AVNX -Could very well be that this capex slowdown issue has attracted some less informed high-PE-short-sellers to Avanex, which should bode well for the coming Christmas season !!!
2001 capex at ca. $ 51 Billion, flat with 2000.
Capex plans laid out in segments show, that these carriers reduce spending on the traditional circuit switched voice network to focus on highest growth areas such as broadband access & IP networks/optical.
More specific, after having spent heavily on laying new fiber (85% are still dark), these telcos will concentrate on equipment to light up these networks.
Avanex's next-generation optical gear makes it possible to build transports about 8x cheaper than legacy SONET and with unprecedented flexibility.
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As Cheap as it has ever been. Fundamentals Remain Strong. Buy the Stock
epoch.com.
The stock was down another 10 points yesterday on no news. We did check in with the company and everything was indicated to be on track with previous expectations. Last quarter, both revenues and earnings were massively revised upward indicating that the company is not seeing any signs of slowdown or pricing pressure for their products. Clearly, some steam has been taking out of the sector but AVNX is very well positioned to weather a slowdown and the numbers should be conservative enough to allow for upside. The stock is now trading at the lowest valuation since going public. Here are the statistics.
Avanex by the Numbers
Sales Mult. EPS Mult.
FYO1 $193mm 15.5x $0.25 184x
FYO2 $372mm 8.1x $0.74 62x
Source: EPOCH PARTNERS
Looking out to FY03, it is very likely that the company could post revenues of close to $500mm. With a normalized operating margin of 20%, we arrive at a target operating profit of $100mm. Therefore, at the current $3B market cap, the stock is trading at just 30x FY03 operating profit. On an earnings basis, the stock is now at 62x FY02 EPS for a company that can easily see earnings grow a more than 50% for the next five years. For investors willing to look out a little, there will probably not be a better time to buy the stock in the next two to three years.
Read our full company report on Avanex.
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The Best Is Yet To Come – PowerShaper Expected Ship For Revenues In FY 4Q-01
We remain very optimistic about the outlook for fiscal 2001 as the company moves its new dispersion compensation product, PowerShaper, from pilot production into commercial volumes. We believe this new product may in fact offer one of the largest market opportunities as carriers move to deploy high bit rate,
high channel count, long haul networks. The company indicated (on its conference call with analysts) it expects PowerShaper to contribute to revenues in fiscal 4Q-01. PowerShaper should provide an additional top line demand driver as Avanex moves from a single product company to offering a suite of products and
subsystem modules.
Products Gaining Momentum
We view Avanex as an exceptional optical component manufacturer who has developed a suite of products built around unique filtering technology. Avanex initially introduced a dielectric based filter, called
PowerFilter, and it has expanded its product offerings to include products based on non-linear interferometer technology. In the June quarter, Avanex recognized initial revenue on PowerMux, its second commercial product. PowerMux is a next generation wavelength division multiplexer product that offers
unprecedented performance of 800 channels at 10 Gbps. PowerMux revenues are primarily from Avanex’s main customer MCI Worldcom, but the product is currently shipping to Nortel, Fujitsu and Sycamore Networks. Lucent, Siemens (SMAWY/$111.50), Cisco (CSCO/$52.25), NEC (NIPNY/$100), and a few
other companies are at various stages of testing the PowerMux product.
PowerExchanger, a “switchless” optical add-drop multiplexer based on PowerMux design principles, is tracking ahead of plan. The company recently shipped this product to Fujitsu and Cogent Communications
and recognized first revenue in the September quarter. In looking at the Avanex product portfolio, we expect PowerFilter, PowerMux, PowerExchanger, and PowerShaper to be the key products that fuel revenue growth over the next 18 months. PowerRelay is another exciting product currently under development.
PowerRelay is an optical amplifier for long haul applications and a critical piece to future mesh-based opticalnetworks.
Raising 2001 & 2002 EPS Estimates On Higher Revenue AssumptionsWe are raising our fiscal 2001 and 2002 EPS estimates to $0.24 and $0.52 from $0.09 and $0.42,respectively.
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Pictures of some of AVNX products:
inter-lab.gr.jp.
Before Avanex the three contenders for dominance of the WDM market were thin-film filters (TFF), arrayed waveguide gratings (AWG), and fiber Bragg gratings (FBG). In these technologies, resolution of frequency channels depends on precise spatial alignment, difficult to achieve and sensitive to heat and other environmental factors. After enhancing commercial WDM channel count more than forty fold and bandwidth several thousand fold in five years, all three techniques now face show-stopping manufacturing challenges that Avanex's PowerMux deftly avoids.
The PowerMux is based on a sophisticated adaptation of the Fabry-Perot interferometer. A classical device that was tested in some early WDM systems, Fabry-Perots were deemed too slow for packet switching and gave way to thin-film filters which are based on similar principles. The core of a Fabry-Perot is an etalon—two highly reflective mirrors facing each other across a cavity. The input signal enters the etalon cavity through the back of one of the mirror surfaces. It then traverses the width of the cavity to the other mirror where a small portion, usually less than 5 percent, of the beam passes through and the rest reflects back to the rear mirror where part is again reflected and part passed through. As these reflections continue back and forth between the mirrors, the light fluxes leaving the filter cavity emerge at different points in their wave cycles, adding in phase for those frequencies which are related to multiples of the one-way propagation delay across the cavity, creating coherent passbands.
Thus, unlike other commercial WDM filters—which split light along different pathways that must be spatially aligned—frequencies in the Fabry-Perot-based PowerMux are self-aligning because the interference patterns are established by the different wavelengths themselves as they repeatedly traverse the same path. "Align one frequency," as Cao explains, "and the other equally-spaced frequency channels automatically line up." The light does the work.
In the Microcosm, self-aligned silicon gates, invented at Fairchild and perfected at Intel (INTC), were critical for the development of integrated circuits. Self-alignment will be similarly crucial to the triumph of WDM. It enables high channel counts because it cancels out the manufacturing showstopper—spatial alignment—that would practically limit the multiple path devices to a few hundred lambdas anywhere outside the lab.
Transforming the linear Fabry-Perot device into an asymmetric non-linear function, Cao can build exceptionally regular rectangular channels with minimal spacing; or in the different design of the PowerShaper can pre-distort the wave to adapt to a particular fiber dispersion profile. Insensitivity to both the spatial and wavelength domains make the PowerMux and the related PowerExchanger (add-drop) scalable to channel counts limited in number chiefly by the resolution of lasers and other components.
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