Mucho --
Numbers from H&Q are preliminary, but give good guidance:
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SDLI, Inc.
Rating: BUY
May 26, 2000
Preannounces Q2 Upside, Driven by Both Organic Growth and PIRI:
* SDL preannounced upside for Q2, raising sales growth guidance 15% Q/Q to roughly 44%, Operating margin growth guidance increases 24% to 58% Q/Q.
* We expect SDL to report roughly $104M/0.30 in Q2 versus our current $9M/0.26, though we are not formally changing our estimates until the PIRI acquisition closes (most likely in early June). We estimate our FY:00 estimates will go from $379/1.06 to $440 - $450/$1.20 - 1.25 and FY:01 will go from $575/1.43 to $720 - $740/$1.65, - 1.80, including PIRI.
* Assuming $104M in Q2 sales and $5M from PIRI, given last quarter's $20M+ run-rate, we believe about 60% of the upside in Q2 is attributable to organic growth, particularly from submarine, Raman and terrestrial pumps.
* We believe stronger than expected cost-cutting and improved utilization will drive growth margins about 2% ahead of our 48.6% expectation and, despite increased expenses, will boost operating margins to 33+%, versus our previous 30% estimate.
* Going forward, management has guided to 140% Y/Y 00/99 sales growth, which we believe largely discounts organic strength and mostly reflects the incorporation of PIRI. We believe extended long-term contracts with Alcatel, Corning and JDS Uniphase are under negotiation and significant upside, especially in CY:01 remains.
* Growth appears to be accelerating across the board among leading photonics suppliers, though we believe SDL is experiencing particularly rapid growth given its strong position. We rate SDLI shares BUY.
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