It looks like anyone with an allocation of ONIS will do well:
redherring.com
Optical valuations take a hit
By R. Scott Raynovich
Light Reading, May 25, 2000
As the market for technology stocks gets more bleak by the minute, it's time to assess the damage. Although optical networking stocks have held up better than most technology issues in the deepening bear market, valuations are taking a hit on both the public and private side.
For example, since the peak of the tech markets in March, Cisco (Nasdaq: CSCO) has lost 37 percent of its public value, Nortel Networks' (NYSE: NT) stock is off 33 percent, Sycamore Networks' (Nasdaq: SCMR) shares have dropped 60 percent, and Ciena (Nasdaq: CIEN) has lost 37 percent of its public valuation.
"Many of the public companies have had their valuations cut in half in the last six weeks, and on the private side, we are seeing a compression of 20 percent to 30 percent for the later-stage companies," says Conrad Leifur, an analyst with U.S. Bancorp Piper Jaffray.
This means a private optical networking company valued at $100 million six weeks ago is likely to be closer to $70 million now. Optimists might note that in the ruthless technology market that has wiped out as much as 80 percent of the value of some consumer Internet companies, networking companies have held up quite well.
Mr. Leifur says the "acquisitive nature" of companies such as Cisco, Nortel, and Lucent Technologies (NYSE: LU) will continue to support the valuations of smaller companies. He also notes that newer companies such as Sycamore Networks are likely to start playing the acquisition game. He points to Nortel's recent acquisition of Coretek for $1.3 billion and Cisco's acquisition of Qeyton Systems for $800 million. "These companies are still at least a year away from having products," says Mr. Leifur.
The optical sector is also holding its own in the initial public offering (IPO) market. For example, last week, New Focus (Nasdaq: NUFO) more than doubled in the public markets after issuing 5 million shares at $20. This week, Goldman Sachs (NYSE: GS) is expected to price 8 million shares of ONI Systems, a Kleiner Perkins Caufield & Byers¤funded startup that had no lack of interest, even as Nasdaq losses deepened on Tuesday. If the price of ONI's stock rises to $50 in the aftermarket, it stands to have a market capitalization of about $6 billion.
At least one skeptic notes that ONI's valuation, which is unlikely to exceed $10 billion, is drawing questions about the huge valuations bequeathed upon earlier public-market entrants such as Sycamore Networks.
"ONI is coming out much cheaper than Sycamore," says Stephen Lacey, editor of the IPO Reporter, a newsletter owned by Thomson Financial. "It's a me-too company. But there's not as much value in owning Sycamore anymore; the valuations are being called into question."
At Tuesday's closing price, Sycamore had a market valuation of $18 billion. |
