PC,
The company's legacy TeleWire distribution business is their lowest margin business line and continues to lessen in importance. The mix is moving to their higher margin, proprietary products blah blah blah...
The powering business is one example of this. With ATT and Cox looking to deploy this stuff, look for some margin expansion next year. As far as the margins on the DWDM Transplex products, use your imagination. I have been concerned about things like commoditization in the cable modem part of Arris, but perhaps ANTC has been fortunate that several competing products failed to get certification from CableLabs. I need to figure out what the GIC/MOT combo might do to take share away from ANTC as well. This part of the story has always bothered me.
The company can fill you in on their philosophy about their deal with Nortel/Arris. The way I understand it is that they are willing to take the biz at a 15% gross margin because they have very little in the way of associated SG&A and will manage this business to a 10% operating margin. They covered this topic to death at the DLJ conference in front of the big money crowd and looking at how the stock has traded since. I think someone is buying into that explanation.
You might want to dig a little into the deals the company just signed with two Contract Electronic Manufacturers to manufacture voice ports in Asia. Once they ramp up production they should be able to crank out 200,000+ a month, which translates into at least $800 million in annualized revenue, and probably more. I would assume that they will pass along lower costs here but maintain their margins.
As far as my EPS view, I will see you back on this thread the third week of October to discuss forward estimates if you would like. I think the telephony headend business of Arris will provide use with some upside. While we countdown to earnings you should check out the current Forbes article which chronicles John Malone's moves over the past two decades. It ain't an easy read. Liberty Media owns a chunk of this company and Malone no doubt casts a long shadow over all things ANTC. Hopefully he will maximize my bottom line should Nortel finally come a callin. Given Egan's tough talk at the DLJ breakout, and that tough bastard Malone, I would like to think a takeunder is not in the cards. I own GIC too and was a little disappointed to say the least.
Are there risks in this stock? Sure. The stock has exceeded my expectations but I will at least give these guys grudging respect. Everyone has always given them a hard time because they could not string together more than two good quarters in a row. They were always captive to the stop/start nature of MSO capex spending which was a quagmire a regulation, egos, you name it. In any case, a lot of that aggravation is behind them. All those R&D dollars were well spent and now are in a position to capitalize on the situation. Good for them.
See you in a couple of weeks
NotsureIhaveanymoretosayuntilthenNeiderhoffer |
