Aug 09, 1999
Antec: Speeding Up Cable Networks
by Chris Bulkey 8/9/99
Antec (NASDAQ:ANTC - news) is a play on high-speed broadband transmission of video,
telephony and data.
The company makes communications transmission products that enable cable companies to
build hybrid fiber coax (HFC) cable TV networks.
Shares had been soaring until recent market volatility led to a 14% decline to a recent $38.63 from its 52-week
high, giving
investors a chance to get in on this momentum stock.
Approximately three quarters of its $547 million in 1998 revenue came from domestic cable companies such as
AT&T's
(NYSE:T - news) Tele-Communications Inc., Time Warner Cable (NYSE:TWX - news) and Comcast
(NASDAQ:CMCSA
- news) .
A major trend in the cable industry has been the continuing expansion of channel capacity, as operators desire to
offer more services like pay per view and premium programming. Cable companies are also offering other services,
such as video on demand, Internet access services and telephone communications services.
This trend calls for further network upgrades that require additional cable telephony products and cable modems
where Antec has a strong presence.
Through a joint venture with Northern Telecom (NYSE:NT - news) called Arris Interactive, Antec supplies AT&T
with
products to allow high speed Internet access to be delivered over HFC cable TV networks. An announcement in
early June
shows that AT&T is serious about deploying telephony.
AT&T Broadband selected Arris to supply Voice Ports to upgrade cable plants for telephony services. Nortel is
also supplying AT&T with switching equipment and is rumored to be in a great position to support the acceleration
of future cable telephony deployments. This of course bodes very well for Antec as well, which saw orders more
than double from AT&T in the second quarter.
Altogether, second quarter revenue increased 39.5% to $196 million while earnings rose 133% to $0.21 per share,
$0.02
ahead of consensus forecasts. Most importantly bookings continued to accelerate, coming in at a record $227
million, up 34% from the first quarter and 103% ahead of the fourth quarter of 1998.
Gross margins fell slightly from the first quarter coming in at 22.4% due to a higher volume mix of Arris related
products. Analysts are generally lowering their gross margin assumptions going forward, but expect the difference
to be made up for on the top line.
All four of Antec's divisions are posting strong results. Digital Systems, which includes Arris voice and data
products, posted a 114% sequential increase in sales, as nationwide deployments of voice and data services
continue to ramp-up.
The Network Technologies division generated a 35% sequential increase in revenue, due to continued market
acceptance of
dense wave division multiplexing and RF amplifier products. This division has a few international contracts for
upgrade
equipment, which will expand Antec's foreign sales that accounted for only 12% of 1998 sales.
Antec's Keptel division (acquired in 1994) has successfully transformed from manufacturing commodity telephone
network
interface devices (NIDs) to a supplier of fiber apparatus products for the CLEC (competitive local exchange
carrier) and IXC (interexchange carrier) markets. Deployment of this division's cases and splitters are being
deployed in DSL and ADSL applications. As a result, Keptel saw sales rise 23% from the first quarter.
The Telewire Supply division is the largest domestic distributor and reseller of cable television products and has
relationships with nearly every domestic operator. Over the past year management has consolidated and
streamlined operations to improve efficiency and lower costs. Despite several operational changes Telewire posted
19% sequential sales growth and appears poised to make a positive contribution to overall profitability over coming
quarters.
A recent managerial promotion also has analysts excited about Antec's prospects. Bob Stanzione was recently
promoted from chief operating officer to president and CEO. Stanzione spent 26 years with AT&T and is widely
regarded for his telephony expertise. In fact current CEO John Egan recently commented that Stanzione is largely
responsible for effectively positioning Antec for strong growth and is deserving of the promotion. Egan will remain
with the company as Chairman.
The company is currently firing on all cylinders and has important strategic relationships with key
telecommunications providers.
Earnings estimates have been going up across the board on the heels of the strong second quarter and now stand at
$0.92 per share for 1999 and $1.30 per share in 2000.
A multiple of 35 times (in line with projected growth and current P/E) the consensus 2000 estimate results in a
12-18 month price target of $46.
Bottom Line:
Antec represents an excellent way to play the deployment of cable telephony and broadband access. |
