Top Tech Losers and What to Expect Now From the Companies

The following is a list of top tech losers from yesterday:

Company	Ticker	Quote Change
Finisar Corporation	FNSR	-38.54%
Opnext	OPXT	-20.05%
JDS Uniphase Corporation	JDSU	-16.71%
Oplink Communications	OPLK	-12.10%
Fabrinet	FN	-24.39%
Oclaro	OCLR	-18.59%
Cavium Networks	CAVM	-6.64%
Youku.com	YOKU	-7.55%
RF Micro Devices	RFMD	-6.68%

The list is dominated by companies in the optical sector (FNSR, OPXT, JDSU, OPLK, FN, OCLR, CAVM) which got hammered after a disappointing outlook from Finisar. Weak pricing, slowdown in China and inventory correction are likely to weigh on the sector as a whole going forward. However, the steep correction does provide some opportunity. One of the stocks in the above list that represents a good buying opportunity now is CAVM.

Although Huawei and ZTE (ZTCOF.PK) are customers of both CAVM and Finisar, Finisar's weakness cannot be extrapolated to CAVM as they sell different products. The ROADM inventory issue which Finisar is facing is not likely to affect CAVM, whose business is in wireless and wireline market segments. Further, both Huawei and ZTE combined represent less than 10% of CAVM revenues. One can use the current dip in CAVM as a buying opportunity for the short term. CAVM is likely to go up once investors realize they are not correct in extrapolating Finisar's weakness to CAVM.

Among other major tech losers were Youku.com and RF Micro Devices. Here is the trading strategy for these stocks:

Youku.com lost 7.5% yesterday. Although it is considered the “You Tube of China" by investors, its valuation at over 22 times FY12 revenues is pricing in a lot of positives. A few days back when the company reported its Q42010 results, concerns over rising unit content cost (up 152% YoY) and disappointing Q1 sales guidance caused a selloff in the stock. It’s prudent for investors to wait for a better entry point in the stock.

RF Micro Devices lost 6.7% yesterday. Recently, at a Raymond James institutional investor conference, the company mentioned that it expects revenues at the lower end of its guidance range ($212-226 mn). Ongoing troubles at Nokia (NOK) (transitions to WP7 and other legacy issues) and softness at Chinese channel partner Media Tek are affecting the company’s sales. RFMD's management sees the current quarter as a bottom and sequential improvement throughout the year. They expect a YoY growth in 2012. However, if we look at sell side estimates Wall Street analysts are expecting a 2% YoY decline in revenues next year. RFMD can be an interesting stock to go long on given the pessimistic outlook of the Street. If management remains confident during the next quarter conference call about the sequential growth despite of the weakness at its major customer Nokia, it would make a good sense to go long on the stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.