Sycamore Networks Called a Hold

We maintain our Hold rating and the same valuation target for Sycamore Networks Inc. (SCMR - Analyst Report), a provider of intelligent bandwidth solutions for fixed and mobile networks, ahead of third quarter fiscal 2009 financial results. The company continues to be impacted by restricted capital spending on the part of telecom carriers throughout the world as a result of a challenging economic environment.

According to our assessment, the revenue trend remains lumpy on a quarterly basis due to persistent recessionary conditions and the company is expected to incur net losses throughout the year. On the other hand, long-term demand for agile bandwidth management solutions will improve as telecom carriers seek to deliver flexible bandwidth services, simplify end-to-end provisioning, and create resilient/scalable optical foundations for value-added voice, video, and data services.

Moreover, the company's current market cap is well below its net cash position, which may add support to the stock's valuation. Our six-month price target of $3.30 is based on 1x the company's net cash per diluted share balance of $3.30 at the end of the second quarter of fiscal 2009.

Nalak Das contributed to this report.