Tech Isn't Done Growing Yet

by: Spencer Knight

With some of the highest-profile technology companies done reporting earnings, some may think the technology sector will not have any large jumps as it did the past two weeks. However, two companies that are yet to report are JDS Uniphase (JDSU) and Nvidia (NASDAQ:NVDA). Both companies are looking to rebound from sharp losses in February and March, when many of the technology companies -- particularly optics companies -- took a slide.

Judging by the earnings of computer giants such as Intel (NASDAQ:INTC), Nvidia may have a chance to make up for the slide it encountered. Granted, one must note that the dip for these companies was due to oversupply of everything from computer chips to fiber optics. Also, this dip was felt by the market as a whole and not just one particularly sector. The oversupply of 2010 means that as this fiscal year progresses, we should see companies like JDSU and Nvidia start to move back and move higher compared to where they were a couple months ago.

JDSU reports earnings this Wednesday, May 4, and I am looking to hear an EPS of 0.21 while analysts are looking to hear an EPS of 0.20 on revenue of $447 million. However, this past quarter's results are not as important as the guidance for the full year. Analysts are expecting to hear a full-year guidance of at least 94 cents per share.

The past quarter's numbers are still important, but for some of these bust companies the future outlook is always in question. It will be interesting if JDSU misses the current quarter's expectations, but gives full-year guidance well above analysts' expectations. As we remember, last quarter JDSU beat expectations, but the joy was soon followed by a terrible outlook by Finisar (NASDAQ:FNSR) that crushed fiber optics stocks. Could the same thing happen this time around?

I think it is possible Finisar brings down the fiber optics companies just as it did in March -- which means investors in fiber optics stocks such as JDSU need to be watching very closely come June 9, when Finisar gives its earnings. Investors who hold shares of Oclaro (NASDAQ:OCLR) need to pay close attention as well. If Finisar isn't a good enough reason to watch closely, another reason is Ciena (NASDAQ:CIEN). Ciena reports the same day as Finisar; therefore, we could see a big jump in the fiber optics and tech stocks in early June if these companies give a positive outlook this time around.

Inversely, we could see another big dip if Finisar gives poor guidance. Unless investors realize that Finisar may have its own problems that are not spanning to other fiber optics companies. It must be noted that Ciena has recovered from the February and March slide that many fiber optics companies have yet to recover from.

Nvidia investors have a couple reasons to expect a good earnings report. First, Intel gave homerun quarterly results and homerun guidance; secondly Texas Instruments (NYSE:TXN) gave guidance that was slightly below what analysts expected, but honestly reminded investors that the earthquake in Japan hindered its performance. With that said, we will have to wait to see if Nvidia was affected by the earthquake in Japan as well. Nvidia does not report earnings until May 12. Just as with JDSU, I am expecting Nvidia to report about 21 cents per share.

The optical stocks may be giving earnings later than the mass technology companies, but they have the potential to blow the market wide open. Another company to watch on May 4 that could help this market shift is Nice Systems (NASDAQ:NICE), which is expected to give an EPS of 39 cents. This company has the potential to have a big surge even though it's riding close to its 52-week high.

Disclosure: I am long JDSU.