Wall Street is getting into a lather over this. Keep in mind ADI's market cap is at $35B which means one of two things; either they're dreaming on the value of LU's spin off, or ADI shares are worth $150+/- right now. Or both.
Lucent's Chipmaking Unit Could Be Worth $100 Bln (Update1)
Source: Bloomberg News
Murray Hill, New Jersey, June 19 (Bloomberg) -- Lucent Technologies Inc.'s chipmaking and fiber-optic components unit could be worth as much as $100 billion in market value if the company decides to sell shares in the business, analysts said.
The Microelectronics unit, which had sales of $3.57 billion last year, is one of the biggest makers of chips for communications devices such as cell phones and is No. 2 in both components and glass used in fiber-optic networks. Lucent may be preparing to sell shares in the next few months and spin off Microelectronics, much as Lucent was carved off from AT&T Corp. in 1996, analysts said.
Based on comparable valuations for rivals such as JDS Uniphase Corp., the biggest maker of fiber-optic components, and chipmaker Analog Devices Inc., a publicly traded Microelectronics could be worth as much as $87 billion, said J.P. Morgan Securities Inc. analyst Greg Geiling, who rates Lucent a ''buy.'' Earlier reports in the Wall Street
Journal and Business Week valued the unit at $40 billion to $50 billion.
''People are missing the boat on the value,'' said analyst Jim Jungjohann of CIBC World Markets Inc., who covers the fiber- optic components market. ''You'll see something far north of $50 billion.''
Lucent, the biggest phone-equipment maker, already is spinning off the Enterprise Networks unit, responsible for office phone and data systems. Investors said the Murray Hill, New Jersey- based company needs to spin off Microelectronics to ''unlock'' the hidden value for
shareholders.
Broken Up
''If it unlocks shareholder value, which I think it would, then I think it makes sense,'' said Kurt Brunner, a fund manager at West Chester, Pennsylvania-based Swarthmore Group Inc., whose $700 million in assets include 98,400 Lucent shares.
Geiling estimated that divided into three companies -- one making phone, data and wireless equipment; Microelectronics; and Enterprise Networks -- shares of Lucent would be worth as much as $84, giving the company a market value of about $275 billion. That compares with a share price of 61 1/8 and market value of about $199 billion today.
Lucent declined to comment on the possibility of spinning off or selling shares in Microelectronics.
Although the unit already is largely independent from the rest of Lucent, a spinoff would make it stronger, Geiling said.
''Spinning out this division, we believe, would give microelectronics a new high-growth currency to compete with startups in hiring optical engineers and for mergers and acquisitions,'' he wrote in a report to clients today.
Since February, Lucent has lost eight managers to rivals, such as the New Focus Inc. startup, or retirement at the division of Microelectronics that makes optical components.
What Parts?
One unknown factor the analysts face in valuing Microelectronics is how much of the unit Lucent would spin off. Geiling said Microelectronics, which includes Power Systems, a division that Lucent is selling, had 1999 revenue of $6.7 billion with internal sales included.
Power Systems, a maker of power supplies for communications equipment, had about $1.2 billion in total revenue last year. The rest of Microelectronics' sales were split as follows, according to Geiling: $600 million from optical components, $3.7 billion from semiconductors and more than $1 billion from optical fiber and cable.
Jungjohann said he'd expect the spinoff to include most everything now in Microelectronics, save for Power Systems. The unit probably would have at least $7 billion in sales on that basis -- more than $1 billion from optical components, $1.5 billion from optical fiber, and $4.5 billion from chips.
Valuations
Microelectronics also would benefit from a spinoff because, once independent, the unit wouldn't have to answer to both Lucent and Lucent's competitors such as Nortel Networks Corp., Jungjohann said.
''Right now, Lucent is competing against its customers,'' he said. ''Their largest customer (for optical components) next year could be Nortel.''
Geiling calculated his valuation for Microelectronics based on price-to-sales multiples for Corning Inc., the No. 1 fiber company, JDS Uniphase and chipmakers LSI Logic Corp., STMicroelectronics NV, Analog Devices Inc. and Texas Instruments Inc. That yielded valuations of $48 billon to $54 billion for optical components, $7.5 billion to $10.5 billion for optical fiber and cable and $37 billion to $44 billion for chips.
Added up, those values gave Microelectronics a total value of $92.5 billion to $108.5 billion. Geiling cut that to $74 billion to $87 billion to reflect an expected stock discount.
''We do not expect investors would be willing to pay full value for Lucent's optical components segment,'' he wrote.
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