Three leading analysts and
top management from 23 Communications Equipment firms examinethe Communications Equipment sector in the latest issue of The Wall
Street Transcript
January 10, 2000 10:54
The Wall Street Transcript Publishes
Communications Equipment Industry Issue
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NEW YORK, Jan. 10 /PRNewswire/ -- Three leading analysts and
top management from 23 Communications Equipment firms examine
the Communications Equipment sector in the latest issue of The Wall
Street Transcript 212-952-7433 or twst.com
In a vital review of this sector for investors and industry
professionals, this valuable 130-page Special Issue features:
1) Investing in the Communications Equipment Industry - In an
in-depth Analyst Roundtable (15,300 words), Cristin Armacost,
Senior Vice President of Telecommunications Infrastructure with
Tucker Anthony Cleary Gull, Kenneth Leon, Global Sector Head with
ABN AMRO and Luke Szymczak, First Vice President in the Equity
Research Department of Prudential Securities examine the influx of
venture capital funding in the sector, IPOs, rapid technology
changes, niche growth opportunities, globalization, cable modems,
DSL, access concentrators and subscriber management systems.
The expert panel analyzes the future of broadband optical, transport,
switching, enterprise and service providers, valuation issues, cap ex
spending, data/voice issues, cellular outlook, carrier system future,
M&A activity, regulatory horizon, the outlook for the sector and
shares specific stock recommendations.
Leon explains, "Our industry, if you were to zoom out and look at it
over 30 years starting in 1975, has moved from analog to electronic.
And just in the last few years, we're moving from electronic to optical.
So Lucent and Nortel, as well as other companies, are deploying
optical end-to-end solutions, but they do need the raw materials from
JDS Uniphase (Nasdaq: JDSU), SDL (Nasdaq: SDLI), Harmonic
(Nasdaq: HLIT) and Ortel (Nasdaq: ORTL). Optical does have two
strong benefits to service providers. Number one, it increases
bandwidth and efficiency. Two, it reduces cost substantially. We
have seen optical broadband most widely deployed so far in
long-haul networks, that would be long distance, whether it's U.S.,
submarine, or Europe. Optical deployment will eventually move into
the metropolitan backbone networks by 2001, and then finally
integrate with enterprise customers by throttling down or lowering
bandwidth speed connecting to the enterprise, where we talk about 1
to 10-gigabits as the target from ethernet and fast ethernet
networks."
One other way to define the telecom equipment sector is by
customer, Leon states, "Broadly, it would be enterprise or service
providers. We at ABN AMRO mostly focus on the service providers,
so it will be suppliers selling product into those markets. And we
really define customers into four key segments. The first is the
incumbent market, which would be the traditional long distance
companies: AT&T (NYSE: T) and MCI WorldCom and local
exchange companies such as the regional Bell operating companies.
Second would be new greenfield companies that have had a lot of
success in the U.S. and Europe both in long distance and local. That
would be Level-3 (NYSE: LLL), Williams Cos. (NYSE: WMB); and
the CLECs: Intermedia (Nasdaq: ICIX), WinStar (Nasdaq: WCII),
Teligent (Nasdaq: TGNT), Allegiance Telecom (Nasdaq:ALGX), and
many, many others. The third category is Internet infrastructure, and
the fourth, as Luke mentioned, is wireless infrastructure and
handsets. And the customer matrix gives us a way of organizing
opportunities and players in each of these spaces."
Armacost states, "Within the service provider segment, we do look at
the IXCs, ILECs, CLECs, wireless, etc. Our scope, however, is a little
broader. It is interesting, though, because each of these segments
within the service provider markets has different requirements. The
bottom line remains that an approach based on a customer
perspective seems to be the best way to segment the market."
On stock valuations, Szymczak says, "We have companies that have
just come public in the last six to nine months with market caps
anywhere between $5 and $20 billion -- with a "b," not an "m." And
these are companies with relatively low revenue run rates, maybe
$100 million a year. And so with valuations like that on essentially
"start ups," it's hard not to put a higher valuation on Cisco, Lucent or
Nortel."
Leon asserts, "The good news, especially for the large cap
companies, is that these are still earnings-driven companies and we
can still use price to earnings multiples, although they are extremely
high even on 2001 earnings. But in markets that go through difficult
periods, often we will see the market concentrate on the
earnings-driven sector. It might be a little more challenging in the
emerging growth or small cap area because in some cases, the
market caps far exceed their product revenue potential over a period
of years. This is especially true for some of the recent companies
that went public: Redback Networks (Nasdaq: RBAK), Juniper
Networks (Nasdaq: JNPR) and Sycamore Networks (Nasdaq:
SCMR). So we're seeing these companies try to be proactive by
making acquisitions to broaden their platforms or their addressable
markets. But it's one of the unique times in our stock market where
we've had such successful stories flow into the public market, and
now there is a rationalization going on to sustain leadership or
broaden leadership when you've been so successful as a single- or
two-product company."
The other trend on the consumer side is the home networking area,
Szymczak asserts, "I think that it's in a very early stage right now and
it's a difficult area to invest in right now because there really aren't
pure plays. But increasingly, the trend seems to be that wireless
LANs within the home will be the way to connect multiple devices. I
think that's something we'll hear about over the next few years.
Again, the carriers will be key to making that happen because the
average consumer is not going to walk into CompUSA and put
together their own wireless LAN, but rather, it will be a package that
Bell Atlantic (NYSE: BEL) or a cable company will sell to you, and it
could include a wireless LAN, a home gateway, etc. So with the
number of households we have here in the United States, I think
there is a big opportunity to get wireless LANs and networking
products into a good percentage of those homes."
On partnering and alliances in the sector, Leon declares, "The
environment we're in now is "coopetition," that's competition and
cooperation, usually on a customer-by-customer basis. At the
Western Cable Show, General Instrument (NYSE: GIC) had an
announcement with Lucent, and it was specific to telephony over
cable or IT networks. That announcement looked to be very clear for
AT&T broadband Internet business. Yet we still see Motorola having
very strong relationships with Cisco in a number of areas, including
wireless. So the contradictions are going to become more frequent.
Sometimes we will see partners or alliances for distribution channels
somewhere else in the world. Newbridge (NYSE: NN) and Siemens
had one for some time, and the expectation was always that Siemens
would acquire Newbridge. That is not clear today, and Siemens was
at some point 25% of Newbridge's revenues; today it's about 15%.
Also, for investors focusing on emerging companies or small cap,
even a press release will get the stock up 15% or 20%, but whether
that leads to order flow and buyouts is another thing. But often we
look at the situation much more optimistically if it's from the vantage
point of a small company, and partnerships or alliances is just what
they are. It's much different from when you're running the whole shop
and driving products and driving markets on your own."
For a free brief interview excerpt in which Leon lists ratings (from
hold to outperform) for several Communications Equipment firms, see
archive.twst.com
The panel goes on to offer recommendation about which sector
stocks are most likely to reward investors.
This 130-page Investing in Communications Equipment Special Issue
also includes:
2) The TWST confidential Off-The-Record survey of management
performance at 19 Communications Equipment firms asked market
insiders about the ability of management teams to create shareholder
value by successfully managing their firm's financial side as well the
ability of top management to execute operationally in this rapidly
evolving sector.
Firms reviewed in Off-The-Record include:
3Com, ADC Telecommunications, ADTRAN, Advanced Fibre, Alcatel,
Aware, Cabletron, Cisco, Ericsson, General Instrument, Lucent, RF
Micro Devices, Motorola, Nokia, Nortel, Pairgain, QUALCOMM,
Scientific-Atlanta and Tellabs.
3) 23 extensive (average 2,500 words) CEO Interviews with top
management from the following sector firms discussing their future
plans and outlook for their firm and the Communications Equipment
sector:
Active Software, Adaptive Broadband, ADC Telecommunications,
Advanced Fibre Communications, Applied Innovation, Applied Signal
Technology, Belden, Brooktrout, CIDCO, Elcotel, EMS
Technologies, Globecomm Systems, mPhase Technologies,
Micronetics Wireless, Netrix, P-COM, Plantronics, SDL, Secure
Computing, Spectrian, SSE Telecom, U.S. Wireless and ViaSat.
To obtain a copy of this insightful 130-page report, see
twst.com or call 212-952-7433. This special
section is also included in the TECHNOLOGY Sector of TWST
Online at twst.com
The Wall Street Transcript is a premier weekly investment
publication interviewing market professionals for serious investors for
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The Wall Street Transcript does not endorse the views of any
interviewee nor does it make stock recommendations.
SOURCE The Wall Street Transcript
/CONTACT: Mr. Peter McLaughlin of The Wall Street Transcript,
212-952-7433/
/Web site: twst.com
(JDSU SDLI HLIT ORTL T LLL WMB ICIX WCII TGNT ALGX RBAK
SCMR BEL GIC NN) |
