Telecomguy,
Some observations:
1. You may not recall, but NT actually had a very similar problem meeting demand for its OC192 closed SONET products in the first half of this year. New products, slower than expected ramp, etc.. NT's financial performance was actually quite poor. IF you add Bay to the year ago compare, its YoY growth in Q498, Q199 and Q299 was less than 5% for a 9 month period. Why? Product transitions (and big, messy integations) are difficult to manage. If you can remember back to NT's analyst meeting in 4Q98, NT was considered a poorly run, joke of a company after that debacle. The smart investors who did their homework realized things at NT were not so bad, and profited. We sold our heavy overweight position in NT at $82 - yes we left alot of money on the table, but since we bought it at $25 less than a year earlier, I'll take it.
2. For all of the posturing about optical internet architecture etc., who is buying Versalar 15000 and 25000 routers? According to Dell'oro the answer is no one. Bay once had over 25% share of high-end routers, its share is now 10% in the BCN space and 2% in the Versalar space. LU actually sells more GRFs than NT does Versalar, and we all know that is a dead product. For my money, LU is way, way ahead of NT in actually integrating data in their product line. NT is a year ahead in offering an OC-192 SONET point product. Nonetheless, that year lead has made a big difference in the market's perception of the two companies. It is easy to pile on after a missed quarter.
3. Your assertion that LU has not made aggressive acquisitions is simply wrong. A modest amount of research would make this clear. BTW I didn't notice NT making ANY significant acquisitions between June98 and June99.
4. NT has two product lines growing above market rates - optical equipment and access (primarily driven by the UE9000). In 1999, wireless has been growing in the low teens and NT forecasts high teens for 2000. There are rampant reports of NT discounting to the bone to get wireless business, and still often losing. I thought Roth was the genius of wireless? Carrier data networking growth struggles to top 20% in a product area where industry growth is above 30%. Enterprise still is suffering from channel conflicts and confusion - remember NT sold off its enterprise sales force to WilTel, then bought itself a new enterprise sales force in Bay - disarray is a kind word. NT has considerably underperformed LU in enterprise and LU stinks in this area. IF NT once again has supply constraints on its optical business, and I am not willing to bet that it won't given recent history, its stock will tank worse than LU. You seem awfully willing to assert that there is no risk of this and that Roth has changed NT culture 180 degrees. I am not so sure.
5. LU management is plenty aggressive. In fact the knock on the street these days is that it may be too aggressive for its own good.
I could go on and on here. I guess my main point is that it is easy to snipe as a backbencher ex post. Given NT's history as Lazarus rising from the dead, I would think an NT zealot would understand the potential in LU. Wall street's penalty box rarely assesses 5 minute majors much less game misconducts. LU will be back on the ice very quickly - to use a metaphor that could appeal to our friends to the north. I believe NT is well positioned to prosper in the future, although I think the stock is ahead of itself. I believe LU is better positioned, with exceptional potential to seriously outperform the sector for the rest of the year. |
