This still holds for AVCI...
from WSJ:
"With numbers like these, what makes you think it can hold a $4.9B market cap?" asked one poster on Silicon Investor earlier this week. "This company needs to perform." Another individual investor visiting visitor to the site called "Techplayer" agreed, saying: "sales will need to be the catalyst, not a song and dance."
Dow Jones Newswires -- September 15, 2000
Avici Gets Rich Valuation On Early Terabit Router Lead
By RIVA RICHMOND
Of DOW JONES NEWSWIRES
NEW YORK -- Investors' expectations run high for Avici Systems Inc. (AVCI), Billerica, Mass. maker of high-speed routers for fiber-optic networks, and they have accorded it a valuation to match.
The stock debuted on the Nasdaq Market on July 28 at $90 a share, well above its $31 offering price, then soared to a high of $174.50 on Aug. 4. While Avici's stock has since retreated to $97, with 48 million shares outstanding, investors still value Avici at about $4.7 billion.
On Silicon Investor, Avici is being called the next Cisco Systems Inc. (CSCO). That kind of hype is why the company, which reported revenue of $2.2 million and a loss of $23 million for the second-quarter, has garnered such a rich valuation.
The source of excitement is Avici's super-fast terabit switch router, which investors believe could supplant the slower Cisco and Juniper Networks Inc. (JNPR) routers that direct traffic at the core of the Internet.
Demand from consumers for ever faster transmission speeds as has made terabits (one trillion bits) per second the measurement expected to replace the current gigabit yardstick. Faster routers are needed to accommodate huge increases in the amount of data moving along telephone lines, thanks to rising fiber optic line transmission capacity.
So far, Avici is nearly alone in the terabit router market. Even though Juniper and Cisco have a near stranglehold on the larger core router market - together holding 97% or 98% according to Shin Umeda, an analyst at the Dell'Oro Group - Wall Street analysts and armchair analysts alike are practically giddy about Avici's prospects.
"We believe Avici offers an opportunity to investors to participate in very high-growth markets, and its early technology lead offers the prospect that it could become integral to the buildout of next generation networks," wrote Morgan Stanley Dean Witter analyst Alkesh Shah in a research note recently.
UBS Warburg analyst Nikos Theodosopoulos thinks the terabit router market could represent 10% to 20% of the core router market in 2002, which he expects to be worth $10 billion, and that Avici may be able to capture more than a third of the terabit segment. The analyst has estimated Avici's 2002 revenue at $170 million and set a share price target of $200 based on a multiple of 60 times his estimate.
"AVCI is my top pick for 2000," wrote an individual investor who regularly posts on an Internet message board titled "Avici (AVCI) The Next Cisco" on Silicon Investor, a top online stock-talk destination. "I like its unique technology, its marketspace, the small float and the sentiment as well."
On a Yahoo!Finance message board another investor wrote: "Avici's 3-D network switch fabric offers almost unlimited scalability. As soon as Juniper customers max out on the M160 in the next few months, they'll be wishing they'd bought the Avici TSR."
Only Avici and Nexabit Networks, which was bought by Lucent Technologies Inc. (LU) in June, have so far shipped terabit routers, said Paul Strauss, a senior analyst at market research firm International Data Corp. and a consultant to Avici. A few steps behind are fellow technology start-ups Ironbridge Networks Inc. and Pluris Inc. Both Cisco and Nortel Networks Corp. (NT) have announced terabit router development programs.
Avici President and Chief Executive Surya R. Panditi told Dow Jones Newswires that the company has not encountered any competition, not even from Lucent, as it has pursued sales opportunities.
But he knows an open field won't exist for long, as other companies scramble to enter the fray. "Any of them have a great shot at (developing a competing terabit router). They have good people and lots of money." But Panditi noted that developing these complicated machines takes time; it took Avici two and a half years.
The imminent arrival of more competition, a least by the companies that are nearing the end of the development phase, means time is of the essence for Avici.
"They do have to run very fast to get themselves installed in a lot of places," said Strauss. "There is a reasonable chance that they will sell a lot of (TSRs), because there is a need for them." Large communications companies would like to install routers that can remain in place, but expand to large capacities, as data volume mushrooms during the next few years, he said.
Panditi knows Avici will have to fight to keep its terabit lead, but said: "The first one tends to dominate the market," and being the dominant player "is our expectation."
Avici's current customers are Enron Broadband Services, a unit of Enron Corp. (ENE), and Williams Communications Group Inc. (WCG), which have both agreed to future purchases of the TSR as long as field trials go well. AT&T Corp. (T) has completed laboratory testing of Avici's TSR and has begun field testing. Panditi said talks with other potential customers are ongoing and that the company's goal is to secure one new customer every six months.
But betting on technology still subject to field testing isn't without risk. "They have designed their router. If it works, good. If it doesn't, they're dead," Strauss said.
Panditi contends that Avici has "strong" commitments from Enron and Williams that will bring in revenue of $45 million, most next year.
The investors who have given Avici its lofty valuation expect more than that, though, and they are eager for more customer announcements.
"With numbers like these, what makes you think it can hold a $4.9B market cap?" asked one poster on Silicon Investor earlier this week. "This company needs to perform." Another individual investor visiting visitor to the site called "Techplayer" agreed, saying: "sales will need to be the catalyst, not a song and dance."
-Riva Richmond; Dow Jones Newswires; 201-938-5670; riva.richmond@dowjones.com |
