• The coming global “arms race” to get nationwide broadband connectivity. The arms race recently heated up with the launch of Australia’s $31 billion nationwide broadband plan, which dwarfs the $7 Billion contemplated in the current U.S. budget.

• China’s has accelerated its broadband buildup, which was highlighted by Corning in its conference call as compensating for a weak U.S. telecom segment. China’s broadband buildup is a component of its $585 billion stimulus package.

• Inventory liquidation appears to be behind us, and carriers, who are facing double-digit internet traffic growth, cut expenses for equipment to about 2% to 3% of revenue, down from their traditional level of 15% of revenue.  This cannot go on for long.

Well, these same three factors are propelling Ciena Corp. (Nasdaq: CIEN).  Corning leads in optical fiber, but Ciena leads in the supply of sophisticated networking equipment.

Ciena just launched a partnership with NYSE Euronext (NYSE: NYX) on something that is very near and dear to the hearts of investors: “Speed and ultra-low latency to facilitate unparalleled execution of equities quotes, trades, options data and other financial transactions in the U.S., Europe and globally.”
Indeed, few activities have the sensitivity to speed, volume and reliability of data transmission as stock and options trading.

Ciena’s proprietary dense wavelength division multiplexing technology gets up to 100 Gigabytes per second, a first in the world.  So, if you want to be fast and have huge data transmission capabilities, you have to have Ciena’s products.  But Ciena’s competitive advantages do not stop there.

Ciena’s products allow carriers to get more capacity from fiber optic networks that are already deployed.  And their intelligent traffic allocation offers superior efficiency, as well.  These are competitive advantages that take time to match.

I absolutely love these technological leaps, which produce margin expansion and sales pickup at the same time, the surefire recipe for a bigger bottom line.

And as I mentioned with regards to Corning, the United States is lagging behind 14 other Organization for Economic Cooperation and Development (OECD) countries in broadband access, price and speed.  This is a national crisis.

The telecommunications industry will not be able to stay put with the status quo.  There is an explosion of video over the Internet.  Not only do we see the phenomenon of YouTube.com, but we now have many other sources of voracious bandwidth accelerating dramatically.

Mainly, there is a huge pickup in activity in streaming TV series, sports and movies on sites like Hulu.com, as well as movie and song downloads.  In addition, you have video conference calls including earnings results and video web-events, such as Money Morning’s own webinars.

Also, there’s the push towards cloud computing, which features all the data and applications residing and being processed in a remote server, like those of Amazon.com Inc. (Nasdaq: AMZN) ad Yahoo! Inc. (Nasdaq: YHOO).

Last but not least, there’s been a huge surge in online video gaming and you see product demos and video ads populating many search and web publications.  And do not forget “computing everywhere” with the proliferation of iPhones, RIMM’s and other smartphones, as well netbooks, which are constantly connected to the web with broadband wireless access.

The bottom line is that video traffic and other broadband-chugging applications are exploding.

And, while traffic is exploding, the telco carriers in the United States, like most companies, went into the fetal position and decided to conserve cash.  Thus, they kept equipment purchases to the absolute bare minimum, utilizing whatever inventory they had before reordering.

Thus, it was no surprise that Ciena had a weak first quarter and lowered revenue guidance for its fiscal fourth quarter to $190 million-$210 million.

But this inconsistency will not last long, as unemployment is stabilizing and the core of the financial system has become progressively unclogged. The amount of pent-up demand that has built up will mean an explosive uptick in fourth-quarter sales.

And Ciena, a less diversified and much smaller company than Corning, is bound to see its stock price appreciate over a long period of time, and by a much higher percentage.

Ciena is trading at only one times book value.  And, despite its negative operating margins, the company has cut expenses, has a strong cash position of more than $900 million – enough to retire its entire long term debt and have almost $200 million left – and a much more flexible cost structure than in the past.

Thus, the huge operating leverage to volume puts this stock in a superb position to take advantage of the exponential revenue growth that will “surprise” the markets once the telcos start buying Ciena’s products en masse.  Wall Street is asleep at the wheel on this one, with many negative views abounding.  But traders have already started covering shorts and some started going long.  And in the recent rally, Ciena has led very nicely, outperforming both the Nasdaq Composite Index and the Standard & Poor’s 500 Index by about 30% since March 9.

The stock has more than doubled since hitting its March low, and it’s still cheap.  But with a rally of this magnitude and the summer doldrums near, where investors take time off and tech equipment sales are typically are back loaded, it could be imprudent to buy an entire position here.

Recommendation: Buy half a position of Ciena Corp. (Nasdaq: CIEN) now and wait for a significant profit-taking correction in order to gradually edge into it (**).  With luck, we might be able to buy part of the second tranche between $8 and $9 a share.  Go play some golf this summer and hold for 12 to 18 months.

(**) – Special Note of Disclosure: Horacio Marquez holds no interest Ciena Corp.

How to protect your cash from the “Bailout Bombshell” right around the corner…

Buy, Sell or Hold: Ciena Corp. (Nasdaq: CIEN), the Second Company to Profit from the Global Broadband Arms Race

Corning is already surprising everybody – maybe even itself – well before any of this upside has materialized into tangible results.

Corning just reported a first-quarter profit of 10 cents a share, doubling analysts’ expectations. And that’s just beginning. The company raised growth estimates for its LCD television unit, which accounts for about 45% of revenue, to 18% from 9%.

Corning also confirmed the massive inventory liquidation, which means all of the industrial buyers of the company’s products have depleted inventories. You see, the first rule of financial management for a company is to always carry the lowest levels of inventory and receivables possible, because they have to be financed. And when financing becomes extremely difficult (or even impossible) to obtain, like it did last year, the immediate response is to cut inventories and reduce financing to the absolute bare minimum.

But Corning implied in its conference call and press release that inventory liquidation in the supply chain has run its course and that sales are actually starting to increase.

In fact, sales of display technologies, that is, the combined glass volume of its own operations and Samsung Corning Precision Glass were up 4% over the first quarter of last year.  This is a result of continued strong sales of LCD TVs at retail levels, as well as the end of the supply chain inventory adjustment.

We are now likely to see restocking and inventory build-ups, as stimuli plans are deployed around the world.  Hence, the pronounced dip that we’ve seen in Corning’s stock over the past year that was the product Wall Street’s doubts about the future has set the stage for a major rally.

Much like the endless upside of the high-tech boom of 1999 that was extrapolated by Wall Street to justify huge valuations, the inventory liquidations occurring in many high-tech industries were used to justify ridiculously low valuations in the current recession.  This was another bubble, but to the downside.  Let’s call it an “inverse bubble.”

I am strongly convinced that the conditions that underpin the global economy will keep improving because there are many powerful forces working in that regard.  We are not out of the woods by any stretch of the imagination, but we have to recognize that the “TED Spread” – the difference between the interest rates on interbank loans and short-term U.S. government debt – and many other measures of confidence in the global financial system keep showing sustained progress.

But the economic recovery isn’t the only thing working in Corning’s favor.

The Global Broadband Arms Race

The real upside for Corning is the “global broadband arms race.”

Indeed, not a week goes by without us hearing that the United States ranks 15th out of the 30 countries that make the Organization for Economic Cooperation and Development (OECD) in broadband adoption. This is no joke.

But the competitive dynamics in this sector, which is of long-term strategic importance to every nation, point to a rosy future for Corning. Because the demand for the fiber-optic cable that Corning leads the world in manufacturing is about to take off.

Let me explain…

The United States already lags Europe in wireless: Many years ago I bumped into a British tourist in a train and he showed me the winning goal of his favorite soccer team in England on his mobile phone that he downloaded as we spoke.  That type of service was unavailable at a reasonable price for U.S. subscribers, but his internationally roaming phone, which charged him a fraction of what I was paying for my bread-and-butter service made me feel like I was in an emerging market.

Today the penetration of wireless in Europe is more than 100%. That is, the Europeans have more than one wireless device on average. Likewise, a Chinese friend residing in Shanghai years ago bragged to me about how he could continue talking in elevators back in Shanghai, while in the United States his calls get dropped.

In the meantime, our friends “down under” in Australia just launched the mother of all broadband plans: Australia is going to spend a full $31 billion on a new, super-fast National Broadband Network that will connect every home, school and business.  The Australian plan dwarfs the mere $7.2 billion allotted to broadband deployment in the U.S. stimulus package.

The gauntlet has been thrown down and the United States cannot stay behind.

Broadband access is not only a convenience, but it’s a key piece of infrastructure that enables connectivity for the entire economy.  Lower broadband deployment, connection speeds and traffic volume capabilities, as well as higher prices, are a handicap for the U.S. economy as a whole.  It lowers productivity and it breeds inefficiency in one of the most crucial avenues of economy: The transmission of information.

Whether we’re transmitting sound, images, video, or just plain data, without broadband, it all is for naught.

This handicap is a competitive disadvantage that the United States is giving away to other economies.  Of course, it is much easier and cheaper to lay the infrastructure in much smaller countries where most of the population is agglomerated in high concentrations in multi-family dwellings than in an economy characterized by urban sprawl and many rural communities.

Soon, I expect to see the United States step up to the plate as it did when the Russians launched Sputnik. The country cannot continue to ignore this technological gap.

Though it doesn’t really matter which country is building its broadband information super-highways, Corning is the ultimate winner. The technological superiority of the company’s ClearCurve optical fiber cables eliminates much of the loss of signal that occurs when cables are bent.

The firm’s forward price-to-earnings (P/E) ratio of 5.48 is evidence of the very gloomy estimates by analysts. But given the dynamics of the broadband market, the higher penetration, and revived financing, it is highly probable that current earnings estimates will be blown away easily.

The stock has an upside of at least 60% to 70% to the $25 per share area in the next year or so.

Source:  Buy, Sell or Hold: Corning is About to Profit From the Global Broadband Arms Race

You can easily understand that, given the number of TV’s here… more than one per person. In times of economic turmoil, people tend to stay home and hunker down in front of the “tube” instead of going out shopping… for things like TV’s.

So it was a surprise to nearly everyone that February’s LCD TV sales were 39% higher than the same period last year. This accomplishment is even more dramatic given it occurred right in the middle of the nastiest economic slowdown since the Great Depression.

And the blistering sales rise wasn’t just in the U.S., according to consumer research NPD Group. Sales in Europe were up 49%, China sales more than doubled at 109%, and even recession-ravaged Japan had a gain of 30%.

It’s all a great reversal of fortune for Corning (NYSE:GLW), the world’s largest maker of glass panels for LCD screens. Its shares have nearly doubled since last November’s lows, and the company now expects to report a first quarter profit.

Corning’s fortunes are closely tied to the world’s appetite for new LCD screens, as it supplies the glass for over 50% of them. Fully 90% of its net income now comes from LCD glass sales.

Even though overall sales of TV’s are forecast to decline 4% this year, sales of LCD sets are expected to rise nearly 9%. The reason is major advances in manufacturing techniques have resulted in set prices dropping like a stone.

By some analyst’s measures, Corning is already too expensive, trading at roughly 16 times 2009’s earnings estimates and 13.7 times those for 2010.

But these guys are ignoring the China factor. You see, China has a new subsidy program that promotes a widespread adoption of consumer electronics, particularly in rural areas of the country. And LCD TV’s are first on the list of things every Chinese wants to own.

Two of the biggest LCD panel makers in Taiwan – both Corning customers – are rapidly expanding their manufacturing capacity to meet the new demand driven by the Chinese subsidy program.

In a move to diversify its revenue stream, Corning is eyeing the possible purchase of the half of the Dow Corning venture it doesn’t already own. That venture owns 63% of Hemlock Semiconductor, an important polysilicon supplier to the semiconductor and solar panel markets.

Investors who want increased exposure to China, consumer electronics, solar and semiconductors, might want to consider a few shares of Corning. It’s shares could easily experience another double over the next several years, especially as the Chinese join the ranks of the TV watching world.

Source: Corning (NYSE:GLW): Stock of the Day

This from Investment U:

As is usually the case, I’m sitting here writing from my comfortable home office in rural northeast Pennsylvania. I often marvel at the fact that even from my remote location, I’m able to do research and submit copy over a broadband connection.

Of course, 20 years ago we never would have thought of broadband penetration as a necessary component to our nation’s infrastructure. Back then most of us interacted with our televisions far more than with our computers.

Now, it’s hard for most of us to imagine life without a high-speed Internet connection, especially if you work from home as I do. For millions of Americans, broadband is the enabler for telecommuting, giving many more options when it comes to who to work for and where to work. Most homes are quiet environments with limited distractions, and generally result in higher productivity than their noisy company office counterparts.

It wasn’t too many years ago that I was saddled with dialup. Trying to be productive with a dialup connection is like trying to type with your nose. It can be done, but it takes a lot longer…

Broadband Penetration Across The United States

It is somewhat ironic that the most powerful nation in the world ranks twenty-fifth when it comes to broadband penetration. Indeed, only a little over 50% of American households have high-speed Internet connections. Compare that to South Korea, which has a broadband penetration of nearly 90%.

Before you fault the U.S. Congress, know that there are no less than three broadband expansion bills that were introduced in 2007. While there has been much debate (hot air) regarding a national broadband initiative, Congressional action hasn’t been forthcoming. What a surprise…

But if President-elect Obama has his way, every household could soon have the opportunity for a high-speed hookup. As he states on his website: “America should lead the world in broadband penetration and Internet access.” He thinks we should provide “true broadband to every community in America.”

If Congress and the new President are searching for a broadband penetration model to work from, they need look no further than one of America’s own states: Kentucky.

Broadband Penetrates Kentucky By 95%

Just a few years ago – 2004 to be exact – only 60% of Kentuckians had access to a broadband connection. Three years later 95% had access… an increase of 60%. But this didn’t just happen by accident.

“ConnectKentucky” is the bluegrass state’s arm of the larger, national, non-profit Connected Nation. Widely seen as the national model for digital inclusion, Connected Nation promotes higher broadband penetration and adoption.

Although it initially targeted four states – Kentucky, Ohio, Tennessee and West Virginia – the ultimate focus is all 50. Connected Nation’s research states that every 7% increase in broadband adoption could result in the following benefits:

• Job creation of around 2.4 million
• Annual health care cost savings of $692 million
• Annual fuel savings of $6.4 billion
• 3.2 billion fewer pounds of CO2 emissions per year
• 3.8 billion hours saved by accessing broadband from home
• $134 billion in direct economic impact

If Connected Nation’s numbers are anywhere close to those above, President-elect Obama might just be on to something. Of course, this gargantuan task translates into some real investment opportunities on this side of the fence.

7 Ways to Connect to Broadband Penetration Profits

One way to play the broadband penetration build-out is via specialty chipmakers that supply chips to the equipment companies. The following four companies all specialize in producing broadband chips:

• Broadcom (Nasdaq: BRCM)
• Conexant Systems (Nasdaq: CNXT)
• Texas Instruments (NYSE:TXN)
• Standard Microsystems (Nasdaq: SMSC)

Another way is via equipment makers like Cisco Systems (Nasdaq: CSCO) and Juniper Networks (Nasdaq: JNPR). Cisco and Juniper’s equipment – at the heart of all broadband networks around the world – controls many different kinds of Internet traffic and directs it to its final destination.

A third way would be via Corning (NYSE: GLW), one of the world’s largest manufacturers of optical fiber, optical cables and other hardware and equipment components for the telecommunications industry.

It’s clear that President-elect Obama has many challenges facing him once he sets up shop. But you can bet that this Blackberry-toting, tech-savvy guy wants to be connected everywhere he goes. And so do we.

Source: Broadband Penetration: 7 Ways to Profit From Our Biggest Infrastructure Need