Thursday December 16, 8:45 pm Eastern Time
Company Press Release
SOURCE: Groome Capital
Lumenon - Buy on Weakness
____________________________________________________________
LUMENON
____________________________________________________________
Symbol / Exchange LUMM / NASD:BB
____________________________________________________________
Recent Price (close 12/15/99) US$24.88
____________________________________________________________
Initial Recommendation Price (10/29/99) US$9.38
____________________________________________________________
Current Recommendation Speculative BUY
____________________________________________________________
12-Month Target Price US$29.00
____________________________________________________________
Shares Outstanding (MM) 23.8
____________________________________________________________
Market Capitalization (MM) US$592
____________________________________________________________
OVERVIEW
Lumenon Innovative Lightwave Technology, Inc. (Lumenon) shares recently
fell on concerns that the stock was
overvalued at last week's prices. The run-up on LUMM stock during the past
two weeks was based on several factors,
including news from the Company's Annual General Meeting, held last week,
and the continued enthusiasm in the
fiberoptic sector. Recently, Nortel (NT:TSE) and JDS Uniphase (JDSU:NASDAQ)
announced major acquisitions to
complement their optical product offerings (see below). The fiberoptic
sector is still very much in a period of consolidation,
as major players gobble up those companies with the most promising
technologies for tomorrow's emerging optical
components.
RECENT DEALS IN THE FIBER OPTIC INDUSTRY
During past week, two emerging companies that operate in the fiberoptic
space, have been acquired by industry leaders,
Nortel Networks and JDS-Uniphase. Oprel Technologies, an Ontario-based
developer of erbium-doped fiber amplifiers
(EDFAs) and other optoelectronic devices, was acquired by JDS-Uniphase for
an undisclosed price. Nortel announced the
acquisition of Qtera Corporation today for a total price of US$3.25 billion
in stock. Qtera makes equipment that allows a
photonic signal to be transmitted over large distances without having to be
converted to an electronic signal for
re-transmission. This could potentially reduce the need for opto-electronic
amplifiers and speed up the transmission of data
over a fiber optic network. Qtera will not have products until sometime in
2000.
WHAT THIS MEANS FOR LUMENON - We are quickly entering a second wave of
optical component manufacturing.
This second wave involves the production of inexpensive optical components
(Waveguides, Amplifiers, Lasers, etc.)
needed for entry into the Metro and Access fiberoptic network markets. The
bottleneck for expansion into these markets, is
the lack of availability of inexpensive optical components that increase
the efficiency of existing networks. The industry is
betting that this bottleneck will be relieved by technologies from
innovative companies, such as Lumenon.
UPDATE ON OPERATIONS
Lumenon is in an enviable position, in that its optical waveguide product
is close to becoming commercialized -through
Molex (MOLX:NASDAQ)- and sold to OEMs internationally. The Company, along
with Molex, continues to test the
packaged optical chip, and is on track for production of the chips by
spring 2000. There is no reason to believe that testing
of the package will not be successful, and the Company is confident that
the packaged product will be ready to be unveiled
at the OFC '00 (Optical Fiber Communication Conference 2000) in Baltimore,
MD on March 3-10, 2000.
FINANCING AND EXPANSION - Molex recently has committed to investing an
additional US$3 million in the
Company - representing 129,707 shares at US$23.19 per share and
approximately 65,000 warrants, exercisable at 125%
of this price - as part of a US$20 million equity financing required to
fund its previously-announced expansion plans (the
location of the new facility is very close to being finalized - and will be
located close to the Company's existing facility in
Dorval, Quebec, and with approximately 30,000 square feet in size).
The investment itself is not as important as Molex's decision to not be
diluted in the current round of financing. We view
this as a very favorable development in that it indicates Molex's continued
confidence in Lumenon and the progress of the
product's testing phase. We believe that investors should take advantage of
any opportunity to buy LUMM at levels at or
below the price Molex recently paid in the current round of financing.
NASDAQ LISTING - The Company expects to receive full Nasdaq (National
Market) listing by the middle of January
2000. This may create additional volatility in the stock price.
CONCLUSION
We believe that LUMM stock is undervalued at current levels and that this
represents an attractive buying opportunity for
investors. The fundamentals of the Company, in our opinion, have not
changed since our recent report (November 12,
1999). The Annual General Meeting, held on December 7, 1999, exposed the
Company to a broader investor base. In
addition, there was speculation on a takeover possibility as a result of
the indirect association with Cisco Systems
(CSCO:NASDAQ), through the participation of Dr. Jacek Chrostowski,
Technology Program Manager in the Optical
Internetworking Business Unit at Cisco Systems Inc. (Lumenon's Technical
Advisory Committee) and, most recently, the
appointment of Pierre-Paul Allard, General Manager, Cisco Systems Canada to
Lumenon's Board of Directors.
BOTTOM LINE - Lumenon continues to be well positioned for rapid growth in
photonic chip design and manufacturing,
due to their early entry into this large and growing market, their
proprietary technologies, as well as their packaging and
distribution relationship with Molex. We ARE MAINTAINING OUR SPECULATIVE
BUY RECOMMENDATION ON
LUMENON, WITH A 12-18 MONTH TARGET PRICE OF US$29.00.
An investment in LUMM is particularly suited for investors with
above-average risk tolerance, who are seeking a potential for capital
appreciation and who have diversified investment portfolios.
The information contained within has been obtained from sources which we
believe to be reliable, but we cannot guarantee
their accuracy or completeness. This report is not, and under no
circumstances is to be construed as, an offer to sell or the
solicitation of an offer to buy any securities. This report is furnished on
the basis and understanding that
GroomeCapital.com Inc. is to be under no responsibility or liability
whatsoever in respect thereof. The inventories of
GroomeCapital.com Inc. and the holdings of its respective Directors and
Officers may, from time to time, include the
securities mentioned herein. No part of this report may be copied or
reproduced in any manner without the prior written
consent of GroomeCapital.com Inc. |
