and coming fast. But, when a company is priced at 1600 times its present cash flow, its sales just cannot come fast enough.
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